<PAGE>

                     U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

(Mark One)

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

                   For the fiscal year ended December 31, 2002

                                       or

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

                   For the transition period from     to

                            METALLURG HOLDINGS, INC.
             (Exact name of Registrant as specified in its charter)

                Delaware                                23-2967577
        (State of organization)             (I.R.S. Employer Identification No.)

              Building 400
          435 Devon Park Drive                        (610) 293-0838
       Wayne, Pennsylvania 19087              (Registrant's telephone number,
(Address of principal executive offices)            including area code)

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

        Securities registered pursuant to section 12(g) of the Act: None

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

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

      There are no common equity securities of the registrant outstanding.

      At June 30, 2002 and at March 27, 2003, the outstanding capital of
Metallurg Holdings, Inc. was comprised of 5,202.335 shares of Series A Voting
Convertible Preferred Stock and 4,524 shares of Series B Non-Voting Convertible
Preferred Stock, $.01 par value.

                       Documents Incorporated By Reference

                                      None.





<PAGE>

                                     PART I

Items 1 and 2. Business and Properties.

      The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements and the related notes thereto included
elsewhere in this report.

Overview

      Metallurg Holdings, Inc. ("Metallurg Holdings"), a Delaware corporation
formed on June 10, 1998, together with its consolidated subsidiaries,
(collectively, the "Company"), is wholly owned by a group of investors led by
and including Safeguard International Fund, L.P. ("Safeguard International"), an
international private equity fund that invests primarily in equity securities of
companies in process industries. On July 13, 1998, Metallurg Acquisition Corp.,
a wholly owned subsidiary of Metallurg Holdings, merged with and into Metallurg,
Inc., with Metallurg, Inc. being the surviving company and Metallurg Holdings
becoming the sole parent of Metallurg, Inc. (the "Merger").

      At the time of the Merger, Metallurg Holdings received $62.9 million net
proceeds upon consummation of the offering of $121.0 million aggregate principal
amount at maturity of Senior Discount Notes due 2008 (the "Senior Discount
Notes") in a Rule 144A private placement to qualified institutional investors.
In October 1998, the 144A notes were exchanged for similar notes registered
under the Securities Act of 1933, as amended. In October 2000, Metallurg, Inc.
purchased $76.1 million in face amount of these Senior Discount Notes. In
December 2002, an additional $4.6 million in face amount of these Senior
Discount Notes was acquired in the sale of certain subsidiaries. See "Note 2.
Change in Reporting Entity", "Note 3. Extraordinary Items" and "Note 10.
Borrowings" to the Company's Consolidated Financial Statements.

      As Metallurg Holdings is a holding company and does not have any material
operations or tangible assets other than the ownership of Metallurg, Inc., the
following discussion of the Company's business and properties relates to
Metallurg, Inc., a Delaware corporation, together with its majority-owned
subsidiaries (collectively "Metallurg"), unless otherwise indicated.

      Metallurg is a leading international producer and seller of high-quality
specialty metals, alloys and metallic chemicals which are essential to the
production of high-performance aluminum and titanium alloys, superalloys, steel
and certain non-metallic materials for various applications in the aerospace,
power supply, automotive, petrochemical processing and telecommunications
industries. Metallurg sells over 100 different products to over 2,500 customers
worldwide (primarily in North America and Europe).

      The Metallurg group was founded in 1911 with the construction of a
vanadium alloy and chemical producing plant in Nuremberg, Germany. Metallurg
began mining chrome ore in 1916 and constructed a ferrochrome manufacturing
plant in Weisweiler, Germany in 1917. In subsequent years, Metallurg's customer
base grew throughout Europe and, in 1938, Metallurg added its first subsidiary
in the U.K. During the 1950's, Metallurg began operations in the U.S. and,
during the 1980's, added production operations in Brazil. Metallurg established
a worldwide sales network that sold products manufactured by Metallurg as well
as products manufactured by third parties. Metallurg, Inc. was incorporated as a
New York holding company in 1947 and reincorporated as a Delaware corporation in
1997.

      In January 2002, Metallurg's Nuremberg, Germany manufacturing subsidiary,
GfE Gesellschaft fur Elektrometallurgie mbH ("GfE") sold its prosthetics company
based in Morsdorf, Germany. In December 2002, Metallurg sold all of its
ownership interests in GfE, as well as several sales offices in Europe, to
companies affiliated with Metallurg Holdings' controlling stockholder. As a
result of the December 2002 transactions, the Company has restated all financial
information included in this report in order to exclude the financial results of
the companies sold and to reflect the new reporting entity for all periods
presented. See "Note 2. Change in Reporting Entity" to the Company's
Consolidated Financial Statements.

      Metallurg operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. Metallurg is organized around its major production facilities in the
U.K., the U.S., Brazil and Germany. In addition to its own products, Metallurg
distributes products manufactured by third parties. The table below sets forth,
for the periods indicated, information concerning revenue from Metallurg's four
reportable segments, as described below:


                                       1




<PAGE>

                               Revenue by Segment
                                  (In millions)

                                                Year Ended December 31,
                                        ---------------------------------------
                                          2002            2001            2000
                                        -------         -------         -------
Segments (a)
LSM .............................       $ 161.0         $ 173.2         $ 180.6
SMC .............................          92.1           104.1           118.9
CIF .............................          32.9            39.4            29.0
EWW .............................          31.7            35.9            36.6
Other ...........................          88.3           119.9           125.6
Intersegment eliminations .......         (61.0)          (78.4)          (71.5)
                                        -------         -------         -------
    Total revenue ...............       $ 345.0         $ 394.1         $ 419.2
                                        =======         =======         =======

----------
(a)   GfE, which was sold in December 2002, was previously a reportable segment.
      Revenue of the European sales offices, also sold in December 2002, was
      previously included in "Other". See "Note 2. Change in Reporting Entity"
      to the Company's Consolidated Financial Statements.

      London & Scandinavian Metallurgical Co Limited and its subsidiaries
(collectively, "LSM") - This unit is comprised mainly of three production
facilities in the U.K. and another in Norway which manufacture and sell aluminum
alloy grain refiners and alloying tablets for the aluminum industry, chromium
metal and specialty ferroalloys for the steel and superalloy industries and
aluminum powder for various metal powder-consuming industries.

      Shieldalloy Metallurgical Corporation ("SMC") - This unit is comprised of
two production facilities in the U.S. The Ohio plant manufactures and sells
ferrovanadium and vanadium-based chemicals used mostly in the steel and
petrochemical industries. The New Jersey plant currently manufactures and sells
alloying tablets for the aluminum industry and metal powders for the welding
industry. In the second quarter of 2001, Metallurg rationalized its aluminum
master alloy and grain refiner production. Production of these products ceased
at SMC's New Jersey plant and is now concentrated at LSM's and CIF's facilities
in the U.K., Norway and Brazil.

      Companhia Industrial Fluminense ("CIF") - This unit is comprised mainly of
two production facilities in Brazil. The Sao Joao del Rei plant manufactures and
sells aluminum alloy grain refiners and alloying tablets for the aluminum
industry and metal oxides used in the telecommunications, superalloy and
specialty metal industries. The Nazareno mine extracts and concentrates ores
containing tantalum and niobium that are processed, along with other raw
materials, into metal oxides at the Sao Joao del Rei plant.

      Elektrowerk Weisweiler GmbH ("EWW") - This production unit, located in
Germany, produces various grades of low carbon ferrochrome used in the
superalloy, welding and steel industries.

      In addition to their manufacturing operations, LSM and SMC import and
distribute complementary products manufactured by affiliates and third parties.

      Corporate-related items and results of subsidiaries not meeting the
quantitative thresholds prescribed by applicable accounting rules for
determining reportable segments are included in "Other". The Company does not
allocate general corporate overhead expenses to operating segments.

Products and Markets

      For the year ended December 31, 2002, approximately 32% of Metallurg's
sales were made to the aluminum industry, 29% were made to the iron and steel
industry, 14% were made to the superalloy and titanium alloy industries and the
remaining 25% were made to other industries, none of which was individually
significant for reporting purposes. No single customer accounted for more than
10% of Metallurg's sales for the year ended December 31, 2002.

      Based on customer location, for the year ended December 31, 2002,
approximately 37% of Metallurg's sales were made in Europe, 35% in North
America, 13% in Africa, 10% in Asia and 5% in South America.


                                       2




<PAGE>

      The following table sets forth the revenue of product groups most
significant to Metallurg's operations:

                           Significant Product Groups
                              (Dollars in millions)

<TABLE>
<CAPTION>
                                                Year Ended December 31,
                          -----------------------------------------------------------------
                                  2002                   2001                   2000
                          -------------------     ------------------     ------------------
                          Revenue         %       Revenue        %       Revenue        %
                          -------      ------     -------     ------     -------     ------
<S>                        <C>           <C>      <C>           <C>      <C>           <C>
Name of Product Group
Aluminum ............      $132.1        38.3     $133.2        33.8     $127.8        30.5
Chromium ............        67.6        19.6       78.1        19.8       69.9        16.7
Niobium .............        21.1         6.1       29.8         7.6       30.8         7.3
Titanium ............        17.0         4.9       16.8         4.3       13.7         3.3
Vanadium ............        16.7         4.8       17.1         4.3       23.2         5.5
Powders .............        16.4         4.8       13.2         3.4       11.8         2.8
Tantalum ............        13.9         4.0       48.6        12.3       41.3         9.9
                           ------      ------     ------      ------     ------      ------
                            284.8        82.5      336.8        85.5      318.5        76.0
Other ...............        60.2        17.5       57.3        14.5      100.7        24.0
                           ------      ------     ------      ------     ------      ------
     Total revenue ..      $345.0       100.0     $394.1       100.0     $419.2       100.0
                           ======      ======     ======      ======     ======      ======
</TABLE>

      Aluminum Industry; Aluminum Master Alloys and Compacted Products -
Metallurg manufactures a series of aluminum-based alloys and compacted additives
supplied to the aluminum industry to enhance productivity in aluminum plants and
to introduce various specific properties into aluminum products for use in many
sectors, including automotive and transport, aerospace, power transmission,
construction and consumer durables. Metallurg sells to major aluminum producers
throughout the world, including Alcan Aluminium Limited, Alcoa Inc., Pechiney
S.A., Norsk Hydro ASA, Rio Tinto plc and Sumitomo Corporation. The aluminum
industry is cyclical. Consumption of aluminum products fluctuates with demand
from the industry sectors listed above, as well as competition between aluminum
and other metals and materials, such as plastics and glass.

      Superalloy and Titanium Alloy Industries; Specialty Metals and Alloys -
Metallurg manufactures and sells a series of specialty metals and alloys which
are essential to achieving elevated temperature strength and oxidation
resistance in nickel-based superalloys and titanium alloys for aerospace, power
generation, and oil and petrochemical applications. Its principal products
include various chromium-based materials, niobium and vanadium alloys.
Metallurg's customers include Allegheny Technologies Incorporated, Carpenter
Technology Corporation, Titanium Metals Corporation, RTI International Metals
and the Eramet Group. The superalloy and titanium alloy industries are cyclical.
Consumption of these products fluctuates with demand from the aerospace, power
generation, oil field and petrochemical sectors.

      Iron and Steel Industry; Specialty Ferroalloys - Metallurg manufactures
and sells specialty ferroalloys for use in the iron and steel industry.
Metallurg's principal specialty ferroalloy products are ferrovanadium, standard
grades of low carbon ferrochrome and ferrotitanium. It also markets ferroboron,
ferrosilicon, ferromanganese, ferrochrome and ferroniobium produced by others.
These products are used by iron and steel producers to increase temperature and
corrosion resistance and improve mechanical properties and strength-to-weight
ratios. Ferroalloys are essential additives to many iron and steel products used
in a wide variety of industries, such as the aerospace, automotive, energy and
construction industries. Metallurg's iron and steel industry customers include
Affival, Inc., Ametek, Inc., Corus Group plc, Nucor Corporation, Steel Dynamics,
Inc., ThyssenKrupp Steel AG and United States Steel Corporation. The iron and
steel industry is cyclical, with iron and steel consumption depending greatly on
demand for durable goods, such as automobiles, construction materials,
machinery, appliances and miscellaneous manufactured products.


                                       3




<PAGE>

      Other Industries and Products - In addition to the product lines described
above, Metallurg manufactures and distributes a number of products used outside
of the aluminum, superalloy, titanium alloy and steel industries. These products
include tantalum and coating materials which are sold to electronics,
telecommunications and tool manufacturers; vanadium chemicals for use in the
synthetic rubber and ceramics industries; polishing powders used by the glass
polishing industry; and metal powders used in the manufacture of rocket fuel,
automotive paints, and chemical and metallurgical products. These products
generally are higher-margin and technically sophisticated.

      Metallurg's financial performance fluctuates with the general economic
cycle, as well as cycles in the markets for Metallurg's products, which could
have a material adverse effect on Metallurg's business, financial condition and
results of operations. In addition, many of Metallurg's products are
internationally traded, with prices that are significantly affected by worldwide
supply and demand.

      Foreign Operations and Currency Fluctuations - Metallurg has substantial
operations outside the U.S. At December 31, 2002, Metallurg's operations located
outside the U.S. represented approximately 63% (based on book values) of
Metallurg's assets. Approximately 85% of Metallurg's employees were outside the
U.S. Foreign operations are subject to certain risks that can materially affect
the sales, profits, cash flows and financial position of Metallurg, including
taxes on distributions or deemed distributions to Metallurg, Inc. or any U.S.
subsidiary, currency exchange rate fluctuations, limitations on repatriation of
funds, maintenance of minimum capital requirements, and import and export
controls. In general, Metallurg's cost of sales for products manufactured in
certain foreign locations can be impacted by changes in the rate of exchange of
the respective local currencies of those locations relative to the U.S. dollar
and other currencies in which it sells. While Metallurg engages in hedging
transactions to reduce certain of the risks of currency rate fluctuations, there
can be no assurances regarding the overall effectiveness or adequacy of
Metallurg's hedging activities.

      Foreign Sales - Sales by Metallurg's domestic operations to foreign
customers totaled $8.9 million, $23.8 million and $16.2 million for the years
ended December 31, 2002, 2001 and 2000, respectively.

Manufacturing Processes

      Metallurg's manufacturing processes involve melting, refining, casting,
crushing, sizing, blending and packaging operations, which vary from product to
product. For example, in the manufacture of low carbon ferrochrome, EWW consumes
raw materials including chrome ore, predominantly from Metallurg's Turkish
mines, and silicochrome. The raw materials are melted and reductants are added
to refine the chemistry of the production batch. The batch is poured into
casting molds to form ingots, which are cooled and then crushed, sized, blended
and packaged. The manufacture of ferrovanadium at SMC's Cambridge, Ohio plant
follows an analogous process of melting, casting and crushing, except that
vanadium-containing raw materials are used. In general, the manufacture of
aluminum master alloys also follows similar principles using aluminum and other
additives; however, these master alloys are generally cast as small ingots or
processed to a solid rod form for delivery to the customer. The manufacture of
briquettes and tablets involves the grinding and blending of raw materials, the
compression of these materials into a compacted form and packaging for delivery
to the customer. More sophisticated production routes are used for highly
specialized products, which can require chemical processing or the use of a
variety of other equipment.


                                       4




<PAGE>

Facilities and Operations

      Metallurg owns all of the facilities listed below.

      Production Facilities - The following table sets forth, for each of
Metallurg's producing subsidiaries, the location of its facilities and the key
products manufactured by such subsidiary:

<TABLE>
<CAPTION>
Manufacturing Subsidiary             Location                                    Key Products
------------------------             --------                                    ------------
<S>                                  <C>                                         <C>
LSM................................  Rotherham, U.K. (Plant)                     Aluminum Alloying Tablets
                                                                                 Aluminum Master Alloys
                                                                                 Chromium Metal
                                                                                 Ferroboron
                                                                                 Ferrotitanium
                                                                                 Glass Polishing Powders
                                                                                 Metal Powders
                                                                                 Nickel Boron
                                     Holyhead, U.K. (Plant)                      Atomized Aluminum Powder
                                     Minworth, U.K. (Plant)                      Granulated Aluminum
                                     Rjukan, Norway (Plant)                      Aluminum Master Alloys

SMC................................  Cambridge, Ohio (Plant)                     Ferrovanadium
                                                                                 Vanadium Chemicals
                                     Newfield, New Jersey (Plant)                Aluminum Alloying Tablets and Briquettes
                                                                                 Metal Powders

CIF................................  Sao Joao del Rei, Brazil (Plant)            Aluminum Alloying Tablets
                                                                                 Aluminum Master Alloys
                                                                                 Niobium Oxide
                                                                                 Tantalum Oxide
                                     Nazareno, Brazil (Mine)                     Tantalum and Niobium Ore

EWW................................  Eschweiler-Weisweiler, Germany (Plant)      Low Carbon Ferrochrome

Turk Maadin Sirketi A.S............  Kavak, Tavas and Gocek, Turkey (Mines)      Chrome Ore
</TABLE>

      Sales Offices - Metallurg has sales personnel at its production facilities
and at its separate representative offices in the following countries: Brazil,
Canada, Japan, Mexico, South Africa and the U.S.

Raw Materials

      Metallurg produces a wide variety of products for sale to a number of
different metals industries and there is no single raw material that makes up
the basis of Metallurg's entire production.

      Metallurg's Turkish subsidiary mines chrome ore, which is supplied to EWW
for the production of low carbon ferrochrome. Management believes the mines have
identifiable reserves of 1.1 million tons that are expected to last until 2012
and additional probable reserves of 320,000 tons. Metallurg has a program for
ongoing exploration activities to identify additional probable reserves.

      For the production of chromium metal, LSM purchases chromium oxide from
the major global producers. This product also requires large quantities of
aluminum powder, substantially produced internally.

      Metallurg's six aluminum processing plants in the U.S., the U.K., Brazil
and Norway buy approximately 35,000 tons of virgin aluminum from producers
worldwide, while important alloying chemicals are sourced from several different
suppliers around the world.


                                       5




<PAGE>

      Titanium scrap is sourced in significant quantities for the production of
ferrotitanium and other titanium-containing products from countries active in
the aerospace industry, such as the U.S., the Commonwealth of Independent States
("CIS") and the U.K.

      Vanadium pentoxide in various forms is the raw material for Metallurg's
production of ferrovanadium and vanadium chemicals. For ferrovanadium
production, Metallurg purchases vanadium-containing spent catalysts and residues
from petrochemical refineries and ashes and residues from electric utilities
burning fuel oil. Metallurg currently obtains a majority of these raw materials
from only a few sources. See "Limited Sources for Raw Materials." Vanadium
chemicals are produced from commercially pure vanadium pentoxide, which is
purchased on the open market.

      Metallurg also utilizes many other raw materials such as strontium,
nickel, boron chemicals, mischmetal, manganese and chrome silicide in the
manufacture of its broad product range which are purchased as required from
producers or traders. Coinciding with general sales terms, most purchases are
made on a spot basis at market prices to minimize the risk of exposure to market
fluctuations.

      Limited Sources for Raw Materials - Certain of Metallurg, Inc.'s
subsidiaries are dependent on third parties for raw material supplies. SMC's
production unit in Cambridge, Ohio currently obtains a majority of its raw
materials requirements for the manufacture of ferrovanadium from only a few
sources. Although alternative sources of ferrovanadium raw materials exist,
there can be no assurance that Metallurg would be able to obtain adequate
supplies of such materials on acceptable terms, or at all, from other sources.
Titanium and boron chemicals for the manufacture of sophisticated aluminum
master alloys are sourced from long-time suppliers who, in certain instances,
also supply competitive producers with these raw materials. Although these and
other raw materials are generally priced with reference to related market
prices, any increase in demand could cause raw material costs to rise. To the
extent Metallurg is unable to recover its increased costs, operating results
would be adversely affected.

Competition

      The metals industry is highly competitive on a worldwide basis.
Competition is primarily based on price, quality and timely delivery. In recent
years, price competition has been strong as a result of excess capacity in
certain products. In addition, export sales from the CIS and China of metals and
alloys produced in excess of local demand can severely hurt prices in Europe and
the U.S., which negatively impacts the price of some of Metallurg's products.
New entrants may also increase competition in the metals industry, which could
materially adversely affect Metallurg. An increase in the use of substitutes for
metal alloys also could have a material adverse effect on the financial
condition and operations of Metallurg. Although facing competition in each of
its markets, Metallurg does not believe that any single competitor competes in
all of its products or markets.

      Aluminum Industry - Competition is international because of the relatively
small number of master alloy and alloying tablet manufacturers and the worldwide
operations of the aluminum industry. In most markets, Metallurg faces
competition to varying degrees from KBM Affilips B.V., KBAlloys, Inc. (and its
U.K. subsidiary, Anglo Blackwells, Ltd.), Aleastur (Asturiana de Aleaciones,
S.A.), the Eramet Group and Hoesch-Metallurgie GmbH.

      Superalloy and Titanium Alloy Industries - Metallurg has limited
competition in special grades of low carbon ferrochrome from Japan, South Africa
and the CIS. Delachaux S.A., certain Chinese and CIS sources and, to a limited
extent, the Eramet Group compete with Metallurg in chromium metal. Strategic
Minerals Corporation and Reading Alloys, Inc. compete internationally with
Metallurg in vanadium aluminum. Reading Alloys, Inc. also competes in
sophisticated alloys for the superalloy industry, as do CBMM-Cia Brasileira de
Metalurgia e Mineracao, Cabot Corporation and H.C. Starck GmbH & Co. KG in
certain products.

      Iron and Steel Industry - In North America, products manufactured by
Strategic Minerals Corporation, Treibacher Industrie AG, Highveld Steel and
Vanadium Corporation Limited, Xstrata AG and certain CIS and Chinese sources
compete with Metallurg's ferrovanadium products, while several U.S., U.K. and
Russian companies compete worldwide with Metallurg's ferrotitanium products. In
standard grades of low carbon ferrochrome, competition comes worldwide from
Samancor Limited (South Africa), Zimbabwe Alloys Ltd. and certain producers in
China and the CIS.


                                       6




<PAGE>

Employees

      As of December 31, 2002, Metallurg employed approximately 1,100 people
worldwide. Labor unions represent approximately 50% of Metallurg's employees.
Unions represent employees at seven locations in the U.S., the U.K., Germany,
Brazil and Norway. SMC's bargaining agreement with the United Steelworkers of
America (USW, Local 4836-02), which covers 69 employees at the Cambridge, Ohio,
plant, is scheduled to be renegotiated in May 2003. Many of the collective
bargaining agreements covering Metallurg's union employees at its foreign
subsidiaries are renewable on an annual basis. Metallurg's relationships with
its unions are managed at the local level and are considered by management to be
satisfactory.

Anti-Dumping Duties

      In response to dumping by the former Soviet Union, Metallurg sought and
obtained anti-dumping orders against Russia for imports of ferrovanadium into
the U.S. Since July 1995, the Department of Commerce has imposed incremental
anti-dumping duties, which currently range from 10.1% to 108%, on imports of
Russian ferrovanadium and nitrided vanadium into the U.S. These duties are in
addition to the normal duty of 4.2% that applies to ferrovanadium imports. A
"sunset review" of the anti-dumping duty order was conducted by the
International Trade Commission and the Department of Commerce and was favorably
concluded in May 2001. As a result, the order will remain in effect until at
least April 2006 when the next "sunset review" is initiated.

      On November 26, 2001, in response to a surge in imports of ferrovanadium
from South Africa and China, the Ferroalloys Association Vanadium Committee,
representing Metallurg and other U.S. producers, filed a petition seeking the
imposition of anti-dumping duty orders covering imports from those countries. In
response to the petition, the Commerce Department initiated investigations and
the International Trade Commission unanimously determined that there was a
reasonable indication that the U.S. industry was materially injured by reason of
imports from these two countries. The final antidumping investigations were
favorably concluded during the fourth quarter of 2002 and resulted in duties
ranging from 12.97% to 116%, in addition to the 4.2% normal tariff, being
imposed on imports from these two countries.

      Anti-dumping duty rates are subject to annual review by the Department of
Commerce. Metallurg had revenues of approximately $12 million from sales of
ferrovanadium produced by it and sold in the U.S. for the year ended December
31, 2002. If the anti-dumping duties are not maintained at or near their current
levels, Metallurg may be materially adversely affected.

Environmental Matters

      Metallurg's alloy manufacturing operations in Cambridge, Ohio and
Newfield, New Jersey are subject to various federal, state and local
environmental, safety and health laws and regulations, including those relating
to air and water quality, and solid and hazardous wastes. Metallurg's foreign
manufacturing operations are subject to analogous environmental laws and
regulations. Metallurg is faced with a number of environmental issues, which
have largely resulted from environmental cleanup requirements, particularly in
the areas of solid waste and hazardous waste removal. There can be no assurance
that the current environmental requirements will not result in future
liabilities and obligations, including future liability for disposal or
contamination at both domestic and foreign facilities. There is also the
possibility that changes to applicable environmental laws and regulations might
result in future liabilities and obligations for Metallurg, including those
related to contamination at Metallurg's facilities. These potential liabilities
might also be material to Metallurg's business operations, financial condition
or cash flow.

      Metallurg maintains environmental and industrial safety and health
compliance programs at its plants and believes that its manufacturing operations
are in general compliance with all applicable safety, health and environmental
laws.

      SMC is addressing certain environmental conditions at the Cambridge, Ohio
plant pursuant to a judicial consent order entered into with the State of Ohio
in 1997. SMC submitted to the Nuclear Regulatory Commission ("NRC") in July 1999
a plan for decommissioning slag piles at the Cambridge facility. Such plan
contemplates capping the slag piles on-site, an alternative that the Ohio
Environmental Protection Agency ("OEPA") has approved. Before the NRC completed
its review of the plan, the NRC delegated its regulatory authority over the site
to the Ohio Department of Health ("ODH") in August 1999. The ODH is now the
governmental entity responsible for overseeing the decommissioning of the slag
piles. SMC has been engaged for some time in discussions with the ODH and the
OEPA with respect to such decommissioning plan and related alternatives, and
with the OEPA on various matters that are regulated under the Resource
Conservation and Recovery


                                       7




<PAGE>

Act ("RCRA"), including alleged past violations of certain RCRA provisions. SMC
has also been discussing the matter of alleged past violations of RCRA with the
United States Environmental Protection Agency. In discussions with both
agencies, the possibility of penalties being assessed has arisen, and while
there can be no assurance that SMC will not make certain payments in connection
therewith, management does not expect that the outcome of these discussions will
have a material adverse effect on the operations, cash flow or financial
position of Metallurg. At December 31, 2002, liabilities of $10.5 million remain
outstanding from provisions made in prior periods for the estimated future costs
associated with the decommissioning of NRC (now ODH) regulated materials and the
remediation of sediments at the Cambridge site. SMC submitted remediation plans
with respect to these areas to the OEPA and ODH at the end of 2001 and is
currently negotiating the finalization of this plan with remediation expected to
begin in 2003. A plan for the creation of wetlands is intended to be submitted
during 2003. SMC expects to expend the amount reserved for outstanding
liabilities over the next 5 years.

      In August 2002, SMC filed a decommissioning plan for its Newfield facility
with the NRC. At the same time, SMC requested an amendment to the authorized use
of the Newfield facility, as permitted by the NRC, to "storage only pending
decommissioning". While the Newfield facility will continue to operate, SMC does
not intend to resume any previously licensed activities and expects to commence
decommissioning activities upon approval of the plan by the NRC.

      At December 31, 2002, liabilities of $21.3 million remain outstanding for
the estimated future costs associated with the decommissioning of NRC regulated
materials and the remediation of groundwater (as to which SMC is exploring
alternative treatment approaches), soil and sediments at the Newfield site. SMC
expects to expend such amount over the next 15 years.

      There can be no assurance that SMC will not incur additional expenses
related to the environmental projects at the Cambridge and Newfield sites.

      Liabilities for known environmental matters and the Company's related
accounting policies are summarized in "Note 15. Environmental Liabilities" and
"Note 1. Summary of Significant Accounting Policies - Environmental Remediation
Costs and Recoveries" to the Company's Consolidated Financial Statements. See
also "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Financial Resources - Environmental
Remediation Costs."

      While Metallurg's remediation obligations and other environmental costs
will, in the aggregate, reduce its liquidity, Metallurg believes its cash
balances, cash from operations and cash available under its credit facilities
are sufficient to fund its current and anticipated future requirements for
environmental expenditures.

Item 3. Legal Proceedings.

      Metallurg Holdings is not party to any legal proceedings. Metallurg, Inc.
and certain of its subsidiaries are parties from time to time to legal
proceedings relating to their operations. The ultimate legal and financial
liability of Metallurg in respect of all legal proceedings in which it is
involved at any given time cannot be estimated with any certainty. However,
based upon examination of such matters and consultation with counsel, management
currently believes that the ultimate outcome of these contingencies, net of
liabilities already accrued in the Company's Consolidated Balance Sheet, will
not have a material adverse effect on the Company's consolidated financial
position, although the resolution in any reporting period of one or more of
these matters could have a significant impact on the Company's results of
operations and/or cash flows for that period. For discussion of specific
environmental matters, see "Items 1 and 2. Business and Properties -
Environmental Matters."

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

      There were no matters submitted to a vote of security holders during the
fourth quarter of the year ended December 31, 2002.


                                       8




<PAGE>

                                     PART II

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

Metallurg Holdings

      Metallurg Holdings issued no securities during 2002.

      There is no public trading market for Metallurg Holdings' equity
securities.

      Metallurg Holdings does not presently intend to pay any dividends,
although it may choose to do so in the future. Metallurg Holdings is restricted
in the amount of dividends payable to its shareholders as a result of the
indenture for the Senior Discount Notes. Under the terms of the indenture,
Metallurg Holdings is limited in its ability to make restricted payments, as
defined and including, among other things, minority investments in subsidiaries
and dividend payments, to a formula based on the cumulative net income since
November 1, 1997 and certain specified allowances. As a result of this
limitation, Metallurg Holdings is permitted to make future restricted payments
in the amount of $7.5 million as of December 31, 2002.

      Metallurg Holdings is a holding company with limited operations of its
own. Substantially all of Metallurg Holdings' operating income is generated by
Metallurg. As a result, Metallurg Holdings will rely upon distributions or
advances from Metallurg, Inc. to provide the funds necessary to meet its debt
service obligations. Metallurg Holdings does not currently have sufficient cash
on hand to make the interest payment due on its Senior Discount Notes in January
2004. While Metallurg, Inc. may be able to distribute cash to Metallurg Holdings
for the purpose of making the January 2004 interest payment, Metallurg, Inc.
could be prohibited from making a cash distribution at such time under the
restrictive covenants of its revolving credit facility with Fleet National
Bank (see "Note 10. Borrowings" to the Company's Consolidated Financial
Statements). All of Metallurg's outstanding common stock has been pledged as
collateral for Metallurg Holdings' obligations under the Senior Discount Notes.
If Metallurg Holdings were unable to make its interest payment when due, it
could lead to a foreclosure on its assets, principally the equity of Metallurg,
Inc., and create a default in accordance with the terms of Metallurg, Inc.'s
Senior Note indenture. (See below)

Metallurg

      There is no public trading market for Metallurg, Inc.'s equity securities,
all of which are owned by Metallurg Holdings.

      On November 20, 1998, the Board of Directors of Metallurg, Inc. (the
"Board") adopted the Metallurg, Inc. 1998 Equity Compensation Plan (the "ECP").
Under the ECP, 500,000 shares of common stock are authorized for stock awards
and stock options. Pursuant to the ECP, from 1998 through 2002, the Board has
awarded to eligible executives and non-employee Board members options to
purchase an aggregate of 400,000 shares of common stock, net of cancellations
and forfeitures, at an exercise price of $30.00 per share. Such options have a
term of ten years and vest in most cases 20% on the date of grant and 20% on
each of the first four anniversaries of the date of grant.

      Metallurg, Inc. did not issue any securities during 2002.

      Metallurg, Inc. does not presently intend to pay any dividends, although
it may choose to do so in the future. Metallurg, Inc. is restricted in the
amount of dividends payable to its shareholder as a result of the indenture for
its 11% Senior Notes due 2007 (the "Senior Notes"). Under the terms of the
indenture, Metallurg, Inc. is limited in its ability to make restricted
payments, as defined and including, among other things, minority investments in
subsidiaries and dividend payments, to a formula based on the cumulative net
income since November 1, 1997 and certain specified allowances. As a result of
this limitation, Metallurg, Inc. is permitted to make future restricted payments
in the amount of $7.5 million as of December 31, 2002. In addition, Metallurg,
Inc.'s revolving credit facility with Fleet National Bank prohibits the payment
of dividends through 2004. See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Financial
Resources" and "Note 10. Borrowings" to the Company's Consolidated Financial
Statements.


                                       9




<PAGE>

      Metallurg, Inc. is a holding company with limited operations of its own.
Substantially all of Metallurg, Inc.'s operating income is generated by its
subsidiaries. As a result, Metallurg, Inc. will rely upon distributions or
advances from its subsidiaries to provide the funds necessary to meet its debt
service obligations. In some cases, however, Metallurg, Inc.'s subsidiaries are
restricted in their ability to pay dividends. Metallurg, Inc.'s Turkish
subsidiary is limited in its ability to pay dividends from retained earnings, as
a result of historical currency devaluation. In addition, working capital
facilities and other financing arrangements at EWW and LSM restrict such
subsidiaries' ability to pay dividends. For example, EWW must obtain the consent
of a German governmental authority, which guarantees a portion of EWW's
'E'3.2 million ($3.3 million) working capital facility, in order to pay
dividends. The stock of EWW has been pledged to collateralize obligations owed
by EWW to the German governmental authority. LSM is party to a working capital
facility that limits its ability to pay dividends to an amount up to 100% of
LSM's annual net income.

Item 6. Selected Financial Data.

      The following table presents selected historical financial data of the
Company for the period June 10, 1998 (inception) to January 31, 1999, the year
ended January 31, 2000 and the years ended December 31, 2000, 2001 and 2002. The
Company's results of operations and financial position reflect the acquisition
of Metallurg, Inc. on July 13, 1998. Also presented are selected historical
financial data of Metallurg for the years ended January 31, 1999 and 2000, and
the years ended December 31, 2000, 2001 and 2002.

      All information in the table has been restated to reflect the new
reporting entity. See "Note 2. Change in Reporting Entity" to the Company's
Consolidated Financial Statements.

      Information as of and for the fiscal years ended January 31, 1999 and 2000
is derived from the consolidated financial statements of the Company and
Metallurg, as restated (See "Note 2. Change in Reporting Entity" to the
Company's Consolidated Financial Statements). Information as of and for the
Transition Period ended December 31, 2000 and the years ended December 31,
2001 and 2002 are derived from the consolidated financial statements of the
Company and Metallurg, included elsewhere herein.

      The information in this table should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of the Company, and
related notes thereto, included in "Item 8. Financial Statements and
Supplementary Data."


                                       10




<PAGE>

                             SELECTED FINANCIAL DATA
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Metallurg
                                 ------------------------------------------------------------------------
                                                               Year Ended
                                 ------------------------------------------------------------------------
                                 January 31,   January 31,    December 31,   December 31,    December 31,
                                     1999         2000          2000 (c)         2001            2002
                                 ------------------------------------------------------------------------
<S>                                <C>           <C>             <C>            <C>             <C>
Statement of
   Operations Data:

Total revenue ................     $ 464,488     $ 371,314       $ 419,209      $ 394,078       $ 344,974
Gross profit .................        59,556        34,914          56,659         54,009          29,217
Operating income (loss) (a) ..        12,074         1,734          20,836         19,573          (6,797)
Extraordinary items,
   net of tax (b) ............            --            --              --             --              --
Net (loss) income ............          (919)      (10,428)          9,588          2,154         (21,352)

<CAPTION>
                                                               The Company
                                 ------------------------------------------------------------------------
                                   Period
                                  June 10,
                                    1998
                                 (inception)                    Year Ended
                                      to       ----------------------------------------------------------
                                 January 31,   January 31,    December 31,   December 31,    December 31,
                                     1999         2000          2000 (c)         2001            2002
                                 ------------------------------------------------------------------------
<S>                                <C>           <C>             <C>            <C>             <C>
Statement of
   Operations Data:

Total revenue ................      $164,892     $ 371,314       $ 419,209      $ 394,078       $ 344,974
Gross profit .................        15,367        34,914          56,659         54,009          29,217
Operating income (loss) (a) ..       (10,097)         (899)         17,948         16,703          (6,886)
Extraordinary items,
   net of tax (b) ............            --            --          32,649             --           2,227
Net (loss) income ............       (15,628)      (22,406)         31,097         (5,063)        (24,252)

<CAPTION>
                                                                Metallurg
                                 ------------------------------------------------------------------------
                                 January 31,   January 31,    December 31,   December 31,    December 31,
                                     1999         2000          2000 (c)         2001            2002
                                 ------------------------------------------------------------------------
<S>                                 <C>           <C>             <C>            <C>             <C>
Balance Sheet Data:

Total assets..................      $263,507      $259,102        $254,773       $241,519        $248,165
Total debt....................       104,936       104,281         119,863        123,521         127,291

<CAPTION>
                                                              The Company
                                 ------------------------------------------------------------------------
                                 January 31,   January 31,    December 31,   December 31,    December 31,
                                    1999          2000          2000 (c)        2001             2002
                                 ------------------------------------------------------------------------
<S>                                 <C>           <C>             <C>            <C>             <C>
Balance Sheet Data:

Total assets..................      $314,942      $308,854        $299,851       $283,468        $289,804
Total debt....................       174,636       183,151         152,666        160,640         165,015
</TABLE>

----------
(a)   Includes:

      o     environmental expense recoveries of $5,501, $750, $631 and $3,000
            for the years ended January 31, 2000, and December 31, 2000, 2001
            and 2002, respectively (See "Note 15. Environmental Liabilities" to
            the Company's Consolidated Financial Statements);

      o     restructuring charges, net of $3,092 and $3,373 for the years ended
            January 31, 2000 and December 31, 2002, respectively (See "Note 5.
            Restructuring" to the Company's Consolidated Financial Statements);
            and

      o     merger-related costs of $7,888 for the year ended January 31, 1999.

(b)   Reflects the extinguishment of certain Senior Discount Notes and the
      write-off of related issuance costs (See "Note 3. Extraordinary Items" to
      the Company's Consolidated Financial Statements).

(c)   The Transition Period (See "Note 1. Summary of Significant Accounting
      Policies - Basis of Presentation and Consolidation" to the Company's
      Consolidated Financial Statements).


                                       11




<PAGE>

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

      The following discussion should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere in this report.

Forward-Looking Statements

      Certain matters discussed under the captions "Business and Properties" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and elsewhere in this Annual Report on Form 10-K may constitute
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements may be identified by the use of
words such as "plans", "expect", "believe", "should", "could", "anticipate",
"intend" and other expressions that indicate future events or trends. All
statements that address expectations or projections about the future, including
statements about the Company's strategy for growth, product development, market
position, expenditures and financial results are forward-looking statements and
as such may involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance and achievements of the Company
to be materially different from future results, performance or achievements
expressed or implied by such forward-looking statements.

      Factors which may cause the Company's results to be materially different
include:

      -     The cyclical nature of Metallurg's business.
      -     Metallurg's dependence on foreign customers. Metallurg operates
            throughout the world and derives a significant amount of its
            revenues from outside of the U.S.
      -     The impact of changes in foreign exchange rates and foreign trade
            regulations on Metallurg's competitive standing. Revenues and
            earnings from outside the U.S. could be materially affected by
            exchange rate fluctuations.
      -     The availability of raw materials, particularly vanadium-containing
            materials. See "Items 1 and 2. Business and Properties - Limited
            Sources for Raw Materials".
      -     The impact of worldwide competition.
      -     The economic strength of Metallurg's markets generally and
            particularly the strength of the demand for aluminum, superalloys,
            titanium alloys, iron and steel in those markets.
      -     The accuracy of Metallurg's estimates of the costs of environmental
            remediation.
      -     The extension or expiration of existing anti-dumping duties. See
            "Items 1 and 2. Business and Properties - Anti-Dumping Duties".
      -     The performance of world financial markets and the resulting effect
            on pension expense of Metallurg's defined benefit plans.
      -     The ability to meet debt service requirements.
      -     The possible disruption of business or increases in the cost of
            doing business resulting from terrorist activities or global
            conflicts.
      -     Changes in tax laws, including changes related to taxation of
            foreign earnings.
      -     Changes in accounting standards.

Overview

      Metallurg Holdings was formed on June 10, 1998 and is wholly owned by a
group of investors led by and including Safeguard International, an
international private equity fund that invests primarily in equity securities of
companies in process industries. As Metallurg Holdings is a holding company and
does not have any material operations or assets other than the ownership of
Metallurg, Inc., the following discussions of the Company's results of
operations relate to Metallurg, unless otherwise indicated.

      Metallurg is a leading international producer and seller of high-quality
specialty metals, alloys and metallic chemicals, which are essential to the
production of high-performance aluminum and titanium alloys, superalloys, steel
and certain non-metallic materials for various applications in the aerospace,
power supply, automotive, petrochemical processing and telecommunications
industries. The industries that Metallurg supplies are cyclical.


                                       12




<PAGE>

      Western world* primary aluminum consumption fell by over 6% in 2001 and
the downward trend continued in the first quarter of 2002. The demand for
Metallurg's products for the aluminum industry reflected this trend. In the
second quarter of 2002, the trend reversed and the stronger demand for
Metallurg's products seen in the second quarter continued into the second half
of the year. However, excess production capacity in the primary aluminum
business as well as in the products supplied by Metallurg has led to intense
competition and lower prices. Over the past two years, Metallurg has improved
its competitive position by relocating its aluminum master alloy and grain
refiner production to its lowest cost melting, casting and finishing facilities
in the U.K., Norway and Brazil.

      The aerospace sector saw its fortunes drop sharply after September 11,
2001, and since then it has been affected by the difficult financial situation
of much of the airline industry. This year has also seen the cancellation of
many land-based turbine power generation projects in the U.S. These market
developments led the producers of superalloys and titanium alloys to cut their
production rates very sharply, particularly in the U.S., and thus reduce
similarly their demand for Metallurg's chromium and niobium products and alloys
for the titanium industry. Metallurg has sustained sales volumes of its chromium
products by increasing sales of lower quality grades to non-superalloy users,
but at the expense of reduced prices and margins. Metallurg believes that the
supply chain to this sector has been reduced in line with the lower levels of
current consumption and thus Metallurg's volumes are expected to immediately
reflect any improvements in demand.

      The U.S. steel industry operated at low production levels throughout most
of 2001 and into 2002 but, with the imposition of protective duties in March
2002, production rates increased significantly. In the second quarter, Metallurg
saw demand and pricing for its U.S. ferrovanadium production improve somewhat.
In the second half, prices continued to strengthen but volumes fell slightly due
to seasonal shutdowns; SMC's ferrovanadium plant operated for only two months
during the third quarter. The recently announced shutdown of primary vanadium
production by a major Australian producer has contributed to a more balanced
market outlook and prices have begun to improve from the historically low level
experienced during the past few years. Worldwide steel production also grew in
2002 thereby allowing further improvement in sales of ferrotitanium and normal
grade low carbon ferrochrome.

      Although market price and demand for tantalum declined in 2001, Metallurg
had continued to benefit in the first quarter of 2002 from fixed price sales
contracts that had been negotiated in late 2000 when prices were at their peak.
Demand and consumption of tantalum was extremely weak in 2002, and this has
resulted in much lower volumes and prices for Metallurg's tantalum products.
Metallurg expects this trend to continue in 2003.

      Metallurg has completed capital investments in the U.K., the U.S. and
Brazil aimed at reducing the cost of raw materials and expanding capacity for
the production of certain specialty grade products. Significant cost reduction
programs were initiated in the second quarter of 2002. These programs progressed
during the second half of the year and will continue. The investments and cost
saving measures have already begun to improve operating results though the
benefits are not expected to be fully realized until 2003.

*     Defined as the world, excluding the CIS, Eastern Europe and China.


                                       13




<PAGE>

Results of Operations

      The following information has been restated to reflect the new reporting
entity. See "Note 2. Change in Reporting Entity" to the Company's Consolidated
Financial Statements.

      As a result of Metallurg Holdings and Metallurg, Inc.'s change in its
fiscal year from January 31 to a calendar year, effective as of December 31,
2000, the consolidated operating results of the Company for the year ended
December 31, 2000 include the results of Metallurg Holdings and Metallurg, Inc.,
the parent holding companies, for the 11 months ended December 31, 2000 and,
consistent with historical reporting practice, the results of its operating
subsidiaries for the 12 months ended December 31, 2000.

<TABLE>
<CAPTION>
                                                                                                    Intersegment
(In thousands)                     LSM           SMC           CIF           EWW          Other     Eliminations  Consolidated
                                ---------     ---------     ---------     ---------     ---------   ------------  ------------
<S>                             <C>           <C>           <C>           <C>           <C>           <C>           <C>
Year Ended December 31, 2002
Total revenue ................  $ 160,978     $  92,053     $  32,869     $  31,707     $  88,402     $ (61,035)    $ 344,974
Gross profit .................     12,606         1,078         2,960           492        10,577         1,504        29,217
SG&A .........................     11,620         9,234         1,590         2,106        11,180            --        35,730
Environmental expense
  recoveries .................         --        (3,000)           --            --            --            --        (3,000)
Restructuring charges, net ...      1,068           453            --          (137)        1,989            --         3,373
Operating (loss) income ......        (82)       (5,609)        1,370        (1,477)       (2,592)        1,504        (6,886)
Interest (expense) income,
  net ........................     (1,509)         (368)         (745)          101       (15,914)           --       (18,435)
Income tax provision
  (benefit) ..................        868        (2,026)          173          (506)        2,774            --         1,283
Extraordinary items ..........         --            --            --            --         2,227            --         2,227
Net (loss) income ............     (2,452)       (3,951)          452          (870)      (24,311)        6,880       (24,252)

Year Ended December 31, 2001
Total revenue ................  $ 173,161     $ 104,068     $  39,383     $  35,885     $ 119,928     $ (78,347)    $ 394,078
Gross profit .................     14,192         4,248         7,978         5,335        23,237          (981)       54,009
SG&A .........................     10,311         9,810         1,831         1,758        14,227            --        37,937
Environmental expense
  recoveries .................         --          (631)           --            --            --            --          (631)
Operating income (loss) ......      3,881        (4,931)        6,147         3,577         9,010          (981)       16,703
Interest (expense) income,
  net ........................     (1,651)         (146)         (982)          177       (13,852)           --       (16,454)
Income tax provision
  (benefit) ..................        630        (2,925)        1,678         1,531         4,649            --         5,563
Net income (loss) ............      1,795        (2,152)        3,487         2,223        12,794       (23,210)       (5,063)

Year Ended December 31, 2000
Total revenue ................  $ 180,579     $ 118,935     $  29,010     $  36,554     $ 125,644     $ (71,513)    $ 419,209
Gross profit .................     18,467         8,004         4,584         4,876        20,822           (94)       56,659
SG&A .........................     10,788        10,159         1,595         1,999        14,920            --        39,461
Environmental expense
  recoveries .................         --          (750)           --            --            --            --          (750)
Operating income (loss) ......      7,679        (1,405)        2,989         2,877         5,902           (94)       17,948
Interest (expense) income,
  net ........................     (1,177)          747           177            60       (16,846)           --       (17,039)
Income tax provision
  (benefit) ..................      2,167           (54)          416         2,206         3,224            --         7,959
Extraordinary items ..........         --            --            --            --        32,649            --        32,649
Net income (loss) ............      4,584          (604)        2,750           731        42,913       (19,277)       31,097
</TABLE>


                                       14




<PAGE>

Year Ended December 31, 2002 Compared to the Year Ended December 31, 2001

Total Revenue

      Consolidated total revenue decreased by $49.1 million (12%) in the year
ended December 31, 2002.

      LSM revenue was $12.2 million (7%) lower than the year ended December 31,
2001. Niobium product sales declined by $7.1 million after an agency agreement
for ferroniobium was terminated at the end of 2001. Sales of chrome products,
primarily chrome metal, fell by $3.4 million, as both demand and prices fell.
Sales of aluminum powder fell by $1.6 million as a drop in average selling price
more than offset a small increase in volume. Sales of nickel boron and other
nickel products fell by $1.2 million, primarily as a result of a fall in market
prices. Demand for compacted aluminum products fell, causing a $0.4 million
decrease in sales despite an increase in unit selling prices. Demand for
aluminum master alloys increased but total sales rose by only $0.4 million as a
result of a fall in selling prices. Sales of metal powders rose by $0.6 million,
despite a 25% increase in volume, as average unit selling prices declined. Sales
of titanium products, primarily ferrotitanium, were $1.0 million higher, mainly
due to a small increase in average unit selling prices.

      SMC revenue was $12.0 million (12%) lower than the year ended December 31,
2001. Sales of chrome products, primarily sourced from EWW, fell by $9.8 million
due to a 38% decline in demand offset by a 12% improvement in unit prices.
Niobium products sales fell by $0.9 million primarily as a result of a drop in
unit selling prices. Sales of vanadium products, produced in SMC's Ohio plant,
fell by $0.4 million despite a small strengthening of prices as demand weakened
slightly. Sales of aluminum products increased by $1.4 million, primarily due to
an increase in volume of compacted products partly offset by a 20% drop in
average selling prices.

      CIF revenue was $6.5 million (17%) lower than the year ended December 31,
2001. Tantalum sales fell by $10.2 million following a drop in world demand and
a return to more typical prices than those seen in 2000 and 2001. Despite a 6%
drop in prices, sales of aluminum products rose by $3.0 million due to increased
sales volume of aluminum master alloys following the transfer of melting
operations from SMC.

      EWW revenue was $4.2 million (12%) lower than the year ended December 31,
2001. Total ferrochrome volumes were virtually unchanged but a change in product
mix resulted in a drop in average selling prices and a $1.7 million decrease in
sales. Demand for special grades of ferrochrome fell by 50%, resulting in a drop
in sales of $5.8 million but this was partially offset by an increase in demand
for normal grades and a resulting increase in sales of $3.2 million. EWW also
had $2.6 million of tantalum sales in 2001, which did not recur in 2002.

      Revenue from operations included in "Other" declined by $31.5 million in
the year ended December 31, 2002, primarily due to the drop in tantalum demand
and prices, discussed above.

Gross Profit

      Consolidated gross profit decreased to $29.2 million (8.5% of total
revenue) for the year ended December 31, 2002 from $54.0 million (13.7% of total
revenue) for the year ended December 31, 2001.

      LSM gross profit was $1.6 million (11%) below the year ended December 31,
2001. Gross profits from compacted aluminum products fell $0.7 million as the
increase in unit production costs exceeded the increase in sales prices. Gross
profits on niobium products fell by $0.5 million to virtually zero following the
termination of the agency agreement (see above). Gross profit from chrome
products fell by $0.4 million as a result of the decrease in demand discussed
above. Gross profits from nickel boron and other nickel products fell by $0.4
million primarily as a result of a fall in market prices. Gross profit from
titanium products improved by $0.7 million as a result of increased selling
prices. Aluminum powder gross profits increased by $1.3 million mainly due to an
improved product mix which resulted in increased average margins.

      SMC gross profit was $3.2 million (75%) below the year ended December 31,
2001. Unit costs of aluminum master alloys would have been lower than in 2001
except for inventory write-downs and other costs relating to the transfer of
aluminum melting operations to CIF. Combined with a drop in selling prices, this
resulted in a drop in gross profit of $1.7 million. Gross profit from chrome
products fell by $1.6 million as a result of the drop in volume discussed above.
Gross profit from vanadium products declined by $0.7 million as a result of an
increase in unit production costs. The increase in volumes of compacted products
resulted in a drop in average unit cost and an increase in gross profit of $1.2
million.


                                       15




<PAGE>

      CIF gross profit was $5.0 million (63%) below the year ended December 31,
2001. A 90%, $5.5 million, decline in gross profits from tantalum and niobium
products, following the price correction discussed above, was partially offset
by an increase of $0.5 million in profits from aluminum master alloys following
the transfer of melting operations from SMC and the resulting volume increase.

      EWW gross profit was $4.8 million (91%) below the year ended December 31,
2001. Total ferrochrome gross profits decreased by $3.1 million, primarily as a
result of the change in product mix, discussed above. Also, average unit
production costs increased, mainly due to the halving of volumes of special
grades. There were no sales of tantalum in 2002 and, therefore, gross profits of
$1.2 million made in 2001 were not repeated.

      Gross profit from operations included in "Other" was $12.7 million (54%)
below the year ended December 31, 2001 due primarily to decreased margins on
tantalum products resulting from the decline in selling prices (see above).

Selling, General and Administrative Expenses ("SG&A")

      SG&A decreased to $35.7 million for the year ended December 31, 2002 from
$37.9 million for the year ended December 31, 2001, a decrease of $2.2 million
(6%). An increase in pension expense, primarily $1.5 million at LSM, was mostly
offset by reductions in compensation and other expenses resulting from the
restructuring program discussed below. The year ended December 31, 2001 included
$2.5 million of goodwill amortization. Goodwill amortization ceased in 2002
following the adoption of Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002. For the
year ended December 31, 2002, SG&A represented 10.4% of total revenue compared
to 9.6% for the year ended December 31, 2001.

Restructuring Charges, Net

      During 2002, Metallurg carried out a restructuring program intended to
reduce the cost structure at corporate headquarters, SMC and LSM. The
restructuring plan includes the discontinuation of certain production
activities, the termination of employees and the write-down of redundant plant
and equipment. As a result of the restructuring and other cost reduction
activities, Metallurg currently expects to generate cost savings of
approximately $8 million annually in future periods. A charge of $3.4 million
was incurred in the year ended December 31, 2002, primarily for severance costs
of terminated employees.

      At corporate headquarters, Metallurg, Inc. recorded a restructuring charge
of $2.0 million for severance costs of four corporate executives and five
administrative employees, all of whom were terminated during the year. Under the
terms of their employment and severance agreements, the severance will be paid
over a period of up to 18 months. Of this amount, $0.5 million was paid as of
December 31, 2002.

      LSM recorded a restructuring charge of 'L'0.7 million ($1.1 million)
for severance costs of 18 production employees and 11 administrative employees
who were terminated during the year. The entire amount was paid during the year.

      SMC recorded a restructuring charge of $0.5 million of which $0.4 million
was for severance costs of one executive, 16 production employees and nine
administrative employees, all of whom were terminated during the year. Of this
amount, $0.2 million had been paid by December 31, 2002. The remaining $0.1
million was for the write-down of property and equipment no longer used in
operations.

      The restructuring charge of $3.4 million is net of the reversal of a prior
year accrual balance of $0.1 million following the completion of a restructuring
program at EWW in 2002

      See "Note 5. Restructuring" to the Company's Consolidated Financial
Statements.

Operating (Loss) Income

      There was an operating loss of $6.9 million for the year ended December
31, 2002 compared to operating income of $16.7 million for the year ended
December 31, 2001, due primarily to the decrease in gross profit and the
restructuring, discussed above. In addition, SMC recognized environmental
expense recoveries of $3.0 million and $0.6 million for the years ended December
31, 2002 and 2001, respectively.


                                       16




<PAGE>

Interest Expense, Net

      Interest expense, net, was as follows (in thousands):

                                                       Year Ended December 31,
                                                   ----------------------------
                                                     2002                2001
                                                   --------            --------
Interest income ........................           $    808            $  1,877
Interest expense .......................            (19,243)            (18,331)
                                                   --------            --------
     Interest expense, net .............           $(18,435)           $(16,454)
                                                   ========            ========

      Interest income decreased as a result of lower cash balances, primarily in
the U.S. See "Note 10. Borrowings" to the Company's Consolidated Financial
Statements.

Income Tax Provision, Net

      Income tax provision, net of tax benefits, was as follows (in thousands):

                                                     Year Ended December 31,
                                                   ---------------------------
                                                     2002                2001
                                                   -------             -------
Total current ..........................           $ 1,538             $ 4,286
Total deferred .........................              (255)              1,277
                                                   -------             -------
     Income tax provision, net .........           $ 1,283             $ 5,563
                                                   =======             =======

      The difference between the statutory federal income tax rate and
the Company's effective rate for the year ended December 31, 2002, is
principally due to: (i) certain deductible temporary differences, principally
domestic net operating losses, which in other circumstances would have
generated a deferred tax benefit, have been fully provided for in a valuation
allowance; (ii) taxes paid on foreign dividends; and (iii) the excess of foreign
tax rates over the statutory federal income tax rate. See "Note 12. Income
Taxes" to the Company's Consolidated Financial Statements.

Net Loss

      The Company had a net loss of $24.3 million for the year ended December
31, 2002 compared to $5.1 million for the year ended December 31, 2001.



Year Ended December 31, 2001 Compared to the Year Ended December 31, 2000

Total Revenue

      Consolidated total revenue decreased by $25.1 million (6%) in the year
ended December 31, 2001.

      LSM revenue was $7.4 million (4%) lower than the year ended December 31,
2000. An increase in sales of aluminum products, due to increased sales volume
of aluminum powder and master alloys and the acquisition of the Norwegian
facility on March 31, 2000, and higher sales volume of ferrotitanium and
chromium metal were offset by a discontinuation of sales of certain low-margin
products sourced from third parties. SMC revenue was $14.9 million (13%) lower
than the year ended December 31, 2000. Increased sales volume of chromium
products was more than offset by lower sales volume and selling prices of
vanadium and aluminum products. CIF revenue was $10.4 million (36%) higher than
the year ended December 31, 2000 due to increased selling prices of tantalum
products and increased sales volume of aluminum master alloys. EWW revenue was
$0.7 million (2%) lower than the year ended December 31, 2000 due primarily to
reduced sales volume of low carbon ferrochrome partially offset by sales of
tantalum products. Revenue from operations included in "Other" was $5.7 million
(5%) lower than for the year ended December 31, 2000, due to decreased sales of
tantalum products and various products sourced from third parties.

Gross Profit

      Gross profit decreased to $54.0 million (13.7% of total revenue) for the
year ended December 31, 2001 from $56.7 million (13.5% of total revenue) for the
year ended December 31, 2000. LSM gross profit was $4.3 million (23%) below the
year ended December 31, 2000 due primarily to lower selling prices of aluminum
products and chromium metal and higher costs of ferrotitanium and chromium
metal. SMC gross profit was $3.8 million (47%) below the year ended December 31,
2000 due primarily to lower volume and selling prices of vanadium and aluminum
products. CIF gross profit was $3.4


                                       17




<PAGE>

million (74%) above the year ended December 31, 2000 due primarily to increased
selling prices of tantalum products and increased volume of niobium oxide. EWW
gross profit was $0.5 million (9%) above the year ended December 31, 2000 due
primarily to sales of tantalum products, partially offset by reduced sales
volume of low carbon ferrochrome. Gross profit from operations included in
"Other" was $2.4 million (12%) above the year ended December 31, 2000 due
primarily to increased margins on tantalum products.

SG&A

      SG&A decreased to $37.9 million for the year ended December 31, 2001 from
$39.5 million for the year ended December 31, 2000, a decrease of $1.5 million
(4%). Increases in compensation and bad debt expense were more than offset by
reductions in occupancy expenses and professional fees. For the year ended
December 31, 2001, SG&A represented 9.6% of total revenue compared to 9.4% for
the year ended December 31, 2000.

Operating Income

      Operating income decreased to $16.7 million for the year ended December
31, 2001 from $17.9 million for the year ended December 31, 2000, due primarily
to the decrease in gross profits discussed above. Results included
environmental expense recoveries of $0.6 million and $0.8 million for the
years ended December 31, 2001 and 2000, respectively.

Interest Expense, Net

      Interest expense, net, was as follows (in thousands):

                                                      Year Ended December 31,
                                                   ----------------------------
                                                     2001                2000
                                                   --------            --------
Interest income ........................           $  1,877            $  3,446
Interest expense .......................            (18,331)            (20,485)
                                                   --------            --------
     Interest expense, net .............           $(16,454)           $(17,039)
                                                   ========            ========

      Interest expense, net, decreased as a result of the purchase of Senior
Discount Notes by Metallurg, Inc. in October 2000 (See "Note 3. Extraordinary
Items" to the Company's Consolidated Financial Statements). Net interest
expense increased due to lower cash balances and higher external borrowings,
primarily in the U.K., following recent acquisitions and capital projects.
See "Note 10. Borrowings" to the Company's Consolidated Financial Statements.

Income Tax Provision, Net

      Income tax provision, net of tax benefits, was as follows (in thousands):

                                                      Year Ended December 31,
                                                   ----------------------------
                                                     2001                2000
                                                   --------            --------
Total current ..........................           $  4,286            $  4,571
Total deferred .........................              1,277               3,388
                                                   --------            --------
     Income tax provision, net .........           $  5,563            $  7,959
                                                   ========            ========

      The difference between the statutory federal income tax rate and
the Company's effective rate for the year ended December 31, 2001, is
principally due to: (i) taxes paid on foreign dividends; (ii) the excess of
foreign tax rates over the statutory federal income tax rate; and (iii)
certain deductible temporary differences which, in other circumstances would
have generated a deferred tax benefit, have been fully provided for in a
valuation allowance. See "Note 12. Income Taxes" to the Company's Consolidated
Financial Statements.

Net (Loss) Income

      The Company had a net loss of $5.1 million for the year ended December
31, 2001 compared to net income of $31.1 million for the year ended December
31, 2000. The 2000 results included an extraordinary net gain of $32.6 million
of the extinguishment of certain Senior Discount Notes and the write-off of
related deferred issuance costs. The results for the year ended December 31,
2000 also included a pre-tax gain of $5.1 million relating to the sale of
Solikamsk Magnesium Works.


                                       18




<PAGE>

Liquidity and Financial Resources

General

      The Company's sources of liquidity include cash and cash equivalents, cash
from operations and amounts available under credit facilities. At December 31,
2002, the Company had $29.4 million in cash and cash equivalents and working
capital of $92.7 million as compared to $31.9 million and $115.1 million,
respectively, at December 31, 2001.

      The Company believes that existing cash balances and the sources discussed
below are sufficient to fund the current and anticipated future requirements of
working capital, capital expenditures, pension benefits, potential acquisitions
and environmental expenditures through at least December 31, 2003. The Company's
long-term debt agreements contain numerous covenants and prohibitions that limit
the financial activities of Metallurg, including requirements that Metallurg
satisfy certain financial ratios and limitations on additional indebtedness. The
ability of the Company to meet its debt service requirements and to comply with
such covenants will be dependent upon future operating performance and financial
results of the Company, which will be subject to financial, economic, political,
competitive and other factors affecting the Company, many of which are beyond
its control.

Cash Flow Information

      Cash Flows from Operating Activities - Cash provided by operating
activities was $5.3 million for the year ended December 31, 2002, compared to
$5.6 million for the year ended December 31, 2001, after interest payments of
$11.0 million on the Senior Notes in each year. In 2002, a net loss, adjusted
for depreciation and other non-cash items, was more than offset by a decrease in
working capital. In 2001, a smaller net loss, adjusted for non-cash items, was
offset by cash used to fund increases in working capital items. SMC realized
environmental expense recoveries upon receipt of $3.0 million and $0.6 million
in 2002 and 2001, respectively, upon settlement with insurance companies
relating to coverage for certain environmental claims.

      Cash Flows from Investing Activities - Net cash used in investing
activities decreased to $14.4 million for the year ended December 31, 2002, from
$15.4 million for the year ended December 31, 2001. While capital expenditures
were $4.3 million lower in 2002, there was a net increase of $3.0 million in
Metallurg's loan to GfE during the year.

      Cash Flows from Financing Activities - Cash provided by financing
activities was $5.2 million for the year ended December 31, 2002, compared to
$6.3 million for the year ended December 31, 2001. In 2002, in accordance with
prescribed accounting principles, cash proceeds of $3.5 million from the sales
of GfE and the European sales offices were classified as capital contributions,
as these sales were to members of a common controlled group. Similarly,
dividends received from these entities prior to their sales have been
reclassified as capital contributions. See "Note 2. Change in Reporting Entity"
to the Company's Consolidated Financial Statements. Cash flows in 2001 reflect
LSM's restructuring of its revolving credit facilities and term loans.

Credit Facilities and Other Financing Arrangements

      On October 29, 1999, Metallurg, Inc., SMC and certain of Metallurg, Inc.'s
other subsidiaries (the "Borrowers") renewed their existing credit facility with
certain financial institutions led by Fleet National Bank as agent (the
"Revolving Credit Facility") for a term of five years. This facility, as amended
in December 2002, provides the Borrowers with up to $30.0 million for working
capital requirements and general corporate purposes. Interest is charged at a
rate per annum equal to (i) LIBOR, plus 2.0% - 2.5% or (ii) Prime, plus up to
1.0%, based on the performance of Metallurg, Inc. and certain of its
subsidiaries (the "North American Group"), as defined in the Revolving Credit
Facility. Interest rates on amounts borrowed are adjusted quarterly, based on
the North American Group's fixed charge coverage ratio. The Borrowers are
required to pay a fee of 0.375% per annum on the unused portion of the facility.
The total amount the Borrowers may borrow at any time is limited to a borrowing
base calculation that is based on eligible accounts receivable, inventory and
certain fixed assets. At December 31, 2002, there were no borrowings under this
facility; however, outstanding letters of credit totaled $21.4 million. The
Borrowers had unused borrowing capacity of $0.4 million under this facility. The
Revolving Credit Facility continues to prohibit Metallurg, Inc. from making
dividends prior to 2004 and requires the Borrowers and certain subsidiaries to
comply with various covenants, including the maintenance of minimum liquidity,
as defined in the agreement, at a $10.0 million level. Liquidity, as defined,
was $14.0 million at December 31, 2002.


                                       19




<PAGE>

      LSM has revolving credit facilities with Barclays Bank plc ("Barclays")
and HSBC Bank plc ("HSBC"). In 2002, the overdraft facility with Barclays was
reduced by 'L'1.0 million ($1.6 million). These facilities now provide LSM
with up to 'L'7.5 million ($12.1 million) of borrowings, 'L'43.3 million
($69.7 million) of foreign exchange contracts and options and 'L'4.0 million
($6.4 million) for other ancillary banking arrangements, including bank
guarantees. Borrowings under these facilities are unsecured and payable on
demand. Outstanding loans under this facility bear interest at a rate of 1.0%
over the lender's base rate. At December 31, 2002, there were no borrowings
under these facilities.

      LSM also has four revolving term loan facilities with Barclays and HSBC
that provide for borrowings up to 'L'12.0 million ($19.3 million), all of
which were outstanding at December 31, 2002. Two of the facilities expire during
the second quarter of 2004 while the other two expire during the second quarter
of 2006. These term loan facilities are unsecured and require LSM to comply
annually with various covenants, including the maintenance of minimum net worth
and interest coverage. In 2002, following a decline in operating results, the
term loan agreements were amended and the annual interest rate was increased to
LIBOR plus 1.75%. Also due to the decline in operating results, LSM obtained, in
December 2002, waivers from HSBC regarding the annual minimum interest coverage
ratio covenant for the period ended December 31, 2002.

      LSM's Norwegian facility has an unsecured overdraft facility of NOK 15.0
million ($2.2 million). Borrowings under this facility bear interest at a rate
of NIBOR plus 1.25%. At December 31, 2002, there was NOK 10.6 million ($1.5
million) outstanding under this facility. During 2000, the Norwegian facility
entered into an unsecured term loan in the amount of NOK 10.0 million ($1.4
million). Repayments began in November 2000 and continue for 10 years in equal
monthly installments plus interest at NIBOR plus 1.25%.

      EWW has committed lines of credit with several banks in the aggregate
amount of 'E'3.2 million ($3.3 million). The credit agreements require EWW to
pledge certain assets, which include accounts receivable, inventory and fixed
assets. At December 31, 2002, there were no borrowings under these facilities.
In 1998, EWW borrowed DM 1.5 million ('E'0.8 million or $0.8 million).
Payments began in 2000 and continue at DM 0.2 million ('E'0.1 million or $0.1
million) per year until maturity in 2008. The loan bears interest at 4.25%.

      Metallurg, Inc.'s other foreign subsidiaries maintain short-term secured
and unsecured borrowing arrangements, generally in local currencies, with
various banks totaling $10.2 million. Borrowings under these arrangements
aggregated $4.5 million at December 31, 2002 at a weighted-average interest rate
of 11.6%.

Contractual Cash Obligations

      As described in Notes 10 and 17 to the Company's Consolidated Financial
Statements at December 31, 2002, the Company is obligated to make future
payments under various contracts, such as debt and lease agreements. Significant
contractual cash obligations of the Company are as follows (in millions):

<TABLE>
<CAPTION>
                                                                   Payments Due By Period
                                                ------------------------------------------------------------
                                                            Less than                                 After
                                                 Total        1 year     2-3 years     4-5 years     5 years
                                                ------      ---------    ---------     ---------     -------
<S>                                             <C>           <C>          <C>          <C>           <C>
Contractual Cash Obligations:
    Short-term debt ........................    $  6.0        $  6.0
    Long-term debt .........................     161.6           0.3       $ 10.3       $110.2        $ 40.8(a)
    Interest on Senior Discount Notes ......      25.7            --         10.3         10.3           5.1
    Interest on Senior Notes ...............      55.0          11.0         22.0         22.0            --
    Non-cancelable operating leases ........       6.4           1.1          1.8          1.3           2.2
                                                ------        ------       ------       ------        ------
      Total contractual cash obligations ...    $254.7        $ 18.4       $ 44.4       $143.8        $ 48.1
                                                ======        ======       ======       ======        ======
</TABLE>

----------
(a)   includes interest of $2.6 million that will accrete on the Senior Discount
      Notes from January to July 2003. See "Note 10. Borrowings" to the
      Company's Consolidated Financial Statements


                                       20




<PAGE>

Capital Expenditures

      Metallurg invested $11.2 million in capital projects during the year ended
December 31, 2002. Metallurg's capital expenditures include projects related to
improving Metallurg's operations, productivity improvements, replacement
projects and ongoing environmental requirements (which are in addition to
expenditures discussed in "Environmental Remediation Costs" below). Capital
expenditures are projected to decrease to approximately $5 million for the year
ended December 31, 2003, including $3 million of capital investments which
Metallurg believes will result in decreased costs of production, improved
efficiency and expanded production capacities. The remaining capital
expenditures planned are primarily for replacement and repairs of existing
facilities. Although Metallurg has projected these items for the year ended
December 31, 2003, Metallurg has not committed purchases to vendors for all of
these projects, as some projects remain contingent on final approvals and other
conditions and the actual timing of expenditures may extend into 2004. Metallurg
believes that these projects will be funded through existing and future
internally generated cash and credit lines.

Environmental Remediation Costs

      American Institute of Certified Public Accountants' Statement of Position
96-1, "Environmental Remediation Liabilities," states that losses associated
with environmental remediation obligations are accrued when such losses are
deemed probable and reasonably estimable. Such accruals generally are recognized
no later than the completion of the remedial feasibility study and are adjusted
as further information develops or circumstances change. Costs of future
expenditures for environmental remediation obligations are generally not
discounted to their present value. During the year ended December 31, 2002,
Metallurg expended $2.7 million for environmental remediation.

      In 1997, SMC entered into settlement agreements with various environmental
regulatory authorities with regard to all of the significant environmental
remediation liabilities of which it is aware. Pursuant to these agreements, SMC
has agreed to perform environmental remediation, which, as of December 31, 2002,
had an estimated cost of completion of $28.0 million, net of trust funds of $3.8
million. Of this amount, $4.2 million is expected to be expended in 2003, $1.9
million in 2004 and $1.7 million in 2005. In addition, Metallurg estimates it
will make expenditures of $0.7 million with respect to environmental remediation
at its foreign facilities over the next three years. These amounts have been
accrued for in prior years and are reflected in the Company's balance sheet
liabilities. See "Note 15. Environmental Liabilities" to the Company's
Consolidated Financial Statements.

      While its remediation obligations and other environmental costs, in the
aggregate, will reduce its liquidity, the Company believes its cash balances,
cash from operations and cash available under its credit facilities are
sufficient to fund its current and anticipated future requirements for
environmental expenditures.

Market Risk

      Metallurg is exposed to fluctuations in foreign currency exchange rates,
interest rates and certain commodity prices. Derivative instruments used to
manage these exposures involve little complexity and are not used for
speculative purposes. The counterparties of these instruments are diversified
financial institutions. Metallurg monitors the concentration risk to limit its
counterparty exposure.

      Foreign Currency Exposures - Metallurg actively manages foreign currency
exposures that are associated with foreign currency purchases and sales and
other assets and liabilities created in the normal course of business at the
operating unit level. Metallurg uses forward contracts to mitigate exposures
that cannot be naturally offset within an operating unit. See "Note 11.
Financial Instruments" to the Company's Consolidated Financial Statements.

      Interest Rate Exposures - Metallurg has exposure to interest rate risk
from its short-term and certain long-term debt. While the rates on Metallurg's
long-term debt are generally fixed, LSM has term loans of 'L'12.0 million
($19.3 million) at variable rates. In 2001, LSM entered into a zero premium
interest rate collar for a term of three years in order to hedge the interest on
this variable rate long-term debt. See "Note 10. Borrowings" to the Company's
Consolidated Financial Statements.

      Commodity Price Exposures - Metallurg is exposed to volatility in the
prices of raw materials used in some of its products and uses forward contracts
to manage some of those exposures. Where Metallurg does not take physical
delivery of the raw material under the forward contract, gains and losses on
these derivatives are recognized currently in earnings.


                                       21




<PAGE>

Other

      Commencing in January 2004, Metallurg Holdings must make semi-annual
interest payments of $2.6 million on the outstanding Senior Discount Notes.
Metallurg Holdings is a holding company, and its ability to meet its payment
obligations on these notes is dependent upon the receipt of dividends and other
distributions from its direct and indirect subsidiaries. Metallurg Holdings does
not currently have sufficient cash on hand to make the interest payment due on
its Senior Discount Notes in January 2004. While Metallurg may be able to
distribute cash to Metallurg Holdings for the purpose of making the January 2004
interest payment, Metallurg could be prohibited from making a cash distribution
at such time under the restrictive covenants of its Revolving Credit Facility
(see "Note 10. Borrowings" to the Company's Consolidated Financial Statements).
If Metallurg Holdings were unable to make its interest payment when due, it
could lead to a foreclosure on its assets, principally the equity of Metallurg,
Inc., and create a default in accordance with the terms of Metallurg, Inc.'s
Senior Note indenture.

      The funded status of Metallurg's pension plans continues to be impacted by
decreases in the plans' assets values due to continuing declines in equity
markets and interest rates in 2002. Management continues to monitor these
developments as further declines in the funded status of these plans may impact
future pension expense and funding requirements.

Related Party Transactions

      In December 2002, the Company sold all of its ownership interests in GfE
to Safeguard International Fund PFW, L.L.C., a Delaware company owned by
Safeguard International. The Company also sold a number of its European sales
offices to Sudamin Recycling GmbH & Co. KG, a German company controlled by
Safeguard International. See "Note 2. Change in Reporting Entity" to the
Company's Consolidated Financial Statements.

      Accounts receivable and payable balances between Metallurg and the
companies sold in December 2002, previously recorded as intergroup balances and
eliminated on consolidation, are now shown as related party balances on the
Company's Consolidated Balance Sheet.

      During 2002, companies under the control of Safeguard International
purchased $21,500,000 face amount of the Senior Discount Notes on the open
market. Of these Senior Discount notes, $4,600,000 were subsequently used by
Sudamin as part of the consideration in its purchase of certain of Metallurg's
sales offices. See "Note 3. Extraordinary Items".

      In 2002, in accordance with an advisory agreement dated July 1, 2000,
Metallurg, Inc. paid Safeguard International Management, L.L.C. ("Safeguard
LLC") $150,000 in connection with certain advisory and other services. Effective
October 31, 2002, this advisory agreement was terminated and two members of
Safeguard LLC, Dr. Heinz C. Schimmelbusch and Mr. Arthur R. Spector, were
employed by Metallurg, Inc. on November 11, 2002, as Chief Executive Officer and
Executive Vice Chairman, respectively.

      Dr. Schimmelbusch and Mr. Spector are managing directors of the general
partner of Safeguard International, the majority owner of Metallurg Holdings,
and in these positions receive compensation from this entity.

Critical Accounting Estimates

      The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make judgments, estimates
and assumptions regarding uncertainties that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities, and the
reported amounts of revenues and expenses. In applying the Company's significant
accounting policies, as more fully discussed in "Note 1. Summary of Significant
Accounting Policies", management uses its judgment to determine the appropriate
assumptions to be used in the determination of certain estimates. Those
estimates are based on historical experience, terms of existing contracts,
observances of trends in the industry, information provided by Metallurg's
customers and information available from other outside sources, as appropriate.
Estimates and assumptions about future events and their effects cannot be
perceived with certainty and accordingly, these estimates may change as new
events occur, as more experience is acquired, as additional information is
obtained and as Metallurg's operating environment changes. The Company deems the
following estimates and accounting policies to be critical:

Inventories

      Metallurg's inventory is a significant component of current assets and is
stated at the lower of cost or market. Metallurg regularly estimates the net
realizable value of inventories on hand and adjusts the carrying amounts of
these inventories to market value, less a normal profit margin, as necessary.
Significant or unanticipated changes to market values of these items, either
adverse or positive, could impact the amount and timing of any such adjustments
that may be required. Such provisions were not significant in the periods
presented.


                                       22




<PAGE>

Taxes

      The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes", which requires that deferred tax assets and
liabilities be recognized using enacted tax rates for the effect of temporary
differences between the book and tax bases of recorded assets and liabilities.
SFAS No. 109 also requires that deferred tax assets be reduced by a valuation
allowance if it is more likely than not that some portion or all of the deferred
tax asset will not be realized.

      The Company evaluates quarterly the realizability of its deferred tax
assets by assessing its valuation allowance and by adjusting the amount of such
allowance, if necessary. The factors used to assess the likelihood of
realization are the Company's forecast of future taxable income and available
tax planning strategies that could be implemented to realize the net deferred
tax assets. The Company has used tax-planning strategies to realize or renew net
deferred tax assets in order to avoid the potential loss of future tax benefits.
Failure to achieve forecasted taxable income might affect the ultimate
realization of the net deferred tax assets. Factors that may affect the
Company's ability to achieve sufficient forecasted taxable income include, but
are not limited to, the following: a decline in sales or margins, increased
competition or loss of market share. In addition, the Company operates within
multiple taxing jurisdictions and is subject to audit in these jurisdictions.
These audits can involve complex issues, which may require an extended period of
time to resolve. In management's opinion, adequate provisions for income taxes
and valuation allowances against deferred taxes have been made for all years.

Environmental Remediation Costs

      Losses associated with environmental remediation obligations are accrued
when such losses are deemed probable and reasonably estimable. Such accruals
generally are recognized no later than the completion of the remedial
feasibility study and are adjusted as further information develops or
circumstances change. Significant judgment is required in developing assumptions
and estimating costs to be incurred for environmental remediation activities due
to, among other factors, the complexity of environmental regulations and
remediation technologies. Metallurg enters into agreements (e.g., administrative
orders, consent decrees) that generally cover many years. Management must assess
the type of technology to be used to accomplish the remediation as well as the
continually evolving regulatory environment in evaluating costs associated with
these sites. These factors are considered in management's estimates of the
timing and amount of any future costs that may be necessary for remedial
actions. Given the level of judgments and estimation as described above, it is
likely that materially different amounts could be recorded if different
assumptions were used or if underlying circumstances were to change (e.g., a
significant change in environmental standards).

Asset Impairment

      The Company's recent history includes years with unprofitable results and
negative cash flows. This history of losses is an indication that the carrying
amounts of the Company's long-lived assets might not be recoverable from future
cash flows. As a result, the Company completed an impairment assessment under
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets"
during the fourth quarter of 2002. In order to complete this assessment, the
Company identified for testing three asset groups - SMC, LSM and EWW.

      The Company evaluates its long-lived assets by comparing estimated future
undiscounted cash flows using the particular cash flow assumptions that are
considered most likely to occur. Significant judgment is required to estimate
future cash flows, including the impact of future prices, production and
shipment levels, cost reduction initiatives, prices of inputs like raw materials
and energy and future capital requirements. Management uses its best judgment to
assess these factors. The result of this assessment led the Company to conclude
that there was no impairment related to the long-lived assets in the three asset
groups tested, as the undiscounted cash flows exceeded the net carrying value of
the applicable net assets in each of the three asset groups. If, however, future
demand and market conditions are less favorable than those projected by
management, asset write-downs may be required.

Goodwill

      The Company accounts for goodwill in accordance with SFAS No. 142,
"Goodwill and Other Intangible Assets". Under SFAS No. 142, goodwill is no
longer amortized but is tested for impairment using a fair value approach at the
"reporting unit" level. A reporting unit is the operating segment, or a business
one level below that operating segment (the "component" level) if discrete
financial information is prepared and regularly reviewed by management at the
component


                                       23




<PAGE>

level. An impairment loss is recognized for any amount by which the carrying
amount of a reporting unit's goodwill exceeds its fair value. The Company uses
discounted cash flows to establish fair values and uses comparative market
multiples, where available and as appropriate, to corroborate discounted cash
flow results. When a reporting unit, or a business within a reporting unit, is
disposed of, goodwill is allocated to the gain or loss on disposition using the
relative fair value method.

      SFAS No. 142 requires goodwill to be tested for impairment annually at the
same time every year, and also when an event occurs or circumstances change such
that it is reasonably possible that an impairment may exist. The Company
selected December 31 as its annual testing date. As of December 31, 2002, no
impairment charge was required.

      The forecasts of future cash flows are based on the Company's best
estimate of future results, based primarily on internal projections and
operating plans that are subject to review and approval by senior management.
Negative changes in these forecasts could cause a particular reporting unit to
fail the goodwill impairment test, resulting in the recognition of an
impairment loss. Changes in comparative market multiples and the discount rate
would affect the amount of any impairment recorded.

Pensions

      Metallurg maintains defined benefit plans for its employees in the U.S.,
the U.K., Norway and Germany. Several statistical and other factors that attempt
to anticipate future events are used in calculating the expense and liability
related to the plans. These factors include assumptions about the discount rate,
expected return on plan assets and rate of future compensation increases as
determined by Metallurg, within certain guidelines. In addition, Metallurg's
actuarial consultants also use subjective factors such as employee turnover and
mortality rates to estimate these factors.

      The rate used to discount future estimated liabilities is determined
considering the rates available at year-end on long-term, high quality corporate
bonds that could be used to settle the obligations of the plan. An increase in
the discount rate of 1/4 of 1% would decrease the 2002 pension liability by
approximately $5.9 million and the net periodic pension expense in 2003 by
approximately $0.5 million. A decrease in the discount rate of 1/4 of 1% would
increase the 2002 pension liability by approximately $6.4 million and the net
periodic pension expense in 2003 by approximately $0.6 million.

      The long-term rate of return is estimated by considering historical
returns and expected returns on current and projected asset allocations. A
change in the assumption for the long-term rate of return on plan assets of 1/4
of 1% would impact net periodic pension expense in 2003 by approximately $0.2
million.

      The combination of negative actual investment returns and declining
interest rates have increased Metallurg's underfunded plan status. At December
31, 2002, Metallurg recognized a liability on its balance sheet for each pension
plan where the fair value of the assets of that pension plan were less than the
accumulated benefit obligation. This liability is called a "minimum pension
liability" and is recorded by a charge to Accumulated Other Comprehensive Loss
in Shareholder's (Deficit) Equity. In 2002, Metallurg recorded a charge of $18.9
million, net of deferred tax of $6.3 million. This charge has no current impact
on Metallurg's net income, liquidity or cash flows.

      Based upon the current underfunded status of the plans and the actuarial
assumptions being used for 2003, Metallurg believes that it will be required to
make cash contributions in 2003 of approximately $0.4 million and $2.0 million
in the U.S. and the U.K., respectively.

Recent Accounting Pronouncements

      Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets", which addresses the accounting and reporting of
acquired goodwill and other intangible assets. The adoption of SFAS No. 142 did
not have a material effect on the Company's financial statements except for the
discontinuance of goodwill amortization.

      In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. This statement covers all legally enforceable obligations associated
with the retirement of tangible long-lived assets and provides the accounting
and reporting requirements for such obligations. SFAS No. 143 is effective on
January 1, 2003. The Company does not believe the adoption of SFAS No. 143 will
have a material impact on its consolidated financial statements.


                                       24




<PAGE>

      In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" was issued. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and related literature and establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, but it retains the fundamental provisions of SFAS No.
121 for the recognition of the impairment of long-lived assets to be held and
used. SFAS No. 144 was effective for the Company on January 1, 2002. The
adoption of SFAS No. 144 did not have a material impact on the Company's
consolidated financial statements.

      In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS No. 145, in rescinding SFAS No. 4, requires that only unusual or infrequent
gains and losses from extinguishment of debt be classified as extraordinary
items, consistent with Accounting Principles Board Opinion No. 30. The Company
will adopt SFAS No. 145 on January 1, 2003. The adoption is not expected to have
a material effect on the Company's financial statements.

      Effective January 1, 2003, the Company will adopt SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". This
statement nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity", under which a liability for an exit cost was recognized at the date
of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
at fair value only once the liability is incurred. The provisions of this
statement will be applied to any future exit or disposal activities.

      In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" was issued. This statement amends SFAS
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
complies with the disclosure provisions of SFAS No. 123 and SFAS No. 148.

      In November 2002, Financial Accounting Standards Board Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees and Indebtedness of Others", was issued. This
interpretation requires the initial recognition and initial measurement, on a
prospective basis only, of guarantees issued or modified after December 31,
2002. Additionally, certain disclosure requirements are effective for financial
statements ending after December 15, 2002. There were no disclosures required in
the Company's Consolidated Financial Statements for the year ended December 31,
2002, and the Company does not believe the adoption of this interpretation in
2003 will have a material impact on its financial statements.

Effects of Inflation

      Inflation has not had a significant effect on Metallurg's operations.
However, there can be no assurance that inflation will not have a material
effect on Metallurg's operations in the future. Metallurg is subject to price
fluctuations in its raw materials and products. These fluctuations have affected
and will continue to affect Metallurg's results of operations. See "Results of
Operations."


                                       25




<PAGE>

Item 8. Financial Statements and Supplementary Data.

      The following audited consolidated financial statements of Metallurg
Holdings, Inc. and its consolidated subsidiaries are presented herein pursuant
to the requirements of Item 8 on the pages indicated below:

AUDITED FINANCIAL STATEMENTS:                                               Page
                                                                            ----

Report of Independent Accountants - PricewaterhouseCoopers
       LLP for the Years Ended December 31, 2002 and 2001
       and the Transition Period Ended December 31, 2000 .............       27

Statements of Consolidated Operations for the Years Ended
       December 31, 2002, 2001 and 2000 ..............................       28

Consolidated Balance Sheets at December 31, 2002 and 2001 ............       29

Statements of Consolidated Cash Flows for the Years Ended
       December 31, 2002, 2001 and 2000 ..............................       30

Notes to Consolidated Financial Statements for the Years
       Ended December 31, 2002, 2001 and 2000 ........................    31-63

Selected Quarterly Financial Data (Unaudited) for the Years
       Ended December 31, 2002 and 2001 ..............................       64

AUDITED FINANCIAL STATEMENT SCHEDULE:

Report of Independent Accountants on Financial Statement
     Schedule - PricewaterhouseCoopers LLP for the Years
     Ended December 31, 2002, 2001 and 2000 ..........................       65

Schedule II - Valuation and Qualifying Accounts and Reserves .........       66


                                       26




<PAGE>

                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Metallurg Holdings, Inc.

      In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations and of cash flows present fairly,
in all material respects, the financial position of Metallurg Holdings, Inc. and
its subsidiaries ("the Company") at December 31, 2002 and December 31, 2001, and
the results of their operations and their cash flows for the years ended
December 31, 2002 and December 31, 2001, and the period ended December 31, 2000
(the "Transition Period", see Note 1) in conformity with accounting
principles generally accepted in the United States of America. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

      As discussed in Note 2 to the consolidated financial statements, on
December 31, 2002, the Company sold a production facility and certain sales
offices to entities under the common control of the Company's majority
shareholder. These dispositions have been accounted for as a change in reporting
entity, which requires that the financial statements be restated to exclude the
sold entities from all periods for the Company's financial reporting purposes.

      As discussed in Note 7 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets", effective January 1, 2002.


PricewaterhouseCoopers LLP
New York, New York
March 17, 2003


                                       27




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

                      STATEMENTS OF CONSOLIDATED OPERATIONS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                          -----------------------------------------------
                                                                Notes         2002             2001              2000
                                                               -------    --------------   -------------    -------------
<S>                                                              <C>           <C>              <C>              <C>
Sales.........................................................       1    $      344,346   $     393,445    $     418,804
Commission income.............................................       1               628             633              405
                                                                          --------------   -------------    -------------
     Total revenue............................................                   344,974         394,078          419,209
Cost of sales.................................................                   315,757         340,069          362,550
                                                                          --------------   -------------    -------------
     Gross profit.............................................                    29,217          54,009           56,659
Selling, general and administrative expenses..................                    35,730          37,937           39,461
Environmental expense recoveries..............................    1,15            (3,000)           (631)            (750)
Restructuring charges, net....................................       5             3,373              --               --
                                                                          --------------   -------------    -------------
     Operating (loss) income..................................                    (6,886)         16,703           17,948
Other:
     Other income, net........................................      14               228             279            5,491
     Interest expense, net....................................      10           (18,435)        (16,454)         (17,039)
                                                                          --------------   -------------    -------------

     (Loss) income before income tax provision, minority
         interest and extraordinary items.....................                   (25,093)            528            6,400
Income tax provision .........................................    1,12             1,283           5,563            7,959
                                                                          --------------   -------------    -------------
     Loss before minority interest and extraordinary items....                   (26,376)         (5,035)          (1,559)
Minority interest.............................................       1              (103)            (28)               7
                                                                          --------------   -------------    -------------
     Loss before extraordinary items..........................                   (26,479)         (5,063)          (1,552)
Extraordinary items...........................................       3             2,227              --           32,649
                                                                          --------------   -------------    -------------
     Net (loss) income........................................                   (24,252)         (5,063)          31,097
Other comprehensive income (loss):
     Foreign currency translation adjustment..................    1,13             7,899          (3,911)          (8,084)
     Minimum pension liability adjustment, net................  1,9,13           (18,876)        (13,802)              --
     Deferred loss on derivatives, net........................ 1,11,13              (219)           (122)              --
                                                                          --------------   -------------    -------------
     Comprehensive (loss) income..............................            $      (35,448)  $     (22,898)   $      23,013
                                                                          ==============   =============    =============
</TABLE>

                 See notes to consolidated financial statements.


                                       28




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                                                  December 31,
                                                                                        ---------------------------------
                                                                            Notes            2002                 2001
                                                                          --------      -------------        ------------
<S>                                                                          <C>        <C>                  <C>
ASSETS
Current Assets:
     Cash and cash equivalents.......................................          1        $      29,443        $     31,857
     Accounts receivable, less allowance for doubtful accounts
       (December 31, 2002: $2,036; December 31, 2001: $1,697)........                          46,154              43,395
     Accounts receivable - related parties...........................         19                5,632               5,010
     Inventories.....................................................        1,6               65,741              75,183
     Prepaid expenses and other current assets.......................                           9,776              14,754
                                                                                        -------------        ------------
         Total current assets........................................                         156,746             170,199
Investments in affiliates............................................          1                2,117               1,126
Goodwill.............................................................        1,7               43,555              43,293
Property, plant and equipment, net...................................        1,8               66,522              59,107
Other assets.........................................................                          20,864               9,743
                                                                                        -------------        ------------
         Total.......................................................                   $     289,804        $    283,468
                                                                                        =============        ============

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
Current Liabilities:
     Short-term debt.................................................         10        $       5,988        $      4,368
     Current portion of long-term debt...............................         10                  284                 234
     Accounts payable................................................                          36,098              29,394
     Accounts payable - related parties..............................         19                1,027                 834
     Accrued expenses................................................                          14,402              13,619
     Current portion of environmental liabilities....................       1,15                4,191               3,842
     Taxes payable...................................................         12                2,067               2,767
                                                                                        -------------        ------------
         Total current liabilities...................................                          64,057              55,058
                                                                                        -------------        ------------
Long-term Liabilities:
     Long-term debt..................................................         10              158,743             156,038
     Accrued pension liabilities.....................................        1,9               47,509              20,109
     Environmental liabilities, net..................................       1,15               26,285              29,049
     Other liabilities...............................................                           1,394               1,234
                                                                                        -------------        ------------
         Total long-term liabilities.................................                         233,931             206,430
                                                                                        -------------        ------------
         Total liabilities...........................................                         297,988             261,488
                                                                                        -------------        ------------

Commitments and Contingencies........................................         16
Minority Interest....................................................          1                  462                 340

Shareholders' (Deficit) Equity:
     Common stock - par value $.01 per share, authorized 30,000
       shares, no shares issued and outstanding......................         13                   --                  --
     Series A Voting Convertible Preferred Stock - par value $.01
       per share, authorized 10,000 shares, issued and outstanding
       5,202.335 shares..............................................         13                   --                  --
     Series B Non-Voting Convertible Preferred Stock - par value
       $.01 per share, authorized 10,000 shares, issued and
       outstanding 4,524 shares .....................................         13                   --                  --
     Additional paid-in capital......................................         13               71,717              66,555
     Accumulated other comprehensive loss............................         13              (38,218)            (27,022)
     Retained deficit................................................         13              (42,145)            (17,893)
                                                                                        -------------        ------------
         Total shareholders' (deficit) equity........................                          (8,646)             21,640
                                                                                        -------------        ------------
         Total.......................................................                   $     289,804        $    283,468
                                                                                        =============        ============
</TABLE>

                 See notes to consolidated financial statements.


                                       29




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

                      STATEMENTS OF CONSOLIDATED CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                  Year Ended December 31,
                                                                         ------------------------------------------
                                                                           2002             2001             2000
                                                                         --------         --------         --------
<S>                                                                      <C>              <C>              <C>
Cash Flows from Operating Activities:
Net (loss) income ..................................................     $(24,252)        $ (5,063)        $ 31,097
Adjustments to reconcile net (loss) income to net cash
   provided by (used in) operating activities:
     Depreciation and amortization .................................        8,422           10,782            9,637
     Gain on sales of assets .......................................           --               --           (5,128)
     Deferred income taxes .........................................         (255)           1,277            3,388
     Interest accretion on Senior Discount Notes ...................        4,907            4,316            8,068
     Restructuring charges, net.....................................        3,373               --               --
     Extraordinary items ...........................................       (2,227)              --          (32,649)
Changes in operating assets and liabilities:
     Decrease (increase) in accounts receivable ....................        3,013            3,404           (3,871)
     Decrease (increase) in inventories ............................       14,770             (318)         (12,141)
     Decrease (increase) in other current assets ...................        4,413             (971)          (2,629)
     (Decrease) increase in accounts payable and accrued expenses ..       (2,756)          (2,990)           2,806
     Restructuring payments ........................................       (1,805)             (60)          (1,311)
     Environmental payments ........................................       (2,734)          (1,842)          (2,525)
     Other assets and liabilities, net .............................          406           (2,897)          (2,746)
                                                                         --------         --------         --------
         Net cash provided by (used in) operating activities .......        5,275            5,638           (8,004)
                                                                         --------         --------         --------
Cash Flows from Investing Activities:
Additions to property, plant and equipment .........................      (11,240)         (15,553)         (13,918)
Proceeds from asset sales ..........................................           --               --            8,311
Acquisitions, net of cash ..........................................           --               --          (11,386)
Other, net .........................................................       (3,207)             185              235
                                                                         --------         --------         --------
         Net cash used in investing activities .....................      (14,447)         (15,368)         (16,758)
                                                                         --------         --------         --------
Cash Flows from Financing Activities:
Proceeds from long-term debt .......................................          216           17,312            8,545
Repayment of long-term debt ........................................         (309)          (9,324)            (515)
Net borrowing (repayment) of short-term debt .......................          883           (2,907)           8,083
Metallurg, Inc. purchase of Senior Discount Notes ..................           --               --          (19,714)
Capital contributions ..............................................        4,401            1,257               90
                                                                         --------         --------         --------
         Net cash provided by (used in) financing activities .......        5,191            6,338           (3,511)
                                                                         --------         --------         --------

Effects of exchange rate changes on cash and cash equivalents ......        1,567           (1,148)            (658)
                                                                         --------         --------         --------
Net decrease in cash and cash equivalents ..........................       (2,414)          (4,540)         (28,931)
Cash and cash equivalents - beginning of period ....................       31,857           36,397           65,328
                                                                         --------         --------         --------
Cash and cash equivalents - end of period ..........................     $ 29,443         $ 31,857         $ 36,397
                                                                         ========         ========         ========

Supplemental Cash Flow Information:
Cash paid for income taxes ......................................        $  1,877         $  2,356         $  3,291
                                                                         ========         ========         ========
Cash paid for interest ..........................................        $ 13,681         $ 13,184         $ 12,272
                                                                         ========         ========         ========
</TABLE>

                 See notes to consolidated financial statements.


                                       30




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.    Summary of Significant Accounting Policies

      Metallurg Holdings, Inc. ("Metallurg Holdings") and its consolidated
subsidiaries, (collectively, the "Company"), is wholly owned by a group of
investors led by and including Safeguard International Fund, L.P. ("Safeguard
International"), an international private equity fund that invests primarily in
equity securities of companies in process industries. On July 13, 1998,
Metallurg Acquisition Corp., a wholly owned subsidiary of Metallurg Holdings,
merged with and into Metallurg, Inc., with Metallurg, Inc. being the surviving
company and Metallurg Holdings becoming the sole parent of Metallurg, Inc.

      Metallurg Holdings' balance sheet is comprised primarily of its equity,
its 12 3/4% Senior Discount Notes (the "Senior Discount Notes") and its
investment in Metallurg, Inc. Metallurg Holdings' income statement is comprised
primarily of selling, general and administrative expenses of $89,000, interest
expense, net, of $5,033,000 and income tax expense of $5,000.

      Metallurg, Inc. and its majority-owned subsidiaries (collectively,
"Metallurg") manufacture and sell high-quality specialty metals, alloys and
metallic chemicals which are essential to the production of high-performance
aluminum and titanium alloys, superalloys, steel and certain non-metallic
materials for various applications in the aerospace, power supply, automotive,
petrochemical processing and telecommunications industries. Metallurg sells over
100 different products to over 2,500 customers worldwide (primarily in North
America and Europe).

      Basis of Presentation and Consolidation - The consolidated financial
statements include the accounts of Metallurg Holdings, Metallurg, Inc. and its
majority-owned subsidiaries. Investments in companies where the Company has
greater than 50% ownership interests are fully consolidated, with the equity
owned by the respective partners shown as minority interest on the balance sheet
and their portion of net income or loss shown separately in the statement of
operations. All material intercompany transactions and balances have been
eliminated in consolidation.

      Effective December 31, 2002, Metallurg sold all of its ownership interests
in its Nuremberg, Germany, manufacturing facility and its European trading
companies (See "Note 2. Change in Reporting Entity"). As the above transactions
are between members of a common controlled group, as defined for accounting
purposes, they are accounted for on an historical basis with no gain or loss
being recorded, and the results presented herein have been restated to exclude
the financial results of the companies sold and to reflect the new reporting
entity.

      Effective December 31, 2000, Metallurg Holdings and Metallurg, Inc.
changed from a fiscal year ending January 31 to a calendar year. As a result,
the year ended December 31, 2000 includes 11 months of results for Metallurg
Holdings and Metallurg, Inc., the parent holding companies and, consistent with
historical reporting practice, the 12 months ended December 31, 2000 of results
for its operating subsidiaries.

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

      Foreign Currency Translation - For foreign operations with functional
currencies other than the U.S. dollar, asset and liability accounts are
translated at current exchange rates; income and expenses are translated using
weighted-average exchange rates. Resulting translation adjustments are reported
in a separate component of shareholders' (deficit) equity. Translation
adjustments for operations in highly inflationary economies and exchange gains
and losses on transactions are included in earnings, and amounted to (losses)
gains of $(1,092,000), $1,624,000, and $(73,000) for the years ended December
31, 2002, 2001 and 2000, respectively.

      Cash and Cash Equivalents - The Company presents all highly liquid
instruments, maturing within 30 days or less when purchased, as cash
equivalents.


                                       31




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1.    Summary of Significant Accounting Policies - (Continued)

      Inventories - Inventories are stated at the lower of cost or market, cost
being determined using principally the average cost and specific identification
methods. The Company estimates the net realizable value of its inventories at
least quarterly and adjusts the carrying amount of these inventories to its
market value, less a normal profit margin, as necessary.

      Investments in Affiliates - Investments in affiliates in which the Company
has a 20% to 50% ownership interest and exercises significant management
influence are accounted for in accordance with the equity method. Where
management does not exercise significant influence and where the Company has
less than a 20% interest, the investment is carried at cost.

      Goodwill and Other Intangible Assets - The Company accounts for goodwill
and other intangible assets in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets". Under SFAS
No. 142, goodwill is no longer amortized but is tested for impairment using a
fair value approach at the "reporting unit" level. A reporting unit is the
operating segment, or a business one level below that operating segment (the
"component" level) if discrete financial information is prepared and regularly
reviewed by management at the component level. An impairment loss is recognized
for any amount by which the carrying amount of a reporting unit's goodwill
exceeds its fair value. The Company uses discounted cash flows to establish fair
values and uses comparative market multiples, where available and as
appropriate, to corroborate discounted cash flow results. When a reporting unit,
or a business within a reporting unit, is disposed of, goodwill is allocated to
the gain or loss on disposition using the relative fair value method. SFAS No.
142 requires goodwill to be tested for impairment annually at the same time
every year, and also when an event occurs or circumstances change such that it
is reasonably possible that an impairment may exist. The Company selected
December 31 as its annual testing date. As of December 31, 2002, no impairment
charge was required.

      The Company's finite-lived acquired intangible assets, comprised of
technical know-how, are amortized on a straight-line basis over 3 or 10 years.
Amortizable intangible assets are tested for impairment based on undiscounted
cash flows and, if impaired, written down to fair value based on discounted cash
flows. There was no impairment charge relating to these assets in 2002.

      Property and Depreciation - Depreciation is computed using principally the
straight-line method over the estimated useful lives of the assets. Major
renewals and improvements are capitalized, while maintenance and repairs are
expensed when incurred. Upon sale or retirement, the costs and related
accumulated depreciation are eliminated from the respective accounts and any
resulting gain or loss is included in income.

      Valuation of Long-Lived Assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used when events and
circumstances warrant such a review. The carrying value of a long-lived
asset is considered impaired when the anticipated undiscounted cash flow
from such asset is separately identifiable and is less than its carrying
value. In that event, a loss is recognized based on the amount by which the
carrying value exceeds the fair market value of the long-lived asset. Fair
market value is determined primarily using the anticipated cash flows
discounted at a rate commensurate with the risk involved. Losses on long-lived
assets to be disposed of are determined in a similar manner, except that fair
market values are reduced for the cost to dispose.

      Revenue Recognition - Revenue is recognized when the earnings process is
complete and the risks and rewards of ownership have transferred to the
customer. In certain instances, the Company arranges sales for which the
supplier invoices the customer directly. In such cases, the Company receives
commission income, in its role as agent, which is recognized when the supplier
passes title to the customer. The Company assumes no significant credit or other
risk with such transactions.

      Environmental Remediation Costs and Recoveries - Losses associated with
environmental remediation obligations are accrued when such losses are deemed
probable and reasonably estimable. Such accruals generally are recognized no
later than the completion of the remedial feasibility study and are adjusted as
further information develops or circumstances change. Cost of future
expenditures for environmental remediation obligations are not discounted to
their present value. Environmental expense recoveries are generally recognized
in income upon final settlement with the Company's insurance carriers.


                                       32




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

1.    Summary of Significant Accounting Policies - (Continued)

      Income Taxes - The Company uses the liability method whereby deferred
income taxes are provided for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities. The
Company does not provide for U.S. federal income taxes on the accumulated
earnings considered permanently reinvested in certain of its foreign
subsidiaries, which approximated $44,600,000 at December 31, 2002. These
earnings have been invested in facilities and other assets and have been subject
to substantial foreign income taxes, which may or could offset a major portion
of any tax liability resulting from their remittance and inclusion in U.S.
taxable income. Accordingly, the Company does not provide for U.S. income taxes
on foreign currency translation adjustments related to these foreign
subsidiaries.

      Retirement Plans - Metallurg maintains defined benefit plans for its
employees in the U.S., the U.K., Norway and Germany. Several statistical and
other factors that attempt to anticipate future events are used in calculating
the expense and liability related to the plans. These factors include
assumptions about the discount rate, expected return on plan assets and rate of
future compensation increases as determined by Metallurg, within certain
guidelines. In addition, Metallurg's actuarial consultants also use subjective
factors such as employee turnover and mortality rates to estimate these factors.
Pension costs are funded or accrued currently. Metallurg's foreign subsidiaries
maintain separate pension plans for their employees. Such foreign plans are
either funded currently or accruals are recorded in the balance sheet to reflect
pension plan liabilities.

      The rate used to discount future estimated liabilities is determined
considering the rates available at year-end on long-term, high quality corporate
bonds that could be used to settle the obligations of the plan. The long-term
rate of return is estimated by considering historical returns and expected
returns on current and projected asset allocations. A liability is recognized on
the balance sheet for each pension plan where the fair value of the assets of
that pension plan is less than the accumulated benefit obligation. This
liability is called a "minimum pension liability" and is recorded by a charge to
Accumulated Other Comprehensive Loss in Shareholders' (Deficit) Equity.

      Stock-Based Compensation - Metallurg has a stock-based compensation plan,
which is described in "Note 13. Shareholders' (Deficit) Equity". Metallurg
accounts for this plan using the intrinsic value method in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and related interpretations. Accordingly, no compensation cost is
reflected in net income, as all options granted under this plan had an
exercise price at least equal to the estimated market value of the underlying
common stock on the date of grant. The following table illustrates the effect on
net income if Metallurg had applied the fair value measurement and recognition
methods prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation" to
record expense for stock option compensation (in thousands):

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                       ------------------------------------------
                                                         2002             2001             2000
                                                       --------         --------         --------
<S>                                                    <C>              <C>              <C>
Net (loss) income, as reported ................        $(24,252)        $ (5,063)        $ 31,097
Less: compensation  expense for option  awards
  determined  by the fair value  based  method,
  net of related tax effects ..................             263              454              408
                                                       --------         --------         --------
    Pro forma net (loss) income ...............        $(24,515)        $ (5,517)        $ 30,689
                                                       ========         ========         ========
</TABLE>


                                       33




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

1.    Summary of Significant Accounting Policies - (Continued)

      Derivative Instruments and Hedging Activities - Metallurg uses
derivative instruments, primarily forward contracts, to manage certain foreign
currency, interest rate and commodity price exposures. Derivative instruments
are viewed as risk management tools by the Company and are not used for trading
or speculative purposes. Derivative instruments are recorded on the balance
sheet at fair value. Derivatives used to hedge foreign-currency-denominated
balance sheet items are reported directly in earnings along with offsetting
gains and losses on the items being hedged. Derivatives used to hedge forecasted
cash flows associated with foreign currency commitments or forecasted commodity
purchases are accounted for as cash flow hedges. Gains and losses on derivatives
designated as cash flow hedges are recorded in other comprehensive income and
reclassified to earnings in a manner that matches the timing of the earnings
impact of the hedged transactions. The ineffective portion of all hedges, if
any, and gains and losses on foreign currency transactions not designated as
hedges are recognized currently in income.

      Recent Accounting Pronouncements - Effective January 1, 2002, the Company
adopted SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses
the accounting and reporting of acquired goodwill and other intangible assets.
The adoption of SFAS No. 142 did not have a material effect on the Company's
financial statements except for the discontinuance of goodwill amortization.

      In June 2001, SFAS No. 143, "Accounting for Asset Retirement Obligations"
was issued. This statement covers all legally enforceable obligations associated
with the retirement of tangible long-lived assets and provides the accounting
and reporting requirements for such obligations. SFAS No. 143 is effective on
January 1, 2003. The Company does not believe the adoption of SFAS No. 143 will
have a material impact on its consolidated financial statements.

      In August 2001, SFAS No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" was issued. This statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" and related literature and establishes a single accounting
model, based on the framework established in SFAS No. 121, for long-lived assets
to be disposed of by sale, but it retains the fundamental provisions of SFAS No.
121 for the recognition of the impairment of long-lived assets to be held and
used. SFAS No. 144 was effective for the Company on January 1, 2002. The
adoption of SFAS No. 144 did not have a material impact on the Company's
consolidated financial statements.

      In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections" was issued.
SFAS No. 145, in rescinding SFAS No. 4, requires that only unusual or infrequent
gains and losses from extinguishment of debt be classified as extraordinary
items, consistent with Accounting Principles Board Opinion No. 30. The Company
will adopt SFAS No. 145 on January 1, 2003. The adoption is not expected to have
a material effect on the Company's financial statements.

      Effective January 1, 2003, the Company will adopt SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities". This
statement nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity", under which a liability for an exit cost was recognized at the date
of an entity's commitment to an exit plan. SFAS No. 146 requires that a
liability for a cost associated with an exit or disposal activity be recognized
at fair value only once the liability is incurred. The provisions of this
statement will be applied to any future exit or disposal activities.

      In December 2002, SFAS No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure" was issued. This statement amends SFAS
No. 123, "Accounting for Stock-Based Compensation", to provide alternative
methods of transition for a voluntary change to the fair-value-based method of
accounting for stock-based employee compensation. In addition, this statement
amends the disclosure requirements of SFAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company accounts for stock-based employee
compensation arrangements in accordance with the provisions of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees", and
complies with the disclosure provisions of SFAS No. 123 and SFAS No. 148.


                                       34




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

1.    Summary of Significant Accounting Policies - (Continued)

      In November 2002, Financial Accounting Standards Board Interpretation No.
45, "Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees and Indebtedness of Others", was issued. This
interpretation requires the initial recognition and initial measurement, on a
prospective basis only, of guarantees issued or modified after December 31,
2002. Additionally, certain disclosure requirements are effective for financial
statements ending after December 15, 2002. There were no disclosures required in
the Company's Consolidated Financial Statements for the year ended December 31,
2002, and the Company does not believe the adoption of this interpretation in
2003 will have a material impact on its financial statements.

      Earnings Per Share - Earnings per share is not presented since Metallurg
Holdings is wholly owned by a group of private investors led by and including
Safeguard International.

2.    Change in Reporting Entity

      Effective December 31, 2002, the Company completed the sale of certain
subsidiaries as described below. As these transactions are between members of a
common controlled group, as defined for accounting purposes, the Company has
restated its financial statements for all periods to reflect a new reporting
entity that excludes these subsidiaries. As a result, there is no gain or loss
recorded and any proceeds received have been recorded as capital contributions
from members of the common controlled group. Had the Company continued to report
results of the former reporting entity, net (loss) income would have been
$(20,383,000), $(6,049,000) and $29,248,000 for the years ended December 31,
2002, 2001 and 2000, respectively.

      Metallurg, through its wholly owned subsidiary, Metallurg Holdings
Corporation, sold all of its ownership interests in (a) GfE Gesellschaft fur
Elektrometallurgie mbH ("GfE"), which was comprised of production facilities and
a sales office in Germany; and (b) the following sales offices: Metallurg
International Resources GmbH ("MIR"), a German company, and its foreign
branches; Ferrolegeringar Aktiengesellschaft ("FAG"), a Swiss company, and its
subsidiaries; and Aktiebolaget Ferrolegeringar ("ABF"), a Swedish company.

      The shares of MIR, FAG, ABF and GfE Giesserei- und Stahlwerksbedarf GmbH,
GfE's sales office in Germany, were sold to Sudamin Recycling GmbH & Co. KG
("Sudamin"), a German company. Sudamin is controlled by Safeguard International,
the majority owner of Metallurg Holdings. The aggregate purchase price consisted
of $6,499,000 in cash plus $2,001,000 in fair value of the Senior Discount
Notes. The purchase price will be adjusted upon finalization of U.S. GAAP
financial statements as of December 31, 2002. The net book value of the
entities sold was $7,527,000 at December 31, 2002.

      The shares of GfE (exclusive of its sales office) were sold to Safeguard
International Fund PFW, L.L.C. ("Safeguard PFW"). Safeguard PFW is a Delaware
company owned by Safeguard International. Consideration consisted of (i) one
Euro in cash and (ii) the right of Metallurg to receive a further payment of 3%
of the net proceeds received by GfE or Safeguard PFW in the event of a sale of
GfE's medical products subsidiary, GfE Medizintechnik GmbH. The shares of GfE
(exclusive of its sales office) had a negative net book value of $9,093,000 at
December 31, 2002. In conjunction with the sale, an outstanding intercompany
loan from Metallurg to GfE in the amount of $7,000,000 was restructured.
Metallurg is to receive $1,000,000 in 2003. The remaining $6,000,000 principal
balance is subordinated. The loan bears interest at a rate of 10% per annum and
repayments of principal and interest are due from 2006 through 2010. Under
certain circumstances, the loan may be repaid prior to its maturity.

      Dr. Heinz C. Schimmelbusch and Mr. Arthur R. Spector, both of whom are
directors and officers of Metallurg Holdings, are also directors and officers of
Safeguard PFW and directors of Sudamin.


                                       35




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3.    Extraordinary Items

      Effective December 31, 2002, the Company sold its ownership interests in
GfE and certain trading companies. See "Note 2. Change in Reporting Entity". In
conjunction with the sale, the Company received $4,600,000 in face amount of
Metallurg Holdings' Senior Discount Notes from Sudamin, the purchaser. The
acquired Senior Discount Notes had a book value on that date of $4,302,000.
On a consolidated basis the Company wrote off $74,000 of related deferred
issuance costs and recognized an extraordinary gain on the extinguishment
of debt of $2,227,000, net of nil tax.

      On October 17, 2000, Metallurg, Inc. completed the purchase of $76,065,000
in face amount of the Senior Discount Notes of Metallurg Holdings, its parent
company, for $19,714,000 in cash. The Senior Discount Notes were purchased on
the open market in several separately negotiated transactions. The purchased
Senior Discount Notes had a book value on that date of $54,135,000. On a
consolidated basis, the Company wrote off $1,697,000 of related deferred
issuance costs and recognized an extraordinary gain on the extinguishment of
debt of $32,649,000, net of nil tax due to statutory exemption.

4.    Segments and Related Information

      Metallurg operates in one significant industry segment, the manufacture
and sale of performance-enhancing additives mainly for the metallurgical
industry. Metallurg is organized around its major production facilities in the
U.K., the U.S., Brazil and Germany, which are supported by an established
worldwide sales network. In addition to its own products, Metallurg distributes
complementary products manufactured by third parties. The results of Metallurg
Holdings consist primarily of interest expense related to the Senior Discount
Notes, general overhead expenses and income tax expense.

Reportable Segments

      London & Scandinavian Metallurgical Co Limited and its subsidiaries
(collectively, "LSM") - This unit is comprised mainly of three production
facilities in the U.K. and another in Norway which manufacture and sell aluminum
alloy grain refiners and alloying tablets for the aluminum industry, chromium
metal and specialty ferroalloys for the steel and superalloy industries and
aluminum powder for various metal powder-consuming industries.

      Shieldalloy Metallurgical Corporation ("SMC") - This unit is comprised of
two production facilities in the U.S. The Ohio plant manufactures and sells
ferrovanadium and vanadium-based chemicals used mostly in the steel and
petrochemical industries. The New Jersey plant currently manufactures and sells
alloying tablets for the aluminum industry and metal powders for the welding
industry. In the second quarter of 2001, Metallurg rationalized its aluminum
master alloy and grain refiner production. Production of these products ceased
at SMC's New Jersey plant and is now concentrated at LSM's and CIF's facilities
in the U.K., Norway and Brazil.

      Companhia Industrial Fluminense ("CIF") - This unit is comprised mainly of
two production facilities in Brazil. The Sao Joao del Rei plant manufactures and
sells aluminum alloy grain refiners and alloying tablets for the aluminum
industry and metal oxides used in the telecommunications, superalloy and
specialty metal industries. The Nazareno mine extracts and concentrates ores
containing tantalum and niobium that are processed, along with other raw
materials, into metal oxides at the Sao Joao del Rei plant.

      Elektrowerk Weisweiler GmbH ("EWW") - This production unit, located in
Germany, produces various grades of low carbon ferrochrome used in the
superalloy, welding and steel industries.

      In addition to their manufacturing operations, LSM and SMC import and
distribute complementary products manufactured by affiliates and third parties.

      Summarized financial information concerning the Company's reportable
segments is shown in the following table (in thousands). Each segment records
direct expenses related to its employees and operations. The "Other" column
includes corporate-related items and results of subsidiaries not meeting the
quantitative thresholds as prescribed by applicable accounting rules for
determining reportable segments. The Company does not allocate general corporate
overhead expenses


                                       36




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4.    Segments and Related Information - (Continued)

to operating segments. The accounting policies of the segments are the same as
those described in "Note 1. Summary of Significant Accounting Policies".
Transactions among segments are established based on negotiation among the
parties.

<TABLE>
<CAPTION>
                                                                                                     Intersegment Consolidated
                                     LSM          SMC           CIF           EWW          Other     Eliminations    Totals
                                  ---------    ---------     ---------     ---------     ---------   ------------ ------------
<S>                               <C>          <C>           <C>           <C>           <C>          <C>         <C>
Year Ended December 31, 2002
Revenue from external
  customers .................     $ 132,766    $  86,698     $  17,878     $  21,865     $  85,767                   $ 344,974
Intergroup revenue ..........        28,212        5,355        14,991         9,842         2,635     $ (61,035)           --
Environmental expense
  recoveries.................            --       (3,000)           --            --            --            --        (3,000)
Interest income .............           200          981            37           151         3,991        (4,552)          808
Interest expense ............         1,709        1,349           782            50        19,905        (4,552)       19,243
Depreciation and
  amortization ..............         4,368        1,598         1,053           425           978            --         8,422
Income tax provision
  (benefit) .................           868       (2,026)          173          (506)        2,774            --         1,283
Extraordinary items .........            --           --            --            --         2,227            --         2,227
Net (loss) income ...........        (2,452)      (3,951)          452          (870)      (24,311)        6,880       (24,252)
Assets ......................       102,588       79,058        22,388        26,709       294,586      (235,525)      289,804
Capital expenditures ........         2,168        5,366         3,057           304           345            --        11,240

Year Ended December 31, 2001
Revenue from external
  customers .................     $ 145,475    $  99,038     $  16,265     $  18,396     $ 114,904                   $ 394,078
Intergroup revenue ..........        27,686        5,030        23,118        17,489         5,024     $ (78,347)           --
Environmental expense
  recoveries ................            --         (631)           --            --            --            --          (631)
Interest income .............            82        1,022            58           219         4,732        (4,236)        1,877
Interest expense ..... ......         1,733        1,168         1,040            42        18,584        (4,236)       18,331
Depreciation and
  amortization ..............         4,067        1,516         1,153           518         3,528            --        10,782
Income tax provision
  (benefit) .................           630       (2,925)        1,678         1,531         4,649            --         5,563
Net income (loss) ...........         1,795       (2,152)        3,487         2,223        12,794       (23,210)       (5,063)
Assets ......................        84,105       81,453        20,421        26,981       344,678      (274,170)      283,468
Capital expenditures ........         4,661        7,579         2,685           140           488            --        15,553

Year Ended December 31, 2000
Revenue from external
  customers .................     $ 147,475    $ 114,297     $  14,948     $  19,554     $ 122,935                   $ 419,209
Intergroup revenue ..........        33,104        4,638        14,062        17,000         2,709     $ (71,513)           --
Environmental expense
  recoveries ................            --         (750)           --            --            --            --          (750)
Interest income .............            51        1,152           551           116         3,784        (2,208)        3,446
Interest expense ............         1,228          405           374            56        20,630        (2,208)       20,485
Depreciation and
  amortization ..............         3,398        1,409           988           641         3,201            --         9,637
Income tax provision
  (benefit) .................         2,167          (54)          416         2,206         3,224            --         7,959
Extraordinary items .........            --           --            --            --        32,649            --        32,649
Net income (loss) ...........         4,584         (604)        2,750           731        42,913       (19,277)       31,097
Assets ......................        96,371       74,556        16,086        29,591       238,805      (155,558)      299,851
Capital expenditures ........         8,746        3,435           887           234           616            --        13,918
</TABLE>


                                       37




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

4.    Segments and Related Information - (Continued)

      Metallurg sells its products in over 50 countries. The following table
presents revenue by country based on the location of the user of the product (in
thousands):

                                               Year Ended December 31,
                                      ------------------------------------------
                                        2002             2001             2000
                                      --------         --------         --------
U.S. ........................         $ 97,126         $135,025         $148,862
South Africa ................           40,468           34,483           35,682
Germany .....................           31,918           41,242           36,001
U.K .........................           25,228           35,101           44,457
Canada ......................           18,222           15,934           23,201
France ......................           13,169           15,418           14,277
Italy .......................           10,510            8,874           10,504
Sweden ......................            8,461            8,937           10,555
Other .......................           99,244           98,431           95,265
Commission income ...........              628              633              405
                                      --------         --------         --------
     Total revenue ..........         $344,974         $394,078         $419,209
                                      ========         ========         ========

      The following table presents property, plant and equipment by country
based on the location of the assets (in thousands):

                                                      December 31,
                                              ----------------------------
                                                2002                 2001
                                              -------              -------
      U.K ......................              $25,600              $24,682
      U.S ......................               23,073               19,546
      Brazil ...................                9,015                7,014
      Germany ..................                2,341                2,108
      Other ....................                6,493                5,757
                                              -------              -------
           Total ...............              $66,522              $59,107
                                              =======              =======


                                       38




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

5.    Restructuring

      During 2002, Metallurg carried out a restructuring program intended to
reduce the cost structure at corporate headquarters, SMC and LSM. The
restructuring plan includes the discontinuation of certain production
activities, the termination of employees and the write-down of redundant plant
and equipment. As a result of the restructuring and other cost reduction
activities, Metallurg currently expects to generate cost savings of
approximately $8 million annually in future periods. Details of the
restructuring charge are as follows (in thousands):

<TABLE>
<CAPTION>
                                                          Utilized          Balance at
                                       Original     -------------------    December 31,
                                        Charge       Cash      Non-cash        2002
                                        ------      ------     --------       ------
<S>                                     <C>         <C>         <C>           <C>
Severance and other employee costs ...  $3,407      $1,786                    $1,621
Write-down of plant and equipment ....     103          --      $  103            --
                                        ------      ------      ------        ------
      Total ..........................  $3,510      $1,786      $  103        $1,621
                                        ======      ======      ======        ======
</TABLE>

      At corporate headquarters, Metallurg, Inc. recorded a restructuring charge
of $1,989,000 for severance costs of four corporate executives and five
administrative employees, all of whom were terminated during the year. Under the
terms of their employment and severance agreements, the severance will be paid
over a period of up to 18 months. Of this amount, $499,000 was paid as of
December 31, 2002.

      LSM recorded a restructuring charge of 'L'710,000 ($1,068,000) for
severance costs of 18 production employees and 11 administrative employees who
were terminated during the year. The entire amount was paid during the year.

      SMC recorded a restructuring charge of $453,000, of which $350,000 was for
severance costs of one executive, 16 production employees and nine
administrative employees, all of whom were terminated during the year. Of this
amount, $219,000 had been paid by December 31, 2002. The remaining $103,000 was
for the write-down of property and equipment no longer used in operations.

      During 2002, EWW paid $19,000 and reversed the remaining prior year
accrual balance of $137,000 following the completion of its restructuring
program, resulting in Metallurg recording a net restructuring charge of
$3,373,000 in 2002.

6.    Inventories

      Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                        December 31,
                                                --------------------------
                                                  2002               2001
                                                -------            -------
<S>                                             <C>                <C>
      Raw materials ................            $12,727            $18,318
      Work in process ..............                998                701
      Finished goods ...............             49,528             53,454
      Other ........................              2,488              2,710
                                                -------            -------
           Total ...................            $65,741            $75,183
                                                =======            =======
</TABLE>


                                       39




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

7.    Goodwill and Other Intangible Assets

      Effective January 1, 2002, the Company adopted SFAS No. 142, "Goodwill and
Other Intangible Assets", which addresses the accounting and reporting of
acquired goodwill and other intangible assets. SFAS No. 142 eliminates the
amortization of goodwill and requires an evaluation of potential goodwill
impairment on adoption and annually thereafter, as well as on occasions when
circumstances indicate a possible impairment. The Company completed an
evaluation as of December 31, 2002 and concluded there is currently no
impairment of goodwill.

      The effect of goodwill amortization on net (loss) income was as follows
(in thousands):

<TABLE>
<CAPTION>
                                                               Year ended December 31,
                                                       --------------------------------------
                                                         2002           2001           2000
                                                       --------       --------       --------
<S>                                                    <C>            <C>            <C>
            Net (loss) income, as reported .........   $(24,252)      $ (5,063)      $ 31,097
            Goodwill amortization, net of nil tax ..         --          2,703          2,358
                                                       --------       --------       --------
               Adjusted net (loss) income ..........   $(24,252)      $ (2,360)      $ 33,455
                                                       ========       ========       ========
</TABLE>

      The carrying values and accumulated amortization of goodwill and other
amortizable intangible assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                         December 31, 2002             December 31, 2001
                                     ------------------------      -------------------------
                                                     Other                          Other
                                                   Intangible                     Intangible
                                     Goodwill        Assets        Goodwill         Assets
                                     --------      ----------      --------       ----------
<S>                                   <C>            <C>            <C>            <C>
      Gross carrying value ........   $52,443        $   519        $52,140        $   364
      Accumulated amortization ....     8,888            311          8,847            151
                                      -------        -------        -------        -------
          Net carrying value ......   $43,555        $   208        $43,293        $   213
                                      =======        =======        =======        =======
</TABLE>

      The Company's other intangible assets, all comprised of technical
know-how, are amortized on a straight-line basis over 3 or 10 years. The
amortization of intangible assets subject to amortization was $133,000 in the
year ended December 31, 2002 and is estimated to be approximately $113,000,
$12,000, $12,000, $12,000 and $12,000 in the next five years.

      The change in other intangible assets includes the acquisition of
technical know-how of $117,000 in March 2002. The changes in goodwill are
the result of differences in exchange rates.


                                       40




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

8.    Property, Plant and Equipment

      The major classes of property, plant and equipment are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                December 31,
                                                         ------------------------       Estimated
                                                           2002             2001          Lives
                                                         --------        --------       ---------
<S>                                                      <C>             <C>              <C>
      Land ......................................        $  2,488        $  1,998
      Buildings and leasehold improvements ......          20,798          18,656         5-50
      Machinery .................................          75,412          53,361         3-12
      Office furniture and equipment ............           6,642           6,225         3-10
      Transportation equipment ..................           2,612           2,314          2-5
      Construction in progress ..................             798           8,388
                                                         --------        --------
               Total ............................         108,750          90,942
      Less: accumulated depreciation ............          42,228          31,835
                                                         --------        --------
               Property, plant and equipment, net        $ 66,522        $ 59,107
                                                         ========        ========
</TABLE>

      Depreciation expense related to property, plant and equipment was
$7,679,000, $7,347,000 and $6,480,000 for the years ended December 31, 2002,
2001 and 2000, respectively.

9.    Retirement Plans

      Metallurg Holdings does not have any retirement plans.

Metallurg, Inc. and Domestic Subsidiaries

      Metallurg, Inc. and its domestic subsidiaries have tax qualified,
noncontributory defined benefit pension plans covering substantially all
salaried and certain hourly paid employees. The plans generally provide benefit
payments using a formula based on an employee's compensation and length of
service. These plans are funded in amounts equal to the minimum funding
requirements of the Employee Retirement Income Security Act. Substantially all
plan assets are invested in cash and short-term investments or listed stocks and
bonds. Metallurg, Inc. also maintains tax qualified defined contribution plans
covering substantially all of the salaried employees of Metallurg, Inc. and its
domestic subsidiaries. All contributions, including a portion that represents a
company match, are made in cash into mutual fund accounts in accordance with the
participants' investment elections.

Foreign Subsidiaries

      Two of Metallurg's major subsidiaries, LSM and EWW, maintain defined
benefit pension plans covering all eligible employees in the U.K. and Norway and
in Germany, respectively. Substantially all plan assets are invested in listed
stocks and bonds. Benefits under these plans are based on years of service and
the employee's compensation. Benefits are paid either from plan assets or, if
necessary, directly by Metallurg. The range of assumptions that are used for
these plans reflect the different economic environments within the various
countries. Several of Metallurg's other foreign subsidiaries have retirement
plans that cover certain eligible employees.


                                       41




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.    Retirement Plans - (Continued)

Net pension cost consisted of the following for the years ended December 31,
2002, 2001 and 2000, respectively (in thousands):

<TABLE>
<CAPTION>
                                                                 U.S. Plans                            Non-U.S. Plans
                                                          Year Ended December 31,                  Year Ended December 31,
                                                   -----------------------------------       ---------------------------------
                                                     2002          2001          2000          2002          2001        2000
                                                   -------       -------       -------       -------       -------     -------
<S>                                                <C>           <C>           <C>           <C>           <C>         <C>
Components of net periodic benefit cost:
  Service cost ..............................      $   479       $   498       $   464       $ 2,309       $ 1,654     $ 1,685
  Interest cost .............................        1,410         1,382         1,341         5,442         4,736       4,416
  Expected return on plan assets ............       (1,480)       (1,677)       (1,836)       (5,298)       (5,228)     (5,719)
  Net amortization and deferral .............           12             8          (241)        1,077            22        (296)
                                                   -------       -------       -------       -------       -------     -------
                                                       421           211          (272)        3,530         1,184          86
  Cost of other defined benefit plans .......           --            --            --            46             4          --
  Cost of defined contribution plans (net of
    forfeitures) ............................          196           226           205            77            82          73
                                                   -------       -------       -------       -------       -------     -------
    Total retirement plan expense (benefit)
      recognized in the Statements of
      Consolidated Operations ...............      $   617       $   437       $   (67)      $ 3,653       $ 1,270     $   159
                                                   =======       =======       =======       =======       =======     =======
</TABLE>

The following table summarizes the changes in benefit obligation and changes in
plan assets for Metallurg's principle defined benefit plans (in thousands).

<TABLE>
<CAPTION>
                                                                      U.S. Plans                    Non-U.S. Plans
                                                               Year Ended December 31,         Year Ended December 31,
                                                              -------------------------       -------------------------
                                                                 2002            2001            2002            2001
                                                              ---------       ---------       ---------       ---------
<S>                                                           <C>             <C>             <C>             <C>
Change in benefit obligation:
  Benefit obligation at beginning of year ................      $  20,241       $  19,029       $  92,536       $  85,019
  Service cost .........................................            479             498           2,309           1,654
  Interest cost ........................................          1,410           1,382           5,442           4,736
  Actuarial loss .......................................            947             603           5,513           5,432
  Benefits paid ........................................         (1,375)         (1,271)         (4,814)         (2,026)
  Amendments ...........................................             40              --              --              --
  Foreign currency translation adjustment ..............             --              --          11,291          (2,279)
                                                              ---------       ---------       ---------       ---------
    Benefit obligation at end of year ..................         21,742          20,241         112,277          92,536
                                                              ---------       ---------       ---------       ---------

Change in plan assets:
  Fair value of plan assets at beginning of year .......         16,996          19,095          66,394          73,823
  Actual return on plan assets .........................         (1,759)         (1,103)         (8,973)         (5,825)
  Employer and employee contributions ..................            228             275           2,286           2,058
  Benefits paid ........................................         (1,375)         (1,271)         (4,432)         (1,743)
  Foreign currency translation adjustment ..............             --              --           6,483          (1,919)
                                                              ---------       ---------       ---------       ---------
    Fair value of plan assets at end of year ...........         14,090          16,996          61,758          66,394
                                                              ---------       ---------       ---------       ---------

Funded status ..........................................         (7,652)         (3,245)        (50,519)        (26,142)
Unrecognized net actuarial loss ........................          6,107           1,927          49,900          27,433
Unrecognized prior service cost ........................            111              78              40              39
                                                              ---------       ---------       ---------       ---------
    (Accrued) prepaid pension cost - principle benefit
        plans ..........................................         (1,434)         (1,240)           (579)          1,330
    (Accrued) prepaid pension cost - other plans .......             --              --             (81)            (35)
                                                              ---------       ---------       ---------       ---------
         Total (accrued) prepaid pension cost recognized
              in the Consolidated Balance Sheets .......      $  (1,434)      $  (1,240)      $    (660)      $   1,295
                                                              =========       =========       =========       =========
</TABLE>


                                       42




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9.    Retirement Plans - (Continued)

<TABLE>
<CAPTION>
                                                                U.S. Plans                  Non-U.S. Plans
                                                          Year Ended December 31,       Year Ended December 31,
                                                          -----------------------       -----------------------
                                                            2002           2001           2002           2001
                                                          --------       --------       --------       --------
<S>                                                       <C>            <C>            <C>            <C>
Amounts recognized in the Consolidated Balance Sheet
   are as follows:
     Other assets:
        Prepaid pension asset ......................                                    $    766       $    766
        Intangible asset ...........................      $    111       $     78             --             --
     Accrued pension liabilities ...................        (6,549)        (2,245)       (40,960)       (17,864)
     Accumulated other comprehensive loss ..........         5,004            927         39,534         18,393
                                                          --------       --------       --------       --------
         Net amount recognized .....................      $ (1,434)      $ (1,240)      $   (660)      $  1,295
                                                          ========       ========       ========       ========
</TABLE>

      The following table indicates the weighted-average assumptions made for
Metallurg's defined benefit plans:

<TABLE>
<CAPTION>
                                                                                       Year Ended December 31,
                                                                             -------------------------------------------
                                                                               2002              2001             2000
                                                                             --------          --------         --------
<S>                                                                            <C>               <C>             <C>
 U.S. Plans:
    Discount rate...................................................           6.75%             7.25%           7.50%
    Rate of compensation increase...................................           4.00%             4.00%           4.00%
    Expected return on plan assets..................................           9.00%             9.00%           9.00%

 Non-U.S. Plans:
    Discount rate...................................................           5.57%             5.72%           6.07%
    Rate of compensation increase...................................           3.68%             3.93%           4.34%
    Expected return on plan assets..................................           7.70%             7.69%           7.73%
</TABLE>

      The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for pension benefit plans with accumulated benefit
obligations in excess of plan assets as of December 31, 2002 and 2001 were as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                      U.S. Plans                    Non-U.S. Plans
                                                                     December 31,                    December 31,
                                                               ------------------------        ------------------------
                                                                 2002            2001            2002            2001
                                                               --------        --------        --------        --------
<S>                                                             <C>             <C>            <C>              <C>
Projected benefit obligation..............................      $21,742         $20,241        $104,660         $85,730
Accumulated benefit obligation............................       20,639          19,241          93,056          75,202
Fair value of plan assets.................................       14,090          16,996          53,781          59,861
</TABLE>


                                       43




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10.   Borrowings

      Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                  December 31,
                                                            ------------------------
                                                                2002          2001
                                                              --------      --------
<S>                                                           <C>           <C>
            Metallurg Holdings:
                 Senior Discount Notes .................      $ 96,161      $ 91,254
                                                              --------      --------

            Metallurg, Inc.:
                 Senior Notes ..........................       100,000       100,000
                                                              --------      --------

            Foreign subsidiaries:
                 LSM ...................................        20,447        18,459
                 EWW ...................................           545           549
                 Other .................................           311           145
                                                              --------      --------
                                                                21,303        19,153
                                                              --------      --------
            Less: elimination of certain Senior Discount
                   Notes on consolidation ..............        58,437        54,135
                                                              --------      --------
                      Subtotal .........................       159,027       156,272
            Less: amounts due within one year ..........           284           234
                                                              --------      --------
                     Total long-term debt ..............      $158,743      $156,038
                                                              ========      ========
</TABLE>

Metallurg Holdings

      In July 1998, Metallurg Holdings received approximately $62,900,000 net
proceeds upon consummation of the offering of $121,000,000 aggregate principal
amount at maturity of Senior Discount Notes due 2008. On October 17, 2000,
Metallurg, Inc. completed the purchase of $76,065,000 in face amount of the
Senior Discount Notes of Metallurg Holdings, its parent company, for $19,714,000
in cash. On December 31, 2002, Metallurg, Inc. acquired an additional $4,600,000
in face amount of the Senior Discount Notes in conjunction with the sale of
certain subsidiaries. As these Senior Discount Notes were not subsequently
retired they eliminate on consolidation with Metallurg. See "Note 3.
Extraordinary Items" to the Company's Consolidated Financial Statements.

      The Senior Discount Notes will accrete interest at a rate of 12 3/4%,
compounded semi-annually, to July 15, 2003. Cash interest will not accrue or be
payable prior to such date. Commencing July 15, 2003, the Senior Discount Notes
will accrue cash interest at a rate of 12 3/4% per annum, payable semi-annually
in arrears on January 15 and July 15 of each year, commencing January 15, 2004.
The Senior Discount Notes are redeemable at the option of Metallurg Holdings, in
whole or in part, at any time on or after July 15, 2003. The Senior Discount
Notes are senior, collateralized obligations of Metallurg Holdings and rank pari
passu in right of payment with all existing and future unsubordinated
indebtedness and senior in right of payment to all subordinated indebtedness of
Metallurg Holdings. However, the Senior Discount Notes are effectively
subordinated to all existing and future liabilities of Metallurg.

      The Senior Discount Notes are collateralized by an assignment and pledge
to a trustee of (i) all of the outstanding equity interests held by Metallurg
Holdings in Metallurg, Inc. and (ii) all promissory notes issued from time to
time to Metallurg Holdings by Metallurg, Inc. The indenture contains limitations
on, among other things, the ability of Metallurg Holdings to incur indebtedness
and enter into certain mergers, consolidations or assets sales. In the years
ended December 31, 2002, 2001 and 2000, Metallurg Holdings recognized
$4,907,000, $4,316,000, and $8,068,000, respectively, of interest expense
related to the Senior Discount Notes. Other interest expense, including that of
Metallurg, totaled $14,336,000, $14,015,000 and $12,417,000, respectively,
during these periods.


                                       44




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10.   Borrowings - (Continued)

      Metallurg Holdings is a holding company, and its ability to meet its
payment obligations on the Senior Discount Notes is dependent upon the receipt
of dividends and other distributions from its direct and indirect subsidiaries.
Metallurg Holdings does not have, and may not in the future have, any material
tangible assets other than the common stock of Metallurg, Inc. Metallurg, Inc.
and its subsidiaries are parties to various credit agreements, including
Metallurg, Inc.'s $100,000,000 11% Senior Notes due 2007 (the "Senior Notes")
indenture and the Revolving Credit Facility, which impose substantial
restrictions on Metallurg, Inc.'s ability to pay dividends to Metallurg
Holdings.

      Currently Metallurg Holdings does not have sufficient cash on hand to make
the interest payment due on its Senior Discount Notes in January 2004. While
Metallurg, Inc. may be able to distribute cash to Metallurg Holdings for the
purpose of making the January 2004 interest payment, Metallurg, Inc. could be
prohibited from making a cash distribution at such time under the restrictive
covenants of its Revolving Credit Facility, as defined below. If Metallurg
Holdings were unable to make its interest payment when due, it could lead
to a foreclosure on its assets, principally the equity of Metallurg, Inc.,
and create a default in accordance with the terms of Metallurg, Inc.'s
Senior Note indenture.

Metallurg, Inc. and Domestic Subsidiaries

      In November 1997, Metallurg, Inc. sold its Senior Notes. Interest is
payable semi-annually. The Senior Notes are redeemable at the option of
Metallurg, Inc., in whole or in part, at any time on or after December 2002. The
Senior Notes are fully and unconditionally guaranteed by the U.S. subsidiaries
of Metallurg, Inc. on a senior unsecured basis. The Senior Note indenture
contains limitations on, among other things, the ability of Metallurg to incur
indebtedness and enter into certain mergers, consolidations or asset sales. In
addition, under the terms of the indenture, Metallurg, Inc. is limited in its
ability to make restricted payments, as defined and including, among other
things, minority investments in subsidiaries and dividend payments, to a formula
based on the cumulative net income since November 1, 1997 and certain specified
allowances. As a result of this limitation, Metallurg, Inc. is permitted to make
future restricted payments in the amount of $7,494,000 as of December 31, 2002.

      On October 29, 1999, Metallurg, Inc., SMC and certain of Metallurg, Inc.'s
other subsidiaries (the "Borrowers") renewed their existing credit facility with
certain financial institutions led by Fleet National Bank as agent (the
"Revolving Credit Facility") for a term of five years. This facility, as amended
in December 2002, provides the Borrowers with up to $30,000,000 for working
capital requirements and general corporate purposes. Interest is charged at a
rate per annum equal to (i) LIBOR, plus 2.0% - 2.5% or (ii) Prime, plus up to
1.0%, based on the performance of Metallurg, Inc. and certain of its
subsidiaries (the "North American Group"), as defined in the Revolving Credit
Facility. Interest rates on amounts borrowed are adjusted quarterly, based on
the North American Group's fixed charge coverage ratio. The Borrowers are
required to pay a fee of 0.375% per annum on the unused portion of the facility.
The total amount the Borrowers may borrow at any time is limited to a borrowing
base calculation that is based on eligible accounts receivable, inventory and
certain fixed assets. At December 31, 2002, there were no borrowings under this
facility; however, outstanding letters of credit totaled $21,379,000. The
Borrowers had unused borrowing capacity of $364,000 under this facility. The
Revolving Credit Facility continues to prohibit Metallurg, Inc. from making
dividends prior to 2004 and requires the Borrowers and certain subsidiaries to
comply with various covenants, including the maintenance of minimum liquidity,
as defined in the agreement, at a $10,000,000 level. Liquidity, as defined, was
$13,992,000 at December 31, 2002.


                                       45




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

10.   Borrowings - (Continued)

Foreign Subsidiaries

      LSM has revolving credit facilities with Barclays Bank plc ("Barclays")
and HSBC Bank plc ("HSBC"). In 2002, an overdraft facility with Barclays was
reduced by 'L'1,000,000 ($1,610,000). These facilities now provide LSM with
up to 'L'7,500,000 ($12,073,000) of borrowings, 'L'43,300,000
($69,700,000) of foreign exchange contracts and options and 'L'4,000,000
($6,439,000) for other ancillary banking arrangements, including bank
guarantees. Borrowings under these facilities are unsecured and payable on
demand. Outstanding loans under these facilities bear interest at a rate of 1.0%
over the lender's base rate. At December 31, 2002, there were no borrowings
under these facilities.

      LSM also has four revolving term loan facilities with Barclays and HSBC
that provide for borrowings up to 'L'12,000,000 ($19,316,000), all of which
were outstanding at December 31, 2002. Two of the facilities expire during the
second quarter of 2004 while the other two expire during the second quarter of
2006. These term loan facilities are unsecured and require LSM to comply with
various covenants, including the maintenance of annual minimum net worth and
interest coverage. In 2002, following a decline in operating results, the term
loan agreements were amended and the annual interest rate was increased to LIBOR
plus 1.75%. Also due to the decline in operating results, LSM obtained, in
December 2002, waivers from HSBC regarding the annual minimum interest coverage
ratio covenant for the period ended December 31, 2002.

      LSM's Norwegian facility has an unsecured overdraft facility of NOK
15,000,000 ($2,165,000). Borrowings under this facility bear interest at a rate
of NIBOR plus 1.25%. At December 31, 2002, there was NOK 10,562,000 ($1,524,000)
outstanding under this facility. During 2000, the Norwegian facility entered
into an unsecured term loan in the amount of NOK 10,000,000 ($1,443,000).
Repayments began in November 2000 and continue for 10 years in equal monthly
installments plus interest at NIBOR plus 1.25%.

      EWW has committed lines of credit with several banks in the aggregate
amount of 'E'3,168,000 ($3,326,000). The credit agreements require EWW to
pledge certain assets, which include accounts receivable, inventory and fixed
assets. At December 31, 2002, there were no borrowings under these facilities.
In 1998, EWW borrowed DM 1,478,000 ('E'756,000 or $794,000). Payments began
in 2000 and continue at DM 185,000 ('E'95,000 or $100,000) per year until
maturity in 2008. The loan bears interest at 4.25%.

      Metallurg, Inc.'s other foreign subsidiaries maintain short-term secured
and unsecured borrowing arrangements, generally in local currencies, with
various banks totaling $10,164,000. Borrowings under these arrangements
aggregated $4,464,000 at December 31, 2002 at a weighted-average interest rate
of 11.6%.

      Interest expense totaled $19,243,000, $18,331,000 and $20,485,000 for the
years ended December 31, 2002, 2001 and 2000, respectively.

      The scheduled maturities of long-term debt during the next five years are
as follows (in thousands):

            December 31,
            ------------
            2003.............................................    $    284
            2004.............................................       9,961
            2005.............................................         304
            2006.............................................       9,957
            2007.............................................     100,248
            Thereafter.......................................      38,273
                                                                 --------
                     Total...................................    $159,027
                                                                 ========


                                       46




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.   Financial Instruments

      The carrying amounts and fair values of financial instruments are as
follows (in thousands):

<TABLE>
<CAPTION>
                                                                December 31, 2002                December 31, 2001
                                                          ----------------------------     ----------------------------
                                                            Carrying          Fair           Carrying          Fair
                                                             Amount           Value           Amount           Value
                                                          ------------     -----------     ------------     -----------
<S>                                                         <C>              <C>             <C>             <C>
Financial assets and liabilities:
   Cash and cash equivalents .........................      $ 29,443         $29,443         $ 31,857        $ 31,857
   Investments in affiliates .........................         2,117           2,117            1,126           1,126
   Short-term debt ...................................         5,988           5,988            4,368           4,368
   Senior Discount Notes .............................        37,724          15,327           37,119          21,119
   Senior Notes ......................................       100,000          63,000          100,000          88,000
   Other long-term debt ..............................        21,303          21,303           19,153          19,153

<CAPTION>
                                                            Notional          Market         Notional           Market
                                                             Amount            Value          Amount            Value
                                                          ------------     -----------     ------------     -----------
<S>                                                          <C>               <C>            <C>                <C>
Derivative instruments:
   Forward exchange contracts:
      Sales ..........................................       $23,906           $(134)         $29,221            $242
      Purchases ......................................         4,513            (347)           3,197             368
   Interest rate collar ..............................        19,316            (361)          17,472            (120)
   Commodity price contracts:
      Sales ..........................................           130              (2)           2,771              28
      Purchases ......................................         4,023              25            5,448             (94)
</TABLE>

      The carrying amount of cash and cash equivalents and short-term debt
approximates fair value due to their liquidity and short-term maturities. All
investments purchased with maturities of three months or less are considered
cash equivalents. Fair values of investments in affiliates are not readily
available. The fair values of Metallurg Holdings' Senior Discount Notes and
Metallurg, Inc.'s Senior Notes are based on quoted market prices. The Company's
other long-term debt includes floating-rate debt, the carrying amount of which
approximates fair value.

      The Company does not use financial instruments for trading or other
speculative purposes. The Company does not hedge the net investment in its
subsidiaries.

      The Company enters into foreign exchange contracts in the regular course
of business to manage exposure against fluctuations on sales and raw material
purchase transactions denominated in currencies other than the functional
currencies of its businesses. The contracts mature at the anticipated cash
requirement date, generally within 12 months, and are predominantly denominated
in U.S. Dollars and Euros. The counterparties to these contractual arrangements
are a diverse group of major financial institutions with which the Company also
has other financial relationships. The Company is exposed to credit risk
generally limited to unrealized gains in such contracts in the event of
non-performance by counterparties of those financial instruments, but it does
not expect any counterparties to fail to meet their obligations given their high
credit ratings. The notional values provide an indication of the extent of the
Company's involvement in such instruments but do not represent its exposure to
market risk, which is essentially limited to risk related to currency rate
movements. The estimated fair value of foreign exchange contracts is based on
estimated amounts at which they could be settled based on market exchange rates
and include all foreign exchange contracts regardless of hedge designation.


                                       47




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11.   Financial Instrument - (Continued)

      In 2001, LSM entered into a zero premium interest rate collar on its
long-term debt of 'L'12,000,000 ($19,316,000) notional principal that limits
the variable spread on its LIBOR-based interest payments between a floor of
5.22% and a cap of 7.0%, plus a margin of 1.75%. Any amounts to be paid or
received on the collar are recognized as an adjustment to interest expense. The
agreement expires in June 2004. The fair value of the collar is based on the
amount at which it can be settled with the counterparty.

      The Company is exposed to volatility in the prices of raw materials used
in some of its products and uses forward contracts to manage some of these
exposures. As the hedging documentation requirements are not currently being
met, gains and losses on these derivatives are recognized currently in earnings.
The estimated fair value of the forward contracts is based on estimated amounts
at which they could be settled based on market prices and include all forward
contracts regardless of hedge designation.

12.   Income Taxes

      For financial reporting purposes, (loss) income before income tax
provision, minority interest and extraordinary items includes the following
components (in thousands):

<TABLE>
<CAPTION>
                                         Year Ended December 31,
                                 ----------------------------------------
                                   2002            2001            2000
                                 --------        --------        --------
<S>                              <C>             <C>             <C>
      U.S ................       $(24,843)       $(12,542)       $ (9,714)
      Foreign ............           (250)         13,070          16,114
                                 --------        --------        --------
                Total ....       $(25,093)       $    528        $  6,400
                                 ========        ========        ========
</TABLE>

      The reconciliation of income tax from continuing operations computed at
the U.S. federal statutory tax rate to the Company's effective tax rate is as
follows (dollars in thousands):

<TABLE>
<CAPTION>
                                                                       Year Ended December 31,
                                                ------------------------------------------------------------------------
                                                        2002                      2001                      2000
                                                ----------------------   ---------------------     ---------------------
                                                   Tax
                                                (Benefit)                   Tax                       Tax
                                                Provision         %      Provision        %        Provision        %
                                                ---------      -------   ---------     -------     ---------     -------
<S>                                              <C>              <C>     <C>           <C>         <C>            <C>
Income tax (benefit) provision at statutory
   rate ...................................      $(8,783)         35.0    $   185         35.0      $ 2,240         35.0
State and local income taxes, net
   of federal income tax effect ...........           24          (0.1)       148         28.0          153          2.4
Effect of net change of foreign valuation
   allowance and differences between U.S.
   and foreign rates ......................        1,557          (6.2)       916        173.5        1,159         18.1
Foreign dividends .........................        1,273          (5.1)     2,059        390.0          642         10.0
Changes in domestic valuation allowance ...        7,075         (28.2)     1,239        234.7        2,654         41.5
Permanent and other differences ...........          137          (0.5)     1,016        192.4        1,111         17.4
                                                 -------       -------    -------      -------      -------      -------
         Total ............................      $ 1,283          (5.1)   $ 5,563      1,053.6      $ 7,959        124.4
                                                 =======       =======    =======      =======      =======      =======
</TABLE>


                                       48




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.   Income Taxes - (Continued)

      The income tax provision represents the following (in thousands):

<TABLE>
<CAPTION>
                                                         Year Ended December 31,
                                                  ---------------------------------------
                                                    2002            2001            2000
                                                  -------         -------         -------
<S>                                               <C>             <C>             <C>
      Current:
          U.S. federal .......................    $  (231)        $  (170)        $    85
          U.S. state and local ...............         37             224             232
          Foreign ............................      1,732           4,232           4,254
                                                  -------         -------         -------
                Total current ................      1,538           4,286           4,571
                                                  -------         -------         -------
      Deferred:
          U.S. federal and state .............          8              19             843
          Foreign ............................       (263)          1,258           2,545
                                                  -------         -------         -------
                Total deferred ...............       (255)          1,277           3,388
                                                  -------         -------         -------
                Total income tax provision ...    $ 1,283         $ 5,563         $ 7,959
                                                  =======         =======         =======
</TABLE>

      U.S. federal income tax refunds receivable of $208,000 and $1,133,000 at
December 31, 2002 and 2001, respectively, consist of carryback claims related to
environmental expenses. These receivables are reflected in prepaid expenses in
the accompanying Consolidated Balance Sheets.

      Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and amounts used for income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            December 31,
                                                     -------------------------
                                                        2002            2001
                                                     --------         --------
<S>                                                  <C>              <C>
      Deferred Tax Assets:
           NOL and other credit carryforwards ...    $ 22,439         $ 17,743
           Accrued interest .....................      11,583            9,755
           Retirement benefits ..................      11,274            4,355
           Environmental liabilities ............       9,935           11,027
           Other accruals and reserves ..........       1,086              871
           Inventories ..........................         385              510
           Fixed assets .........................         207               64
           Other ................................         231              401
                                                     --------         --------
      Total deferred tax assets .................      57,140           44,726
      Deferred tax asset valuation allowance ....     (40,267)         (35,421)
                                                     --------         --------
                                                       16,873            9,305
                                                     --------         --------
      Deferred Tax Liabilities:
           Fixed assets .........................      (4,149)          (2,834)
           Other ................................      (3,102)          (2,596)
                                                     --------         --------
      Total deferred tax liabilities ............      (7,251)          (5,430)
                                                     --------         --------
      Net deferred tax asset ....................    $  9,622         $  3,875
                                                     ========         ========
</TABLE>


                                       49




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

12.   Income Taxes - (Continued)

      At December 31, 2002, the Company has net operating loss carryforwards
relating to domestic operations of $52,011,000 (of which $3,300,000 is subject
to certain limitations relative to utilization), which expire through 2021, and
alternative minimum tax credit carryforwards of $953,000, which can be carried
forward indefinitely. The Company's consolidated foreign subsidiaries have
income tax loss carryforwards aggregating $7,319,000, a substantial portion of
which relates to Brazilian operations, which do not expire under current
regulations. Due to significant uncertainties surrounding the realization of
certain loss carryforwards, the related deferred tax assets have been
substantially provided for in the valuation allowance at December 31, 2002.

      A cumulative deferred tax credit related to a minimum pension liability
adjustment in the amount of $11,860,000 was recorded in shareholders' (deficit)
equity, of which $6,342,000 relates to the year ended December 31, 2002. See
"Note 13. Shareholders' (Deficit) Equity".

13.   Shareholders' (Deficit) Equity

<TABLE>
<CAPTION>
                                                                                    Accumulated                       Total
                                             Preferred Stock        Additional         Other                      Shareholders'
                                         -----------------------      Paid-In      Comprehensive     Retained        Equity
                                          Shares        Amount        Capital          Loss           Deficit       (Deficit)
                                         ---------     ---------     ---------     -------------     ---------      ---------
                                                                (in thousands, except share amounts)
<S>                                      <C>                  <C>    <C>             <C>             <C>            <C>
Balance at January 31, 2000 ..........   9,726.335            --     $  62,060       $  (1,103)      $ (43,927)     $  17,030
  Net income .........................          --            --            --              --          31,097         31,097
  Change in translation adjustment....          --            --            --          (8,084)             --         (8,084)
  Capital contributions ..............          --            --            90              --              --             90
  Deferred tax effects of fresh-start
     adjustments of Metallurg ........          --            --           969              --              --            969
                                         ---------     ---------     ---------       ---------       ---------      ---------
Balance at December 31, 2000 .........   9,726.335            --        63,119          (9,187)        (12,830)        41,102
  Net loss ...........................          --            --            --              --          (5,063)        (5,063)
  Change in translation adjustment....          --            --            --          (3,911)             --         (3,911)
  Minimum pension liability
     adjustment (net of deferred tax
     of $5,518) ......................          --            --            --         (13,802)             --        (13,802)
  Deferred loss on derivatives .......          --            --            --            (122)             --           (122)
  Capital contributions ..............          --            --         1,257              --              --          1,257
  Deferred tax effects of fresh-start
     adjustments of Metallurg ........          --            --           549              --              --            549
  Fresh-start adjustment for tax
     benefits of environmental
     carryback claims ................          --            --         1,630              --              --          1,630
                                         ---------     ---------     ---------       ---------       ---------      ---------
Balance at December 31, 2001 .........   9,726.335            --        66,555         (27,022)        (17,893)        21,640
  Net loss ...........................          --            --            --              --         (24,252)       (24,252)
  Change in translation adjustment ...          --            --            --           7,899              --          7,899
  Minimum pension liability
     adjustment (net of deferred tax
     of $6,342) ......................          --            --            --         (18,876)             --        (18,876)
  Deferred loss on derivatives .......          --            --            --            (219)             --           (219)
  Capital contributions ..............          --            --         6,402              --              --          6,402
  Deferred tax effects of fresh-start
     adjustments of Metallurg ........          --            --            11              --              --             11
  Fresh-start adjustment for tax
     benefits of environmental
     carryback claims ................          --            --        (1,251)             --              --         (1,251)
                                         ---------     ---------     ---------       ---------       ---------      ---------
Balance at December 31, 2002 .........   9,726.335            --     $  71,717       $ (38,218)      $ (42,145)     $  (8,646)
                                         =========     =========     =========       =========       =========      =========
</TABLE>


                                       50




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13.   Shareholders' (Deficit) Equity - (Continued)

      The retained deficit as of January 31, 2000 reflects a credit of $766,000
that has been recorded to adjust the value of long-term prepaid pension costs
established in periods prior to that date.

Accumulated Other Comprehensive Loss

      The components of accumulated other comprehensive loss are as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                    December 31,
                                                             -------------------------
                                                               2002             2001
                                                             --------         --------

<S>                                                          <C>              <C>
            Foreign currency translation loss .......        $ (5,199)        $(13,098)
            Minimum pension liability adjustment, net         (32,678)         (13,802)
            Deferred loss on derivatives ............            (341)            (122)
                                                             --------         --------
                                                             $(38,218)        $(27,022)
                                                             ========         ========
</TABLE>

      At December 31, 2002, no common stock was issued and outstanding; however
5,202.335 shares of Series A Voting Convertible Preferred Stock and 4,524 shares
of Series B Non-Voting Convertible Preferred Stock were issued and outstanding.

      Under the terms of the Senior Discount Note indenture, Metallurg Holdings
is limited in its ability to make restricted payments, as defined and including,
among other things, minority investments in subsidiaries and dividend payments,
to a formula based on cumulative net income since November 1, 1997 and certain
specified allowances. As a result of this limitation, Metallurg Holdings is
permitted to make future restricted payments in the amount of $7,494,000 as of
December 31, 2002.

      As of December 31, 2002, Metallurg completed the sale of several of its
subsidiaries to companies affiliated with Metallurg Holdings' controlling
stockholder (See "Note 2. Change in Reporting Entity"). In conjunction with this
sale, Metallurg acquired $2,001,000 in value of the Senior Discount Notes of
Metallurg Holdings, its parent company, and $3,499,000 in cash. These amounts,
together with dividends paid by these subsidiaries prior to their sale, have
been recorded as capital contributions.

Stock Compensation Plan

      On November 20, 1998, 500,000 shares of common stock were made available
for stock awards and stock options under the Metallurg, Inc. 1998 Equity
Compensation Plan (the "ECP"). Options issued have a term of ten years and vest,
in most cases, 20% on the date of grant and 20% on each of the first four
anniversaries of the date of grant. The weighted-average remaining life of
options outstanding at December 31, 2002 was 4.8 years.


                                       51




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13.   Shareholders' (Deficit) Equity - (Continued)

      Stock option transactions under the ECP are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                        Weighted-
                                                                                                         average
                                                                Number of            Exercise         Fair Value at
                                                                 Shares                Price           Grant Date
                                                              ------------        -------------      ---------------
<S>                                                                <C>                  <C>                  <C>
Balance at January 31, 2000 ..............................         434,500
     Granted .............................................          15,000              $30.00               $6.26
     Canceled or forfeited ...............................         (17,500)
                                                              ------------
Balance at December 31, 2000 .............................         432,000
     Granted .............................................          65,000              $30.00               $3.88
     Canceled or forfeited ...............................         (24,500)
                                                              ------------
Balance at December 31, 2001 .............................         472,500
     Canceled or forfeited ...............................         (72,500)
                                                              ------------
Balance at December 31, 2002 .............................         400,000
                                                              ============
Shares reserved for future options .......................         100,000

Stock options exercisable at:
     December 31, 2000 ...................................         248,625
     December 31, 2001 ...................................         317,500
     December 31, 2002 ...................................         355,750
</TABLE>

      Had the compensation cost for Metallurg, Inc.'s stock option plan been
determined based upon the fair value at the grant date, consistent with SFAS No.
123 "Accounting for Stock-Based Compensation", Metallurg, Inc.'s net income
would have been reduced by $263,000, $454,000, and $408,000 for the years ended
December 31, 2002, 2001 and 2000, respectively. Principal assumptions used in
applying the Black-Scholes model for options granted in the periods presented
are as follows:

<TABLE>
<CAPTION>
                                                                 Year Ended December 31,
                                                    ---------------------------------------------------
                                                         2002              2001              2000
                                                    ----------------  ---------------   ---------------
<S>                                                       <C>            <C>               <C>
Expected volatility ...........................           (a)               0%                0%
Expected dividend yield .......................           (a)               0%                0%
Expected life .................................           (a)            4 years           4 years
Risk-free interest rate .......................           (a)             3.54%             6.02%
</TABLE>

----------
(a)   No options were granted in 2002

14.   Other Income, Net

      Other income, net, consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                               Year Ended December 31,
                                                         ----------------------------------
                                                          2002          2001          2000
                                                         ------        ------        ------
<S>                                                      <C>           <C>           <C>
            Gain on sale of interest in Solikamsk
              Magnesium Works ...................                                    $5,128
            Other, net ..........................        $  228        $  279           363
                                                         ------        ------        ------
                   Total ........................        $  228        $  279        $5,491
                                                         ======        ======        ======
</TABLE>

      In April 2000, Metallurg sold its entire interest in Solikamsk Magnesium
Works for $8,311,000, resulting in a gain of $5,128,000.


                                       52




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15.   Environmental Liabilities

      Metallurg's manufacturing operations in Cambridge, Ohio; Newfield, New
Jersey; Sao Joao del Rei, Brazil and Weisweiler, Germany are subject to
environmental laws and regulations for which Metallurg has incurred
environmental liabilities. These liabilities are primarily related to the
investigation and remediation of contamination resulting from historic
operations.

      Total environmental liabilities consist of the following (in thousands):

                                                              December 31,
                                                        ----------------------
                                                          2002           2001
                                                        -------        -------
            U.S.:
                 SMC - Ohio .........................   $10,454        $10,854
                 SMC - New Jersey ...................    21,316         23,534
                                                        -------        -------
                                                         31,770         34,388
            Foreign .................................     2,494          2,164
                                                        -------        -------
                 Total environmental liabilities ....    34,264         36,552
                 Less: trust funds ..................     3,788          3,661
                                                        -------        -------
            Net environmental liabilities ...........    30,476         32,891
                 Less: current portion ..............     4,191          3,842
                                                        -------        -------
                      Environmental liabilities .....   $26,285        $29,049
                                                        =======        =======

      SMC and Cyprus Foote Mineral Company ("Cyprus Foote"), the former owner of
the Cambridge site, entered into a consent order with the State of Ohio in
December 1996. SMC and Cyprus Foote agreed in the consent order to conduct
remediation and decommissioning activities at the Cambridge site. Additionally,
SMC and Cyprus Foote agreed to enhance, restore and preserve certain wetlands in
the vicinity of the Cambridge site. Pursuant to the consent order, SMC and
Cyprus Foote are jointly and severally liable to the State of Ohio in respect of
these obligations. However, SMC has agreed with Cyprus Foote that it shall
perform and be liable for the performance of these remedial obligations.
Therefore, SMC has accrued its best estimate of associated costs that it expects
to substantially disburse over the next 5 years.

      With respect to the financial assurance obligations to the State of Ohio,
Cyprus Foote has agreed to provide a substantial portion of the financial
assurance required by the State of Ohio. SMC, in addition to agreeing to provide
the balance thereof, has purchased an annuity contract which will provide for
future payments into the trust fund to cover certain of the estimated operation
and maintenance costs over approximately the next 100 years.

      Historic manufacturing processes at both Cambridge and Newfield have
resulted in on-site slag piles containing naturally occurring radioactivity. At
the Cambridge site, SMC plans to decommission and to cap the slag piles on-site.
In August 2002, SMC filed a decommissioning plan for its Newfield facility with
the U.S. Nuclear Regulatory Commission (the "NRC"). At the same time SMC
requested an amendment to the authorized use of the Newfield facility, as
permitted by the NRC, to "storage only pending decommissioning". Financial
assurance for implementation and ongoing maintenance of such decommissioning
plans is partially assured by cash funds held in trust, letters of credit and an
annuity contract.

      SMC entered into administrative consent orders with the New Jersey
Department of Environmental Protection under which SMC must conduct remediation
activities at the Newfield facility. These obligations include the closure of
wastewater lagoons, the decontamination of groundwater, soil remediation,
surface water and sediment clean up, wetlands restoration and related operation
and maintenance activities. SMC accrued its best estimate of the associated
costs with respect to remedial activities at the site, which it expects to
disburse over the next 15 years. At December 31, 2002, outstanding letters of
credit issued as financial assurances in favor of various environmental agencies
totaled $19,069,000. These letters of credit were issued under the Revolving
Credit Facility. See "Note 10. Borrowings". The cost of providing financial
assurance over the term of the remediation activities has been contemplated in
the accrued amounts.


                                       53




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

15.   Environmental Liabilities - (Continued)

      CIF has accrued environmental liabilities in the amounts of $147,000 and
$172,000 at December 31, 2002 and 2001, respectively, to cover reclamation costs
of closed mine sites. EWW has accrued costs of $2,347,000 and $1,992,000 at
December 31, 2002 and 2001, respectively, to cover the costs of closing an
off-site dump.

      In 2002, 2001 and 2000, SMC recognized environmental expense recoveries of
$3,000,000, $631,000 and $750,000, respectively, upon settlement with insurance
companies relating to coverage for certain environmental claims stemming from
the 1960's and forward. These claims relate mostly to the historical costs of
remedial activities at SMC's Newfield, New Jersey site.

16.   Contingent Liabilities

      In addition to environmental matters, which are discussed in Note 15, the
Company defends, from time to time, various claims and legal actions arising in
the normal course of business. Management believes, based on the advice of
counsel, that the outcome of such matters will not have a material adverse
effect on the Company's consolidated financial position, results of operations
or liquidity. There can be no assurance, however, that existing or future
litigation will not result in an adverse judgment against the Company that could
have a material adverse effect on the Company's future results of operations or
cash flows.

17.   Leases

      Metallurg leases office space, facilities and equipment. The leases
generally provide that Metallurg pays the tax, insurance and maintenance
expenses related to the leased assets. At December 31, 2002, future minimum
lease payments required under non-cancelable operating leases having remaining
lease terms in excess of one year are as follows (in thousands):

            December 31,
            ------------
            2003..............................................      $1,071
            2004..............................................         981
            2005..............................................         829
            2006..............................................         675
            2007..............................................         654
            Thereafter........................................       2,211
                                                                    ------
                     Total....................................      $6,421
                                                                    ======

      Rent expense under operating leases was $1,202,000, $1,093,000 and
$716,000 for the years ended December 31, 2002, 2001 and 2000, respectively.


                                       54




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information

      In November 1997, Metallurg, Inc. issued $100 million principal amount of
its 11% Senior Notes due 2007. Under the terms of the Senior Notes, SMC,
Metallurg Holdings Corporation, Metallurg Services, Inc., Metallurg
International Resources, LLC ("MIR, LLC") and MIR (China), Inc. (collectively,
the "Guarantors"), wholly owned subsidiaries of Metallurg, Inc., have fully and
unconditionally guaranteed on a joint and several basis Metallurg, Inc.'s
obligations to pay principal, premium and interest relative to the Senior Notes.
During the second quarter of 1999, Metallurg, Inc. established Metallurg
International Resources, Inc. (now MIR, LLC) as a wholly owned subsidiary and a
guarantor of the Senior Notes. Certain commercial activities previously carried
out by Metallurg, Inc. are now being carried out by MIR, LLC. Management has
determined that separate, full financial statements of the Guarantors would not
be material to potential investors and, accordingly, such financial statements
are not provided. Supplemental financial information of the Guarantors is
presented below.

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Operations
                          Year Ended December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Combined         Combined
                                                                Guarantor      Non-Guarantor
                                           Metallurg, Inc.    Subsidiaries      Subsidiaries      Eliminations    Consolidated
                                           ---------------    ------------      ------------      ------------    ------------
<S>                                          <C>               <C>               <C>               <C>            <C>
Total revenue.............................                      $ 109,833         $ 282,101         $ (46,960)     $ 344,974
                                                                ---------         ---------         ---------      ---------
Operating costs and expenses:
   Cost of sales ........................                         106,992           257,229           (48,464)       315,757
   Selling, general and administrative
     expenses ............................    $   5,260            10,141            20,240                --         35,641
   Environmental expense recoveries ......           --            (3,000)               --                --         (3,000)
   Restructuring charges, net.............        1,989               453               931                --          3,373
                                              ---------         ---------         ---------         ---------      ---------
     Total operating costs and expenses...        7,249           114,586           278,400           (48,464)       351,771
                                              ---------         ---------         ---------         ---------      ---------
     Operating (loss) income .............       (7,249)           (4,753)            3,701             1,504         (6,797)
Other:
   Other (expense) income, net ...........           --               (17)              245                --            228
   Interest (expense) income, net ........      (10,850)            1,644            (4,196)               --        (13,402)
   Equity in (losses) income of
     subsidiaries ........................       (5,211)             (486)              321             5,376             --
                                              ---------         ---------         ---------         ---------      ---------
     (Loss) income before income tax
          (benefit) provision ............      (23,310)           (3,612)               71             6,880        (19,971)
Income tax (benefit) provision ...........       (1,958)            1,864             1,372                --          1,278
                                              ---------         ---------         ---------         ---------      ---------
     Loss before minority interest .......      (21,352)           (5,476)           (1,301)            6,880        (21,249)
Minority interest ........................           --                --              (103)               --           (103)
                                              ---------         ---------         ---------         ---------      ---------
     Net loss ............................      (21,352)           (5,476)           (1,404)            6,880        (21,352)
Other comprehensive income (loss):
     Foreign currency translation
       adjustment ........................        7,899             7,813            14,345           (22,158)         7,899
     Minimum pension liability adjustment,
       net ...............................      (18,876)          (15,058)          (29,598)           44,656        (18,876)
     Deferred loss on derivatives, net ...         (219)             (217)             (402)              619           (219)
                                               --------          --------          --------          --------       --------
     Comprehensive loss ...................    $(32,548)         $(12,938)         $(17,059)         $ 29,997       $(32,548)
                                               ========          ========          ========          ========       ========
</TABLE>


                                       55




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
           Condensed Consolidating Balance Sheet at December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                        Combined      Combined
                                                          Metallurg,    Guarantor   Non-Guarantor
                                                             Inc.     Subsidiaries  Subsidiaries   Eliminations   Consolidated
                                                          ---------   ------------  ------------   ------------   ------------
<S>                                                       <C>           <C>           <C>            <C>           <C>
ASSETS
Current Assets:
  Cash and cash equivalents ............................   $  13,302     $   1,054     $  15,082                    $  29,438
  Accounts receivable, net .............................      26,167        17,039        52,967      $ (44,387)       51,786
  Inventories ..........................................          --        23,513        43,594         (1,366)       65,741
  Other assets .........................................       1,953         7,130         9,398         (8,825)        9,656
                                                           ---------     ---------     ---------      ---------     ---------
      Total current assets .............................      41,422        48,736       121,041        (54,578)      156,621
Investments - intergroup ...............................      68,851        10,437        38,686       (117,974)           --
Investments - other ....................................          --            --         2,117             --         2,117
Property, plant and equipment, net .....................         585        22,488        43,449             --        66,522
Other assets ...........................................      11,037        59,216        12,922        (60,270)       22,905
                                                           ---------     ---------     ---------      ---------     ---------
      Total ............................................   $ 121,895     $ 140,877     $ 218,215      $(232,822)    $ 248,165
                                                           =========     =========     =========      =========     =========
LIABILITIES AND
SHAREHOLDER'S (DEFICIT) EQUITY
Current Liabilities:
  Short-term debt and current portion of long-term
    debt ...............................................                               $   6,272                    $   6,272
  Accounts payable .....................................   $   3,878     $  39,285        38,353      $ (44,387)       37,129
  Accrued expenses .....................................       3,331         7,984         7,218             --        18,533
  Other current liabilities ............................       3,224         3,601         4,048         (8,825)        2,048
                                                           ---------     ---------     ---------      ---------     ---------
      Total current liabilities ........................      10,433        50,870        55,891        (53,212)       63,982
                                                           ---------     ---------     ---------      ---------     ---------
Long-term Liabilities:
   Long-term debt ......................................     100,000            --        21,019             --       121,019
   Accrued pension liabilities .........................       6,072           477        40,960             --        47,509
   Environmental liabilities, net ......................          --        23,812         2,473             --        26,285
   Other liabilities ...................................      17,876            --        43,788        (60,270)        1,394
                                                           ---------     ---------     ---------      ---------     ---------
      Total long-term liabilities ......................     123,948        24,289       108,240        (60,270)      196,207
                                                           ---------     ---------     ---------      ---------     ---------
      Total liabilities ................................     134,381        75,159       164,131       (113,482)      260,189
                                                           ---------     ---------     ---------      ---------     ---------
Minority interest ......................................          --            --           462             --           462

Shareholder's (Deficit) Equity:
   Common stock ........................................          50         1,217       118,126       (119,343)           50
   Due from parent company .............................     (21,715)           --            --             --       (21,715)
   Additional paid-in capital ..........................      72,514       128,351         7,076       (135,427)       72,514
   Accumulated other comprehensive loss ................     (38,621)      (31,137)      (58,750)        89,887       (38,621)
   Retained deficit ....................................     (24,714)      (32,713)      (12,830)        45,543       (24,714)
                                                           ---------     ---------     ---------      ---------     ---------
      Total shareholder's (deficit) equity .............     (12,486)       65,718        53,622       (119,340)      (12,486)
                                                           ---------     ---------     ---------      ---------     ---------
      Total ............................................   $ 121,895     $ 140,877     $ 218,215      $(232,822)    $ 248,165
                                                           =========     =========     =========      =========     =========
</TABLE>


                                       56




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Cash Flows
                          Year Ended December 31, 2002
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   Combined        Combined
                                                  Metallurg,       Guarantor     Non-Guarantor
                                                     Inc.        Subsidiaries     Subsidiaries     Consolidated
                                                  ----------     ------------     ------------     ------------
<S>                                               <C>              <C>              <C>              <C>
Cash Flows from Operating Activities .........    $(15,260)        $ 10,039         $ 10,576         $  5,355
                                                  --------         --------         --------         --------

Cash Flows from Investing Activities:
Additions to property, plant and equipment ...         (16)          (5,369)          (5,855)         (11,240)
Other, net ...................................      (6,937)           4,002             (272)          (3,207)
                                                  --------         --------         --------         --------
  Net cash used in investing activities ......      (6,953)          (1,367)          (6,127)         (14,447)
                                                  --------         --------         --------         --------

Cash Flows From Financing Activities:
Intergroup borrowings (repayments) ...........       6,430           (5,891)            (539)              --
Proceeds from long-term debt .................          --               --              216              216
Repayment of long-term debt ..................          --               --             (309)            (309)
Net short-term borrowings ....................          --               --              883              883
Capital contributions ........................          --            4,401               --            4,401
Intergroup dividends received (paid) .........      10,564           (7,401)          (3,163)              --
                                                  --------         --------         --------         --------
   Net cash provided by (used in)
      financing activities ...................      16,994           (8,891)          (2,912)           5,191
                                                  --------         --------         --------         --------

Effects of exchange rate changes on cash
  and cash equivalents .......................          --               --            1,567            1,567
                                                  --------         --------         --------         --------
Net (decrease) increase in cash and
  cash equivalents ...........................      (5,219)            (219)           3,104           (2,334)
Cash and cash equivalents -
  beginning of period ........................      18,521            1,273           11,978           31,772
                                                  --------         --------         --------         --------
Cash and cash equivalents -
  end of period ..............................    $ 13,302         $  1,054         $ 15,082         $ 29,438
                                                  ========         ========         ========         ========
</TABLE>


                                       57




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Operations
                          Year Ended December 31, 2001
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Combined          Combined
                                                                Guarantor       Non-Guarantor
                                             Metallurg, Inc.   Subsidiaries      Subsidiaries      Eliminations    Consolidated
                                             ---------------   ------------      ------------      ------------    ------------
<S>                                            <C>               <C>               <C>               <C>             <C>
Total revenue..............................                      $ 158,912         $ 298,974         $ (63,808)      $ 394,078
                                                                 ---------         ---------         ---------       ---------
Operating costs and expenses:
   Cost of sales ..........................                        139,324           263,572           (62,827)        340,069
   Selling, general and administrative
     expenses .............................    $   4,898            10,893            19,276                --          35,067
   Environmental expense recoveries .......           --              (631)               --                --            (631)
                                               ---------         ---------         ---------         ---------       ---------
     Total operating costs and expenses....        4,898           149,586           282,848           (62,827)        374,505
                                               ---------         ---------         ---------         ---------       ---------
     Operating (loss) income ..............       (4,898)            9,326            16,126              (981)         19,573
Other:
   Other income, net ......................           --                --               279                --             279
   Interest (expense) income, net .........       (9,783)            1,006            (3,335)               --         (12,112)
   Equity in income of subsidiaries .......       15,676             4,449             2,104           (22,229)             --
                                               ---------         ---------         ---------         ---------       ---------
     Income before income tax (benefit)
       provision ..........................          995            14,781            15,174           (23,210)          7,740

Income tax (benefit) provision ............       (1,159)            1,304             5,413                --           5,558
                                               ---------         ---------         ---------         ---------       ---------
     Income before minority interest ......        2,154            13,477             9,761           (23,210)          2,182
Minority interest .........................           --                --               (28)               --             (28)
                                               ---------         ---------         ---------         ---------       ---------
     Net income ...........................        2,154            13,477             9,733           (23,210)          2,154
Other comprehensive (loss) income:
     Foreign currency translation
       adjustment .........................       (3,911)          (10,583)           (4,379)           14,962          (3,911)
     Minimum pension liability adjustment,
       net.................................      (13,802)          (13,150)          (25,750)           38,900         (13,802)
     Deferred (loss) gain on derivatives,
       net ................................         (122)               58              (242)              184            (122)
                                               ---------         ---------         ---------         ---------       ---------
     Comprehensive loss ...................    $ (15,681)        $ (10,198)        $ (20,638)        $  30,836       $ (15,681)
                                               =========         =========         =========         =========       =========
</TABLE>


                                       58




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
           Condensed Consolidating Balance Sheet at December 31, 2001
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                Combined          Combined
                                                                Guarantor       Non-Guarantor
                                            Metallurg, Inc.    Subsidiaries      Subsidiaries      Eliminations   Consolidated
                                            ---------------    ------------      ------------      ------------   ------------
<S>                                         <C>               <C>               <C>               <C>             <C>
ASSETS
Current Assets:
   Cash and cash equivalents .............    $  18,521         $   1,273         $  11,978                          $  31,772
   Accounts receivable, net ..............       31,213            18,014            46,764         $ (47,562)          48,429
   Inventories ...........................           --            35,226            42,827            (2,870)          75,183
   Other assets ..........................          745             8,288             8,174            (2,637)          14,570
                                              ---------         ---------         ---------         ---------        ---------
     Total current assets ................       50,479            62,801           109,743           (53,069)         169,954
Investments - intergroup .................       86,600            21,124            49,901          (157,625)              --
Investments - other ......................           --                --             1,126                --            1,126
Property, plant and equipment, net .......          728            18,818            39,561                --           59,107
Other assets .............................        6,814            59,271             6,035           (60,788)          11,332
                                              ---------         ---------         ---------         ---------        ---------
     Total ...............................    $ 144,621         $ 162,014         $ 206,366         $(271,482)       $ 241,519
                                              =========         =========         =========         =========        =========
LIABILITIES AND
SHAREHOLDER'S EQUITY
Current Liabilities:
   Short-term debt and current portion
    of long-term debt ....................                                        $   4,602                          $   4,602
   Accounts payable ......................    $   2,569         $  43,355            31,890         $ (47,562)          30,252
   Accrued expenses ......................        2,843             7,649             6,854                --           17,346
   Other current liabilities .............        2,546                91             2,767            (2,637)           2,767
                                              ---------         ---------         ---------         ---------        ---------
     Total current liabilities ...........        7,958            51,095            46,113           (50,199)          54,967
                                              ---------         ---------         ---------         ---------        ---------
Long-term Liabilities:
   Long-term debt ........................      100,000                --            18,919                --          118,919
   Accrued pension liabilities ...........        1,886               359            17,864                --           20,109
   Environmental liabilities, net ........           --            26,906             2,143                --           29,049
   Other liabilities .....................       17,876                --            44,146           (60,788)           1,234
                                              ---------         ---------         ---------         ---------        ---------
     Total long-term liabilities .........      119,762            27,265            83,072           (60,788)         169,311
                                              ---------         ---------         ---------         ---------        ---------
     Total liabilities ...................      127,720            78,360           129,185          (110,987)         224,278
                                              ---------         ---------         ---------         ---------        ---------
Minority interest ........................           --                --               340                --              340

Shareholder's Equity:
   Common stock ..........................           50             1,227           118,152          (119,379)              50
   Due from parent company ...............      (19,714)               --                --                --          (19,714)
   Additional paid-in capital ............       67,352           121,964             7,076          (129,040)          67,352
   Accumulated other comprehensive
     loss ................................      (27,425)          (23,675)          (43,095)           66,770          (27,425)
   Retained deficit ......................       (3,362)          (15,862)           (5,292)           21,154           (3,362)
                                              ---------         ---------         ---------         ---------        ---------
     Total shareholder's equity ..........       16,901            83,654            76,841          (160,495)          16,901
                                              ---------         ---------         ---------         ---------        ---------
     Total ...............................    $ 144,621         $ 162,014         $ 206,366         $(271,482)       $ 241,519
                                              =========         =========         =========         =========        =========
</TABLE>


                                       59




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Cash Flows
                          Year Ended December 31, 2001
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                    Combined        Combined
                                                                    Guarantor     Non-Guarantor
                                               Metallurg, Inc.    Subsidiaries     Subsidiaries     Consolidated
                                               ---------------    ------------     ------------     ------------
<S>                                                <C>              <C>              <C>              <C>
Cash Flows from Operating Activities ...........   $ (3,589)        $ (1,803)        $ 11,551         $  6,159
                                                   --------         --------         --------         --------

Cash Flows from Investing Activities:
Additions to property, plant and equipment .....        (35)          (7,583)          (7,935)         (15,553)
Other, net .....................................         89               --               96              185
                                                   --------         --------         --------         --------
     Net cash provided by (used in)
       investing activities ....................         54           (7,583)          (7,839)         (15,368)
                                                   --------         --------         --------         --------

Cash Flows From Financing Activities:
Intergroup (repayments) borrowings .............    (16,329)          16,575             (246)              --
Proceeds from long-term debt ...................         --               --           17,312           17,312
Repayment of long-term debt ....................         --               --           (9,324)          (9,324)
Net repayment of short-term debt ...............         --               --           (2,907)          (2,907)
Capital contributions ..........................         --            1,257               --            1,257
Intergroup dividends received (paid) ...........     13,209           (8,757)          (4,452)              --
                                                   --------         --------         --------         --------
     Net cash (used in) provided by
       financing activities ....................     (3,120)           9,075              383            6,338
                                                   --------         --------         --------         --------

Effects of exchange rate changes on
   cash and cash equivalents ...................         --               --           (1,148)          (1,148)
                                                   --------         --------         --------         --------
Net (decrease) increase in cash and
   cash equivalents ............................     (6,655)            (311)           2,947           (4,019)
Cash and cash equivalents -
   beginning of period .........................     25,176            1,584            9,031           35,791
                                                   --------         --------         --------         --------
Cash and cash equivalents -
   end of period ...............................   $ 18,521         $  1,273         $ 11,978         $ 31,772
                                                   ========         ========         ========         ========
</TABLE>


                                       60




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Operations
                          Year Ended December 31, 2000
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      Combined        Combined
                                                     Metallurg,       Guarantor      Non-Guarantor
                                                         Inc.        Subsidiaries    Subsidiaries    Eliminations Consolidated
                                                     ----------      ------------    ------------    ------------ ------------
<S>                                                   <C>              <C>             <C>             <C>        <C>
Total revenue ....................................                     $ 175,198       $ 302,784       $ (58,773)    $ 419,209
                                                                       ---------       ---------       ---------     ---------
Operating costs and expenses:
   Cost of sales .................................                       154,690         266,610         (58,750)      362,550
   Selling, general and administrative expenses...    $   5,888           11,347          19,338              --        36,573
   Environmental expense recoveries ..............           --             (750)             --              --          (750)
                                                      ---------        ---------       ---------       ---------     ---------
     Total operating costs and expenses ..........        5,888          165,287         285,948         (58,750)      398,373
                                                      ---------        ---------       ---------       ---------     ---------
     Operating (loss) income .....................       (5,888)           9,911          16,836             (23)       20,836
Other income (expense):
   Other income, net .............................           --            5,128             363              --         5,491
   Interest (expense) income, net ................       (8,338)             854          (1,217)            (71)       (8,772)
   Equity in income of subsidiaries ..............       19,183            8,216              --         (27,399)           --
                                                      ---------        ---------       ---------       ---------     ---------
     Income before income tax (benefit)
       provision .................................        4,957           24,109          15,982         (27,493)       17,555
Income tax (benefit) provision ...................       (4,631)           5,836           6,769              --         7,974
                                                      ---------        ---------       ---------       ---------     ---------
     Income before minority interest .............        9,588           18,273           9,213         (27,493)        9,581
Minority interest ................................           --               --               7              --             7
                                                      ---------        ---------       ---------       ---------     ---------
     Net income ..................................        9,588           18,273           9,220         (27,493)        9,588
Other comprehensive loss:
     Foreign currency translation adjustment .....       (8,084)          (5,113)         (5,660)         10,773        (8,084)
                                                      ---------        ---------       ---------       ---------     ---------
     Comprehensive income ........................    $   1,504        $  13,160       $   3,560       $ (16,720)    $   1,504
                                                      =========        =========       =========       =========     =========
</TABLE>


                                       61




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

18.   Supplemental Guarantor Information - (Continued)

                Metallurg, Inc. and its Consolidated Subsidiaries
                 Condensed Consolidating Statement of Cash Flows
                          Year Ended December 31, 2000
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      Combined        Combined
                                                                      Guarantor     Non-Guarantor
                                                  Metallurg, Inc.   Subsidiaries     Subsidiaries     Consolidated
                                                  ---------------   ------------     ------------     ------------
<S>                                                  <C>              <C>              <C>              <C>
Cash Flows from Operating Activities ........        $ (9,762)        $  1,593         $    728         $ (7,441)
                                                     --------         --------         --------         --------

Cash Flows from Investing Activities:
Additions to property, plant and equipment ..             (92)          (3,457)         (10,369)         (13,918)
Proceeds from sale of assets ................              --            8,311               --            8,311
Other, net ..................................             117              (34)         (11,234)         (11,151)
                                                     --------         --------         --------         --------
     Net cash provided by (used in) investing
        activities ..........................              25            4,820          (21,603)         (16,758)
                                                     --------         --------         --------         --------

Cash Flows From Financing Activities:
Intergroup (repayments) borrowings ..........            (383)           2,607           (2,224)              --
Proceeds from long-term debt ................              --               --            8,545            8,545
Repayment of long-term debt .................              --               --             (515)            (515)
Net short-term borrowings ...................              --               --            8,083            8,083
Purchase of parent company debt .............         (19,714)              --               --          (19,714)
Capital contributions .......................              83               --                7               90
Intergroup dividends received (paid) ........           9,500           (8,000)          (1,500)              --
                                                     --------         --------         --------         --------
     Net cash (used in) provided by
        financing activities ................         (10,514)          (5,393)          12,396           (3,511)
                                                     --------         --------         --------         --------

Effects of exchange rate changes on cash
   and cash equivalents .....................              --               --             (658)            (658)
                                                     --------         --------         --------         --------
Net (decrease) increase in cash and cash
   equivalents ..............................         (20,251)           1,020           (9,137)         (28,368)
Cash and cash equivalents -
   beginning of period ......................          45,427              564           18,168           64,159
                                                     --------         --------         --------         --------
Cash and cash equivalents -
   end of period ............................        $ 25,176         $  1,584         $  9,031         $ 35,791
                                                     ========         ========         ========         ========
</TABLE>


                                       62




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

19.   Related Party Transactions

      In December 2002, Metallurg sold all of its ownership interest in GfE to
Safeguard PFW, a Delaware company owned by Safeguard International. Metallurg
also sold a number of its European sales offices to Sudamin, a German company
controlled by Safeguard International. See "Note 2. Change in Reporting Entity".

      Accounts receivable and payable balances between Metallurg and the
companies sold in December 2002, previously recorded as intergroup balances and
eliminated on consolidation, are now shown as related party balances on the
Company's Consolidated Balance Sheet.

      During 2002, companies under the control of Safeguard International
purchased $21,500,000 face amount of the Senior Discount Notes on the open
market. Of these Senior Discount notes, $4,600,000 were subsequently used by
Sudamin as part of the consideration in its purchase of certain of Metallurg's
sales offices. See "Note 3. Extraordinary Items".

      Pursuant to an Advisory Agreement entered into as of January 1, 1999
between Metallurg, Inc. and Safeguard International Management, L.L.C.
("Safeguard LLC"), Metallurg, Inc. paid $33,000 per month through June 2000 (for
a total of $198,000 during 2000) in connection with certain advisory and other
services. Effective July 1, 2000, a new Advisory Agreement between Safeguard LLC
and Metallurg, Inc. was entered into, which provides for the payment of $15,000
per month by Metallurg, Inc. in connection with the same types of services.
Under this Agreement, Metallurg paid $150,000, $90,000 and $180,000 in 2002,
2001 and 2000, respectively. Effective October 31, 2002, this advisory agreement
was terminated and two members of Safeguard LLC, Dr. Heinz C. Schimmelbusch and
Mr. Arthur R. Spector, were employed by Metallurg, Inc. on November 11, 2002 as
Chief Executive Officer and Executive Vice Chairman, respectively.

      During 2001 and 2000, Metallurg Holdings recognized cross charges from
Safeguard LLC of $34,000 and $458,000, respectively, representing reimbursement
of direct costs incurred by Safeguard LLC in connection with pursuing and
negotiating potential transactions on Metallurg Holdings' behalf.

      Dr. Schimmelbusch and Mr. Spector are managing directors of the general
partner of Safeguard International, the majority owner of Metallurg Holdings,
and in these positions receive compensation from this entity.


                                       63




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

                        Selected Quarterly Financial Data
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                 First           Second          Third           Fourth
                                                Quarter         Quarter         Quarter         Quarter          Year
                                              -------------   -------------   -------------   -------------  --------------
Year Ended December 31, 2002
<S>                                                <C>             <C>             <C>             <C>            <C>
Sales.......................................       $77,505         $86,291         $90,392         $90,158        $344,346
Gross profit................................         6,842           6,711           9,063           6,601          29,217
Net loss (a)................................        (4,374)         (8,467)         (5,444)         (5,967)        (24,252)

<CAPTION>
                                                 First           Second          Third           Fourth
                                                Quarter         Quarter         Quarter         Quarter          Year
                                              -------------   -------------   -------------   -------------  --------------
Year Ended December 31, 2001
<S>                                               <C>             <C>              <C>             <C>            <C>
Sales.......................................      $105,905        $103,140         $93,648         $90,752        $393,445
Gross profit................................        15,357          15,058          11,943          11,651          54,009
Net income (loss) (b).......................            44            (402)         (1,592)         (3,113)         (5,063)
</TABLE>

----------
(a)   Includes environmental expense recovery of $3,000 in the first quarter and
      restructuring charges, net, of $1,361, $990 and $1,022 in the second,
      third and fourth quarters, respectively.
(b)   Includes environmental expense recoveries of $318, $282 and $31 in the
      first, second and fourth quarters, respectively.


                                       64




<PAGE>

        REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of Metallurg Holdings, Inc.

      Our audits of the consolidated financial statements referred to in our
report dated March 17, 2003 appearing in this Annual Report on Form 10-K also
included an audit of the financial statement schedule listed in Item 15 (a) (2)
of this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.


PricewaterhouseCoopers LLP
New York, New York
March 17, 2003


                                       65




<PAGE>

             METALLURG HOLDINGS, INC. AND CONSOLIDATED SUBSIDIARIES

          SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                                    Deductions
                                                                            --------------------------
                                                 Balance at    Charged to   Uncollectable                     Balance at
                                                 Beginning     Costs and       Accounts                           End
                                                 of Period      Expenses     Written Off      Other (a)        of Period
                                                 ----------    ----------   -------------     ---------       ----------
<S>                                                  <C>             <C>            <C>           <C>             <C>
Year Ended December 31, 2000
     Accounts receivable allowance
       for doubtful accounts..................         $853          $623           $(146)          $(4)          $1,326

Year Ended December 31, 2001
     Accounts receivable allowance
       for doubtful accounts..................       $1,326          $889           $(343)        $(175)          $1,697

Year Ended December 31, 2002
     Accounts receivable allowance
       for doubtful accounts..................       $1,697          $679           $(515)         $175           $2,036
</TABLE>

----------
(a)   Foreign currency translation adjustments.


                                       66




<PAGE>

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

      None.

Item 10. Directors and Executive Officers of Metallurg Holdings, Inc.

      The following table sets forth certain information with respect to the
directors and executive officers of Metallurg Holdings:

<TABLE>
<CAPTION>
Name                                                 Age      Position
----                                                 ---      --------
<S>                                                  <C>      <C>
Heinz C. Schimmelbusch.........................      58       Director, President and Chief Executive Officer
Arthur R. Spector..............................      62       Director, Executive Vice President and Treasurer
Michael R. Holly...............................      57       Director and Executive Vice President
Samuel A. Plum.................................      58       Director
</TABLE>

      Each director of Metallurg Holdings holds office until the next annual
meeting of stockholders of Metallurg Holdings or until his or her successor has
been elected and qualified. Officers of Metallurg Holdings are selected by the
Board of Directors and serve at the discretion of the Board of Directors.

      Heinz C. Schimmelbusch - Dr. Heinz C. Schimmelbusch became President,
Chief Executive Officer and a Director of Metallurg Holdings in July 1998 as
well as Chairman of the Board and a Director of Metallurg, Inc. He was appointed
Chief Executive Officer of Metallurg, Inc., in November 2002. He is a Managing
Director of the general partner, and founder of Safeguard International Fund,
L.P., a private equity fund investing in North America and Europe; and Chairman
and CEO of Allied Resource Corporation, a global technology and engineering
group, both located in Wayne, Pennsylvania. He serves as Chairman of the Board
of Directors of the following companies: In the U.S. - Alanx Corporation in
Newark, Delaware and Puralube, Inc. in Wayne, Pennsylvania; In Germany - ALD
Vacuum Technologies AG in Hanau; Pfalz-Flugzengwerke AG in Speyer; and KWH
Katalystorenwerke GmbH in Marl; and in Belgium - Sudamin Holdings S.A. in
Brussels. During his professional career, Dr. Schimmelbusch held various
industrial positions in Germany: Chairman of the Managing Board of
Metallgesellschaft AG in Frankfurt; Chairman of the Supervisory Boards of
Buderus AG in Wetzlar; Dynamit Nobel AG in Troisdorf; Norddeutsche Affinerie AG
in Hamburg; Grillowerke AG in Duisburg; and of BUS Umweltservice AG in
Frankfurt. In Canada, he was Chairman of the Board of Directors of Metall Mining
Corporation in Toronto and Methanex Corporation in Vancouver. He served on the
following Boards of Directors: Allianz Versicherungs AG, Munich and Mobil Oil
AG, Hamburg in Germany; Teck Corporation in Vancouver, Canada and Safeguard
Scientifics, Inc. in Wayne, Pennsylvania. He was a Member of the Advisory Boards
of Dresdner Bank AG in Frankfurt, Germany; Creditanstalt AG in Vienna, Austria;
the European Bank for Reconstruction and Development in London, England; and of
Hermes Kreditversicherungs-AG in Hamburg, Germany. Dr. Schimmelbusch also served
as a member of the Presidency of the Federation of German Industries (BDI) in
Cologne, Germany and Chairman of its Environmental Committee; and member of the
Presidency of the International Chamber of Commerce (ICC) in Paris, France. Dr.
Schimmelbusch received his graduate degree (with distinction) and his doctorate
(magna cum laude) from the University of Tubingen, Germany. For chairing the
International Advisory Committee of the Austrian Chancellor, he was awarded the
Golden Cross of Honor for services to the Republic of Austria.

      Arthur R. Spector - Mr. Spector has been a Director of Metallurg Holdings
and Metallurg, Inc. since July 1998 and has been Executive Vice President of
Metallurg Holdings since July 1998 and Treasurer since August 2000. He was
elected Vice Chairman of the Board and as Vice Chairman of Metallurg, Inc. in
November 2002. He is a Managing Director of the general partner and of the
management company of Safeguard International Fund, L.P. From January 1997 to
March 1998, Mr. Spector served as Managing Director of TL Ventures LLC, a
venture capital company. Mr. Spector has also served as Chairman of various
public companies, including Casino & Credit Services, Inc., Abraham Lincoln
Federal Savings Bank and State National Bank of Maryland. Mr. Spector serves as
a Director of Docucorp International, a document automation company. Mr. Spector
holds a B.S. degree in economics from the Wharton School of the University of
Pennsylvania and a J.D. from the University of Pennsylvania Law School.

      Michael R. Holly - Mr. Holly became a Director and Executive Vice
President of Metallurg Holdings in July 1998. He is also a Managing Director of
the general partner and of the management company of Safeguard International
Fund, L.P. From 1994 though 1996, Mr. Holly provided merger and acquisition
advisory services in close association with Safeguard Scientifics, Inc.
Mr. Holly is a Director of several privately held companies.


                                       67




<PAGE>

      Samuel A. Plum - Mr. Plum was elected to serve as a Director of Metallurg
Holdings in October 1998 and as a Director of Metallurg, Inc. in November 1998.
He has been a Managing General Partner of the general partner of SCP Private
Equity Partners, L.P. since its commencement in August 1996 and was an employee
of Safeguard Scientifics, Inc. from 1993 to 1996. From February 1989 to January
1993, Mr. Plum served as President of Charterhouse, Inc. and Charterhouse North
American Securities, Inc., the U.S. investment banking and broker-dealer
divisions of Charterhouse PLC, a merchant bank located in the U.K. From 1973 to
1989, he served in various capacities, including Managing Director and partner,
at the investment banking divisions of Paine Webber Inc. and Blyth Eastman
Dillon & Co., Inc., respectively. Mr. Plum is also a Director of PacWest
Telecomm, Inc., Index Stock Photography, Inc., Pentech Financial Service, Inc.,
WebVision, Inc. and the Philadelphia Zoological Society. Past directorships
include Tishman Holdings Corporation, Icon CMT Corp., Vortex Sound
Communications, Inc., Quaker Fabrics Corporation and the National Audubon
Society, the latter two as Chairman. Mr. Plum holds a B.A. degree in history
from Harvard University and an M.B.A. degree from the Harvard Graduate School of
Business Administration.

Item 11. Executive Compensation.

      None of the executive officers or directors of Metallurg Holdings received
compensation from Metallurg Holdings during the year ended December 31, 2002.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

      The following table sets forth, as of March 27, 2003, information with
respect to each person (including any "group" as that term is used in Section
13(d) (3) of the Exchange Act of 1934, as amended) who is known to the Company
to be the beneficial owner of more than 5% of any class of Metallurg Holdings'
securities.

<TABLE>
<CAPTION>
                                                                                       Amount and
                                                   Name and Address                     Nature of
           Title of Class                        of Beneficial Holder             Beneficial Ownership   Percent of Class
           --------------                        --------------------             --------------------   ----------------
<S>                                  <C>                                                 <C>                   <C>
     Series A Voting                 Safeguard International Fund, L.P.                      3,972             76.35%
       Convertible Preferred Stock       Building 400
                                         435 Devon Park Drive
                                         Wayne, Pennsylvania 19087

     Series A Voting                 SCP Private Equity Partners, L.P.                   1,202.335             23.11%
       Convertible Preferred Stock       Building 300
                                         435 Devon Park Drive
                                         Wayne, Pennsylvania 19087

     Series B Non-Voting             Safeguard International Fund, L.P.                      2,482             54.86%
       Convertible Preferred Stock       Building 400
                                         435 Devon Park Drive
                                         Wayne, Pennsylvania 19087

     Series B Non-Voting             Safeguard Co-Investment Partnership, L.P.               1,980             43.77%
       Convertible Preferred Stock       Building 400
                                         435 Devon Park Drive
                                         Wayne, Pennsylvania 19087
</TABLE>

      None of the directors, officers or management of Metallurg Holdings own
any equity securities of Metallurg Holdings.


                                       68




<PAGE>

Item 13. Certain Relationships and Related Transactions.

      See the discussion under "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Related Party Transactions" for
details of certain related party transactions occurring in 2002.

Item 14. Controls and Procedures

      Within the 90 days prior to the date of this report, the Company carried
out an evaluation, under the supervision of its Chief Executive Officer and
Principal Financial Officer, of the effectiveness of the design and operation of
its disclosure controls and procedures pursuant to Exchange Act Rule 13a-14.
Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Company's disclosure controls and procedures are
effective in timely alerting them to material information relating to the
Company (including its consolidated subsidiaries) required to be included in its
Exchange Act filings.

      There have been no significant changes in the Company's internal controls
or in other factors that could significantly affect internal controls subsequent
to the date that the Company carried out its evaluation.


                                       69




<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedule and Reports on Form 8-K.

(a)   Documents filed as part of this report:

      (1)   A list of the financial statements filed as part of this report
            appears on page 26.

      (2)   The financial statement schedule required to be filed as part of
            this report appears on page 66.

      (3)   The following exhibits are filed as part of this report:

Exhibit
Number                       Description of Exhibit
------                       ----------------------

2.1     Merger Agreement, dated as of June 15, 1998, by and among Metallurg
        Holdings, Inc., Metallurg Acquisition Corp. and Metallurg, Inc.
        (incorporated herein by reference to Exhibit S42.1 to the Form S-4
        Registration Statement filed by Metallurg Holdings, Inc. with the
        Securities and Exchange Commission on July 29, 1998 (File No.
        333-60077)).

3.1     Certificate of Incorporation of Metallurg Holdings, Inc. (incorporated
        herein by reference to Exhibit S43.1 to the Form S-4 Registration
        Statement filed by Metallurg Holdings, Inc. with the Securities and
        Exchange Commission on July 29, 1998 (File No. 333-60077)).

3.2     By-laws of Metallurg Holdings, Inc. (incorporated herein by reference to
        Exhibit S43.2 to the Form S-4 Registration Statement filed by Metallurg
        Holdings, Inc. with the Securities and Exchange Commission on July 29,
        1998 (File No. 333-60077)).

4.1     Amended and Restated Stockholders Agreement, dated as of October 13,
        1998, by and among Metallurg Holdings, Inc., Safeguard International
        Fund, L.P., State of Michigan Retirement Systems-Safeguard Limited
        Partnership and SCP Private Equity Partners, L.P. (incorporated herein
        by reference to Exhibit 4.1 to Metallurg Holdings, Inc.'s Annual Report
        on Form 10-K filed with the Securities and Exchange Commission on May 3,
        1999 (File No. 333-60077)).

4.2     Amended and Restated Registration Rights Agreement, dated as of October
        13, 1998, by and among Metallurg Holdings, Inc., Safeguard International
        Fund, L.P., State of Michigan Retirement Systems-Safeguard Limited
        Partnership and SCP Private Equity Partners, L.P. (incorporated herein
        by reference to Exhibit 4.2 to Metallurg Holdings, Inc.'s Annual Report
        on Form 10-K filed with the Securities and Exchange Commission on May 3,
        1999 (File No. 333-60077)).

4.3     Joinder Agreement, dated as of December 7, 1998, by and among Metallurg
        Holdings, Inc., Joseph H. Marren, Scott M. Honour, Mark W. Lanigan,
        Robert McEvoy, Scott Morrison, Safeguard International Fund, L.P., State
        of Michigan Retirement Systems-Safeguard Limited Partnership and SCP
        Private Equity Partners, L.P. (incorporated herein by reference to
        Exhibit 4.3 to Metallurg Holdings, Inc.'s Annual Report on Form 10-K
        filed with the Securities and Exchange Commission on May 3, 1999 (File
        No. 333-60077)).

4.4     Indenture, dated as of July 13, 1998, by and between Metallurg Holdings,
        Inc. and United States Trust Company of New York (incorporated herein by
        reference to Exhibit S44.1 to the Form S-4 Registration Statement filed
        by Metallurg Holdings, Inc. with the Securities and Exchange Commission
        on July 29, 1998 (File No. 333-60077)).

4.5     Form of 12-3/4% Series A Senior Discount Notes due 2008, dated as of
        July 13, 1998 (incorporated by reference to Exhibit 4.4).

4.6     Form of 12-3/4% Series B Senior Discount Notes due 2008, dated as of
        July 13, 1998 (incorporated by reference to Exhibit 4.4).


                                       70




<PAGE>

Exhibit
Number                       Description of Exhibit
------                       ----------------------

4.7     Registration Agreement, dated as of July 13, 1998, by and between
        Metallurg Holdings, Inc. and BancBoston Securities Inc. (incorporated
        herein by reference to Exhibit S44.4 to the Form S-4 Registration
        Statement filed by Metallurg Holdings, Inc. with the Securities and
        Exchange Commission on July 29, 1998 (File No. 333-60077)).

4.8     Indenture, dated as of November 25, 1997, by and among Metallurg, Inc.,
        the Guarantors and IBJ Schroder Bank & Trust Company (incorporated
        herein by reference to Exhibit S44.1 to the Form S-4 Registration
        Statement filed by Metallurg, Inc. with the Securities and Exchange
        Commission on December 30, 1997 (File No. 333-42141)).

4.9     Form of 11% Series A Senior Notes due 2007, dated as of November 25,
        1997 (incorporated herein by reference to Exhibit S44.2 to the Form S-4
        Registration Statement filed by Metallurg, Inc. with the Securities and
        Exchange Commission on December 30, 1997 (File No. 333-42141)).

4.10    Form of 11% Series B Senior Notes due 2007, dated as of November 25,
        1997 (incorporated herein by reference to Exhibit S44.3 to the Form S-4
        Registration Statement filed by Metallurg, Inc. with the Securities and
        Exchange Commission on December 30, 1997 (File No. 333-42141)).

4.11    Registration Agreement, dated as of November 20, 1997, by and among
        Metallurg, Inc., the Guarantors and the Initial Purchasers (incorporated
        herein by reference to Exhibit S44.4 to the Form S-4 Registration
        Statement filed by Metallurg, Inc. with the Securities and Exchange
        Commission on December 30, 1997 and Amendments No. 1 through 4 thereto,
        filed through March 13, 1998 (File No. 333-42141)).

10.1    Pledge Agreement, dated as of July 13, 1998, by and between Metallurg
        Holdings, Inc. and United States Trust Company of New York (incorporated
        herein by reference to Exhibit S410.1 to the Form S-4 Registration
        Statement filed by Metallurg Holdings, Inc. with the Securities and
        Exchange Commission on July 27, 1998 (File No. 333- 60077)).

10.2    Amended and Restated Loan Agreement, dated October 29, 1999, by and
        among Metallurg, Inc., Shieldalloy Metallurgical Corporation and
        Metallurg International Resources, Inc., as Borrowers, Metallurg
        Services, Inc., MIR (China), Inc. and Metallurg Holdings Corporation, as
        Guarantors, and Fleet National Bank (formerly known as BankBoston, N.A.)
        as Agent for the lending institutions listed therein (incorporated
        herein by reference to Exhibit 10.1 to Metallurg, Inc.'s Quarterly
        Report on Form 10-Q filed with the Securities and Exchange Commission on
        December 10, 1999 (File No. 333-42141)).

10.3    First Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of October 11, 2000, among Metallurg, Inc.,
        Shieldalloy Metallurgical Corporation and Metallurg International
        Resources, Inc. as Borrowers, Metallurg Services, Inc., Metallurg
        Holdings Corporation and MIR (China), Inc. as Guarantors, and Fleet
        National Bank (formerly known as BankBoston, N.A.) as Agent for itself
        and the other financial institutions parties thereto, and the banks
        named therein (incorporated herein by reference to Exhibit 10 to
        Metallurg, Inc.'s Quarterly Report on Form 10-Q filed with the
        Securities and Exchange Commission on December 11, 2000 (File No.
        333-42141)).

10.4    Second Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of November 3, 2000, by and among Metallurg,
        Inc., Shieldalloy Metallurgical Corporation and Metallurg International
        Resources, LLC, as Borrowers, Metallurg Services, Inc., MIR (China),
        Inc. and Metallurg Holdings Corporation, as Guarantors, and Fleet
        National Bank (formerly known as BankBoston, N.A.) as Agent for itself
        and the other financial institutions parties thereto, and the banks
        named therein (incorporated herein by reference to Exhibit 10.1 to
        Metallurg, Inc.'s Quarterly Report on Form 10-Q filed with the
        Securities and Exchange Commission on November 13, 2001 (File No.
        333-42141)).


                                       71




<PAGE>

Exhibit
Number                       Description of Exhibit
------                       ----------------------

10.5    Third Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of July 2, 2001, among Metallurg, Inc.,
        Shieldalloy Metallurgical Corporation and Metallurg International
        Resources, LLC, as Borrowers, Metallurg Services, Inc., Metallurg
        Holdings Corporation and MIR (China), Inc. as Guarantors, and Fleet
        National Bank (formerly known as BankBoston, N.A.) as Agent for itself
        and the other financial institutions parties thereto, and the banks
        named therein (incorporated herein by reference to Exhibit 10.2 to
        Metallurg, Inc.'s Quarterly Report on Form 10-Q filed with the
        Securities and Exchange Commission on November 13, 2001 (File No.
        333-42141)).

10.6    Fourth Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of December 13, 2001, by and among
        Metallurg, Inc., Shieldalloy Metallurgical Corporation and Metallurg
        International Resources, LLC, as Borrowers, Metallurg Services, Inc.,
        MIR (China), Inc. and Metallurg Holdings Corporation, as Guarantors, and
        Fleet National Bank (formerly known as BankBoston, N.A.) as Agent for
        itself and the other financial institutions parties thereto, and the
        banks named therein (incorporated herein by reference to Exhibit 10.5 to
        Metallurg, Inc.'s Annual Report on Form 10-K filed with the Securities
        and Exchange Commission on March 27, 2002 (File No. 333-42141)).

10.7    Fifth Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of December 20, 2002, by and among
        Metallurg, Inc., Shieldalloy Metallurgical Corporation and Metallurg
        International Resources, LLC, as Borrowers, Metallurg Services, Inc.,
        MIR (China), Inc. and Metallurg Holdings Corporation, as Guarantors, and
        Fleet National Bank (formerly known as BankBoston, N.A.) as Agent for
        itself and the other financial institutions parties thereto, and the
        banks named therein (incorporated herein by reference to Exhibit 10.6 to
        Metallurg, Inc.'s Annual Report on Form 10-K filed with the Securities
        and Exchange Commission on March 27, 2003 (File No. 333-42141)).

10.8    Sixth Amendment to Amended and Restated Loan Agreement (dated as of
        October 29, 1999), dated as of January 30, 2003, by and among Metallurg,
        Inc., Shieldalloy Metallurgical Corporation and Metallurg International
        Resources, LLC, as Borrowers, Metallurg Services, Inc., MIR (China),
        Inc., Metallurg Holdings Corporation and Metallurg (Canada) Ltd., as
        Guarantors, and Fleet National Bank (formerly known as BankBoston, N.A.)
        as Agent for itself and the other financial institutions parties
        thereto, and the banks named therein (incorporated herein by reference
        to Exhibit 10.7 to Metallurg, Inc.'s Annual Report on Form 10-K filed
        with the Securities and Exchange Commission on March 27, 2003 (File No.
        333-42141)).

10.9    Settlement Agreement dated December 27, 1996 between Metallurg Inc.,
        Shieldalloy Metallurgical Corporation, the Environmental Protection
        Agency, the Department of the Interior, the Nuclear Regulatory
        Commission and the New Jersey Department of Environmental Protection
        (incorporated herein by reference to Exhibit S410.5 to the Form S-4
        Registration Statement filed by Metallurg, Inc. with the Securities and
        Exchange Commission on December 30, 1997 (File No. 333-42141)).

10.10   Permanent Injunction Consent Order dated December 23, 1996 between the
        State of Ohio, Shieldalloy Metallurgical Corporation and Cyprus Foote
        Mineral Company (incorporated herein by reference to Exhibit S410.6 to
        the Form S-4 Registration Statement filed by Metallurg, Inc. with the
        Securities and Exchange Commission on December 30, 1997 (File No.
        333-42141)).


                                       72




<PAGE>

Exhibit
Number                       Description of Exhibit
------                       ----------------------

10.11   Merger Agreement, dated June 15, 1998, among Metallurg, Inc., Metallurg
        Holdings and Metallurg Acquisition Corp. (incorporated herein by
        reference to Exhibit 2 to Current Report on Form 8-K filed by Metallurg,
        Inc. with the Securities and Exchange Commission on June 16, 1998 (File
        No. 333-42141)).

10.12   1998 Equity Compensation Plan of Metallurg, Inc. (incorporated herein by
        reference to Exhibit 10.11 to Metallurg, Inc.'s Annual Report on Form
        10-K filed with the Securities and Exchange Commission on April 30, 1999
        (File No. 333-42141)).

10.13   Employment Agreements dated November 19, 1998 and November 20, 1998 by
        and between Metallurg, Inc. and each of Eric E. Jackson and Barry C.
        Nuss, respectively (incorporated herein by reference to Exhibit 10.14 to
        Metallurg, Inc.'s Annual Report on Form 10-K filed with the Securities
        and Exchange Commission on April 30, 1999 (File No. 333-42141)).

10.14   Employment Agreements dated November 11, 2002, by and between Metallurg,
        Inc. and each of Heinz C. Schimmelbusch and Arthur R. Spector
        (incorporated herein by reference to Exhibit 10.15 to Metallurg, Inc.'s
        Annual Report on Form 10-K filed with the Securities and Exchange
        Commission on March 27, 2003 (File No. 333-42141)).

10.15   Advisory Agreement, dated as of July 1, 2000, by and between Metallurg,
        Inc. and Safeguard International Management LLC (incorporated herein by
        reference to Exhibit 10.17 to Metallurg, Inc.'s Quarterly Report on Form
        10-Q filed with the Securities and Exchange Commission on September 13,
        2000 (File No. 333-42141)).

10.16   Intercompany Tax Allocation Agreement, dated July 13, 1998, by and among
        Metallurg Holdings, Inc., Metallurg, Inc. and various subsidiaries
        thereof (incorporated herein by reference to Exhibit 10.17 to Metallurg,
        Inc.'s Annual Report on Form 10-K filed with the Securities and Exchange
        Commission on April 30, 1999 (File No. 333-42141)).

21.1    Subsidiaries of Metallurg Holdings, Inc.

(b)     Reports on Form 8-K

        Metallurg Holdings, Inc. filed a Report on Form 8-K with the Securities
        and Exchange Commission on January 15, 2003, reporting the sale of
        certain subsidiaries to related parties.


                                       73




<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant has duly caused this report to
be signed on its behalf by the undersigned, thereto duly authorized as of the
27th day of March, 2003.

                                               METALLURG HOLDINGS, INC.


                                               By: /s/ Arthur R. Spector
                                                   --------------------------
                                               Arthur R. Spector
                                               Executive Vice President

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.

<TABLE>
<CAPTION>
              Signature                                           Title(s)                              Date
              ---------                                           --------                              ----
<S>                                            <C>                                                 <C>
     /s/ HEINZ C. SCHIMMELBUSCH                President, Chief Executive Officer and Director     March 27, 2003
---------------------------------------
       Heinz C. Schimmelbusch

        /s/ ARTHUR R. SPECTOR                  Director and Executive Vice President               March 27, 2003
----------------------------------------       (Principal Financial Officer and
          Arthur R. Spector                    Principal Accounting Officer)

          /s/ MICHAEL HOLLY                    Director and Executive Vice President               March 27, 2003
----------------------------------------
            Michael Holly

         /s/ SAMUEL A. PLUM                    Director                                            March 27, 2003
----------------------------------------
           Samuel A. Plum
</TABLE>


                                       74




<PAGE>

                            OFFICERS' CERTIFICATIONS

I, Heinz C. Schimmelbusch, certify that:

1.    I have reviewed this annual report on Form 10-K of Metallurg Holdings,
      Inc.;

2.    Based on my knowledge, this annual report does not contain any untrue
      statement of a material fact or omit to state a material fact necessary to
      make the statements made, in light of the circumstances under which such
      statements were made, not misleading with respect to the period covered by
      this annual report;

3.    Based on my knowledge, the financial statements, and other financial
      information included in this annual report, fairly present in all material
      respects the financial condition, results of operations and cash flows of
      the registrant as of, and for, the periods presented in this annual
      report;

4.    The registrant's other certifying officer and I are responsible for
      establishing and maintaining disclosure controls and procedures (as
      defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we
      have:

      a)    designed such disclosure controls and procedures to ensure that
            material information relating to the registrant, including its
            consolidated subsidiaries, is made known to us by others within
            those entities, particularly during the period in which this annual
            report is being prepared;

      b)    evaluated the effectiveness of the registrant's disclosure controls
            and procedures as of a date within 90 days prior to the filing date
            of this annual report (the "Evaluation Date"); and

      c)    presented in this annual report our conclusions about the
            effectiveness of the disclosure controls and procedures based on our
            evaluation as of the Evaluation Date;

5.    The registrant's other certifying officer and I have disclosed, based on
      our most recent evaluation, to the registrant's auditors and the audit
      committee of the registrant's board of directors (or persons performing
      the equivalent functions):

      a)    all significant deficiencies in the design or operation of internal
            controls which could adversely affect the registrant's ability to
            record, process, summarize and report financial data and have
            identified for the registrant's auditors any material weaknesses in
            internal controls; and

      b)    any fraud, whether or not material, that involves management or
            other employees who have a significant role in the registrant's
            internal controls; and

6.    The registrant's other certifying officer and I have indicated in this
      annual report whether or not there were significant changes in internal
      controls or in other factors that could significantly affect internal
      controls subsequent to the date of our most recent evaluation, including
      any corrective actions with regard to significant deficiencies and
      material weaknesses.

Date: March 27, 2003


                                            /s/ Heinz C. Schimmelbusch
                                            -------------------------------
                                            Heinz C. Schimmelbusch
                                            Chief Executive Officer


                                       75




<PAGE>

                      OFFICERS' CERTIFICATIONS (CONTINUED)

I, Arthur R. Spector, certify that:

      1.    I have reviewed this annual report on Form 10-K of Metallurg
            Holdings, Inc.;

      2.    Based on my knowledge, this annual report does not contain any
            untrue statement of a material fact or omit to state a material fact
            necessary to make the statements made, in light of the circumstances
            under which such statements were made, not misleading with respect
            to the period covered by this annual report;

      3.    Based on my knowledge, the financial statements, and other financial
            information included in this annual report, fairly present in all
            material respects the financial condition, results of operations and
            cash flows of the registrant as of, and for, the periods presented
            in this annual report;

      4.    The registrant's other certifying officer and I are responsible for
            establishing and maintaining disclosure controls and procedures (as
            defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
            and we have:

            a)    designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant,
                  including its consolidated subsidiaries, is made known to us
                  by others within those entities, particularly during the
                  period in which this annual report is being prepared;

            b)    evaluated the effectiveness of the registrant's disclosure
                  controls and procedures as of a date within 90 days prior to
                  the filing date of this annual report (the "Evaluation Date");
                  and

            c)    presented in this annual report our conclusions about the
                  effectiveness of the disclosure controls and procedures based
                  on our evaluation as of the Evaluation Date;

      5.    The registrant's other certifying officer and I have disclosed,
            based on our most recent evaluation, to the registrant's auditors
            and the audit committee of the registrant's board of directors (or
            persons performing the equivalent functions):

            a)    all significant deficiencies in the design or operation of
                  internal controls which could adversely affect the
                  registrant's ability to record, process, summarize and
                  report financial data and have identified for the
                  registrant's auditors any material weaknesses in internal
                  controls; and

            b)    any fraud, whether or not material, that involves management
                  or other employees who have a significant role in the
                  registrant's internal controls; and

      6.    The registrant's other certifying officer and I have indicated in
            this annual report whether or not there were significant changes in
            internal controls or in other factors that could significantly
            affect internal controls subsequent to the date of our most recent
            evaluation, including any corrective actions with regard to
            significant deficiencies and material weaknesses.

Date: March 27, 2003


                                      /s/ Arthur R. Spector
                                      ------------------------------
                                      Arthur R. Spector
                                      Principal Financial Officer


                                       76




                          STATEMENT OF DIFFERENCES
                          ------------------------

 The British pound sterling sign shall be expressed as.................. 'L'
 The Euro sign shall be expressed as.................................... 'E'