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BASIS OF PRESENTATION: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the nine-month period ended September 28, 2002, are not necessarily indicative of the results that may be expected for the year ending December 28, 2002. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the period ended December 29, 2001.

CHANGE IN ACCOUNTING PRINCIPLE: In June 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards No. 141, Business Combinations, and No. 142, Goodwill and Other Intangible Assets ("Statements") effective for fiscal years beginning after December 15, 2001. Under the new rules, goodwill and intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the Statements. Other intangible assets will continue to be amortized over their useful lives. The Company applied the new standards on accounting for goodwill and other intangible assets during the first nine months of 2002, which resulted in a one-time charge of $235,000, or $.04 per share, representing the cumulative effect of a change in accounting principle, recorded as a restatement in the first quarter and included in the year-to-date numbers. If the application of the non-amortization provisions of the State ments had been adopted as of the first quarter of 2001, net income and earnings per share would have increased by $28,000, or less than $.01 per share, and $83,000, or $.01 per share, for the three and nine months ended September 29, 2001, respectively.

Inventories are stated at the lower of cost (first-in, first-out method) or market. An inventory charge of $2,471,000 was recorded in the second quarter of 2002, $1,800,000 for the Colors Group and $671,000 for the Metals Segment. The Company has historically sold off excess inventory slowly to avoid distressed pricing that would be required to dispose of the excess inventory more quickly. With the price erosion that occurred over the first six months of the year and weak business conditions that currently exist, excess inventories were not reduced as much as planned. Therefore, excess inventories were written down to reflect management's estimate of the values that can be realized under a plan to dispose of excess inventories as quickly as feasible.

The Company is from time to time subject to various claims, other possible legal actions for product liability and other damages, and other matters arising out of the normal conduct of the Company's business. Management believes that based on present information, it is unlikely that liability, if any, exists that would have a materially adverse effect on the consolidated operating results or financial position of the Company.

Comprehensive (loss) and income was ($3,744,000) and ($4,950,000) for the three and nine months ended September 28, 2002, respectively, and ($273,000) and $142,000 for the three and nine months ended September 29, 2001, respectively. Comprehensive income consists of net income less unrealized gains and (losses) on the Company's foreign equity investment, of $0 and ($48,000), net of deferred taxes of $0 and tax benefit of $26,000, for the three and nine months ended September 28, 2002, respectively, and $20,000 and $3,000, net of deferred income taxes of $7,000 and $1,000 for the three and nine months ended September 29, 2001, respectively, and is recorded in Shareholders' Equity.

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On July 26, 2002, the Company entered into a new Credit Agreement with a new bank to provide a $19,000,000 line of credit expiring on July 25, 2004, and refinanced the Company's notes payable and long term debt replacing the existing bank indebtedness. Although the line of credit does not expire until 2004, the Company anticipates reducing the amount owed under the line of credit to approximately $10,000,000 over the next twelve months and has therefore classified $2,827,000 as a current liability. Current interest rates are prime plus .25 percent or LIBOR plus 2.75 percent, and can vary based on EBITDA performance from prime to prime plus .75 percent and LIBOR plus 2.50 percent to LIBOR plus 3.25 percent. Borrowings under the Agreement are limited to a borrowing base calculation including eligible accounts receivable, inventories, and cash surrender value of the Company's life insurance as defined in the Agreement. As of September 28, 2002, the amount available for borrowing was $16,5 00,000 of which $12,827,000 was borrowed leaving $3,673,000 of availability. Covenants include, among others, maintaining certain EBITDA and tangible net worth amounts, and restrictions on the payment of dividends.

In August 2001, the FASB issued Statements of Financial Accounting Standards No. 144, Accounting for the Impairment or disposal of Long-Lived Assets, effective for fiscal years beginning after December 15, 2001. The Company completed an impairment assessment on the plant and equipment located at Spartanburg, S.C., and at the end of the second quarter of 2002, recorded a $2,267,000 impairment loss on the plant and equipment, $1,786,000 related to the Colors Group and $481,000 to the Specialty Chemicals Group. The impairment loss was calculated based on the excess of the carrying amount of the long-lived assets over their fair value. Management utilized its best estimate to determine fair values including market conditions, experience in acquiring and disposing of similar plant and equipment, and estimates of future cash flows, to test for recoverability of the long-lived assets. After completing an analysis of the business at the site and exploring other options that were available, it became apparent that the facility could not adequately recover the fixed costs related to the facility under current business conditions. Accordingly, a write-down of the plant and equipment was recorded.

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The following is management's discussion of certain significant factors that affected the Company during the quarter ended September 28, 2002.

Consolidated sales for the quarter and year to date were down, decreasing five and nine percent, respectively, compared to the same periods one year ago. However, the Company reported $42,000 of consolidated net income for the quarter, or $.01 per share compared to a $293,000 net loss, or $.05 per share for the same period one year ago. The Company experienced a $4,860,000 net loss, or $.81 per share, year to date compared to net income of $139,000, or $.02 per share for the same period last year. Excluding charges discussed below, the net loss year to date for 2002 was $ $1,492,000, or $.25 per share.

Sales in the Colors Group declined 17 percent and 18 percent for the quarter and year to date, respectively, from the same periods last year because of lower sales prices for dyes. After experiencing four consecutive quarters of operating losses, the Group had $77,000 of operating income for the quarter. The operating income reflects improved market conditions and the Group's efforts to lower operating expenses and material costs in its dye business over the past six months. Pigment colors continued to generate a small operating profit for the quarter consistent with the first six months. The year-to-date operating loss, before write-downs discussed below, occurred partly from the reduction of excess inventories and unabsorbed operating costs incurred in the first two quarters of 2002. Demand for textile dyes has returned to more normal levels than the extremely low levels experienced in the fourth quarter of 2001 and first two quarters of 2002. Pounds sold have increased by more than 20 p ercent over the preceding quarter for the second and third quarters reflecting increases in overall demand and market share. The combination of the cost savings and volume increases has resulted in increased profitability incrementally over the first three quarters of 2002. At the end of the second quarter, the Company recorded inventory and plant and equipment writedowns as discussed below. At the beginning of September, the Group implemented additional cost reductions including reductions of personnel and non-critical operating expense items. Management believes that the writedowns and cost reductions have lowered operating costs to levels that should allow the Group to operate at break even or better under current levels of sales and material costs, although there