##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549


Form 10-Q


|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934 
|  
|   |  | For the quarterly period ended March 31, 2006                                               
|  
|or
|  
|o  |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934

Commission File Number
333-64641


Phibro Animal Health Corporation


(Exact name of registrant as specified in its charter)


|                                                                                            |  |                                         
|------------------------------------------------------------------------------------------- |  | ----------------------------------------
|New York                                                                                    |  | 13-1840497                              
|(State or other jurisdiction of
    incorporation or organization)                          |  | (I.R.S. Employer
    Identification No.)
|                                                                                           
|65 Challenger Road,
    Ridgefield Park, New Jersey(Address of principal executive offices) |  | 07660(Zip Code)                         

(201) 329-7300


(Registrants telephone number, including area code)


þ o


12b-2


o o þ


12b-2 o þ




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


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










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##### 










PHIBRO ANIMAL HEALTH CORPORATION


TABLE OF CONTENTS


|                                                               |  |                                                                                           |  |     
|-------------------------------------------------------------- |  | ----------------------------------------------------------------------------------------- |  | ----
|                                                               |  |                                                                                           |  | Page
|                                                               |  |                                                                                           |  |     
|PART I FINANCIAL INFORMATION                                  
|Item 1.                                                        |  | Condensed Consolidated Financial Statements
    (Unaudited)                               |  | 3   
|                                                               |  | Condensed Consolidated Balance Sheets                                                     |  | 4   
|                                                               |  | Condensed Consolidated Statements of
    Operations and Comprehensive Income (Loss)       |  | 5   
|                                                               |  | Condensed Consolidated Statements of
    Changes in Stockholders Deficit                 |  | 6   
|                                                               |  | Condensed Consolidated Statements of Cash
    Flows                                       |  | 7   
|                                                               |  | Notes to Condensed Consolidated Financial
    Statements                                  |  | 8   
|Item 2.                                                        |  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations |  | 28  
|Item 3.                                                        |  | Quantitative and Qualitative Disclosures
    About Market Risk                            |  | 37  
|Item 4.                                                        |  | Controls and Procedures                                                                   |  | 37  
|                                                              
|PART II OTHER INFORMATION                                     
|Item 1.                                                        |  | Legal Proceedings                                                                         |  | 38  
|Item 5.                                                        |  | Other Information                                                                         |  | 38  
|Item 6.                                                        |  | Exhibits                                                                                  |  | 38  
|SIGNATURES                                                     |  | 39                                                                                       
|EX-10.27.7: AMENDMENT NO. 7 TO THE LOAN AND SECURITY AGREEMENT
|EX-31.1: CERTIFICATION                                        
|EX-31.2: CERTIFICATION                                        
|EX-31.3: CERTIFICATION                                        
|EX-32: CERTIFICATIONS                                         



2



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##### Table of Contents



10-Q 10-K 10-Q 10-Q





PART I  FINANCIAL INFORMATION







|        |                                                            
|------- | -----------------------------------------------------------
|Item 1. | Condensed Consolidated Financial Statements
    (Unaudited)

3



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS


|                                      |                                                |                                                                             |         |         |          |   |         |         |         |  
|------------------------------------- | ---------------------------------------------- | --------------------------------------------------------------------------- | ------- | ------- | -------- | - | ------- | ------- | ------- | -
|                                      |                                                | March 31,                                                                   |         |         | June 30, |  
|                                      |                                                | 2006                                                                        |         |         | 2005     |  
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | (Unaudited)                                                                 |        
|                                      |                                                | (In thousands)                                                              |        
|ASSETS                               
|Current assets                        |                                                |                                                                             |         |         |          |   |         |        
|                                      | Cash and cash equivalents                      |                                                                             | $       | 9,752   |          |   | $       | 13,001  |        
|                                      | Accounts receivable, net                       |                                                                             |         | 60,009  |          |   |         | 56,417  |        
|                                      | Inventories                                    |                                                                             |         | 93,911  |          |   |         | 96,621  |        
|                                      | Prepaid expenses and other current assets      |                                                                             |         | 10,832  |          |   |         | 12,787  |        
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total current assets                                                        |         |         | 174,504  |   |         |         | 178,826 |  
|Property, plant and equipment, net    |                                                |                                                                             | 48,972  |         |          |   | 49,960  |        
|Intangibles, net                      |                                                |                                                                             | 9,096   |         |          |   | 10,201  |        
|Other assets                          |                                                |                                                                             | 11,234  |         |          |   | 14,070  |        
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total assets                                                                |         | $       | 243,806  |   |         | $       | 253,057 |  
|                                      |                                                |                                                                             |         |         |          |  
|                                     
|LIABILITIES AND STOCKHOLDERS DEFICIT
|Current liabilities                   |                                                |                                                                             |         |         |          |   |         |        
|                                      | Loans payable to banks                         |                                                                             | $       |        |          |   | $       | 8,038   |        
|                                      | Current portion of long-term debt              |                                                                             |         | 223     |          |   |         | 1,625   |        
|                                      | Accounts payable                               |                                                                             |         | 38,781  |          |   |         | 36,537  |        
|                                      | Accrued expenses and other current liabilities |                                                                             |         | 53,985  |          |   |         | 53,815  |        
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total current liabilities                                                   |         |         | 92,989   |   |         |         | 100,015 |  
|Long-term debt                        |                                                |                                                                             | 176,451 |         |          |   | 176,501 |        
|Other liabilities                     |                                                |                                                                             | 23,231  |         |          |   | 21,465  |        
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total liabilities                                                           |         |         | 292,671  |   |         |         | 297,981 |  
|                                      |                                                |                                                                             |         |         |          |  
|Commitments and contingencies         |                                                |                                                                             |         |         |          |   |         |        
|Stockholders deficit                 |                                                |                                                                             |         |         |          |   |         |        
|                                      | Preferred stock                                |                                                                             |         | 521     |          |   |         | 521     |        
|                                      | Common stock                                   |                                                                             |         | 2       |          |   |         | 2       |        
|                                      | Paid-in capital                                |                                                                             |         | 27,260  |          |   |         | 27,260  |        
|                                      | Accumulated deficit                            |                                                                             |         | (80,544 | )        |   |         | (74,379 | )      
|                                      | Accumulated other comprehensive income         |                                                                             |         |         |          |   |         |         |        
|                                      |                                                | Gain on derivative instruments, net of income taxes                         |         |         | 79       |   |         |         | 123     |  
|                                      |                                                | Cumulative foreign currency translation adjustment, net of
    income taxes |         |         | 3,817    |   |         |         | 1,549   |  
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total stockholders deficit                                                 |         |         | (48,865  | ) |         |         | (44,924 | )
|                                      |                                                |                                                                             |         |         |          |  
|                                      |                                                | Total liabilities and stockholders deficit                                 |         | $       | 243,806  |   |         | $       | 253,057 |  
|                                      |                                                |                                                                             |         |         |          |  



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND


COMPREHENSIVE INCOME (LOSS)


|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |        |   |   |         |         |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | ------------------ | ------- | ------ | ----------------- | - | ------ | ------ | - | - | ------- | ------ | - | - | ------- | ------- | -
|                                                                                                                                                                                                                                                        |                                                                            | Three Months Ended |         |        | Nine Months Ended |  
|                                                                                                                                                                                                                                                        |                                                                            | March 31,          |         |        | March 31,         |  
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |  
|                                                                                                                                                                                                                                                        |                                                                            | 2006               |         |        | 2005              |   |        | 2006   |   |   | 2005    |       
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        |                                                                            | (Unaudited)        |        
|                                                                                                                                                                                                                                                        |                                                                            | (In thousands)     |        
|Net sales                                                                                                                                                                                                                                               |                                                                            | $                  | 100,905 |        |                   | $ | 90,255 |        |   | $ | 293,211 |        |   | $ | 269,169 |        
|Cost of goods sold (includes Belgium Plant Transactions costs of
    $975 and $4,372 for the three months ended March 31, 2006
    and 2005, respectively, and $10,211 and $13,908 for the nine
    months ended March 31, 2006 and 2005, respectively) |                                                                            |                    | 76,442  |        |                   |   | 71,504 |        |   |   | 229,343 |        |   |   | 214,682 |        
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Gross profit                                                               |                    |         | 24,463 |                   |   |        | 18,751 |   |   |         | 63,868 |   |   |         | 54,487  |  
|Selling, general and administrative expenses                                                                                                                                                                                                            |                                                                            |                    | 17,527  |        |                   |   | 17,019 |        |   |   | 49,372  |        |   |   | 49,771  |        
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Operating income                                                           |                    |         | 6,936  |                   |   |        | 1,732  |   |   |         | 14,496 |   |   |         | 4,716   |  
|Interest expense                                                                                                                                                                                                                                        |                                                                            |                    | 6,726   |        |                   |   | 6,757  |        |   |   | 19,183  |        |   |   | 18,656  |        
|Interest (income)                                                                                                                                                                                                                                       |                                                                            |                    | (53     | )      |                   |   | (19    | )      |   |   | (259    | )      |   |   | (77     | )      
|Other (income) expense, net                                                                                                                                                                                                                             |                                                                            |                    | 31      |        |                   |   | 77     |        |   |   | (2,561  | )      |   |   | (691    | )      
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Income (loss) from continuing operations before income taxes               |                    |         | 232    |                   |   |        | (5,083 | ) |   |         | (1,867 | ) |   |         | (13,172 | )
|Provision for income taxes                                                                                                                                                                                                                              |                                                                            |                    | 1,591   |        |                   |   | 773    |        |   |   | 4,298   |        |   |   | 699     |        
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | (Loss) from continuing operations                                          |                    |         | (1,359 | )                 |   |        | (5,856 | ) |   |         | (6,165 | ) |   |         | (13,871 | )
|Income from discontinued operations, net of income taxes                                                                                                                                                                                                |                                                                            |                    |        |        |                   |   | 272    |        |   |   |        |        |   |   | 575     |        
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Net (loss)                                                                 |                    |         | (1,359 | )                 |   |        | (5,584 | ) |   |         | (6,165 | ) |   |         | (13,296 | )
|Other comprehensive income (loss):                                                                                                                                                                                                                      |                                                                            |                    |         |        |                   |   |        |        |   |   |         |        |   |   |         |        
|                                                                                                                                                                                                                                                        | Change in derivative instruments, net of income taxes                      |                    |         | 76     |                   |   |        | (27    | ) |   |         | (44    | ) |   |         | 295     |  
|                                                                                                                                                                                                                                                        | Change in foreign currency translation adjustment, net of income
    taxes |                    |         | 2,482  |                   |   |        | (1,207 | ) |   |         | 2,268  |   |   |         | 7,104   |  
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Comprehensive income (loss)                                                |                    | $       | 1,199  |                   |   | $      | (6,818 | ) |   | $       | (3,941 | ) |   | $       | (5,897  | )
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Net (loss)                                                                 |                    |         | (1,359 | )                 |   |        | (5,584 | ) |   |         | (6,165 | ) |   |         | (13,296 | )
|Excess of the reduction of Series B and C preferred stock
    over total assets divested and costs and liabilities incurred on
    the Prince Transactions                                                                                              |                                                                            |                    |        |        |                   |   | 4,000  |        |   |   |        |        |   |   | 4,973   |        
|Dividends and equity value adjustment on Series C preferred
    stock                                                                                                                                                                                   |                                                                            |                    |        |        |                   |   | (3,582 | )      |   |   |        |        |   |   | (1,723  | )      
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       
|                                                                                                                                                                                                                                                        | Net (loss) attributable to common stockholders                             |                    | $       | (1,359 | )                 |   | $      | (5,166 | ) |   | $       | (6,165 | ) |   | $       | (10,046 | )
|                                                                                                                                                                                                                                                        |                                                                            |                    |         |        |                   |   |        |        |   |   |         |       



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS DEFICIT


For the Three Months and Nine Months Ended March 31,
2006


|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       |        |   |   |         |        |  
|-------------------------------- | -------------------------------------------------------------------------- | -------------- | --- |  | ------------ | - | - | ------- |  | ----------- | ----------- | ----- |  | ------------- | ------ |  | ------------- | - | ------- | ------ | - | - | ----- | ------ | - | - | ------- | ------ | -
|                                 |                                                                            |                |     |  |              |   |   |         |  | Accumulated |             |       | 
|                                 |                                                                            | Preferred      |     |  | Common Stock |   |   |         |  |             |             | Other |  |               |       
|                                 |                                                                            | Stock          |     |  |              |   |   | Paid-in |  |             | Accumulated |       |  | Comprehensive |        |  |              
|                                 |                                                                            | Series A       |     |  | Class A      |   |   | Class B |  |             | Capital     |       |  | Deficit       |        |  | Income (Loss) |   |         | Total  |  
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|                                 |                                                                            | (Unaudited)    |    
|                                 |                                                                            | (In thousands) |    
|Balance as of June 30, 2005      |                                                                            | $              | 521 |  |              | $ | 1 |         |  | $           | 1           |       |  | $             | 27,260 |  |               | $ | (74,379 | )      |   | $ | 1,672 |        |   | $ | (44,924 | )     
|                                 | Change in derivative instruments, net of income taxes                      |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | 100    |   |   |         | 100    |  
|                                 | Change in foreign currency translation adjustment, net of income
    taxes |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | 2,040  |   |   |         | 2,040  |  
|                                 | Net (loss)                                                                 |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         | (2,791 | ) |   |       |        |   |   |         | (2,791 | )
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|Balance as of September 30, 2005 |                                                                            | $              | 521 |  |              | $ | 1 |         |  | $           | 1           |       |  | $             | 27,260 |  |               | $ | (77,170 | )      |   | $ | 3,812 |        |   | $ | (45,575 | )     
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|                                 | Change in derivative instruments, net of income taxes                      |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | (220   | ) |   |         | (220   | )
|                                 | Change in foreign currency translation adjustment, net of income
    taxes |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | (2,254 | ) |   |         | (2,254 | )
|                                 | Net (loss)                                                                 |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         | (2,015 | ) |   |       |        |   |   |         | (2,015 | )
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|Balance as of December 31, 2005  |                                                                            | $              | 521 |  |              | $ | 1 |         |  | $           | 1           |       |  | $             | 27,260 |  |               | $ | (79,185 | )      |   | $ | 1,338 |        |   | $ | (50,064 | )     
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|                                 | Change in derivative instruments, net of income taxes                      |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | 76     |   |   |         | 76     |  
|                                 | Change in foreign currency translation adjustment, net of income
    taxes |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |   |   |       | 2,482  |   |   |         | 2,482  |  
|                                 | Net (loss)                                                                 |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         | (1,359 | ) |   |       |        |   |   |         | (1,359 | )
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  
|Balance as of March 31, 2006     |                                                                            | $              | 521 |  |              | $ | 1 |         |  | $           | 1           |       |  | $             | 27,260 |  |               | $ | (80,544 | )      |   | $ | 3,896 |        |   | $ | (48,865 | )     
|                                 |                                                                            |                |     |  |              |   |   |         |  |             |             |       |  |               |        |  |               |   |         |        |  



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |        |       |         |        |         |  
|------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | ------- | ------- | ------ | ----- | ------- | ------ | ------- | -
|                                                 |                                                                                                                     | Nine Months Ended                                                                                                                                                                                  |                                             
|                                                 |                                                                                                                     | March 31,                                                                                                                                                                                          |                                             
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                             
|                                                 |                                                                                                                     | 2006                                                                                                                                                                                               |                                              |         | 2005    |       
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 |                                                                                                                     | (Unaudited)                                                                                                                                                                                        |                                             
|                                                 |                                                                                                                     | (In thousands)                                                                                                                                                                                     |                                             
|OPERATING ACTIVITIES                             |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |        |       |        
|                                                 | Net (loss)                                                                                                          |                                                                                                                                                                                                    | $                                            | (6,165  | )       |        | $     | (13,296 | )     
|                                                 | Adjustment for discontinued operations                                                                              |                                                                                                                                                                                                    |                                              |        |         |        |       | (575    | )     
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 | (Loss) from continuing operations                                                                                   |                                                                                                                                                                                                    |                                              | (6,165  | )       |        |       | (13,871 | )     
|                                                 | Adjustments to reconcile (loss) from continuing operations to
    net cash provided (used) by operating activities: |                                                                                                                                                                                                    |                                              |         |         |        |       |         |       
|                                                 |                                                                                                                     | Depreciation and amortization (includes accelerated depreciation
    from the Belgium Plant Transactions of $4,533 and $3,628 for the
    nine months ended March 31, 2006 and 2005, respectively) |                                              |         | 11,849  |        |       |         | 11,586 |        
|                                                 |                                                                                                                     | Amortization of deferred financing costs                                                                                                                                                           |                                              |         | 2,486   |        |       |         | 2,130  |        
|                                                 |                                                                                                                     | Deferred income taxes                                                                                                                                                                              |                                              |         | (424    | )      |       |         | (202   | )      
|                                                 |                                                                                                                     | Net gain from sales of assets                                                                                                                                                                      |                                              |         | (464    | )      |       |         | (789   | )      
|                                                 |                                                                                                                     | Effects of changes in foreign currency                                                                                                                                                             |                                              |         | (226    | )      |       |         | (760   | )      
|                                                 |                                                                                                                     | Other                                                                                                                                                                                              |                                              |         | (428    | )      |       |         | 430    |        
|                                                 |                                                                                                                     | Changes in operating assets and liabilities:                                                                                                                                                       |                                              |         |         |        |       |         |        |        
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Accounts receivable                          |         |         | (4,041 | )     |         |        | 4,460   |  
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Inventories                                  |         |         | 4,006  |       |         |        | (16,378 | )
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Prepaid expenses and other current assets    |         |         | 2,845  |       |         |        | 1,647   |  
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Other assets                                 |         |         | 121    |       |         |        | (618    | )
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Accounts payable                             |         |         | 2,173  |       |         |        | (11,378 | )
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Accrued expenses and other liabilities       |         |         | (1,984 | )     |         |        | 9,120   |  
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Accrued expenses: non-completed transaction  |         |         |       |       |         |        | (3,970  | )
|                                                 |                                                                                                                     |                                                                                                                                                                                                    | Accrued expenses: Belgium Plant Transactions |         |         | (1,608 | )     |         |        | 10,280  |  
|                                                 | Cash provided (used) by discontinued operations                                                                     |                                                                                                                                                                                                    |                                              |        |         |        |       | 808     |       
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 |                                                                                                                     | Net cash provided (used) by operating activities                                                                                                                                                   |                                              |         | 8,140   |        |       |         | (7,505 | )      
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|INVESTING ACTIVITIES                             |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |        |       |        
|                                                 | Capital expenditures                                                                                                |                                                                                                                                                                                                    |                                              | (11,244 | )       |        |       | (5,098  | )     
|                                                 | Proceeds from Belgium Plant Transactions                                                                            |                                                                                                                                                                                                    |                                              | 7,997   |         |        |       |        |       
|                                                 | Proceeds from sales of assets                                                                                       |                                                                                                                                                                                                    |                                              | 1,934   |         |        |       | 1,353   |       
|                                                 | Other investing                                                                                                     |                                                                                                                                                                                                    |                                              | (106    | )       |        |       | (119    | )     
|                                                 | Discontinued operations                                                                                             |                                                                                                                                                                                                    |                                              |        |         |        |       | (93     | )     
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 |                                                                                                                     | Net cash (used) by investing activities                                                                                                                                                            |                                              |         | (1,419  | )      |       |         | (3,957 | )      
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|FINANCING ACTIVITIES                             |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |        |       |        
|                                                 | Net increase (decrease) in book overdrafts                                                                          |                                                                                                                                                                                                    |                                              | (27     | )       |        |       | 1,930   |       
|                                                 | Net (decrease) in short-term debt                                                                                   |                                                                                                                                                                                                    |                                              | (8,038  | )       |        |       | (7,049  | )     
|                                                 | Proceeds from long-term debt                                                                                        |                                                                                                                                                                                                    |                                              |        |         |        |       | 24,292  |       
|                                                 | Payments of long-term debt and capital leases                                                                       |                                                                                                                                                                                                    |                                              | (2,005  | )       |        |       | (3,913  | )     
|                                                 | Proceeds from capital contribution by PAHC Holdings Corporation                                                     |                                                                                                                                                                                                    |                                              |        |         |        |       | 26,400  |       
|                                                 | Redemption of Series C preferred stock                                                                              |                                                                                                                                                                                                    |                                              |        |         |        |       | (26,400 | )     
|                                                 | Debt financing costs                                                                                                |                                                                                                                                                                                                    |                                              |        |         |        |       | (2,027  | )     
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 |                                                                                                                     | Net cash provided (used) by financing activities                                                                                                                                                   |                                              |         | (10,070 | )      |       |         | 13,233 |        
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|Effect of exchange rate changes on cash          |                                                                                                                     |                                                                                                                                                                                                    | 100                                          |         |         |        | 66    |        
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|                                                 |                                                                                                                     | Net increase (decrease) in cash and cash equivalents                                                                                                                                               |                                              |         | (3,249  | )      |       |         | 1,837  |        
|Cash and cash equivalents at beginning of period |                                                                                                                     |                                                                                                                                                                                                    | 13,001                                       |         |         |        | 5,568 |        
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|Cash and cash equivalents at end of period       |                                                                                                                     | $                                                                                                                                                                                                  | 9,752                                        |         |         | $      | 7,405 |        
|                                                 |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |       
|Supplemental Cash Flow Information               |                                                                                                                     |                                                                                                                                                                                                    |                                              |         |         |        |       |        
|                                                 | Interest paid                                                                                                       |                                                                                                                                                                                                    | $                                            | 11,552  |         |        | $     | 10,431  |       
|                                                 | Income taxes paid                                                                                                   |                                                                                                                                                                                                    |                                              | 2,814   |         |        |       | 1,130   |       
|                                                 | Capital lease additions                                                                                             |                                                                                                                                                                                                    |                                              | 522     |         |        |       |        |       



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)


(In Thousands)




|   |        
|-- | -------
|1. | General



| |                                                          
| | ---------------------------------------------------------
| | Principles of Consolidation and Basis of
    Presentation









10-K




| |                                   
| | ----------------------------------
| | Risks, Uncertainties and Liquidity

7 8




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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)














| |                              
| | -----------------------------
| | New Accounting Pronouncements





| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Statement of Financial Accounting Standards No. 151,
    Inventory Costs, an amendment to Accounting Research
    Bulletin No. 43, Chapter 4
    (SFAS No. 151). SFAS No. 151
    amends the guidance in ARB No. 43, Chapter 4,
    Inventory Pricing to clarify the accounting for
    abnormal amounts of idle facility expense, freight, handling
    costs, and wasted material (spoilage). Paragraph 5 of ARB
    No. 43, Chapter 4, previously stated
    . . .under some circumstances, items such as
    idle facility expense, excessive spoilage, double freight, and
    rehandling costs may be so abnormal as to require treatment as
    current period charges. . ..
    SFAS No. 151 requires that those items be recognized
    as current period charges regardless of whether they meet the
    criterion of so abnormal. In addition,
    SFAS No. 151 requires that allocation of fixed
    production overheads to the costs of conversion be based on the
    normal capacity of the production facilities.
    SFAS No. 151 is effective for inventory costs incurred
    during fiscal years beginning after June 30, 2005 and the
    provisions of this statement shall be applied prospectively. The
    adoption of SFAS No. 151 did not impact the
    Companys financial statements.
|
| | Statement of Financial Accounting Standards No. 153,
    Exchanges of Nonmonetary Assets, an amendment of APB
    Opinion No. 29 (SFAS No. 153).
    SFAS No. 153 amends APB Opinion No. 29 to
    eliminate the exception for nonmonetary exchanges of similar
    productive assets and replaces it with a general exception for
    exchanges of nonmonetary assets that do not have commercial
    substance. A nonmonetary exchange has commercial substance if
    the future cash flows of the entity are expected to change
    significantly as a result of the exchange.
    SFAS No. 153 is effective for nonmonetary asset
    exchanges occurring in fiscal periods beginning after
    June 15, 2005. The provisions of this statement shall be
    applied prospectively. The adoption of SFAS No. 153
    did not impact the Companys financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                              

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | FASB Interpretation No. 47, Accounting for
    Conditional Asset Retirement Obligations
    (FIN No. 47). FIN No. 47
    clarifies that the term conditional asset retirement
    obligation as used in FASB Statement No. 143,
    Accounting for Asset Retirement Obligations
    (ARO) refers to a legal obligation to perform
    an asset retirement activity in which the timing and/or method
    of settlement are conditional on a future event that may or may
    not be within the control of the entity. The obligation to
    perform the asset retirement activity is unconditional even
    though uncertainty exists about the timing and/or method of
    settlement. Thus, the timing and/or method of settlement may be
    conditional on a future event. Accordingly, an entity is
    required to recognize a liability for the fair value of a
    conditional ARO if the fair value of the liability can be
    reasonably estimated. The fair value of a liability for the
    conditional ARO should be recognized when incurred; generally
    upon acquisition, construction, or development and/or through
    the normal operation of the asset. Uncertainty about the timing
    and/or method of settlement of a conditional ARO should be
    factored into the measurement of the liability when sufficient
    information exists. FIN No. 47 also clarifies when an
    entity would have sufficient information to reasonably estimate
    the fair value of an ARO. FIN No. 47 is effective no
    later than the end of fiscal years ending after
    December 15, 2005. The Company anticipates that the
    adoption of FIN No. 47 will not result in a material impact
    on the Companys financial statements.

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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                          
|-- | -------------------------
|2. | Balance Sheet Information

|                                      |  |                |         |  |               |   |         | 
|------------------------------------- |  | -------------- | ------- |  | ------------- | - | ------- | 
|                                      |  | As of          |        
|                                      |  |                |        
|                                      |  | March 31, 2006 |         |  | June 30, 2005 |  
|                                      |  |                |         |  |               |  
|Accounts receivable, net              |  |                |         |  |               |   |         | 
|Trade accounts receivable             |  | $              | 58,325  |  |               | $ | 54,178  | 
|Less: allowance for doubtful accounts |  |                | 1,307   |  |               |   | 1,372   | 
|                                      |  |                |         |  |               |  
|Trade accounts receivable, net        |  |                | 57,018  |  |               |   | 52,806  | 
|Other receivables                     |  |                | 2,991   |  |               |   | 3,611   | 
|                                      |  |                |         |  |               |  
|Total                                 |  | $              | 60,009  |  |               | $ | 56,417  | 
|                                      |  |                |         |  |               |  
|Inventories                           |  |                |         |  |               |   |         | 
|Raw materials                         |  | $              | 19,816  |  |               | $ | 23,703  | 
|Work-in-process                       |  |                | 869     |  |               |   | 434     | 
|Finished goods                        |  |                | 73,226  |  |               |   | 72,484  | 
|                                      |  |                |         |  |               |  
|Total                                 |  | $              | 93,911  |  |               | $ | 96,621  | 
|                                      |  |                |         |  |               |  
|Property, plant and equipment, net    |  |                |         |  |               |   |         | 
|Land                                  |  | $              | 4,225   |  |               | $ | 6,250   | 
|Buildings and improvements            |  |                | 21,472  |  |               |   | 25,967  | 
|Machinery and equipment               |  |                | 101,129 |  |               |   | 108,762 | 
|                                      |  |                |         |  |               |  
|                                      |  |                | 126,826 |  |               |   | 140,979 | 
|Less: accumulated depreciation        |  |                | 77,854  |  |               |   | 91,019  | 
|                                      |  |                |         |  |               |  
|Total                                 |  | $              | 48,972  |  |               | $ | 49,960  | 
|                                      |  |                |         |  |               |  
|Intangibles, net                      |  |                |         |  |               |   |         | 
|Cost                                  |  | $              | 14,918  |  |               | $ | 14,907  | 
|Less: accumulated amortization        |  |                | 5,822   |  |               |   | 4,706   | 
|                                      |  |                |         |  |               |  
|Total                                 |  | $              | 9,096   |  |               | $ | 10,201  | 
|                                      |  |                |         |  |               |  







|   |                           
|-- | --------------------------
|3. | Belgium Plant Transactions



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


cleaning-up








|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |   |        |   |  |   |        |  
|-------------------------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ----- | ------------ |  | - | --------- | - |  | --------- | --- |  | ---------- | - | ------ | - |  | - | ------ | -
|                                                                     |  | Belgium Plant Transactions Costs |       
|                                                                     |  |                                  |       
|                                                                     |  | Twelve                           |        |  |                    |   | Nine  |              |  |  
|                                                                     |  | Months                           |        |  | Three Months Ended |   |       | Months       |  |   |          
|                                                                     |  | Ended                            |        |  |                    |   |       | Ended        |  |   |          
|                                                                     |  | June 30,                         |        |  | September 30,      |   |       | December 31, |  |   | March 31, |   |  | March 31, |     |  | Cumulative |  
|                                                                     |  | 2005                             |        |  | 2005               |   |       | 2005         |  |   | 2006      |   |  | 2006      |     |  | Total      |  
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  
|Incremental depreciation                                             |  | $                                | 7,467  |  |                    | $ | 2,747 |              |  | $ | 1,786     |   |  | $         |    |  |            | $ | 4,533  |   |  | $ | 12,000 |  
|Employee termination expenses                                        |  |                                  | 12,808 |  |                    |   | 287   |              |  |   | 699       |   |  |           |    |  |            |   | 986    |   |  |   | 13,794 |  
|Other transaction-related expenses                                   |  |                                  | 1,916  |  |                    |   | 979   |              |  |   | 3,759     |   |  |           | 975 |  |            |   | 5,713  |   |  |   | 7,629  |  
|Net (gain) on the curtailment and settlement of the pension
    plan |  |                                  |       |  |                    |   |      |              |  |   | (432      | ) |  |           |    |  |            |   | (432   | ) |  |   | (432   | )
|(Gain) on the sale of the Belgium Plant and excess land              |  |                                  |       |  |                    |   | (510  | )            |  |   | (79       | ) |  |           |    |  |            |   | (589   | ) |  |   | (589   | )
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  
|                                                                     |  | $                                | 22,191 |  |                    | $ | 3,503 |              |  | $ | 5,733     |   |  | $         | 975 |  |            | $ | 10,211 |   |  | $ | 32,402 |  
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  







12



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






|   |                        
|-- | -----------------------
|4. | Discontinued Operations





|                                             |  |                |       |  |                |   |       | 
|-------------------------------------------- |  | -------------- | ----- |  | -------------- | - | ----- | 
|                                             |  | Three Months   |       |  | Nine Months    |  
|                                             |  | Ended          |       |  | Ended          |  
|                                             |  | March 31, 2005 |       |  | March 31, 2005 |  
|                                             |  |                |       |  |                |  
|Net sales                                    |  | $              | 1,487 |  |                | $ | 3,908 | 
|Cost of goods sold                           |  |                | 924   |  |                |   | 2,590 | 
|Selling, general and administrative expenses |  |                | 174   |  |                |   | 511   | 
|Other expense                                |  |                | 5     |  |                |   | 6     | 
|                                             |  |                |       |  |                |  
|Income before income taxes                   |  |                | 384   |  |                |   | 801   | 
|Provision for income taxes                   |  |                | 112   |  |                |   | 226   | 
|                                             |  |                |       |  |                |  
|Income from operations                       |  | $              | 272   |  |                | $ | 575   | 
|                                             |  |                |       |  |                |  
|Depreciation and amortization                |  | $              | 105   |  |                | $ | 309   | 
|                                             |  |                |       |  |                |  



|   |     
|-- | ----
|5. | Debt



| |                       
| | ----------------------
| | Loans Payable to Banks







13



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)






| |               
| | --------------
| | Long-Term Debt

|                                           |  |                |         |  |               |   |         | 
|------------------------------------------ |  | -------------- | ------- |  | ------------- | - | ------- | 
|                                           |  | As of          |        
|                                           |  |                |        
|                                           |  | March 31, 2006 |         |  | June 30, 2005 |  
|                                           |  |                |         |  |               |  
|Senior secured notes due December 1, 2007  |  | $              | 127,491 |  |               | $ | 127,491 | 
|Senior subordinated notes due June 1, 2008 |  |                | 48,029  |  |               |   | 48,029  | 
|Foreign bank loans                         |  |                | 701     |  |               |   | 2,606   | 
|Capitalized lease obligations and other    |  |                | 453     |  |               |   |        | 
|                                           |  |                |         |  |               |  
|                                           |  |                | 176,674 |  |               |   | 178,126 | 
|Less: current maturities                   |  |                | 223     |  |               |   | 1,625   | 
|                                           |  |                |         |  |               |  
|                                           |  | $              | 176,451 |  |               | $ | 176,501 | 
|                                           |  |                |         |  |               |  





|   |                       
|-- | ----------------------
|6. | Employee Benefit Plans



14



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |   |  |   |      |  
|----------------------------------------------------------- |  | --------------- | ---- | - | --------------- | - | ---- | ---- |  | - | ----- | - |  | - | ---- | -
|                                                            |  | Three Months    |      |   | Nine Months     |  
|                                                            |  | Ended March 31, |      |   | Ended March 31, |  
|                                                            |  |                 |      |   |                 |  
|                                                            |  | 2006            |      |   | 2005            |   |      | 2006 |  |   | 2005  |  
|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |  
|Domestic Pension Expense                                    |  |                 |      |   |                 |   |      |      |  |   |       |   |  |   |      |  
|Service cost  benefits earned during the period            |  | $               | 394  |   |                 | $ | 291  |      |  | $ | 1,201 |   |  | $ | 915  |  
|Interest cost on benefit obligation                         |  |                 | 246  |   |                 |   | 228  |      |  |   | 765   |   |  |   | 707  |  
|Expected return on plan assets                              |  |                 | (233 | ) |                 |   | (218 | )    |  |   | (727  | ) |  |   | (676 | )
|Amortization of initial unrecognized net transition (asset) |  |                 |     |   |                 |   | (1   | )    |  |   |      |   |  |   | (3   | )
|Amortization of prior service cost                          |  |                 | (34  | ) |                 |   | (35  | )    |  |   | (108  | ) |  |   | (107 | )
|Amortization of net actuarial loss                          |  |                 | 36   |   |                 |   |     |      |  |   | 106   |   |  |   |     |  
|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |  
|Net periodic pension expense  domestic                     |  | $               | 409  |   |                 | $ | 265  |      |  | $ | 1,237 |   |  | $ | 836  |  
|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |  
|Belgium Pension Expense                                     |  |                 |      |   |                 |   |      |      |  |   |       |   |  |   |      |  
|Service cost  benefits earned during the period            |  | $               | 73   |   |                 | $ | 131  |      |  | $ | 288   |   |  | $ | 367  |  
|Interest cost on benefit obligation                         |  |                 | 168  |   |                 |   | 105  |      |  |   | 386   |   |  |   | 314  |  
|Expected return on plan assets                              |  |                 | (128 | ) |                 |   | (84  | )    |  |   | (290  | ) |  |   | (263 | )
|Amortization of prior service cost                          |  |                 | 4    |   |                 |   |     |      |  |   | 5     |   |  |   |     |  
|Amortization of net actuarial loss                          |  |                 |     |   |                 |   | 6    |      |  |   | 18    |   |  |   | 7    |  
|Curtailment benefit                                         |  |                 |     |   |                 |   |     |      |  |   | (508  | ) |  |   |     |  
|Settlement charges                                          |  |                 |     |   |                 |   |     |      |  |   | 76    |   |  |   |     |  
|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |  
|Net periodic pension (benefit) expense  Belgium            |  | $               | 117  |   |                 | $ | 158  |      |  | $ | (25   | ) |  | $ | 425  |  
|                                                            |  |                 |      |   |                 |   |      |      |  |   |       |  







|                                                       |  |                 |        |   |                |   |        |  
|------------------------------------------------------ |  | --------------- | ------ | - | -------------- | - | ------ | -
|                                                       |  | As of March 31, |        |   | As of June 30, |  
|                                                       |  | 2006            |        |   | 2005           |  
|                                                       |  |                 |        |   |                |  
|Benefit obligation                                     |  | $               | 6,465  |   |                | $ | 11,264 |  
|Fair value of plan assets                              |  |                 | 5,031  |   |                |   | 7,408  |  
|                                                       |  |                 |        |   |                |  
|Funded status of the plan                              |  |                 | (1,434 | ) |                |   | (3,856 | )
|Unrecognized net actuarial loss and prior service cost |  |                 | 255    |   |                |   | 2,002  |  
|                                                       |  |                 |        |   |                |  
|(Accrued) pension liability                            |  |                 | (1,179 | ) |                |   | (1,854 | )
|                                                       |  |                 |        |   |                |  



|   |              
|-- | -------------
|7. | Contingencies



| |           
| | ----------
| | Litigation



15



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












| |                          
| | -------------------------
| | Environmental Remediation



16



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)












|   |                  
|-- | -----------------
|8. | Business Segments



17



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


|                              |                           |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |         |  
|----------------------------- | ------------------------- | ------------------ | ------- | ------ | ----------------- | - | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                              |                           | Three Months Ended |         |        | Nine Months Ended |  
|                              |                           | March 31,          |         |        | March 31,         |  
|                              |                           |                    |         |        |                   |  
|                              |                           | 2006               |         |        | 2005              |   |        | 2006   |   |   | 2005    |        
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|Net Sales                     |                           |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|                              | Animal Health & Nutrition |                    | $       | 79,733 |                   |   | $      | 68,405 |   |   | $       | 233,471 |   |   | $       | 203,699 |  
|                              | Industrial Chemicals      |                    |         | 10,264 |                   |   |        | 13,412 |   |   |         | 31,992  |   |   |         | 40,047  |  
|                              | Distribution              |                    |         | 10,908 |                   |   |        | 8,438  |   |   |         | 27,748  |   |   |         | 25,423  |  
|                              | Corporate                 |                    |         |       |                   |   |        |       |   |   |         |        |   |   |         |        |  
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|                              |                           | $                  | 100,905 |        |                   | $ | 90,255 |        |   | $ | 293,211 |         |   | $ | 269,169 |        
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|Operating Income              |                           |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|                              | Animal Health & Nutrition |                    | $       | 9,671  |                   |   | $      | 3,157  |   |   | $       | 20,045  |   |   | $       | 8,856   |  
|                              | Industrial Chemicals      |                    |         | (35    | )                 |   |        | 1,371  |   |   |         | 2,078   |   |   |         | 3,541   |  
|                              | Distribution              |                    |         | 1,705  |                   |   |        | 1,158  |   |   |         | 4,366   |   |   |         | 3,414   |  
|                              | Corporate                 |                    |         | (4,405 | )                 |   |        | (3,954 | ) |   |         | (11,993 | ) |   |         | (11,095 | )
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|                              |                           | $                  | 6,936   |        |                   | $ | 1,732  |        |   | $ | 14,496  |         |   | $ | 4,716   |        
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|Depreciation and Amortization |                           |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|                              | Animal Health & Nutrition |                    | $       | 1,469  |                   |   | $      | 5,303  |   |   | $       | 10,148  |   |   | $       | 10,203  |  
|                              | Industrial Chemicals      |                    |         | 668    |                   |   |        | 374    |   |   |         | 1,466   |   |   |         | 1,190   |  
|                              | Distribution              |                    |         | 6      |                   |   |        | 6      |   |   |         | 18      |   |   |         | 14      |  
|                              | Corporate                 |                    |         | 70     |                   |   |        | 63     |   |   |         | 217     |   |   |         | 179     |  
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        
|                              |                           | $                  | 2,213   |        |                   | $ | 5,746  |        |   | $ | 11,849  |         |   | $ | 11,586  |        
|                              |                           |                    |         |        |                   |   |        |        |   |   |         |        

|                    |                           |           |         |         |          |   |         |         | 
|------------------- | ------------------------- | --------- | ------- | ------- | -------- | - | ------- | ------- | 
|                    |                           | As of     |         |         | As of    |  
|                    |                           | March 31, |         |         | June 30, |  
|                    |                           | 2006      |         |         | 2005     |  
|                    |                           |           |         |         |          |  
|Identifiable Assets |                           |           |         |         |          |   |         |        
|                    | Animal Health & Nutrition |           | $       | 195,538 |          |   | $       | 204,799 | 
|                    | Industrial Chemicals      |           |         | 21,522  |          |   |         | 21,473  | 
|                    | Distribution              |           |         | 9,680   |          |   |         | 8,092   | 
|                    | Corporate                 |           |         | 17,066  |          |   |         | 18,693  | 
|                    |                           |           |         |         |          |  
|                    |                           | $         | 243,806 |         |          | $ | 253,057 |        
|                    |                           |           |         |         |          |  



|                                                            |  |                    |     |  |                   |   |       |      |  |   |        |  |  |   |        | 
|----------------------------------------------------------- |  | ------------------ | --- |  | ----------------- | - | ----- | ---- |  | - | ------ |  |  | - | ------ | 
|                                                            |  | Three Months Ended |     |  | Nine Months Ended |  
|                                                            |  | March 31,          |     |  | March 31,         |  
|                                                            |  |                    |     |  |                   |  
|                                                            |  | 2006               |     |  | 2005              |   |       | 2006 |  |   | 2005   | 
|                                                            |  |                    |     |  |                   |   |       |      |  |   |        | 
|Depreciation expense                                        |  | $                  |    |  |                   | $ | 3,095 |      |  | $ | 4,533  |  |  | $ | 3,628  | 
|Employee termination and other transaction-related expenses |  |                    | 975 |  |                   |   | 1,277 |      |  |   | 5,678  |  |  |   | 10,280 | 
|                                                            |  |                    |     |  |                   |   |       |      |  |   |        | 
|                                                            |  | $                  | 975 |  |                   | $ | 4,372 |      |  | $ | 10,211 |  |  | $ | 13,908 | 
|                                                            |  |                    |     |  |                   |   |       |      |  |   |        | 

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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)




|   |                                   
|-- | ----------------------------------
|9. | Consolidating Financial Statements









19



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PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET


As of March 31, 2006


|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |        |  |          |          |          |   |         |         |         |  
|---------------------------------------------- | --------------------------------------------- | ----------------------------------------------------------------------- | ------- | -------------- | ------------ | - | ------- | ------- | ------- | ------- | --------- | ------- | ------------- | ------------ | ------ | ------------- | ----------- | - | ------- | ------------ | ------ |  | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                               |                                               |                                                                         |         | U.S. Guarantor |              |   | Dutch   |         |         | Belgium |           |         | Non-Guarantor |              |        | Consolidation |             |   | PAHC    |             
|                                               |                                               | PAHC                                                                    |         |                | Subsidiaries |   |         | Issuer  |         |         | Guarantor |         |               | Subsidiaries |        |               | Adjustments |   |         | Consolidated |       
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|ASSETS                                        
|Current assets                                 |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |        |  |          |          |          |   |         |        
|                                               | Cash and cash equivalents                     |                                                                         | $       | 567            |              |   | $       | 844     |         |         | $         | 81      |               |              | $      | 484           |             |   | $       | 7,776        |        |  | $        |         |          |   | $       | 9,752   |        
|                                               | Accounts receivable, net                      |                                                                         |         | 4,183          |              |   |         | 27,443  |         |         |           |        |               |              |        | 2,884         |             |   |         | 25,499       |        |  |          |         |          |   |         | 60,009  |        
|                                               | Inventory                                     |                                                                         |         | 2,984          |              |   |         | 35,298  |         |         |           |        |               |              |        | 22,346        |             |   |         | 33,283       |        |  |          |         |          |   |         | 93,911  |        
|                                               | Prepaid expenses and other                    |                                                                         |         | 3,030          |              |   |         | 445     |         |         |           | 7       |               |              |        | 1,003         |             |   |         | 6,347        |        |  |          |         |          |   |         | 10,832  |        
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total current assets                                                    |         |                | 10,764       |   |         |         | 64,030  |         |           |         | 88            |              |        |               | 26,717      |   |         |              | 72,905 |  |          |          |         |   |         |         | 174,504 |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|Property, plant & equipment, net               |                                               |                                                                         | 1,031   |                |              |   | 11,554  |         |         |         |          |         |               |              | 467    |               |             |   | 35,920  |              |        |  |         |          |          |   | 48,972  |        
|Intangibles, net                               |                                               |                                                                         |        |                |              |   | 3,508   |         |         |         |          |         |               |              | 1,182  |               |             |   | 4,406   |              |        |  |         |          |          |   | 9,096   |        
|Other assets                                   |                                               |                                                                         | 9,617   |                |              |   | 721     |         |         |         |          |         |               |              |       |               |             |   | 896     |              |        |  |         |          |          |   | 11,234  |        
|Investment in subsidiaries                     |                                               |                                                                         | 103,088 |                |              |   |        |         |         |         | (24,724   | )       |               |              |       |               |             |   | (1,007  | )            |        |  | (77,357  | )        |          |   |        |        
|Intercompany                                   |                                               |                                                                         | 10,775  |                |              |   | 103,298 |         |         |         | 30,847    |         |               |              | (1,764 | )             |             |   | (20,818 | )            |        |  | (122,338 | )        |          |   |        |        
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total assets                                                            |         | $              | 135,275      |   |         | $       | 183,111 |         |           | $       | 6,211         |              |        | $             | 26,602      |   |         | $            | 92,302 |  |          | $        | (199,695 | ) |         | $       | 243,806 |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities                            |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |        |  |          |          |          |   |         |        
|                                               | Loan payable to banks                         |                                                                         | $       |               |              |   | $       |        |         |         | $         |        |               |              | $      |              |             |   | $       |             |        |  | $        |         |          |   | $       |        |        
|                                               | Current portion of long-term debt             |                                                                         |         |               |              |   |         |        |         |         |           |        |               |              |        |              |             |   |         | 223          |        |  |          |         |          |   |         | 223     |        
|                                               | Accounts payable                              |                                                                         |         | 1,950          |              |   |         | 23,067  |         |         |           |        |               |              |        | 644           |             |   |         | 13,120       |        |  |          |         |          |   |         | 38,781  |        
|                                               | Accrued expenses and other                    |                                                                         |         | 19,469         |              |   |         | 8,108   |         |         |           | 1,021   |               |              |        | 11,796        |             |   |         | 13,591       |        |  |          |         |          |   |         | 53,985  |        
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total current liabilities                                               |         |                | 21,419       |   |         |         | 31,175  |         |           |         | 1,021         |              |        |               | 12,440      |   |         |              | 26,934 |  |          |          |         |   |         |         | 92,989  |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|Long-term debt                                 |                                               |                                                                         | 151,236 |                |              |   |        |         |         |         | 24,284    |         |               |              |       |               |             |   | 931     |              |        |  |         |          |          |   | 176,451 |        
|Other liabilities                              |                                               |                                                                         | 11,485  |                |              |   | 5,461   |         |         |         |          |         |               |              | 4,900  |               |             |   | 1,385   |              |        |  |         |          |          |   | 23,231  |        
|Intercompany debt                              |                                               |                                                                         |        |                |              |   | 26,581  |         |         |         | 5,654     |         |               |              | 33,986 |               |             |   | 56,117  |              |        |  | (122,338 | )        |          |   |        |        
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total liabilities                                                       |         |                | 184,140      |   |         |         | 63,217  |         |           |         | 30,959        |              |        |               | 51,326      |   |         |              | 85,367 |  |          |          | (122,338 | ) |         |         | 292,671 |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|Stockholders equity (deficit)                 |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |        |  |          |          |          |   |         |        
|                                               | Preferred stock                               |                                                                         |         | 521            |              |   |         |        |         |         |           |        |               |              |        |              |             |   |         |             |        |  |          |         |          |   |         | 521     |        
|                                               | Common stock                                  |                                                                         |         | 2              |              |   |         | 33      |         |         |           |        |               |              |        |              |             |   |         |             |        |  |          | (33      | )        |   |         | 2       |        
|                                               | Paid-in capital                               |                                                                         |         | 27,260         |              |   |         | 108,383 |         |         |           | 21      |               |              |        | 52            |             |   |         | (21          | )      |  |          | (108,435 | )        |   |         | 27,260  |        
|                                               | Retained earnings (accumulated deficit)       |                                                                         |         | (80,544        | )            |   |         | 11,738  |         |         |           | (28,696 | )             |              |        | (28,703       | )           |   |         | 6,727        |        |  |          | 38,934   |          |   |         | (80,544 | )      
|                                               | Accumulated other comprehensive income (loss) |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |        |  |          |          |          |   |         |         |        
|                                               |                                               | Gain on derivative instruments, net of income taxes                     |         |                | 79           |   |         |         | 79      |         |           |         |              |              |        |               |            |   |         |              |       |  |          |          | (79      | ) |         |         | 79      |  
|                                               |                                               | Cumulative currency
    translation adjustment,
    net of income taxes |         |                | 3,817        |   |         |         | (339    | )       |           |         | 3,927         |              |        |               | 3,927       |   |         |              | 229    |  |          |          | (7,744   | ) |         |         | 3,817   |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total stockholders equity (deficit)                                    |         |                | (48,865      | ) |         |         | 119,894 |         |           |         | (24,748       | )            |        |               | (24,724     | ) |         |              | 6,935  |  |          |          | (77,357  | ) |         |         | (48,865 | )
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       
|                                               |                                               | Total liabilities and stockholders equity (deficit)                    |         | $              | 135,275      |   |         | $       | 183,111 |         |           | $       | 6,211         |              |        | $             | 26,602      |   |         | $            | 92,302 |  |          | $        | (199,695 | ) |         | $       | 243,806 |  
|                                               |                                               |                                                                         |         |                |              |   |         |         |         |         |           |         |               |              |        |               |             |   |         |              |       

20



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


For The Three Months Ended March 31, 2006


|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              |  |   |        |      |   |   |         |        |  
|-------------------------------------------------------------------------- | --------------------------------- | ---- | ------ | -------------- | ------------ | - | ------ | ------ |  | ------- | --------- | ------ | ------------- | ------------ | ----- | ------------- | ----------- | - | ------ | ------------ |  | - | ------ | ---- | - | - | ------- | ------ | -
|                                                                           |                                   |      |        | U.S. Guarantor |              |   | Dutch  |        |  | Belgium |           |        | Non-Guarantor |              |       | Consolidation |             |   | PAHC   |             
|                                                                           |                                   | PAHC |        |                | Subsidiaries |   |        | Issuer |  |         | Guarantor |        |               | Subsidiaries |       |               | Adjustments |   |        | Consolidated | 
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 
|Net sales                                                                  |                                   | $    | 8,654  |                |              | $ | 61,887 |        |  | $       |          |        |               | $            | 2,240 |               |             | $ | 28,124 |              |  | $ |       |      |   | $ | 100,905 |       
|Net sales  intercompany                                                   |                                   |      | 265    |                |              |   |       |        |  |         |          |        |               |              | 3,837 |               |             |   | 2,863  |              |  |   | (6,965 | )    |   |   |        |       
|Cost of goods sold (includes Belgium Plant Transactions costs of
    $975) |                                   |      | 6,523  |                |              |   | 46,518 |        |  |         |          |        |               |              | 5,788 |               |             |   | 24,578 |              |  |   | (6,965 | )    |   |   | 76,442  |       
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 
|                                                                           | Gross profit                      |      |        | 2,396          |              |   |        | 15,369 |  |         |           |       |               |              |       | 289           |             |   |        | 6,409        |  |   |        |     |   |   |         | 24,463 |  
|Selling, general and administrative expenses                               |                                   |      | 5,398  |                |              |   | 7,637  |        |  |         | 7         |        |               |              | 766   |               |             |   | 3,719  |              |  |   |       |      |   |   | 17,527  |       
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 
|                                                                           | Operating income (loss)           |      |        | (3,002         | )            |   |        | 7,732  |  |         |           | (7     | )             |              |       | (477          | )           |   |        | 2,690        |  |   |        |     |   |   |         | 6,936  |  
|Interest expense                                                           |                                   |      | 5,593  |                |              |   |       |        |  |         | 789       |        |               |              | 66    |               |             |   | 278    |              |  |   |       |      |   |   | 6,726   |       
|Interest (income)                                                          |                                   |      | (10    | )              |              |   | (15    | )      |  |         |          |        |               |              |      |               |             |   | (28    | )            |  |   |       |      |   |   | (53     | )     
|Other (income) expense, net                                                |                                   |      |       |                |              |   | 598    |        |  |         |          |        |               |              | (227  | )             |             |   | (340   | )            |  |   |       |      |   |   | 31      |       
|Intercompany interest and other                                            |                                   |      | (6,053 | )              |              |   | 5,133  |        |  |         | (796      | )      |               |              | 1,096 |               |             |   | 620    |              |  |   |       |      |   |   |        |       
|(Profit) loss relating to subsidiaries                                     |                                   |      | (1,579 | )              |              |   |       |        |  |         | 1,412     |        |               |              |      |               |             |   |       |              |  |   | 167    |      |   |   |        |       
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 
|                                                                           | Income (loss) before income taxes |      |        | (953           | )            |   |        | 2,016  |  |         |           | (1,412 | )             |              |       | (1,412        | )           |   |        | 2,160        |  |   |        | (167 | ) |   |         | 232    |  
|Provision for income taxes                                                 |                                   |      | 406    |                |              |   | 145    |        |  |         |          |        |               |              |      |               |             |   | 1,040  |              |  |   |       |      |   |   | 1,591   |       
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 
|                                                                           | Net income (loss)                 |      | $      | (1,359         | )            |   | $      | 1,871  |  |         | $         | (1,412 | )             |              | $     | (1,412        | )           |   | $      | 1,120        |  |   | $      | (167 | ) |   | $       | (1,359 | )
|                                                                           |                                   |      |        |                |              |   |        |        |  |         |           |        |               |              |       |               |             |   |        |              | 

21



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


For The Nine Months Ended March 31, 2006


|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              |  |   |         |       |  |   |         |        |  
|----------------------------------------------------------------------------- | --------------------------------- | ---- | ------- | -------------- | ------------ | - | ------- | ------ |  | ------- | --------- | ------ | ------------- | ------------ | ------ | ------------- | ----------- | - | ------ | ------------ |  | - | ------- | ----- |  | - | ------- | ------ | -
|                                                                              |                                   |      |         | U.S. Guarantor |              |   | Dutch   |        |  | Belgium |           |        | Non-Guarantor |              |        | Consolidation |             |   | PAHC   |             
|                                                                              |                                   | PAHC |         |                | Subsidiaries |   |         | Issuer |  |         | Guarantor |        |               | Subsidiaries |        |               | Adjustments |   |        | Consolidated | 
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 
|Net sales                                                                     |                                   | $    | 23,080  |                |              | $ | 177,603 |        |  | $       |          |        |               | $            | 9,208  |               |             | $ | 83,320 |              |  | $ |        |       |  | $ | 293,211 |       
|Net sales  intercompany                                                      |                                   |      | 380     |                |              |   | 48      |        |  |         |          |        |               |              | 24,068 |               |             |   | 8,527  |              |  |   | (33,023 | )     |  |   |        |       
|Cost of goods sold (includes Belgium Plant Transactions costs of
    $10,211) |                                   |      | 16,801  |                |              |   | 134,066 |        |  |         |          |        |               |              | 35,387 |               |             |   | 76,112 |              |  |   | (33,023 | )     |  |   | 229,343 |       
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 
|                                                                              | Gross profit                      |      |         | 6,659          |              |   |         | 43,585 |  |         |           |       |               |              |        | (2,111        | )           |   |        | 15,735       |  |   |         |      |  |   |         | 63,868 |  
|Selling, general and administrative expenses                                  |                                   |      | 15,053  |                |              |   | 20,903  |        |  |         | 46        |        |               |              | 1,888  |               |             |   | 11,482 |              |  |   |        |       |  |   | 49,372  |       
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 
|                                                                              | Operating income (loss)           |      |         | (8,394         | )            |   |         | 22,682 |  |         |           | (46    | )             |              |        | (3,999        | )           |   |        | 4,253        |  |   |         |      |  |   |         | 14,496 |  
|Interest expense                                                              |                                   |      | 16,754  |                |              |   |        |        |  |         | 2,367     |        |               |              | 115    |               |             |   | (53    | )            |  |   |        |       |  |   | 19,183  |       
|Interest (income)                                                             |                                   |      | (78     | )              |              |   | (24     | )      |  |         |          |        |               |              |       |               |             |   | (157   | )            |  |   |        |       |  |   | (259    | )     
|Other (income) expense, net                                                   |                                   |      | 1       |                |              |   | 347     |        |  |         | (2        | )      |               |              | (171   | )             |             |   | (2,736 | )            |  |   |        |       |  |   | (2,561  | )     
|Intercompany interest and other                                               |                                   |      | (18,430 | )              |              |   | 15,388  |        |  |         | (2,390    | )      |               |              | 3,287  |               |             |   | 2,145  |              |  |   |        |       |  |   |        |       
|(Profit) loss relating to subsidiaries                                        |                                   |      | (1,442  | )              |              |   |        |        |  |         | 7,230     |        |               |              |       |               |             |   |       |              |  |   | (5,788  | )     |  |   |        |       
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 
|                                                                              | Income (loss) before income taxes |      |         | (5,199         | )            |   |         | 6,971  |  |         |           | (7,251 | )             |              |        | (7,230        | )           |   |        | 5,054        |  |   |         | 5,788 |  |   |         | (1,867 | )
|Provision for income taxes                                                    |                                   |      | 966     |                |              |   | 421     |        |  |         |          |        |               |              |       |               |             |   | 2,911  |              |  |   |        |       |  |   | 4,298   |       
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 
|                                                                              | Net income (loss)                 |      | $       | (6,165         | )            |   | $       | 6,550  |  |         | $         | (7,251 | )             |              | $      | (7,230        | )           |   | $      | 2,143        |  |   | $       | 5,788 |  |   | $       | (6,165 | )
|                                                                              |                                   |      |         |                |              |   |         |        |  |         |           |        |               |              |        |               |             |   |        |              | 

22



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


For the Nine Months Ended March 31, 2006


|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |         |         |        |  
|---------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------- | ------------ | ------ | ----- | ------ | ----- | ------- | --------- | ------ | --------- | ------------ | --- | ------------- | ----------- | ------ | ----- | ------------ | ------ | ------ | - | ----- | - | ------ | ------ | ------- | ------- | ------ | -
|                                                     |                                                                                                     |                                                                                                                     |                                              | U.S.      |              |        |       |        |       |         | Non-      |        |           |              |     |              
|                                                     |                                                                                                     |                                                                                                                     |                                              | Guarantor |              |        | Dutch |        |       | Belgium |           |        | Guarantor |              |     | Consolidation |             |        | PAHC  |             
|                                                     |                                                                                                     | PAHC                                                                                                                |                                              |           | Subsidiaries |        |       | Issuer |       |         | Guarantor |        |           | Subsidiaries |     |               | Adjustments |        |       | Consolidated |       
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|OPERATING ACTIVITIES                                 |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |        
|                                                     | Net income (loss)                                                                                   |                                                                                                                     | $                                            | (6,165    | )            |        | $     | 6,550  |       |         | $         | (7,251 | )         |              | $   | (7,230        | )           |        | $     | 2,143        |        |        | $ | 5,788 |   |        | $      | (6,165  | )      
|                                                     | Adjustments to reconcile net income (loss) to net cash provided
    (used) by operating activities: |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |         |        
|                                                     |                                                                                                     | Depreciation and amortization (includes accelerated depreciation
    from the Belgium Plant Transactions of $4,533) |                                              |           | 217          |        |       |        | 2,407 |         |           |        |          |              |     |               | 5,712       |        |       |              | 3,513  |        |   |       |  |        |        |         | 11,849  |       
|                                                     |                                                                                                     | Amortization of deferred financing costs                                                                            |                                              |           | 2,486        |        |       |        |      |         |           |        |          |              |     |               |            |        |       |              |       |        |   |       |  |        |        |         | 2,486   |       
|                                                     |                                                                                                     | Deferred income taxes                                                                                               |                                              |           |             |        |       |        |      |         |           |        |          |              |     |               |            |        |       |              | (424   | )      |   |       |  |        |        |         | (424    | )     
|                                                     |                                                                                                     | Net gain from sales of assets                                                                                       |                                              |           |             |        |       |        | 200   |         |           |        |          |              |     |               | (589        | )      |       |              | (75    | )      |   |       |  |        |        |         | (464    | )     
|                                                     |                                                                                                     | Effects of changes in foreign currency                                                                              |                                              |           |             |        |       |        | 68    |         |           |        |          |              |     |               | 162         |        |       |              | (456   | )      |   |       |  |        |        |         | (226    | )     
|                                                     |                                                                                                     | Other                                                                                                               |                                              |           | 13           |        |       |        | 3     |         |           |        |          |              |     |               | (432        | )      |       |              | (12    | )      |   |       |  |        |        |         | (428    | )     
|                                                     |                                                                                                     | Changes in operating assets and liabilities:                                                                        |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |         |         |       
|                                                     |                                                                                                     |                                                                                                                     | Accounts receivable                          |           |              | (1,000 | )     |        |       | (3,410  | )         |        |           |             |     |               |             | 1,185  |       |              |        | (816   | ) |       |   |       |        |         |         | (4,041 | )
|                                                     |                                                                                                     |                                                                                                                     | Inventory                                    |           |              | (315   | )     |        |       | 865     |           |        |           |             |     |               |             | 7,414  |       |              |        | (3,958 | ) |       |   |       |        |         |         | 4,006  |  
|                                                     |                                                                                                     |                                                                                                                     | Prepaid expenses and other                   |           |              | 1,280  |       |        |       | 350     |           |        |           | (7           | )   |               |             | 757    |       |              |        | 465    |   |       |   |       |        |         |         | 2,845  |  
|                                                     |                                                                                                     |                                                                                                                     | Other assets                                 |           |              | 295    |       |        |       | (174    | )         |        |           |             |     |               |             |       |       |              |        |       |   |       |   |       |        |         |         | 121    |  
|                                                     |                                                                                                     |                                                                                                                     | Accounts payable                             |           |              | 267    |       |        |       | 2,758   |           |        |           |             |     |               |             | (2,719 | )     |              |        | 1,867  |   |       |   |       |        |         |         | 2,173  |  
|                                                     |                                                                                                     |                                                                                                                     | Accrued expenses and other                   |           |              | 3,494  |       |        |       | (1,237  | )         |        |           | 804          |     |               |             | (3,573 | )     |              |        | (1,472 | ) |       |   |       |        |         |         | (1,984 | )
|                                                     |                                                                                                     |                                                                                                                     | Accrued expenses: Belgium Plant Transactions |           |              |       |       |        |       |        |           |        |           |             |     |               |             | (1,608 | )     |              |        |       |   |       |   |       |        |         |         | (1,608 | )
|                                                     |                                                                                                     |                                                                                                                     | Intercompany                                 |           |              | 5,681  |       |        |       | (9,332  | )         |        |           | 6,518        |     |               |             | (6,768 | )     |              |        | 9,689  |   |       |   | (5,788 | )      |         |         |       |  
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                     | Net cash provided (used) by operating activities                                                                    |                                              |           | 6,253        |        |       |        | (952  | )       |           |        | 64        |              |     |               | (7,689      | )      |       |              | 10,464 |        |   |       |  |        |        |         | 8,140   |       
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|INVESTING ACTIVITIES                                 |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |        
|                                                     | Capital expenditures                                                                                |                                                                                                                     |                                              | (70       | )            |        |       | (1,619 | )     |         |           |       |           |              |     | (112          | )           |        |       | (9,443       | )      |        |   |      |   |        |        | (11,244 | )      
|                                                     | Proceeds from Belgium Plant Transactions                                                            |                                                                                                                     |                                              |          |              |        |       |       |       |         |           |       |           |              |     | 7,997         |             |        |       |             |        |        |   |      |   |        |        | 7,997   |        
|                                                     | Proceeds from sale of assets                                                                        |                                                                                                                     |                                              |          |              |        |       | 1,655  |       |         |           |       |           |              |     | 42            |             |        |       | 237          |        |        |   |      |   |        |        | 1,934   |        
|                                                     | Other investing                                                                                     |                                                                                                                     |                                              | (106      | )            |        |       |       |       |         |           |       |           |              |     |              |             |        |       |             |        |        |   |      |   |        |        | (106    | )      
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                     | Net cash provided (used) by investing activities                                                                    |                                              |           | (176         | )      |       |        | 36    |         |           |        |          |              |     |               | 7,927       |        |       |              | (9,206 | )      |   |       |  |        |        |         | (1,419  | )     
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|FINANCING ACTIVITIES                                 |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |        |        |   |       |   |        |        |        
|                                                     | Net (decrease) in book overdrafts                                                                   |                                                                                                                     |                                              |          |              |        |       | (27    | )     |         |           |       |           |              |     |              |             |        |       |             |        |        |   |      |   |        |        | (27     | )      
|                                                     | Net (decrease) in short-term debt                                                                   |                                                                                                                     |                                              | (8,000    | )            |        |       |       |       |         |           |       |           |              |     |              |             |        |       | (38          | )      |        |   |      |   |        |        | (8,038  | )      
|                                                     | Payments of long-term debt                                                                          |                                                                                                                     |                                              |          |              |        |       |       |       |         |           |       |           |              |     |              |             |        |       | (2,005       | )      |        |   |      |   |        |        | (2,005  | )      
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                     | Net cash provided (used) by financing activities                                                                    |                                              |           | (8,000       | )      |       |        | (27   | )       |           |        |          |              |     |               |            |        |       |              | (2,043 | )      |   |       |  |        |        |         | (10,070 | )     
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|Effect of exchange rate changes on cash              |                                                                                                     |                                                                                                                     |                                             |           |              |        |      |        |       |         |          |        |           |              | (9  | )             |             |        | 109   |              |        |        |   |       |   |        | 100    |        
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                     |                                                                                                                     | (1,923                                       | )         |              |        | (943  | )      |       |         | 64        |        |           |              | 229 |               |             |        | (676  | )            |        |        |  |       |   |        | (3,249 | )      
|Cash and cash equivalents at beginning of period     |                                                                                                     |                                                                                                                     | 2,490                                        |           |              |        | 1,787 |        |       |         | 17        |        |           |              | 255 |               |             |        | 8,452 |              |        |        |  |       |   |        | 13,001 |        
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       
|Cash and cash equivalents at end of period           |                                                                                                     | $                                                                                                                   | 567                                          |           |              | $      | 844   |        |       | $       | 81        |        |           | $            | 484 |               |             | $      | 7,776 |              |        | $      |  |       |   | $      | 9,752  |        
|                                                     |                                                                                                     |                                                                                                                     |                                              |           |              |        |       |        |       |         |           |        |           |              |     |               |             |        |       |              |       

23



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING BALANCE SHEET


As of June 30, 2005


|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |        |   |          |          |          |   |         |         |         |  
|---------------------------------------------- | --------------------------------------------- | --------------------------------------------------------------- | ------- | --------- | ------------ | - | ------ | ------- | ------- | ------- | --------- | ------- | --------- | ------------ | ------ | ------------- | ----------- | - | ------- | ------------ | ------ | - | -------- | -------- | -------- | - | ------- | ------- | ------- | -
|                                               |                                               |                                                                 |         | U.S.      |              |   |        |         |         |         | Non-      |         |           |              |        |              
|                                               |                                               |                                                                 |         | Guarantor |              |   | Dutch  |         |         | Belgium |           |         | Guarantor |              |        | Consolidation |             |   | PAHC    |             
|                                               |                                               | PAHC                                                            |         |           | Subsidiaries |   |        | Issuer  |         |         | Guarantor |         |           | Subsidiaries |        |               | Adjustments |   |         | Consolidated |       
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|ASSETS                                        
|Current assets                                 |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |        |   |          |          |          |   |         |        
|                                               | Cash and cash equivalents                     |                                                                 | $       | 2,490     |              |   | $      | 1,787   |         |         | $         | 17      |           |              | $      | 255           |             |   | $       | 8,452        |        |   | $        |         |          |   | $       | 13,001  |        
|                                               | Accounts receivable, net                      |                                                                 |         | 3,377     |              |   |        | 25,762  |         |         |           |        |           |              |        | 4,784         |             |   |         | 22,494       |        |   |          |         |          |   |         | 56,417  |        
|                                               | Inventory                                     |                                                                 |         | 2,669     |              |   |        | 36,289  |         |         |           |        |           |              |        | 29,691        |             |   |         | 27,972       |        |   |          |         |          |   |         | 96,621  |        
|                                               | Prepaid expenses and other                    |                                                                 |         | 4,118     |              |   |        | 921     |         |         |           |        |           |              |        | 1,203         |             |   |         | 6,545        |        |   |          |         |          |   |         | 12,787  |        
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total current assets                                            |         |           | 12,654       |   |        |         | 64,759  |         |           |         | 17        |              |        |               | 35,933      |   |         |              | 65,463 |   |          |          |         |   |         |         | 178,826 |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|Property, plant & equipment, net               |                                               |                                                                 | 1,178   |           |              |   | 13,564 |         |         |         |          |         |           |              | 8,122  |               |             |   | 27,096  |              |        |   |         |          |          |   | 49,960  |        
|Intangibles, net                               |                                               |                                                                 |        |           |              |   | 3,827  |         |         |         |          |         |           |              | 1,339  |               |             |   | 5,035   |              |        |   |         |          |          |   | 10,201  |        
|Other assets                                   |                                               |                                                                 | 12,303  |           |              |   | 796    |         |         |         |          |         |           |              |       |               |             |   | 971     |              |        |   |         |          |          |   | 14,070  |        
|Investment in subsidiaries                     |                                               |                                                                 | 101,464 |           |              |   |       |         |         |         | (17,469   | )       |           |              |       |               |             |   |        |              |        |   | (83,995  | )        |          |   |        |        
|Intercompany                                   |                                               |                                                                 | 9,384   |           |              |   | 93,463 |         |         |         | 31,103    |         |           |              | (1,427 | )             |             |   | (14,325 | )            |        |   | (118,198 | )        |          |   |        |        
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total assets                                                    |         | $         | 136,983      |   |        | $       | 176,409 |         |           | $       | 13,651    |              |        | $             | 43,967      |   |         | $            | 84,240 |   |          | $        | (202,193 | ) |         | $       | 253,057 |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                              
|LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
|Current liabilities                            |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |        |   |          |          |          |   |         |        
|                                               | Loan payable to banks                         |                                                                 | $       | 8,000     |              |   | $      |        |         |         | $         |        |           |              | $      |              |             |   | $       | 38           |        |   | $        |         |          |   | $       | 8,038   |        
|                                               | Current portion of long-term debt             |                                                                 |         |          |              |   |        |        |         |         |           |        |           |              |        |              |             |   |         | 1,625        |        |   |          |         |          |   |         | 1,625   |        
|                                               | Accounts payable                              |                                                                 |         | 1,683     |              |   |        | 20,327  |         |         |           |        |           |              |        | 3,320         |             |   |         | 11,207       |        |   |          |         |          |   |         | 36,537  |        
|                                               | Accrued expenses and other                    |                                                                 |         | 10,910    |              |   |        | 9,222   |         |         |           | 248     |           |              |        | 21,195        |             |   |         | 12,240       |        |   |          |         |          |   |         | 53,815  |        
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total current liabilities                                       |         |           | 20,593       |   |        |         | 29,549  |         |           |         | 248       |              |        |               | 24,515      |   |         |              | 25,110 |   |          |          |         |   |         |         | 100,015 |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|Long-term debt                                 |                                               |                                                                 | 151,236 |           |              |   |       |         |         |         | 24,284    |         |           |              |       |               |             |   | 981     |              |        |   |         |          |          |   | 176,501 |        
|Other liabilities                              |                                               |                                                                 | 10,078  |           |              |   | 5,364  |         |         |         |          |         |           |              | 1,856  |               |             |   | 4,167   |              |        |   |         |          |          |   | 21,465  |        
|Intercompany debt                              |                                               |                                                                 |        |           |              |   | 28,047 |         |         |         | 6,591     |         |           |              | 35,065 |               |             |   | 48,495  |              |        |   | (118,198 | )        |          |   |        |        
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total liabilities                                               |         |           | 181,907      |   |        |         | 62,960  |         |           |         | 31,123    |              |        |               | 61,436      |   |         |              | 78,753 |   |          |          | (118,198 | ) |         |         | 297,981 |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|Stockholders equity (deficit)                 |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |        |   |          |          |          |   |         |        
|                                               | Preferred stock                               |                                                                 |         | 521       |              |   |        |        |         |         |           |        |           |              |        |              |             |   |         |             |        |   |          |         |          |   |         | 521     |        
|                                               | Common stock                                  |                                                                 |         | 2         |              |   |        | 33      |         |         |           |        |           |              |        |              |             |   |         |             |        |   |          | (33      | )        |   |         | 2       |        
|                                               | Paid-in capital                               |                                                                 |         | 27,260    |              |   |        | 108,383 |         |         |           | 21      |           |              |        | 52            |             |   |         | 1,537        |        |   |          | (109,993 | )        |   |         | 27,260  |        
|                                               | Retained earnings (accumulated deficit)       |                                                                 |         | (74,379   | )            |   |        | 5,188   |         |         |           | (21,445 | )         |              |        | (21,473       | )           |   |         | 6,074        |        |   |          | 31,656   |          |   |         | (74,379 | )      
|                                               | Accumulated other comprehensive income (loss) |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |        |   |          |          |          |   |         |         |        
|                                               |                                               | Gain on derivative instruments, net of income taxes             |         |           | 123          |   |        |         | 123     |         |           |         |          |              |        |               |            |   |         |              |       |   |          |          | (123     | ) |         |         | 123     |  
|                                               |                                               | Cumulative currency translation adjustment, net of income taxes |         |           | 1,549        |   |        |         | (278    | )       |           |         | 3,952     |              |        |               | 3,952       |   |         |              | (2,124 | ) |          |          | (5,502   | ) |         |         | 1,549   |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total stockholders equity (deficit)                            |         |           | (44,924      | ) |        |         | 113,449 |         |           |         | (17,472   | )            |        |               | (17,469     | ) |         |              | 5,487  |   |          |          | (83,995  | ) |         |         | (44,924 | )
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       
|                                               |                                               | Total liabilities and stockholders equity (deficit)            |         | $         | 136,983      |   |        | $       | 176,409 |         |           | $       | 13,651    |              |        | $             | 43,967      |   |         | $            | 84,240 |   |          | $        | (202,193 | ) |         | $       | 253,057 |  
|                                               |                                               |                                                                 |         |           |              |   |        |         |         |         |           |         |           |              |        |               |             |   |         |              |       

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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


For The Three Months Ended March 31, 2005


|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |      |   |         |       |       |   |        |        |        |  
|---------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------- | ------ | -------------- | ------------ | - | ------ | ------ | --- | ------- | --------- | ------ | ------------- | ------------ | ------ | ------------- | ----------- | - | ------ | ------------ | ---- | - | ------- | ----- | ----- | - | ------ | ------ | ------ | -
|                                                                       |                                                              |                   |        | U.S. Guarantor |              |   | Dutch  |        |     | Belgium |           |        | Non-Guarantor |              |        | Consolidation |             |   | PAHC   |             
|                                                                       |                                                              | PAHC              |        |                | Subsidiaries |   |        | Issuer |     |         | Guarantor |        |               | Subsidiaries |        |               | Adjustments |   |        | Consolidated |     
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|Net sales                                                              |                                                              | $                 | 6,769  |                |              | $ | 54,591 |        |     | $       |          |        |               | $            | 3,328  |               |             | $ | 25,567 |              |      | $ |        |       |       | $ | 90,255 |       
|Net sales  intercompany                                               |                                                              |                   | 44     |                |              |   |       |        |     |         |          |        |               |              | 9,787  |               |             |   | 2,115  |              |      |   | (11,946 | )     |       |   |       |       
|Cost of goods sold (includes Belgium Transactions costs of
    $4,372) |                                                              |                   | 4,876  |                |              |   | 40,751 |        |     |         |          |        |               |              | 14,492 |               |             |   | 23,331 |              |      |   | (11,946 | )     |       |   | 71,504 |       
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|                                                                       | Gross profit                                                 |                   |        | 1,937          |              |   |        | 13,840 |     |         |           |       |               |              |        | (1,377        | )           |   |        | 4,351        |      |   |         |      |       |   |        | 18,751 |       
|Selling, general and administrative expenses                           |                                                              |                   | 4,929  |                |              |   | 7,520  |        |     |         | 8         |        |               |              | 736    |               |             |   | 3,826  |              |      |   |        |       |       |   | 17,019 |       
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|                                                                       | Operating income (loss)                                      |                   |        | (2,992         | )            |   |        | 6,320  |     |         |           | (8     | )             |              |        | (2,113        | )           |   |        | 525          |      |   |         |      |       |   |        | 1,732  |       
|Interest expense                                                       |                                                              |                   | 5,779  |                |              |   |       |        |     |         | 652       |        |               |              | 15     |               |             |   | 311    |              |      |   |        |       |       |   | 6,757  |       
|Interest (income)                                                      |                                                              |                   | (3     | )              |              |   |       |        |     |         |          |        |               |              |       |               |             |   | (16    | )            |      |   |        |       |       |   | (19    | )     
|Other (income) expense, net                                            |                                                              |                   |       |                |              |   | 587    |        |     |         |          |        |               |              | 301    |               |             |   | (811   | )            |      |   |        |       |       |   | 77     |       
|Intercompany interest and other                                        |                                                              |                   | (6,847 | )              |              |   | 5,176  |        |     |         | (797      | )      |               |              | 1,095  |               |             |   | 1,373  |              |      |   |        |       |       |   |       |       
|Loss relating to subsidiaries                                          |                                                              |                   | 3,755  |                |              |   |       |        |     |         | 3,505     |        |               |              |       |               |             |   |       |              |      |   | (7,260  | )     |       |   |       |       
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|                                                                       | Income (loss) from continuing operations before income taxes |                   |        | (5,676         | )            |   |        | 557    |     |         |           | (3,368 | )             |              |        | (3,524        | )           |   |        | (332         | )    |   |         | 7,260 |       |   |        | (5,083 | )     
|Provision (benefit) for income taxes                                   |                                                              |                   | 180    |                |              |   | 171    |        |     |         |          |        |               |              | (19    | )             |             |   | 441    |              |      |   |        |       |       |   | 773    |       
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|                                                                       | Income (loss) from continuing operations                     |                   |        | (5,856         | )            |   |        | 386    |     |         |           | (3,368 | )             |              |        | (3,505        | )           |   |        | (773         | )    |   |         | 7,260 |       |   |        | (5,856 | )     
|Income from discontinued operations, net of income taxes               |                                                              |                   |       |                |              |   |       |        |     |         |          |        |               |              |       |               |             |   | 272    |              |      |   |        |       |       |   | 272    |       
|Profit relating to discontinued operations                             |                                                              |                   | 272    |                |              |   |       |        |     |         |          |        |               |              |       |               |             |   |       |              |      |   | (272    | )     |       |   |       |       
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     
|                                                                       |                                                              | Net income (loss) |        | $              | (5,584       | ) |        | $      | 386 |         |           | $      | (3,368        | )            |        | $             | (3,505      | ) |        | $            | (501 | ) |         | $     | 6,988 |   |        | $      | (5,584 | )
|                                                                       |                                                              |                   |        |                |              |   |        |        |     |         |           |        |               |              |        |               |             |   |        |              |     

25



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS


For The Nine Months Ended March 31, 2005


|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |        |   |         |        |        |   |         |         |         |  
|----------------------------------------------------------------------------- | ------------------------------------------------------------ | ----------------- | ------- | --------- | ------------ | - | ------- | ------ | ----- | ------- | --------- | ------- | --------- | ------------ | ------ | ------------- | ----------- | - | ------ | ------------ | ------ | - | ------- | ------ | ------ | - | ------- | ------- | ------- | -
|                                                                              |                                                              |                   |         | U.S.      |              |   |         |        |       |         | Non-      |         |           |              |        |              
|                                                                              |                                                              |                   |         | Guarantor |              |   | Dutch   |        |       | Belgium |           |         | Guarantor |              |        | Consolidation |             |   | PAHC   |             
|                                                                              |                                                              | PAHC              |         |           | Subsidiaries |   |         | Issuer |       |         | Guarantor |         |           | Subsidiaries |        |               | Adjustments |   |        | Consolidated |       
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|Net sales                                                                     |                                                              | $                 | 20,165  |           |              | $ | 167,837 |        |       | $       |          |         |           | $            | 7,556  |               |             | $ | 73,611 |              |        | $ |        |        |        | $ | 269,169 |        
|Net sales  intercompany                                                      |                                                              |                   | 137     |           |              |   | 131     |        |       |         |          |         |           |              | 20,447 |               |             |   | 5,534  |              |        |   | (26,249 | )      |        |   |        |        
|Cost of goods sold (includes Belgium Plant Transactions costs of
    $13,908) |                                                              |                   | 14,840  |           |              |   | 125,433 |        |       |         |          |         |           |              | 35,276 |               |             |   | 65,382 |              |        |   | (26,249 | )      |        |   | 214,682 |        
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|                                                                              | Gross profit                                                 |                   |         | 5,462     |              |   |         | 42,535 |       |         |           |        |           |              |        | (7,273        | )           |   |        | 13,763       |        |   |         |       |        |   |         | 54,487  |        
|Selling, general and administrative expenses                                  |                                                              |                   | 14,197  |           |              |   | 21,555  |        |       |         | 14        |         |           |              | 2,102  |               |             |   | 11,903 |              |        |   |        |        |        |   | 49,771  |        
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|                                                                              | Operating income (loss)                                      |                   |         | (8,735    | )            |   |         | 20,980 |       |         |           | (14     | )         |              |        | (9,375        | )           |   |        | 1,860        |        |   |         |       |        |   |         | 4,716   |        
|Interest expense                                                              |                                                              |                   | 15,980  |           |              |   |        |        |       |         | 1,951     |         |           |              | 38     |               |             |   | 687    |              |        |   |        |        |        |   | 18,656  |        
|Interest (income)                                                             |                                                              |                   | (5      | )         |              |   | (4      | )      |       |         |          |         |           |              |       |               |             |   | (68    | )            |        |   |        |        |        |   | (77     | )      
|Other (income) expense, net                                                   |                                                              |                   | 4       |           |              |   | 213     |        |       |         |          |         |           |              | 90     |               |             |   | (998   | )            |        |   |        |        |        |   | (691    | )      
|Intercompany interest and other                                               |                                                              |                   | (20,781 | )         |              |   | 15,562  |        |       |         | (2,113    | )       |           |              | 2,976  |               |             |   | 4,356  |              |        |   |        |        |        |   |        |        
|Loss relating to subsidiaries                                                 |                                                              |                   | 9,244   |           |              |   |        |        |       |         | 11,009    |         |           |              |       |               |             |   |       |              |        |   | (20,253 | )      |        |   |        |        
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|                                                                              | Income (loss) from continuing operations before income taxes |                   |         | (13,177   | )            |   |         | 5,209  |       |         |           | (10,861 | )         |              |        | (12,479       | )           |   |        | (2,117       | )      |   |         | 20,253 |        |   |         | (13,172 | )      
|Provision (benefit) for income taxes                                          |                                                              |                   | 694     |           |              |   | 470     |        |       |         |          |         |           |              | (1,470 | )             |             |   | 1,005  |              |        |   |        |        |        |   | 699     |        
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|                                                                              | Income (loss) from continuing operations                     |                   |         | (13,871   | )            |   |         | 4,739  |       |         |           | (10,861 | )         |              |        | (11,009       | )           |   |        | (3,122       | )      |   |         | 20,253 |        |   |         | (13,871 | )      
|Income from discontinued operations, net of income taxes                      |                                                              |                   |        |           |              |   |        |        |       |         |          |         |           |              |       |               |             |   | 575    |              |        |   |        |        |        |   | 575     |        
|Profit relating to discontinued operations                                    |                                                              |                   | 575     |           |              |   |        |        |       |         |          |         |           |              |       |               |             |   |       |              |        |   | (575    | )      |        |   |        |        
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       
|                                                                              |                                                              | Net income (loss) |         | $         | (13,296      | ) |         | $      | 4,739 |         |           | $       | (10,861   | )            |        | $             | (11,009     | ) |        | $            | (2,547 | ) |         | $      | 19,678 |   |         | $       | (13,296 | )
|                                                                              |                                                              |                   |         |           |              |   |         |        |       |         |           |         |           |              |        |               |             |   |        |              |       

26



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##### Table of Contents



PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES


NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)


CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS


For the Nine Months Ended March 31, 2005


|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |         |        |         |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------ | ------------------------------------------------------------------------------------------------------------------- | -------------------------------------------- | --------- | ------------ | ------ | ----- | ------ | ------ | ------- | --------- | ------- | --------- | ------------ | --- | ------------- | ----------- | ------ | ----- | ------------ | ------ | ------ | - | ------ | - | ------- | ----- | ------- | ------ | ------- | -
|                                                     |                                                                                                                                |                                                                                                                     |                                              | U.S.      |              |        |       |        |        |         | Non-      |         |           |              |     |              
|                                                     |                                                                                                                                |                                                                                                                     |                                              | Guarantor |              |        | Dutch |        |        | Belgium |           |         | Guarantor |              |     | Consolidation |             |        | PAHC  |             
|                                                     |                                                                                                                                | PAHC                                                                                                                |                                              |           | Subsidiaries |        |       | Issuer |        |         | Guarantor |         |           | Subsidiaries |     |               | Adjustments |        |       | Consolidated |       
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|OPERATING ACTIVITIES                                 |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |        
|                                                     | Net income (loss)                                                                                                              |                                                                                                                     | $                                            | (13,296   | )            |        | $     | 4,739  |        |         | $         | (10,861 | )         |              | $   | (11,009       | )           |        | $     | (2,547       | )      |        | $ | 19,678 |   |         | $     | (13,296 | )     
|                                                     | Adjustment for discontinued operations                                                                                         |                                                                                                                     |                                              | (575      | )            |        |       |       |        |         |           |        |           |              |     |              |             |        |       | (575         | )      |        |   | 575    |   |         |       | (575    | )     
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|                                                     | Income (loss) from continuing operations                                                                                       |                                                                                                                     |                                              | (13,871   | )            |        |       | 4,739  |        |         |           | (10,861 | )         |              |     | (11,009       | )           |        |       | (3,122       | )      |        |   | 20,253 |   |         |       | (13,871 | )     
|                                                     | Adjustments to reconcile income (loss) from continuing
    operations to net cash provided (used) by operating
    activities: |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |         |       
|                                                     |                                                                                                                                | Depreciation and amortization (includes accelerated depreciation
    from the Belgium Plant Transactions of $3,628) |                                              |           | 179          |        |       |        | 2,113  |         |           |         |          |              |     |               | 5,880       |        |       |              | 3,414  |        |   |        |  |         |       |         | 11,586 |        
|                                                     |                                                                                                                                | Amortization of deferred financing costs                                                                            |                                              |           | 2,130        |        |       |        |       |         |           |         |          |              |     |               |            |        |       |              |       |        |   |        |  |         |       |         | 2,130  |        
|                                                     |                                                                                                                                | Deferred income taxes                                                                                               |                                              |           |             |        |       |        |       |         |           |         |          |              |     |               |            |        |       |              | (202   | )      |   |        |  |         |       |         | (202   | )      
|                                                     |                                                                                                                                | Net gain from sales of assets                                                                                       |                                              |           |             |        |       |        | (777   | )       |           |         |          |              |     |               |            |        |       |              | (12    | )      |   |        |  |         |       |         | (789   | )      
|                                                     |                                                                                                                                | Effects of changes in foreign currency                                                                              |                                              |           |             |        |       |        | (554   | )       |           |         |          |              |     |               | (87         | )      |       |              | (119   | )      |   |        |  |         |       |         | (760   | )      
|                                                     |                                                                                                                                | Other                                                                                                               |                                              |           | 289          |        |       |        | 37     |         |           |         |          |              |     |               |            |        |       |              | 104    |        |   |        |  |         |       |         | 430    |        
|                                                     |                                                                                                                                | Changes in operating assets and liabilities:                                                                        |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |         |        |        
|                                                     |                                                                                                                                |                                                                                                                     | Accounts receivable                          |           |              | (392   | )     |        |        | 2,066   |           |         |           |             |     |               |             | (575   | )     |              |        | 3,361  |   |        |   |        |       |         |        | 4,460   |  
|                                                     |                                                                                                                                |                                                                                                                     | Inventory                                    |           |              | (428   | )     |        |        | 2,772   |           |         |           |             |     |               |             | (9,857 | )     |              |        | (8,865 | ) |        |   |        |       |         |        | (16,378 | )
|                                                     |                                                                                                                                |                                                                                                                     | Prepaid expenses and other                   |           |              | 1,656  |       |        |        | 631     |           |         |           |             |     |               |             | (1,277 | )     |              |        | 637    |   |        |   |        |       |         |        | 1,647   |  
|                                                     |                                                                                                                                |                                                                                                                     | Other assets                                 |           |              | (2     | )     |        |        | (241    | )         |         |           |             |     |               |             |       |       |              |        | (375   | ) |        |   |        |       |         |        | (618    | )
|                                                     |                                                                                                                                |                                                                                                                     | Accounts payable                             |           |              | (1,610 | )     |        |        | (8,573  | )         |         |           |             |     |               |             | (152   | )     |              |        | (1,043 | ) |        |   |        |       |         |        | (11,378 | )
|                                                     |                                                                                                                                |                                                                                                                     | Accrued expenses and other                   |           |              | 4,707  |       |        |        | 1,285   |           |         |           | 650          |     |               |             | 237    |       |              |        | 2,241  |   |        |   |        |       |         |        | 9,120   |  
|                                                     |                                                                                                                                |                                                                                                                     | Accrued expenses: non-completed transaction  |           |              | (3,970 | )     |        |        |        |           |         |           |             |     |               |             |       |       |              |        |       |   |        |   |        |       |         |        | (3,970  | )
|                                                     |                                                                                                                                |                                                                                                                     | Accrued expenses: Belgium Plant Transactions |           |              |       |       |        |        |        |           |         |           |             |     |               |             | 10,280 |       |              |        |       |   |        |   |        |       |         |        | 10,280  |  
|                                                     |                                                                                                                                |                                                                                                                     | Intercompany                                 |           |              | 2,274  |       |        |        | (4,843  | )         |         |           | 5,926        |     |               |             | 7,605  |       |              |        | 9,291  |   |        |   | (20,253 | )     |         |        |        |  
|                                                     | Cash provided by discontinued operations                                                                                       |                                                                                                                     |                                              |          |              |        |       |       |        |         |           |        |           |              |     |              |             |        |       | 808          |        |        |   |       |   |         |       | 808     |       
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                                                | Net cash provided (used) by operating activities                                                                    |                                              |           | (9,038       | )      |       |        | (1,345 | )       |           |         | (4,285    | )            |     |               | 1,045       |        |       |              | 6,118  |        |   |        |  |         |       |         | (7,505 | )      
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|INVESTING ACTIVITIES                                 |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |        
|                                                     | Capital expenditures                                                                                                           |                                                                                                                     |                                              | (909      | )            |        |       | (1,626 | )      |         |           |        |           |              |     | (726          | )           |        |       | (1,837       | )      |        |   |       |   |         |       | (5,098  | )     
|                                                     | Proceeds from sale of assets                                                                                                   |                                                                                                                     |                                              |          |              |        |       | 1,320  |        |         |           |        |           |              |     |              |             |        |       | 33           |        |        |   |       |   |         |       | 1,353   |       
|                                                     | Other investing                                                                                                                |                                                                                                                     |                                              | (119      | )            |        |       |       |        |         |           |        |           |              |     | (154          | )           |        |       | 154          |        |        |   |       |   |         |       | (119    | )     
|                                                     | Discontinued operations                                                                                                        |                                                                                                                     |                                              |          |              |        |       |       |        |         |           |        |           |              |     |              |             |        |       | (93          | )      |        |   |       |   |         |       | (93     | )     
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                                                | Net cash (used) by investing activities                                                                             |                                              |           | (1,028       | )      |       |        | (306   | )       |           |         |          |              |     |               | (880        | )      |       |              | (1,743 | )      |   |        |  |         |       |         | (3,957 | )      
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|FINANCING ACTIVITIES                                 |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |        |        |   |        |   |         |       |        
|                                                     | Net increase in book overdraft                                                                                                 |                                                                                                                     |                                              |          |              |        |       | 1,930  |        |         |           |        |           |              |     |              |             |        |       |             |        |        |   |       |   |         |       | 1,930   |       
|                                                     | Net increase (decrease) in short-term debt                                                                                     |                                                                                                                     |                                              | (7,083    | )            |        |       |       |        |         |           |        |           |              |     |              |             |        |       | 34           |        |        |   |       |   |         |       | (7,049  | )     
|                                                     | Proceeds from long-term debt                                                                                                   |                                                                                                                     |                                              | 19,107    |              |        |       |       |        |         |           | 4,284   |           |              |     |              |             |        |       | 901          |        |        |   |       |   |         |       | 24,292  |       
|                                                     | Payments of long-term debt                                                                                                     |                                                                                                                     |                                              |          |              |        |       | (103   | )      |         |           |        |           |              |     |              |             |        |       | (3,810       | )      |        |   |       |   |         |       | (3,913  | )     
|                                                     | Proceeds from capital contribution from PAHC Holdings Corporation                                                              |                                                                                                                     |                                              | 26,400    |              |        |       |       |        |         |           |        |           |              |     |              |             |        |       |             |        |        |   |       |   |         |       | 26,400  |       
|                                                     | Redemption of Series C preferred stock                                                                                         |                                                                                                                     |                                              | (26,400   | )            |        |       |       |        |         |           |        |           |              |     |              |             |        |       |             |        |        |   |       |   |         |       | (26,400 | )     
|                                                     | Debt financing costs                                                                                                           |                                                                                                                     |                                              | (2,027    | )            |        |       |       |        |         |           |        |           |              |     |              |             |        |       |             |        |        |   |       |   |         |       | (2,027  | )     
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|                                                     |                                                                                                                                | Net cash provided (used) by financing activities                                                                    |                                              |           | 9,997        |        |       |        | 1,827  |         |           |         | 4,284     |              |     |               |            |        |       |              | (2,875 | )      |   |        |  |         |       |         | 13,233 |        
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|Effect of exchange rate changes on cash              |                                                                                                                                |                                                                                                                     |                                             |           |              |        | 8     |        |        |         |          |         |           |              | 16  |               |             |        | 42    |              |        |        |  |        |   |         | 66    |        
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                                                |                                                                                                                     | (69                                          | )         |              |        | 184   |        |        |         | (1        | )       |           |              | 181 |               |             |        | 1,542 |              |        |        |  |        |   |         | 1,837 |        
|Cash and cash equivalents at beginning of period     |                                                                                                                                |                                                                                                                     | 136                                          |           |              |        | 801   |        |        |         | 17        |         |           |              | 212 |               |             |        | 4,402 |              |        |        |  |        |   |         | 5,568 |        
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       
|Cash and cash equivalents at end of period           |                                                                                                                                | $                                                                                                                   | 67                                           |           |              | $      | 985   |        |        | $       | 16        |         |           | $            | 393 |               |             | $      | 5,944 |              |        | $      |  |        |   | $       | 7,405 |        
|                                                     |                                                                                                                                |                                                                                                                     |                                              |           |              |        |       |        |        |         |           |         |           |              |     |               |             |        |       |              |       

27



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



General






| |                           
| | --------------------------
| | Belgium Plant Transactions

cleaning-up forty-two






28



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|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |   |        |   |  |   |        |  
|-------------------------------------------------------------------- |  | -------------------------------- | ------ |  | ------------------ | - | ----- | ------------ |  | - | --------- | - |  | --------- | --- |  | ---------- | - | ------ | - |  | - | ------ | -
|                                                                     |  | Belgium Plant Transactions Costs |       
|                                                                     |  |                                  |       
|                                                                     |  | Twelve                           |        |  |                    |   | Nine  |              |  |  
|                                                                     |  | Months                           |        |  | Three Months Ended |   |       | Months       |  |   |          
|                                                                     |  | Ended                            |        |  |                    |   |       | Ended        |  |   |          
|                                                                     |  | June 30,                         |        |  | September 30,      |   |       | December 31, |  |   | March 31, |   |  | March 31, |     |  | Cumulative |  
|                                                                     |  | 2005                             |        |  | 2005               |   |       | 2005         |  |   | 2006      |   |  | 2006      |     |  | Total      |  
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  
|Incremental depreciation                                             |  | $                                | 7,467  |  |                    | $ | 2,747 |              |  | $ | 1,786     |   |  | $         |    |  |            | $ | 4,533  |   |  | $ | 12,000 |  
|Employee termination expenses                                        |  |                                  | 12,808 |  |                    |   | 287   |              |  |   | 699       |   |  |           |    |  |            |   | 986    |   |  |   | 13,794 |  
|Other transaction-related expenses                                   |  |                                  | 1,916  |  |                    |   | 979   |              |  |   | 3,759     |   |  |           | 975 |  |            |   | 5,713  |   |  |   | 7,629  |  
|Net (gain) on the curtailment and settlement of the pension
    plan |  |                                  |       |  |                    |   |      |              |  |   | (432      | ) |  |           |    |  |            |   | (432   | ) |  |   | (432   | )
|(Gain) on the sale of the Belgium Plant and excess land              |  |                                  |       |  |                    |   | (510  | )            |  |   | (79       | ) |  |           |    |  |            |   | (589   | ) |  |   | (589   | )
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  
|                                                                     |  | $                                | 22,191 |  |                    | $ | 3,503 |              |  | $ | 5,733     |   |  | $         | 975 |  |            | $ | 10,211 |   |  | $ | 32,402 |  
|                                                                     |  |                                  |        |  |                    |   |       |              |  |   |           |   |  |           |     |  |            |  









Risks and Uncertainties


7 8




29



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##### Table of Contents













Summary Consolidated Results of Continuing Operations


|                                    |  |                    |         |   |                   |   |        |      |  |   |         |   |  |   |         |  
|----------------------------------- |  | ------------------ | ------- | - | ----------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                    |  | Three Months Ended |         |   | Nine Months Ended |  
|                                    |  | March 31,          |         |   | March 31,         |  
|                                    |  |                    |         |   |                   |  
|                                    |  | 2006               |         |   | 2005              |   |        | 2006 |  |   | 2005    |  
|                                    |  |                    |         |   |                   |   |        |      |  |   |         |  
|                                    |  | (In thousands)     |        
|Net sales                           |  | $                  | 100,905 |   |                   | $ | 90,255 |      |  | $ | 293,211 |   |  | $ | 269,169 |  
|Belgium plant transaction costs     |  |                    | 975     |   |                   |   | 4,372  |      |  |   | 10,211  |   |  |   | 13,908  |  
|Gross profit                        |  |                    | 24,463  |   |                   |   | 18,751 |      |  |   | 63,868  |   |  |   | 54,487  |  
|Selling, general and administrative |  |                    | 17,527  |   |                   |   | 17,019 |      |  |   | 49,372  |   |  |   | 49,771  |  
|Operating income                    |  |                    | 6,936   |   |                   |   | 1,732  |      |  |   | 14,496  |   |  |   | 4,716   |  
|Interest expense, net               |  |                    | 6,673   |   |                   |   | 6,738  |      |  |   | 18,924  |   |  |   | 18,579  |  
|Other (income) expense, net         |  |                    | 31      |   |                   |   | 77     |      |  |   | (2,561  | ) |  |   | (691    | )
|Provision for income taxes          |  |                    | 1,591   |   |                   |   | 773    |      |  |   | 4,298   |   |  |   | 699     |  
|Loss from continuing operations     |  | $                  | (1,359  | ) |                   | $ | (5,856 | )    |  | $ | (6,165  | ) |  | $ | (13,871 | )

Comparison of Three Months Ended March 31, 2006 and
2005


Net Sales


Gross Profit


30



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Selling, General and Administrative Expenses


Operating Income


Interest Expense, Net


Other (Income) Expense, Net


Income Taxes


Comparison of Nine Months Ended March 31, 2006 and
2005


Net Sales


Gross Profit


Selling, General and Administrative Expenses


Operating Income


31



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Interest Expense, Net


Other (Income) Expense, Net


Income Taxes


Operating Segments




|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |         |  
|---------------------------------- | ------------------------------------ | ------------------ | ------- | ------ | ----------------- | - | ------ | ------ | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                   |                                      | Three Months Ended |         |        | Nine Months Ended |  
|                                   |                                      | March 31,          |         |        | March 31,         |  
|                                   |                                      |                    |         |        |                   |  
|                                   |                                      | 2006               |         |        | 2005              |   |        | 2006   |   |   | 2005    |        
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        
|                                   |                                      | (In thousands)     |        
|Net Sales                          |                                      |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|Animal Health & Nutrition          |                                      | $                  | 79,733  |        |                   | $ | 68,405 |        |   | $ | 233,471 |         |   | $ | 203,699 |        
|Industrial Chemicals               |                                      |                    | 10,264  |        |                   |   | 13,412 |        |   |   | 31,992  |         |   |   | 40,047  |        
|Distribution                       |                                      |                    | 10,908  |        |                   |   | 8,438  |        |   |   | 27,748  |         |   |   | 25,423  |        
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        
|Total                              |                                      | $                  | 100,905 |        |                   | $ | 90,255 |        |   | $ | 293,211 |         |   | $ | 269,169 |        
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        
|Operating Income                   |                                      |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|Animal Health & Nutrition          |                                      |                    |         |        |                   |   |        |        |   |   |         |         |   |   |         |        
|                                   | Excluding Belgium Plant Transactions |                    | $       | 10,646 |                   |   | $      | 7,529  |   |   | $       | 30,256  |   |   | $       | 22,764  |  
|                                   | Belgium Plant Transactions           |                    |         | (975   | )                 |   |        | (4,372 | ) |   |         | (10,211 | ) |   |         | (13,908 | )
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        
|                                   | Total                                |                    |         | 9,671  |                   |   |        | 3,157  |   |   |         | 20,045  |   |   |         | 8,856   |  
|Industrial Chemicals               |                                      |                    | (35     | )      |                   |   | 1,371  |        |   |   | 2,078   |         |   |   | 3,541   |        
|Distribution                       |                                      |                    | 1,705   |        |                   |   | 1,158  |        |   |   | 4,366   |         |   |   | 3,414   |        
|Corporate expenses and adjustments |                                      |                    | (4,405  | )      |                   |   | (3,954 | )      |   |   | (11,993 | )       |   |   | (11,095 | )      
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        
|Total                              |                                      | $                  | 6,936   |        |                   | $ | 1,732  |        |   | $ | 14,496  |         |   | $ | 4,716   |        
|                                   |                                      |                    |         |        |                   |   |        |        |   |   |         |        

Operating Segments Comparison of Three Months Ended
March 31, 2006 and 2005




| |                            
| | ---------------------------
| | Animal Health and Nutrition

Net Sales


32



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Operating Income




| |                    
| | -------------------
| | Specialty Chemicals

Industrial Chemicals


Distribution


Operating Segments Comparison of Nine Months Ended
March 31, 2006 and 2005




| |                            
| | ---------------------------
| | Animal Health and Nutrition

Net Sales


Operating Income




| |                    
| | -------------------
| | Specialty Chemicals

Industrial Chemicals


Distribution


Discontinued Operations




33



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|                                             |  |                    |       |  |                   |   |       | 
|-------------------------------------------- |  | ------------------ | ----- |  | ----------------- | - | ----- | 
|                                             |  | Three Months Ended |       |  | Nine Months Ended |  
|                                             |  | March 31, 2005     |       |  | March 31, 2005    |  
|                                             |  |                    |       |  |                   |  
|                                             |  | (In thousands)     |      
|Net sales                                    |  | $                  | 1,487 |  |                   | $ | 3,908 | 
|Cost of goods sold                           |  |                    | 924   |  |                   |   | 2,590 | 
|Selling, general and administrative expenses |  |                    | 174   |  |                   |   | 511   | 
|Other expense                                |  |                    | 5     |  |                   |   | 6     | 
|                                             |  |                    |       |  |                   |  
|Income before income taxes                   |  |                    | 384   |  |                   |   | 801   | 
|Provision for income taxes                   |  |                    | 112   |  |                   |   | 226   | 
|                                             |  |                    |       |  |                   |  
|Income from operations                       |  | $                  | 272   |  |                   | $ | 575   | 
|                                             |  |                    |       |  |                   |  
|Depreciation and amortization                |  | $                  | 105   |  |                   | $ | 309   | 
|                                             |  |                    |       |  |                   |  

Liquidity and Capital Resources


Net Cash Provided (Used) by Operating Activities.


Net Cash Provided (Used) by Investing Activities.


Net Cash Provided (Used) by Financing Activities.


Working Capital and Capital Expenditures.




Liquidity.




34



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7 8




|                                                                             |                               |                |        |        |                   |   |         |                   |  |   |              |       |  |       |       |       |  |   |         |         | 
|---------------------------------------------------------------------------- | ----------------------------- | -------------- | ------ | ------ | ----------------- | - | ------- | ----------------- |  | - | ------------ | ----- |  | ----- | ----- | ----- |  | - | ------- | ------- | 
|                                                                             |                               | Within 1 Year  |        |        | Over 1 to 3 Years |   |         | Over 3 to 5 Years |  |   | Over 5 Years |       |  | Total |      
|                                                                             |                               |                |        |        |                   |   |         |                   |  |   |              |       |  |       |      
|                                                                             |                               | (In thousands) |       
|Loans payable to banks                                                       |                               | $              |       |        |                   | $ |        |                   |  | $ |             |       |  | $     |      |       |  | $ |        |        
|Long-term debt (including current portion)                                   |                               |                | 223    |        |                   |   | 176,451 |                   |  |   |             |       |  |       |      |       |  |   | 176,674 |        
|Interest payments                                                            |                               |                | 21,954 |        |                   |   | 18,247  |                   |  |   |             |       |  |       |      |       |  |   | 40,201  |        
|Lease commitments                                                            |                               |                | 1,407  |        |                   |   | 2,352   |                   |  |   | 1,682        |       |  |       | 1,078 |       |  |   | 6,519   |        
|Acquisition of rights                                                        |                               |                | 350    |        |                   |   | 550     |                   |  |   |             |       |  |       |      |       |  |   | 900     |        
|Employee termination payments relating to the Belgium Plant
    Transactions |                               |                | 10,333 |        |                   |   |        |                   |  |   |             |       |  |       |      |       |  |   | 10,333  |        
|Payments to GSK relating to the Belgium                                      |                               |                |        |        |                   |   |         |                   |  |   |              |       |  |       |       |       |  |   |         |        
|                                                                             | Plant Transactions            |                |        | 2,670  |                   |   |         | 3,642             |  |   |              | 607   |  |       |       |      |  |   |         | 6,919   | 
|                                                                             |                               |                |        |        |                   |   |         |                   |  |   |              |       |  |       |      
|                                                                             | Total contractual obligations |                | $      | 36,937 |                   |   | $       | 201,242           |  |   | $            | 2,289 |  |       | $     | 1,078 |  |   | $       | 241,546 | 
|                                                                             |                               |                |        |        |                   |   |         |                   |  |   |              |       |  |       |      



35



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##### Table of Contents



Critical Accounting Policies




10-K


New Accounting Pronouncements




Quantitative and Qualitative Disclosure About Market Risk




10-K


Certain Factors Affecting Future Operating Results




| |                           
| | --------------------------
| | Forward-Looking Statements

10-Q




36



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##### Table of Contents







| |   |                                                                                                                                                                             
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our substantial leverage and potential inability to service our
    debt                                                                                                    
|
| |  | our dependence on distributions from our subsidiaries                                                                                                                       
|
| |  | risks associated with our international operations and
    significant foreign assets                                                                                       
|
| |  | our dependence on our Israeli operations                                                                                                                                    
|
| |  | competition in each of our markets                                                                                                                                          
|
| |  | potential environmental liability                                                                                                                                           
|
| |  | potential legislation affecting the use of medicated feed
    additives                                                                                                     
|
| |  | extensive regulation by numerous government authorities in the
    United States and other countries                                                                        
|
| |  | our reliance on the continued operation and sufficiency of our
    manufacturing facilities, including the transition of
    virginiamycin production to our Brazil facility
|
| |  | our reliance upon unpatented trade secrets                                                                                                                                  
|
| |  | the risks of legal proceedings and general litigation expenses                                                                                                              
|
| |  | potential operating hazards and uninsured risks                                                                                                                             
|
| |  | the risk of work stoppages                                                                                                                                                  
|
| |  | our dependence on key personnel                                                                                                                                             












|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures about Market
    Risk

10-Q.







|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures



37



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##### Table of Contents



15d-15(e)









PART II  OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings








|        |                  
|------- | -----------------
|Item 5. | Other Information








|        |         
|------- | --------
|Item 6. | Exhibits

|            |         |             |  |                                                                                                                                                                                                                                                                                                                         
|----------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         | Description
|            |         |            
|            | 10.27.7 |             |  | Amendment Number Seven dated April 18, 2006 to Loan and
    Security Agreement dated October 21, 2003, by and among,
    the lenders identified on the signature pages thereto, Wells
    Fargo Foothill, Inc., and Registrant, and each of
    Registrants Subsidiaries identified on the signature pages
    thereto.
|            | 31.1    |             |  | Certification of Gerald K. Carlson, Chief Executive Officer,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                 
|            | 31.2    |             |  | Certification of Jack C. Bendheim, Chairman of the Board,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                    
|            | 31.3    |             |  | Certification of Richard G. Johnson, Chief Financial Officer,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                
|            | 32      |             |  | Section 1350 Certifications of Phibro Animal Health
    Corporation.                                                                                                                                                                                                                                                    

38



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##### Table of Contents






SIGNATURES


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




| |                                 
| | --------------------------------
| | PHIBRO ANIMAL HEALTH CORPORATION



| |     |                     
| | --- | --------------------
| | By: | /s/ JACK C. BENDHEIM

| |                      
| | ---------------------
| |                      
| | Jack C. Bendheim     
| | Chairman of the Board





| |     |                      
| | --- | ---------------------
| | By: | /s/ GERALD K. CARLSON

| |                        
| | -----------------------
| |                        
| | Gerald K. Carlson      
| | Chief Executive Officer





| |     |                       
| | --- | ----------------------
| | By: | /s/ RICHARD G. JOHNSON

| |                                 
| | --------------------------------
| |                                 
| | Richard G. Johnson              
| | Chief Financial Officer         
| | (Principal Financial Officer and
| | Principal Accounting Officer)   



39



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Exhibit Index


|            |         |             |  |                                                                                                                                                                                                                                                                                                                         
|----------- | ------- | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |         | Description
|            |         |            
|            | 10.27.7 |             |  | Amendment Number Seven dated April 18, 2006 to Loan and
    Security Agreement dated October 21, 2003, by and among,
    the lenders identified on the signature pages thereto, Wells
    Fargo Foothill, Inc., and Registrant, and each of
    Registrants Subsidiaries identified on the signature pages
    thereto.
|            | 31.1    |             |  | Certification of Gerald K. Carlson, Chief Executive Officer,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                 
|            | 31.2    |             |  | Certification of Jack C. Bendheim, Chairman of the Board,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                    
|            | 31.3    |             |  | Certification of Richard G. Johnson, Chief Financial Officer,
    required by Rule 15d-14(a) of the Act.                                                                                                                                                                                                                
|            | 32      |             |  | Section 1350 Certifications of Phibro Animal Health
    Corporation.                                                                                                                                                                                                                                                    

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