Edgar Filing: PHILIPP BROTHERS CHEMICALS INC

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

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FORM 10-K
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|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended June 30, 2001

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

Commission File Number 333-64641

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Philipp Brothers Chemicals, Inc.
(Exact name of registrant as specified in its charter)

New York 13-1840497
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Parker Plaza, Fort Lee, New Jersey 07024
(Address of principal executive offices) (Zip Code)

(201) 944-6020
(Registrant's telephone number, including area code)

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

(Title of Class)

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 other information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

The aggregate market value of the voting stock held by non-affiliates of the
Registrant computed by reference to the price at which such voting stock was
sold was $0 as of June 30, 2001.

The number of shares outstanding of the Registrant's Common Stock as of June 30,
2001: 24,488.50

Class A Common Stock, $.10 par value: 12,600.00
Class B Common Stock, $.10 par value: 11,888.50

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PHILIPP BROTHERS CHEMICALS, INC.

TABLE OF CONTENTS

Page
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PART I................................................................... 1

Item 1. Business...................................................... 1
Item 2. Properties.................................................... 21
Item 3. Legal Proceedings............................................. 23
Item 4. Submission of Matters to a Vote of Security Holders........... 24

PART II.................................................................. 25

Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................................. 25
Item 6. Selected Financial Data....................................... 25
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 27
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.... 37
Item 8. Financial Statements and Supplementary Data................... 37
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 37

PART III................................................................. 38

Item 10. Directors and Executive Officers of the Registrant............ 38
Item 11. Executive Compensation........................................ 39
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 43
Item 13. Certain Relationships and Related Transactions................ 43
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K......................................... 46
Index to Financial Statements............................................ F-1
Report of Independent Accountants........................................ F-2

Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2001 and 2000............... F-3
Consolidated Statements of Operations and Comprehensive
Income for the years ended June 30, 2001, 2000 and 1999.............. F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended June 30, 1999, 2000 and 2001.............. F-5
Consolidated Statements of Cash Flows for the years ended
June 30, 2001, 2000 and 1999......................................... F-6

Notes to Consolidated Financial Statements............................... F-7

Consolidating Financial Statements
Consolidating Balance Sheet as of June 30, 2001........................ F-29
Consolidating Income Statement for the year ended June 30, 2001........ F-30
Consolidating Statement of Cash Flows for the year
ended June 30, 2001.................................................. F-31
Consolidating Balance Sheet as of June 30, 2000........................ F-32
Consolidating Income Statement for the year ended June 30, 2000........ F-33
Consolidating Statement of Cash Flows for the year
ended June 30, 2000.................................................. F-34
Consolidating Income Statement for the year ended June 30, 1999........ F-35
Consolidating Statement of Cash Flows for the year
ended June 30, 1999.................................................. F-36

SIGNATURES............................................................... II-1

PART I

Item 1. Business.

General

Philipp Brothers Chemicals, Inc. ("Philipp Brothers" or the "Company") is
a leading diversified global manufacturer and marketer of a broad range of
specialty agricultural and industrial chemicals, which are sold world-wide for
use in numerous markets including animal health and nutrition, agricultural,
pharmaceutical, electronics, wood treatment, glass, construction and concrete.
The Company also provides recycling and hazardous waste services primarily to
the electronics and metal treatment industries. The Company believes it has
leading positions in certain of its end markets, and has global marketing and
manufacturing capabilities. Approximately 38% of the Company's fiscal 2001 net
sales consisted of sales made by the Company outside the United States. During
fiscal 2001, the Company's products were manufactured at eleven facilities in
the United States, five facilities in Europe, two facilities in Israel, and two
facilities in South America. Unless the context otherwise requires, references
in this Report to the "Company" refer to the Company and/or one or more of its
subsidiaries, as applicable.

The Company manufactures and markets more than 550 specialty agricultural
and industrial chemicals, of which 50 products accounted for approximately 80%
of fiscal 2001 net sales. The Company focuses on specialty agricultural and
industrial chemicals for which it has a strong market position or an advantage
in product development, manufacturing or distribution. Many of the Company's
products provide critical performance attributes to its customers' products,
while representing a relatively small percentage of total end-product costs.

On November 30, 2000, the Company purchased the medicated feed additives
business of Pfizer, Inc. Operating results of this business, Phibro Animal
Health ("PAH"), are included in operating results from the date of acquisition
and are reflected in the Animal Health and Nutrition segment. PAH produces and
sells a broad range of medicated feed additive products to the global poultry
and livestock industries, either directly to large integrated livestock
producers or through a network of independent distributors.

On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. ("Phibro-Tech") subsidiary, to Nufarm, Inc.
("Nufarm"), the U.S. subsidiary of Nufarm Limited, a publicly listed Australian
based company. On June 14, 2001, the Company sold its Agtrol international
business to Nufarm. Agtrol developed, manufactured and marketed crop protection
products, including copper fungicides. The sale included inventory and
intangible assets to Nufarm but did not include plant, equipment, or other
manufacturing assets. Phibro-Tech also entered into agreements to supply copper
fungicide products to Nufarm from its Sumter, South Carolina plant for five
years, and from its Bordeaux, France plant for three years. The operating
results of Agtrol are included in the Company's consolidated statements of
operations, up to the date of sale, and are reflected in the All Other segment
for all periods presented.

The Company has four operating segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. The Company's Animal Health
and Nutrition segment manufactures and markets a broad range of feed additive
products including trace minerals, anticoccidials, antibiotics, vitamins,
vitamin premixes and other animal health products to the animal feed, poultry
and pet food industries. The Company distributes its products through major
multinational life science and animal health companies.

The Company's Industrial Chemicals segment manufactures and markets
pigments and other mineral products for use in the chemical, catalyst,
pharmaceutical, construction, concrete, wood treatment, automotive, aerospace,
glass and coal mining industries. Certain of these products are produced from
the Company's recycling operations, including copper oxide, which is used in the
production of water-borne wood preservatives. In addition to copper oxide, the
Company supplies other mineral oxides, such as iron and manganese compounds,
which are used as colorants and for other purposes in the brick, masonry, glass
and other industries. The Company

also manufactures and recycles alkaline etchants in the United States and sells
fresh etchant to printed circuit board manufacturers.

The Company's Distribution segment markets a variety of industrial,
specialty and fine organic chemicals and intermediates. Most of these products
are manufactured by third parties, with certain products being purchased from
affiliates.

The Company's All Other segment manufactures and markets a variety of
specialty custom chemicals, primarily for the polymer and pharmaceutical
industries as well as copper-based fungicides and other agricultural products
for the United States, French and other international markets. In addition, the
Company provides management and recycling of coal combustion residues, including
fly ash and bottom ash, and also mineral processing residues. Typically, these
products are provided to customers directly from a utility's site or through the
Company's terminals.

ANIMAL HEALTH AND NUTRITION

Through its subsidiary, Phibro Animal Health, Inc., the Company
manufactures and markets a broad range of medicated feed additive products to
the global poultry and livestock industries, either directly to large integrated
producers or through a network of independent distributors. PAH products include
anticoccidials, antibacterials, anthelmintics and other feed additives.

The anticoccidial products are marketed under the Aviax(R), Coxistac(R)
and Posistac(R) brand names and are sold to integrated poultry producers and
feed companies. Carbadox antibacterial is sold under the brand name Mecadox(R),
for use in swine feeds to control salmonellosis and swine dysentry in young and
growing swine. Virginiamycin, an antibiotic marketed under the Stafac(R),
Eskalin(R) and V-Max(R) brand names, is used to prevent and control diseases in
poultry, swine and cattle, including necrotic enteritis in poultry and swine and
liver abcesses in cattle. Antibacterials, including Terramycin(R), and
Neo-Terramycin(R) which are derived from the active ingredient oxytetracycline,
are effective against a range of diseases including: fowl cholera in chickens;
airsacculitis in turkeys; bacterial enteritus in swine; and bacteria diarrhea
and liver abcesses in cattle. Banmith(R), Oxibendazole(R) and Rumatel(R) are
anthelmintics that are used to control internal parasites in cattle, sheep and
goats. The use of these medicated feed additives assists the producer in
maintaining healthy and productive animals which ensure the consumer of a safe,
healthy and wholesome meat supply.

PAH manufactures bulk active ingredients at facilities located in
Guarulhos, Brazil and Rixensart, Belgium. Other active ingredients are being
supplied by Pfizer to PAH under a transition supply agreement. Alternate sources
of these products have been identified and are being qualified. Also under a
transition agreement, for many markets, Pfizer is formulating these active
ingredients into the lower concentration products that are sold to feed mills
and producers. PAH is in the process of transferring these operations to
alternate sites. This effort is expected to be completed during calendar
2002/2003.

PAH has established sales and technical offices in 18 countries including:
US, Canada, Mexico, Costa Rica, Venezuela, Colombia, Brazil, Argentina, Chile,
Peru, Australia, Japan, Hong Kong, China, Thailand, Malaysia, South Africa and
Belgium. Additional offices will be opened as the business grows. The top five
markets in terms of sales in fiscal 2001 (7 months of operation) are the U.S.,
Brazil, China, Japan and Mexico. These countries accounted for 77% of PAH's
global sales in fiscal 2001. The business is not dependent on any one customer.

The use of medicated feed additives are controlled by regulatory
authorities that are specific to each country (i.e., the FDA in the US; Health
Canada in Canada, etc.). Each product is registered separately. In most
countries, these registrations have already been transferred from Pfizer to the
Company. The transfers are continuing in several countries and under the asset
purchase agreement, Pfizer will continue to support the registration transfer
effort.

Currently, new product development at PAH is focused on geographical
expansion of the present product line, new label claims and applications for
existing active ingredients and new formulations. This effort is coordinated by
product development personnel located in Belgium, Brazil, and the U.S. PAH also
has an active program to identify and license new products and new technologies.

Through its subsidiary, Prince Agriproducts, Inc. ("Prince Agri"), the
Company manufactures and markets trace minerals, trace mineral and selenium
premixes and other ingredients to the animal and poultry feed and pet food
industries, predominantly in the United States. These products generally
fortify, enhance or make more nutritious or palatable the animal and poultry
feeds and pet foods with which they are mixed. The Company is a basic producer
of trace minerals for the U.S. animal feed industry. The majority of the other
ingredients the Company sells are nutrients which are used as supplement for
animal feed. The Company serves customers in major feed segments, including
swine, dairy, poultry and beef as well as pet food and aquaculture. The
Company's foundation and strength in the animal feed industry have come from its
basic position in several trace minerals. The Company customizes trace mineral
and selenium premixes at its blending facilities in Marion, Iowa, Bremen,
Indiana and Bowmanstown, Pennsylvania, and markets a diverse line of other trace
minerals and macro-minerals. The Company's major customers for these products
are medium to large feed companies, co-ops,

blenders, integrated poultry operations and pet food companies. The Company
sells other ingredients, such as buffers, yeast, palatants, vitamin K and amino
acids, including lysine, tryptophan and threonine. The Company also markets
copper sulfate as an animal feed supplement.

The Company's Israeli subsidiary, Koffolk (1949) Ltd. ("Koffolk Israel"),
is a producer and distributor of vitamins and premixes for the animal feed and
poultry industries in Israel, and also sells such products worldwide. Koffolk
Israel also provides a wide range of services to the animal feed industry in
Israel including mobile computer units for on-the-spot feed information,
comprehensive feed laboratory services for both chemical and microbiological
assay, and an experimental farm for field testing of feed additives and animal
health products.

Koffolk Israel also produces fine chemicals and other intermediates used
in the manufacture of certain pharmaceuticals, cosmetics and films. Koffolk
Israel's plant in Ramat Hovav, Israel operates under the FDA's GMP regulations,
and has received FDA approval for some of its processes and production
operations.

Through Koffolk Israel and its Brazilian subsidiary, Planalquimica
Industrial Ltda. ("Planalquimica"), the Company produces nicarbazin, and through
Koffolk Israel the Company also produces amprolium for distribution to the
world-wide poultry industry through major multinational life science and
veterinary companies. The Company believes it is the sole world-wide producer of
amprolium, and the largest volume world-wide producer of nicarbazin through its
facilities in Israel and Brazil. The Company is the sole Latin American producer
of nicarbazin. Modern, large scale poultry production is based on intensive
animal management practices. This type of animal production requires routine
prophylactic medications in order to prevent health problems. Coccidiosis is one
of the critical disease challenges which poultry producers face, globally.
Coccidiosis is an infection of coccidia, a microscopic parasite which routinely
infects chickens. Nicarbazin and amprolium are among the most effective
medications for the prevention of coccidiosis in chickens when used in rotation
with other coccidiostats. In the United States, PAH distributes nicarbazin for
Koffolk Israel under the trademark Nicarb(R), and amprolium under the trademark
of Amprol(R).

INDUSTRIAL CHEMICALS

The Company manufactures and markets a number of inorganic and organic
specialty chemicals for use in the chemical catalyst, construction, printed
circuit board, automotive, aerospace, glass and coal mining industries. Some of
these products are produced from raw materials derived from the Company's
recycling operations. The Company also purchases crude inorganic minerals in the
form of ores and processes these in various grades to produce chemicals for sale
to manufacturers. These manufacturers incorporate the resultant products into
their finished products in various industrial markets, including construction,
with end-use applications in clay brick, ceramic, masonry colorant, coatings,
heavy media, foundry, glass, electrodes, abrasives, dust control, and as an
intermediate to various chemical applications.

Through its U.S. subsidiaries comprising The Prince Manufacturing Group
("Prince"), the Company manufactures and markets various mineral oxides,
including iron compounds and manganese compounds. The Company's iron compounds
include red iron oxide (Hematite) (sold to the brick, masonry, glass, foundry,
electrode, abrasive, feed, and various other chemical industries); black iron
oxide (Magnetite) (sold under the Magna Float brand name to the heavy media,
coal, steel foundry, electrode, abrasive, colorant, fertilizer, and various
other chemical industries); iron chromite (sold under the Chromox brand as a
colorant or additive to the glass industry). The Company's manganese compounds
include manganese dioxide (sold under the Brickox brand name, which is
considered a standard color in many applications, to the brick, masonry, glass,
and various other chemical industries); and manganous oxide (sold to customers
requiring an acid soluble form of manganese, such as animal feed, fertilizer and
chemical manufacturers).

Through Phibro-Tech, the Company manufactures and recycles alkaline
etchants in the United States. Of the Company's five facilities involved with
these products, four have final RCRA Part B hazardous waste treatment and
storage permits and one is in an interim permit status. See "Environmental
Matters." The Company's etchants are used to remove copper from printed circuit
boards, leaving the desired circuit pattern. The Company sells fresh etchant to
printed circuit board manufacturers and recycles spent etchants. Phibro-Tech
generates revenue

from the sale of fresh etchants as well as the recovery of the dissolved copper
contained in the spent etchants, which are processed into saleable copper-based
products. The Company believes that it is the only national recycler of spent
etchants generated principally from the printed circuit board industry, with an
etchant plant in every major geographic area except New England. These plants
generally allow the Company to distribute product and transport spent etchant, a
freight intensive product which is classified as hazardous waste, over
relatively short distances.

Phibro-Tech also manufactures and sells the following major products:

Copper Oxide. Copper oxide is used as an ingredient in the production of
water-borne wood preservatives ("CCA"). Due to its recycling capabilities, the
Company believes that it is a low cost supplier of copper oxide to the CCA
market. The Company also sells copper oxide to the catalyst, dye, ceramic and
feed industries.

Copper Sulfate. The Company sells a high purity copper sulfate to
worldwide producers of electroless copper. Industrial uses of copper sulfate
include the manufacturing of pigments, electroplating, catalysts and chemical
intermediates in water treatment. The Company markets copper sulfate solution to
the mining and wood treatment industries.

Phibro-Tech is a leading recycler in the United States of hazardous
chemical waste streams that contain copper or nickel. Four of its facilities are
permitted to handle hazardous waste and one is operating on an interim permit.
These waste streams are generated principally by printed circuit board
manufacturers and metal finishers. The metal finishing and printed circuit board
industries also generate other spent chemicals, which are raw material sources
of acid, copper and nickel, and the Company charges fees for processing such
materials based on metal content. The Company also recycles a variety of other
metal-containing chemical waste, including spent catalysts, pickling solutions
and metal strippers containing brass, cobalt, copper, nickel, iron, tin and
zinc, in liquid, solid or slurry form. The Company also uses these recovered
materials to produce copper and nickel chemicals for use as raw materials in
certain of its products.

Metal-containing waste is either collected by the Company or delivered
directly to one of its facilities by the waste generator. The Company collects
and transports chemical waste in its specially-constructed tankers and
semi-trailers and drum transporting trailers. In some locations, rail
transportation by tank cars or piggyback trailers is also utilized. Upon arrival
at one of the Company's recycling and processing facilities, and prior to
unloading, a representative sample of the delivered waste is tested and analyzed
to ensure that it conforms to the customer's contracted waste profile
specifications. The Company recycles and processes metal-containing hazardous
chemical waste streams using hydrometallurgical technology. This technology
involves the reclamation of various metals and the production of finished
chemical products using chemical reactions such as leaching, extraction and
precipitation. The Company determines the precise chemical process required to
treat each batch of hazardous waste based on the type and amount of the waste as
well as the proportion of useful raw materials it contains.

Through its Norwegian subsidiary, Odda Smelteverk AS ("Odda"), which it
acquired in October 1998 together with certain related distribution business
assets, the Company manufactures and distributes calcium carbide and
dicyandiamide. The principal uses of calcium carbide are in the production of
acetylene for welding and cutting, as a desulphurization agent in the steel and
foundry industry, and in the manufacture of chemicals. Dicyandiamide is used in
several applications, including as a fire retardant for fiber, wood and paint,
for producing epoxy laminates for circuit boards and adhesives, for producing
paper chemicals, and as a dye fixative for textiles.

During 2000, Odda completed construction of a plant and began commercial
production of hydrogen cyanimide ("CY-50"). CY-50 is a product that, like
dicyandiamide, is derived from calcium carbide. CY-50 is marketed by the
chemical industry as a nutritional supplement and in the production of
intermediates, herbicides, fungicides and insecticides. It is also used by the
life science industry for anticeptives and antiulceratives.

DISTRIBUTION

The Company's PhibroChem division markets and distributes fine and
specialty chemicals to manufacturers of health and personal care products. Among
the Company's major products for such applications are sodium fluoride and
stannous fluoride, DL Panthenol and selenium disulfide. Sodium fluoride is the
active anti-cavity ingredient in fluoride toothpaste, powders and mouthwashes.
Selenium disulfide is used as a dandricide in shampoo and hair care
preparations.

Through its U.K. subsidiary, Ferro Metal & Chemical Ltd. ("Ferro"), the
Company markets dicyandiamides and calcium carbides. Ferro also markets fine and
specialty chemicals to customers in the steel, gas production, chemical
intermediates, health and personal care industries.

ALL OTHER

Through its subsidiary, Mineral Resource Technologies, L.L.C. ("MRT"), the
Company manages combustion and mineral by-products. MRT provides management and
recycling of coal combustion residues, including fly ash and bottom ash, and
also mineral processing residues. Fly ash is the fine residue and bottom ash is
the heavier particles that result from the combustion of coal in the electric
power industry. Fly ash is a pozzolan, i.e. a mixture that, in the presence of
water, combines with an activator, such as portland cement, to produce a
cement-like material. This allows fly ash to be used as a less expensive
substitute for other cementious materials, primarily portland cement. MRT
typically provides these products to its customers directly from a utility's
site or through its own terminals.

Through the MRT Technology Center in Atlanta, MRT seeks to develop new
products consisting substantially of these combustion by-products. In March of
1998, MRT's research and development activity resulted in two U.S. patents being
issued involving proprietary value-added products. These patents provide for the
production of a family of hydraulic blended cements, a series of masonry and
stucco cement products, and rapid hardening cement products. Since the initial
success in development of these unique products, five additional patents have
been issued for enhancement of these initial patents and for other future
marketable value-added products. MRT introduced the first of the new cement
products as EZ Joint Masonry Cement(TM) into the Georgia market beginning late
in fiscal 2001. Performance in the field has been uniformly satisfactory with
applications meeting all ASTM standards. Continued evaluation by MRT is underway
and plans are being developed for introduction of these products into other
major markets.

In connection with its fly ash management operations, MRT has entered into
and will seek to enter long-term sales and distribution agreements with
utilities providing for minimum payments and/or purchase obligations by MRT of
varying durations. Certain of these contracts also require MRT to construct (at
its expense) facilities to store and/or process ash. MRT's ability to achieve
long-term revenue growth and profitability is dependent upon securing additional
long-term ash management contracts with utilities and developing fly ash
processing facilities. Consistent with industry practice, in connection with its
long-term contracts, the Company has furnished and expects to furnish
performance bonds or guarantees to such utilities.

Through its English subsidiary, Wychem Limited, the Company develops and
markets a wide range of halogenated organic compounds, mainly brominated and
fluorinated. These chemical intermediates are sold primarily into the
pharmaceutical industry as building blocks for further synthesis. Wychem is able
to tailor the quality and supply characteristics of its chemicals to those
desired by its customers by close coordination with the customer at an early
stage in the customer's product development. In certain cases the product
supplied by Wychem is novel and included in the customer's regulatory
submissions.

On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary ("Phibro-Tech"), to Nufarm, Inc., the
U.S. subsidiary of Nufarm Limited, a publicly listed Australian based company.
On June 14, 2001, the Company sold its Agtrol international business to Nufarm.
Agtrol developed, manufactured and marketed crop protection products, including
copper fungicides. The sale included inventory and intangible assets to Nufarm
but did not include plant, equipment, or other manufacturing assets. Phibro-Tech
also entered into agreements to supply copper fungicide products to Nufarm from
its Sumter, South

Carolina plant for five years, and from its Bordeaux, France plant for three
years. The operating results of Agtrol are included in the Company's
consolidated statements of operations, up to the date of sale, and are reflected
in the All Other segment for all periods presented.

Nufarm is obligated to purchase all of its requirements for products and
substitute products, up to the capacity of the facilities during the terms of
the agreements. During the terms of the agreements, the product price will be
the Company's full standard cost plus margin, as defined in the agreements. The
agreements provide for minimum payments to the Company during each contract year
equal to 70% of base volume multiplied by the product price.

Sales, Marketing And Distribution

The Company sells specialty chemicals to manufacturers who incorporate the
Company's products into their finished goods. The Company has more than 3,500
customers. Sales to the top ten customers represented approximately 14% of the
Company's 2001 net sales and no single customer represented more than 4% of the
Company's 2001 net sales.

The Company's sales and marketing network consists of approximately 163
employees, 73 independent agents and 142 distributors who specialize in
particular markets.

The Company's products are often critical to the performance of its
customers' products while representing a relatively small percentage of the
total end-product cost. Management believes that the three key factors to
marketing its products successfully are high quality products, a highly trained
and technical sales force, and customer service.

Raw Materials

The raw materials used in the Company's business consist chiefly of copper
metal and a wide variety of organic intermediates and inorganic chemicals which
are purchased from manufacturers in the United States, Europe and Asia. In
fiscal 2001, no single raw material accounted for more than 8% of the Company's
cost of goods sold. Total raw materials cost was approximately $153 million or
43% of net sales in 2001.

The Company believes that for most of its raw materials alternate sources
of supply are available to the Company at competitive prices. In addition, the
Company's ability to recycle hazardous waste streams allows the Company to
recover certain metals and other raw materials that it substitutes in its
products for virgin materials, thereby reducing the Company's cost of goods and
its reliance on suppliers of certain virgin materials.

Research and Development

Research, development and technical service efforts are conducted by over
100 chemists and technicians at the various facilities of the Company. The
Company operates a Research and Development Center in Sumter, South Carolina,
relating to inorganic chemicals and crop protection products, and at
Stradishall, England, relating to organic chemical intermediates. In addition,
Koffolk Israel conducts substantial research and development at its Ramat Hovav
facility. The Company also conducts research and development at its MRT
Technology center in Atlanta, GA for concrete and cement products. Finally,
Phibro Animal Health's Rixensart, Belgium facility provides a base for
fermentation development in the areas of microbiological strain improvement as
well as process scale-up. Most of the Company's plants have chemists and
technicians on staff involved in product development, quality assurance, quality
control and also providing technical services to customers. Technical assurance
is an important aspect of the Company's overall sales effort.

Technology is an important component of the Company's competitive
position, providing the Company with a low cost position and enabling the
Company to produce high quality products. Patents protect some of the Company's
technology, but a great deal of the Company's competitive advantage revolves
around know-how built up over many years of commercial operation.

The Company entered into a research and development joint venture
agreement with IMI (TAMI) Institute for R&D Ltd. ("IMI") to develop custom made
specialty fine chemicals. As part of the agreement, the parties have also
entered into an agreement with the Israel-U.S. Binational Industrial Research
and Development ("BIRD") Foundation, whereby development costs, subject to a cap
of $1.7 million, are reimbursed 50%. On commercialization of developed products,
royalties will be due to BIRD based on achieved sales levels. Should
commercialization not occur, receipts from BIRD need not be returned.

The Company and its predecessors have over 20 years experience in the use
of hydrometallurgical technology for recycling metal-containing by-products and
a strong technological position in the production of metal-containing chemicals.

Patents and Trademarks

The Company owns certain patents, tradenames and trademarks and uses
know-how, trade secrets, formulae and manufacturing techniques which assist in
maintaining the competitive positions of certain of its products. Formulae and
know-how are of particular importance in the manufacture of a number of the
products sold in the Company's specialty chemical business. The Company believes
that no single patent or trademark is of material importance to its business,
and, accordingly, that the expiration or termination thereof would not
materially affect its business. See "Government Regulation."

Customers

The Company does not consider its business to be dependent on a single
customer or a few customers, and the loss of any of its customers would not have
a material adverse effect on the Company's results. No single customer accounted
for more than 4% of the Company's 2001 net sales. The Company typically does not
enter into long-term contracts with its customers. However, the Company has
entered into certain long-term contracts with respect to nicarbazin and
amprolium, as well as its ferric chloride recycling and fly ash management
activities.

Competition

The Company is engaged in highly competitive industries and, with respect
to all of its major products, faces competition from a substantial number of
global and regional competitors. Some of the companies with which the Company
competes have greater financial, research and development, production and other
resources than the Company. The Company's competitive position is based
principally on customer service and support, product quality, manufacturing
technology, facility location and price.

The Company has competitors in every market in which it participates. Many
of the Company's products face competition from products which may be used as an
alternative or substitute. The Company competes with several regional companies
of varying sizes and financial resources in the hazardous metal-containing
chemical waste recycling industry. The Company also competes with large national
companies which offer alternative methods of treatment or disposal of hazardous
metal-containing chemical waste and which have substantially greater financial
resources than the Company. While these national companies do not currently
offer recycling services similar to those offered by the Company, their entry
into the recycling business could have a material adverse effect on the Company.
In addition, the Company competes with several large chemical companies in the
chemical production business, none of which obtains a significant portion of its
raw materials from recycling. To the extent these companies, or new entrants
into the market, offer comparable finished chemical products at lower prices,
the Company's business could be adversely affected.

Employees

As of June 30, 2001, the Company had approximately 1,550 employees
worldwide. Of these, 324 employees were in management and administration, 163 in
sales and marketing, 112 were chemists or technicians

and 956 were in production. Approximately 3% of the Company's domestic employees
were covered by collective bargaining agreements with two unions. These
agreements expire from 2002 through 2005. Certain employees are covered by
individual employment agreements. Koffolk Israel continues to operate under the
terms of Israel's national collective bargaining agreement, portions of which
expired in 1994. In Norway, approximately 80% of employees are covered by
collective bargaining agreements.

The Company considers its relations with both its union and non-union
employees to be good.

Environmental Matters

Like similar companies, the Company and its subsidiaries are subject to a
wide variety of complex and stringent federal, state, local and foreign
environmental laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials and wastes, the manufacture, sale and use of pesticides and
the health and safety of employees. Pursuant to environmental laws, subsidiaries
of the Company are required to obtain and retain numerous governmental permits
and approvals to conduct various aspects of their operations, any of which may
be subject to revocation, modification or denial under certain circumstances.
Under certain circumstances, the Company or any of its subsidiaries might be
required to curtail operations until a particular problem is remedied. Known
costs and expenses under environmental laws incidental to ongoing operations are
generally included within operating budgets. Potential costs and expenses may
also be incurred in connection with the repair or upgrade of facilities to meet
existing or new requirements under environmental laws or to investigate or
remediate potential or actual contamination and from time to time the Company
establishes reserves for such contemplated investigation and remediation costs.
In many instances, the ultimate costs under environmental laws and the time
period during which such costs are likely to be incurred are difficult to
predict.

Subsidiaries of the Company have from time to time implemented procedures
at their facilities designed to respond to obligations to comply with
environmental laws. The Company believes that its operations are currently in
material compliance with such environmental laws, although at various sites the
Company's subsidiaries are engaged in continuing investigation and/or
remediation efforts to address contamination associated with their historic
operations. As many environmental laws impose a strict liability standard,
however, there can be no assurance that future environmental liability will not
arise.

In addition, the Company cannot predict the extent to which any future
environmental laws may affect any market for the Company's products or services
or its costs of doing business. For instance, if governmental enforcement
efforts should lessen, the market for Phibro-Tech's recycling services could
decline. Alternatively, changes in environmental laws might increase the cost of
the Company's products and services by imposing additional requirements on the
Company. States that have received authorization to administer their own
hazardous waste management programs may also amend their applicable statutes or
regulations, and may impose requirements which are stricter than those imposed
by U.S. Environmental Protection Agency (the "EPA"). No assurance can be
provided that such changes will not adversely affect the Company's ability to
provide products and services at competitive prices and thereby reduce the
market for the Company's products and services.

As such, the nature of the current and former operations of the Company
and its subsidiaries exposes them to the risk of claims with respect to such
matters and there can be no assurance that material costs and liabilities will
not be incurred in connection with such claims. Based upon its experience to
date, the Company believes that the future cost of compliance with existing
environmental laws, and liability for known environmental claims pursuant to
such environmental laws, will not have a material adverse effect on the Company.
However, future events, such as new information, changes in existing
environmental laws or their interpretation, and more vigorous enforcement
policies of regulatory agencies, may give rise to additional expenditures or
liabilities that could be material. For all purposes of the discussion under
this caption, under "--Litigation," and elsewhere in this Report, it should be
noted that the Company takes and has taken the position that neither the parent
company, Philipp Brothers Chemicals, Inc., nor any of its subsidiaries is liable
for environmental or other claims made against one or more of its other
subsidiaries or for which any of such other subsidiaries may ultimately be

responsible. References to the Company should accordingly not be read or
interpreted as a statement or admission that Philipp Brothers or any of its
subsidiaries is liable for activities of or claims made against any of its other
subsidiaries.

Regulation

The following summarizes the principal federal environmental laws
affecting the business of the Company:

Resource Conservation and Recovery Act of 1976, as amended ("RCRA").
Congress enacted RCRA to regulate, among other things, the generation,
transportation, treatment, storage and disposal of solid and hazardous wastes.
RCRA required the EPA to promulgate regulations governing the management of
hazardous wastes, and to allow individual states to administer and enforce their
own hazardous waste management programs as long as such programs were equivalent
to and no less stringent than the federal program.

The EPA's regulations, and most state regulations in authorized states,
establish categories of regulated entities and set standards and procedures
those entities must follow in their handling of hazardous wastes. The three
general categories of waste handlers governed by the regulations are hazardous
waste generators, hazardous waste transporters, and owners and operators of
hazardous waste treatment, storage and/or disposal facilities. Generators are
required, among other things, to obtain identification numbers and to arrange
for the proper treatment and/or disposal of their wastes by licensed or
permitted operators and all three categories of waste handlers are required to
utilize a document tracking system to maintain records of their activities.
Transporters must obtain permits, transport hazardous waste only to properly
permitted treatment, storage or disposal facilities, and maintain required
records of their activities. Treatment, storage and disposal facilities are
subject to extensive regulations concerning their location, design and
construction, as well as the operating methods, techniques and practices they
may use. Such facilities are also required to demonstrate their financial
responsibility with respect to compliance with RCRA, including closure and
post-closure requirements.

The Federal Water Pollution Control Act, as amended (the "Clean Water
Act"). The Clean Water Act prohibits the discharge of pollutants to the waters
of the United States without governmental authorization. Like RCRA, the Clean
Water Act provides that states with programs approved by the EPA may administer
and enforce their own water pollution control programs. Pursuant to the mandate
of the Clean Water Act, the EPA has promulgated "pretreatment" regulations,
which establish standards and limitations for the introduction of pollutants
into publicly owned treatment works.

Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA" or "Superfund"). Under CERCLA and similar state laws,
the Company and its subsidiaries may have strict and, under certain
circumstances, joint and several liability for the investigation and remediation
of environmental pollution and natural resource damages associated with real
property currently and formerly owned or operated by the Company or a subsidiary
and at third-party sites at which the Company's subsidiaries disposed of or
treated, or arranged for the disposal of or treatment of, hazardous substances.

Federal Insecticide, Fungicide and Rodenticide Act, as amended ("FIFRA").
FIFRA governs the manufacture, sale and use of pesticides, including the
copper-based fungicides sold by the Company. FIFRA requires such products and
the facilities at which they are formulated to be registered with the EPA before
they may be sold. If the product in question is generic in nature (i.e.,
chemically identical or substantially similar to a previously registered
product), the new applicant for registration is entitled to cite and rely on the
test data supporting the original registrant's product in lieu of submitting
data of its own. Should the generic applicant choose this citation option, it
must offer monetary compensation to the original registrant and must agree to
binding arbitration if the parties are unable to agree on the terms and amount
of compensation. The Company has elected this citation option in the past and
intends to use the citation option in the future should it conclude it is
economically desirable to do so. While there are cost savings associated with
the opportunity to avoid one's own testing and demonstration to the EPA of test
data, there is, in each instance, a risk that the level of compensation
ultimately required to be paid to the original registrant will be substantial.

Under FIFRA, the EPA also has the right to "call in" additional data from
existing registrants of a pesticide, should the EPA determine, for example, that
the data already in the file need to be updated or that a specific issue or
concern needs to be addressed. The existing registrants have the option of
submitting data separately or by joint agreement. Alternatively, if one
registrant agrees to generate and submit the data, the other(s) may meet their
obligations under the statute by making a statutory offer to jointly develop or
share in the costs of developing the data. In that event, the offering party
must, again, agree to binding arbitration to resolve any dispute as to the terms
of the data development arrangement.

The Clean Air Act. The federal Clean Air Act of 1970 ("Clean Air Act") and
Amendments to the Clean Air Act ("Clean Air Act Amendments"), and corresponding
state laws regulate the emissions of materials into the air.

Such laws affect the coal industry both directly and indirectly and,
therefore, MRT. The coal industry is directly affected by Clean Air Act
permitting requirements and/or emissions control requirements relating to
particulate matter (such as "fugitive dust"), and may also be impacted by future
regulation of fine particulate matter. Every five years, the EPA reviews and
revises, if necessary, its National Ambient Air Quality Standards ("NAAQS"),
which is a set of national air quality standards relating to fine particulate
matter and ozone, among other criteria air pollutants. In July 1997, the EPA
adopted stringent new NAAQS, and the impact of such new standards on the coal
industry will depend on the policies and control strategies associated with the
state implementation process under the Clean Air Act, as well as on pending
legislative proposals to delay or eliminate aspects of the new NAAQS.

The Clean Air Act indirectly affects operations of the Company and its
subsidiaries by extensively regulating the air emissions of sulfur dioxides and
other compounds emitted by coal-fired utility power plants. Title IV of the
Clean Air Act Amendments places limits on sulfur dioxide emissions from electric
power generation plants, setting baseline emission standards for such
facilities. The effect of the Clean Air Act Amendments on MRT cannot be
completely ascertained at this time.

The Clean Air Act Amendments also require utilities that currently are
major sources of nitrogen oxides in moderate or higher ozone NAAQS nonattainment
areas to install reasonably available control technology for nitrogen oxides,
which are precursors to the atmospheric formation of ozone. In October 1998, the
EPA released a ruling (the "NOx SIP Call") requiring 22 eastern states to revise
their state implementation plans to substantially reduce emissions of nitrogen
oxide. The EPA expects that states will achieve these reductions by requiring
power plants to make substantial reductions in their nitrogen oxide emissions.
Installation of reasonably available control technology and additional control
measures required under the NOx SIP Call will make it more costly to operate
coal-fired utility power plants and, depending on the requirements of individual
state implementation plans and the development of revised new source performance
standards, could make coal a less attractive fuel alternative in the planning
and building of utility power plants in the future. Numerous states,
municipalities, industry trade groups, manufacturers and utilities have filed
petitions in federal court challenging the NOx SIP Call. The effect of the NOx
SIP Call and other regulations or requirements that may be imposed in the future
on the coal industry in general and on MRT in particular cannot be predicted
with certainty. No assurance can be given that the implementation of the Clean
Air Act Amendments, state implementation plans or any future regulatory
provisions will not materially adversely affect MRT.

In addition, the Clean Air Act Amendments require a study of utility power
plant emissions of certain toxic substances, including mercury, and direct the
EPA to regulate these substances, if warranted. Future federal or state
regulatory or legislative activity may seek to reduce mercury emissions and such
requirements, if enacted, could result in reduced use of coal if utilities
switch to other sources of fuel.

Phibro-Tech is also impacted by the Clean Air Act and has various air
quality permits, including a Title V operating air permit at its Sumter, South
Carolina facility.

State and Local Regulation

In addition to those federal programs described above, a number of states
and some local governments have also enacted laws and regulations similar to the
federal laws described above governing hazardous waste generation, handling and
disposal, emissions to the water and air and the design, operation and
maintenance of recycling facilities.

Foreign Regulation

The Company's foreign subsidiaries are subject to a variety of foreign
environmental laws relating to pollution and protection of the environment,
including the generation, handling, storage, management, transportation,
treatment and disposal of solid and hazardous materials and wastes, the
manufacture and processing of pesticides and animal feed additives, emissions to
the air, discharges to land, surface water and subsurface water, human exposure
to hazardous and toxic materials and the remediation of environmental pollution
relating to their past and present properties and operations.

Regulation of Recycling Activities

The Company's recycling activities may be broken down into the following
segments for purposes of regulation under RCRA or equivalent state programs: (i)
transport of wastes to the Company's facilities, (ii) storage of wastes prior to
processing, (iii) treatment and/or recycling of wastes, and (iv) corrective
action at its RCRA facilities. Although all aspects of the treatment and
recycling of waste at its recycling facilities are not currently the subject of
federal RCRA regulation, subsidiaries of the Company made decisions to permit
its recycling facilities as RCRA regulated facilities. Final RCRA "Part B"
permits to operate as hazardous waste treatment and storage facilities have been
issued at its facilities in Santa Fe Springs, California; Garland, Texas;
Joliet, Illinois; Sumter, South Carolina; and Sewaren, New Jersey. Part B
renewal applications have been submitted for the Santa Fe Springs and Sumter
sites. The applications are being reviewed. Phibro-Tech has also obtained an
interim status RCRA permit from the California Department of Health Services and
has filed a Part B permit application with the Department for its Union City,
California facility.

In connection with RCRA Part B permits for the waste storage and treatment
units of various facilities, the Company's subsidiaries have been required to
perform extensive site investigations at such facilities to identify possible
contamination and to provide regulatory authorities with plans and schedules for
remediation. Soil and groundwater contamination has been identified at several
plant sites and has required and will continue to require corrective action and
monitoring over future years. In order to maintain compliance with RCRA Part B
permits, which are subject to suspension, revocation, modification or denial
under certain circumstances, the Company has been, and in the future may be,
required to undertake additional capital improvements or corrective action.

Subsidiaries of the Company are required by RCRA and their Part B permits
to develop and incorporate in their Part B permits estimates of the cost of
closure and post-closure monitoring for their operating facilities. In general,
in order to close a facility which has been the subject of a RCRA Part B permit,
a RCRA Part B closure permit is required which approves the investigation,
remediation and monitoring closure plan, and requires post-closure monitoring
and maintenance for up to 30 years. Accordingly, additional costs are incurred
in connection with any such closure. These cost estimates are updated annually
for inflation, developments in available technology and corrective actions
already undertaken. The Company has in most instances chosen to provide the
regulatory guarantees required in connection with these matters by means of its
coverage under an environmental impairment liability insurance policy. There can
be no assurance that such policy will continue to be available in the future at
economically acceptable rates, in which event other methods of financial
assurance will be necessary.

In addition to certain operating facilities, the Company or its
subsidiaries have been and will be required to investigate and remediate certain
environmental contamination at shutdown plant sites. The Company or its
subsidiaries are also required to monitor such sites and continue to develop
controls to manage these sites within the requirements of RCRA corrective action
programs.

Based upon available information, accruals for management estimates of the
cost of further environmental investigation and remediation at operating,
curtailed and closed sites are approximately $2.2 million as of June 30, 2001.

Waste Byproducts

In connection with the Company's subsidiaries' production of finished
chemical products, limited quantities of waste by-products are generated
primarily in the form of sludge. Depending on the contents of the sludge, the
subsidiaries of the Company either send it to smelters for metal recovery or
send it for treatment or disposal to regulated facilities.

Particular Facilities

The following is a description of certain environmental matters relating
to certain facilities of certain subsidiaries of the Company. References
throughout to the Company are intended to refer only to the applicable
subsidiary unless the context otherwise requires. These matters should be read
in conjunction with the description of litigation matters below under Item 3,
certain of which involve such facilities, and Note 12 to the Company's
Consolidated Financial Statements.

In 1984, Congress enacted certain amendments to RCRA under which
facilities with RCRA permits were required to have RCRA facility assessments
("RFA") by the EPA or the authorized state agency. Following an RFA, a RCRA
facility investigation, a corrective measures study, and corrective measure
implementation must, if warranted, be developed and implemented. As indicated
below, the Company's subsidiaries are in the process of developing or completing
various actions associated with these regulatory phases at certain of their
facilities.

Sewaren, New Jersey. In April 1989, the New Jersey Department of
Environmental Protection, Division of Waste Management and Division of Water
Resources (collectively the "DEP"), issued an Administrative Order and Notice of
Civil Administrative Penalty Assessment against C.P. Chemicals, Inc. ("CP"), a
subsidiary of the Company, relating to CP's recycling and manufacturing facility
in Sewaren, New Jersey. This proceeding resulted in an Administrative Consent
Order (the "ACO"), effective March 11, 1991. The ACO mandates the development
and implementation of an environmental remediation plan and requires payment of
a penalty in the amount of $2.2 million plus interest calculated at 8.57% per
annum, to be paid in ten yearly installments. This charge was previously
reflected in the Company's consolidated financial statements. In addition, the
ACO sets forth stipulated penalties for specified violations of the ACO and
requires reimbursement by CP to the DEP for prior costs and future oversight
costs. CP has posted $500,000 in financial assurances which amount may be
modified based on cost reviews which CP is required to submit annually as part
of its investigation and remediation program. CP has substantially completed its
investigation and remediation efforts which include installation of a hydraulic
control system and pre-treatment of ground water on the site and capping to
address soil contamination concerns and satisfy storm water management
requirements. Such efforts remain subject to continuing review by the DEP. In
1998, operations at the Sewaren facility were curtailed.

In June 2000, CP transferred title to the Sewaren property to the local
township. At the same time, CP entered into a 10-year lease with the township,
providing for lease payments aggregating $2,000,000, and covering certain areas
of the property, in order to allow it to conduct operations relating to its RCRA
Part B Facility Permit. While the township took title to the property and
assumed basic property related obligations, including the operation and
maintenance of the ground water control system called for by the ACO, the
Company retained other environmental obligations under the ACO and also entered
into an indemnification agreement with the township regarding environmental
conditions existing at the time of the transfer.

Sumter, South Carolina. In 1991, in connection with the RCRA Part B permit
for its Sumter, South Carolina facility, Phibro-Tech undertook the closure of
certain waste water treatment impoundments pursuant to RCRA closure requirements
and installed a waste water treatment system at the plant and is engaged in an
additional phase of facility investigation at the site. Phibro-Tech has
completed remedial action to remove material from an area used by a former owner
of the site. The South Carolina Department of Health and Environmental Control

("SCDHEC") has requested additional sampling in this area. Separately,
Phibro-Tech and certain adjacent land owners have entered into a consent
agreement to conduct an environmental investigation regarding certain property
located next to the Sumter facility, including a small portion of the Sumter
facility property, which has been identified as containing debris, and to remove
such debris. An engineering firm has been hired to investigate the situation and
to make recommendations. Phibro-Tech has also received certain notices of
violations from SCDHEC alleging certain permit violations. Phibro-Tech does not
believe that these claims are material and fully expects these claims to be
resolved in a mutually acceptable manner.

Santa Fe Springs, California. In connection with its request for renewal
of its RCRA Part B permit for its Santa Fe Springs, California facility, and the
administrative order noted below for this facility, Phibro-Tech has implemented
various phases of environmental investigation and corrective measure study and
assessments. It is currently in a continuing investigation and corrective
measure phase, which will involve additional sampling to determine the level of
corrective action. At this time it is anticipated that this will involve a pump
and treat system through an existing on-site pre-treatment plant. Phibro-Tech is
also subject to an investigative and enforcement order, the ultimate scope and
disposition of which is currently being discussed with the California Department
of Toxic Substances Control ("DTSC"). The principal outstanding issue under the
order was the requirement of further soil investigation and the development of a
remediation plan, if necessary, beyond that already covered by the facility
investigation originally conducted. The study has been completed and
Phibro-Tech's consulting environmental engineers have recommended to DTSC no
further action in this regard. Separately, Phibro-Tech has reached an accord
with Communities for a Better Environment regarding allegations that Phibro-Tech
violated Proposition 65, the Safe Drinking Water and Toxic Enforcement Act of
1985, and the California Health and Safety Code.

Phibro-Tech has also received a summary of violations from the DTSC for
its Santa Fe Springs facility alleging certain permit violations as well as
violations of the California Health and Safety Code and corresponding
regulations. Phibro-Tech is in contact with the DTSC with regard to these
claims, in an attempt to determine whether they can be resolved through a
mutually acceptable compliance schedule.

Union City, California. Phibro-Tech's Union City, California facility is
an interim status facility with an application for a RCRA Part B permit pending.
In lieu of conducting investigation activities under a final Part B permit,
Phibro-Tech entered into a consent order with the California DTSC requiring the
assessment and investigation of soil and ground water quality and remediation,
if required, similar to that which would be required under a Part B permit.
Phibro-Tech completed the first phase of the investigation process and has
submitted reports and assessments to the DTSC which are currently under review.
Further limited characterization has been requested but Phibro-Tech and its
consulting engineers do not currently anticipate any extensive ongoing
corrective measures. This facility is also the subject of a DTSC summary of
violations alleging certain permit violations and violations of the California
Health and Safety Code and corresponding regulations. Phibro-Tech is in contact
with the DTSC with regard to this matter in an attempt to determine whether it
can be resolved through a mutually acceptable compliance schedule.

Joliet, Illinois. In connection with the RCRA Part B permit for this
facility, Phibro-Tech completed an initial RCRA facility investigation and an
additional sampling and investigative phase. The results of such sampling and
investigation were submitted to the Illinois Environmental Protection Agency,
and, based on the agency's response, Phibro-Tech will develop a plan for further
investigation or monitoring, or, if necessary, corrective action.

Garland, Texas. In connection with the RFA for its Garland, Texas
facility, no action was recommended. However, during a subsequent inspection
some discoloration of soil was noted. Accordingly, Phibro-Tech developed a
corrective action plan to address discolored top soil at the site. The project
included the upgrading of pollution control equipment. The next phase is
additional site characterization, which is presently being undertaken.

Powder Springs, Georgia. Phibro-Tech's facility in Powder Springs, Georgia
has been operationally closed since 1985. Phibro-Tech retains environmental
compliance responsibility for this facility and has effected a

RCRA closure of the regulated portion of the facility, a surface impoundment.
Post-closure monitoring and the implementation of a corrective measures plan are
required. Phibro-Tech has submitted and received Georgia Department of
Environmental Protection approval for a remedial investigation plan, and has
granted Phibro-Tech's Part B permit renewal application. The permit calls for a
Phase II work plan for corrective action.

Rixensart, Belgium and Guarulhos, Sao Paulo, Brazil. In connection with
the acquisition of the medicated feed additives business from Pfizer, Inc., the
Company acquired manufacturing and laboratory facilities in Rixensart, Belgium
and Guarulhos, Sao Paulo, Brazil. Both of these facilities operate pursuant to
the environmental and related laws of their respective countries as well as, in
the case of Rixensart, the EU. Although the Company has operated these
facilities for less than a year, the Company is not aware of any material
environmental liabilities in connection with these sites and further believes
that indemnification agreements from Pfizer, Inc. are adequate to protect the
Company in the event of discovery of covered environmental liabilities at the
respective sites.

Union, Illinois. Phibro-Tech's facility in Union, Illinois has also been
operationally closed since 1986. Phibro-Tech has performed additional soil
sampling and submitted a closure plan to the Illinois EPA, which is under
review.

Third Party Sites. The Company has, and certain of the Company's
subsidiaries have, sent products to customers at chemical processing or
manufacturing sites and sent wastes from their operations to various third party
waste disposal sites. In addition to the litigation described below with respect
to the Jericho, South Carolina site and the Casmalia, California site, from time
to time the Company or a subsidiary receives notice from representatives of
governmental agencies and private parties, or is named as a potentially
responsible party in legal proceedings, in which claims are made that it is
potentially liable for a portion of the investigation and remediation costs and
natural resource damages at such third party sites. Such claims are for strict
liability and carry with them the possibility of joint and several liability
under applicable Environmental Laws such as CERCLA, regardless of the relative
fault or level of involvement of the Company and other potentially responsible
parties. Although there can be no assurance, the Company does not believe that
liabilities in connection with such third party sites as to which claims have
been received to date will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.

Ramat Hovav, Israel. Koffolk Israel's Ramat Hovav plant produces a wide
range of organic chemical intermediates for the chemical, pharmaceutical,
fragrance and veterinary industries. Israeli legislation enacted in 1997 amended
certain environmental laws by authorizing the relevant administrative and
regulatory agencies to impose certain sanctions, including issuing an order
against any person that violates such environmental laws to remove the
environmental hazard. In addition, such law imposes criminal liability on the
officers and directors of a corporation that violates such environmental related
laws, and increases the monetary sanctions that such officers, directors and
corporations may be ordered to pay as a result of such violations. The Ramat
Hovav plant operates under the supervision of the Ministry of Environment of the
State of Israel. The sewage system of the plant is connected to the Ramat Hovav
Local Industrial Council's central installation, where Koffolk Israel's sewage
is treated together with sewage of other local plants. Owners of the plants in
the area, including Koffolk Israel, have been required by the Israeli Ministry
of Environment to build facilities for pre-treatment of their sewage.

Odda, Norway. Like other Norwegian companies, Odda has to ensure that the
activities of the enterprise are planned, organized, performed and maintained in
conformity with requirements laid down in or pursuant to Norwegian health,
environmental and safety legislation. Norwegian law requires the person
responsible for an enterprise to ensure compliance with the requirements of,
among other laws, the Working Environment Act, the Pollution Control Act, the
Products Control Act, the Civil Defense Act and the Electrical Installations and
Electrical Equipment Act.

The applicable supervisory authority pursuant to such legislation is
responsible for supervising and providing guidance on implementation of and
compliance with such regulations. The supervisory authorities can

respond to violations of health, environmental and safety legislation with
various sanctions, including orders, fines, pollution charges and/or
notification to the police.

Norwegian legislation requires that Odda produce its products according to
its discharge permit and implementation system for environmental control and
improvements. Both local and central authorities are now focusing on the
environmental situation in the fjord at Odda and on waste disposal there by the
three primary manufacturers in the area, including Odda. In Odda's case, the
focus has been on the discharge of polynucleated aromatic hydrocarbons ("PAHY")
from the Venturi scrubber in the calcium carbide plant and the nitrogen content
in the filtercake (1%) discharge from the dicyandiamide plant. In a meeting
between Odda and SFT (Norwegian Pollution Control Authority) in June 1998, SFT
indicated that Odda should make a diligent effort to develop a commercial use
for filtercake within three years, and consider the reduction of discharges of
PAHY from existing levels (which discharges are in compliance with Odda's
permits). Projects involving a new filter to reduce emissions of soluble
nitrogen and a facility to dry and bulk ship filtercake are being pursued in
consultation with the SFT.

Government Regulation

Certain agricultural feed products offered by the Company, namely
nicarbazin and amprolium products, require licensing by a governmental agency
before marketing. In the United States, governmental oversight of animal
nutrition and health products is shared primarily by the United States
Department of Agriculture ("USDA") and the Food and Drug Administration. A third
agency, the Environmental Protection Agency, has jurisdiction over certain
products applied topically to animals or to premises to control external
parasites.

The FDA is responsible for the safety and wholesomeness of the human food
supply. It regulates foods intended for human consumption and, through The
Center for Veterinary Medicine, regulates the manufacture and distribution of
animal drugs, including feed additives and drugs that will be given to animals
from which human foods are derived, as well as feed additives and drugs for pet
(or companion) animals.

To protect the food and drug supply for animals, the FDA develops
technical standards for animal drug safety and effectiveness and evaluates data
bases necessary to support approvals of veterinary drugs. The USDA monitors the
food supply for animal drug residues.

The Office of New Animal Drug Evaluation ("NADE") is responsible for
reviewing information submitted by drug sponsors who wish to obtain approval to
manufacture and sell animal drugs. A new animal drug is deemed unsafe unless
there is an approved new animal drug application ("NADA"). Virtually all animal
drugs are "new animal drugs" within the meaning of the term in the Federal Food,
Drug, and Cosmetic Act. Although the procedure for licensing products by the
USDA are formalized, the acceptance standards of performance for any product are
agreed upon between the manufacturer and the NADE. An NADA in animal health is
analogous to a New Drug Application ("NDA") in human pharmaceuticals. Both are
administered by the FDA. The drug development process for human therapeutics can
be more involved than that for animal drugs. However, for food-producing
animals, food safety residue levels are an issue, making the approval process
longer than for animal drugs for non-food producing animals, such as pets.

The FDA may deny a NADA if applicable regulatory criteria are not
satisfied, require additional testing or information, or require postmarketing
testing and surveillance to monitor the safety or efficacy of a product. There
can be no assurances that FDA approval of any NADA will be granted on a timely
basis or at all. Moreover, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Among the conditions for NADA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to GMP regulations. In complying with standards set forth in these regulations,
manufacturers must continue to expend time, monies and effort in the area of
production and quality control to ensure compliance.

For clinical investigation and marketing outside the United States, the
Company is also subject to foreign regulatory requirements governing
investigation, clinical trials and marketing approval for animal drugs. The
foreign regulatory approval process includes all of the risks associated with
FDA approval set forth above. Currently, in the European Union ("EU"), feed
additives which are successfully sponsored by a manufacturer are assigned to an
Annex. Initially, they are assigned to Annex II. During this period, member
states may approve the feed additive for local use. After five years or earlier,
the product passes to Annex I if no adverse reactions or trends develop over the
probationary period.

The Company currently markets nicarbazin in the EU. Nicarbazin holds an
Annex I registration. This means that the compound must be registered in each of
the member states and can be used legally by customers in the EU. Any
manufacturer, including generic producers, is permitted to sell nicarbazin in
the EU on the basis of a Certificate of Analysis. The distributor selling the
product warrants that it contains what is indicated on the label. The
registration may not be transferred in a manner similar to an FDA registration.
The originator of the registration, however, retains certain rights. For one,
the originator or a successor to the rights of the originator may refer to the
data file of the originator and any predecessors when making a submission.

The EU is in the process of centralizing the regulatory process for animal
drugs for member states. In 1997, the EU drafted new regulations requiring the
re-registration of feed additives, including coccidiostats. Part of these
regulations include a provision for manufacturers to submit quality data for
their own formulation, in effect adopting a Product License procedure similar to
that of the FDA. The provision is known as Brand Specific Approval ("BSA"), and
provides manufacturers with the opportunity to register their own unique brands,
instead of simply the generic compound. The BSA process is being implemented
over time. The new system is more like the U.S. system, where regulatory
approval is for the formulated product or "brand." The Company has taken the
necessary steps to apply for a BSA for nicarbazin in the EU. The European
Commission has proposed withdrawal of authorization for certain products,
including nicarbazin, alleging certain technical deficiences with the
applications. The Company has taken the necessary steps to counter the
Commission's proposal and believes that the Commission's proposal will not be
upheld. However, there is no assurance that the Company will receive a BSA for
nicarbazin in the EU, or if its does receive such BSA, when it will be granted
or whether it will be unlimited.

CONDITIONS IN ISRAEL

The following information discusses certain conditions in Israel that
could affect the Company's Israeli subsidiary, Koffolk Israel. As of June 30,
2001 and for the year then ended, Israeli operations (excluding Koffolk Israel's
non-Israeli subsidiaries) accounted for approximately 12% of the Company's
consolidated assets and approximately 14% of its consolidated net sales. All
figures and percentages are approximate. A portion of the information with
respect to Israel presented hereunder has been taken from Annual Reports of the
Bank of Israel.

Political Conditions

Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. However, a peace agreement between
Israel and Egypt was signed in 1979, a peace agreement between Israel and Jordan
was signed in 1994 and, since 1993, several agreements between Israel and the
Palestine Liberation Organization ("PLO")--Palestinian Authority representatives
have been signed. However, since October 2000, there has been an increase in
violence in the Middle East, primarily in the West Bank and Gaza Strip, and
negotiations between Israel and the PLO have ceased. In addition, in February
2001, a new prime minister was elected in Israel and a new government has been
formed. As of the date hereof, Israel has not entered into any peace agreement
with Syria or Lebanon. The Company cannot predict whether any other agreements
will be entered into between Israel and its neighboring countries, whether a
final resolution of the area's problems will be achieved, or whether the current
civil unrest will continue and to what extent this unrest, coupled with the
September 11, 2001 attacks on the United States and the effects of such attacks
on various sectors of the U.S. and world economies, will have an adverse impact
on Israel's economic development or on the Company's operations.

Certain countries, companies and organizations continue to participate in
a boycott of Israeli firms and other companies doing business in Israel or with
Israel companies. Despite measures to counteract the boycott, including
anti-boycott legislation in the United States, the boycott has had an
indeterminate negative effect upon trade with and foreign investment in Israel.
The Company does not believe that the boycott has had a material adverse effect
on the Company, but there can be no assurance that restrictive laws, policies or
practices directed toward Israel or Israeli businesses will not have an adverse
impact on the operation or expansion of the Company's business.

Generally, all male adult citizens and permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances. Some of the employees of the
Company's Israeli subsidiaries currently are obligated to perform annual reserve
duty. While the Company's Israeli subsidiaries have operated effectively under
these and similar requirements in the past, no assessment can be made of the
full impact of such requirements on the Company in the future, particularly if
emergency circumstances occur.

Economic Conditions

Israel's economy has been subject to numerous destabilizing factors,
including a period of rampant inflation in the early to mid-1980s, low foreign
exchange reserves, fluctuations in world commodity prices, military conflicts
and security incidents. The Israeli government has, for these and other reasons,
intervened in the economy by utilizing, among other means, fiscal and monetary
policies, import duties, foreign currency restrictions and control of wages,
prices and exchange rates. The Israeli government periodically changes its
policies in all these areas.

Israel has a high balance of payments deficit, primarily as a result of
its defense burden, the absorption of immigrants, especially from the former
Soviet Union, the provision of a minimum standard of living for lower income
segments of the community and the maintenance of a minimum level of net foreign
reserves. In order to finance this deficit, Israel must sustain an adequate
inflow of capital from abroad. The major sources of the country's capital
imports include U.S. military and economic aid, personal remittances from
abroad, sales of Israeli government bonds (primarily in the United States) and
loans from foreign governments, international institutions and the private
sector.

Assistance from the United States

The State of Israel receives significant amounts of economic and military
assistance from the United States. There is no assurance that foreign aid from
the United States will continue at or near amounts received in the past, and if
it does not, the Israeli economy could suffer material adverse consequences.

Trade Agreements

Israel is a member of the United Nations, the International Monetary Fund,
the International Bank for Reconstruction and Development and the International
Finance Corporation. Israel is a member of the World Trade Organization and is a
signatory to the General Agreement on Tariffs and Trade, which provides for
reciprocal lowering of trade barriers among its members. In addition, Israel has
been granted preferences under the Generalized System of Preferences from the
United States, Australia and Canada. These preferences allow Israel to export
the products covered by such programs either duty-free or at reduced tariffs.
Israel has also entered into preferential trade agreements with the European
Union and the European Free Trade Association. In recent years, Israel has
established commercial and trade relations with a number of other nations,
including Russia, China and nations in Eastern Europe, with which Israel had not
previously had such relations.

Employees

Most of Koffolk Israel's employees are members of the Histadrut, and are
represented by collective bargaining units. Koffolk Israel is subject to various
Israeli labor laws and collective bargaining agreements between Histadrut and
the federation of industrial employers. Such laws and agreements cover a wide
range of areas, including hiring practices, wages, promotions, employment
conditions (such as working hours, overtime payment, vacations, sick leave and
severance pay), benefits programs (such as pension plans and education funds)
and special issues, such as equal pay for equal work, equal opportunity in
employment and employment of women. The collective bargaining agreements also
cover the relations between management and the employees' representatives,
including Histadrut's involvement in certain aspects of hiring and dismissing
employees and procedures for settling labor disputes.

Koffolk Israel continues to operate under the terms of Israel's national
collective bargaining agreement, portions of which expired in 1994. Israeli
employers and employees are required to pay predetermined sums to the National
Insurance Institute, an organization similar to the United States Social
Security Administration. These contributions entitle the employees to receive a
range of medical services and other benefits. Certain employees of Koffolk
Israel are covered by individual employment agreements.

Investment Incentives

Certain of the Israeli production facilities of the Company have been
granted Approved Enterprise status pursuant to the Law for the Encouragement of
Capital Investments, 1959, and consequently may enjoy certain tax benefits and
investment grants. Taxable income of Koffolk Israel derived from these
production facilities is subject to a lower rate of company tax than the normal
rate applicable in Israel. Dividends distributed by Koffolk Israel out of the
same income are subject to lower rates of withholding tax than the rate normally
applicable to dividends distributed by an Israeli company to a non-resident
corporate shareholder. The grant available to newly

Approved Enterprises was decreased throughout recent years. Certain of the
Israeli production facilities of the Company further enjoyed accelerated
depreciation under regulation extended from time to time and other deductions.
There can be no assurance that the Company will, in the future, be eligible for
or receive such or similar grants.

Item 2. Properties.

The Company maintains its principal executive offices and a sales office
in Fort Lee, New Jersey. The Company has 20 manufacturing facilities. The chart
below sets forth the locations and sizes of the principal manufacturing and
other facilities operated by the Company and uses of such facilities for
non-manufacturing purposes , all of which are owned, except as noted.

Approximate
Location Square Footage Uses
-------- -------------- ----

Atlanta, Georgia (a) 43,000 All Other; Administrative, Sales, Research
and Distribution Center
Bowmanstown, Pennsylvania 56,500 Industrial Chemicals
Bordeaux, France 141,000 All Other; Administrative and Sales
Braganca Paulista, Brazil 35,000 Animal Health and Nutrition; Administrative and Sales
Bremen, Indiana 50,000 Animal Health and Nutrition; Warehouse
Fairfield, New Jersey (a) 9,600 Animal Health and Nutrition; Administrative
Fort Lee, New Jersey (a) 23,500 Corporate Headquarters
Garland, Texas 20,000 Industrial Chemicals
Guarulhos, Brazil 1,234,000 Animal Health and Nutrition; Administrative, Sales and
Warehouse
Joliet, Illinois 34,500 Industrial Chemicals
Kuala Lumpur, Malaysia (a) 7,300 Animal Health and Nutrition; Warehouse and Office
Ladora, Iowa 9,500 Animal Health and Nutrition; Warehouse
Lee Summit, Missouri (a) 1,500 Animal Health and Nutrition; Administrative and Sales
Marion, Iowa 32,500 Animal Health and Nutrition
Odda, Norway 364,000 Industrial Chemicals; Warehouse,
Administrative and Sales
Petach Tikva, Israel 60,000 Animal Health and Nutrition; Administrative and Sales
Phenix City, Alabama 6,000 Industrial Chemicals
Pretoria, South Africa (a) 3,200 Administrative and Sales
Quincy, Illinois (b) 197,000 Animal Health and Nutrition; Warehouse,
Administrative and Sales
Ramat Hovav, Israel (a) 140,000 Animal Health and Nutrition; Research
Reading, Berks, United Kingdom (a) 3,100 Administrative and Sales
Rixensart, Belgium 865,000 Animal Health and Nutrition, Sales,
Administrative and Research
Santa Fe Springs, California (c) 90,000 Animal Health and Nutrition; Industrial Chemicals
Santiago, Chile (a) 6,500 Animal Health and Nutrition; Administrative and Sales
Scunthorpe, United Kingdom (a) 93,000 Industrial Chemicals; Warehouse
Stradishall, United Kingdom 20,000 Industrial Chemicals; Administrative,
Sales and Research
Sumter South Carolina 123,000 Industrial Chemicals; Research
Tokyo, Japan (a) 2,100 Animal Health and Nutrition; Administrative and Sales
Union City, California 20,600 Industrial Chemicals; Manufacturing
Valencia, Venezuela (a) 1,100 Animal Health and Nutrition; Administrative and Sales
Wilmington, Illinois 119,000 Industrial Chemicals; Warehouse

----------
(a) This facility is leased. The Company's leases expire from 2000 to 2027.
For information concerning the Company's rental obligations, see Note 12
to the Company's Consolidated Financial Statements included herein.
(b) Comprises six facilities, including three warehouses, two manufacturing
and one sales facility.
(c) The Company leases the land under this facility from a partnership owned
by Jack Bendheim, Marvin Sussman and James Herlands. See "Certain
Relationships and Related Transactions."

The Company's subsidiary, C.P. Chemicals, Inc., leases portions of a
previously owned inactive, former manufacturing facility in Sewaren, New Jersey,
and another subsidiary of the Company owns inactive, former manufacturing
facilities in Powder Springs, Georgia and Union, Illinois. MRT leases property
and operates terminal facilities in Atlanta, Georgia, South Beloit, Illinois,
Pittsburg, California and Corona, California, and operates loading and storage
facilities in Pryor, Oklahoma, Joppa, Illinois, St. John, Arizona, Gentry,
Arkansas, Labadie, Missouri, Rush Island, Missouri and Presque Isle, Michigan.

The Company believes that its existing and planned facilities are and will
be adequate for the conduct of its business as currently conducted and as
currently contemplated to be conducted.

The Company and its subsidiaries are subject to extensive regulation by
numerous governmental authorities, including the FDA and corresponding state and
foreign agencies, and to various domestic and foreign safety standards.
Manufacturing facilities of the Company in Ramat Hovav and Brazil manufacture
products that conform to the FDA's GMP regulations. Of the Company's five
domestic facilities involved with recycling, four have final RCRA Part B
hazardous waste storage and treatment permits and one is in an interim permit
status. The Company's regulatory compliance programs include plans to achieve
compliance with international quality standards known as ISO 9000 standards,
which became mandatory in Europe in 1999 and environmental standards known as
ISO 14000. The FDA is in the process of adopting the ISO 9000 standards as
regulatory standards for the United States, and it is anticipated that these
standards will be phased in for U.S. manufacturers over a period of time. The
Company's plants in Bowmanstown, Pennsylvania and Petach Tikva, Israel have
achieved ISO 9000 certification. The Company's Union City, California plant has
achieved certification for both ISO 9000 and ISO 14000. The Company does not
believe that adoption of the ISO 9000 standards by the FDA will have a material
effect on its financial condition, results of operations or cash flows.

Item 3. Legal Proceedings.

Reference is made to the discussion above under "Environmental Matters" in
Item 1 for information as to various environmental investigation and remediation
obligations of the Company's subsidiaries associated principally with their
recycling and production facilities and to certain legal proceedings associated
with such facilities.

In addition to such matters, the Company or certain of its subsidiaries is
subject to certain litigation described below.

On or about April 17, 1997, CP and the Company were served with a
complaint filed by Chevron USA, Inc. ("Chevron") in the United States District
Court for the District of New Jersey, alleging that operations of CP at its
Sewaren plant affected adjoining property owned by Chevron and that Philipp
Brothers, as the parent of CP, is also responsible to Chevron. The complaint
includes statutory claims under RCRA and common law claims. There are several
other defendants in the action, including the former owner of the Sewaren site
and Chevron's site and a prior tenant of the Chevron site. Additional parties
have been brought into the action. Interrogatories have been exchanged and
depositions are being conducted. The Company is not, at this time, in a position
to assess the extent of any ultimate liability it may have in connection with
this suit or the potential responsibility of other defendants, or the future
cost of remediation of the Chevron site, and is actively defending the action.
Nevertheless, the Company is actively involved in discussions among all the
parties in an effort to find a mutually satisfactory resolution.

The Company's Phibro-Tech subsidiary was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under CERCLA by
the EPA, involving a former third party fertilizer manufacturing site in
Jericho, South Carolina. Phibro-Tech responded that it had supplied a useful
product to the operator of the site and that it believes this constitutes a
defense to the claims brought against it. The South Carolina Department of
Health and Environmental Control, which had assumed oversight of this site,
filed suit in United States District Court to approve a settlement with certain
steel company PRPs. Other parties intervened and filed administrative actions to
contest the substantive and procedural fairness of that settlement. The Court
permitted other PRPs to intervene and, in August 1999, disapproved the
settlement. Discussions between

representatives of the original group of settling PRPs and of the other PRPs
have taken place in an effort to prepare a joint settlement proposal. A
tentative agreement has been reached and, while the outcome is still uncertain,
the Company has accrued its best estimate of the settlement amount.

In February, 2000, the EPA notified numerous parties of potential
liability for waste disposed of at a licensed Casmalia, California disposal
site, including a business, assets of which were originally acquired by a
subsidiary of the Company in 1984. Phibro-Tech responded, requested further
information and joined a PRP working group which engaged in discussions with the
EPA. A tentative settlement has been reached in this matter as well and the
Company has accrued its best estimate of the settlement amount.

The Company and its subsidiaries are party to a number of claims and
lawsuits arising out of the normal course of business including product
liabilities and governmental regulation. Certain of these actions seek damages
in various amounts. In most cases, such claims are covered by insurance. The
Company believes that none of the claims or pending lawsuits, either
individually or in the aggregate, will have a material adverse effect on the
Company's financial position, results of operations or cash flows.

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

There were no matters submitted to a vote of security holders of the
Company during the fourth quarter of the fiscal year ended June 30, 2001.

PART II

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

(a) Market Information. There is no public trading market for the
Company's common equity securities.

(b) Holders. As of June 30, 2001, there was one holder of the Company's
Class A Common Stock and two holders of the Company's Class B Common Stock.

(c) Dividends. The Company did not declare dividends on any of its common
stock during the two years ended June 30, 2001.

Item 6. Selected Financial Data.

The following table sets forth summary consolidated financial data for the
Company for the past five years ended June 30, 2001. The summary consolidated
financial data for the five years are derived from the Company's audited
consolidated financial statements. The consolidated financial data set forth
below should be read in conjunction with the Company's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein.

SUMMARY OF CONSOLIDATED FINANCIAL DATA

Year Ended June 30,
------------------------------------------------------------
2001(a) 2000 1999(a) 1998(g) 1997(g)
--------- --------- --------- --------- ---------

Income Statement Data:
Net sales .................................. $364,410 $323,026 $302,057 $275,577 $266,058
Net income (loss) before extraordinary
items .................................... (14,895) 10,053 (466) (7,065) 8,036
Extraordinary items ........................ -- -- -- (1,962) --
Net income (loss) (b) (c) (d) .............. (14,895) 10,053 (466) (9,027) 8,036

Balance Sheet Data:
Total assets ............................... $330,019 $258,451 $238,779 $192,196 $162,700
Debt (e) ................................... 173,331 150,772 140,103 104,296 67,259
Redeemable Preferred Stock (f) ............. 48,980 -- -- -- --

Notes to Summary Consolidated Financial Data:

----------
(a) Reflects the acquisitions of Odda and the Pfizer medicated feed additive
business effective October 1, 1998 and November 30, 2000, respectively.
Also reflects the sale in the fourth quarter of 2001 of the Company's
Agtrol crop protection business and resultant pre-tax gain of $1.5
million.
(b) In 2000, includes a $13.7 million gain resulting from Odda's sale of its
minority equity interest in a local Norwegian hydroelectric power company
and related power rights. In 2000, also includes $1.5 million of income
resulting from the transfer of title of property in Sewaren, New Jersey.
(c) In 2000 and 1999, includes $.9 million and $3.7 million, respectively, of
property damage insurance gains as a result of a fire at the Bowmanstown,
Pennsylvania facility. In 1997, includes $5.6 million gain related to
proceeds from the life insurance policy received on the death of the then
Chairman of the Board of the Company.
(d) In 2001 and 1999, includes $1.3 and $1.5 million charges, respectively,
related to the severance of senior executives. In 1998, includes a $10
million nonrecurring plant curtailment charge and $5.6 million for the
forgiveness of limited recourse notes receivable from certain executives
of the Company and payment for related income taxes resulting from the
cancellation.
(e) Debt is equal to loans payable to banks, long-term debt and current
portion of long-term debt.
(f) Issuance of redeemable preferred securities in connection with acquisition
of the Pfizer medicated feed additives business in 2001.

(g) Included in net sales is shipping and handling income of $6.1, $5.4 and
$4.8 million for the fiscal years ended June 30, 2001, 2000 and 1999,
respectively. Amounts for prior periods are not readily determinable and
restatements have not been made.

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

This information should be read in conjunction with the Company's
Consolidated Financial Statements, including the notes thereto, contained in
this Report.

General

The Company is a leading diversified global manufacturer and marketer of a
broad range of specialty agricultural and industrial chemicals, which are sold
world-wide for use in numerous markets, including animal health and nutrition,
agriculture, pharmaceutical, electronics, wood treatment, glass, construction
and concrete. The Company also provides recycling and hazardous waste services
primarily to the electronics and metal treatment industries.

The Company has four operating segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. The Company previously
reported two operating segments-- Agchem and Industrial Chemicals. Due to
organizational changes during fiscal 2001, including those associated with the
acquisition of the animal health business from Pfizer and the sale of the Agtrol
crop protection business, segment reporting has been revised. Prior period
segment information has been revised to conform to the fiscal 2001 segment
presentation.

On October 1, 1998, the Company acquired all of the outstanding capital
stock of Odda Smelteverk AS, a Norwegian company, and certain assets of the
business of BOC Carbide Industries in the United Kingdom (together "Odda") from
the BOC Group. The operating results of these businesses are included in the
Company's consolidated statements of operations from the date of acquisition and
are included in the Industrial Chemicals and Distribution segments.

On November 30, 2000, the Company purchased the medicated feed additives
business of Pfizer, Inc. ("Pfizer"). The operating results of this business, now
called PhibroAnimal Health, ("PAH"), are included in the Company's consolidated
statements of operations from the date of acquisition and are included in the
Animal Health and Nutrition segment.

On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary, to Nufarm, Inc, the U.S. subsidiary
of Nufarm Limited, a publicly listed Australian based company. On June 14, 2001,
the Company sold its Agtrol international business to Nufarm. Agtrol developed,
manufactured and marketed crop protection products, including copper fungicides.
The sale included inventory and intangible assets to Nufarm but did not include
plant, equipment, or other manufacturing assets. Phibro-Tech also entered into
agreements to supply copper fungicide products to Nufarm from its Sumter, South
Carolina plant for five years, and from its Bordeaux, France plant for three
years. The operating results of Agtrol are included in the Company's
consolidated statements of operations up to the date of disposition and are
included in the All Other segment.

Results of Operations

Sales
($000's)
Year Ended June 30,
--------------------------------------
Operating Segments: 2001 2000 1999
-------- -------- --------
Animal Health and Nutrition......... $202,573 $135,088 $132,845
Industrial Chemicals................ 107,455 109,318 107,611
Distribution........................ 44,452 49,254 47,646
All Other........................... 46,979 69,198 58,037
Elimination of intersegment sales... (37,049) (39,832) (44,082)
-------- -------- --------
$364,410 $323,026 $302,057
======== ======== ========

Operating Income (Loss)
($000's)
Year Ended June 30,
--------------------------------------
Operating Segments: 2001 2000 1999
-------- -------- --------
Animal Health and Nutrition......... $ 17,562 $ 11,539 $ 8,763
Industrial Chemicals................ (3,350) 5,355 4,988
Distribution........................ 3,936 3,817 3,643
All Other........................... (7,086) 4,045 3,097
Corporate expenses and intercompany
profit elimination................ (10,086) (9,082) (10,136)
-------- -------- --------
$ 976 $ 15,674 $ 10,355
======== ======== ========

Comparison of Fiscal Year Ended June 30, 2001 to Fiscal Year Ended June 30,
2000.

Net Sales. Net sales increased by $41.4 million, or 13%, to $364.4 million
in 2001, as compared to the prior year. The increase was primarily due to the
purchase of the PAH business offset in part by the sale of the Company's Agtrol
operations.

The Animal Health and Nutrition segment's net sales increased by $67.5
million, or 50%, to $202.6 million in 2001, as compared to the prior year. The
net sales increase was due to increased unit volume primarily as a result of the
PAH purchase. Excluding PAH, sales for the segment in 2001 were slightly above
the prior year. Increased volumes contributed to an increase in sales, but were
offset by lower average sales prices, including the impact of foreign exchange,
in 2001.

The Industrial Chemicals segment's net sales decreased by $1.9 million, or
2%, to $107.4 million in 2001, as compared to the prior year. Sales of
Phibro-Tech, excluding recycling fees, were down by $2.8 million due to volume
declines related to the printed circuit board industry. Lower sales of Odda's
carbide and dicyandiamide products also accounted for the decrease. These
decreases were offset in part by higher recycling fees ($2.4 million) due to
increased demand.

Net sales for the Distribution segment decreased by $4.8 million, or 10%,
to $44.5 million in 2001, as compared to the prior year. The net sales decrease
was due to lower average sales prices, including foreign exchange, offset in
part by higher unit volume. The Company experienced sharp declines in selling
prices for carbide, dicyandiamide and copper cyanide products during the current
year.

Net sales for the All Other segment decreased by $22.2 million, or 32%, to
$47.0 million in 2001, as compared to the prior year. The net sales decrease was
due to lower unit volume primarily as a result of the sale of the Agtrol crop
protection business, which was sold during the fourth quarter of 2001. The crop
protection business is highly seasonal and most of the sales are normally in the
Company's fourth quarter. Excluding Agtrol, sales for the segment in 2001 were
slightly above the prior year. Unit volume of the Company's fly ash business
increased approximately 36% and was offset by lower average sales prices of 10%
due to product and customer mix in 2001 compared to the prior year. The fly ash
volume increase was the result of additional contracts with utilities in
Missouri and Michigan. During the fourth quarter, the Company began
commercialization of its cement business. Revenues at the Company's Wychem, U.K.
facility decreased $2.4 million due to a decline in specialized lab projects and
formulations

Gross Profit. Gross profit increased by $4.2 million, or 4.5%, to $98.1
million in 2001, as compared to the prior year. The increase was primarily due
to the purchase of the PAH business offset in part by the sale of the Company's
Agtrol operations during their major selling season. Purchase accounting
adjustments relating to inventory resulted in an increase to cost of goods sold
of $8.9 million during fiscal 2001. The remainder of the inventory purchase
adjustment, approximately $3.2 million, will be charged to cost of goods sold in
fiscal 2002. Higher costs for petroleum and metallurgical coke, which are used
as raw materials at Odda, adversely affected margins in the Industrial Chemical
segment. In addition, the declines in average selling prices described above
further reduced the Company's margin.

Selling, General and Administrative Expenses. Costs increased by $17.5
million to $97.2 million in 2001, as compared to the prior year. Excluding PAH,
costs were up approximately $.6 million principally due to management advisory
fees to Palladium ($1.3 million), higher fly ash warehousing and distribution
costs ($1.4 million), severance costs ($1.3 million) and research and
development expenditures ($.7 million) offset by a reduction in the repurchase
value of redeemable common stock of a minority shareholder ($4.3 million).

Operating Income. Operating income decreased by $14.7 million to $1.0
million in 2001, as compared to the prior year. Operating income would have been
$8.9 million higher than reported if not for purchase

accounting adjustments to the sale of inventory acquired from Pfizer. Operating
income declined in the Industrial Chemicals segment primarily due to lower
selling prices and volumes. The Company is implementing cost reduction programs
and other initiatives in this segment in reaction to current market conditions.
The Company's All Other segment declined due to the sale of Agtrol and decreases
in average selling prices offset in part by higher sales volumes of fly ash. The
Distribution segment approximated the prior year despite a reduction in sales
due to changes in product mix. The Animal Health and Nutrition segment increased
due to the inclusion of PAH for the period and higher unit volumes.

Interest Expense, Net. Costs increased by $3.6 million or 25.3% to $17.7
million in fiscal 2001 as compared to the prior year primarily due to debt
incurred in connection with the PAH acquisition and higher levels of average
bank borrowings.

Other Expense, Net. Other expense, net principally reflects foreign
currency transaction losses of the Company's foreign subsidiaries.

Gain from Sale of Assets. A gain from sale of assets ($1.5 million)
resulted from the Company's sale of its Agtrol crop protection business, a
division of the Company's Phibro-Tech, Inc. subsidiary, to Nufarm Inc. In
addition, the Company's Odda subsidiary sold real estate resulting in a gain
($1.0 million).

Income Taxes. The 2001 and 2000 tax benefits and provisions differ from
the amount calculated at the U.S. statutory rate, due primarily to the effect of
non-deductible expenses and tax rate differences on foreign operations.
Valuation allowances ($1.0 million in fiscal 2001) have been provided against
deferred tax assets that are deemed by management as not likely of recovery in
future periods. The 2000 tax expense includes a provision related to the gain on
sale of assets at the Norwegian statutory rate of 28%.

Comparison of Fiscal Year Ended June 30, 2000 to Fiscal Year Ended June 30,
1999.

Net Sales. Net sales increased by $21.0 million, or 7%, to $323.0 million
in fiscal 2000, as compared to the prior year. Increases were noted in all
segments as more fully discussed below.

Animal Health and Nutrition net sales increased by $2.2 million, or 2%, to
$135.1 million in 2000, as compared to the prior year. Sales were higher
primarily due to higher sales volume of the Company's animal health and
nutrition products, primarily coccidiostats ($1.5 million) and feed pre-mixes
($1.9 million). The increase in pre-mixes resulted from the December 1998
acquisition of a feed pre-mix business. These increases were somewhat offset by
lower sales resulting from discontinued products at Koffolk, the Company's
Israeli subsidiary.

Industrial Chemicals net sales increased by $1.7 million, or 2%, to $109.3
million in 2000, as compared to the prior year. Sales were higher due to a full
year of dicyandiamide and calcium carbide sales ($5.6 million) by Odda (acquired
in October 1998), and higher recycling fees ($1.1 million). Production
disruptions for certain mineral oxides as a result of a fire in the Company's
Bowmanstown, PA facility (and as a result purchases by the Animal Health and
Nutrition segment were supplemented from third party sources) offset the above
increases.

Distribution net sales increased by $1.6 million, or 3%, to $49.3 million
in 2000, as compared to the prior year. The net sales increase was due to higher
sales of the Company's dicyandiamide and carbide products. Improvements in
average selling prices of other products also improved sales and operating
results.

All Other net sales increased by $11.2 million, or 19%, to $69.2 million
in 2000, as compared to the prior year. Higher volume sales of the Company's
crop protection chemicals ($5.5 million) due to increased market penetration of
generic fungicides and introduction of a new copper based fungicide contributed
to the bulk of the increase. In addition, higher volume sales of coal fly ash
($5.3 million) also accounted for the bulk of the increase.

Gross Profit. Gross profit increased by $15.1 million, or 19.5%, to $93.9
million as compared to the prior year. This increase was primarily attributable
to higher profits in the Animal Health and Nutrition segment ($4.3 million)
primarily due to higher volume sales and lower costs, principally raw materials,
at the Company's Israeli subsidiary (Koffolk) for coccidiostats. Increased
profits from higher sales in the Company's Industrial Chemicals segment ($3.5
million) were due to the Odda acquisition and higher recycling fees. Increased
sales prices and volumes for the Distribution segment improved results ($.8
million). Higher volume sales of coal ash also accounted for the increase in
profit.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by $10.7 million, or 15.6%, to $79.7 million
in fiscal 2000 as compared to the prior year. The increase was primarily due to
the Odda acquisition ($2.1 million), higher distribution expenses associated
with increased sales of coal fly ash ($3.9 million) and higher distribution
expenses ($1.1 million) associated with inorganic chemical sales. In fiscal
2000, corporate expenses included a $1.1 million non-cash charge to reflect the
increase in repurchase value of redeemable common stock of a minority
shareholder, as compared to income of $.2 million in the prior year. The prior
year included an accrual for compensation expenses ($1.5 million) associated
with the termination of employment of an executive of a subsidiary of the
Company.

Curtailment of Operations. In June 2000, the Company transferred title to
its property in Sewaren, New Jersey to the Township of Woodbridge.
Simultaneously, the Company entered into a ten year lease agreement with
payments aggregating $2 million for certain areas of the property in order to
allow it to conduct operations related to its RCRA Part B Facility Permit.
Pursuant to the Transfer Agreement, the Township of Woodbridge took title to the
property and assumed obligations with regard to the property including
maintaining the ground water recovery system required by the Administrative
Consent Order between the Company and the New Jersey Department of Environmental
Protection. In connection with the assumption of obligations by the Township in
fiscal 2000, the Company has reversed $1.5 million to income representing
amounts previously reserved for ground water monitoring and remediation net of
the present value of its lease obligations. In fiscal 1999, the

Company reversed $.5 million of the original $10 million charge to income based
upon a reassessment of site remediation and ongoing cost requirements.

Operating Income. Operating income increased by $5.3 million, or 51.3%, to
$15.7 million in fiscal 2000, as compared to the prior year. The operating
income of the Animal Health and Nutrition segment accounted for the largest part
of the increase and improvements in the fly ash business accounted for most of
the improvements over the prior year.

Interest Expense, net. Interest expense increased by $1.6 million, or
13.1%, to $14.8 million in fiscal 2000 as compared to the prior year primarily
due to an increased average level of bank borrowings and higher average interest
rates.

Gain from Property Damage Claim. In April 1999, the Company suffered
inventory, real property and equipment loss at its Bowmanstown, Pennsylvania
facility resulting from a fire. In fiscal 2000, the Company settled all claims
with its insurance carriers and recorded a gain of $.9 million (in addition to
the $3.7 million booked in fiscal 1999) based on agreed upon final
reimbursements for damaged property and equipment in excess of its net book
value.

Other Expense, Net. Other expense, net, principally reflects foreign
currency transaction losses of the Company's foreign subsidiaries.

Gain from Sale of Assets. Odda had a minority equity investment in a local
hydroelectric power company and also held contracts for the purchase of
hydroelectric power through the years 2006 to 2010. As a result of legislative,
regulatory and market developments occurring in Norway since the 1998
acquisition, the Company was able to sell its investment and related power
rights to a Norwegian "state-owned" power production company in January 2000. As
a result of the sale, Odda's ability to purchase power at cost terminated and it
now purchases a majority of its power at prevailing market rates. The Company
realized net sale proceeds of $18.7 million and recorded a pre-tax gain of $13.7
million. Approximately $1.3 million of additional net gain has been deferred and
will be recognized over the period of a related power purchase contract with the
buyer.

Income Taxes. The 2000 and 1999 tax provisions differ from the amount
calculated at the U.S. statutory rate, due primarily to the effect of
non-deductible expenses and tax rate differences on foreign operations. The 2000
tax expense includes a provision related to the gain on sale of assets at the
Norwegian statutory rate of 28%.

Liquidity and Capital Resources

Cash on hand as of June 30, 2001 totaled $14.8 million compared to $2.4
million as of the fiscal 2000 year end. Much of the increase in cash results
from the funding requirements of the international operations of the PAH
business.

Working capital as of June 30, 2001 and 2000 was $74.0 million and $79.9
million, respectively. Inventories increased by $33.4 million during the year,
primarily due to inventory relating to the PAH business ($42.2 million),
partially offset by the reduction in inventory from the sale of the Agtrol crop
protection business ($6.9 million). Accounts payable and accrued expenses
increased by $29.9 million from the prior year, all relating to the acquired PAH
business. In addition, certain changes to the Company's revolving credit
agreement during 2001 have resulted in borrowings under this agreement being
classified as short-term debt.

Net Cash Provided by Operating Activities. Cash provided by operating
activities in fiscal 2001 was $13.1 million, an improvement of $21.1 million
from the prior year. This increase is primarily due to positive cash flow
generated from the seven months of operations of the acquired PAH business unit.
Cash used in operating activities in fiscal 2000 was $7.9 million, $4.8 million
higher than 1999. This increase was primarily due to higher levels of accounts
receivable from sales of crop protection chemicals during the last quarter of
fiscal 2000 compared to the prior year.

Net Cash Used in Investing Activities. Net cash used in investing
activities in fiscal 2001 was $40.1, primarily related to the PAH acquisition
($51.7 million) offset by proceeds from the sale of the Agtrol crop protection
business ($26.5 million). Capital expenditures of $14.5 million were primarily
for expansion of the Company's coal fly ash operations and for maintaining the
Company's existing asset base, including projects related to productivity
improvements and environmental protection and compliance. In fiscal 2000, net
investing activities totaled $4.1 million. Capital expenditures were $22.6
million, with major expenditures taking place at Odda to increase production
capacity and at MRT for expansion of the Company's coal fly ash operations.
During fiscal 2000, the Company received proceeds of $18.7 million from the sale
of assets by Odda.

Net Cash Provided by Financing Activities. Net cash provided by financing
activities in 2001 was $39.9 million. Proceeds from the issuance of redeemable
preferred securities were $45 million and costs of issuance were $4.2 million.
In fiscal 2000, net cash provided by financing activities was $11.3 million,
primarily the result of drawdowns under the Company's revolving credit
facilities, partially offset by repayment of bank debt by Odda of approximately
$10.0 million from proceeds generated from the sale of assets.

Liquidity. In connection with the PAH acquisition, the Company amended its
loan agreement with PNC Bank, increasing the revolving credit portion of the
facility to $70 million (from $35 million) and adding an additional $15 million
facility for spending on capital expenditures. The Company may choose between
two interest options: the base rate, as defined; and the Euro Rate, as defined,
plus 2 1/4% to 3% per annum, depending on the Company's operating performance
and whether the drawdowns are under the revolving credit facility or the capital
expenditure facility. The agreement was effective December 1, 2000 and continues
until November 30, 2003. Due to the nature and terms of the amended revolving
credit agreement, which includes both a subjective acceleration clause and a
requirement to maintain a lockbox arrangement, all borrowings against this
facility are now classified as a current liability. At June 30, 2001, the amount
of credit extended under this agreement totaled $24.5 million and the Company
had $23.1 million available under the borrowing base formula in this agreement.
In addition, certain of the Company's foreign subsidiaries also had availability
under their respective credit facilities totaling $7.7 million.

On November 30, 2000 the Company issued $25 million of redeemable Series B
preferred stock and $20 million of redeemable Series C preferred stock. Each
Series is entitled to cumulative cash dividends, payable semi-annually at 15%
per annum of the liquidation value. The liquidation value of the Preferred B
stock is an amount equal to $1 per share plus all accrued and unpaid dividends
(Liquidation Value). The Preferred C stock is entitled to the Liquidation Value
plus a percentage of the equity value of the Company, as defined in the amended
Certificate of Incorporation. The equity value is calculated as a multiple of
the earnings before interest, tax, depreciation and amortization of the Company
(Equity Value). The Company may, at the date of the annual closing anniversary,
redeem the Preferred B in whole or in part at the Liquidation Value, for cash,
provided that if the Preferred B stock is redeemed separately from the Preferred
C stock then the Preferred B must be redeemed for the Liquidation Value plus an
additional amount which would generate an internal rate of return of 20% to the
holders of the shares. Redemption in part of the Preferred B shares is only
available if at least 50% of the outstanding Preferred B shares are redeemed. On
the third closing anniversary and on each closing anniversary thereafter, the
Company may redeem for cash only in whole the Preferred C shares, at the
Liquidation Value plus the Equity Value payment. At any time after the
redemption of the Company's Senior Subordinated Notes due 2008, the holders of
both series have the right to require the Company to redeem for cash all such
preferred shares outstanding.

In September 1999 and in April 2000, Odda received approvals from the
Norwegian Bank Industrial and Regional Development Fund for loans of NOK 11.5
million and NOK 15 million, respectively for capital and environmental projects.
The Company utilized $2.2 million and $.7 million of these funds during 2001 and
2000, respectively. Both facilities are repayable in 20 equal semi-annual
installments beginning in 2002. At June 30, 2001 Odda was not in compliance with
the debt service and liabilities to equity ratios in its credit agreements, and
a waiver was obtained from its lenders.

The Company anticipates spending approximately $13 million for capital
expenditures in fiscal 2002, primarily to cover the Company's asset replacement
needs, improve processes, and ensure environmental and regulatory compliance.
The Company believes that cash flows from operations and available borrowing
arrangements should provide sufficient working capital to operate the Company's
existing business, to make budgeted capital expenditures, and to service
interest and current principal coming due on outstanding debt.

Seasonality of Business

Prior to the divestiture of the crop protection business, the Company's
sales were typically highest in the fourth fiscal quarter due to the seasonal
nature of the agricultural industry. With the sale of this business, as well as
the acquisition of the non-seasonal PAH business, the Company's sales are
expected to be less seasonal. However, some seasonality in the Company's results
will remain as sales of certain industrial chemicals to the wood treatment
industry as well as sales of coal fly ash are typically highest during the peak
construction periods of the first and fourth fiscal quarters.

Effect of Inflation; Foreign Currency Exchange Rates

Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
any material effect on the Company's business over the last two years.

The Company's substantial foreign operations expose it to risk of exchange
rate fluctuations. Balance sheet accounts of the Company's foreign subsidiaries,
with the exception of the Brazilian and Israeli subsidiaries of Koffolk Israel,
are translated at current rates of exchange and income and expense items are
translated at the average exchange rate for the year. The resulting translation
adjustments are reflected as a separate component of stockholders' equity. The
Brazilian and Israeli subsidiaries of Koffolk Israel transact substantially all
of their business in U.S. dollars. Accordingly, the U.S. dollar is designated as
the functional currency of these operations and translation gains and losses are
included in net income.

Net exchange gains and losses resulting from the translation of foreign
financial statements and the effect of exchange rates on intercompany
transactions of a long-term investment nature are reflected as a separate
component of stockholders' equity. Translation losses relating to intercompany
debt of short-term investment nature are included in other expense, net in the
amounts of $2.8 million, $2.1 million and $1.8 million in the accompanying
consolidated statements of operations for the years ended June 30, 2001, 2000
and 1999, respectively. Other foreign currency transaction gains and losses are
not material.

Impact of Recently Adopted Accounting Pronouncements

Effective July 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and its related amendment, Statement of Financial Accounting
Standards No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities ("SFAS No. 133")." These standards require that all
derivative financial instruments be recorded on the consolidated balance sheets
at their fair value as either assets or liabilities. Changes in the fair value
of derivatives will be recorded each period in operations or accumulated other
comprehensive income, depending on whether a derivative is designated and
effective as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in accumulated
other comprehensive income will be included in operations in the periods in
which operations are affected by the hedged item. The cumulative effect of a
change in accounting principle due to the adoption of SFAS No. 133 was not
material.

The Company operates internationally, with manufacturing and sales
facilities in various locations around the world and utilizes certain financial
instruments to manage its foreign currency and commodity exposures, primarily
related to forecasted transactions. To qualify a derivative as a hedge at
inception and throughout the hedge period, the Company formally documents the
nature and relationships between the hedging instruments and hedged items, as
well as its risk-management objectives, strategies for undertaking the various
hedge transactions and method of assessing hedge effectiveness. Additionally,
for hedges of forecasted transactions, the significant characteristics and
expected terms of a forecasted transaction must be specifically identified, and
it must be probable that each forecasted transaction would occur. If it were
deemed probable that the forecasted transaction will not occur, the gain or loss
would be recognized in operations currently. Financial instruments qualifying
for hedge accounting must maintain a specified level of effectiveness between
the hedging instrument and the item being hedged, both at inception and
throughout the hedged period. The Company hedges forecasted transactions for
periods not exceeding the next twelve months. The Company does not engage in
trading or other speculative uses of financial instruments.

The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates and as a means of hedging forecasted
operating costs. When using options as a hedging instrument, the Company
excludes the time value from the assessment of effectiveness. The change in a
foreign currency option's time value is reported each period in other expense,
net on the Company's consolidated statement of operations and comprehensive
income. The effective portion of unrealized gains and losses associated with
forward contracts and the intrinsic value of option contracts are deferred as a
component of accumulated other comprehensive income until the underlying hedged
transactions are reported on the Company's consolidated statement of operations
and comprehensive income. The Company also utilizes, on a limited basis, certain
commodity derivatives, primarily on copper used in its manufacturing process, to
hedge the cost of its anticipated production requirements. During the year ended
June 30, 2001, the Company's foreign currency options have been designated and
qualify for cash flow hedges under the criteria of SFAS No. 133. The Company's
foreign currency forward contracts and commodity derivatives did not meet the
criteria of SFAS No. 133 to qualify for hedge accounting. The Company recorded a
net loss of $341 in cost of goods sold for commodity contracts and a net loss in
other expense, net of $414 for foreign currency forward contracts and the
ineffective portion of the option contracts for the year ended June 30, 2001.

New Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No.
141") and No. 142 "Goodwill and Other intangibles" ("SFAS No. 142"). SFAS No.
141 and No. 142 are effective for the Company on July 1, 2002. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The statement also establishes
specific criteria for recognition of intangible assets separately from goodwill
and requires unallocated negative goodwill to be written off immediately as an
extraordinary gain. SFAS No. 142 primarily addresses the accounting for goodwill
and intangible assets subsequent to their acquisition. The statement requires
that goodwill and indefinite lived intangible assets no longer be amortized and
be tested for impairment at least annually. The amortization period of
intangible assets with finite lives will no longer be limited to forty years.
The Company is currently assessing the impact of these statements.

Quantitative and Qualitative Disclosure About Market Risk

In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result, future earnings, cash flows and fair values
of assets and liabilities are subject to uncertainty. The Company uses foreign
currency forward contracts as a means of hedging exposure to foreign currency
risks. The Company also utilizes, on a limited basis, certain commodity
derivatives, primarily on copper used in its manufacturing processes, to hedge
the cost of its anticipated purchase requirements. The Company does not utilize
derivative instruments for trading purposes. The

Company does not hedge its exposure to market risks in a manner that completely
eliminates the effects of changing market conditions on earnings, cash flows and
fair values. The Company monitors the financial stability and credit standing of
its major counterparties.

Interest Rate Risk

The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates.

The Company's debt portfolio is comprised of fixed rate and variable rate
debt of approximately $173.3 million as of June 30, 2001. Approximately 28% of
the debt is variable and would be interest rate sensitive. For further details,
refer to Note 6, of the "Notes to the Consolidated Financial Statements" of the
Company appearing elsewhere herein.

For the purposes of the sensitivity analysis, an immediate 10% change in
interest rates would not have a material impact on the Company's cash flows and
earnings over a one year period.

As of June 30, 2001, the fair value of the Company's senior subordinated
debt is estimated based on quoted market rates at $65.9 million and the related
carrying amount is $100 million.

Foreign Currency Exchange Rate Risk

A significant portion of the financial results of the Company is derived
from activities conducted outside the U.S. and denominated in currencies other
than the U.S. dollar. Because the financial results of the Company are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. Dollar. Exchange rate risks are
reduced, however, by the diversity of the Company's foreign operations and the
fact that international activities are not concentrated in any single non-U.S.
currency. Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. The
Company covers known and anticipated operating exposures by using purchased
foreign currency exchange option and forward contracts. The primary currencies
for which the Company has foreign currency exchange rate exposure are the Euro
and Japanese yen.

The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined for these
purposes as the potential change in fair value resulting from an adverse
movement in foreign currency exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date. At June 30, 2001, the fair market value was equal to the carrying amount
due to the Company's adoption of SFAS 133 at July 1, 2000 which requires that
all derivatives be recorded on the balance sheet at fair value. Based on the
limited amount of foreign currency contracts at June 30, 2001, the Company does
not believe that an instantaneous 10% adverse movement in foreign currency rates
from their levels at June 30, 2001, with all other variables held constant,
would have a material effect on the Company's results of operations, financial
position or cash flows.

Other

The Company obtains third party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. At June
30, 2001, the contract values of these letters of credit and surety bonds were
$1.0 million and their fair values did not differ materially from their carrying
amount.

Commodity Price Risk

The Company purchases certain raw materials, such as copper, under
short-term supply contracts. The purchase prices thereunder are generally
determined based on prevailing market conditions. The Company uses

commodity derivative instruments to modify some of the commodity price risks.
Assuming a 10% change in the underlying commodity price, the potential change in
the fair value of commodity derivative contracts held at June 30, 2001 would not
be material when compared to the Company's earnings and financial position.

The foregoing market risk discussion and the estimated amounts presented
are Forward-Looking Statements that assume certain market conditions. Actual
results in the future may differ materially from these projected results due to
developments in relevant financial markets and commodity markets. The methods
used above to assess risk should not be considered projections of expected
future events or results.

Certain Factors Affecting Future Operating Results

This Form 10-K contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company's actual results could
differ materially from those set forth in the forward-looking statements.
Certain factors that might cause such a difference include, among other factors
noted herein, the following: the Company's substantial leverage and potential
inability to service its debt; the Company's dependence on distributions from
its subsidiaries; risks associated with the Company's international operations;
the Company's dependence on its Israeli operations; competition in each of the
Company's markets; potential environmental liability; extensive regulation by
numerous government authorities in the United States and other countries;
significant cyclical price fluctuation for the principal raw materials used by
the Company in the manufacture of its products; the Company's reliance on the
continued operation and sufficiency of its manufacturing facilities; the
Company's dependence upon unpatented trade secrets; the risks of legal
proceedings and general litigation expenses; potential operating hazards and
uninsured risks; the risk of work stoppages; the Company's dependence on key
personnel; and the uncertain impact of the Company's acquisition plans.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Information regarding quantitative and qualitative disclosures about
market risk is set forth in Item 7 of this Form 10-K.

Item 8. Financial Statements and Supplementary Data.

The financial statements are set forth commencing on page F-1 hereto.

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

No response required.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The following sets forth, as of June 30, 2001, the name, age, and position
of the Company's directors and executive officers:

Name Age Position
---- --- --------
Jack C. Bendheim 54 Director; President and Chief Executive Officer

Marvin S. Sussman 54 Director; Chief Operating Officer and Executive
Vice President; President, Prince Group

James O. Herlands 59 Director and Executive Vice President; President,
PhibroChem Group

David C. Storbeck 46 Vice President and Chief Financial Officer

Joseph M. Katzenstein 59 Treasurer and Secretary

Steven L Cohen 57 Vice President and General Counsel

Peter A. Joseph 49 Director

Adam R. Karr 29 Director

JACK C. BENDHEIM -- Director, President and Chief Executive Officer. Mr.
Bendheim has been President since 1988. He was Chief Operating Officer from 1988
to 1998, and was appointed Chief Executive Officer in 1998. He has been a
director since 1984. Mr. Bendheim joined the Company in 1969 and served as
Executive Vice President and Treasurer from 1983 to 1988 and as Vice President
and Treasurer from 1975 to 1983. Mr. Bendheim is also a director of The
Berkshire Bank in New York, New York, and Empire Resources, Inc., a metals
trading company in Fort Lee, New Jersey.

MARVIN S. SUSSMAN -- Director, Chief Operating Officer and Executive Vice
President, and President of the Company's Prince Group. He has been a director
since 1988 and was appointed Chief Operating Officer in 1998. Mr. Sussman joined
the Company in 1971. Since then, he has served in various executive positions at
the Company and at the Prince Group. Since 1988, Mr. Sussman has been President
of the Company's Prince Group and Executive Vice-President of the Company. Mr.
Sussman is the brother-in-law of Jack Bendheim.

JAMES O. HERLANDS -- Director and Executive Vice President, and President
of PhibroChem. Mr. Herlands joined the Company in 1964. Since then, he has
served in various capabilities in sales/marketing and purchasing. He has been a
director since 1988. Since 1992, Mr. Herlands has been President of the
Company's PhibroChem Group. From 1988 to 1992, Mr. Herlands was Senior Vice
President of the Company. Mr. Herlands is the first cousin of Jack Bendheim.

DAVID C. STORBECK -- Vice President and Chief Financial Officer. Mr.
Storbeck has served as Vice President and Chief Financial Officer since he
joined the Company in January, 2001. From 1998 to 2000, Mr. Storbeck served as
Vice President Finance of Matheson Tri-Gas, Inc. From 1995 to 1998, Mr. Storbeck
served as Vice President Finance of Matheson Gas Products, Inc.

JOSEPH M. KATZENSTEIN -- Treasurer and Secretary. Mr. Katzenstein joined
the Company in 1962. Since 1982, he has been Secretary and Treasurer of the
Company. Mr. Katzenstein served as corporate controller from 1966 to 1985.

STEVEN L. COHEN -- Vice President and General Counsel. Mr. Cohen joined
the Company in October, 2000 and has served as its Vice President - Regulatory
and General Counsel since then. Prior to joining the

Company, Mr. Cohen was, from 1997 to 2000, General Counsel of Troy Corporation,
a multi-national chemical company. From 1994 to 1997, Mr. Cohen was in private
practice of law.

PETER A. JOSEPH -- Director. Mr. Joseph has served as Director of the
Company since February, 2001. From 1998 to present, he has been a member of
Palladium Equity Partners, LLC. From 1986 to 1997, Mr. Joseph was a general
partner of Joseph Littlejohn & Levy.

ADAM R. KARR -- Director. Mr. Karr has served as Director of the Company
since February, 2001. Mr. Karr joined Palladium Equity Partners, LLC at its
inception in 1997. In 2000, he became a member of the firm. In 1996, Mr. Karr
was an associate at Joseph Littlejohn & Levy. From 1993 to 1995, he was at
Donaldson, Lufkin & Jenrette.

Item 11. Executive Compensation.

The following table sets forth the cash compensation paid by the Company
and its subsidiaries for services during fiscal 2001, 2000, and 1999 to each of
the Company's five most highly compensated executive officers:

Long Term Compensation
--------------------------------
Awards Payouts
---------------------- -------
Annual Compensation Securities
--------------------------------- Restricted Underlying
Name and Other Annual Stock Options/ LTIP All Other
Principal Position Year Salary Bonus Compensation Awards SARs Payouts Compensation**
------------------ ---- ------ ----- ------------ ---------- ---------- ------- --------------

Jack C. Bendheim................. 2001 $1,640,000 $600,000 $ -- $ -- $ -- $ -- $5,300
President & CEO 2000 $1,500,000 -- -- -- -- -- $5,362
1999 $1,207,000 -- -- -- -- -- $5,200

Marvin S. Sussman*............... 2001 $ 733,500 $710,000 -- $ -- $ -- $ -- $5,300
Executive Vice President & COO; 2000 $ 467,000 $667,600 -- -- -- -- $5,362
President of Prince Group 1999 $ 467,000 $597,200 -- -- -- -- $5,200

James O. Herlands................ 2001 $ 395,000 $382,500 $ -- $ -- $ -- $ -- $5,300
Executive Vice President; 2000 $ 382,000 $252,500 -- -- -- -- $5,362
President of Phibrochem 1999 $ 365,000 $250,000 $ 24,015 -- -- -- $5,200

Joseph M. Katzenstein............ 2001 $ 121,500 $ -- $ -- $ -- $ -- $ -- $3,800
Treasurer and Secretary 2000 $ 115,250 -- -- -- -- -- $3,746
1999 $ 111,250 -- -- -- -- -- $3,616

Steven L. Cohen***............... 2001 $ 131,250 $ -- -- $ -- $ -- $ -- $ --
Vice President & General Counsel

----------
* Pursuant to a Stockholders Agreement between Mr. Sussman and the Company,
the Company is required to purchase at book value all shares of the
Company's Class B Common Stock owned by Mr. Sussman in the event of his
retirement, death, disability or the termination of his employment by the
Company. Should Mr. Sussman elect to sell his shares, the Company has a
right of first offer and an option to purchase the shares. See "Certain
Relationships and Related Transactions." As a result, the Company is
required to record as compensation to Mr. Sussman each year the change in
the book value of the Company attributable to Mr. Sussman's shares. For
2001, 2000 and 1999 the amount attributable to Mr. Sussman's shares was
$(3,135,000), $1,137,000 and $(187,000), respectively. Such amounts have
not been distributed to Mr. Sussman.
** Represents contributions by the Company under its 401(k) Retirement and
Savings Plan. See "--Compensation Pursuant to Plans."
*** Salary is since date of employment.

In fiscal 2001, the Company granted no options or long-term incentive plan
awards to the named executive officers and no options were held or exercised by
any of the named executive officers.

Employment and Severance Agreements

The Company entered into an employment agreement with Marvin S. Sussman in
December 1987. Mr. Sussman, as Chief Operating Officer, is responsible for the
day-to-day operations of the Company. The term of employment is from year to
year, unless terminated by the Company at any time or by his death or permanent
disability.

In 1995, James O. Herlands purchased stock in Phibro-Tech. In connection
therewith, the Company entered into a severance agreement with him. The
agreement provides that, upon his Actual or Constructive Termination or a Change
in Control Event (as such terms are defined), he is entitled to receive a cash
Severance Amount (as defined therein), based upon a multiple of Phibro-Tech's
pretax earnings (as defined therein). In addition, if an Extraordinary Event (as
defined) occurs within 12 months after the occurrence of an Actual or
Constructive Termination, the executive is entitled to receive an additional
Catch-up Payment (as defined). At June 30, 2001, no severance payments would
have been due to Mr. Herlands if he were terminated. See "Certain Relationships
and Related Transactions."

Compensation Pursuant to Plans

401(k) Plan. The Company maintains for the benefit of its employees a
401(k) Retirement and Savings Plan (the "Plan"), which is a defined
contribution, profit sharing plan qualified under Section 401(k) of the Internal
Revenue Code of 1986, as amended (the "Code"). Employees of the Company are
eligible for participation in the Plan once they have attained age 21 and
completed a year of service (in which the employee completed 1,000 hours of
service). Up to $150,000 (indexed for inflation) of an employee's base salary
may be taken into account for Plan purposes. Under the Plan, employees may make
pre-tax contributions of up to 6.0% of such employee's base salary, and the
Company will make non-matching contributions equal to 1% of an employee's base
salary and matching contribution equal to 50.0% of an employee's pre-tax
contribution up to 3.0% of such employee's base salary and 25.0% of such
employee's pre-tax contribution over 3.0% of base salary. Participants are
vested in Employer contributions in 20% increments beginning after completion of
the second year of service and become fully vested after five years of service.
Distributions are generally payable in a lump sum after termination of
employment, retirement, death, disability, plan termination, attainment of age
59 1/2, disposition of substantially all of the Company's assets or upon
financial hardship. The Plan also provides for Plan loans to participants.

The accounts of Messrs. Bendheim, Sussman, Herlands, Katzenstein, and
Cohen were credited with employer contributions of $5,300, $5,300, $5,300,
$3,800 and $0, respectively, for fiscal 2001.

Retirement Plan. The Company has adopted The Retirement Plan of Philipp
Brothers Chemicals Inc. and Subsidiaries and Affiliates which is a defined
benefit pension plan (the "Retirement Plan"). Employees of the Company are
eligible for participation in the Retirement Plan once they have attained age 21
and completed a year of service (which is a Plan Year in which the employee
completes 1,000 hours of service). The Retirement Plan provides benefits equal
to the sum of (a) 1.0% of an employee's "average salary" plus 0.5% of the
employee's "average salary" in excess of the average of the employee's social
security taxable wage base, times years of service after July 1, 1989, plus (b)
the employee's frozen accrued benefit, if any, as of June 30, 1989 calculated
under the Retirement Plan formula in effect at that time. For purposes of
calculating the portion of the benefit based on "average salary" in excess of
the average wage base, years of service shall not exceed 35. "Average salary"
for these purposes means the employee's salary over the consecutive five year
period in the last ten years preceding retirement or other termination of
employment which produces the highest average; or, if an employee has fewer than
five years of service, all such years of service. An employee becomes vested in
his plan benefit once he completes five years of service with the Company. In
general, benefits are payable after retirement or disability in the form of a
50%, 75% or 100% joint or survivor annuity, life annuity or life annuity with a
five

or ten year term. In some cases benefits may also be payable under the
Retirement Plan in the event of an employee's death.

The following table shows estimated annual benefits payable upon
retirement in specified compensation and years of service classifications,
assuming a life annuity with a ten year term.

Years of Service
-------------------------------------------------------
Average Compensation 15 20 25 30 35
-------------------- ------- ------- ------- ------- -------
$25,000 ............ $ 3,750 $ 5,000 $ 6,250 $ 7,500 $ 8,750
$50,000 ............ $ 7,500 $10,000 $12,500 $15,000 $17,500
$75,000 ............ $12,100 $15,490 $18,900 $22,500 $26,250
$100,000 ........... $17,730 $22,990 $28,280 $33,620 $39,170
$150,000 ........... $28,980 $37,990 $47,030 $56,120 $65,420
$200,000 ........... $33,480 $43,990 $54,530 $65,120 $75,920

As of June 30, 2001, Messrs. Bendheim, Sussman, Herlands, Katzenstein and
Cohen had 32, 30, 37, 39 and 0 estimated credited years of service,
respectively, under the Retirement Plan. The compensation covered by the
Retirement Plan for each of these officers as of June 30, 2001 is $170,000
except for Mr. Katzenstein whose covered compensation is $118,000. Such
individuals, at age 65, will have 43, 41, 43, 45 and 8 credited years of
service, respectively. The annual expected benefit after normal retirement at
age 65 for each of these individuals, based on the compensation taken into
account as of June 30, 2001, is $109,490, $125,040, $122,560, $48,970 and
$19,560, respectively.

Most of the Company's foreign subsidiaries have retirement plans covering
substantially all employees. Contributions to these plans are generally
deposited under fiduciary-type arrangements. Benefits under these plans are
primarily based on levels of compensation. Funding policies are based on
applicable legal requirements and local practices.

Deferred Compensation Plan. In 1994, the Company adopted a non-qualified
Deferred Compensation Plan and Trust, as an incentive for certain executives.
The plan provides for (i) a Retirement Income Benefit (as defined), (ii) a
Survivor's Income Benefit (as defined), and (iii) Deferred Compensation Benefit
(as defined). Three employees currently participate in this plan. A trust has
been established to provide the benefits described above.

The following table shows the estimated benefits from this plan as of June
30, 2001.

Annual Survivor's Deferred
Retirement Income Compensation
Income Benefit Benefit Benefit
-------------- ---------- ------------
Jack C. Bendheim.................... $19,976 $1,500,000 $229,429
James O. Herlands................... $19,796 $ 780,000 $203,882
Marvin S. Sussman................... $19,796 $1,500,000 $ 78,907

The Retirement Income Benefit is determined by the Company based upon the
employee's salary, years of service and age at retirement. At present, it is
contemplated that a benefit of 1% of each participant's eligible compensation
will be accrued each year. The benefit is payable upon retirement (after age 65
with at least 10 years of service) in monthly installments over a 15 year period
to the participant or his named beneficiary. The Survivor's Income Benefit for
the current participants is two times annualized compensation at the time of
death, capped at $1,500,000, payable in 24 equal monthly installments. The
Deferred Compensation Benefit is substantially funded by compensation deferred
by the participants. Such benefit is based upon a participant making an election
to defer no less than $3,000 and no more than $20,000 of his compensation in
excess of $150,000, payable in a lump sum or in monthly installments for up to
15 years. The Company makes a matching contribution of $3,000. The plan is
substantially funded. Participants have no claim against the Company other

than as unsecured creditors. To assist in providing benefits, the Company has
obtained a life insurance policy on each participant.

Executive Income Program. On March 1, 1990, the Company entered into an
Executive Income Program to provide a pre-retirement death benefit and a
retirement benefit to certain of its executives. The Program consists of a Split
Dollar Agreement and a Deferred Compensation Agreement with Jack Bendheim,
Marvin S. Sussman and James O. Herlands (the "Executives"). The Split Dollar
Agreement provides for the Company to own a whole life insurance policy in the
amount of $1,000,000 (plus additions) on the life of each Executive.

Each policy also contains additional paid-up insurance and extended term
insurance. On the death of the Executive prior to his 60th birthday or his
actual retirement date, whichever is later: (i) the first $1,000,000 of the
death benefit is payable to the Executive's spouse, or issue; (ii) the excess is
payable to the Company up to the aggregate amount of premiums paid by the
Company; and (iii) any balance is payable to the Executive's spouse or issue.
The Split Dollar Agreement terminates and no benefit is payable if the Executive
dies after his retirement from the Company. The Deferred Compensation Agreement
provides that upon the Executive's retirement, at or after attaining age 65, the
Company will make a monthly retirement payment to the Executive during his life
for 10 years or until he or his beneficiaries have received a total of 120
monthly payments. The Company intends to fund the payments using the cash value
or the death benefit from the life insurance policy insuring each Executive's
life. The monthly retirement benefits are as follows: Jack Bendheim $2,500;
Marvin S. Sussman $2,500; and James O. Herlands $1,666.

Meetings and Compensation of Directors

During fiscal 2001, the Board of Directors took certain actions by both
written consent and at regular meetings. Directors are elected annually and
serve until the next annual meeting of Shareholders or until their successors
are elected and qualified. The Company's directors do not receive any cash
compensation for service on the Board of Directors, but directors may be
reimbursed for certain expenses in connection with attendance at board meetings.
The Company has entered into certain transactions with certain of the directors.
See "Certain Relationships and Related Transactions."

Committees of the Board of Directors

The Company's Board of Directors has not created any committees.

Report of Board of Directors as to Compensation

The Company does not have a Compensation Committee or other Board
Committee performing equivalent functions. Executive compensation is determined
by the Board as a whole. During fiscal 2001, Messrs. Bendheim, Sussman,
Herlands, Joseph and Karr participated in deliberations regarding compensation
of the Company's officers.

Compensation Committee Interlocks and Insider Participation

Jack Bendheim, Marvin S. Sussman and James O. Herlands are Members of the
Board of Directors and executive officers of the Company. No executive officer
of the Company serves as a member of the Board of Directors of any other
non-Company entity which has one or more members serving as a member of the
Company's Board of Directors. Messrs. Bendheim, Sussman and Herlands have
participated in certain transactions with the Company and its subsidiaries and
affiliates. See "Certain Relationships and Related Transactions."

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

The table sets forth certain information as of June 30, 2001 regarding
beneficial ownership of the Company's capital stock by each director and named
executive officer of the Company, each beneficial owner of 5% or more of the
outstanding shares of capital stock and all directors and officers as a group.

Number of Shares (Percentage of Class)
---------------------------------------
Name Class A Voting(1) Class B Voting(2)
----- ----------------- -----------------
Jack Bendheim(3)....................... 12,600 (100%) 10,699.65 (90%)(4)
Marvin S. Sussman ..................... -- 1,188.85 (10%)
All other officers and directors(5).... -- --
All officers and directors as a group.. 12,600 (100%) 11,888.50 (100%)

----------
(1) The entire voting power of the Company is exercised by the holders of
Class A Common Stock, except that the holders of Class B Common Stock
elect one director but do not vote on any other matters.
(2) Class B shareholders will receive the entire equity of the Company upon
its liquidation, after payment of preferences to holders of all classes of
preferred stock and Class A Common Stock.
(3) Jack Bendheim also owns 5,207 (100%) shares of Series A Preferred Stock.
(4) Includes 4,414.886 shares owned by trusts for the benefit of Jack
Bendheim, his spouse, his children and their spouses and his
grandchildren.
(5) Peter A. Joseph and Adam R. Karr have been designated as directors of the
Company by Palladium Equity Partners, LLC which beneficially owns 25,000
and 20,000 shares of the Company's Class B and Class C Preferred Stock,
respectively.

Item 13. Certain Relationships and Related Transactions.

Phibro-Tech leases the property underlying its Santa Fe Springs,
California facility from First Dice Road Company, a California limited
partnership ("First Dice"), in which Jack Bendheim, the Company's President and
principal stockholder, Marvin S. Sussman and James O. Herlands, directors of the
Company, own 39.0%, 40.0% and 20.0% limited partnership interests, respectively.
The general partner, having a 1% interest in the partnership, is Western
Magnesium Corp., a wholly-owned subsidiary of the Company, of which Jack
Bendheim is the president. The lease expires on June 30, 2008. The annual rent
is $250,000. Phibro-Tech is also required to pay all real property taxes,
personal property taxes and liability and property insurance premiums. On June
30, 1995, Jack Bendheim borrowed $1,500,000 from NatWest Bank N.A. (now Fleet
Bank) which he reloaned to First Dice. On September 29, 1999, Jack Bendheim
refinanced the loan from Fleet Bank to provide for self-amortizing payments.
Similarly, Jack Bendheim's loan to First Dice was restructured to reflect the
same terms as his borrowing from Fleet Bank. The repayment to Jack Bendheim of
such loan by First Dice is personally guaranteed by each of the limited partners
of First Dice in proportion to their respective limited partnership interests.
The Company believes that the terms of such lease and loan are on terms no less
favorable to Phibro-Tech than those that reasonably could be obtained at such
time in a comparable arm's-length transaction from an unrelated third-party.

Pursuant to a Shareholders Agreement dated December 29, 1987 between
Marvin S. Sussman and the Company, the Company is required to purchase at book
value all shares of the Company's Class B Common Stock owned by Mr. Sussman, in
the event of his retirement, death, permanent disability or the termination of
his employment by the Company. Should Mr. Sussman elect to sell his shares, the
Company has a right of first offer and an option to purchase the shares.

A Shareholders Agreement initially entered into by Phibro-Tech and three
executives of Phibro-Tech, including James O. Herlands (the "Executives")
provides, among other things, for restrictions on their shares as to voting,
dividends, liquidation and transfer rights. The Shareholders Agreement also
provides that upon the death of an Executive or termination of an Executive's
employment, Phibro-Tech must purchase the Executive's shares

at their fair market value, as determined by a qualified appraiser. In the event
of a Change of Control (as defined), the Executive has the option to sell his
shares to Phibro-Tech at such value. The Shareholders Agreement provides, that,
upon the consent of Phibro-Tech, the Executives and the Company, the Executives'
shares of Phibro-Tech Common Stock may be exchanged for a number of shares of
the Company's Common Stock, which may be non-voting Common Stock, having an
equivalent value, and upon any such exchange such shares of the Company's Common
Stock will become subject to the Shareholders Agreement. The Company and
Phibro-Tech also entered into Severance Agreements with the Executives which
provide, among other things, for certain severance payments. See "Executive
Compensation--Employment and Severance Agreements."

In connection with the retirement of I. David Paley from Phibro-Tech in
March 1999, pursuant to the Shareholders Agreement among the Executives and
Phibro-Tech, the Company paid $2,862,660 in connection with the repurchase of
the 240.03 shares of his Class B Common Stock of Phibro-Tech and in satisfaction
of Phibro-Tech's severance obligation under a Severance Agreement between
Phibro-Tech and Mr. Paley. In addition, the Company has retained Mr. Paley,
pursuant to a Consulting Agreement, through March 15, 2002, to render consulting
and advisory services to the Company on a part-time basis. The consulting fee
payable to Mr. Paley is $200,000 for the first year and $150,000 for each of the
second and third years of the term. Mr. Paley is also entitled under such
Consulting Agreement to life insurance equal to the unpaid consulting fee, and
certain other benefits.

In connection with the retirement of Nathan Z. Bistricer from the Company
and Phibro-Tech in January, 2001, pursuant to the Shareholders Agreement among
the executives and Phibro-Tech, the Company paid $855,000 in connection with the
repurchase of 71.67 share of his Class B Common Stock of Phibro-Tech. In
addition, in satisfaction of Phibro Tech's severance obligation under a
Severance Agreement between Phibro Tech and Mr. Bistricer, the Company agreed to
pay $516,070 in twenty-four (24) equal monthly installments to Mr. Bistricer.
The Company also agreed to provide certain unspecific out-placement services to
Mr. Bistricer not to exceed $15,000 in total costs and fees.

The Company periodically advances funds to Jack Bendheim on a short-term,
non-interest-bearing basis.

The Company has advanced $200,000 to Marvin Sussman and his wife pursuant
to a secured promissory note that is payable on demand and bears interest at the
annual rate of 9%.

In connection with the sale of the Company's Series B and Series C
Preferred Stock to Palladium Equity Partners LLC and related entities (the
"Palladium Investors"), the Company and Jack Bendheim entered into a
Stockholders Agreement (the "Palladium Stockholders Agreement") dated November
30, 2000 with the Palladium Investors. The Palladium Stockholders Agreement
provides for the Company's Board to be comprised of five Directors, at least two
of whom will be designees of the Palladium Investors. Peter A. Joseph and Adam
R. Karr are designees of the Palladium Investors currently serving as Directors
of the Company. If and for so long as the Company fails to redeem any share of
Series B or Series C Preferred Stock requested for redemption by a Palladium
Investor after the earliest to occur of June 1, 2008 (the maturity date of the
Company's 9 7/8% Senior Subordinated Notes due 2008), the redemption of such
Notes in full prior thereto or a change in control of the Company, then (x) the
Palladium Investors may take control of the Board of Directors of the Company,
and (y) Jack C. Bendheim has agreed to cause all equity securities owned by him
to be voted in the manner directed by the Palladium Investors; provided, that,
the Company must pay Jack Bendheim and Marvin Sussman, whether or not employed
by the Company, an amount not less than their respective annual base salaries,
in effect as of immediately prior to such assumption of control, until the
earlier to occur of the expiration of control by the Palladium Investors and the
fifth anniversary of their assumption of control.

The Palladium Stockholders Agreement contains covenants with respect to
the Company which restrict, without the consent of at least one director
designated by the Palladium Investors (or, if no such director is then serving
on the Board, at least one Palladium Investor), among other things, certain (a)
issuances of shares, (b) sales of assets, (c) purchases of businesses and other
investments, (d) the incurrence of indebtedness, including guarantees, (e)
payment of dividends and other restricted payments, including redemptions or
purchases of stock, (f) transactions with affiliates, (g) compensation and
benefits of certain officers, and (h) mergers and acquisitions.

The Palladium Stockholders Agreement also provides that the Company shall
furnish the Palladium Investors certain financial reporting and environmental
information each year and grant to the Palladium Investors registration rights
comparable to any such rights granted to any third party, and requires the
Company to maintain certain key man life insurance on Jack C. Bendheim for the
benefit of the Palladium Investors. The Palladium Stockholders Agreement
provides certain limitations on the ability of Jack C. Bendheim to transfer
voting shares of the Company, and certain limitations on the ability of the
Palladium Investors to transfer their shares of the Company, including a right
of first refusal in favor of the Company and Mr. Bendheim.

Pursuant to the Management and Advisory Services Agreement dated November
30, 2000 between the Company and the Palladium Investors, the Company agreed to
pay, on a quarterly basis, the Palladium Investors an annual management advisory
fee of $2.25 million until such time as all shares of Series B and Series C
Preferred Stock are redeemed.

On January 5, 2000, the United States Bankruptcy Court for the Eastern
District of New York confirmed a Plan of Reorganization for Penick Corporation
and Penick Pharmaceutical, Inc. (collectively, "Penick") which prior to such
confirmation were debtors in proceedings in such Court for reorganization under
Chapter 11 of the Bankruptcy Code, and awarded Penick to Penick Holding Company
("PHC"). PHC is a corporation formed to effect such acquisition by the Company,
PBCI LLC, a limited liability company controlled by Mr. Bendheim, and several
other investors. Pursuant a Shareholders' Agreement among the shareholders of
PHC, Mr. Bendheim has been designated as one of three directors of PHC, and Mr.
Katzenstein, the Secretary and Treasurer of the Company, has been designated as
Secretary and Treasurer of PHC. The Company has invested $1,980,000 for shares
of Series A Preferred Stock of PHC bearing an 8.5 percent annual cumulative
dividend, and PBCI LLC invested approximately $20,000 for 20 percent of the
Common Stock of PHC.

The Company's policy with respect to the sale, lease or purchase of assets
or property of any related party is that such transaction should be on terms
that are no less favorable to the Company or its subsidiary, as the case may be,
than those that could reasonably be obtainable at such time in a comparable
arm's length transaction from an unrelated third party, on the same basis as the
Indenture for the Senior Subordinated Notes and the Company's secured domestic
credit agreement. The Indenture and the credit agreement both include a similar
restriction on the Company and its domestic subsidiaries with respect to the
sale, purchase, exchange or lease of assets, property or services, subject to
certain limitations as to the applicability thereof.

Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a) Exhibits

Exhibit No. Description of Exhibit
----------- ----------------------
3.1 Composite Certificate of Incorporation of Registrant(7)

3.2 By-laws of Registrant(1)

4.1 Indenture, dated as of June 11, 1998, among Registrant, the
Guarantors named therein and The Chase Manhattan Bank, as
trustee, relating to the 9 7/8% Senior Subordinated Notes due
2008 of Registrant, and exhibits thereto, including Form of
9 7/8% Senior Subordinated Note due 2008 of Company(1)

4.1.1 Supplemental Indenture, dated as of November 30, 2000, among
Registrant, the Guarantors named therein and The Chase
Manhattan Bank, as trustee, relating to the 9 7/8% Senior
Subordinated Notes due 2008 of Registrant(7)

Certain instruments which define the rights of holders of
long-term debt of Registrant and its consolidated subsidiaries
have not been filed as Exhibits to this Report since the total
amount of securities authorized under any such instrument does
not exceed 10% of the total assets of Registrant and its
subsidiaries on a consolidated basis, as of June 30, 2000. For
a description of such indebtedness, see Note 7 of Notes to
Consolidated Financial Statements. Registrant hereby agrees to
furnish copies of such instruments to the Securities and
Exchange Commission upon its request.

10.1 Amended and Restated Revolving Credit, Capital Expenditure
Line and Security Agreement, dated November 30, 2000, among
Registrant, the Guarantors thereunder and PNC Bank, National
Association ("PNC")(4)

10.1.1 First Amendment to Amended and Restated Revolving Credit,
Capital Expenditure Line and Security Agreement, dated
September 28, 2001 and effective June 30, 2001, among
Registrant, the Guarantors thereunder and PNC(7)

10.2 Manufacturing Agreement, dated May 15, 1994, by and between
Merck & Co., Inc., Koffolk, Ltd., and Registrant(1)+

10.3 Lease, dated July 25, 1986, between Registrant and 400 Kelby
Associates, as amended December 1, 1986 and December 30,
1994(1)

10.4 Lease, dated June 30, 1995, between First Dice Road Co. and
Phibro-Tech, Inc., as amended May 1998(1)

10.5 Lease, dated December 24, 1981, between Koffolk (1949) Ltd.
and Israel Land Administration(1)

10.6 Master Lease Agreement, dated February 27, 1998, between
General Electric Capital Corp., Registrant and Phibro-Tech,
Inc.(1)

10.7 Stockholders Agreement, dated December 29, 1987, by and
between Registrant, Charles H. Bendheim, Jack C. Bendheim and
Marvin S. Sussman(1)

10.8 Employment Agreement, dated December 29, 1987, by and between
Registrant and Marvin S. Sussman(1)++

10.9 Stockholders Agreement, dated February 21, 1995, between James
O. Herlands and Phibro-Tech, Inc., as amended as of June 11,
1998(1)

10.10 Form of Severance Agreement, dated as of February 21, 1995,
between Registrant and James O. Herlands(1)++

10.11 Agreement of Limited Partnership of First Dice Road Company,
dated June 1, 1985, by and among Western Magnesium Corp., Jack
Bendheim, Marvin S. Sussman and James O. Herlands, as amended
November 1985(1)

10.12 Philipp Brothers Chemicals, Inc. Retirement Income and
Deferred Compensation Plan Trust, dated as of January 1, 1994,
by and between Registrant on its own behalf and on behalf of
C.P. Chemicals, Inc., Phibro-Tech, Inc. and the Trustee
thereunder; Philipp Brothers Chemicals, Inc. Retirement Income
and Deferred Compensation Plan, dated March 18, 1994
("Retirement Income and Deferred Compensation Plan")(1)++

10.12.1 First, Second and Third Amendments to Retirement Income and
Deferred Compensation Plan.(2)++

10.13 Form of Executive Income Deferred Compensation Agreement, each
dated March 11, 1990, by and between Registrant and each of
Jack Bendheim, James Herlands and Marvin Sussman(1)++

10.14 Form of Executive Income Split Dollar Agreement, each dated
March 1, 1990, by and between Registrant and each of Jack
Bendheim, James Herlands and Marvin Sussman(1)++

10.15 Supply Agreement, dated as of September 28, 1998, between BOC
Limited and Registrant(1)

10.16 Administrative Consent Order, dated March 11, 1991, issued by
the State of New Jersey Department of Environmental
Protection, Division of Hazardous Waste Management, to C.P.
Chemicals, Inc.(1)

10.17 Agreement for Transfer of Ownership, dated as of June 8, 2000,
between C. P. Chemicals, Inc. ("CP") and the Township of
Woodbridge ("Township"), and related Environmental
Indemnification Agreement, between CP and Township, and Lease,
between Township and CP(2)

10.18 Stockholders' Agreement, dated as of January 5, 2000, among
shareholders of Penick Holding Company ("PHC"), and
Certificate of Incorporation of PHC and Certificate of
Designation, Preferences and Rights of Series A Redeemable
Cumulative Preferred Stock of PHC(2)

10.19 Separation Agreement among Registrant, Phibro-Tech, Inc. and
Nathan Bistricer dated as of October 4, 2000(3)

10.20 Stock Purchase Agreement between Phibro-Tech, Inc. and Nathan
Bistricer dated as of October 4, 2000(3)

10.21 Asset Purchase Agreement, dated as of September 28, 2000,
among Pfizer, Inc., the Asset Selling Corporations (named
therein) and Registrant, and various exhibits and certain
Schedules thereto(3)+

10.22 Stock Purchase Agreement, dated as of November 30, 2000,
between Registrant and the Purchasers (as defined therein)(4)

10.23 Stockholders' Agreement, dated as of November 30, 2000, among
Registrant, the Investor Stockholders (as defined therein) and
Jack C. Bendheim(4)

10.24 United States Asset Purchase Agreement between Phibro-Tech,
Inc. and Nufarm, Inc. dated as of May 1, 2001(5)

10.24.1 Amendment No. 1 to United States Asset Purchase Agreement
between Phibro-Tech, Inc. and Nufarm, Inc. dated as of June
14, 2001(6)

10.25 Supply Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001(5)

10.26 License Agreement between Phibro-Tech, Inc. and Nufarm, Inc.
dated as of May 1, 2001(5)

10.27 Management and Advisory Services Agreement dated November 30,
2000 between Registrant and Palladium Equity Partners,
L.L.C.(7)++*

21 List of Subsidiaries(7)

----------
(1) Filed as an Exhibit to the Registrant's Registration Statement on Form
S-4, No. 333-64641.
(2) Filed as an Exhibit to the Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 2000.
(3) Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 2000.
(4) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
November 30, 2000.
(5) Filed as an Exhibit to the Registrant's Report on Form 10-Q for the
quarter ended March 31, 2001.
(6) Filed as an Exhibit to the Registrant's Current Report on Form 8-K dated
June 14, 2001.
(7) Filed herewith.
+ A request for confidential treatment has been granted for portions of such
document. Confidential portions have been omitted and filed separately
with the SEC as required by Rule 406(b).
++ This Exhibit is a management compensatory plan or arrangement.

(b) Financial Statement Schedules

All supplemental schedules are omitted because of the absence of
conditions under which they are required or because the information is shown in
the financial statements or notes thereto or in other supplemental schedules.

During the last quarter of the fiscal year ended June 30, 2001, the
Company filed a report on Form 8-K dated June 14, 2001.

INDEX TO FINANCIAL STATEMENTS

Page
----
Report of Independents Accountants F-2
Consolidated Balance Sheets-June 30, 2001 and 2000 F-3
Consolidated Statements of Operations and Comprehensive Income-for
the years ended June 30, 2001, 2000 and 1999 F-4
Consolidated Statements of Changes in Stockholders' Equity-for
the years ended June 30, 2001, 2000 and 1999 F-5
Consolidated Statements of Cash Flows-for the years ended
June 30, 2001, 2000 and 1999 F-6
Notes to Consolidated Financial Statements F-7

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To the Stockholders of Philipp Brothers Chemicals, Inc.:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Philipp Brothers Chemicals, Inc. and Subsidiaries at
June 30, 2001 and June 30, 2000, and the results of their operations and their
cash flows for each of the three years in the period ended June 30, 2001 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.

PricewaterhouseCoopers LLP

Florham Park, New Jersey
October 4, 2001

F-2

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
As of June 30, 2001 and 2000
(In Thousands, except share and per share amounts)

ASSETS 2001 2000
------ --------- ---------

CURRENT ASSETS:
Cash and cash equivalents $ 14,845 $ 2,403
Trade receivables, less allowance for doubtful
accounts of $2,369 at June 30, 2001 and $756 at June 30, 2000 77,910 79,376
Other receivables 4,800 8,479
Inventories 83,796 50,405
Prepaid expenses and other current assets 17,448 9,098
--------- ---------

TOTAL CURRENT ASSETS 198,799 149,761

PROPERTY, PLANT AND EQUIPMENT, net 102,323 76,180

INTANGIBLES 5,832 6,297

OTHER ASSETS 23,065 26,213
--------- ---------

$ 330,019 $ 258,451
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
Cash overdraft $ 4,222 $ 2,120
Loans payable to banks 28,463 8,650
Current portion of long-term debt 5,404 2,296
Accounts payable 51,304 32,642
Accrued expenses and other current liabilities 35,378 24,157
--------- ---------

TOTAL CURRENT LIABILITIES 124,771 69,865

LONG-TERM DEBT 139,464 139,722

OTHER LIABILITIES 12,926 13,282
--------- ---------

TOTAL LIABILITIES 277,161 222,869
--------- ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
Series B and C preferred stock 48,980 --
Common stock 378 3,513
Common stock of subsidiary 95 451
--------- ---------
TOTAL REDEEMABLE SECURITIES 49,453 3,964
--------- ---------

STOCKHOLDERS' EQUITY:
Preferred stock-$100 par value, 150,543 shares authorized, 521 521
none issued at June 30, 2001 and 2000; Series A
Preferred stock-$100 par value, 6% non cumulative,
5,207 shares authorized and issued at June 30, 2001 and 2000
Common stock-$0.10 par value, 30,300 shares authorized and 2 2
24,488 shares issued at June 30, 2001 and 2000
Paid-in capital 878 878
Retained earnings 9,741 32,808
Accumulated other comprehensive (loss) -
cumulative currency translation adjustment (7,737) (2,591)
--------- ---------

TOTAL STOCKHOLDERS' EQUITY 3,405 31,618
--------- ---------

$ 330,019 $ 258,451
========= =========

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

F-3

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
For the Years Ended June 30, 2001, 2000 and 1999
(In Thousands)

2001 2000 1999
--------- --------- ---------

NET SALES $ 364,410 $ 323,026 $ 302,057

COST OF GOODS SOLD 266,271 229,130 223,247
--------- --------- ---------

GROSS PROFIT 98,139 93,896 78,810

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 97,163 79,703 68,955

CURTAILMENT OF OPERATIONS AT
MANUFACTURING FACILITY -- (1,481) (500)
--------- --------- ---------

OPERATING INCOME 976 15,674 10,355

OTHER:
Interest expense 18,297 14,754 13,142
Interest income (566) (600) (628)
Other expense, net 2,561 2,230 1,829
Gain from property damage claim -- (946) (3,701)
Gains from sale of assets (2,440) (13,763) --
--------- --------- ---------

(LOSS) INCOME BEFORE INCOME TAXES (16,876) 13,999 (287)

(BENEFIT) PROVISION FOR INCOME TAXES (1,981) 3,946 179
--------- --------- ---------

NET (LOSS) INCOME (14,895) 10,053 (466)

OTHER COMPREHENSIVE (LOSS) INCOME-
Change in foreign currency translation adjustment (5,146) 55 (2,043)
--------- --------- ---------

COMPREHENSIVE (LOSS) INCOME $ (20,041) $ 10,108 $ (2,509)
========= ========= =========

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

F-4

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended June 30, 1999, 2000 and 2001
(In Thousands)

Preferred Stock Common Stock
--------------- ------------------------------ Accumulated Other
Class Class Class Paid-in Retained Comprehensive
Series A "A" "B" "C" Capital Earnings (Loss) income- Total
-------------- -------- -------- -------- -------- -------- ----------------- --------

BALANCE, JULY 1, 1998 $ 521 $ 1 $ 1 $ 1 $ 435 $ 23,221 $ (603) $ 23,577

Foreign currency
translation
adjustment (2,043) (2,043)

Elimination of Class "C"
shares to Class "A"
common stock (1) 1 --

Receivable from principal
shareholder 380 380

Net loss (466) (466)
-------- -------- -------- ------ -------- -------- -------- --------

BALANCE, JUNE 30, 1999 $ 521 $ 1 $ 1 $ -- $ 816 $ 22,755 $ (2,646) $ 21,448
======== ======== ======== ====== ======== ======== ======== ========

Foreign currency
translation
adjustment 55 55

Receivable from
principal
shareholder 62 62

Net income 10,053 -- 10,053
-------- -------- -------- ------ -------- -------- -------- --------

BALANCE, JUNE 30, 2000 $ 521 $ 1 $ 1 $ -- $ 878 $ 32,808 $ (2,591) $ 31,618
======== ======== ======== ====== ======== ======== ======== ========

Accretion of redeemable
preferred securities
to fair market value (4,192) (4,192)

Dividends on Series B
and C redeemable
preferred stock (3,980) (3,980)

Foreign currency
translation
adjustment (5,146) (5,146)

Net loss (14,895) (14,895)
-------- -------- -------- ------ -------- -------- -------- --------

BALANCE, JUNE 30, 2001 $ 521 $ 1 $ 1 $ -- $ 878 $ 9,741 $ (7,737) $ 3,405
======== ======== ======== ====== ======== ======== ======== ========

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

F-5

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 2001, 2000 and 1999
(In Thousands)

2001 2000 1999
-------- -------- --------

OPERATING ACTIVITIES:
Net (loss) income $(14,895) $ 10,053 $ (466)
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 13,832 11,866 11,245
Deferred income taxes (7,568) 1,438 (773)
Provision for curtailment of operations at manufacturing facility -- (1,481) (500)
Gain from property damage claim -- (1,053) (3,701)
Gains from sale of assets (2,440) (13,763) --
Change in redemption amount of redeemable common stock (3,491) 1,007 (860)
Other 2,291 727 1,644

Changes in operating assets and liabilities net of effect of businesses
acquired:
Accounts receivable (1,409) (8,281) (5,922)
Inventories (1,999) 584 (3,550)
Prepaid expenses and other current assets 4,987 (2,282) 35
Other assets 2,203 (1,545) (7,443)
Accounts payable 19,469 (3,768) 43
Accrued expenses and other current liabilities 2,161 (1,411) 7,147
-------- -------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 13,141 (7,909) (3,101)
-------- -------- --------

INVESTING ACTIVITIES:
Capital expenditures (14,544) (22,604) (12,262)
Acquisition of businesses, net of cash acquired (51,700) -- (21,505)
Proceeds from property damage claim -- 3,999 --
Proceeds from sale of assets 26,470 18,750 --
Other investing (375) (4,203) --
-------- -------- --------
NET CASH USED IN INVESTING ACTIVITIES (40,149) (4,058) (33,767)
-------- -------- --------

FINANCING ACTIVITIES:
Cash overdraft 2,654 682 (477)
Net (decrease) increase in short-term debt (8,006) 4,189 2,227
Proceeds from long-term debt 9,363 18,286 15,214
Proceeds from issuance of redeemable preferred stock 45,000 -- --
Payments of long-term debt (4,924) (11,871) (1,675)
Other financing (4,192) 62 380
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 39,895 11,348 15,669
-------- -------- --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH (445) -- --
-------- -------- --------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 12,442 (619) (21,199)

CASH AND CASH EQUIVALENTS at beginning of period 2,403 3,022 24,221
-------- -------- --------

CASH AND CASH EQUIVALENTS at end of period $ 14,845 $ 2,403 $ 3,022
======== ======== ========

Supplementary Cash Flow Information:

Interest paid $ 16,810 $ 13,694 $ 12,125
======== ======== ========

Income taxes paid $ 1,320 $ 1,355 $ 1,284
======== ======== ========

Summary of significant noncash investing and financing activities

Capital lease additions $ -- $ 1,536 $ --
======== ======== ========

Debt assumed through acquisition $ -- $ -- $ 18,195
======== ======== ========

Debt issued in connection with acquisition $ 25,093 $ -- $ --
======== ======== ========

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

F-6

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

1. Organization and Summary of Significant Accounting Policies

Description of Business:

Philipp Brothers Chemicals, Inc. is a diversified global manufacturer and
marketer of a broad range of specialty chemicals which are sold worldwide for
use in numerous markets. Many of the Company's products provide critical
performance attributes to its customers' products, while representing a
relatively small percentage of total end-product costs. During fiscal 2001, the
Company's products were manufactured at eleven facilities in the United States,
five facilities in Europe, two facilities in Israel and two facilities in South
America.

Principles of Consolidation and Basis of Presentation:

The consolidated financial statements include the accounts of Philipp
Brothers Chemicals, Inc. and its subsidiaries, all of which are either wholly
owned or controlled (collectively, referred to as the "Company"). All
significant intercompany accounts and transactions have been eliminated in the
consolidated financial statements.

The fiscal year of the Israeli and Brazilian subsidiaries of Koffolk Ltd.
ends on March 31. Accordingly, the accounts of these subsidiaries are included
in the consolidated financial statements on a three month lag.

Risks and Uncertainties:

As a chemical company, the Company is subject to a variety of United
States and foreign laws and regulations relating to pollution and protection of
the environment. In addition, the testing, manufacturing and marketing of
certain products are subject to extensive regulation by several government
authorities in the United States and other countries. The Company is also
required to obtain and retain governmental permits and approvals to conduct
various aspects of its operations. The Company has significant assets located
outside of the United States, and a significant portion of the Company's sales
and earnings are attributable to operations conducted abroad. International
manufacturing, sales and raw materials sourcing are subject to certain inherent
risks, including political instability, price and exchange controls, unexpected
changes in regulatory environments, and potentially adverse tax consequences. In
addition, the Company is affected by social, political and economic conditions
affecting Israel, and any major hostilities involving Israel or curtailment of
trade between Israel and its current trading partners, either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.

Use of 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, liabilities, revenues,
expenses and related disclosures at the date of the financial statements and
during the periods reported. Actual results could differ from those estimates.
Significant estimates include reserves for bad debts, inventory obsolescence,
environmental matters, depreciation and amortization periods of long-lived
assets and realizability of deferred tax assets.

Revenue Recognition:

Revenue is recognized upon transfer of title and risk of loss to the
customer, generally at time of shipment. Net sales are comprised of total sales
billed, net of goods returned, trade discounts and customer allowances.
Effective April 1, 2001 the Company adopted Staff Accounting Bulletin No. 101
("SAB No. 101") "Revenue Recognition", which provides guidelines in applying
generally accepted accounting principles to selected revenue recognition issues,
and an interpretive release to SAB 101, clarifying certain of the positions on
revenue recognition. The adoption of SAB No. 101 by the Company did not have a
material impact on the Company's financial statements.

F-7

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Shipping and Handling

Effective April 1, 2001 the Company has adopted the Emerging Issues Task
Force Issue No. 00-10 "Accounting for Shipping and Handling Fees and Costs"
("EITF No. 00-10"). EITF No. 00-10 states that all amounts billed to a customer
in a sale transaction related to shipping and handling represent revenues earned
for the goods provided and should be classified as revenue. EITF No. 00-10 also
requires that any shipping and handling costs that are recorded below the gross
margin line be disclosed. Included in the revenues shown on the Company's
consolidated statement of operations is shipping and handling income of $6,102,
$5,393, and $4,763 for the fiscal years ended June 30, 2001, 2000, and 1999,
respectively. Shipping and handling costs are included in selling, general, and
administrative expenses in the amounts of $22,275, $18,725, and $13,371, for the
fiscal years ended June 30, 2001, 2000, and 1999, respectively.

Cash and Cash Equivalents:

The Company considers all highly liquid instruments with original
maturities of three months or less to be cash equivalents. The effect of foreign
currency changes on cash and cash equivalents is not material for fiscal 2000
and 1999.

Inventories:

Inventories are valued at the lower of cost or market. Cost is determined
principally under the first-in, first-out (FIFO) and average methods; however,
certain subsidiaries of the Company use the last-in, first-out (LIFO) method for
valuing inventories. Obsolete or unsaleable inventory is reflected at its
estimated net realizable value. Inventory costs include materials, direct labor
and manufacturing overhead.

If the LIFO method of valuing certain inventories had not been used, total
inventories at June 30, 2001 and 2000 would have been higher by $716 and $850,
respectively. Inventories valued at LIFO amounted to $4,142 at June 30, 2001 and
$4,809 at June 30, 2000.

Inventories consist of the following at June 30, 2001 and 2000:

2001 2000
------- -------
Raw materials ............................................. $22,614 $21,457
Work in process ........................................... 4,257 5,340
Finished goods ............................................ 56,925 23,608
------- -------
$83,796 $50,405
======= =======

Property, Plant and Equipment:

Property, plant and equipment are carried at cost less accumulated
depreciation. Major renewals and improvements are capitalized, while maintenance
and repairs are expensed when incurred. Upon retirement or other disposition,
the cost and related accumulated depreciation are removed from the accounts and
any gain or loss is included in the results of operations. The Company
capitalizes interest expense as part of the cost of construction of facilities
and equipment. Interest expense capitalized in 2001, 2000 and 1999 was $277, $0
and $0, respectively. Depreciation is calculated using the straight-line method
based upon estimated useful lives as follows:

Building and improvements.................................... 8-20 years
Machinery and equipment...................................... 3-10 years

F-8

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Deferred Financing Costs:

Deferred financing costs are being amortized using the interest method
over the ten year life of the notes. Deferred costs relating to the senior
credit facility are being amortized over the three year life of the agreement.

Intangibles:

Intangible assets are being amortized on a straight-line basis over their
estimated useful lives ranging from 5 to 20 years. Accumulated amortization
amounted to $5,872 and $12,448 at June 30, 2001 and 2000, respectively.

Licensing and Permit Fees:

Licensing and permit fees incurred to obtain the required federal, state
and local hazardous waste treatment, storage and disposal permits are included
in other assets and are amortized over the lives of the licenses, permits and
rights of 5 to 10 years.

Foreign Currency Translation:

Balance sheet accounts of the Company's foreign subsidiaries, with the
exception of the Brazilian and Israeli subsidiaries of Koffolk (1949) Ltd.
("Koffolk Israel") are translated at current rates of exchange, and income and
expense items are translated at the average exchange rate for the year. The
resulting translation adjustments are reflected as a separate component of
stockholders' equity. The Brazilian and Israeli subsidiaries of Koffolk Israel
transact substantially all of their business in U.S. dollars. Accordingly, the
U.S. dollar is designated as the functional currency for these operations and
translation gains and losses are included in determining net income or loss.

Net exchange gains and losses resulting from the translation of foreign
financial statements and the effect of exchange rates on intercompany
transactions of a long-term investment nature are reflected as a separate
component of stockholders' equity. Translation losses relating to intercompany
debt of short-term investment nature are included in other expense, net in the
amounts of $2,768, $2,142 and $1,829 in the accompanying consolidated statements
of operations for the years ended June 30, 2001, 2000 and 1999, respectively.
Other foreign currency transaction gains and losses are not material.

Derivative Financial Instruments:

Effective July 1, 2000, the Company adopted Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities," and its related amendment, Statement of Financial Standards No.
138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activities ("SFAS No. 133")." These standards require that all derivative
financial instruments be recorded on the consolidated balance sheets at their
fair value as either assets or liabilities. Changes in the fair value of
derivatives will be recorded each period in operations or accumulated other
comprehensive income, depending on whether a derivative is designated and
effective as part of a hedge transaction and, if it is, the type of hedge
transaction. Gains and losses on derivative instruments reported in accumulated
other comprehensive income will be included in operations in the periods in
which operations are affected by the hedged item. The cumulative effect of a
change in accounting principle due to the adoption of SFAS No. 133 was not
material.

F-9

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

The Company operates internationally, with manufacturing and sales
facilities in various locations around the world and utilizes certain financial
instruments to manage its foreign currency and commodity exposures, primarily
related to forecasted transactions. To qualify a derivative as a hedge at
inception and throughout the hedge period, the company formally documents the
nature and relationships between hedging instruments and hedged items, as well
as its risk-management objectives, strategies for undertaking the various hedge
transactions and method of assessing hedge effectiveness. Additionally, for
hedges of forecasted transactions, the significant characteristics and expected
terms of a forecasted transaction must be specifically identified, and it must
be probable that each forecasted transaction would occur. If it were deemed
probable that the forecasted transaction will not occur, the gain or loss would
be recognized in operations currently. Financial instruments qualifying for
hedge accounting must maintain a specified level of effectiveness between the
hedging instrument and the item being hedged, both at inception and throughout
the hedged period. The Company hedges forecasted transactions for periods not
exceeding the next twelve months. The Company does not engage in trading or
other speculative uses of financial instruments.

The Company uses forward contracts and options to mitigate its exposure to
changes in foreign currency exchange rates and as a means of hedging forecasted
operating costs. When using options as a hedging instrument, the Company
excludes the time value from the assessment of effectiveness. The change in a
foreign currency option's time value is reported each period in other expense,
net on the Company's consolidated statement of operations and comprehensive
income. The effective portion of unrealized gains and losses associated with
forward contracts and the intrinsic value of option contracts are deferred as a
component of accumulated other comprehensive income until the underlying hedged
transactions are reported on the Company's consolidated statement of operations
and comprehensive income. The Company also utilizes, on a limited basis, certain
commodity derivatives, primarily on copper used in its manufacturing process, to
hedge the cost of its anticipated production requirements. During the year ended
June 30, 2001, the Company's foreign currency options have been designated and
qualify for cash flow hedges under the critieria of SFAS No. 133. The Company's
foreign currency forward contracts and commodity derivatives did not meet the
criteria of SFAS No. 133 to qualify for hedge accounting. The Company recorded a
net loss of $341 in cost of goods sold for commodity contracts and a net loss of
$467 in other expense, net for foreign currency forward contracts and the
ineffective portion of the option contracts for the year ended June 30, 2001.

Advertising Costs:

Advertising expenditures, expensed when incurred, were $800, $953 and
$1,077 for the years ended June 30, 2001, 2000 and 1999, respectively.

Impairment of Long-Lived Assets:

The Company evaluates the recoverability of long-lived assets, including
intangible assets, at each balance sheet date, using certain financial
indicators such as historical and future ability to generate cash flows from
operations. The Company's policy is to record an impairment loss in the period
when it is determined that the carrying amount of the asset may not be
recoverable. This determination is based on an evaluation of such factors as the
occurrence of a significant event, a significant change in the environment in
which the business operates, or if the expected future net cash flows
(undiscounted and without interest or income taxes) are less than the carrying
amount of the assets.

F-10

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

1. Organization and Summary of Significant Accounting Policies--(Continued)

Environmental Liabilities:

Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate.
Expenditures related to improving the condition of property compared with the
condition of that property when constructed or acquired are capitalized. The
Company also capitalizes expenditures that prevent future environmental
contamination, when appropriate. Other expenditures are expensed as incurred.
Liabilities are recorded when environmental assessments indicate that remedial
efforts are probable and the costs can be reasonably estimated. Estimates of the
liability are based upon currently available facts, existing technology, and
presently enacted laws and regulations taking into consideration the likely
effects of inflation and other societal and economic factors. All available
evidence is considered, including prior experience in remediation of
contaminated sites, other companies' clean-up experience, and data released by
the Environmental Protection Agency or other organizations. When such costs are
incurred over a long-term period and can be reliably estimated as to timing, the
liabilities are included in the consolidated balance sheets at their discounted
amounts.

Income Taxes:

Income tax expense includes U.S. and foreign income taxes. The tax effect
of certain temporary differences between amounts recognized for financial
reporting purposes and amounts recognized for tax purposes are reported as
deferred income taxes. Deferred tax balances are adjusted to reflect tax rates,
based on current tax laws, that will be in effect in the years in which the
temporary differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts more likely
than not to be realized.

Research and Development Expenditures:

Research and development expenditures were $2,952, $2,297 and $1,929 for
the years ended June 30, 2001, 2000 and 1999, respectively, and are expensed as
incurred.

Reclassification:

Certain prior amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to 2001
presentation.

New Accounting Pronouncements:

In June 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141 "Business Combinations" ("SFAS No.
141") and No. 142 "Goodwill and Other Intangibles" ("SFAS No. 142"). SFAS No.
141 and No. 142 are effective for the Company on July 1, 2002. SFAS No. 141
requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. The statement also establishes
specific criteria for recognition of intangible assets separately from goodwill
and requires unallocated negative goodwill to be written off immediately as an
extraordinary gain. SFAS No. 142 primarily addresses the accounting for goodwill
and intangible assets subsequent to their acquisition. The statement requires
that goodwill and indefinite lived intangible assets no longer be amortized and
be tested for impairment at least annually. The amortization period of
intangible assets with finite lives will no longer be limited to forty years.
The Company is currently assessing the impact of these statements.

F-11

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

2. Acquisitions

On November 30, 2000, the Company purchased the Medicated Feed Additives
(MFA) business of Pfizer, Inc. and certain of its subsidiaries ("Pfizer"). The
MFA business was a group of products within Pfizer's Animal Health Group. The
business produces and sells a broad range of Medicated Feed Additive Products
(MFAs) to the global livestock industry, either directly to large integrated
livestock producers or through a network of independent distributors. The
activities of the MFA business (production, sales and marketing, and finance)
were integrated within Pfizer's Animal Health Group.

The purchase price of $76,793 (including cost of acquisition) was paid
with cash of $51,700 and the issue of a promissory note to Pfizer for $25,093,
which matures in 2004 with interest payable semi-annually in arrears at 13%. The
Company financed the $51,700 cash payment through the issuance of $40,808 of
redeemable preferred securities ($45,000 of redeemable preferred securities,
less costs connected with the issue of those securities of $4,192), and the
remainder was financed through an amendment to existing bank credit facilities.
In addition, under the terms of the purchase agreement, the Company is required
to pay Pfizer contingent purchase price based on a percentage of future net
revenues of a particular product. The term of the contingent payments is five
years from November 30, 2000. The maximum contingent purchase price due under
this arrangement is limited to $55,000, with a maximum annual payment of
$12,000. Contingent purchase price paid will be allocated to related production
equipment and product intangibles. The Company accrued $6,473 under this
arrangement as of June 30, 2001. In addition, the Company is required to pay
Pfizer contingent purchase price up to a maximum of $10,000 over five years on
other products based on certain gross profit levels of the MFA business. No
amounts have been accrued under this arrangement.

The acquisition was accounted for in accordance with the purchase method
and results of the MFA business have been included since the date of
acquisition. The purchase price has been preliminarily allocated to inventory
and property, plant, and equipment. Property, plant and equipment includes two
facilities, Rixensart, Belgium and Guarulhols, Brazil. Following the closing,
the Company operated under a supply agreement with Pfizer with respect to the
manufacturing facility in Belgium pending regulatory approval of the transfer of
title, which was completed on August 31, 2001. The Company is in the process of
determining pension liability in connection with the employees of the Belgium
plant who elected to transfer their benefits and the amount of their accumulated
benefit obligations on August 31, 2001. Any difference between the pension
liability assumed and the amounts funded by Pfizer will be included in the final
allocation of purchase price which is expected to be completed by the end of the
second quarter of fiscal 2002.

The unaudited consolidated results of operations on a pro-forma basis as
if such acquisition had occurred at the beginning of the periods being reported
are as follows:

2001 2000
-------- --------
Net sales........................................... $412,003 $477,335
Net (loss) income .................................. (15,722) 26,118

The impact of purchase accounting adjustments to the inventory acquired
from Pfizer increased the net loss in 2001 by $8,889.

On October 1, 1998, the Company acquired all of the outstanding capital
stock of Odda Smelteverk, AS, a Norwegian company, and certain assets of the
business of BOC Carbide Industries in the United Kingdom (together "Odda") from
the BOC Group Plc for $19 million in cash and $18.2 million in debt. The
acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their fair values at the acquisition
date. The operating results of Odda are included in the Company's consolidated
statements of operations from the date of acquisition. The fair value of assets
acquired, including intangibles, was $40,811, and liabilities assumed totaled
$18,195. Intangibles related to this acquisition of $3,916 are being amortized
over 20 years on a straight-line basis.

F-12

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

2. Acquisitions--(Continued)

The unaudited consolidated results of operations on a pro-forma basis, as
if such acquisition had occurred at the beginning of fiscal 1999 and 1998 are as
follows:

1999 1998
--------- ---------
Net sales ............................................ $ 306,653 $ 316,752
Income (loss) before extraordinary item .............. $ (2,246) $ (7,408)
Net (loss) ........................................... $ (2,246) $ (9,370)

3. Property, Plant and Equipment

Property, plant and equipment consists of the following at June 30:

2001 2000
-------- --------
Land ................................................... $ 8,106 $ 3,875
Buildings and improvements ............................. 34,458 25,814
Machinery and equipment ................................ 139,877 117,011
-------- --------
182,441 146,700
Less: Accumulated depreciation ......................... 80,118 70,520
-------- --------
$102,323 $ 76,180
======== ========

Certain of the buildings of the Company's Israeli subsidiary are situated
on land leased for a nominal amount from the Israel Land Authority. The lease
expires on July 9, 2027.

Depreciation expense amounted to $11,887, $10,343 and $9,963 for the years
ended June 30, 2001, 2000 and 1999, respectively.

4. Related Party Transactions

In January 2000, the owners of the Company invested $20 in a
pharmaceutical company in exchange for a 20% voting common stock interest.
Additionally, the Company invested $1,980 in preferred stock of the
pharmaceutical company. The preferred stock investment, included in other
assets, is being carried on the equity basis. The Company recorded a loss of
$218 in other expense, net in fiscal 2001. No adjustment to the carrying value
was required in fiscal 2000. A subsidiary of the Company leases the property
underlying its Santa Fe Springs, California plant from an affiliate which is
controlled by shareholders of the Company. The lease requires annual base rent
of $250 and terminates on June 30, 2008. The Company is responsible under the
lease agreement to pay all real property taxes. The Company periodically
advances funds to the principal shareholder on a short-term,
non-interest-bearing basis. There were no amounts outstanding at June 30, 2001
and 2000.

5. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities at June
30, 2001 and 2000 are as follows:

2001 2000
-------- --------
Commissions and rebates................................ $ 3,116 $ 5,952
Pfizer contingent purchase price....................... 6,473 --
Employee related expense............................... 5,577 4,512
Other accrued liabilities.............................. 20,212 13,693
------- -------
$35,378 $24,157
======= =======

F-13

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

6. Debt

Long-term debt consists of the following at June 30, 2001 and 2000:

2001 2000
-------- --------
Domestic:
Senior Subordinated Notes due June 1, 2008 (a) ........ $100,000 $100,000
Bank borrowings (b) ................................... 3,800 29,700
Pfizer Promissory Note (c) ............................ 25,093 --
Capitalized lease obligations and other ............... 1,618 2,464
Foreign:
Bank loans with interest at NIBOR plus .75% payable
in Norwegian Krone (NOK) maturing through 2004 (d) .. 5,376 5,838
Revolving credit bank loan with interest at NIBOR
plus 2% payable in Norwegian Krone (NOK) maturing
through 2003 (d) .................................... 1,801 2,919
Norwegian Government Loan payable in Norwegian
Krone (NOK) maturing in equal semi-annual payments
through 2013 (e) .................................... 2,850 671
Bank loans with interest at LIBOR plus 1 1/4%
repayable with interest in equal quarterly
installments through 2005 (f) ....................... 4,000 --
Capitalized lease obligations and other ............... 330 426
-------- --------
144,868 142,018
Less: Current maturities .............................. 5,404 2,296
-------- --------
$139,464 $139,722
======== ========

(a) In June 1998, the Company issued $100 million aggregate principal
amount of 9-7/8% Senior Subordinated Notes due 2008. The Notes are general
unsecured obligations of the Company and are subordinated in right of payment to
all existing and future senior debt (as defined in the indenture agreement of
the Company) and rank pari passu in right of payment with all other existing and
future senior subordinated indebtedness of the Company. The Notes are
unconditionally guaranteed on a senior subordinated basis by the current
domestic subsidiaries of the Company (the "Guarantors"). Additional future
domestic subsidiaries may become Guarantors under certain circumstances.

The Indenture contains certain covenants with respect to the Company and
the Guarantors, which restrict, among other things, (a) the incurrence of
additional indebtedness, (b) the payment of dividends and other restricted
payments, (c) the creation of certain liens, (d) the sale of assets, (e) certain
payment restrictions affecting subsidiaries, and (f) transactions with
affiliates. The Indenture restricts the Company's ability to consolidate, or
merge with or into, or to transfer all or substantially all of its assets to,
another person.

(b) On November 30, 2000, the Company amended its senior credit facility
with PNC Bank, increasing the revolving credit portion of the facility to $70
million (from $35 million) and adding an additional $15 million facility for
spending on capital expenditures. The amended agreement was effective December
1, 2001 and continues until November 30, 2003. The Company may choose between
two interest options: the base rate, as defined; and the Euro Rate, as defined,
plus 2 1/4 % to 3% per annum, depending on the Company's operating performance
and whether the drawdowns are under the revolving credit facility or the capital
expenditure facility. Capital advances are limited to $7.5 million in either the
first or second year from the closing date and are repayable commencing on the
first business day of the month next succeeding the second anniverary date of
the closing date based upon a 60 month amortization table with all outstanding
capital advances being repaid on the last day of the Term. The $70 million
revolving credit facility is subject to availability under a borrowing base
formula for domestic accounts receivable and inventories, as defined, which also
serve as collateral on the borrowings. In addition to having $24.5 million
outstanding under the revolving credit facility and $3.8 million outstanding
under the facility for spending on capital expenditures, the Company had $ 23.1
million available under the borrowing base formula as of June 30, 2001.

F-14

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

6. Debt--(Continued)

The amended agreement contains a lock-box requirement and a subjective
acceleration clause. Accordingly, the amounts outstanding under the revolving
credit facility have been classified as short term in accordance with the
Emerging Issues Task Force Statement No. 95-22 "Balance Sheet Classification of
Borrowings Outstanding Under Revolving Credit Agreements That Include a
Subjective Acceleration Clause and a Lock-Box Arrangement" and is included in
loans payable to banks in the consolidated balance sheet at June 30, 2001.
Advances under the capital expenditure facility have been classified as long
term.

The credit facility requires, among other things, the maintenance of
certain fixed charge coverage ratios and a certain level of net worth for the
domestic operations of the Company, each calculated quarterly, and contains an
acceleration clause should a material adverse event occur (as defined). In
addition, there are certain restrictions on additional borrowings, additional
liens on the Company's assets, guarantees, dividend payments, redemption or
purchase of the Company's stock, sale of subsidiaries stock, disposition of
assets, investments, and mergers and acquisitions.

The Company was in compliance with the financial covenants of the credit
facility during fiscal 2001.

(c) On December 1, 2000, in connection with the Pfizer acquisition, the
Company issued a 13% promissory note to Pfizer in the amount of $25,093 with
interest payable semi-annually. Principal payments, each equal to 10% of the
amount of the loan, are due December 3, 2001 and 2002. The remaining 80% of the
loan is due March 1, 2004. The note is collateralized by the Company's
facilities in Rixansart, Belgium and Guarulhos, Brazil.

(d) The Company's Norwegian subsidiary has entered into two separate
multi-currency revolving facilities as follows: In August 1998, the subsidiary
entered into a five-year multi-currency credit facility, for NOK (Norwegian
Kroner) 90,000 (approximately $11,335 as of June 30, 1999), in agreed
Euro-currencies. Borrowings under such facility bear interest at the LIBOR or
NIBOR rate as defined plus 0.475%. The subsidiary has agreed to pay a commitment
fee of 1/4% on the unused portion of such facility. In August 1998, the
subsidiary entered into a five-year multi-currency revolving credit facility,
for NOK 65,000 (approximately $8,120 as of June 30, 1999), in agreed
Euro-currencies. Borrowings under such facility bear interest at the LIBOR or
NIBOR rate as defined plus the applicable margin. Such LIBOR or NIBOR margin
shall be subject to adjustment based on the subsidiary's debt service coverage
and equity ratios (which margins could be 3/4% or 1%). The subsidiary has agreed
to pay a commitment fee equal to 50% of the applicable margin. In connection
with both such facilities, the subsidiary may choose the duration (one, three or
six months) for which the interest rate may apply. Indebtedness under both such
currency facilities is collateralized by a lien on the subsidiary's receivables,
inventory and property and production facilities. Philipp Brothers Chemicals,
Inc. guarantees both credit facilities.

In connection with the subsidiary's sale of its minority interest in the
local hydroelectric power company and related contract rights, (see Note 18) and
the simultaneous release of collateral in those shares pledged under the
facilities, the subsidiary repaid NOK 80,000 in total under both of the credit
facilities in January 2000 (approximately $9,970 at January 2000) as a permanent
reduction in the maximum borrowings allowed. As of June 30, 2001, the subsidiary
has borrowed the maximum amount available under the facilities.

At June 30, 2001 Odda was not in compliance with the debt service and
liabilities to equity ratios in its credit agreements, and a waiver was obtained
from its lenders.

(e) The Company's Norwegian subsidiary entered into two separate loan
agreements with the Norwegian Bank Industrial and Regional Development Fund. In
September 1999, Odda received a rural development facility for NOK 11,500
($1,236 outstanding at June 30, 2001) which bears interest at 4.6%. The interest
rate, 8 1/2% at June 30, is discretionary by the government with one week
notice. In April 2000 Odda received an environmental loan facility of NOK 15,000
($1,614 outstanding at June 30, 2001) which bears interest at 4.6%. The interest
rate is adjustable on May 1, 2005 based on a formula averaging five year
government borrowing rates. Both facilities are repayable in 20 equal
semi-annual installments beginning in 2002. Indebtedness under both facilities
is collateralized by a lien on the subsidiary's receivables, inventory and
property and production facilities.

(f) The bank loans are collateralized by a lien on Koffolk Ltd.'s
receivables and inventory.

F-15

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

6. Debt--(Continued)

The aggregate maturities of long-term debt after June 30, 2001 are as
follows:

Year Ended June 30,
------------------
2002......................................................... $ 5,404
2003......................................................... 4,911
2004......................................................... 31,002
2005......................................................... 1,423
2006......................................................... 292
Thereafter................................................... 101,836
--------
Total $144,868
========

7. Redeemable Common Stock of Subsidiary

Certain key executives of the Company have had a 10.7% ownership interest
in common stock of a subsidiary. The subsidiary's shares are redeemable at fair
market value, based on independent appraisal, upon the death, disability or
termination of the key executive. Adjustments to record the shares at their
redeemable value have been charged to compensation expense.

In addition, the Company and its subsidiary entered into severance
agreements with the executives for payments based on a multiple of pretax
earnings, as defined, and which are subject to certain restrictions pursuant to
terms of the PNC Bank Credit Facility. At June 30, 2001 no aggregate severance
payments would have been due the remaining executive if he were terminated.

In connection with the separation of employment of a senior executive in
the 1999 fiscal year and pursuant to the stock buyback and severance provisions
of the aforementioned agreements, the Company recorded a charge of $1.5 million
in selling, general and administrative expenses and reclassified $1.3 million
from redeemable securities to accrued expenses and other current liabilities.
The stock buyback resulted in a reduction of senior executive ownership in the
subsidiary to 4%.

In connection with the separation of employment of a senior executive in
the 2001 fiscal year and pursuant to the stock buyback and severance provisions
of the aforementioned agreements, the Company recorded a charge of $1.3 million
in selling, general and administrative expenses and reclassified $0.2 million
from redeemable securities to accrued expenses and other current liabilities.
The stock buyback resulted in a reduction of senior executive ownership in the
subsidiary to 2%.

Certain key employees of the Company's MRT subsidiary own 12.3% of the
non-voting common stock of MRT Management Corp ("MMC") and a right to contingent
"phantom shares" of MMC. The shareholders agreement of MMC provides for the
vesting of shares to the employees over certain periods of employment and
granting of "phantom shares" to the employees based on certain performance
goals. No phantom shares have been earned and no compensation expense has been
recorded. The agreement also provides for the purchase of the minority shares
for fair value in connection with termination of employment.

8. Redeemable Preferred Stock

Redeemable preferred securities were issued on November 30, 2000 to
Palladium Equity Partners LLC and related entities ("Palladium") as follows:

Preferred B - $25,000 - 25,000 shares

Preferred C - $20,000 - 20,000 shares

F-16

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

8. Redeemable Preferred Stock--(Continued)

The redeemable preferred stock is entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of the liquidation value. The
liquidation value of the Preferred B stock is an amount equal to $1 per share
plus all accrued and unpaid dividends (the "Liquidation Value"). The redeemable
Preferred C stock is entitled to the Liquidation Value plus a percentage of the
equity value of the Company, as defined in the amended Certificate of
Incorporation. The equity value is calculated as a multiple of the earnings
before interest, tax, depreciation and amortization ("EBITDA") of the Company's
business ("Equity Value"). The Company may, at the date of the annual closing
anniversary, redeem the Preferred B stock, in whole or in part, at the
Liquidation Value for cash, provided that if Preferred B is redeemed separately
from the Preferred C, then the Preferred B must be redeemed for the Liquidation
Value plus an additional amount which would generate an internal rate of return
of 20% to Palladium on the Preferred B investment. Redemption in part of
Preferred B is only available if at least 50% of the outstanding Preferred B is
redeemed. On the third closing anniversary and on each closing anniversary
thereafter, the Company may redeem for cash only in whole the Preferred C, at
the Liquidation Value plus the Equity Value payment.

At any time after the redemption of the Company's Senior Subordinated
Notes due 2008, Palladium shall have the right to require the Company to redeem
for cash the Preferred B at the Liquidation Value and the Preferred C at the
Liquidation Value plus the Equity Value payment.

The redeemable preferred securities were initially recorded at $40,808,
representing proceeds of $45,000, net of costs of issuance of $4,192. The
Company has recorded a charge of $4,192 to retained earnings to reflect the
accretion of the preferred securities to their fair market value as at the
closing date. Dividends of $3,980 have been accrued on the preferred securities
and charged to retained earnings as of June 30, 2001. No equity value accretion
was required as of June 30, 2001 under the applicable formula.

In addition, an annual management advisory fee of $2,250 is payable to
Palladium until all of the Preferred B and Preferred C shares are redeemed.
Payments are made quarterly in advance and have been charged to general and
administrative expense. The management fee was $1,313 for the year ended June
30, 2001.

9. Common Stock and Paid-in Capital

Common Stock:

Common stock consisted of the following at June 30, 2001 and 2000:

Authorized
Shares Issued Shares Amount at Par
---------- ------------ -------------
Class A common stock............... 16,200 12,600 $.10
Class B common stock............... 14,100 11,888 .10
------ ------
30,300 24,488
====== ======

Holders of Class A common stock have full voting power, except the holders
of class A shall be entitled to elect all but three of the directors and the
holders of Class B shall be entitled to elect one director. No dividends may be
paid to common stockholders until all dividends have been paid to holders of
preferred stock. Thereafter, holders of Class A common stock shall receive
dividends, when and as declared by the directors, at the rate of 5-1/2% of the
par value of such stock (non-cumulative). After all declared dividends have been
paid to Class A common stockholders, dividends may be declared and paid to the
holders of Class B common stock. In the event of any complete liquidation,
dissolution, winding up of the business, or sale of all the assets of the
Company, and after the redemption of the preferred stock, the Class A common
stockholders are entitled to a distribution equal to the par value of the stock
plus declared and unpaid dividends. Thereafter, the remaining assets of the
Company shall be distributed to the holders of Class B common stock.

Issued shares include redeemable shares of a minority shareholder (see
below).

F-17

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

9. Common Stock and Paid-in Capital--(Continued)

Redeemable Common Stock:

Pursuant to terms of an agreement with a minority shareholder, who is also
an officer of the Company, the Company is required to purchase, at book value,
the Class B shares of such shareholder upon his retirement, death, disability,
or the termination of his employment. Should such shareholder elect to sell his
shares, the Company has a right of first offer and an option to purchase the
shares. Adjustments to record the shares at redeemable value have been charged
or credited to compensation expense.

10. Employee Benefit Plans

The Company and its domestic subsidiaries maintain noncontributory defined
benefit pension plans for all eligible nonunion employees who meet certain
requirements of age, length of service and hours worked per year. The benefits
provided by the plans are based upon years of service and the employees' average
compensation, as defined. The Company's policy is to fund the pension plans in
amounts which comply with contribution limits imposed by law.

The Company's Norwegian subsidiary also maintains a funded noncontributory
defined benefit pension plan for all eligible employees, with benefits based on
employee compensation and service.

The following provides a reconciliation of benefit obligations, plan
assets, and funded status of the plans.

Domestic Norwegian
---------------------------- ---------------------------
June 2001 June 2000 June 2001 June 2000
----------- ----------- ----------- -----------

Change in benefit obligation
Benefit obligation at beginning of year ........................ $ 8,732 $ 7,279 $ 9,175 $ 10,030
Service cost ................................................... 949 905 161 250
Interest cost .................................................. 619 548 576 635
Benefits paid .................................................. (249) (81) (740) (743)
Actuarial (gain) or loss ....................................... (399) 81 (630) (210)
-------- -------- -------- --------

Benefit obligation at end of year .............................. $ 9,652 $ 8,732 $ 8,542 $ 9,962
======== ======== ======== ========

Change in Plan Assets
Fair value of plan assets at beginning of year ................. $ 7,430 $ 5,626 $ 9,232 $ 9,736
Actual return on plan assets ................................... 1,332 1,095 810 768
Employer contributions ......................................... 680 790 254 262
Benefits paid .................................................. (249) (81) (740) (743)
-------- -------- -------- --------

Fair value of plan assets at end of year ....................... $ 9,193 $ 7,430 $ 9,556 $ 10,023
======== ======== ======== ========

Funded Status
Funded status of the plan ...................................... $ (459) $ (1,303) $ 1,014 $ 61
Unrecognized net actuarial (gain) or loss ...................... (1,755) (630) (852) (294)
Unrecognized prior service cost ................................ (918) (1,082) -- --
Unrecognized transition obligation/asset ....................... (18) (21) 81 94
-------- -------- -------- --------

(Accrued) prepaid pension cost ................................. $ (3,150) $ (3,036) $ 243 $ (139)
======== ======== ======== ========

June 2001 June 2000 June 1999
--------- --------- ---------

Assumptions (Domestic)
Discount rate................................................... 7.50% 7.50% 7.50%
Expected rate of return on plan assets.......................... 7.50% 7.50% 7.50%
Rate of compensation increase (depending on age)................ 3.00%-4.50% 5.00% 5.00%

F-18

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

10. Employee Benefit Plans--(Continued)

June 2001 June 2000 June 1999
--------- --------- ---------
Components of net periodic pension
costs (Domestic)
Service cost - benefits earned
during the year .......................... $ 949 $ 905 $ 826
Interest cost on benefit obligation ........ 618 549 452
Expected return on plan assets ............. (576) (487) (393)
Amortization of initial unrecognized net
transition obligation (asset) ............ (3) (3) (3)
Amortization of prior service costs ........ (165) (165) (164)
Amortization of (gain) or loss ............. (31) (2) (6)
----- ----- -----

Net periodic pension cost .................. $ 792 $ 797 $ 712
===== ===== =====

June 2001 June 2000 June 1999(1)
--------- --------- ---------
Assumptions (Norwegian)
Discount rate .............................. 7.00% 7.00% 6.50%
Expected rate of return on plan assets ..... 8.00% 8.00% 8.00%
Rate of compensation increase .............. 3.30% 3.30% 3.30%
Components of net periodic pension
costs (Norwegian)
Service cost - benefits earned
during the period ........................ $ 161 $ 250 $ 228
Interest cost on benefit obligation ........ 576 635 523
Expected return on plan assets ............. (810) (759) (628)
Amortization of initial unrecognized
net transition obligation (asset) ........ 5 5 --
Amortization of (gain) or loss ............. (49) (18) --
----- ----- -----

Net periodic pension cost .................. $(117) $ 113 $ 123
===== ===== =====

----------
(1) For the period October 1, 1998 - June 30, 1999.

The Company and its domestic subsidiaries have a 401(k) plan, under which
an employee may make a pretax contribution of up to 6% of base compensation, and
the Company makes a non-matching contribution equal to 1% of the employee's base
compensation and a matching contribution equal to 50% of the contribution up to
the first 3% of an employee's base compensation and 25% of any contribution in
excess of 3% of base compensation. All contributions are subject to the maximum
amount deductible for federal income tax purposes. The Company's contribution
amounted to $607, $575 and $547 in 2001, 2000 and 1999, respectively.

The Company has a deferred compensation and supplemental retirement plan
for certain senior executives of the Company. The benefits provided by the plan
are based upon years of service and the employees' average compensation subject
to certain limits. The plan also provides for death benefits before retirement.
Deferred compensation expense was $123, $97 and $92 in 2001, 2000 and 1999,
respectively. At June 30, 2001 and 2000, the aggregate liability under this plan
amounted to $705 and $637, respectively. To assist in funding the retirement and
death benefits of the plan, the Company invested in corporate-owned life
insurance policies, through a trust, which at June 30, 2001 and 2000 had cash
surrender values of $1,197 and $1,098, respectively, and are included in other
assets.

In addition to Norway, most of the Company's foreign subsidiaries have
retirement plans covering substantially all employees. Contributions to these
plans are generally deposited under fiduciary-type arrangements. Benefits under
these plans are primarily based on levels of compensation. Funding policies are
based on legal requirements and local practices. Expenses under these plans
amounted to $489, $349 and $509 for 2001, 2000 and 1999, respectively.

F-19

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

11. Income Taxes

(Loss) income from operations before provision for income taxes consisted
of:

2001 2000 1999
-------- -------- --------
Domestic ................................ $(12,561) $ (2,332) $ (755)
Foreign ................................. (4,315) 16,331 468
-------- -------- --------
$(16,876) $ 13,999 $ (287)
-------- -------- --------

Components of income tax (benefit) expense are as follows:

2001 2000 1999
-------- -------- --------
Current tax provision:
U.S. Federal ......................... $ -- $ -- $ --
State and local ...................... 1,711 245 160
Foreign .............................. 3,876 2,264 792
-------- -------- --------

Total current tax provision .......... 5,587 2,509 952
-------- -------- --------

Deferred tax (benefit) provision:
U.S. Federal ......................... (3,528) (287) 220
State and local ...................... (289) 5 (125)
Foreign .............................. (4,760) 2,047 (868)
Change in valuation allowance ........ 1,009 (327) --
-------- -------- --------

Total deferred tax (benefit)
provision .......................... (7,568) 1,438 (773)
-------- -------- --------
(Benefit) provision for income
taxes ................................ $ (1,981) $ 3,947 $ 179
======== ======== ========

A reconciliation of the Federal statutory rate and the Company's effective
tax rate follows:

2001 2000 1999
-------- -------- --------
U.S. Federal income tax rate ............ (34.0)% 34.0% (34.0)%
State and local taxes, net of
federal income tax effect ............. 3.5 0.9 8.0
Tax rate differences on foreign
operations ............................ 17.1 (13.1) (81.9)
Non-taxable income ...................... (6.3) -- --
Expenses with no tax benefit ............ 1.1 3.9 104.9
U.S. losses with no state tax
benefit ............................... 5.0 1.4 79.1
Change in valuation allowance ........... 1.0 (2.3) --
Other ................................... 0.9 3.4 (13.7)
------ ------ ------
(11.7)% 28.2% 62.4%
====== ====== ======

Most of the investments of the Company's Israeli subsidiary in fixed
assets have been granted "approved enterprise" status under Israeli law. The
subsidiary is also a "foreign investors' company" as defined by Israeli law.
This status entitles the subsidiary to reduced tax rates which results in a
substantial portion of the tax rate differences on foreign operations. The
entitlement of the reduced tax rates is conditional upon the subsidiary
fulfilling the conditions stipulated by Israeli law, regulations published
thereunder and the instruments of approval for the specific investments in
approved enterprises. In the event of failure to comply with these conditions,
the benefits may be canceled and the subsidiary may be required to refund the
amount of the benefits, in whole or in part, with the addition of interest. The
periods of benefits expire in various years through 2009.

Provision has not been made for United States or additional foreign taxes
on undistributed earnings of foreign subsidiaries of approximately $25,000,
whose earnings have been or are intended to be reinvested. It is not practicable
at this time to determine the amount of income tax liability that would result
should such earnings be repatriated.

F-20

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

11. Income Taxes--(Continued)

The tax effects of significant temporary differences which comprise the
deferred tax assets and liabilities at June 30, 2001 and 2000 are as follows:

2001 2000
-------- --------
Deferred tax assets:
Employee benefits ................................... $ 2,198 $ 2,264
Depreciation ........................................ 1,043 780
Insurance ........................................... 429 316
Receivables allowances .............................. 1,175 615
Inventory ........................................... 4,312 869
Plant curtailment and environmental remediation ..... 1,305 2,402
Alternative minimum tax ............................. 144 144
Net operating loss carryforward -- domestic ......... 8,091 4,523
-- foreign .......... 3,847 2,420
Other ............................................... 1,180 389
-------- --------
23,724 14,722
Valuation allowance ................................. (1,434) (425)
-------- --------
22,290 14,297
Deferred tax liabilities
Property, plant and equipment ....................... (6,248) (4,136)
Gain on property damage ............................. -- (1,858)
Other ............................................... (606) (662)
-------- --------
(6,854) (6,656)
-------- --------
Net deferred tax asset ................................. $ 15,436 $ 7,641
======== ========

Deferred taxes are included in the following line items in the
consolidated balance sheets:

2001 2000
-------- --------
Prepaid expenses and other current assets .............. $ 10,133 $ 5,075
Accrued expenses, taxes and other current liabilities .. (523) (88)
Other assets ........................................... 9,222 7,128
Other liabilities ...................................... (3,396) (4,474)
-------- --------
$ 15,436 $ 7,641
======== ========

The Company has domestic net operating loss carryforwards of approximately
$20,000 that expire in 2019 through 2021 and foreign net operating loss
carryforwards of approximately $13,000 that begin to expire in 2009. Valuation
allowances have been provided against the tax benefit of domestic state net
operating loss carryforwards and foreign tax credit carryforwards, which are
considered not likely to be realized.

F-21

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

12. Commitments and Contingencies

(a) Leases:

The Company leases equipment and office, warehouse and manufacturing
facilities through fiscal 2010 for minimum annual rentals (plus certain cost
escalations) as follows:

Capital Operating
Year Ended June 30, Leases Leases
------------------- --------- -----------
2002................................................... $ 556 $ 1,968
2003................................................... 512 1,815
2004................................................... 410 1,548
2005................................................... 120 1,095
2006................................................... -- 674
Thereafter............................................. -- 891
-------- -------
Total minimum lease payments........................... $ 1,598 $ 7,991
======== =======
Amounts representing interest.......................... 274
--------
Present value of minimum lease payments................ $ 1,324
========

Equipment under capitalized leases included in the consolidated balance
sheets at June 30, 2001 and 2000 amounted to $195 and $224, net of accumulated
depreciation of $993 and $1,092, respectively.

The commitment for facilities includes $1,750 with an affiliate controlled
by shareholders of the Company. (Refer to Note 4.)

Rent expense under operating leases for the years ended June 30, 2001,
2000 and 1999 amounted to $2,243, $1,734 and $1,619, respectively.

(b) Purchase Commitments:

The Company's subsidiary, MRT, has entered into minimum purchase
commitments to purchase fly-ash at fixed prices over periods of up to 15 years.
Fly-ash purchased under minimum purchase agreements for the years ended June 30,
2001, 2000 and 1999 were $5,098, $3,630 and $2,014, respectively. The Company's
subsidiary, Odda Smelteverk, AS, has entered into a minimum purchase commitment
to purchase power at fixed prices over periods of up to 10 years. Power
purchased under this minimum purchase agreement for the years ended June 30,
2001 and 2000 was $1,102 and $574, respectively.

At June 30, 2001, the Company had minimum purchase commitments, as
follows:

Fly Ash Power
Year Ended June 30, Minimum Purchase Minimum Purchase
------------------- ---------------- ----------------
2002.................................... $ 6,910 $ 1,102
2003.................................... 7,457 1,102
2004.................................... 7,059 1,102
2005.................................... 6,238 1,102
2006.................................... 4,623 1,102
Thereafter.............................. 32,388 3,306
-------- --------
Total minimum purchase commitments...... $ 64,675 $ 8,816
======== ========

F-22

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

12. Commitments and Contingencies--(Continued)

The Company's subsidiary, Phibro-Tech, Inc., has been named as a
potentially responsible party ("PRP") in connection with an action commenced by
the EPA, involving a third party fertilizer manufacturing site in South
Carolina. Phibro-Tech, Inc. was also named as a PRP involving a third party site
in California. Tentative settlements have been reached in both of these actions
and adequate reserves have been established.

The Company and its subisidiary, C.P. Chemicals, Inc., are involved in
litigation alleging that operations at the Sewaren, New Jersey site have
affected the adjoining owner's property. The Company is not, at this time, in a
position to assess the extent of any liability.

The Company and its subsidiaries are a party to a number of claims and
lawsuits arising in the normal course of business, including patent
infringement, product liabilities and governmental regulation concerning
environmental and other matters. Certain of these actions seek damages in
various amounts.

All such claims are being contested, and management believes the
resolution of these matters will not materially affect the consolidated
financial position, results of operations or cash flows of the Company.

(d) Environmental Remediation:

The Company's domestic subsidiaries are subject to various federal, state
and local environmental laws and regulations which govern the management of
chemical wastes. The most significant regulation governing the Company's
recycling activities is the Resource Conservation and Recovery Act of 1976
("RCRA"). The Company has been issued final RCRA "Part B" permits to operate as
hazardous waste treatment and storage facilities at its facilities in Santa Fe
Springs, California; Garland, Texas; Joliet, Illinois; Sumter, South Carolina;
and Sewaren, New Jersey. The Company has also obtained an interim status RCRA
permit for its Union City, California facility.

In connection with applying for RCRA "Part B" permits, the Company has
been required to perform extensive site investigations at certain of its
operating facilities and inactive sites to identify possible contamination and
to provide the regulatory authorities with plans and schedules for remediation.
Some soil and groundwater contamination has been identified at several plant
sites and will require corrective action over the next several years.

Based upon information available, management estimates the cost of further
investigation and remediation of identified soil and groundwater problems at
operating sites, closed sites and third party sites to be approximately $2,222
which is included in current and long-term liabilities in the June 30, 2001
consolidated balance sheet (approximately $1,558 in 2000). Such amounts
represent primarily the cost of feasibility studies and remediation activities
and are expected to be substantially incurred over a three year period. No
amounts have been discounted. Environmental provisions are $1,252, $252 and $167
for the fiscal years ended June 30, 2001, 2000 and 1999, respectively, and are
included in selling, general and administrative expenses in the consolidated
statements of operations.

(e) Plant Curtailment:

During the fourth quarter of fiscal 1998, the Company decided to curtail
major manufacturing operations of its Sewaren, New Jersey facility and recorded
nonrecurring charges of $10.0 million related to this curtailment. Of these
charges, $5.6 million represented non-cash asset write downs during fiscal 1998
related to the manufacturing facility, $1.1 million represented associated site
restoration and $3.3 million represented the cost of long-term groundwater and
remediation activities.

F-23

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

12. Commitments and Contingencies--(Continued)

The accrual for groundwater monitoring represented personnel, utility and
related costs aggregating an estimated $4.2 million over 10 years and discounted
at a 7% rate. During fiscal 2000 and 1999, the Company expended $377 and $480,
respectively, related to site restoration and groundwater and remediation
activities and during 1999 reversed $500 to income based upon a reassessment of
site restoration and ongoing cost requirements.

In June 2000, the Company entered an agreement ("Transfer Agreement") with
the Township of Woodbridge ("Township") to transfer title to its property in
Sewaren, New Jersey to the Township. Simultaneously the Company entered into a
10 year lease agreement with the Township, with payments aggregating $2 million,
for certain areas of the property in order to allow the Company to conduct
operations related to its RCRA Part B Facility Permit. The Company retained its
environmental obligations pursuant to an Administrative Consent Order (ACO)
between the Company and the New Jersey Department of Environmental Protection
and has $351 recorded in long-term debt for the remaining payments under the
ACO. Pursuant to the Transfer Agreement, the Township took title to the property
and assumed obligations with regard to the property, including maintaining the
ground water recovery system required by the ACO. In connection with the
assumption of obligations by the Township in fiscal 2000, the Company reversed
$1,481 to income, representing amounts previously reserved for ground water
monitoring and remediation, net of the present value of its lease obligations.

13. Financial Instruments

Financial instruments that potentially subject the Company to credit risk
consist principally of cash and cash equivalents, and trade receivables. The
Company places its cash and cash equivalents with high quality financial
institutions in various countries. The Company sells to customers in a variety
of industries, markets and countries. Concentrations of credit risk with respect
to receivables arising from these sales are limited due to the large number of
customers comprising the Company's customer base. Ongoing credit evaluations of
customers' financial conditions are performed and, generally, no collateral is
required. The Company maintains appropriate reserves for uncollectible
receivables.

The carrying amounts of cash and cash equivalents, trade receivables,
trade payables and short-term debt is considered to be representative of their
fair value because of their short maturities. The fair value of the Company's
Senior Subordinated Notes is estimated based on quoted market prices. At June
30, 2001 and 2000, the fair value of the Company's Senior Subordinated Notes was
$65,900 and $70,800, respectively and the related carrying amount is $100,000.
At June 30, 2001 and 2000, the fair value of the Company's other long-term debt
does not differ materially from its carrying amount based on the variable
interest rate structure and frequent repricing of these obligations.

The Company obtains third-party letters of credit and surety bonds in
connection with certain inventory purchases and insurance obligations. The
contract values of the letters of credit and surety bonds at June 30, 2001 and
2000 were $1,035 and $2,250, respectively. The diffference between the carrying
values and fair values of these letters of credit and surety bonds were not
material.

The fair value associated with foreign currency contracts has been
estimated by valuing the net position of the contracts using the applicable spot
rates and forward rates as of the reporting date.

The fair value of commodity contracts is estimated based on quotes from
the market makers of these instruments and represents the estimated amounts that
the Company would expect to receive or pay to terminate the agreements as of the
reporting date.

F-24

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

14. Business Segments

The Company has four reportable segments--Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. The Company previously
reported two reportable segments - Agchem and Industrial Chemicals; however, due
principally to organizational changes during fiscal 2001, including those
associated with the acquisition of the animal health business from Pfizer and
the sale of the Agtrol crop protection business, segment reporting has been
revised. Prior period segment information has been revised to conform to the
fiscal 2001 segment presentation. Reportable segments have been determined
primarily on the basis of the nature of products and services and certain
similar operating units have been aggregated. The Company's Animal Health and
Nutrition segment manufactures and markets a broad range of feed additive
products including trace minerals, anticoccidials, antibiotics, vitamins,
vitamin premixes and other animal health products. The Company's Industrial
Chemicals segment manufactures and markets pigments and other mineral products.
Certain of these products include copper oxide, which is produced by the
Company's recycling operation, mineral oxides, and alkaline etchants. The
Company's Distribution segment markets and distributes a variety of industrial,
specialty and fine organic chemicals and intermediates produced by others. The
Company's All Other segment manufactures and markets a variety of specialty
custom chemicals, and copper-based fungicides, as well as providing management
and recycling of coal combustion residues.

Transfers between segments are priced at amounts that include a
manufacturing profit except that certain domestic transfers of $10,228, $9,606
and $11,422 from the Industrial Chemicals segment to the All Other segment for
fiscal 2001, 2000 and 1999, respectively, are recorded at the cost of product
transferred.

2001 2000 1999
--------- --------- ---------
Net Sales
Animal Health and Nutrition $ 202,573 $ 135,088 $ 132,845
Industrial Chemicals 107,455 109,318 107,611
Distribution 44,452 49,254 47,646
All Other 46,979 69,198 58,037
Intersegment (37,049) (39,832) (44,082)
--------- --------- ---------
Net Sales $ 364,410 $ 323,026 $ 302,057
========= ========= =========

Intersegment Sales
Animal Health and Nutrition $ 4,767 $ 5,019 $ 5,328
Industrial Chemicals 30,288 33,182 36,816
Distribution 1,994 1,631 1,938
--------- --------- ---------
Intersegment Sales $ 37,049 $ 39,832 $ 44,082
========= ========= =========

Operating Income (Loss)
Animal Health and Nutrition $ 17,562 $ 11,539 $ 8,763
Industrial Chemicals (3,350) 5,355 4,988
Distribution 3,936 3,817 3,643
All Other (7,086) 4,045 3,097
Corporate expenses and adjustments (10,086) (9,082) (10,136)
--------- --------- ---------
Operating Income $ 976 $ 15,674 $ 10,355
========= ========= =========

F-25

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

Identifiable Assets
Animal Health and Nutrition $ 169,870 $ 66,203 $ 68,200
Industrial Chemicals 88,496 84,395 85,102
Distribution 16,568 18,825 21,393
All Other 33,362 66,187 48,147
Corporate 21,723 22,841 15,937
--------- --------- ---------
Identifiable Assets $ 330,019 $ 258,451 $ 238,779
========= ========= =========

Depreciation and Amortization
Animal Health and Nutrition $ 5,089 $ 3,698 $ 3,786
Industrial Chemicals 6,115 5,806 5,586
Distribution 223 268 198
All Other 1,623 1,558 1,144
Corporate 782 536 531
--------- --------- ---------
Depreciation and Amortization $ 13,832 $ 11,866 $ 11,245
========= ========= =========

Capital Expenditures
Animal Health and Nutrition $ 2,669 $ 2,363 $ 1,587
Industrial Chemicals 6,122 15,413 7,350
Distribution 18 13 91
All Other 5,484 4,696 3,015
Corporate 251 119 219
--------- --------- ---------
Capital Expenditures $ 14,544 $ 22,604 $ 12,262
========= ========= =========

15. Geographic Information:

The following is information about the Company's operations in different
geographic areas. Revenues to external customers and property, plant and
equipment are attributed to the geographic areas based on the location of the
Company's subsidiaries.

2001 2000 1999
-------- -------- --------
Revenues:
United States ...................... $224,154 $209,767 $187,722
Europe ............................. 56,392 59,120 57,723
Israel ............................. 52,746 49,494 51,889
South America ...................... 19,603 4,645 4,723
Asia/Pacific ....................... 11,515 -- --
-------- -------- --------
Total Revenues .................. $364,410 $323,026 $302,057
======== ======== ========

F-26

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

15. Geographic Information--(Continued)

2001 2000 1999
--------- --------- ---------
Operating Income
United States ........................ $ 6,982 $ 13,715 $ 10,872
Europe ............................... 534 3,182 3,989
Israel ............................... 6,867 7,119 5,059
South America ........................ 3,354 740 571
Asia/Pacific ......................... 478 -- --
Corporate and Other .................. (17,239) (9,082) (10,136)
--------- --------- ---------
Total Operating Income ............ $ 976 $ 15,674 $ 10,355
========= ========= =========

2001 2000 1999
--------- --------- ---------
Property, Plant and Equipment
United States ........................ $ 30,769 $ 25,734 $ 18,341
Europe ............................... 40,693 32,465 27,362
Israel ............................... 14,219 15,899 16,276
South America ........................ 16,426 2,082 2,315
Asia/Pacific ......................... 216 -- --
--------- --------- ---------
Total Property, Plant
and Equipment ................... $ 102,323 $ 76,180 $ 64,294
========= ========= =========

16. Valuation and Qualifying Accounts:

Activity in the allowance for doubtful accounts consisted of the following
for the fiscal years ended June 30:

2001 2000 1999
------- ------- -------
Balance at beginning of period .......... $ 756 $ 886 $ 751
Provision for bad debts ................. 1,740 -- 153
Bad debt write-offs ..................... (127) (130) (18)
------- ------- -------
Balance at end of period ................ $ 2,369 $ 756 $ 886
======= ======= =======

17. Insurance Recoveries:

In April 1999, the Company suffered inventory, real property and equipment
loss at its Bowmanstown, Pennsylvania facility resulting from a fire. The
Company carries insurance coverage for the property damage and business
interruption losses and recorded a receivable of $4,259 in other receivables at
June 30, 1999 for amounts reimbursable from the insurance carrier. The
receivable was net of the Company's deductible and $1,000 advanced by the
insurance carrier prior to June 30, 1999. A reduction of cost of sales of $396
was recorded for insurance recoveries in excess of the net book value of damaged
inventory and a gain of $3,701 was recorded in other income for the excess of
amounts reimbursable over the net book value of property and equipment. As of
June 30, 2000, the Company finalized its claims with its insurance carriers and
recorded additional gains in fiscal 2000 for property damage of $946 in other
income and reimbursement for business interruption losses of $1,161 as a
reduction of cost of sales. The receivable of $4,097 in other receivables as of
June 30, 2000 was collected.

F-27

PHILIPP BROTHERS CHEMICALS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands)

18. Divestitures

On May 4, 2001, the Company sold its Agtrol U.S. business, a division of
the Company's Phibro-Tech, Inc. subsidiary, to Nufarm, Inc. ("Nufarm"), the U.S.
subsidiary of Nufarm Limited, a publicly listed Australian based company. On
June 14, 2001, the Company sold its Agtrol international business to Nufarm. The
sale included inventory and intangible assets to Nufarm and did not include
plant, equipment, or other manufacturing assets. Phibro-Tech also entered into
agreements to supply copper fungicide products to Nufarm from its Sumter, South
Carolina plant for five years, and from its Bordeaux, France plant for three
years.

The sales price was $27,139, of which the Company received $25,418, in
cash plus a note for $1,225 payable on June 30, 2001. The proceeds of the note
were received on July 18, 2001. The Company is awaiting a payment of $455 for
the international inventory in excess of the inventory at June 30, 2000 and $41
is being held in escrow pending the finalization of the sales agreement for the
Argentina division. The Company recorded a pre-tax gain of $1,457. Approximately
$1,484 of additional gain was deferred and will be recognized over the period of
the related supply agreements.

Revenues for the Agtrol business amounted to $31,333, $54,043 and $47,785
for the years ended June 30, 2001, 2000 and 1999, respectively. Operating
(losses) income for the Agtrol business amounted to $(6,444), $2,599 and $2,670
for the years ended June 30, 2001, 2000 and 1999, respectively.

Odda had a minority equity investment in a local hydroelectric power
company and also held contracts for the purchase of hydroelectric power through
the years 2006 to 2010. As a result of legislative, regulatory and market
developments occurring in Norway since the 1998 acquisition, the Company was
able to sell its investment and related power rights to a Norwegian
"state-governed" power production company in January 2000. The Company realized
net sales proceeds of $18,750 and recorded a pre-tax gain of $13,763.
Approximately $1,300 of additional net gain has been deferred and will be
recognized over the period of a related power purchase contract with the buyer.

In fiscal 2001, Odda sold certain non-operating real property and
recognized a gain of $983.

19. Consolidating Financial Statements

In June 1998 the Company issued $100 million in Senior Subordinated Notes
as described in Note 6. In connection with the issuance of these Notes, the
Company's U.S. Subsidiaries fully and unconditionally guaranteed such Notes on a
joint and several basis. Foreign subsidiaries do not presently guarantee the
Notes.

The following consolidating financial data summarizes the assets,
liabilities and results of operations and cash flows of the Parent, Guarantors
and Non-Guarantor Subsidiaries. The Parent is Philipp Brothers Chemicals, Inc.
("PBC"). The U.S. Guarantor Subsidiaries include all domestic subsidiaries of
PBC including the following: C.P. Chemicals, Inc., Koffolk, Inc., Phibro-Tech,
Inc., MRT Management Corp., Mineral Resource Technologies, L.L.C., Prince
Agriproducts, Inc., The Prince Manufacturing Company (PA), The Prince
Manufacturing Company (IL), Phibrochem, Inc., Phibro Chemicals, Inc., Western
Magnesium Corp., Phibro Animal Health Holdings, Inc. and Phibro Animal Health
U.S., Inc. The U.S. and foreign Guarantor and Non-Guarantor Subsidiaries are
directly or indirectly wholly owned as to voting stock by PBC.

Investments in subsidiaries are accounted for by the Parent using the
equity method. Income tax expense (benefit) is allocated among the consolidating
entities based upon taxable income (loss) by jurisdiction within each group.

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

F-28

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING BALANCE SHEET
As of June 30, 2001
(In Thousands)

------------------------------------------------------------------------------------------------------------------------------------
U.S. Guarantor Foreign Subsidiaries Consolidation Consolidated
Parent Subsidiaries Non-Guarantors Adjustments Balance
------------------------------------------------------------------------------------------------------------------------------------
Assets

Current Assets:

Cash and cash equivalents $ 1,292 $ 1,210 $ 12,343 $ 14,845

Trade receivables 4,624 32,291 40,995 77,910

Other receivables 791 1,913 2,096 4,800
Inventory 2,715 44,050 37,031 83,796
Prepaid expenses and other 5,461 2,745 9,242 17,448
-------------------------------------------------------------------------------
Total current assets 14,883 82,209 101,707 -- 198,799
-------------------------------------------------------------------------------
Property, plant & equipment, net 626 30,143 71,554 102,323

Intangibles 87 1,915 3,830 5,832
Investment in subsidiaries 63,490 1,542 (6,138) (58,894) --
Intercompany 54,322 (22,808) 3,852 (35,366) --
Other assets 93,466 (71,571) 1,170 23,065
-------------------------------------------------------------------------------
Total assets $ 226,874 $ 21,430 $ 175,975 $ (94,260) $ 330,019
===============================================================================

Liabilities and Stockholders' Equity

Current Liabilities:
Cash overdraft $ 13 $ 4,209 $ -- $ 4,222
Loan payable to banks 24,471 -- 3,992 28,463
Current portion of long term debt 2,541 493 2,370 5,404
Accounts payable 1,743 23,359 26,202 51,304
Accrued expenses and other 7,859 11,780 15,739 35,378
-------------------------------------------------------------------------------
Total current liabilities 36,627 39,841 48,303 -- 124,771
-------------------------------------------------------------------------------

Long term debt 127,263 (60,654) 108,221 (35,366) 139,464

Other liabilities 2,129 5,731 5,066 12,926

Redeemable securities:
Series B and C preferred stock 48,980 -- -- 48,980
Common stock 877 -- (499) 378
Common stock of subsidiary -- 95 -- 95
-------------------------------------------------------------------------------
49,857 95 (499) -- 49,453
-------------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid in capital 878 34,041 -- (34,041) 878
Retained earnings 9,741 2,325 22,496 (24,821) 9,741
Accumulated other comprehensive (loss) income-
cumulative currency translation adjustment (144) 19 (7,612) (7,737)
-------------------------------------------------------------------------------
Total stockholders' equity 10,998 36,417 14,884 (58,894) 3,405
-------------------------------------------------------------------------------
Total liabilities and equity $ 226,874 $ 21,430 $ 175,975 $ (94,260) $ 330,019
===============================================================================

F-29

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For The Year Ended June 30, 2001
(In Thousands)

Net sales $ 33,350 214,231 $ 164,600 $ (47,771) $364,410

Cost of goods sold 27,310 154,368 132,364 (47,771) 266,271
--------------------------------------------------------------------------------
Gross profit 6,040 59,863 32,236 -- 98,139

Selling, general, and administrative expenses 15,312 55,463 26,388 97,163
--------------------------------------------------------------------------------
Operating (loss) income (9,272) 4,400 5,848 -- 976

Interest expense 12,623 45 5,629 18,297
Interest income (117) (10) (439) (566)
Other expense 407 (1,530) 1,244 121

Intercompany allocation (16,216) 12,487 3,729 --

Loss (profit) relating to subsidiaries 9,039 -- -- (9,039) --
--------------------------------------------------------------------------------
(Loss) income before income taxes (15,008) (6,592) (4,315) 9,039 (16,876)

Benefit for income taxes (113) (1,170) (698) (1,981)
--------------------------------------------------------------------------------
Net (loss) income $ (14,895) $ (5,422) $ (3,617) $ 9,039 $(14,895)
================================================================================

F-30

PHILIPP BROTHERS CHEMICALS INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 2001
(In Thousands)

Operating activities:
Net (loss) income $ (14,895) $ (5,422) $ (3,617) $ 9,039 $ (14,895)
Adjustments to reconcile net (loss) income
to net cash provided by operating
activities:
Depreciation and amortization 782 5,103 7,947 13,832
Deferred income taxes (4,040) 769 (4,297) (7,568)
Gains from sale of assets -- (1,790) (650) (2,440)
Change in redemption amount of redeemable
common stock (1,512) (356) (1,623) (3,491)
Other 406 1,640 245 2,291

Changes in operating assets and liabilities
net of effect of business acquired:
Accounts receivable 1,549 9,220 (12,178) (1,409)
Inventory 552 (12,831) 10,280 (1,999)
Prepaid expenses and other 2,179 5,803 (2,995) 4,987
Other assets 1,281 (1,411) 2,333 2,203
Intercompany 29,101 (26,301) 6,239 (9,039) --
Accounts payable (397) 8,021 11,845 19,469
Accrued expenses and other (2,186) 380 3,967 2,161
--------------------------------------------------------------------------------
Net cash provided by (used in)
operating activities 12,820 (17,175) 17,496 -- 13,141
--------------------------------------------------------------------------------

Investing activities:
Capital expenditures (251) (9,201) (5,092) (14,544)
Acquisition of a business (51,700) -- - (51,700)
Proceeds from sale of assets -- 25,418 1,052 26,470
Other investing (50) -- (325) (375)
--------------------------------------------------------------------------------
Net cash (used in) provided by
investing activities (52,001) 16,217 (4,365) -- (40,149)
--------------------------------------------------------------------------------

Financing activities:
Cash overdraft (145) 2,905 (106) 2,654
Net decrease in short term debt (3,969) -- (4,037) (8,006)
Proceeds from long term debt 3,800 24 5,539 9,363
Proceeds from issuance of redeemable preferred
stock 45,000 -- - 45,000
Payments of long term debt (32) (862) (4,030) (4,924)
Other financing (4,192) -- - (4,192)
--------------------------------------------------------------------------------
Net cash provided by (used in)
financing activities 40,462 2,067 (2,634) -- 39,895
--------------------------------------------------------------------------------
Effect of exchange rate changes on cash -- 2 (447) (445)
--------------------------------------------------------------------------------
Net increase in cash and cash equivalents 1,281 1,111 10,050 -- 12,442

Cash and cash equivalents at beginning of year 11 99 2,293 2,403
--------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,292 $ 1,210 $ 12,343 $ -- $ 14,845
================================================================================

F-31

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING BALANCE SHEET
As of June 30, 2000
(In Thousands)

Assets

Current Assets:

Cash and cash equivalents $ 11 $ 99 $ 2,293 $ 2,403

Trade receivables 6,172 45,378 27,826 79,376

Other receivables 4,855 550 3,074 8,479
Inventory 3,267 25,072 22,066 50,405
Prepaid expenses and other 3,065 2,443 3,590 9,098
---------------------------------------------------------------------------------
Total current assets 17,370 73,542 58,849 -- 149,761
---------------------------------------------------------------------------------

Property, plant & equipment, net 702 25,032 50,446 76,180

Intangibles 87 2,292 3,918 6,297
Investment in subsidiaries 78,028 1,533 (6,129) (73,432) --
Intercompany 63,874 (32,463) 3,197 (34,608) --
Other assets 15,236 8,542 2,435 26,213
---------------------------------------------------------------------------------

Total assets $ 175,297 $ 78,478 $ 112,716 $(108,040) $ 258,451
=================================================================================

Liabilities and Stockholders' Equity
Current Liabilities:
Cash overdraft $ 158 $ 1,302 $ 660 $ 2,120
Loan payable to banks -- -- 8,650 8,650
Current portion of long term debt 31 893 1,372 2,296
Accounts payable 2,140 14,999 15,503 32,642
Accrued expenses and other 3,892 13,118 7,147 24,157
---------------------------------------------------------------------------------
Total current liabilities 6,221 30,312 33,332 -- 69,865
---------------------------------------------------------------------------------

Long term debt 130,600 1,435 42,295 (34,608) 139,722

Other liabilities 2,022 4,431 6,829 13,282

Redeemable Securities:
Common stock 2,389 -- 1,124 3,513
Common stock of subsidiary -- 451 -- 451
---------------------------------------------------------------------------------
2,389 451 1,124 -- 3,964
---------------------------------------------------------------------------------
Stockholders' Equity
Series A preferred stock 521 -- -- 521
Common stock 2 32 -- (32) 2
Paid in capital 878 34,040 -- (34,040) 878
Retained earnings 32,808 7,747 31,613 (39,360) 32,808
Accumulated other comprehensive income (loss)-
cumulative currency translation adjustment (144) 30 (2,477) (2,591)
---------------------------------------------------------------------------------

Total stockholders' equity 34,065 41,849 29,136 (73,432) 31,618
---------------------------------------------------------------------------------

Total liabilities and equity $ 175,297 $ 78,478 $ 112,716 $(108,040) $ 258,451
=================================================================================

F-32

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended June 30, 2000
(In Thousands)

Net sales $ 35,977 $ 190,171 $ 132,918 $ (36,040) $ 323,026

Cost of goods sold 29,091 136,975 99,104 (36,040) 229,130
---------------------------------------------------------------------------------

Gross profit 6,886 53,196 33,814 -- 93,896

Selling, general, and administrative expenses 12,587 43,546 23,570 79,703

Curtailment of operations at
manufacturing facility -- (1,481) -- (1,481)

---------------------------------------------------------------------------------
Operating (loss) income (5,701) 11,131 10,244 -- 15,674

Interest expense 8,519 198 6,037 14,754
Interest income (19) (2) (579) (600)
Other (income) expense (912) -- 3,142 2,230

Gain from property damage claim -- (946) -- (946)
Gain from sale of asset -- -- (13,763) (13,763)

Intercompany allocation (10,925) 10,860 65 --

(Profit) loss relating to subsidiaries (10,967) -- -- 10,967 --

---------------------------------------------------------------------------------
Income (loss) before income taxes 8,603 1,021 15,342 (10,967) 13,999

(Benefit) provision for income taxes (1,450) 1,020 4,376 -- 3,946

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

Net income (loss) $ 10,053 $ 1 $ 10,966 $ (10,967) $ 10,053
=================================================================================

F-33

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 2000
(In Thousands)

Operating activities:
Net income (loss) $ 10,053 $ 1 $ 10,966 $ (10,967) $ 10,053
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 536 4,224 7,106 11,866
Deferred income taxes (337) (272) 2,047 1,438
Provision for curtailment of operations at
manufacturing facility -- (1,481) -- (1,481)
Gain from property damage claim -- (946) (107) (1,053)
Gain from sale of asset -- -- (13,763) (13,763)
Change in redemption amount of redeemable
securities 13 (130) 1,124 1,007
Other 1,360 350 (983) 727

Changes in operating assets and liabilities
net of effect of business acquired:
Accounts receivable (77) (13,499) 5,295 (8,281)
Inventory 945 1,471 (1,832) 584
Prepaid expenses and other (3,884) 258 1,344 (2,282)
Other assets (1,316) 917 (1,146) (1,545)
Intercompany (21,658) 18,526 (7,835) 10,967 --
Accounts payable 173 687 (4,628) (3,768)
Accrued expenses and other 927 (4,280) 1,942 (1,411)

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

Net cash (used in) provided by operating
activities (13,265) 5,826 (470) -- (7,909)
---------------------------------------------------------------------------------

Investing activities:
Capital expenditures (119) (11,276) (11,209) (22,604)
Proceeds from property damage claim -- 3,999 -- 3,999
Proceeds from sale of asset -- -- 18,750 18,750
Other investing (3,157) -- (1,046) (4,203)

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

Net cash (used in) provided by investing
activities (3,276) (7,277) 6,495 -- (4,058)
---------------------------------------------------------------------------------

Financing activities:
Cash overdraft (119) 1,089 (288) 682
Net increase in short term debt 72 -- 4,117 4,189
Proceeds from long term debt 16,300 1,595 391 18,286
Payments of long term debt (94) (1,300) (10,477) (11,871)
Other financing -- -- 62 62

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

Net cash provided by (used in) financing
activities 16,159 1,384 (6,195) -- 11,348
---------------------------------------------------------------------------------

Net decrease in cash and cash equivalents (382) (67) (170) (619)

Cash and cash equivalents at beginning of year 393 166 2,463 3,022

---------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 11 $ 99 $ 2,293 $ -- $ 2,403
=================================================================================

F-34

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF OPERATIONS
For the Year Ended June 30, 1999
(In Thousands)

Net sales $ 35,490 $ 171,378 $ 129,243 $ (34,054) $302,057

Cost of goods sold 28,545 126,834 101,922 (34,054) 223,247
--------------------------------------------------------------------------------

Gross profit 6,945 44,544 27,321 -- 78,810

Selling, general, and administrative expenses 11,726 37,955 19,274 68,955

Curtailment of operations at
manufacturing facility -- (500) -- (500)

--------------------------------------------------------------------------------
Operating (loss) income (4,781) 7,089 8,047 -- 10,355

Interest expense 6,907 289 5,946 13,142
Interest income (357) -- (271) (628)
Other (income) expense -- (371) 2,200 1,829

Gain from property damage claim -- (3,701) -- (3,701)

Intercompany allocation (9,668) 9,528 140 --

(Profit) loss relating to subsidiaries (342) -- -- 342 --

--------------------------------------------------------------------------------
(Loss) income before income taxes (1,321) 1,344 32 (342) (287)

(Benefit) provision for income taxes (855) 1,285 (251) -- 179

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

Net (loss) income $ (466) $ 59 $ 283 $ (342) $ (466)
================================================================================

F-35

PHILIPP BROTHERS CHEMICALS, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1999
(In Thousands)

Operating activities:
Net (loss) income $ (466) $ 59 $ 283 $ (342) $ (466)
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation and amortization 531 3,953 6,761 11,245
Deferred income taxes (2,771) 2,866 (868) (773)
Provision for curtailment of operations at
manufacturing facility -- (500) -- (500)
Gain from property damage claim -- (3,701) -- (3,701)
Change in redemption of redeemable securities (187) (673) -- (860)
Other (912) (523) 3,079 1,644

Changes in operating assets and liabilities
net of effect of business acquired:
Accounts receivable (405) (3,275) (2,242) (5,922)
Inventory (616) (7,181) 4,247 (3,550)
Prepaid expenses and other 1,783 (2,184) 436 35
Other assets (1,018) (4,113) (2,312) (7,443)
Intercompany (23,227) 14,998 7,887 342 --
Accounts payable (401) 2,513 (2,069) 43
Accrued expenses and other (1,725) 8,165 707 7,147

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

Net cash (used in) provided by operating
activities (29,414) 10,404 15,909 -- (3,101)
-------------------------------------------------------------------------------

Investing activities:
Capital expenditures (219) (6,431) (5,612) (12,262)
Acguisition of businesses, net of cash acquired -- (2,505) (19,000) (21,505)

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

Net cash (used in) provided by investing
activities (219) (8,936) (24,612) -- (33,767)
-------------------------------------------------------------------------------

Financing activities:
Cash overdraft (636) (789) 948 (477)
Net (decrease) increase in short term debt (942) -- 3,169 2,227
Proceeds from long term debt 13,432 82 1,700 15,214
Payments of long term debt (140) (1,523) (12) (1,675)
Other financing -- -- 380 380

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

Net cash provided by (used in) financing
activities 11,714 (2,230) 6,185 -- 15,669
-------------------------------------------------------------------------------

Net decrease in cash and cash equivalents (17,919) (762) (2,518) (21,199)

Cash and cash equivalents at beginning of year 18,312 928 4,981 24,221

-------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 393 $ 166 $ 2,463 $ -- $ 3,022
===============================================================================

F-36

SIGNATURES

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

PHILIPP BROTHERS CHEMICALS, INC.

By: /s/ Jack C. Bendheim
-----------------------------------------
Jack C. Bendheim
President and Chief Executive Officer

Date: October 10, 2001

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 and in the capacities and on the dates indicated.

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

/s/ Jack C. Bendheim October 10, 2001
------------------------------------------------
Jack C. Bendheim
Director, President and Chief Executive Officer
(Principal Executive Officer)

/s/ David C. Storbeck October 10, 2001
------------------------------------------------
David C. Storbeck
Vice President and Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)

/s/ Marvin S. Sussman October 10, 2001
------------------------------------------------
Marvin S. Sussman
Director, Chief Operating Officer
and Executive Vice President

/s/ James O. Herlands October 10, 2001
------------------------------------------------
James O. Herlands
Director and Executive Vice President

II-1