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                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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                                    FORM 10-Q

               (Mark One)

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

                For the quarterly period ended September 30, 2004

                                       OR

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

             For the transition period from _________ to __________.

                        Commission File Number 333-64641
                        --------------------------------

                        Phibro Animal Health Corporation

             (Exact name of registrant as specified in its charter)

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

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


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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  Registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.

                        Yes |X| *              No |_|

Indicate  by check mark  whether  the  Registrant  is an  accelerated  filer (as
defined in Rule 12b-2 of the Exchange Act).

                        Yes |_|                No |X|

Number of shares of each class of common stock  outstanding  as of September 30,
2004:

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

* By virtue of Section 15(d) of the  Securities  Act of 1934,  the Registrant is
not subject to such filing  requirements and not required to file this Quarterly
Report, but has provided all such reports as if so required during the preceding
12 months.

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<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                                TABLE OF CONTENTS

                                                                         Page
                                                                         ----

PART I FINANCIAL INFORMATION (Unaudited)
       Item 1. Condensed Consolidated Financial Statements ...........    3
               Condensed Consolidated Balance Sheets .................    4
               Condensed Consolidated Statements of
                 Operations and Comprehensive Income .................    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 ...................   23

       Item 3. Quantitative and Qualitative Disclosures
                 About Market Risk ...................................   30

       Item 4. Controls and Procedures ...............................   30

PART II OTHER INFORMATION
       Item 5. Other Information .....................................   31

       Item 6.  Exhibits .............................................   31

SIGNATURES ...........................................................   32


                                       2
<PAGE>

This Form 10-Q  contains  "forward-looking  statements"  within  the  meaning of
Section 27A of the  Securities  Act of 1933, as amended,  and Section 21E of the
Securities Exchange Act of 1934, as amended.  The Company's actual results could
differ  materially  from  those  set  forth in the  forward-looking  statements.
Certain  factors  that  might  cause  such a  difference  are  discussed  in the
Company's  Annual  Report on Form 10-K for its fiscal  year ended June 30,  2004
and/or  throughout  this Form 10-Q and in particular in Item 2 of Part I of this
Form  10-Q  under  the  caption  "Certain  Factors  Affecting  Future  Operating
Results." Unless the context  otherwise  requires,  references in this report to
the  "Company" or to "we" or "our" refers to Phibro  Animal  Health  Corporation
and/or one or more of its subsidiaries, as applicable.

PART I -- FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

                                       3
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

                CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

                                 (In Thousands)

                                                      September 30,    June 30,
                                                          2004          2004
                                                     --------------   ----------
                                     ASSETS
                                     ------

CURRENT ASSETS:
  Cash and cash equivalents                             $  5,778      $  5,568
  Trade receivables, less allowance for
    doubtful accounts of $1,344 at
    September 30, 2004 and $1,358
    at June 30, 2004                                      52,721        57,658
  Other receivables                                        3,440         2,766
  Inventories                                             87,122        79,910
  Prepaid expenses and other current assets                7,707         8,688
                                                        --------      --------

      TOTAL CURRENT ASSETS                               156,768       154,590

PROPERTY, PLANT AND EQUIPMENT, net                        59,818        58,786

INTANGIBLES                                               11,354        11,695

OTHER ASSETS                                              15,611        16,298
                                                        --------      --------

                                                        $243,551      $241,369
                                                        ========      ========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT
                      -------------------------------------

CURRENT LIABILITIES:
  Cash overdraft                                       $     654     $     891
  Loans payable to banks                                  11,268        10,996
  Current portion of long-term debt                          953         1,351
  Accounts payable                                        38,892        46,972
  Accrued expenses and other current liabilities          47,331        40,010
                                                       ---------     ---------

      TOTAL CURRENT LIABILITIES                           99,098       100,220

LONG-TERM DEBT                                           157,992       158,018

OTHER LIABILITIES                                         22,676        22,286
                                                       ---------     ---------

      TOTAL LIABILITIES                                  279,766       280,524
                                                       ---------     ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
  Series C preferred stock                                25,359        24,678
                                                       ---------     ---------

STOCKHOLDERS' DEFICIT:
  Series A preferred stock                                   521           521
  Common stock                                                 2             2
  Paid-in capital                                            860           860
  Accumulated deficit                                    (58,787)      (57,964)
  Accumulated other comprehensive income (loss):
    Gain on derivative instruments                            84             9
    Cumulative currency translation adjustment            (4,254)       (7,261)
                                                       ---------     ---------

      TOTAL STOCKHOLDERS' DEFICIT                        (61,574)      (63,833)
                                                       ---------     ---------

                                                       $ 243,551     $ 241,369
                                                       =========     =========

       See notes to unaudited Condensed Consolidated Financial Statements


                                       4
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

    CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                                  (Unaudited)

             For the Three Months Ended September 30, 2004 and 2003

                                 (In Thousands)

                                                             2004        2003
                                                          ----------  ----------

NET SALES                                                  $ 88,275    $ 84,950

COST OF GOODS SOLD                                           65,653      63,790
                                                           --------    --------

    GROSS PROFIT                                             22,622      21,160

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                 16,594      15,785
                                                           --------    --------

    OPERATING INCOME                                          6,028       5,375

OTHER:
    Interest expense                                          5,246       3,933
    Interest (income)                                           (25)       (242)
    Other (income) expense, net                                  24        (585)
                                                           --------    --------

    INCOME FROM CONTINUING OPERATIONS
       BEFORE INCOME TAXES                                      783       2,269

PROVISION FOR INCOME TAXES                                      924         783
                                                           --------    --------

    INCOME (LOSS) FROM CONTINUING OPERATIONS                   (141)      1,486

DISCONTINUED OPERATIONS:
    (Loss) from discontinued operations
      (net of income taxes)                                      --        (462)
    Gain on disposal of discontinued operations
       (net of income taxes)                                     --         231
                                                           --------    --------

    NET INCOME (LOSS)                                          (141)      1,255

OTHER COMPREHENSIVE INCOME (LOSS):
    Change in derivative instruments, net of tax                 75         317
    Change in currency translation adjustment                 3,007        (859)
                                                           --------    --------

    COMPREHENSIVE INCOME                                   $  2,941    $    713
                                                           ========    ========

    NET INCOME (LOSS)                                          (141)      1,255

Dividends and equity value accreted on Series B and C
    redeemable preferred stock                                 (682)       (987)
                                                           --------    --------

    NET INCOME (LOSS) AVAILABLE TO
       COMMON SHAREHOLDERS                                 $   (823)   $    268
                                                           ========    ========

       See notes to unaudited Condensed Consolidated Financial Statements


                                       5
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
     CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT
                                   (Unaudited)
                  For the Three Months Ended September 30, 2004

                                 (In Thousands)


<TABLE>
<CAPTION>
                                                                                           Accumulated
                                 Preferred          Common                                    Other
                                  Stock             Stock          Paid-in   Accumulated  Comprehensive
                                            --------------------
                                 Series A    Class A    Class B    Capital     Deficit    Income (Loss)   Total
                               -----------  ---------  ---------  ---------- -----------  ------------- ----------

<S>                             <C>         <C>         <C>        <C>        <C>           <C>           <C>
Balance, June 30, 2004          $    521    $      1    $      1   $    860   $(57,964)     $ (7,252)     $(63,833)

 Dividends on Series C
  redeemable preferred stock                                                      (668)                       (668)

 Equity value accreted on
  Series C redeemable
  preferred stock                                                                  (14)                       (14)

 Change in derivative
  instruments, net of tax                                                                         75            75

 Foreign currency translation
  adjustment                                                                                   3,007         3,007

 Net (loss)                                                                       (141)                      (141)
                                --------    --------    --------   --------   --------      --------      --------

Balance, September 30, 2004     $    521    $      1    $      1   $    860   $(58,787)     $ (4,170)     $(61,574)
                                ========    ========    ========   ========   ========      ========      ========
</TABLE>

       See notes to unaudited Condensed Consolidated Financial Statements


                                       6
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

             For the Three Months Ended September 30, 2004 and 2003

                                 (In Thousands)

                                                             2004        2003
                                                           --------    --------
OPERATING ACTIVITIES:
  Net income (loss)                                        $   (141)   $  1,255
  Adjustment for discontinued operations                         --         231
                                                           --------    --------
  Income (loss) from continuing operations                     (141)      1,486

  Adjustments to reconcile income (loss)
    from continuing operations to net
    cash provided (used) by operating activities:
   Depreciation and amortization                              3,355       3,168
   Deferred income taxes                                         68          53
   Effects of changes in foreign currency                      (122)     (1,364)
   Other                                                         47         153

   Changes in operating assets and liabilities:
     Accounts receivable                                      4,689         832
     Inventories                                             (4,602)     (4,126)
     Prepaid expenses and other current assets                1,077           7
     Other assets                                                (1)       (375)
     Accounts payable                                        (8,580)     (5,483)
     Accrued expenses and other liabilities                   7,695       7,293
     Accrued costs of non-completed transaction              (1,100)         --
  Cash provided (used) by discontinued operations                --        (376)
                                                           --------    --------
     NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES         2,385       1,268
                                                           --------    --------

INVESTING ACTIVITIES:
  Capital expenditures                                       (1,748)       (852)
  Proceeds from sale of assets                                   12          12
  Discontinued operations                                        --      14,049
                                                           --------    --------
     NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES        (1,736)     13,209
                                                           --------    --------

FINANCING ACTIVITIES:
  Net increase (decrease) in cash overdraft                    (237)        731
  Net increase (decrease) in short-term debt                    272        (280)
  Proceeds from long-term debt                                  445       1,500
  Payments of long-term debt                                   (872)       (944)
  Discontinued operations                                        --          86
                                                           --------    --------
     NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES          (392)      1,093
                                                           --------    --------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                         (47)        168
                                                           --------    --------

     NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS       210      15,738

CASH AND CASH EQUIVALENTS at beginning of period              5,568      11,179
                                                           --------    --------

CASH AND CASH EQUIVALENTS at end of period                 $  5,778    $ 26,917
                                                           ========    ========

       See notes to unaudited Condensed Consolidated Financial Statements

                                       7
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

1. General

      Principles of Consolidation and Basis of Presentation:

      In the opinion of Phibro  Animal  Health  Corporation  (the  "Company"  or
"PAHC"), the accompanying  unaudited condensed consolidated financial statements
contain  all  adjustments  (consisting  only of  normal  recurring  adjustments)
necessary to present fairly its financial  position as of September 30, 2004 and
its results of  operations  and cash flows for the three months ended  September
30, 2004 and 2003.

      The condensed  consolidated  balance sheet as of June 30, 2004 was derived
from audited financial statements, but does not include all disclosures required
by accounting  principles generally accepted in the United States.  Additionally
it should be noted the accompanying  condensed consolidated financial statements
and notes  thereto have been prepared in accordance  with  accounting  standards
appropriate for interim  financial  statements.  While the Company believes that
the disclosures  presented are adequate to make the information contained herein
not  misleading,  it is suggested  that these  financial  statements  be read in
conjunction the Company's audited consolidated  financial statements as found in
the Company's annual report filed on Form 10-K for the year ended June 30, 2004.

      The Company's Mineral Resource Technologies,  Inc. ("MRT") and La Cornubia
S.A.  (France) ("La  Cornubia")  businesses have been classified as discontinued
operations  as  discussed  in  Note  6.  The  Company's  condensed  consolidated
financial  statements have been  reclassified to report separately the financial
position, operating results and cash flows of the discontinued operations. These
footnotes present information only for continuing  operations,  unless otherwise
noted.

      The results of  operations  for the three months ended  September 30, 2004
may not be indicative of results for the full year.

      New Accounting Pronouncements:

      The Company has reviewed the Statements of Financial  Accounting Standards
and the FASB Interpretations of the Financial Accounting Standards Board and has
determined  that no new  statements  or  interpretations  have been issued which
would apply to the Company's financial statements or disclosures.


2. Risks, Uncertainties, and Liquidity

      The  Company's  ability  to fund  its  operating  plan  depends  upon  the
continued  availability  of  borrowing  under its senior  credit  facility.  The
Company  believes that it will be able to comply with the terms of its covenants
under the senior credit facility based on its forecasted  operating plan. In the
event of adverse  operating  results  and/or  violation of covenants  under this
facility,  there can be no  assurance  that the Company  would be able to obtain
waivers or amendments on favorable  terms, if at all. The Company's  fiscal 2005
operating plan projects adequate liquidity  throughout the year, with periods of
reduced  availability around the dates of the semi-annual  interest payments due
November  1, 2004 and June 1, 2005  related  to its  senior  secured  and senior
subordinated   notes.   The  Company  is  pursuing   additional  cost  reduction
activities, working capital improvement plans, and sales of non-strategic assets
to ensure additional liquidity.  The Company also has availability under foreign
credit lines that likely would be available.  The Company also has  undertaken a
strategic review of its manufacturing capabilities,  and is currently increasing
inventory  levels of certain  products to enhance future supply  flexibility and
reduce costs. There can be no assurance the Company will be successful in any of
the above-noted actions.

      The use of  antibiotics  in  medicated  feed  additives  is a  subject  of
legislative  and  regulatory  interest.  The issue of  potential  for  increased
bacterial  resistance  to certain  antibiotics  used in  certain  food-producing
animals is the  subject of  discussions  on a  worldwide  basis and,  in certain
instances,  has led to  government  restrictions  on the use of  antibiotics  in
food-producing  animals. The sale of feed additives containing  antibiotics is a
material  portion  of  the  Company's  business.   Should  regulatory  or  other
developments  result in further  restrictions  on the sale of such products,  it
could  have a  material  adverse  impact on the  Company's  financial  position,
results of operations and cash flows.


                                       8
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)


      The testing,  manufacturing,  and  marketing  of certain of the  Company's
products are subject to extensive regulation by numerous government  authorities
in the United States and other countries.

      The Company has  significant  assets located outside of the United States,
and a significant  portion of the Company's sales and earnings are  attributable
to operations conducted abroad.

      The  Company  has assets  located in Israel and a portion of its sales and
earnings are  attributable  to  operations  conducted in Israel.  The Company is
affected by social,  political and economic conditions affecting Israel, and any
major hostilities  involving Israel as well as the Middle East or curtailment of
trade between  Israel and its current  trading  partners,  either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.

      The Company's  operations,  properties and  subsidiaries  are subject to a
wide  variety  of  complex  and  stringent  federal,  state,  local and  foreign
environmental laws and regulations,  including those governing the use, storage,
handling,  generation,  treatment,  emission, release, discharge and disposal of
certain  materials  and  wastes,   the  remediation  of  contaminated  soil  and
groundwater,  the  manufacture,  sale and use of  pesticides  and the health and
safety of employees.  As such,  the nature of the  Company's  current and former
operations  and  those  of  its   subsidiaries   exposes  the  Company  and  its
subsidiaries to the risk of claims with respect to such matters.

3. Inventories

      Inventories are valued at the lower of cost or market.  Cost is determined
principally under the first-in,  first-out (FIFO) and average methods.  Obsolete
and  unsaleable  inventories  are reflected at estimated net  realizable  value.
Inventory  costs include  materials,  direct labor and  manufacturing  overhead.
Inventories are comprised of:

                                               As of
                                      ----------------------
                                       September     June
                                       20, 2004    30, 2004
                                      ----------- ----------
                      Raw materials     $16,651    $16,313
                      Work-in-process     1,329      1,764
                      Finished goods     69,142     61,833
                                        -------    -------
                      Total inventory   $87,122    $79,910
                                        =======    =======


4. Intangibles

      Product intangible cost arising from the acquisition of the medicated feed
additive  business of Pfizer,  Inc.  and the  acquisition  of the rights to sell
amprolium  was  $14,832  and $14,925 at  September  30, 2004 and June 30,  2004,
respectively,  with  related  accumulated  amortization  of $3,478 and $3,230 at
September  30, 2004 and June 30, 2004,  respectively.  Amortization  expense was
$371  and  $304  for  the  three  months  ended  September  30,  2004  and  2003
respectively.

5. Prince Transactions

      Effective  December 26, 2003,  the Company  completed the  divestiture  of
substantially  all of the business and assets of Prince Quincy,  Inc. (f/k/a The
Prince  Manufacturing  Company  ("PMC")),  to  a  company  ("Buyer")  formed  by
Palladium  Equity  Partners II, LP and certain of its affiliates (the "Palladium
Investors"),  and the related reduction of the Company's preferred stock held by
the Palladium Investors (collectively, the "Prince Transactions").

      The divestiture of PMC has not been reflected as a discontinued  operation
due to the  existence  of the  Backstop  Indemnification  Amount and  continuing
supply and service agreements.


                                       9
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

      PMC is included in the Company's Industrial Chemicals segment. The results
      of operations of PMC were:

                                               Three Months Ended
                                                  September 30,
                                                      2003
                                               ------------------
             Net sales                               $5,683
             Operating income                         1,213
             Depreciation and amortization              243

6. Discontinued Operations

      The Company  divested  MRT and  shutdown La Cornubia  during  fiscal 2004.
These businesses have been classified as discontinued operations.

      Operating results and gain on sale of MRT were:

                                                     Three Months Ended
                                                       September 30,
                                                           2003
                                                     ------------------
                 OPERATING RESULTS:
                  Net sales                              $  3,327
                  Cost of goods sold                        3,135
                 Selling, general and
                     administrative expenses                  316
                                                         --------
                  Loss before income taxes                   (124)
                  Provision for income taxes                   --
                                                         --------
                  (Loss) from operations                 $   (124)
                                                         ========

                 GAIN ON SALE:
                  Current assets                         $ (5,813)
                  Property, plant & equipment - net
                     and other assets                     (10,703)
                  Current liabilities                       2,911
                  Net proceeds of sale                     13,836
                                                         --------
                  Gain on sale                           $    231
                                                         ========


                                       10
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

      Operating results of La Cornubia were:

                                                 Three Months Ended
                                                    September 30,
                                                       2003
                                                 ------------------
                   OPERATING RESULTS:
                    Net sales                         $ 2,220
                    Cost of goods sold                  2,216
                   Selling, general and
                       administrative expenses            376
                    Other (income)                        (50)
                    Interest expense                       16
                                                      -------
                    Loss before income taxes             (338)
                    Provision for income taxes             --
                                                      -------
                    Loss from operations              $  (338)
                                                      =======

                    Depreciation and amortization     $   100
                                                      =======


7. Debt

      Loans Payable to Banks

      At September 30, 2004,  loans payable to banks included  $11,268 under the
senior credit  facility  with Wells Fargo  Foothill,  Inc. The weighted  average
interest  rate under the senior  credit  facility  during the three months ended
September 30, 2004 was 4.5%.

      As of September 24, 2004, the Company  amended its senior credit  facility
to: (i) increase the aggregate amount of borrowings available under such working
capital and letter of credit  facilities from $27,500 to $32,500;  the amount of
aggregate  borrowings  available  under the working  capital  facility  remained
unchanged at $17,500;  (ii) amend the EBITDA  definition to exclude  charges and
expenses  related to  unsuccessful  acquisitions  and related  financings  in an
aggregate amount not to exceed $5,300 for the period  beginning  January 1, 2004
and ending June 30, 2004; (iii) amend the definition of Additional  Indebtedness
to  exclude  advances  under  the  working  capital  facility;  (iv)  amend  the
definition of Permitted  Investments to allow other  investments made during the
period from January 1, 2004 through June 30, 2004 in an aggregate  amount not to
exceed $336; and (v) establish covenant EBITDA levels for the periods after June
30, 2004.  The  amendment  was  effective  June 30, 2004 for items (i), (ii) and
(iii); effective January 1, 2004 for item (iv); and effective September 24, 2004
for item (v).

      As of September 30, 2004, the Company was in compliance with the financial
covenants of its senior credit  facility.  The senior credit facility  requires,
among other things,  the maintenance of certain levels of trailing  consolidated
and  domestic  EBITDA  (earnings  before  interest,   taxes,   depreciation  and
amortization)  calculated on a monthly basis, and an acceleration  clause should
an event of default (as defined in the agreement) occur. In addition,  there are
certain restrictions on additional borrowings, additional liens on the Company's
assets, guarantees,  dividend payments,  redemption or purchase of the Company's
stock,  sale of subsidiaries'  stock,  disposition of assets,  investments,  and
mergers and acquisitions.

      The senior credit facility contains a lock-box  requirement and a material
adverse  change clause should an event of default (as defined in the  agreement)
occur.  Accordingly,  the amounts outstanding have been classified as short-term
and are included in loans payable to banks in the consolidated balance sheet.


                                       11
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

      Long-Term Debt

                                                                 As of
                                                    ---------------------------
                                                     September 30,    June 30,
                                                         2004          2004
                                                    --------------- -----------
Senior secured notes due December 1, 2007              $105,000      $105,000

Senior subordinated notes due June 1, 2008               48,029        48,029
Foreign bank loans                                        5,912         6,237
Capitalized lease obligations and other                       4           103
                                                       --------      --------

                                                        158,945       159,369
Less:  current maturities                                   953         1,351
                                                       --------      --------
                                                       $157,992      $158,018
                                                       ========      ========

8. Employee Benefit Plans

      The Company and its domestic subsidiaries maintain noncontributory defined
benefit  pension  plans for all eligible  domestic  nonunion  employees who meet
certain  requirements  of age,  length of service and hours worked per year. The
Company's  Belgium  subsidiary  maintains  a defined  contribution  and  defined
benefit plan for eligible employees.

    Components of net periodic pension expense were:
                                                              Three Months Ended
                                                                September 30,
Domestic Pension Expense                                       2004      2003
                                                              -------  --------
Service cost - benefits earned during the year                 $ 287    $ 362
Interest cost on benefit obligation                              164      230
Expected return on plan assets                                  (150)    (210)
Amortization of initial unrecognized net transition (asset)       --       (1)
Amortization of prior service costs                              (17)     (41)
Amortization of net actuarial loss (gain)                          2       16
                                                               -----    -----
Net periodic pension cost - domestic                           $ 286    $ 356
                                                               =====    =====


                                                              Three Months Ended
                                                                September 30,
International Pension Expense                                 2004        2003
                                                             -------     -------
Service cost - benefits earned during the year                $ 122       $ 110
Interest cost on benefit obligation                              98          88
Expected return on plan assets                                  (79)        (71)
Amortization of net actuarial loss                                6           6
                                                              -----       -----
Net periodic pension cost - international                     $ 147       $ 133
                                                              =====       =====


                                       12
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

9. Contingencies

      Litigation:

      On or about April 17, 1997, CP Chemicals,  Inc. (a  subsidiary,  "CP") and
the  Company  were  served  with  a  complaint  filed  by  Chevron  U.S.A.  Inc.
("Chevron") in the United States  District Court for the District of New Jersey,
alleging  that the  operations  of CP at its Sewaren  plant  affected  adjoining
property owned by Chevron and alleging that the Company, as the parent of CP, is
also  responsible to Chevron.  In July 2002, a phased  settlement  agreement was
reached and a Consent  Order  entered by the Court.  That  settlement  is in the
process of being  implemented.  The Company's and CP's portion of the settlement
for past costs and expenses  through the entry of the Consent Order was $495 and
was included in selling,  general and administrative expenses in fiscal 2002 and
was paid in fiscal  2003.  The Consent  Order then  provides for a period of due
diligence  investigation of the property owned by Chevron. The investigation has
been  conducted and the results are under review.  The  investigation  costs are
being split with one other defendant,  Vulcan Materials Company. Upon completion
of the review of the  results  of the  investigation,  a  decision  will be made
whether to opt out of the  settlement  or  proceed.  If no party opts out of the
settlement,  the  Company  and CP  will  take  title  to the  adjoining  Chevron
property,  probably  through  the  use  of a  three-member  New  Jersey  limited
liability  company.  In preparation to move forward, a limited liability company
has been formed,  with Vulcan Materials Company as the third member. The Company
also has  commenced  negotiations  with  Chevron  regarding  its  allocation  of
responsibility  and associated  costs under the Consent  Order.  While the costs
cannot be  estimated  with any degree of  certainty  at this time,  the  Company
believes  that  insurance  recoveries  will be available to offset some of those
costs.

      The Company's  Phibro-Tech  subsidiary  was named in 1993 as a potentially
responsible  party  ("PRP") in  connection  with an action  commenced  under the
Federal Comprehensive  Environmental Response,  Compensation,  and Liability Act
("CERCLA") by the United  States  Environmental  Protection  Agency ("the EPA"),
involving a former third-party  fertilizer  manufacturing site in Jericho, South
Carolina.  An agreement has been reached under which such  subsidiary  agreed to
contribute up to $900 of which $635 has been paid as of September 30, 2004. Some
recovery from insurance and other sources is expected but has not been recorded.
The Company also has accrued its best estimate of any future costs.

      Phibro-Tech, Inc. has resolved certain alleged technical permit violations
with the California  Department of Toxic  Substances  Control and has reached an
agreement to pay $425 over a six year period ending October 2008.

      In February 2000, the EPA notified numerous parties of potential liability
for waste disposal at a licensed Casmalia, California disposal site, including a
business,  assets of which were  originally  acquired by a subsidiary in 1984. A
settlement has been reached in this matter and the Company has paid $171 in full
settlement.

      On or about  April 5, 2002,  the  Company  was  served,  as a  potentially
responsible  party,  with an  information  request  from the EPA  relating  to a
third-party  superfund site in Rhode Island.  The Company has  investigated  the
matter,  which relates to events in the 1950's and 1960's,  and management  does
not believe that the Company has any liability in this matter.

      On or about  August 13,  2004 the  Company  was served  with a Request for
Information  pursuant to Section 104 of CERCLA and Section 3007 of RCRA relating
to possible discharges into Turkey Creek in Sumter, South Carolina.  The Company
is preparing  its  response to the Request for  Information  and believes  that,
because its Sumter,  South  Carolina  facility is distant  from Turkey Creek and
does not discharge  into Turkey Creek,  the  likelihood of liability  associated
with this matter is remote.

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


                                       13
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

      Environmental Remediation:

      The Company's  operations,  properties and  subsidiaries  are subject to a
wide  variety  of  complex  and  stringent  federal,  state,  local and  foreign
environmental laws and regulations,  including those governing the use, storage,
handling,  generation,  treatment,  emission, release, discharge and disposal of
certain  materials  and  wastes,   the  remediation  of  contaminated  soil  and
groundwater,  the  manufacture,  sale and use of  pesticides  and the health and
safety of employees.  As such,  the nature of the  Company's  current and former
operations  and  those  of  its   subsidiaries   exposes  the  Company  and  its
subsidiaries  to the risk of claims with respect to such matters.  Under certain
circumstances,  the  Company or any of its  subsidiaries  might be  required  to
curtail  operations  until a  particular  problem is  remedied.  Known costs and
expenses under environmental laws incidental to ongoing operations are generally
included  within  operating  results.  Potential  costs and expenses may also be
incurred in connection with the repair or upgrade of facilities to meet existing
or new  requirements  under  environmental  laws or to  investigate or remediate
potential or actual  contamination and from time to time the Company establishes
reserves for such  contemplated  investigation  and  remediation  costs. In many
instances,  the  ultimate  costs  under  environmental  laws and the time period
during which such costs are likely to be incurred are difficult to predict.

      The Company's subsidiaries have, from time to time, implemented procedures
at  their  facilities   designed  to  respond  to  obligations  to  comply  with
environmental  laws.  The Company  believes that its operations are currently in
material  compliance with such environmental laws, although at various sites its
subsidiaries  are  engaged  in  continuing  investigation,   remediation  and/or
monitoring  efforts  to address  contamination  associated  with their  historic
operations.

      The  nature of the  Company's  and its  subsidiaries'  current  and former
operations  exposes the Company and its  subsidiaries to the risk of claims with
respect to environmental matters and the Company cannot assure it will not incur
material costs and  liabilities in connection  with such claims.  Based upon its
experience to date, the Company believes that the future cost of compliance with
existing  environmental  laws,  and  liability  for known  environmental  claims
pursuant to such environmental  laws, will not have a material adverse effect on
the Company's financial position.

      Based  upon  information  available,  the  Company  estimates  the cost of
litigation proceedings described above and the cost of further investigation and
remediation  of identified  soil and  groundwater  problems at operating  sites,
closed sites and  third-party  sites,  and closure  costs for closed sites to be
approximately  $2,870, which is included in current and long-term liabilities in
the  September 30, 2004  condensed  consolidated  balance  sheet  (approximately
$2,933 at June 30, 2004).


      10. Guarantees

      As part of the  Prince  Transactions  (Note  5),  as is  normal  for  such
transactions,  the Company has agreed to indemnify the  Palladium  Investors for
losses arising out of breach of representations,  warranties and covenants.  The
Company's maximum liability under such indemnification is limited to $15,000.

      The Company agreed to indemnify the Palladium  Investors for a portion, at
the rate of $0.65 for every dollar, of the amount they receive in respect of the
disposition of the Buyer for less than $21,000,  up to a maximum  payment by the
Company  of  $4,000  (the  "Backstop   Indemnification  Amount").  The  Backstop
Indemnification  Amount would be payable on the earlier to occur of July 1, 2008
or six months after the redemption  date of all of the Company's  Senior Secured
Notes due 2007 if such a  disposition  closes prior to such  redemption  and six
months after the closing of any such disposition if the disposition closes after
any such  redemption.  The  Company's  obligations  with respect to the Backstop
Indemnification  Amount will cease if the  Palladium  Investors do not close the
disposition  of the Buyer by January 1, 2009.  The  maximum  potential  Backstop
Indemnification  Amount  is  included  in  other  liabilities  on the  Company's
condensed consolidated balance sheet.

      The Company  established a $1,000 letter of credit escrow for two years to
collateralize its working capital  adjustment and certain other  indemnification
obligations relating to the Prince Transactions.


                                       14
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

11. Business Segments

      The  Company's  reportable  segments  are  Animal  Health  and  Nutrition,
Industrial Chemicals,  Distribution and All Other. Reportable segments have been
determined  primarily  on the basis of the nature of products  and  services and
certain  similar  operating  units have been  aggregated.  The Company's  Animal
Health and Nutrition segment manufactures and markets more than 500 formulations
and  concentrations  of medicated feed additives and nutritional  feed additives
including  antibiotics,  antibacterials,  anticoccidials,  anthelmintics,  trace
minerals,  vitamins,  vitamin  premixes  and other animal  health and  nutrition
products.  The Industrial Chemicals segment manufactures and markets a number of
chemicals   for   use  in  the   pressure-treated   wood,   chemical   catalyst,
semiconductor,  automotive,  and aerospace industries.  The Distribution segment
markets and  distributes  a variety of  industrial,  specialty  and fine organic
chemicals and intermediates  produced primarily by third parties.  The All Other
segment  manufactures  and markets a variety of specialty  custom  chemicals and
copper-based fungicides.  Intersegment sales and transfers were not significant.
The following segment data includes information only for continuing operations.

<TABLE>
<CAPTION>
                                           Animal
                                          Health &    Industrial                    All       Corporate &
Three Months Ended September 30, 2004     Nutrition    Chemicals   Distribution    Other         Other        Total
                                         ------------ ------------ ------------- ----------- ------------   ---------
<S>                                        <C>          <C>          <C>          <C>           <C>          <C>
Net sales                                  $65,806      $ 8,393      $ 7,661      $ 6,415       $    --      $88,275

Operating income/(loss)                      7,815          773          864          705        (4,129)       6,028

Depreciation and amortization                2,195          403            2          100           655        3,355

                                           Animal
                                          Health &    Industrial                    All       Corporate &
Three Months Ended September 30, 2003     Nutrition    Chemicals   Distribution    Other         Other        Total
                                         ------------ ------------ ------------- ----------- ------------   ---------
Net sales                                  $59,841      $11,982      $ 7,939      $ 5,188       $    --      $84,950

Operating income/(loss)                      6,900          822          841          669        (3,857)       5,375

Depreciation and amortization                2,029          649            3          115           372        3,168

                                           Animal
                                          Health &    Industrial                    All       Corporate &
Identifiable Assets                       Nutrition    Chemicals   Distribution    Other         Other        Total
                                         ------------ ------------ ------------- ----------- ------------   ---------
At September 30, 2004                     $188,620       25,632     $  8,607     $  5,818      $ 14,874     $243,551

At June 30, 2004                           185,601       26,146        7,715        5,696        16,211      241,369
</TABLE>

12. Consolidating Financial Statements

      The units of Senior Secured Notes due 2007,  consisting of US Senior Notes
issued by the Company  (the  "Parent  Issuer")  and Dutch Senior Notes issued by
Philipp Brothers  Netherlands III B.V. (the "Dutch  Issuer"),  are guaranteed by
certain  subsidiaries.  The Company and its U.S.  subsidiaries ("U.S.  Guarantor
Subsidiaries"),  excluding  PMC,  Prince MFG, LLC and MRT (until  divested) (the
"Unrestricted   Subsidiaries",   as  defined  in  the   indenture),   fully  and
unconditionally guarantee all of the Senior Secured Notes on a joint and several
basis. In addition,  the Dutch Issuer's  subsidiaries,  presently  consisting of
Phibro  Animal Health SA (the "Belgium  Guarantor"),  fully and  unconditionally
guarantee the Dutch Senior Notes. The Dutch issuer and the Belgium  Guarantor do
not guarantee the US Senior Notes.  Other foreign  subsidiaries  ("Non-Guarantor
Subsidiaries")  do not presently  guarantee the Senior Secured  Notes.  The U.S.
Guarantor  Subsidiaries  include all domestic  subsidiaries of the Company other
than the Unrestricted Subsidiaries and include: CP Chemicals, Inc., Phibro-Tech,
Inc., Prince  Agriproducts,  Inc,  Phibrochem,  Inc.,  Phibro  Chemicals,  Inc.,
Western Magnesium Corp., Phibro Animal Health Holdings,  Inc., and Phibro Animal
Health U.S., Inc.


                                       15
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

      The Senior  Subordinated  Notes due 2008, issued by the Parent Issuer, are
guaranteed by certain subsidiaries.  The Company's U.S. subsidiaries,  including
the U.S.  Guarantor  Subsidiaries and the Unrestricted  Subsidiaries,  fully and
unconditionally  guarantee the Senior  Subordinated Notes on a joint and several
basis. The Dutch Issuer, Belgium Guarantor and Non-Guarantor Subsidiaries do not
presently   guarantee  the  Senior   Subordinated   Notes.  The  U.S.  Guarantor
Subsidiaries and Unrestricted  Subsidiaries include all domestic subsidiaries of
the  Company  including:   CP  Chemicals,   Inc.,   Phibro-Tech,   Inc.,  Prince
Agriproducts,  Inc.,  PMC,  Prince MFG, LLC, MRT (until  divested),  Phibrochem,
Inc., Phibro  Chemicals,  Inc.,  Western  Magnesium Corp.,  Phibro Animal Health
Holdings, Inc., and Phibro Animal Health U.S., Inc.

      The  following   consolidating   financial  data  summarizes  the  assets,
liabilities  and  results of  operations  and cash  flows of the Parent  Issuer,
Unrestricted  Subsidiaries,  U.S. Guarantor Subsidiaries,  Dutch Issuer, Belgium
Guarantor and Non-Guarantor  Subsidiaries.  The Unrestricted Subsidiaries,  U.S.
Guarantor  Subsidiaries,  Dutch  Issuer,  Belgium  Guarantor  and  Non-Guarantor
Subsidiaries  are directly or indirectly  wholly owned as to voting stock by the
Company.

      Investments in  subsidiaries  are accounted for by the Parent Issuer using
the  equity  method.  Income  tax  expense  (benefit)  is  allocated  among  the
consolidating  entities based upon taxable income (loss) by jurisdiction  within
each group. The principal consolidation adjustments are to eliminate investments
in subsidiaries and intercompany balances and transactions.

                                       16
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

                      CONDENSED CONSOLIDATING BALANCE SHEET
                            As of September 30, 2004
<TABLE>
<CAPTION>

                                  Parent  Unrestricted U.S. Guarantor  Dutch     Belgium   Non-Guarantor Consolidation Consolidated
                                  Issuer  Subsidiaries Subsidiaries   Issuer    Guarantor  Subsidiaries  Adjustments    Balance
                                ------------------------------------------------------------------------------------------------
                                                                 ASSETS

CURRENT ASSETS:
<S>                             <C>         <C>         <C>         <C>         <C>          <C>          <C>          <C>
  Cash and cash equivalents     $     184   $      --   $     568   $      --   $     202    $   4,824    $      --    $   5,778
  Trade receivables                 2,828          --      27,208          --       2,015       20,670           --       52,721
  Other receivables                   338          --       1,942          --         133        1,027           --        3,440
  Inventory                         3,316          --      36,410          --      29,112       18,284           --       87,122
  Prepaid expenses and other        2,278          --         691          --         863        3,875           --        7,707
                                ------------------------------------------------------------------------------------------------
    TOTAL CURRENT ASSETS            8,944          --      66,819          --      32,325       48,680           --      156,768
                                ------------------------------------------------------------------------------------------------

Property, plant &
  equipment, net                      136          --      14,052          --      17,270       28,360           --       59,818

Intangibles                            --          --       4,146          --       1,544        5,664           --       11,354
Investment in subsidiaries        107,628          --       3,619       1,304          --           --     (112,551)          --
Intercompany                        8,802          --      59,723      20,853      (1,833)      (9,222)     (78,323)          --
Other assets                       14,051          --         833          --          --          727           --       15,611
                                ------------------------------------------------------------------------------------------------
                                $ 139,561   $      --   $ 149,192   $  22,157   $  49,306    $  74,209    $(190,874)   $ 243,551
                                ================================================================================================

                                                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
  Cash overdraft                $      --   $      --   $     654   $      --   $      --    $      --    $      --    $     654
  Loan payable to banks            11,268          --          --          --          --           --           --       11,268
  Current portion of
    long-term debt                     --          --           3          --          --          950           --          953
  Accounts payable                  3,985          --      24,014          --       1,567        9,326           --       38,892
  Accrued expenses and other       15,328          --       9,083         867      13,766        8,287           --       47,331
                                ------------------------------------------------------------------------------------------------
     TOTAL CURRENT LIABILITIES     30,581          --      33,754         867      15,333       18,563           --       99,098
                                ------------------------------------------------------------------------------------------------

Long-term debt                    133,029          --           1      20,000          --        4,962           --      157,992
Intercompany debt                      --          --          --          --      31,720       46,603      (78,323)          --
Other liabilities                  12,166          --       5,054          --         949        4,507           --       22,676
                                ------------------------------------------------------------------------------------------------
     TOTAL LIABILITIES            175,776          --      38,809      20,867      48,002       74,635      (78,323)     279,766
                                ------------------------------------------------------------------------------------------------

REDEEMABLE SECURITIES:
  Series C preferred stock         25,359          --          --          --          --           --           --       25,359
                                ------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY (DEFICIT):
  Series A preferred stock            521          --          --          --          --           --           --          521
  Common stock                          2          --          31          --          --           --          (31)           2
  Paid-in capital                     860          --     112,004          21          52        1,537     (113,614)         860
  Retained earnings
   (accumulated deficit)          (58,787)         --      (1,484)     (3,500)     (3,517)       6,807        1,694      (58,787)
  Accumulated other
    comprehensive
    income (loss):
    Gain on derivative
      instruments                      84          --          84          --          --           --          (84)          84
    Cumulative currency
     translation adjustment        (4,254)         --        (252)      4,769       4,769       (8,770)        (516)      (4,254)
                                ------------------------------------------------------------------------------------------------
     TOTAL STOCKHOLDERS'
      EQUITY (DEFICIT)            (61,574)         --     110,383       1,290       1,304         (426)    (112,551)     (61,574)
                                ------------------------------------------------------------------------------------------------

                                $ 139,561   $      --   $ 149,192   $  22,157   $  49,306    $  74,209    $(190,874)   $ 243,551
                                ================================================================================================
</TABLE>


                                       17
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)


                      CONSOLIDATING STATEMENT OF OPERATIONS
                  For The Three Months Ended September 30, 2004

<TABLE>
<CAPTION>
                                   Parent Unrestricted U.S. Guarantor   Dutch     Belgium   Non-Guarantor Consolidation Consolidated
                                   Issuer Subsidiaries Subsidiaries    Issuer    Guarantor  Subsidiaries  Adjustments     Balance
                                  ----------------------------------------------------------------------------------------------

<S>                               <C>          <C>        <C>          <C>         <C>         <C>          <C>         <C>
NET SALES                         $  5,929     $--        $ 56,675     $     --    $  1,668    $ 24,003     $     --    $ 88,275

NET SALES - INTERCOMPANY                56      --              93           --       6,204       1,075       (7,428)         --

  COST OF GOODS SOLD                 4,620      --          41,634           --       4,699      22,128       (7,428)     65,653
                                  ----------------------------------------------------------------------------------------------

GROSS PROFIT                         1,365      --          15,134           --       3,173       2,950           --      22,622

SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES            4,903      --           6,956            6         553       4,176           --      16,594
                                  ----------------------------------------------------------------------------------------------

OPERATING INCOME (LOSS)             (3,538)     --           8,178           (6)      2,620      (1,226)          --       6,028


OTHER:
  Interest expense                   4,352      --              (2)         650          11         235           --       5,246
  Interest (income)                     (1)     --              --           --          --         (24)          --         (25)
  Other (income) expense, net            1      --            (228)          --         (59)        310           --          24

  Intercompany interest and other   (7,527)     --           5,449         (660)        939       1,799           --          --

 (Profit) loss relating
   to subsidiaries                    (532)     --              --       (1,567)         --          --        2,099          --
                                  ----------------------------------------------------------------------------------------------

INCOME (LOSS) FROM
  CONTINUING OPERATIONS
  BEFORE INCOME TAXES                  169      --           2,959        1,571       1,729      (3,546)      (2,099)        783

PROVISION FOR INCOME TAXES             310      --             104           --         162         348           --         924
                                  ----------------------------------------------------------------------------------------------

INCOME (LOSS) FROM
  CONTINUING OPERATIONS               (141)     --           2,855        1,571       1,567      (3,894)      (2,099)       (141)

DISCONTINUED OPERATIONS:
  Profit (loss) relating to
    discontinued operations             --      --              --           --          --          --           --          --
 (Loss) from discontinued
    operations
   (net of income taxes)                --      --              --           --          --          --           --          --
  Gain (loss) from disposal of
    discontinued operations
   (net of income taxes)                --      --              --           --          --          --           --          --
                                  ----------------------------------------------------------------------------------------------

NET INCOME (LOSS)                 $   (141)    $--        $  2,855     $  1,571    $  1,567    $ (3,894)    $ (2,099)   $   (141)
                                  ==============================================================================================
</TABLE>


                                       18
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                  For the Three Months Ended September 30, 2004

<TABLE>
<CAPTION>
                                         Parent Unrestricted U.S.Guarantor Dutch   Belgium  Non-Guarantor Consolidation Consolidated
                                         Issuer Subsidiaries Subsidiaries  Issuer Guarantor Subsidiaries  Adjustments     Balance
                                         ----------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
<S>                                     <C>        <C>        <C>         <C>      <C>        <C>         <C>         <C>
 Net income (loss)                      $  (141)   $    --    $ 2,855     $ 1,571  $ 1,567    $(3,894)    $(2,099)    $  (141)
 Adjustment for discontinued
  operations                                 --         --         --          --       --         --          --          --
                                        --------------------------------------------------------------------------------------------
Income (loss) from continuing
  operations                               (141)        --      2,855       1,571    1,567     (3,894)     (2,099)       (141)

Adjustments to reconcile
 income (loss)
  from continuing operations
  to net cash provided (used)
  by operating activities:
 Depreciation and amortization              655         --        703          --      713      1,284          --       3,355
 Deferred income taxes                       --         --         --          --       --         68          --          68
 Net gain from sales of assets               --         --         --          --       --         (1)         --          (1)
 Effects of changes in
   foreign currency                          --         --       (227)         --      (59)       164          --        (122)
 Other                                        3         --         31          --       --         14          --          48
 Changes in operating assets
   and liabilities:
  Accounts receivable                      (161)        --        216          --      618      4,016          --       4,689
  Inventory                              (1,322)        --      3,251          --   (5,409)    (1,122)         --      (4,602)
  Prepaid expenses and other                896         --       (267)         --      107        341          --       1,077
  Other assets                             (175)        --        173          --       --          1          --          (1)
  Intercompany                           (2,988)         5     (2,153)     (2,238)   2,450      2,825       2,099          --
  Accounts payable                         (749)         6     (4,441)         --     (724)    (2,288)         --      (8,196)
  Accrued expenses and other              3,813         (1)       781         650      997        (29)         --       6,211
                                        --------------------------------------------------------------------------------------------
 NET CASH PROVIDED (USED) BY
 OPERATING ACTIVITIES                      (169)        10        922         (17)     260      1,379          --       2,385
                                        --------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
 Capital expenditures                       (55)        --       (834)         --     (274)      (585)         --      (1,748)
 Proceeds from sale of assets                --         --         --          --       --         12          --          12
                                        --------------------------------------------------------------------------------------------
  NET CASH PROVIDED (USED) BY
  INVESTING ACTIVITIES                      (55)        --       (834)         --     (274)      (573)         --      (1,736)
                                        --------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Net (decrease) in cash overdraft            --        (10)      (227)         --       --         --          --        (237)
 Net (decrease) in short-term debt          272         --         --          --       --         --          --         272
 Proceeds from long-term debt                --         --         --          --       --        445          --         445
 Payments of long-term debt                  --         --        (99)         --       --       (773)         --        (872)
                                        --------------------------------------------------------------------------------------------
  NET CASH PROVIDED (USED) BY
  FINANCING ACTIVITIES                      272        (10)      (326)         --       --       (328)         --        (392)
                                        --------------------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATE CHANGES
 ON CASH                                     --         --          5          --        4        (56)         --         (47)
                                        --------------------------------------------------------------------------------------------

NET INCREASE (DECREASE) IN CASH AND
 CASH EQUIVALENTS                            48         --       (233)        (17)     (10)       422          --         210

CASH AND CASH EQUIVALENTS
 at beginning of period                     136         --        801          17      212      4,402          --       5,568
                                        --------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS
 at end of period                       $   184    $    --    $   568     $    --  $   202    $ 4,824     $    --     $ 5,778
                                        ============================================================================================
</TABLE>


                                       19
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

                      CONDENSED CONSOLIDATING BALANCE SHEET
                               As of June 30, 2004

<TABLE>
<CAPTION>
                                 Parent   Unrestricted U.S. Guarantor  Dutch      Belgium   Non-Guarantor Consolidation Consolidated
                                 Issuer   Subsidiaries Subsidiaries    Issuer    Guarantor  Subsidiaries   Adjustments    Balance
                               -----------------------------------------------------------------------------------------------------

                                                               ASSETS

CURRENT ASSETS:
<S>                            <C>          <C>         <C>          <C>         <C>         <C>          <C>          <C>
 Cash and cash equivalents     $     136    $      --   $     801    $      17   $     212   $   4,402    $      --    $   5,568
 Trade receivables                 2,670           --      26,996           --       2,592      25,400           --       57,658
 Other receivables                   317          414       1,195           --          72         768           --        2,766
 Inventory                         1,994           --      37,890           --      23,159      16,867           --       79,910
 Prepaid expenses and other        3,195          110         565           --       1,018       3,800           --        8,688
                               -----------------------------------------------------------------------------------------------------
  TOTAL CURRENT ASSETS             8,312          524      67,447           17      27,053      51,237           --      154,590
                               -----------------------------------------------------------------------------------------------------

Property, plant &
 equipment, net                      105           --      13,730           --      17,321      27,630           --       58,786

Intangibles                           --           --       4,252           --       1,569       5,874           --       11,695
Investment in subsidiaries       125,355           --       3,619        1,604          --          --     (130,578)          --
Intercompany                     (14,995)      20,995      60,030       20,181       1,630     (12,497)     (75,344)          --
Other assets                      14,506           --       1,056           --          --         736           --       16,298
                               -----------------------------------------------------------------------------------------------------

                               $ 133,283    $  21,519   $ 150,134    $  21,802   $  47,573   $  72,980    $(205,922)   $ 241,369
                               =====================================================================================================

                                                LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
 Cash overdraft                $      --    $      10   $     881    $      --   $      --   $      --    $      --    $     891
 Loan payable to banks            10,996           --          --           --          --          --           --       10,996
 Current portion of
  long-term debt                      --           --         101           --          --       1,250           --        1,351
 Accounts payable                  4,734            9      28,434           --       2,258      11,537           --       46,972
 Accrued expenses and other       11,857          159       8,306          216      12,022       7,450           --       40,010
                               -----------------------------------------------------------------------------------------------------
   TOTAL CURRENT LIABILITIES      27,587          178      37,722          216      14,280      20,237           --      100,220
                               -----------------------------------------------------------------------------------------------------

Long-term debt                   133,029           --           2       20,000          --       4,987           --      158,018
Intercompany debt                     --           --          --           --      30,553      44,791      (75,344)          --
Other liabilities                 11,822           --       4,897           --       1,136       4,431           --       22,286
                               -----------------------------------------------------------------------------------------------------
   TOTAL LIABILITIES             172,438          178      42,621       20,216      45,969      74,446      (75,344)     280,524
                               -----------------------------------------------------------------------------------------------------

REDEEMABLE SECURITIES:
 Series C preferred stock         24,678           --          --           --          --          --           --       24,678
                               -----------------------------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY (DEFICIT):
 Series A preferred stock            521           --          --           --          --          --           --          521
 Common stock                          2            1          31           --          --          --          (32)           2
 Paid-in capital                     860           --     112,004           21          52       1,537     (113,614)         860
 Retained earnings
 (accumulated deficit)           (57,964)      21,340      (4,339)      (2,744)     (2,757)      8,374      (19,874)     (57,964)
 Accumulated other
  comprehensive                       --
  income (loss):
 Gain on derivative
  instruments                          9           --           9           --          --          --           (9)           9
 Cumulative currency
 translation adjustment           (7,261)          --        (192)       4,309       4,309     (11,377)       2,951       (7,261)
                               -----------------------------------------------------------------------------------------------------
   TOTAL STOCKHOLDERS'
    EQUITY (DEFICIT)             (63,833)      21,341     107,513        1,586       1,604      (1,466)    (130,578)     (63,833)
                               -----------------------------------------------------------------------------------------------------

                               $ 133,283    $  21,519   $ 150,134    $  21,802   $  47,573   $  72,980    $(205,922)   $ 241,369
                               =====================================================================================================
</TABLE>


                                       20
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

                      CONSOLIDATING STATEMENT OF OPERATIONS
                  For The Three Months Ended September 30, 2003

<TABLE>
<CAPTION>
                                    Parent   Unrestricted U.S. Guarantor  Dutch   Belgium Non-Guarantors Consolidation Consolidated
                                    Issuer   Subsidiaries Subsidiaries   Issuer  Guarantor Subsidiaries  Adjustments     Balance
                                  -------------------------------------------------------------------------------------------------

<S>                                <C>         <C>         <C>           <C>     <C>         <C>          <C>          <C>
NET SALES                          $  5,697    $  5,683    $ 48,095      $  --   $    992    $ 24,483     $     --     $ 84,950

NET SALES - INTERCOMPANY                 45       1,339         209         --      9,269         770      (11,632)          --

COST OF GOODS SOLD                    4,508       5,134      35,893         --      9,196      20,691      (11,632)      63,790
                                   ------------------------------------------------------------------------------------------------

 GROSS PROFIT                         1,234       1,888      12,411         --      1,065       4,562           --       21,160

SELLING, GENERAL AND
 ADMINISTRATIVE EXPENSES              4,673         675       6,221         --        524       3,692           --       15,785
                                   ------------------------------------------------------------------------------------------------

 OPERATING INCOME (LOSS)             (3,439)      1,213       6,190         --        541         870           --        5,375

OTHER:
 Interest expense                     3,712          11          --         --         --         210           --        3,933
 Interest (income)                       --          --          --         --        (30)       (212)          --         (242)
 Other (income) expense, net            228          --        (242)        --       (978)        407           --         (585)

 Intercompany interest and other     (5,992)      1,082       2,539         --        696       1,675           --           --

 (Profit) loss relating
    to subsidiaries                  (2,874)         --          --         --         --          --        2,874           --
                                   ------------------------------------------------------------------------------------------------

INCOME (LOSS) FROM
 CONTINUING OPERATIONS
 BEFORE INCOME TAXES                  1,487         120       3,893         --        853      (1,210)      (2,874)       2,269

PROVISION FOR INCOME TAXES                1          16         218         --        333         215           --          783
                                   ------------------------------------------------------------------------------------------------

 INCOME (LOSS) FROM
  CONTINUING OPERATIONS               1,486         104       3,675         --        520      (1,425)      (2,874)       1,486

DISCONTINUED OPERATIONS:
 Profit (loss) relating to
  discontinued operations              (462)         --          --         --         --          --          462           --
 (Loss) from discontinued
   operations
  (net of income taxes)                  --        (124)         --         --         --        (338)          --         (462)
 Gain from disposal of
  discontinued operations
  (net of income taxes)                 231          --          --                    --          --           --          231
                                   ------------------------------------------------------------------------------------------------

  NET INCOME (LOSS)                $  1,255    $    (20)   $  3,675      $  --   $    520    $ (1,763)    $ (2,412)    $  1,255
                                   ================================================================================================
</TABLE>


                                       21
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
                                 (In Thousands)

                      CONSOLIDATING STATEMENT OF CASH FLOWS
                  For the Three Months Ended September 30, 2003

<TABLE>
<CAPTION>
                                     Parent  Unrestricted  U.S. Guarantor  Dutch  Belgium   Non-Guarantor Consolidation Consolidated
                                     Issuer  Subsidiaries  Subsidiaries   Issuer Guarantor  Subsidiaries  Adjustments   Balance
                                    ------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
<S>                                 <C>       <C>           <C>           <C>    <C>         <C>           <C>         <C>
 Net income (loss)                  $  1,255  $    (20)     $  3,675      $ --   $    520    $ (1,763)     $ (2,412)   $  1,255
 Adjustment for discontinued
  operations                             231       124            --        --         --         338          (462)        231
                                    ------------------------------------------------------------------------------------------------
 Income (loss) from continuing
  operations                           1,486       104         3,675        --        520      (1,425)       (2,874)      1,486

Adjustments to reconcile
 income (loss)
 from continuing operations
  to net cash
 provided (used) by operating
  activities:
 Depreciation and amortization           372       243           630        --         632       1,291                    3,168
 Deferred income taxes                    --        --            --        --          --          53                       53
 Net gain from sales of assets            --        --            --        --          --           1                        1
 Effects of changes in foreign
  currency                                --        --          (164)       --        (913)       (287)                  (1,364)
 Other                                   126        --           319        --          --        (293)                     152

 Changes in operating assets
  and liabilities:
  Accounts receivable                    119        83        (1,351)       --         544       1,437                      832
  Inventory                             (778)   (1,305)       (9,995)       --       6,828       1,124                   (4,126)
  Prepaid expenses and other             433       404          (955)       --         441        (316)                       7
  Other assets                          (530)        1            78        --          --          76                     (375)
  Intercompany                       (11,621)      523         7,744        --     (7,853)      8,333         2,874          --
  Accounts payable                    (1,176)      289          (996)       --      (2,152)     (1,448)                  (5,483)
  Accrued expenses and other           4,015        (9)         (174)       --       2,641         820                    7,293
Cash provided (used)
 by discontinued
  operations                             231      (652)           --        --          --         45                      (376)
                                    ------------------------------------------------------------------------------------------------
  NET CASH PROVIDED (USED) BY
  OPERATING ACTIVITIES                (7,323)     (319)       (1,189)       --         688      9,411            --       1,268
                                    ------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
 Capital expenditures                     --       (32)         (286)       --        (226)      (308)                     (852)
 Proceeds from sale of assets             --        --            --        --          --         12                        12
 Discontinued operations              13,788        --            --        --          --        261                    14,049
                                    ------------------------------------------------------------------------------------------------
   NET CASH PROVIDED (USED) BY
   INVESTING ACTIVITIES               13,788       (32)         (286)       --        (226)       (35)           --      13,209
                                    ------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
 Net (decrease) in cash overdraft         18       277           365        --          --         71                       731
 Net (decrease) in short-term debt    (6,280)       --            --        --          --      6,000                      (280)
 Proceeds from long-term debt             --        --            --        --          --      1,500                     1,500
 Payments of long-term debt             (203)      (12)         (143)       --          --       (586)                     (944)
 Discontinued operations                  --        --            --        --          --         86                        86
                                    ------------------------------------------------------------------------------------------------
   NET CASH PROVIDED (USED) BY
   FINANCING ACTIVITIES               (6,465)      265           222        --          --      7,071            --       1,093
                                    ------------------------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATE CHANGES
 ON CASH                                  --        --             2        --          16        150                       168
                                    ------------------------------------------------------------------------------------------------

NET INCREASE (DECREASE)
 IN CASH AND CASH EQUIVALENTS             --       (86)       (1,251)       --         478     16,597            --      15,738

CASH AND CASH EQUIVALENTS
 at beginning of period                   43       119         2,167        --         185      8,665                    11,179
                                    ------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS
 at end of period                   $     43  $     33      $    916      $ --    $    663   $ 25,262      $     --    $ 26,917
                                    ================================================================================================
</TABLE>


                                       22
<PAGE>

Item 2. Management's  Discussion and Analysis of Financial Condition and Results
of Operations

      This  information  should  be read in  conjunction  with the  consolidated
financial  statements and related notes contained in this Report.  The Company's
MRT and LaCornubia  businesses have been classified as discontinued  operations.
This discussion  presents  information  only for continuing  operations,  unless
otherwise  indicated.  The Company  presents its annual  consolidated  financial
statements on the basis of its fiscal year ending June 30.

General

      The Company is a leading diversified global manufacturer and marketer of a
broad range of animal health and nutrition products, specifically medicated feed
additives  (MFAs)  and  nutritional  feed  additives  (NFAs),   which  are  sold
throughout the world  predominantly  to the poultry,  swine and cattle  markets.
MFAs are used  preventatively  and  therapeutically  in animal  feeds to produce
healthy livestock. The Company believes it is the third largest manufacturer and
marketer of MFAs in the world, and that certain of its MFA products have leading
positions  in  the  marketplace.  The  Company  is  also a  specialty  chemicals
manufacturer and marketer,  serving primarily the United States pressure-treated
wood and chemical industries.  The Company has several proprietary products, and
many of the  Company's  products  provide  critical  performance  attributes  to
customers'  products,  while representing a relatively small percentage of total
end-product cost.

      The  Company's  ability  to fund  its  operating  plan  depends  upon  the
continued  availability  of  borrowing  under its senior  credit  facility.  The
Company  believes that it will be able to comply with the terms of its covenants
under the senior credit facility based on its forecasted  operating plan. In the
event of adverse  operating  results  and/or  violation of covenants  under this
facility,  there can be no  assurance  that the Company  would be able to obtain
waivers or amendments on favorable  terms, if at all. The Company's  fiscal 2005
operating plan projects adequate liquidity  throughout the year, with periods of
reduced  availability around the dates of the semi-annual  interest payments due
November  1, 2004 and June 1, 2005  related  to its  senior  secured  and senior
subordinated   notes.   The  Company  is  pursuing   additional  cost  reduction
activities, working capital improvement plans, and sales of non-strategic assets
to ensure additional liquidity.  The Company also has availability under foreign
credit lines that likely would be available.  The Company also has  undertaken a
strategic review of its manufacturing capabilities,  and is currently increasing
inventory  levels of certain  products to enhance future supply  flexibility and
reduce cost.  There can be no assurance the Company will be successful in any of
the above-noted actions.

Other Risks and Uncertainties

      The use of  antibiotics  in  medicated  feed  additives  is a  subject  of
legislative  and  regulatory  interest.  The issue of  potential  for  increased
bacterial  resistance  to certain  antibiotics  used in  certain  food-producing
animals is the  subject of  discussions  on a  worldwide  basis and,  in certain
instances,  has led to  government  restrictions  on the use of  antibiotics  in
food-producing  animals. The sale of feed additives containing  antibiotics is a
material  portion  of  the  Company's  business.   Should  regulatory  or  other
developments  result in further  restrictions  on the sale of such products,  it
could  have a  material  adverse  impact on the  Company's  financial  position,
results of operations and cash flows.

      The testing, manufacturing,  and marketing of certain products are subject
to extensive regulation by numerous government  authorities in the United States
and other countries.

      The Company has  significant  assets located outside of the United States,
and a significant  portion of the Company's sales and earnings are  attributable
to operations conducted abroad.

      The  Company  has assets  located in Israel and a portion of its sales and
earnings are  attributable  to  operations  conducted in Israel.  The Company is
affected by social,  political and economic conditions affecting Israel, and any
major hostilities  involving Israel as well as the Middle East or curtailment of
trade between  Israel and its current  trading  partners,  either as a result of
hostilities or otherwise, could have a material adverse effect on the Company.

      The Company's  operations,  properties and  subsidiaries  are subject to a
wide  variety  of  complex  and  stringent  federal,  state,  local and  foreign
environmental laws and regulations,  including those governing the use, storage,
handling,  generation,  treatment,  emission, release, discharge and disposal of
certain materials and wastes, the


                                       23
<PAGE>

remediation of contaminated soil and groundwater, the manufacture,  sale and use
of pesticides and the health and safety of employees. As such, the nature of the
Company's  current and former  operations and those of its subsidiaries  exposes
the Company  and its  subsidiaries  to the risk of claims  with  respect to such
matters.

Summary Consolidated Results of Continuing Operations

                                                Three Months Ended September 30,
                                                --------------------------------
                                                     2004           2003
                                                     ----           ----
                                                         (Thousands)

Net sales                                          $ 88,275       $ 84,950
Gross profit                                         22,622         21,160
Selling, general and administrative                  16,594         15,785
Operating income                                      6,028          5,375
Interest expense, net                                 5,221          3,691
Other (income) expense, net                              24           (585)
Provision for income taxes                              924            783
Income (loss) from continuing operations           $   (141)      $  1,486

Comparison of Three Months Ended September 30, 2004 and 2003

      Net Sales of $88.3 million  increased  $3.3 million,  or 4%. Animal Health
and Nutrition  sales of $65.8  million grew $6.0 million,  or 10%, due to volume
increases  offset in part by lower average  selling prices.  Specialty  Chemical
Group  (comprised  of the  Industrial  Chemicals,  Distribution  and  All  Other
segments)  sales  of  $22.5  million  decreased  $2.6  million.  Excluding  PMC,
Specialty Chemical group sales increased by $3.1 million due to volume increases
in Industrial  Chemicals and All Other  segments.  The Specialty  Chemical Group
included PMC sales of $5.7 million for the 2003 quarter.

      Gross  Profit of $22.6  million  increased  $1.5  million  to 25.6% of net
sales,  compared with 24.9% in 2003.  Animal  Health and Nutrition  gross profit
increased  due to higher  sales unit volumes and lower unit costs offset in part
by lower average selling prices.  The Specialty  Chemical Group also contributed
to the improvement due to expanded sales of the Company's new copper-based  wood
treatment  products.  The Specialty  Chemical Group included PMC gross profit of
$1.9 million for the 2003 quarter.

      Selling,  General and  Administrative  Expenses of $16.6 million increased
$0.8 million. Expenses in the operating segments,  excluding PMC, increased over
the prior year due to severance accruals,  higher research and development costs
associated with  registration  trials,  unfavorable  foreign  exchange rates and
overall  higher  operating  costs.  Corporate  expenses  increased due to higher
depreciation and amortization  charges,  compensation and severance costs offset
partially  by  income  of  $0.2  million  from  the  PMC  advisory  fee  and the
elimination  of the  Palladium  management  fee of $0.6  million  in  2003.  PMC
expenses were $0.7 million for the 2003 quarter.

      Operating Income of $6.0 million  increased $0.7 million to 6.8% of sales.
Operating  income,  excluding  PMC,  improved  in both  the  Animal  Health  and
Nutrition and Specialty  Chemical  Group with  increased  gross profit offset in
part by higher selling,  general and  administrative  expenses.  PMC contributed
$1.2  million  for the 2003  quarter  offset in part by the  elimination  of the
Palladium management fee.

      Interest Expense, Net of $5.2 million increased $1.5 million from the 2003
quarter,  primarily  due to  higher  average  interest  rates  and  also  higher
borrowing  levels  associated with the issuance of the Company's  Senior Secured
Notes.

      Other   (Income)Expense,   Net  principally   reflects   foreign  currency
transaction net (gains) losses related to short-term  inter-company balances and
foreign currency translation (gains) losses.


                                       24
<PAGE>

      Income Taxes of $0.9 million were recorded on consolidated  pre-tax income
of $0.8  million.  The tax rate  reflects  income tax  provisions  in profitable
foreign  jurisdictions  and for state income taxes. A provision for U.S. federal
income taxes has not been recorded due to the  utilization of net operating loss
carryforwards.   The  Company  has  recorded  valuation  allowances  related  to
substantially all deferred tax assets. The Company will continue to evaluate the
likelihood of  recoverability of these deferred tax assets based upon actual and
expected operating performance.

Operating Segments

      The Animal Health and Nutrition segment  manufactures and markets MFAs and
NFAs to the poultry,  swine and cattle  markets,  and includes the operations of
the Phibro Animal Health business unit, Prince AgriProducts, Koffolk (1949) Ltd.
and Planalquimica.  The Industrial  Chemicals segment  manufacturers and markets
specialty  chemicals for use in the pressure  treated wood,  brick,  glass,  and
chemical industries,  and includes Phibro-Tech and PMC. The Distribution segment
markets a variety of  specialty  chemicals,  and includes  PhibroChem  and Ferro
operations.  The All  Other  segment  includes  contract  manufacturing  of crop
protection chemicals, Wychem and all other operations. Due to the divestiture of
PMC in December 2003, PMC's results are shown separately for comparability.

                                              Three Months ended September 30,
                                              --------------------------------
                                                   2004            2003
                                              ------------       -------------
                                                        (Thousands)
Net Sales
    Animal Health & Nutrition                     $65,806         $59,841
    Industrial Chemicals - ex PMC                   8,393           6,299
    Industrial Chemicals - PMC                         --           5,683
    Distribution                                    7,661           7,939
    All other                                       6,415           5,188
                                                  -------         -------
                                                  $88,275         $84,950
                                                  =======         =======

                                              Three Months ended September 30,
                                              --------------------------------
                                                   2004            2003
                                              ------------       -------------
                                                        (Thousands)
Operating Income
    Animal Health & Nutrition                     $ 7,815        $ 6,900
    Industrial Chemicals - ex PMC                     773           (391)
    Industrial Chemicals - PMC                         --          1,213
    Iistribution                                      864            841
    All other                                         705            669
    Corporate expenses and adjustments             (4,129)        (3,857)
                                                  -------        -------
                                                  $ 6,028        $ 5,375
                                                  =======        =======

Operating Segments Comparison of Three Months Ended September 2004 and 2003

      Animal Health and Nutrition

      Net Sales of $65.8 million  increased $6.0 million,  or 10%. MFA net sales
increased by $2.4 million. Revenues were higher primarily for antibacterials and
antibiotics  but were  offset  in part by lower  sales  of  anticoccidials.  The
increase in MFA revenues was due to higher unit volumes and  favorable  currency
effect on  international  sales offset in part by lower average  selling prices.
NFA net sales increased by $3.6 million  principally due to volume  increases in
trace mineral premixes and other feed ingredients.


                                       25
<PAGE>

      Operating Income of $7.8 million increased $0.9 million, or 13%. Operating
income  improved due to higher sales unit volumes and lower unit costs offset in
part by  lower  average  selling  prices  and  increased  selling,  general  and
administrative expenses.

      Specialty Chemicals

      Industrial  Chemicals net sales of $8.4 million,  excluding PMC, increased
$2.1 million,  or 33%. Sales of copper-  related  products to the wood treatment
markets  increased due to the  introduction  of new copper based wood  treatment
products. PMC, divested in December 2003, generated revenues of $5.7 million for
the 2003 quarter.  Operating income,  excluding PMC, of $0.8 million improved by
$1.2  million from the 2003  quarter.  This  improvement  was due to new product
introductions and savings from previously  implemented  headcount reductions and
facility restructurings in Phibro-Tech operations. PMC provided operating income
of $1.2 million for the 2003 quarter.

      Distribution  net sales of $7.7 million  decreased  $0.3  million,  or 4%.
Lower  sales  volumes  in Europe  were  offset in part by higher  domestic  unit
volumes and slightly  higher  average  selling  prices.  Distribution  operating
income of $0.9 million  approximated the prior period. As a percentage of sales,
operating income was 11% in both 2004 and 2003 quarters.

      All  Other net  sales of $6.4  million  increased  $1.2  million,  or 24%.
Revenues  for  contract  manufacturing  increased  $0.7 million due to increased
volumes and average selling prices.  Revenues from  specialized lab projects and
formulations  increased $0.5 million over the prior period.  Operating income of
$0.7 million  improved  slightly from the prior period due to higher  margins on
specialized lab projects and formulations.


Discontinued Operations

      In August 2003, the Company divested Mineral  Resource  Technologies,  Inc
and  shutdown  its  operations  at  La  Cornubia.  These  businesses  have  been
classified as  discontinued  operations.  The Company's  consolidated  financial
statements have been reclassified to report separately the operating results and
cash flows of the discontinued operations.

                                           Three Months Ended September 30, 2003
                                           -------------------------------------
                                               MRT    LaCornubia    Total
                                               ---    ----------    -----

Net Sales                                    $ 3,327    $ 2,220    $ 5,547
                                             =======    =======    =======
Operating Loss                               $  (124)   $  (372)   $  (496)
Interest Expense, net                             --         16         16
Other Expense (Income), net                       --        (50)       (50)
Provision (benefit) for income tax                --         --         --
                                             -------    -------    -------
Net Income  (loss) from
 discontinued operations                     $  (124)   $  (338)   $  (462)
                                             =======    =======    =======

Depreciation and Amortization                $     -    $   100    $   100
                                             =======    =======    =======

      Mineral Resource  Technologies,  Inc. ("MRT"). In August 2003, the Company
divested MRT for net proceeds,  after transaction costs, of approximately  $13.8
million. MRT was included in the Company's All Other segment.

      La Cornubia.  On June 30, 2004, one of the Company's French  subsidiaries,
La Cornubia SA ("La  Cornubia"),  filed for bankruptcy under the insolvency laws
of France. The Company believes that, as a result of the bankruptcy filing by La
Cornubia,  it is possible  that LC Holding S.A.  ("LC  Holding"),  La Cornubia's
parent, a holding company


                                       26
<PAGE>

with no assets  except  for its  investment  in La  Cornubia,  may also file for
bankruptcy in France. The Company does not believe that La Cornubia's bankruptcy
filing, nor the possible  bankruptcy filing by LC Holding,  will have a material
adverse effect on its financial condition or results of operations.

Liquidity and Capital Resources

      Net Cash Provided by Operating Activities. Cash provided by operations for
the three  months  ended  September  30, 2004 and 2003 was $2.4 million and $1.3
million,  respectively.   Cash  provided  was  due  to  income  from  continuing
operations  offset in part by  working  capital  requirements.  The  Company  is
currently  increasing  inventory  levels of certain  products to enhance  future
supply  flexibility  and  reduce  cost  as  part of a  strategic  review  of its
manufacturing capabilities.

      Net Cash Provided (Used) by Investing Activities. Net cash provided (used)
by investing  activities for the three months ended  September 30, 2004 and 2003
was ($1.7) million and $13.2 million, respectively. Capital expenditures of $1.7
million and $0.9 million for 2004 and 2003,  respectively,  were for new product
capacity,   for   maintaining   the  Company's   existing  asset  base  and  for
environmental,  health and safety projects.  Discontinued operations,  primarily
from the sale of MRT, provided funds of $14.0 million in 2003.

      Net Cash Provided (Used) by Financing Activities. Net cash provided (used)
by financing  activities for the three months ended  September 30, 2004 and 2003
was ($0.4) million and $1.1 million, respectively. Short-term debt increased due
to a $0.3  million  increase  in  the  senior  credit  facility.  Proceeds  from
long-term  debt and payments of long-term  debt,  net used $0.4 million of funds
and primarily reflect the borrowing activity of Koffolk Israel.

      Working Capital and Capital Expenditures.  Working capital as of September
30, 2004 was $57.7 million compared to $54.4 million at fiscal year end June 30,
2004, an increase of $3.0 million. The Company is currently increasing inventory
levels of certain products to enhance future supply  flexibility and reduce cost
as part of a strategic review of its manufacturing capabilities. The fiscal 2005
increase in working capital primarily was due to higher inventory levels.

      The Company  anticipates  spending  approximately $8.0 million for capital
expenditures in fiscal 2005,  primarily to cover the Company's asset replacement
needs, to improve  processes,  and for environmental and regulatory  compliance,
subject to the availability of funds.

      Liquidity.  At September 30, 2004, the amount of credit extended under the
Company's  senior  credit  facility  totaled  $11.3  million under the revolving
credit  facility and $8.7 million under the letter of credit  facility,  and the
Company had $6.2  million  available  under the credit  facility.  In  addition,
certain of the Company's  foreign  subsidiaries  also had availability  totaling
$5.1 million under their respective loan  agreements.  As of September 24, 2004,
the Company  amended its senior  credit  facility to: (i) increase the aggregate
amount of borrowings  available  under such working capital and letter of credit
facilities to $32.5 million;  the amount of aggregate borrowings available under
the working capital facility remained unchanged at $17.5 million; (ii) amend the
EBITDA  definition  to exclude  charges  and  expenses  related to  unsuccessful
acquisitions  and related  financings in an aggregate  amount not to exceed $5.3
million for the period beginning January 1, 2004 and ending June 30, 2004; (iii)
amend the definition of Additional  Indebtedness  to exclude  advances under the
working capital facility;  (iv) amend the definition of Permitted Investments to
allow other investments made during the period from January 1, 2004 through June
30,  2004 in an  aggregate  amount  not to exceed  $336,000;  and (v)  establish
covenant EBITDA levels for the periods ending after June 30, 2004. The amendment
was effective June 30, 2004 for items (i), (ii) and (iii);  effective January 1,
2004 for item (iv); and effective September 24, 2004 for item (v).

      The senior credit facility contains a lock-box  requirement and a material
adverse  change clause should an event of default (as defined in the  agreement)
occur.  Accordingly,  the amounts outstanding have been classified as short-term
and are included in loans payable to banks in the condensed consolidated balance
sheet.

      The  Company's  ability  to fund  its  operating  plan  depends  upon  the
continued  availability  of  borrowing  under its senior  credit  facility.  The
Company  believes that it will be able to comply with the terms of its covenants
under the senior credit facility based on its forecasted  operating plan. In the
event of adverse operating results and/or violation


                                       27
<PAGE>

of covenants  under this  facility,  there can be no assurance  that the Company
would be able to obtain waivers or amendments on favorable terms, if at all. The
Company's fiscal 2005 operating plan projects adequate liquidity  throughout the
year, with periods of reduced  availability  around the dates of the semi-annual
interest  payments  due  November 1, 2004 and June 1, 2005 related to its senior
secured and senior  subordinated  notes. The Company is pursuing additional cost
reduction   activities,   working  capital   improvement  plans,  and  sales  of
non-strategic  assets to  ensure  additional  liquidity.  The  Company  also has
availability  under  foreign  credit lines that likely would be  available.  The
Company   also  has   undertaken  a  strategic   review  of  its   manufacturing
capabilities,  and is currently  increasing inventory levels of certain products
to enhance  future  flexibility  and reduce cost.  There can be no assurance the
Company will be successful in any of the above-noted actions.

      The Company's contractual  obligations (in millions) at September 30, 2004
mature as follows:

<TABLE>
<CAPTION>
                                                              Years
                                          -----------------------------------------
                                          Within 1 Over 1 to 3  Over 3 to 5  Over 5    Total
                                          -------- -----------  -----------  ------    -----

<S>                                       <C>         <C>         <C>        <C>      <C>
Loans payable to banks                    $ 11.3      $  --       $   --     $   --   $ 11.3
Long-term debt
 (including current portion)                 1.0         4.1        153.9         --    159.0
Interest payments                           19.3        38.4         12.7         --     70.4
Lease commitments                            1.4         2.6          2.0        2.2      8.2
Acquisition of rights                        0.6         0.8          0.4         --      1.8
                                          ------      ------       ------     ------   ------
   Total contractual obligations          $ 33.6      $ 45.9       $169.0     $  2.2   $250.7
                                          ======      ======       ======     ======   ======
</TABLE>

Critical Accounting Policies

      Critical  accounting  policies  are  those  that  require  application  of
management's most difficult,  subjective or complex judgments, often as a result
of the need to make  estimates  about the effect of matters that are  inherently
uncertain and may change in subsequent periods.

      Not all of these  significant  accounting  policies require  management to
make  difficult,   subjective  or  complex  judgments  or  estimates.   However,
management of the Company is required to make certain  estimates and assumptions
during the preparation of consolidated  financial  statements in accordance with
accounting principles generally accepted in the United States of America.  These
estimates and  assumptions  impact the reported amount of assets and liabilities
and  disclosures  of  contingent  assets and  liabilities  as of the date of the
consolidated  financial  statements.  Estimates  and  assumptions  are  reviewed
periodically  and the effects of revisions  are reflected in the period they are
determined to be necessary.  Actual  results could differ from those  estimates.
The accounting  policies and related risk described in our Annual Report on Form
10-K for the year ended  June 30,  2004 are those that  depend  most  heavily on
these  judgments  and  estimates.  As of  September  30, 2004 there have been no
material changes to any of the critical accounting policies contained therein.

New Accounting Pronouncements

      There were no new  accounting  policies  issued  during the quarter  ended
September  30, 2004 which  would  result in a material  impact on the  Company's
financial statements.

Quantitative and Qualitative Disclosure About Market Risk

      In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result,  future earnings,  cash flows and fair values
of assets and  liabilities  are subject to  uncertainty.  The Company uses, from
time to time,  foreign currency forward contracts as a means of hedging exposure
to foreign  currency  risks.  The Company  also  utilizes,  on a limited  basis,
certain  commodity  derivatives,  primarily on copper used in its  manufacturing
processes, to hedge the cost of


                                       28
<PAGE>

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

      For financial  market risks related to changes in interest rates,  foreign
currency exchange rates and commodity prices, reference is made to Part II, Item
7,  Quantitative  and  Qualitative  Disclosure  about Market Risk, in our annual
report on Form 10-K for the fiscal  year ended June 30,  2004 and to Notes 2 and
17 to our Consolidated Financial Statements included therein.

Certain Factors Affecting Future Operating Results

Forward-Looking Statements

      This Report on Form 10-Q contains "forward-looking  statements" within the
meaning of Section 27A of the  Securities  Act of 1933, as amended,  and Section
21E of the Securities Exchange Act of 1934, as amended.  Statements that are not
historical facts,  including statements about our beliefs and expectations,  are
forward-looking   statements.   Forward-looking  statements  include  statements
preceded  by,  followed by or that include the words  "may,"  "could,"  "would,"
"should,"  "believe,"  "expect,"  "anticipate,"  "plan,"  "estimate,"  "target,"
"project,"  "intend," or similar  expressions.  These statements include,  among
others,   statements  regarding  our  expected  business  outlook,   anticipated
financial and operating  results,  our business  strategy and means to implement
the strategy, our objectives, the amount and timing of capital expenditures, the
likelihood of our success in expanding our business,  financing plans,  budgets,
working capital needs and sources of liquidity.

      Forward-looking  statements are only predictions and are not guarantees of
performance.  These  statements  are  based  on  our  management's  beliefs  and
assumptions,  which  in turn  are  based  on  currently  available  information.
Important assumptions relating to the forward-looking  statements include, among
others,  assumptions regarding demand for our products, the expansion of product
offerings  geographically  or through new  applications,  the timing and cost of
planned  capital  expenditures,  competitive  conditions  and  general  economic
conditions. These assumptions could prove inaccurate. Forward-looking statements
also involve  risks and  uncertainties,  which could cause  actual  results that
differ materially from those contained in any forward-looking statement. Many of
these  factors  are beyond our  ability to  control  or  predict.  Such  factors
include, but are not limited to, the following:

      o     our substantial leverage and potential inability to service our debt

      o     our dependence on distributions from our subsidiaries

      o     risks associated with our  international  operations and significant
            foreign assets

      o     our dependence on our Israeli operations

      o     competition in each of our markets

      o     potential environmental liability

      o     potential legislation affecting the use of medicated feed additives

      o     extensive  regulation  by  numerous  government  authorities  in the
            United States and other countries

      o     our  reliance on the  continued  operation  and  sufficiency  of our
            manufacturing facilities

      o     our reliance upon unpatented trade secrets

      o     the risks of legal proceedings and general litigation expenses

      o     potential operating hazards and uninsured risks


                                       29
<PAGE>

      o     the risk of work stoppages

      o     our dependence on key personnel

      See also the discussion under "Other Risks and Uncertainties" in Note 2 of
our Condensed Consolidated Financial Statements included in this Report.

      In addition, the issue of the potential for increased bacterial resistance
to certain  antibiotics used in certain food producing animals is the subject of
discussions  on a  worldwide  basis  and,  in  certain  instances,  has  led  to
government  restrictions  on the use of  antibiotics  in  these  food  producing
animals. The sale of feed additives containing antibiotics is a material portion
of our  business.  Should  regulatory  or other  developments  result in further
restrictions  on the sale of such  products,  it could have a  material  adverse
impact on our financial position, results of operations and cash flows.

      We believe the  forward-looking  statements in this Report are reasonable;
however, no undue reliance should be placed on any  forward-looking  statements,
as they are based on current expectations.  Further,  forward-looking statements
speak  only as of the date they are made,  and we  undertake  no  obligation  to
update publicly any of them in light of new information or future events.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

      Information  regarding  quantitative  and  qualitative  disclosures  about
market risk is set forth in Item 2 of this Form 10-Q.

Item 4. Controls and Procedures

      (a)  Based  upon  an  evaluation,  under  the  supervision  and  with  the
participation of our Principal  Executive  Officers and our Principal  Financial
Officer,  of the  effectiveness  of the design and  operation of our  disclosure
controls and  procedures,  they have concluded that, as of the end of the period
covered by this Report,  our disclosure  controls and procedures,  as defined in
Rule 15d-15(e) of the Securities Exchange Act of 1934, as amended, are effective
for gathering,  analyzing and disclosing information we are required to disclose
in periodic reports that we furnish to the Securities and Exchange Commission.

      (b) During the quarter ended  September 30, 2004,  the Company  remediated
the material  weakness in internal control (which was comprised of a combination
of  significant  deficiencies)  discussed in our Annual  Report on Form 10K. The
Company  completed a review of  significant  balance sheet  accounts  related to
September  30, 2004 balances and  implemented  enhanced  supervisory  reviews of
these  accounts.  Additionally,  the  Company is  implementing  improvements  in
processes and procedures related to the review, substantiation and evaluation of
general  ledger  account  balances.  As of the end of the period covered by this
report,  other than noted above,  there have been no significant  changes in our
internal control over financial reporting that have materially affected,  or are
reasonably  likely to materially  affect,  our internal  control over  financial
reporting.

      It should be noted  that any system of  internal  controls,  however  well
designed and operated, can provide only reasonable, but not absolute,  assurance
that the  objectives  of the  system  are met.  In  addition,  the design of any
control system is based in part upon certain assumptions about the likelihood of
future  events.  Because  of these and other  inherent  limitations  of  control
systems, there can be no assurance that any design will succeed in achieving its
stated goals under all potential conditions, regardless of how remote.


                                       30
<PAGE>

                          PART II -- OTHER INFORMATION

Item 5. Other Information

None

Item 6. Exhibits

(a)   Exhibits

Exhibit No.                Description

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.

Since the Company does not have  securities  registered  under Section 12 of the
Securities  Exchange  Act of 1934 and is not required to file  periodic  reports
pursuant to Section 13 or 15 (d) of the  Securities  Exchange  Act of 1934,  the
Company is not an "issuer"  as defined in the  Sarbanes-Oxley  Act of 2002,  and
therefore the Company is not filing the written certification statement pursuant
to Section  906 of such Act.  The  Company  submits  periodic  reports  with the
Securities and Exchange  Commission because it is required to do so by the terms
of the indenture governing its 9 7/8% Senior Subordinated Notes due 2008.


                                       31
<PAGE>

                                   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.

Date: November 12, 2004                      By: /s/ JACK C. BENDHEIM
                                                 -------------------------------
                                                 Jack C. Bendheim
                                                 Chairman of the Board


Date: November 12, 2004                      By: /S/ GERALD K. CARLSON
                                                 -------------------------------
                                                 Gerald K. Carlson
                                                 Chief Executive Officer

Date: November 12, 2004                      By: /s/ RICHARD G. JOHNSON
                                                 -------------------------------
                                                 Richard G. Johnson
                                                 Chief Financial Officer
                                                (Principal Financial Officer and
                                                 Principal Accounting Officer)

                                       32
<PAGE>

                                  Exhibit Index

Exhibit No.       Description
-----------       -----------

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.

Since the Company does not have  securities  registered  under Section 12 of the
Securities  Exchange  Act of 1934 and is not required to file  periodic  reports
pursuant to Section 13 or 15 (d) of the  Securities  Exchange  Act of 1934,  the
Company is not an "issuer"  as defined in the  Sarbanes-Oxley  Act of 2002,  and
therefore the Company is not filing the written certification statement pursuant
to Section  906 of such Act.  The  Company  submits  periodic  reports  with the
Securities and Exchange  Commission because it is required to do so by the terms
of the indenture governing its 9 7/8% Senior Subordinated Notes due 2008.