================================================================================
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   ----------

                                    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 December 31, 2003

                                       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 December 31,
2003:

                 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.
================================================================================

<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.........................    30
      Item 3. Quantitative and Qualitative Disclosures About
                Market Risk...............................................    40

      Item 4. Controls and Procedures.....................................    40

PART II OTHER INFORMATION
      Item 6. Exhibits and Reports on Form 8-K............................    41

SIGNATURES ...............................................................    42


                                       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, 2003
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)

<TABLE>
<CAPTION>
                                                                                        December 31,             June 30,
                                                                                           2003                    2003
                                                                                        ------------            ---------

                                     ASSETS
<S>                                                                                      <C>                   <C>
CURRENT ASSETS:
    Cash and cash equivalents                                                            $   8,682             $  11,179
    Trade receivables, less allowance for doubtful accounts
      of $1,431 at December 31, 2003 and $1,445 at June 30, 2003                            56,778                55,671
    Other receivables                                                                        3,891                 3,642
    Inventories                                                                             87,949                88,767
    Prepaid expenses and other current assets                                                8,719                10,188
    Current assets from discontinued operations                                                 --                 4,942
                                                                                         ---------             ---------
        TOTAL CURRENT ASSETS                                                               166,019               174,389

PROPERTY, PLANT AND EQUIPMENT, net                                                          63,327                66,440

INTANGIBLES                                                                                  7,776                 8,669

OTHER ASSETS                                                                                17,814                14,199

OTHER ASSETS FROM DISCONTINUED OPERATIONS                                                       --                10,650
                                                                                         ---------             ---------
                                                                                         $ 254,936             $ 274,347
                                                                                         =========             =========

                      LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES:
    Cash overdraft                                                                       $   3,890             $   1,686
    Loans payable to banks                                                                   9,145                38,914
    Current portion of long-term debt                                                        2,365                24,124
    Accounts payable                                                                        45,450                56,915
    Accrued expenses and other current liabilities                                          44,804                41,609
    Current liabilities from discontinued operations                                            --                 2,051
                                                                                         ---------             ---------

        TOTAL CURRENT LIABILITIES                                                          105,654               165,299

LONG-TERM DEBT                                                                             156,410               102,391

OTHER LIABILITIES                                                                           18,898                22,088

OTHER LIABILITIES FROM DISCONTINUED OPERATIONS                                                  --                   198
                                                                                         ---------             ---------
        TOTAL LIABILITIES                                                                  280,962               289,976
                                                                                         ---------             ---------

COMMITMENTS AND CONTINGENCIES

REDEEMABLE SECURITIES:
    Series B and C preferred stock                                                          17,065                68,881
                                                                                         ---------             ---------

STOCKHOLDERS' DEFICIT:
    Series A preferred stock                                                                   521                   521
    Common stock                                                                                 2                     2
    Paid-in capital                                                                            860                   860
    Accumulated deficit                                                                    (40,661)              (79,489)
    Accumulated other comprehensive income (loss):
      Gain on derivative instruments                                                           500                    81
      Cumulative currency translation adjustment                                            (4,313)               (6,485)
                                                                                         ---------             ---------
        TOTAL STOCKHOLDERS' DEFICIT                                                        (43,091)              (84,510)
                                                                                         ---------             ---------
                                                                                         $ 254,936             $ 274,347
                                                                                         =========             =========
</TABLE>

       See notes to unaudited Condensed Consolidated Financial Statements


                                       4
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

                                   (Unaudited)

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                             Three Months Ended              Six Months Ended
                                                                                 December 31,                   December 31,
                                                                             2003            2002            2003            2002
                                                                          ---------       ---------       ---------       ---------
<S>                                                                       <C>             <C>             <C>             <C>
NET SALES                                                                 $  96,043       $  90,134       $ 183,213       $ 176,416

COST OF GOODS SOLD                                                           73,190          66,094         139,196         130,228
                                                                          ---------       ---------       ---------       ---------

    GROSS PROFIT                                                             22,853          24,040          44,017          46,188

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                                                 17,236          16,203          33,397          32,053
                                                                          ---------       ---------       ---------       ---------

    OPERATING INCOME                                                          5,617           7,837          10,620          14,135

OTHER:
    Interest expense                                                          4,575           3,656           8,524           8,160
    Interest (income)                                                           168              30             (74)            (96)
    Other (income) expense, net                                                 (66)             19            (701)          1,205
    Net (gain) on extinguishment of debt                                    (23,226)             --         (23,226)             --
                                                                          ---------       ---------       ---------       ---------

    INCOME FROM CONTINUING OPERATIONS
       BEFORE INCOME TAXES                                                   24,166           4,132          26,097           4,866

PROVISION FOR INCOME TAXES                                                    2,880           1,409           3,663           1,841
                                                                          ---------       ---------       ---------       ---------

    INCOME FROM CONTINUING OPERATIONS                                        21,286           2,723          22,434           3,025

DISCONTINUED OPERATIONS:
    (Loss) from discontinued operations (net of income
       taxes)                                                                    --         (10,558)           (124)        (11,017)
    Gain on disposal of discontinued operations (net of
       income taxes)                                                             --              --             231              --
                                                                          ---------       ---------       ---------       ---------

    NET INCOME (LOSS)                                                        21,286          (7,835)         22,541          (7,992)

OTHER COMPREHENSIVE INCOME (LOSS):
    Derivative instruments                                                      102            (158)            419          (1,241)
    Currency translation adjustment                                           3,031            (827)          2,172          (3,654)
                                                                          ---------       ---------       ---------       ---------

    COMPREHENSIVE INCOME (LOSS)                                           $  24,419       $  (8,820)      $  25,132       $ (12,887)
                                                                          =========       =========       =========       =========

    NET INCOME (LOSS)                                                        21,286          (7,835)         22,541          (7,992)

Excess of the reduction of redeemable preferred stock
    over total assets divested and costs and liabilities
    incurred on the Prince Transactions                                      20,138              --          20,138              --
Preferred dividends                                                          (2,864)         (2,121)         (3,851)         (4,244)
                                                                          ---------       ---------       ---------       ---------

    NET INCOME (LOSS) AVAILABLE TO
       COMMON SHAREHOLDERS                                                $  38,560       $  (9,956)      $  38,828       $ (12,236)
                                                                          =========       =========       =========       =========
</TABLE>

       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 and Six Months Ended December 31, 2003

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                        Common
                                      Preferred          Stock                                    Accumulated Other
                                        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, 2003                $    521     $     1    $     1    $   860      $(79,489)       $ (6,404)         $(84,510)

    Dividends on Series B and C
     redeemable preferred stock                                                         (2,453)                           (2,453)

    Equity value accreted on
     Series B and C redeemable
     preferred stock                                                                     1,466                             1,466

    Derivative instruments                                                                                 317               317

    Foreign currency translation
     adjustment                                                                                           (859)             (859)

    Net income                                                                           1,255                             1,255
                                       -------     ------     ------     -------      --------          -------          -------

 Balance, September 30, 2003          $    521     $    1     $     1    $   860      $(79,221)       $ (6,946)         $(84,784)
                                      ========     ======     =======    =======      ========        ========          ========

    Excess of the reduction in
     redeemable preferred stock over
     total assets divested and costs
     and liabilities incurred on the
     Prince Transactions                                                                20,138                            20,138

    Dividends on Series B and C
     redeemable preferred stock                                                         (2,348)                           (2,348)

    Equity value accreted on
     Series B and C redeemable
     preferred stock                                                                      (516)                             (516)

    Derivative instruments                                                                                 102               102

    Foreign currency translation
     adjustment                                                                                          3,031             3,031

    Net income                                                                          21,286                            21,286
                                       -------     ------     ------     -------      --------          -------          -------

 Balance, December 31, 2003              $ 521     $    1     $     1    $   860      $(40,661)       $ (3,813)         $(43,091)
                                      ========     ======     =======    =======      ========        ========          ========
</TABLE>


                                       6
<PAGE>

                PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

               For the Six Months Ended December 31, 2003 and 2002

                                 (In Thousands)

<TABLE>
<CAPTION>
                                                                                           2003                2002
                                                                                         ---------          ---------
<S>                                                                                      <C>                <C>
OPERATING ACTIVITIES:
    Net income (loss)                                                                    $  22,541          $  (7,992)
    Adjustment for discontinued operations                                                    (107)            11,017
                                                                                         ---------          ---------
    Income from continuing operations                                                       22,434              3,025

    Adjustments to reconcile income from continuing operations to net cash
        provided (used) by operating activities:
      Depreciation and amortization                                                          6,745              6,687
      Deferred income taxes                                                                     93                416
      Net (gain) on extinguishment of debt                                                 (23,226)                --
      Unrealized foreign currency (gains) and other                                           (820)              (120)

      Changes in operating assets and liabilities:
        Accounts receivable                                                                 (2,102)             2,890
        Inventories                                                                         (1,985)           (10,740)
        Prepaid expenses and other current assets                                              572              1,275
        Other assets                                                                           605               (821)
        Accounts payable                                                                    (7,071)            17,525
        Accrued expenses and other liabilities                                               4,504              3,506
    Cash provided (used) by discontinued operations                                           (421)             3,799
                                                                                         ---------          ---------
        NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES                                      (672)            27,442
                                                                                         ---------          ---------

INVESTING ACTIVITIES:
    Capital expenditures                                                                    (2,332)            (5,385)
    Proceeds from sale of assets                                                                23              2,498
    Discontinued operations                                                                 14,449              1,492
                                                                                         ---------          ---------
        NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES                                    12,140             (1,395)
                                                                                         ---------          ---------

FINANCING ACTIVITIES:
    Cash overdraft                                                                           2,204             (5,351)
    Net (decrease) in short-term debt                                                      (30,049)            (3,426)
    Proceeds from long-term debt                                                           107,500              1,660
    Payments of long-term debt                                                             (34,033)           (11,752)
    Payment of Pfizer obligations                                                          (28,300)                --
    Payments relating to the Prince Transactions and transaction costs                     (19,979)                --
    Debt refinancing costs                                                                 (11,496)                --
                                                                                         ---------          ---------
        NET CASH (USED) BY FINANCING ACTIVITIES                                            (14,153)           (18,869)
                                                                                         ---------          ---------

EFFECT OF EXCHANGE RATE CHANGES ON CASH                                                        188                191
                                                                                         ---------          ---------

        NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                (2,497)             7,369

CASH AND CASH EQUIVALENTS at beginning of period                                            11,179              6,419
                                                                                         ---------          ---------

CASH AND CASH EQUIVALENTS at end of period                                               $   8,682          $  13,788
                                                                                         =========          =========
</TABLE>

       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 ("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 December 31, 2003 and its results of
operations and cash flows for the three months and six months ended December 31,
2003 and 2002. PAHC and/or its subsidiaries are referred to as the "Company".

      The condensed consolidated balance sheet as of June 30, 2003 was derived
from audited financial statements, but does not include all disclosures required
by generally accepted accounting principles in the United States. Additionally,
it should be noted that 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 with the Company's audited consolidated financial
statements for the year ended June 30, 2003.

      The Company's Odda, Carbide, and MRT businesses have been classified as
discontinued operations, as discussed in Note 7. These footnotes present
information only for continuing operations, unless otherwise indicated.

      The results of operations for the three months and six months ended
December 31, 2003 may not be indicative of results for the full year.

  New Accounting Pronouncements

      The Company adopted the following new accounting pronouncements in fiscal
2004:

      Statement of Financial Accounting Standards No. 149, "Amendment of SFAS
No. 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS
No. 149 amends and clarifies accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. The adoption of SFAS
No. 149 did not result in a material impact on the Company's financial
statements.

      Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the nature of the relationship established between the
holder and the issuer. The adoption of SFAS No. 150 did not result in an impact
on the Company's financial statements.


                                       8
<PAGE>

      The Company will adopt the following new accounting pronouncement in
fiscal 2004:

      Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits (revised 2003)"
("SFAS No. 132"). This revision to SFAS No. 132 relates to employers'
disclosures about pension plans and other postretirement benefit plans. SFAS No.
132 now requires additional disclosures to describe the types of plan assets,
investment strategy, measurement date(s), plan obligations, cash flows, and
components of net periodic benefit cost recognized during interim periods. SFAS
No. 132 is effective for financial statements with fiscal years ending after
December 15, 2003. The interim-period disclosures required by SFAS No. 132 are
effective for interim periods beginning after December 15, 2003. The adoption of
this revision to SFAS No. 132 will not result in a material impact on the
Company's financial statements.

      FASB Interpretation No. 46, "Consolidation of Variable Interest Entities
(revised December 2003)" ("FIN No. 46"). This revision to FIN No. 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. FIN No. 46 is effective for financial statements
for periods ending after March 15, 2004. The adoption of FIN No. 46 will not
result in an impact on the Company's financial statements.

2. 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 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. Refinancing

      On October 21, 2003, the Company issued 105,000 units consisting of
$85,000 of 13% Senior Secured Notes due 2007 of PAHC (the "US Senior Notes") and
$20,000 13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands III
B.V. (the "Dutch Senior Notes" and, together with the US Senior Notes, the
"Senior Secured Notes"), an indirect wholly-owned subsidiary of PAHC (the "Dutch
issuer"). The Company used the proceeds from the issuance to: (i) repurchase
$51,971 of its 9 7/8% Senior Subordinated Notes due 2008 at a price equal to 60%
of the principal amount thereof, plus accrued and unpaid interest; (ii) repay
its senior credit facility of $34,888 outstanding at the repayment date; (iii)
satisfy, for a payment of approximately $29,315, certain of its outstanding
obligations to Pfizer Inc., including: (a) $20,075 aggregate principal amount of
its promissory note plus accrued and unpaid interest, (b) $9,748 of accounts
payable, (c) $9,040 of accrued expenses, and (d) future contingent purchase
price obligations under its agreements with Pfizer Inc. by which the Company
acquired Pfizer's medicated feed additive business; and (iv) pay fees and
expenses relating to the above transactions.


                                       9
<PAGE>

      A net gain on extinguishment of debt is included in the Company's
condensed consolidated statement of operations, calculated as follows:

<TABLE>
<CAPTION>
            Net Gain on Repurchase of 9 7/8% Senior Subordinated Notes due 2008:
<S>                                                                                <C>
              Principal amount of repurchased notes                                $ 51,971
              Repurchased at 60% of principal amount                                (31,183)
              Transaction costs                                                      (4,107)
                                                                                   --------
            Net gain on repurchase of notes                                          16,681
                                                                                   --------

            Loss on repayment of senior credit facility                              (1,018)
                                                                                   --------

            Net Gain on Payment of Pfizer Obligations:

             Obligations paid:
             -promissory note                                                        20,075
             -accrued interest on promissory note                                     1,015
             -accounts payable and accrued expenses                                  18,788
                                                                                   --------
             Total obligations paid                                                  39,878
             Cash payment to Pfizer                                                 (29,315)
             Transaction costs                                                       (3,000)
                                                                                   --------
             Net gain on payment of Pfizer obligations                                7,563
                                                                                   --------

             Net gain on extinguishment of debt                                    $ 23,226
                                                                                   ========
</TABLE>

      The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of PAHC (the "US Issuer") and the Dutch issuer,
respectively. The US Senior Notes and the Dutch Senior Notes are guaranteed on a
senior secured basis by all PAHC's domestic restricted subsidiaries, and the
Dutch Senior Notes are guaranteed on a senior secured basis by PAHC and by the
restricted subsidiaries of the Dutch issuer, presently consisting of Phibro
Animal Health SA. The US Senior Notes and related guarantees are secured by
substantially all of PAHC's assets and the assets of its domestic restricted
subsidiaries, other than real property and interests therein, including a pledge
of all the capital stock of such domestic restricted subsidiaries. The Dutch
Senior Notes and related guarantees are secured by a pledge of all the accounts
receivable, a security interest or floating charge on the inventory to the
extent permitted by applicable law, and a mortgage on substantially all of the
real property of the Dutch issuer and each of its restricted subsidiaries, a
pledge of 100% of the capital stock of each subsidiary of the Dutch issuer, a
pledge of the intercompany loans made by the Dutch issuer to its restricted
subsidiaries and substantially all of the assets of the U.S. guarantors, other
than real property and interests therein. The indenture governing the Senior
Secured Notes provides for optional make-whole redemptions at any time prior to
June 1, 2005, optional redemption on or after June 1, 2005, and requires the
Company to make certain offers to purchase Senior Secured Notes upon a change of
control, upon certain asset sales and from fifty percent (50%) of excess cash
flow (as such terms are defined in the indenture).

      Also, on October 21, 2003, the Company entered into a new replacement
domestic senior credit facility ("senior credit facility") with Wells Fargo
Foothill, Inc., providing for a working capital facility plus a letter of credit
facility. The aggregate amount of borrowings under such working capital and
letter of credit facilities may not exceed $25,000, including aggregate
borrowings under the working capital facility up to $15,000.


                                       10
<PAGE>

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

      Borrowings under the senior credit facility are subject to a borrowing
base formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the senior credit
facility is secured by a first priority lien on substantially all of the
Company's assets and assets of substantially all of the Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% on the
unused portion of the senior credit facility, a monthly servicing fee and
standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior Secured Notes has not been extended, as required by the senior credit
facility, by that date.

      Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries is subordinated to a lien securing the senior
credit facility.

      The Company believes that, through the refinancings referred to above, the
liquidity issues mentioned in the Company's June 30, 2003 consolidated financial
statements have been resolved. The Company's replaced senior credit facility and
its note payable to Pfizer were to mature in November 2003 and March 2004,
respectively.

      The Company's ability to fund its operating plan relies upon its ability
to continue to successfully implement its efforts to improve its overall
liquidity (through cost reduction activities, working capital improvement plans,
shutdown of unprofitable operations and sales of certain business operations and
other assets) and the continued availability of borrowing under the 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 consents on favorable terms, if at all.

4. Prince Transactions

      Effective December 26, 2003 (the "Closing Date"), the Company completed
the divestiture of substantially all of the business and assets of 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").

      Pursuant to definitive purchase and other agreements executed on and
effective as of the Closing Date, the Prince Transactions included the following
elements: (i) the transfer of substantially all of the business and assets of
PMC to Buyer; (ii) the reduction of the value of the Company's Preferred Stock
owned by the Palladium Investors from $72,184 to $16,517 (accreted through the
Closing Date) by means of the redemption of all of its shares of Series B
Preferred Stock and a portion of its Series C Preferred Stock; (iii) the
termination of $2,250 in annual management advisory fees payable by the Company
to Palladium; (iv) a cash payment of $10,000 to the Palladium Investors in
respect of the portion of the Company's Preferred Stock not exchanged in
consideration of the business and assets of PMC; (v) the agreement of the Buyer
to pay the Company for advisory fees for the next three years of $1,000, $500,
and $200, respectively (which were pre-paid at closing by the Buyer and
satisfied for $1,300, the net present value of such payments); and (vi) the
Buyer agreed to supply manganous oxide and red iron oxide products and to
provide certain mineral blending services to the Company's Prince Agriproducts
subsidiary ("Prince Agri"). Prince Agri agreed to continue to provide the Buyer
with certain laboratory, MIS and telephone services, all on terms substantially
consistent with the historic relationship between Prince Agri and PMC, and to
lease to Buyer office space used by PMC in Quincy, Illinois. The Company has an
understanding to receive certain treasury services from Palladium for $100 per
year. Pursuant to definitive agreements, the Company made customary
representations, warranties and environmental and other indemnities, agreed to a
post-closing working capital adjustment, paid $3,958 in full satisfaction of all
intercompany debt owed to PMC, paid a closing fee to Palladium of $500, made
certain capital expenditure adjustments included as part of the intercompany
settlement amount, and agreed to pay for certain out-of-pocket transaction
expenses. PMC retained $414 of its accounts receivable. The Company established
a $1,000 letter of credit escrow for two years to secure its working capital
adjustment and certain indemnification obligations. The Company agreed to


                                       11
<PAGE>

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

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 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 Buyer by
January 1, 2009. The definition of "Equity Value" in the Company's Certificate
of Incorporation was amended to reduce the multiple of trailing EBITDA payable
in connection with any future redemption of Series C Preferred to 6.0 from 7.5.
The amount of consideration paid and payable in connection with the Prince
Transactions and all matters in connection therewith were determined pursuant to
arm's length negotiations.

      The excess of the reduction in redeemable preferred stock over total
assets divested and costs and liabilities incurred on the Prince Transactions
was recorded as a decrease to accumulated deficit on the Company's condensed
consolidated balance sheet at December 31, 2003, and was calculated as follows:

          Series B & C Redeemable Preferred Stock:
          Accreted value pre-transaction                                 $72,184
          Accreted value post-transaction                                 16,517
                                                                         -------
          Reduction in redeemable preferred stock                         55,667
                                                                         -------

          Assets Divested and Costs Incurred:
          PMC net assets divested                                          7,430
          Cash paid to Palladium Investors for:
            -reduction of redeemable preferred stock                      10,000
            -settlement of PMC intercompany debt                           3,958
            -working capital adjustment                                    1,331
            -closing fee                                                     500
           Transaction costs                                               8,310
           Contingent Backstop Indemnification Amount accrued              4,000
                                                                         -------
           Total assets divested and costs and liabilities incurred       35,529
                                                                         -------

           Excess amount recorded as a decrease to accumulated deficit   $20,138
                                                                         =======

      PMC is included in the Company's Industrial Chemicals segment. The results
of operations of PMC for the three months and six months ended December 31, 2003
and 2002 were:

                                      Three Months Ended    Six Months Ended
                                         December 31,         December 31,

                                        2003      2002        2003      2002
                                      -------   -------     -------   -------
      Net sales                       $ 5,435   $ 5,285     $11,118   $11,041
      Operating income                  1,065       901       2,278     2,028
      Depreciation and amortization       244       239         487       471

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


                                       12
<PAGE>

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

5. Inventories

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

                                         December 31, 2003      June 30, 2003
                                         -----------------      -------------

       Raw materials                              $ 20,959           $ 22,277
       Work-in-process                               1,768              1,765
       Finished goods                               65,222             65,357
       Excess of FIFO cost over LIFO cost               --               (632)
                                                  --------           --------
       Total inventory                            $ 87,949           $ 88,767
                                                  ========           ========

5. Intangibles

      Product intangibles cost arising from the acquisition of the medicated
feed additives business of Pfizer Inc. was $10,163 and $10,449 at December 31,
2003 and June 30, 2003, respectively and accumulated amortization was $2,387 and
$1,780 at December 31, 2003 and June 30, 2003, respectively. Amortization
expense was $304 for each of the three months ended December 31, 2003 and 2002,
and $608 and $624 for the six months ended December 31, 2003 and 2002,
respectively.

6. Debt

  Loans Payable to Banks

      At December 31, 2003, loans payable to banks included $5,684 under the
senior credit facility with Wells Fargo Foothill, Inc., and $3,461 under foreign
revolving lines of credit.

      On October 21, 2003, the Company entered into a new senior credit facility
with Wells Fargo Foothill, Inc., providing for a working capital facility plus a
letter of credit facility. The aggregate amount of borrowings under such working
capital and letter of credit facilities may not exceed $25,000, including
aggregate borrowings under the working capital facility of up to $15,000.

      Borrowings under the senior credit facility are subject to a borrowing
base formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the senior credit
facility is secured by a first priority lien on substantially all of the
Company's assets and assets of substantially all of the Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% on the
unused portion of the senior credit facility, a monthly servicing fee and
standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior Secured Notes has not been extended, as required by the senior credit
facility, by that date.


      As of December 31, 2003, the Company was in compliance with the financial
covenants of the 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.


                                       13
<PAGE>

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

      The senior credit facility contains a lock-box requirement and an
acceleration 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.

  Long-Term Debt

                                                              As of
                                             -----------------------------------
                                             December, 31, 2003    June 30, 2003
                                             ------------------    -------------

Senior secured notes due December 1, 2007        $105,000            $     --
Senior subordinated notes due June 1, 2008         48,029             100,000
Foreign bank loans                                  5,328               3,750
Pfizer promissory note                                 --              20,075
Bank capital expenditure facility                      --               1,496
Capitalized lease obligations and other               418               1,194
                                                 --------            --------
                                                  158,775             126,515
Less:  current maturities                           2,365              24,124
                                                 --------            --------
                                                 $156,410            $102,391
                                                 ========            ========

Senior Secured Notes due 2007

      In October 2003 the Company issued 105,000 units, consisting of $85,000 of
13% Senior Secured Notes due 2007 of PAHC (the "US Senior Notes") and $20,000 of
13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands III B.V. (the
"Dutch Senior Notes" and, together with the US Senior Notes, the "Senior Secured
Notes"), an indirect wholly-owned subsidiary of PAHC (the "Dutch issuer").

      The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of PAHC and the Dutch issuer, respectively. The US Senior
Notes and the Dutch Senior Notes are guaranteed on a senior secured basis by all
PAHC's domestic restricted subsidiaries, and the Dutch Senior Notes are
guaranteed on a senior secured basis by PAHC and by the restricted subsidiaries
of the Dutch issuer, presently consisting of Phibro Animal Health (Belgium) SA.
The US Senior Notes and related guarantees are secured by substantially all of
PAHC's assets and the assets of its domestic restricted subsidiaries, other than
real property and interests therein, including a pledge of all the capital stock
of such domestic restricted subsidiaries. The Dutch Senior Notes and related
guarantees are secured by a pledge of all the accounts receivable, a security
interest or floating charge on the inventory to the extent permitted by
applicable law, and a mortgage on substantially all of the real property of the
Dutch issuer and each of its restricted subsidiaries, a pledge of 100% of the
capital stock of each subsidiary of the Dutch issuer, a pledge of the
intercompany loans made by the Dutch issuer to its restricted subsidiaries and
substantially all of the assets of the U.S. guarantors, other than real property
and interests therein. The indenture governing the Senior Secured Notes provides
for optional make-whole redemptions at any time prior to June 1, 2005, optional
redemption on or after June 1, 2005, and requires the Company to make certain
offers to purchase Senior Secured Notes upon a change of control, upon certain
asset sales and from fifty percent (50%) of excess cash flow (as such terms are
defined in the indenture).


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


                                       14
<PAGE>

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

      Senior Subordinated Notes due 2008

      The Company issued $100 million aggregate principal amount of 9-7/8%
Senior Subordinated Notes due 2008 ("Senior Subordinated Notes") of which
$51,971 principal amount was repurchased with proceeds of the Senior Secured
Notes. The Senior Subordinated Notes are general unsecured obligations of the
Company and are subordinated in right of payment to all existing and future
senior debt (as defined in the indenture agreement of the Company) and rank pari
passu in right of payment with all other existing and future senior subordinated
indebtedness of the Company. The Senior Subordinated Notes are unconditionally
guaranteed on a senior subordinated basis by the domestic restricted
subsidiaries of the Company. Additional future domestic subsidiaries may become
guarantors under certain circumstances.

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

      Foreign Bank Loans

      The bank loans of the Company's Koffolk Ltd. (Israel) subsidiary are
collateralized by its receivables and inventory, accrue interest at LIBOR plus
1.25%, and are repayable in equal quarterly payments through 2005.

7. Discontinued Operations


      The Company shutdown Odda Smelteverk (Norway) ("Odda") and divested
Carbide Industries (U.K.) ("Carbide"), during the 2003 fiscal year, and sold
Mineral Resource Technologies, Inc. ("MRT") in August 2003. These businesses
have been classified as discontinued operations. The Company's consolidated
financial statements have been reclassified to report separately the operating
results, financial position and cash flows of the discontinued operations.

      Odda and Carbide

        Operating results of Odda and Carbide were:

                                           Three Months Ended   Six Months Ended
                                              December 31,        December 31,
                                                  2002                2002
                                           ------------------   ----------------
      OPERATING RESULTS:
      Net sales                                 $  4,379           $  9,284
      Cost of goods sold                           6,063             12,100
      Selling, general and
        administrative expenses                    1,215              2,292
      Asset writedown                              7,781              7,781
       Other income                                  890              2,386
                                                --------           --------
       Loss before income taxes                   (9,790)           (10,503)
       Provision for income taxes                     11                 26
                                                --------           --------
       Loss from operations                     $ (9,801)          $(10,529)
                                                ========           ========

       Depreciation and amortization            $    330           $    702
                                                ========           ========


                                       15
<PAGE>

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

  Mineral Resource Technologies, Inc.

      The Company sold MRT on August 28, 2003 for net proceeds, after
transaction costs, of approximately $13,836, subject to certain post-closing
adjustments and escrow requirements. Based upon its assessment of likely
outcomes, the Company does not anticipate a material effect from post-closing
adjustments. Operating results and gain on sale of MRT were:

                                   Three Months Ended     Six Months Ended
                                      December 31,          December 31,
                                          2002            2003         2002
                                   ------------------   --------     --------
         OPERATING RESULTS:

      Net sales                        $  4,605         $  3,327     $ 10,459
      Cost of goods sold                  4,828            3,135        9,894
      Selling, general and
         administrative expenses            534              316        1,053
                                       --------         --------     --------
      Loss before income taxes             (757)            (124)        (488)
      Provision for income taxes             --               --           --
                                       --------         --------     --------
      Income (loss) from operations    $   (757)        $   (124)    $   (488)
                                       ========         ========     ========

      Depreciation and amortization    $    327         $     --     $    636
                                       ========         ========     ========

                                                              Six Months Ended
                                                                December 31,
                                                                   2003
                                                              ----------------
      GAIN ON SALE:
      Current assets                                             $  5,813
      Property, plant & equipment - net and other assets           10,703
      Current liabilities                                          (2,511)
      Other liabilities                                              (400)
      Net proceeds of sale                                        (13,836)
                                                                 --------
      (Gain) on sale                                             $   (231)
                                                                 ========


                                       16
<PAGE>

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

  Balance sheet items of MRT were:

                                                                  As of
                                                              June 30, 2003
                                                              -------------
      BALANCE SHEET:
      Trade receivables                                          $ 2,633
      Other receivables                                              304
      Inventories                                                  1,643
      Prepaid expenses and other current assets                      362
                                                                 -------
      Current assets from discontinued operations                $ 4,942
                                                                 =======

      Property, plant and equipment - net                        $ 9,999
      Other assets                                                   651
                                                                 -------
      Other assets from discontinued operations                  $10,650
                                                                 =======

      Accounts payable                                           $ 1,466
      Accrued expenses and other current liabilities                 585
                                                                 -------
      Current liabilities from discontinued operations           $ 2,051
                                                                 =======

      Other liabilities                                          $   198
                                                                 -------
      Other liabilities from discontinued operations             $   198
                                                                 =======

8. 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. The third member of the limited liability company will be
Vulcan Materials Company. 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 June 30, 2003. Some
recovery from insurance and other sources is expected. The Company also has
accrued its best estimate of any future costs.


                                       17
<PAGE>

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

      Phibro-Tech, Inc. has resolved certain alleged technical permit violations
with the California Department of Toxic Substances Control and has reached an
oral agreement to pay $425 over six years.

      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 of the
settlement amount.

      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 is investigating the
matter, which relates to events in the 1950's and 1960's, but management does
not believe that the Company has any liability in this matter.

      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.

  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 $2,193, which is included in current and long-term liabilities in
the December 31, 2003 condensed consolidated balance sheet (approximately $2,791
at June 30, 2003).


                                       18
<PAGE>

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

9. Guarantees

      As part of the Prince Transaction, 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 indemnifications 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 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 Buyer by January 1, 2009. The maximum potential Backstop
Indemnification Amount is included in other liabilities on the Company's
condensed consolidated balance sheet at December 31, 2003.

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

10. 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 December 31, 2003          Nutrition       Chemicals     Distribution      Other           Other          Total
                                              ---------      ----------     ------------     --------      -----------      --------
<S>                                            <C>            <C>             <C>            <C>            <C>             <C>
Net sales                                      $ 68,687       $ 11,679        $  7,656       $  8,021       $     --        $ 96,043

Operating income (loss)                           7,655            778             692            549         (4,057)          5,617
Depreciation and amortization                     2,059            639               4            199            576           3,477

<CAPTION>
                                               Animal
                                              Health &       Industrial                        All         Corporate &
Three Months Ended December 31, 2002          Nutrition       Chemicals     Distribution      Other           Other          Total
                                              ---------      ----------     ------------     --------      -----------      --------
<S>                                            <C>            <C>             <C>            <C>            <C>             <C>
Net Sales                                      $ 66,650       $ 11,231        $  7,197       $  5,056       $     --        $ 90,134

Operating income (loss)                          11,593           (914)            802             54         (3,698)          7,837
Depreciation and amortization                     1,920            938               3            175            395           3,431
</TABLE>


                                       19
<PAGE>

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

<TABLE>
<CAPTION>
                                               Animal
                                              Health &       Industrial                        All         Corporate &
Six Months Ended December 31, 2003            Nutrition       Chemicals     Distribution      Other           Other          Total
                                              ---------      ----------     ------------     --------      -----------      --------
<S>                                            <C>            <C>             <C>            <C>            <C>             <C>
Net sales                                      $128,528        $ 23,661       $ 15,595      $ 15,429        $     --       $183,213

Operating income/(loss)                          14,555           1,600          1,533           846          (7,914)        10,620
Depreciation and amortization                     4,088           1,288              7           414             948          6,745

<CAPTION>
                                               Animal
                                              Health &       Industrial                        All         Corporate &
Six Months Ended December 31, 2002            Nutrition       Chemicals     Distribution      Other           Other          Total
                                              ---------      ----------     ------------     --------      -----------      --------
<S>                                            <C>            <C>             <C>            <C>            <C>             <C>
Net sales                                      $126,626        $ 25,125       $ 15,293      $  9,372        $     --       $176,416

Operating income/(loss)                          21,013            (822)         1,552          (130)         (7,478)        14,135
Depreciation and amortization                     3,812           1,757              6           362             750          6,687

<CAPTION>
                                               Animal
Identifiable Assets of                        Health &       Industrial                        All         Corporate &
Continuing Operations                         Nutrition       Chemicals     Distribution      Other           Other          Total
                                              ---------      ----------     ------------     --------      -----------      --------
<S>                                            <C>            <C>             <C>            <C>            <C>             <C>

At December 31, 2003                           $192,030        $ 24,504       $  8,414      $ 13,472        $ 16,516       $254,936

At June 30, 2003                                190,864          33,191          9,154        12,735          12,811        258,755

</TABLE>

11. 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 The Prince Manufacturing Company, Prince MFG, LLC and
Mineral Resource Technologies, Inc. (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.

      The Senior Subordinated Notes due 2008, issued by the Company (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., The Prince Manufacturing Company, Prince MFG,
LLC, Mineral Resource Technologies, Inc. (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.


                                       20
<PAGE>

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

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

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


                                       21
<PAGE>

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

                      CONDENSED CONSOLIDATING BALANCE SHEET
                             As of December 31, 2003

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

                                                                       ASSETS
                                                                       ------
<S>                           <C>          <C>         <C>         <C>          <C>         <C>             <C>           <C>
CURRENT ASSETS:
  Cash and cash equivalents   $   2,997    $      26   $     126   $      21    $     547   $   4,965                     $   8,682
  Trade receivables               2,569            7      26,043          --        1,358      26,801                        56,778
  Other receivables                 835          414       1,017          --          112       1,513                         3,891
  Inventory                       2,942           --      41,701          --       16,995      26,311                        87,949
  Prepaid expenses and other      1,569           32       1,293          --          303       5,522                         8,719
                              ------------------------------------------------------------------------------------------------------
      TOTAL CURRENT ASSETS       10,912          479      70,180          21       19,315      65,112             --        166,019
                              ------------------------------------------------------------------------------------------------------

Property, plant &
  equipment, net                     98          197      12,815          --       18,067      32,150                        63,327

Intangibles                          --           --          --          --        1,208       6,568                         7,776
Investment in subsidiaries      129,186           --       3,619        (270)          --          --       (132,535)            --
Intercompany                    (21,433)      22,343      64,604      20,510        6,810     (14,234)       (78,600)            --
Other assets                     15,990           --         954          --           --         870                        17,814
                              ------------------------------------------------------------------------------------------------------

                              $ 134,753    $  23,019   $ 152,172   $  20,261    $  45,400   $  90,466      $(211,135)     $ 254,936
                              ======================================================================================================

<CAPTION>
                                                            LIABILITIES AND STOCKHOLDERS' DEFICIT
                                                            -------------------------------------
<S>                           <C>          <C>         <C>         <C>          <C>         <C>               <C>          <C>
CURRENT LIABILITIES:
  Cash overdraft              $      --    $      --   $   3,890   $      --    $      --   $      --                         3,890
  Loan payable to banks           5,684           --          --          --           --       3,461                         9,145
  Current portion of
    long-term debt                  --            --         287          --           --       2,078                         2,365
  Accounts payable                  890           --      31,171          --        1,537      11,852                        45,450
  Accrued expenses and other     12,809        1,553       9,484         506       10,372      10,080                        44,804
                              ------------------------------------------------------------------------------------------------------
      TOTAL CURRENT
        LIABILITIES              19,383        1,553      44,832         506       11,909      27,471             --        105,654
                              ------------------------------------------------------------------------------------------------------

Long-term debt                  133,029           --           4      20,000           --       3,377                       156,410
Intercompany debt                    --           --          --          57       32,385      46,158        (78,600)            --
Other liabilities                 8,367           --       6,036          --        1,376       3,119                        18,898

                              ------------------------------------------------------------------------------------------------------
      TOTAL LIABILITIES         160,779        1,553      50,872      20,563       45,670      80,125        (78,600)       280,962
                              ------------------------------------------------------------------------------------------------------

REDEEMABLE SECURITIES:
  Series C preferred stock       17,065           --          --          --           --          --                        17,065
                              ------------------------------------------------------------------------------------------------------

STOCKHOLDERS' (DEFICIT):
  Series A preferred stock          521           --          --          --           --          --                           521
  Common stock                        2            1          31          --           --          --            (32)             2
  Paid-in capital                   860           --     108,363          23           57       5,176       (113,619)           860
  Accumulated (deficit)         (40,661)      21,465      (7,360)     (5,448)      (5,450)     14,366        (17,573)       (40,661)
  Accumulated other
    comprehensive income
    (loss):                                                                                                                     --
    Gain on derivative
      instruments                   500           --         500          --           --          --           (500)           500
    Cumulative currency
      translation adjustment     (4,313)          --        (234)      5,123        5,123      (9,201)          (811)        (4,313)
                              ------------------------------------------------------------------------------------------------------
      TOTAL STOCKHOLDERS'
          (DEFICIT)             (43,091)      21,466     101,300        (302)        (270)     10,341       (132,535)       (43,091)
                              ------------------------------------------------------------------------------------------------------

                              $ 134,753    $  23,019   $ 152,172   $  20,261    $  45,400   $  90,466      $(211,135)     $ 254,936
                              ======================================================================================================
</TABLE>


                                       22
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                  For The Three Months Ended December 31, 2003

<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                       $  5,425   $  5,435      $ 54,601     $     --   $  1,248    $ 29,334     $     --        $ 96,043

NET SALES - INTERCOMPANY              52      1,259           184           --      3,727       1,405       (6,627)             --

COST OF GOODS SOLD                 4,311      5,005        41,326           --      4,774      24,401       (6,627)         73,190
                              ------------------------------------------------------------------------------------------------------

  GROSS PROFIT                     1,166      1,689        13,459           --        201       6,338           --          22,853


SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES          5,395        624         6,154            2        561       4,500                       17,236
                              ------------------------------------------------------------------------------------------------------

  OPERATING INCOME (LOSS)         (4,229)     1,065         7,305           (2)      (360)      1,838           --           5,617

OTHER:

  Interest expense                 4,028          7            --          506         19          15                        4,575
  Interest (income)                   (3)        --            --           --         30         141                          168
  Other (income) expense, net        300         --           (34)          --        566        (898)                         (66)
  Net (gain) on extinguishment
    of debt                      (23,226)        --            --           --         --          --                      (23,226)

  Intercompany interest
    and other                    (5,752)       810         2,949         (510)       750       1,753                           --

  Loss (profit) relating to
    subsidiaries                 (2,812)        --            --        1,052         --          --        1,760              --
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS
    BEFORE INCOME TAXES          23,236        248         4,390       (1,050)    (1,725)        827       (1,760)         24,166

PROVISION (BENEFIT) FOR
  INCOME TAXES                    1,950         80           454           --       (673)      1,069                        2,880
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS        21,286        168         3,936       (1,050)    (1,052)       (242)      (1,760)         21,286

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

    NET INCOME (LOSS)          $ 21,286   $    168      $  3,936     $ (1,050)  $ (1,052)   $   (242)    $ (1,760)       $ 21,286
                              ====================================================================================================
</TABLE>


                                       23
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   For The Six Months Ended December 31, 2003

<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                      $  11,122  $  11,118     $ 102,696    $    --    $   2,240   $  56,037    $      --       $ 183,213

NET SALES - INTERCOMPANY              97      2,598           393         --       12,996       2,175      (18,259)             --

COST OF GOODS SOLD                 8,819     10,139        77,219         --       13,971      47,307      (18,259)        139,196
                              ------------------------------------------------------------------------------------------------------

  GROSS PROFIT                     2,400      3,577        25,870         --        1,265      10,905           --          44,017


SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES         10,068      1,299        12,375          2        1,084       8,569                       33,397
                              ------------------------------------------------------------------------------------------------------

  OPERATING INCOME (LOSS)         (7,668)     2,278        13,495         (2)         181       2,336           --          10,620


OTHER:
  Interest expense                 7,741         18            --        506           19         240                        8,524
  Interest (income)                   (3)        --            --         --           --         (71)                         (74)
  Other (income) expense, net        528         --          (276)        --         (412)       (541)                        (701)
  Net (gain) on extinguishment
     of debt                     (23,226)        --            --         --           --          --                      (23,226)

  Intercompany interest
    and other                    (11,745)     1,892         5,488       (510)       1,446       3,429                           --

  Loss (profit) relating to
    subsidiaries                  (5,348)                                532                                 4,816              --
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS
    BEFORE INCOME TAXES          24,385        368         8,283       (530)        (872)       (721)      (4,816)         26,097

PROVISION (BENEFIT) FOR
  INCOME TAXES                     1,951         96           672         --         (340)      1,284                        3,663
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS         22,434        272         7,611       (530)        (532)     (2,005)      (4,816)         22,434

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

    NET INCOME (LOSS)         $  22,541  $     148     $   7,611    $  (530)   $    (532)  $  (2,005)   $  (4,692)      $  22,541
                              ====================================================================================================
</TABLE>


                                       24
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                   For the Six Months Ended December 31, 2003

<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>
OPERATING ACTIVITIES:
 Net income (loss)             $  22,541  $     148     $   7,611    $   (530)   $   (532)  $  (2,005)   $  (4,692)      $  22,541
 Adjustment for discontinued
  operation                         (107)       124            --          --          --          --         (124)           (107)
                              ------------------------------------------------------------------------------------------------------
 Income (loss) from
   continuing operations          22,434        272         7,611        (530)       (532)     (2,005)      (4,816)         22,434

 Adjustments to reconcile
   income (loss) from
   continuing operations
   to net cash provided
   (used) by operating
   activities:

 Depreciation and amortization       948        487         1,248          --       1,857       2,205                        6,745
 Deferred income taxes                --         --            --          --          --          93                           93
 Net (gain) on extinguishment
  of debt                        (23,226)        --            --          --          --          --                      (23,226)
 Unrealized foreign
  currency (gains)                    --
  losses and other                   259         --           225          --      (1,380)         76                         (820)

Changes in operating assets
  and liabilities:                                                                                                              --
  Accounts receivable                185        329        (3,590)         --         308         666                       (2,102)
  Inventory                         (330)      (543)           25          --      (2,250)      1,113                       (1,985)
  Prepaid expenses and other       1,340        273          (892)         --         289        (438)                         572
  Other assets                       605         --            (4)         --          --           4                          605
  Intercompany                     2,458     16,879       (13,879)    (19,955)      9,912        (231)       4,816              --
  Accounts payable                (2,414)      (337)          366          --      (2,647)     (2,039)                      (7,071)
  Accrued expenses and other       2,076       (128)        5,515         506       3,647      (7,112)                       4,504
Cash provided (used) by
  discontinued operations            231       (652)           --          --          --          --                         (421)
                              ------------------------------------------------------------------------------------------------------

  NET CASH PROVIDED (USED) BY
  OPERATING ACTIVITIES             4,566     16,580        (3,375)    (19,979)      9,204      (7,668)          --            (672)
                              ------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
  Capital expenditures                --        (62)         (648)         --        (659)       (963)                      (2,332)
  Proceeds from sale of assets        --         --            --          --          --          23                           23
  Discontinued operations         13,849         --            --          --          --         600                       14,449
                              ------------------------------------------------------------------------------------------------------

  NET CASH PROVIDED (USED) BY
  INVESTING ACTIVITIES            13,849        (62)         (648)         --        (659)       (340)          --          12,140
                              ------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
  Cash overdraft                    (350)      (286)        2,849          --          --          (9)                       2,204
  Net increase (decrease) in
    short-term debt              (32,194)        --            --          --          --       2,145                      (30,049)
  Proceeds from long-term debt    85,000         --            --      20,000          --       2,500                      107,500
  Payments of long-term debt     (32,679)       (13)         (867)         --          --        (474)                     (34,033)
  Payment of Pfizer
    obligations                  (20,075)        --            --          --      (8,225)         --                      (28,300)
  Payments relating to
    the Prince
    Transactions and
      transaction costs           (3,667)   (16,312)           --          --          --          --                      (19,979)
  Debt refinancing costs         (11,496)        --            --          --          --          --                      (11,496)
                              ------------------------------------------------------------------------------------------------------

  NET CASH PROVIDED (USED) BY
  FINANCING ACTIVITIES           (15,461)   (16,611)        1,982      20,000      (8,225)      4,162           --         (14,153)
                              ------------------------------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATE
  CHANGES ON CASH                     --         --            --          --          42         146                          188


NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS        2,954        (93)       (2,041)         21         362      (3,700)          --          (2,497)

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             $   2,997  $      26     $     126    $     21    $    547   $   4,965    $      --       $   8,682
                              ====================================================================================================
</TABLE>


                                       25
<PAGE>

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

                      CONDENSED CONSOLIDATING BALANCE SHEET
                               As of June 30, 2003

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

                                                  ASSETS
                                                  ------
<S>                            <C>        <C>           <C>          <C>        <C>         <C>          <C>             <C>
CURRENT ASSETS:
  Cash and cash equivalents   $      43    $     119    $   2,167    $    --    $    185    $   8,665                    $  11,179
  Trade receivables               2,759        2,452       22,071         --       1,542       26,847                       55,671
  Other receivables                 957            3          733         --         518        1,431                        3,642
  Inventory                       2,612        4,278       41,266         --      13,459       27,152                       88,767
  Prepaid expenses and other      3,267          458          981         --         (68)       5,550                       10,188
  Current assets from
    discontinued operations          --        4,942           --         --          --           --                        4,942
                              ------------------------------------------------------------------------------------------------------
    TOTAL CURRENT ASSETS          9,638       12,252       67,218         --      15,636       69,645           --         174,389
                              ------------------------------------------------------------------------------------------------------

 Property, plant &
  equipment, net                    153        3,269       13,297         --      17,049       32,672                       66,440

 Intangibles                         --           --           --         --       1,818        6,851                        8,669
 Investment in subsidiaries      96,672           --        3,619         --          --           --     (100,291)             --
 Intercompany                    35,186      (19,431)      59,765         --       6,881       (9,418)     (72,983)             --
 Other assets                    11,516          710        1,122         --          --          851                       14,199
 Other assets from
  discontinued operations            --       10,650           --         --          --           --                       10,650
                              ------------------------------------------------------------------------------------------------------
                              $ 153,165    $   7,450    $ 145,021    $    --    $ 41,384    $ 100,601    $(173,274)      $ 274,347
                              ====================================================================================================

<CAPTION>
                              LIABILITIES AND STOCKHOLDERS' DEFICIT
                              -------------------------------------
<S>                           <C>          <C>          <C>          <C>        <C>         <C>            <C>            <C>
CURRENT LIABILITIES:
  Cash overdraft              $     350    $     286    $   1,041    $    --    $     --    $       9                        1,686
  Loan payable to banks          32,147           --           --         --          --        6,767                       38,914
  Current portion of
    long-term debt               21,599           66          381         --          --        2,078                       24,124
  Accounts payable                3,304        2,350       25,926         --      12,115       13,220                       56,915
  Accrued expenses and other      6,924        1,151        9,931         --       6,715       16,888                       41,609
  Current liabilities from
    discontinued operations          --        2,051           --         --          --           --                        2,051
                              ------------------------------------------------------------------------------------------------------
    TOTAL CURRENT LIABILITIES    64,324        5,904       37,279         --      18,830       38,962           --         165,299
                              ------------------------------------------------------------------------------------------------------

 Long-term debt                 100,073          213          149         --          --        1,956                      102,391
 Intercompany debt                   --           --           --         --      22,302       50,681      (72,983)             --
 Other liabilities                4,397          114       13,289         --       1,256        3,032                       22,088
 Other liabilities from
  discontinued operations            --          198           --         --          --           --                          198

                              ------------------------------------------------------------------------------------------------------
    TOTAL LIABILITIES           168,794        6,429       50,717         --      42,388       94,631      (72,983)        289,976
                              ------------------------------------------------------------------------------------------------------

REDEEMABLE SECURITIES:
  Series B and C preferred
    stock                        68,881           --           --         --          --           --                       68,881
                              ------------------------------------------------------------------------------------------------------

STOCKHOLDERS' (DEFICIT):
  Series A preferred stock          521           --           --         --          --           --                          521
  Common stock                        2            1           31         --          --           --          (32)              2
  Paid-in capital                   860           --      110,883         --          --        5,179     (116,062)            860
  Accumulated (deficit)         (79,489)       1,020      (16,499)        --      (4,781)      10,860        9,400         (79,489)
  Accumulated other
    comprehensive income
    (loss):                          --
  Gain on derivative
    instruments                      81           --           81         --          --           --          (81)             81
  Cumulative currency
    translation adjustment       (6,485)          --         (192)        --       3,777      (10,069)       6,484          (6,485)
                              ------------------------------------------------------------------------------------------------------
    TOTAL STOCKHOLDERS'
      (DEFICIT)                 (84,510)       1,021       94,304         --      (1,004)       5,970     (100,291)        (84,510)
                              ------------------------------------------------------------------------------------------------------

                              $ 153,165    $   7,450    $ 145,021    $    --    $ 41,384    $ 100,601    $(173,274)      $ 274,347
                              ======================================================================================================
</TABLE>


                                       26
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                  For The Three Months Ended December 31, 2002

<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                     $  5,775    $  5,285        $ 48,909      $  --   $  1,876    $ 28,289        $     --      $ 90,134

NET SALES - INTERCOMPANY           260       1,187             139         --      8,390       2,251         (12,227)           --

COST OF GOODS SOLD               4,753       4,929          38,243         --      9,179      21,217         (12,227)       66,094
                              ------------------------------------------------------------------------------------------------------

  GROSS PROFIT                   1,282       1,543          10,805         --      1,087       9,323              --        24,040


SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES        4,825         642           6,271         --        512       3,953                        16,203
                              ------------------------------------------------------------------------------------------------------

  OPERATING INCOME (LOSS)       (3,543)        901           4,534         --        575       5,370              --         7,837


OTHER:
  Interest expense               3,673          19              --         --       (105)         69                         3,656
  Interest (income)                 --          --              --         --        (19)         49                            30
  Other expense, net               212          --            (139)        --        429        (483)                           19

  Intercompany interest
    and other                   (7,860)      1,239           3,584         --        718       2,319                            --

  Loss (profit) relating to
    subsidiaries                (2,447)         --              --         --         --          --           2,447            --
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS
    BEFORE INCOME TAXES          2,879        (357)          1,089         --       (448)      3,416          (2,447)        4,132

PROVISION (BENEFIT) FOR
  INCOME TAXES                     156           5             144         --       (179)      1,283                         1,409
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS        2,723        (362)            945         --       (269)      2,133          (2,447)        2,723

DISCONTINUED OPERATIONS:
  Profit (loss) relating to
    discontinued operations    (10,558)         --              --         --         --          --          10,558            --
  (Loss) from discontinued
    operations (net of income
    taxes)                          --        (757)             --         --         --      (9,801)                      (10,558)
                              ------------------------------------------------------------------------------------------------------

    NET INCOME (LOSS)         $ (7,835)   $ (1,119)       $    945      $  --   $   (269)   $ (7,668)       $  8,111      $ (7,835)
                              ======================================================================================================
</TABLE>


                                       27
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
                   For The Six Months Ended December 31, 2002

<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                     $  12,666  $  11,041      $  93,461     $  --     $ 3,619    $  55,629      $      --      $ 176,416

NET SALES - INTERCOMPANY            477      2,091            324        --      14,877        4,743        (22,512)            --

COST OF GOODS SOLD               10,540      9,819         72,134        --      15,442       44,805        (22,512)       130,228
                              ------------------------------------------------------------------------------------------------------

  GROSS PROFIT                    2,603      3,313         21,651        --       3,054       15,567             --         46,188


SELLING, GENERAL AND
  ADMINISTRATIVE EXPENSES         9,183      1,285         12,583        --         946        8,056                        32,053
                              ------------------------------------------------------------------------------------------------------

  OPERATING INCOME (LOSS)        (6,580)     2,028          9,068        --       2,108        7,511             --         14,135


OTHER:
  Interest expense                7,437         48              1        --          --          674                         8,160
  Interest (income)                  (1)        --             --        --         (19)         (76)                          (96)
  Other expense, net                309         --             --        --         522          374                         1,205

  Intercompany interest
    and other                   (15,406)     2,477          7,296        --       1,402        4,231                            --

  Loss (profit) relating to
    subsidiaries                 (2,100)        --             --        --          --           --          2,100             --
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS
    BEFORE INCOME TAXES           3,181       (497)         1,771        --         203        2,308         (2,100)         4,866

PROVISION FOR INCOME TAXES          156         20            206        --           81       1,378                         1,841
                              ------------------------------------------------------------------------------------------------------

  INCOME (LOSS) FROM
    CONTINUING OPERATIONS         3,025       (517)         1,565        --         122          930         (2,100)         3,025

DISCONTINUED OPERATIONS:
  Profit (loss) relating to
    discontinued operations     (11,017)        --             --        --          --           --         11,017             --
  (Loss) from discontinued
    operations (net of
    income taxes)                    --       (488)            --        --          --      (10,529)                      (11,017)
                              ------------------------------------------------------------------------------------------------------

    NET INCOME (LOSS)         $  (7,992) $  (1,005)     $   1,565     $  --     $   122    $  (9,599)     $   8,917      $  (7,992)
                              ======================================================================================================
</TABLE>


                                       28
<PAGE>

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

                 CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
                   For the Six Months Ended December 31, 2002

<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>

OPERATING ACTIVITIES:
  Net income (loss)            $ (7,992)   $ (1,005)     $  1,565      $   --   $    122    $ (9,599)       $  8,917      $ (7,992)
  Adjustment for
    discontinued operation       11,017         488            --          --         --      10,529         (11,017)       11,017
                              ------------------------------------------------------------------------------------------------------
  Income (loss) from
    continuing operations         3,025        (517)        1,565          --        122         930          (2,100)        3,025

  Adjustments to reconcile
    income (loss) from
    continuing operations
    to net cash provided by
    operating activities:
    Depreciation and
      amortization                  750         471         1,752          --      1,219       2,495                         6,687
    Deferred income taxes            --          --            --          --         --         416                           416
    Unrealized foreign
      currency (gains)
      losses and other              189           6           (93)         --     (1,248)      1,026                          (120)

    Changes in operating
      assets and
      liabilities:
      Accounts receivable           383         577         1,755          --       (906)      1,081                         2,890
      Inventory                    (723)     (1,017)       (7,945)         --     (2,968)      1,913                       (10,740)
      Prepaid expenses and
        other                     1,500         213         1,342          --         88      (1,868)                        1,275
      Other assets                 (849)         (1)           15          --         --          14                          (821)
      Intercompany                4,896        (391)       (6,527)         --       (596)        518           2,100            --
      Accounts payable              722       1,063        15,143          --       (133)        730                        17,525
      Accrued expenses and
        other                    (1,740)        (98)       (1,958)         --      5,617       1,685                         3,506
    Cash provided by
      discontinued operations        --         554            --          --         --       3,245                         3,799
                              ------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED BY
        OPERATING ACTIVITIES      8,153         860         5,049          --      1,195      12,185              --        27,442
                              ------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
  Capital expenditures               --        (310)       (1,911)         --     (1,216)     (1,948)                       (5,385)
  Proceeds from sale of
    assets                           --          --         2,472          --         --          26                         2,498
  Discontinued operations            --        (385)           --          --         --       1,877                         1,492
                              ------------------------------------------------------------------------------------------------------
        NET CASH PROVIDED
        (USED) BY INVESTING
        ACTIVITIES                   --        (695)          561          --     (1,216)        (45)             --        (1,395)
                              ------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
  Cash overdraft                    479         (96)       (4,045)         --         --      (1,689)                       (5,351)
  Net (decrease) in
    short-term debt              (4,616)         --            --          --         --       1,190                        (3,426)
  Proceeds from
    long-term debt
                                     --            --          --          --         --       1,660                         1,660
  Payments of long-term debt     (4,342)        (70)         (192)         --         --      (7,148)                      (11,752)
                              ------------------------------------------------------------------------------------------------------
        NET CASH (USED) BY
        FINANCING ACTIVITIES     (8,479)       (166)       (4,237)         --         --      (5,987)             --       (18,869)
                              ------------------------------------------------------------------------------------------------------

EFFECT OF EXCHANGE RATE
  CHANGES ON CASH                    --          --           (19)         --         38         172                           191


NET INCREASE (DECREASE) IN
  CASH AND CASH EQUIVALENTS        (326)         (1)        1,354          --         17       6,325              --         7,369

CASH AND CASH EQUIVALENTS
  at beginning of period            457          52           600          --        618       4,692                         6,419
                              ------------------------------------------------------------------------------------------------------

CASH AND CASH EQUIVALENTS
  at end of period             $    131    $     51      $  1,954      $   --   $    635    $ 11,017        $     --      $ 13,788
                              ======================================================================================================
</TABLE>


                                       29
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

      This information should be read in conjunction with the condensed
consolidated financial statements and related notes contained in this Report.
The Company's Odda, Carbide and MRT businesses have been classified as
discontinued operations. This discussion presents information only for
continuing operations, unless otherwise indicated.

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.

      In August 2003, the Company completed the sale of MRT for net proceeds
after transaction costs of approximately $13.8 million, subject to certain
post-closing adjustments.

Refinancing

      On October 21, 2003, the Company issued 105,000 units consisting of $85.0
million of 13% Senior Secured Notes due 2007 of PAHC (the "US Senior Notes") and
$20.0 million 13% Senior Secured Notes due 2007 of Philipp Brothers Netherlands
III B.V. (the "Dutch Senior Notes" and, together with the US Senior Notes, the
"Senior Secured Notes"), an indirect wholly-owned subsidiary of PAHC (the "Dutch
issuer"). The Company used the proceeds from the issuance to: (i) repurchase
$52.0 million of its 9 7/8% Senior Subordinated Notes due 2008 at a price equal
to 60% of the principal amount thereof, plus accrued and unpaid interest; (ii)
repay its senior credit facility of $34.9 million outstanding at the repayment
date; (iii) satisfy, for a payment of approximately $29.3 million certain of its
outstanding obligations to Pfizer Inc., including: (a) $20.1 million aggregate
principal amount of its promissory note plus accrued and unpaid interest, (b)
$9.7 million of accounts payable, (c) $9.0 million of accrued expenses, and (d)
future contingent purchase price obligations under its agreements with Pfizer
Inc. by which the Company acquired Pfizer's medicated feed additive business;
and (iv) pay fees and expenses relating to the above transactions.

      A net gain on extinguishment of debt is included in the Company's
condensed consolidated statement of operations, calculated as follows (amounts
in thousands):

Net Gain on Repurchase of 9 7/8% Senior
 Subordinated Notes due 2008:
   Principal amount of repurchased notes                               $ 51,971
   Repurchased at 60% of principal amount                               (31,183)
   Transaction costs                                                     (4,107)
                                                                       --------
Net gain on repurchase of notes                                          16,681
                                                                       --------

Loss on repayment of senior credit facility                              (1,018)
                                                                       --------

Net Gain on Payment of Pfizer Obligations:
   Obligations paid:
   -promissory note                                                      20,075
   -accrued interest on promissory note                                   1,015
   -accounts payable and accrued expenses                                18,788
                                                                       --------
   Total obligations paid                                                39,878
   Cash payment to Pfizer                                               (29,315)
   Transaction costs                                                     (3,000)
                                                                       --------
Net gain on payment of Pfizer obligations                                 7,563
                                                                       --------

Net gain on extinguishment of debt                                     $ 23,226
                                                                       ========


                                       30
<PAGE>

      The US Senior Notes and the Dutch Senior Notes are senior secured
obligations of each of PAHC (the "US Issuer") and the Dutch issuer,
respectively. The US Senior Notes and the Dutch Senior Notes are guaranteed on a
senior secured basis by all PAHC's domestic restricted subsidiaries, and the
Dutch Senior Notes are guaranteed on a senior secured basis by PAHC and by the
restricted subsidiaries of the Dutch issuer, presently consisting of Phibro
Animal Health SA. The US Senior Notes and related guarantees are secured by
substantially all of PAHC's assets and the assets of its domestic restricted
subsidiaries, other than real property and interests therein, including a pledge
of all the capital stock of such domestic restricted subsidiaries. The Dutch
Senior Notes and related guarantees are secured by a pledge of all the accounts
receivable, a security interest or floating charge on the inventory to the
extent permitted by applicable law, and a mortgage on substantially all of the
real property of the Dutch issuer and each of its restricted subsidiaries, a
pledge of 100% of the capital stock of each subsidiary of the Dutch issuer, a
pledge of the intercompany loans made by the Dutch issuer to its restricted
subsidiaries and substantially all of the assets of the U.S. guarantors, other
than real property and interests therein. The indenture governing the Senior
Secured Notes provides for optional make-whole redemptions at any time prior to
June 1, 2005, optional redemption on or after June 1, 2005, and requires the
Company to make certain offers to purchase Senior Secured Notes upon a change of
control, upon certain asset sales and from fifty percent (50%) of excess cash
flow (as such terms are defined in the indenture).

      Also, on October 21, 2003, the Company entered into a new replacement
domestic senior credit facility ("senior credit facility") with Wells Fargo
Foothill, Inc., providing for a working capital facility plus a letter of credit
facility. The aggregate amount of borrowings under such working capital and
letter of credit facilities may not exceed $25.0 million including aggregate
borrowings under the working capital facility up to $15.0 million.

      Borrowings under the senior credit facility are subject to a borrowing
base formula based on percentages of eligible domestic receivables and domestic
inventory. Under the senior credit facility, the Company may choose between two
interest rate options: (i) the applicable base rate as defined plus 0.50% and
(ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the senior credit
facility is secured by a first priority lien on substantially all of the
Company's assets and assets of substantially all of the Company's domestic
subsidiaries. The Company is required to pay an unused line fee of 0.375% on the
unused portion of the senior credit facility, a monthly servicing fee and
standard letter of credit fees to issuing banks. Borrowings under the senior
credit facility are available until, and are repayable no later than, October
31, 2007, although borrowings must be repaid by June 30, 2007 if the maturity of
the Senior Secured Notes has not been extended, as required by the senior credit
facility, by that date.

      Pursuant to the terms of an intercreditor agreement, the security interest
securing the Senior Secured Notes and the guarantees made by the Company's
domestic restricted subsidiaries is subordinated to a lien securing the senior
credit facility.

      The Company believes that, through the refinancings referred to above, the
liquidity issues mentioned in the Company's June 30, 2003 consolidated financial
statements have been resolved. The Company's replaced senior credit facility and
its note payable to Pfizer were to mature in November 2003 and March 2004,
respectively.

      The Company's ability to fund its operating plan relies upon its ability
to continue to successfully implement its efforts to improve its overall
liquidity (through cost reduction activities, working capital improvement plans,
shutdown of unprofitable operations and sales of certain business operations and
other assets) and the continued availability of borrowing under the 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 consents on favorable terms, if at all.

Prince Transactions

      Effective December 26, 2003 (the "Closing Date"), the Company completed
the divestiture of substantially all of the business and assets of 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").

     Pursuant to definitive purchase and other agreements executed on and
effective as of the Closing Date, the Prince Transactions included the following
elements: (i) the transfer of substantially all of the business and assets of
PMC to Buyer; (ii) the reduction of the value of the Company's Preferred Stock
owned by the Palladium Investors from $72.2 million to $16.5 million (accreted
through the Closing Date) by means of the redemption of all of its shares of
Series B Preferred Stock


                                       31
<PAGE>

and a portion of its Series C Preferred Stock; (iii) the termination of $2.2
million in annual management advisory fees payable by the Company to Palladium;
(iv) a cash payment of $10.0 million to the Palladium Investors in respect of
the portion of the Company's Preferred Stock not exchanged in consideration of
the business and assets of PMC; (v) the agreement of the Buyer to pay the
Company for advisory fees for the next three years of $1.0 million, $0.5
million, and $0.2 million, respectively (which were pre-paid at closing by the
Buyer and satisfied for $1.3 million, the net present value of such payments);
and (vi) the Buyer agreed to supply manganous oxide and red iron oxide products
and to provide certain mineral blending services to the Company's Prince
Agriproducts subsidiary ("Prince Agri"). Prince Agri agreed to continue to
provide the Buyer with certain laboratory, MIS and telephone services, all on
terms substantially consistent with the historic relationship between Prince
Agri and PMC, and to lease to Buyer office space used by PMC in Quincy,
Illinois. The Company has an understanding to receive certain treasury services
from Palladium for $0.1 million per year. Pursuant to definitive agreements, the
Company made customary representations, warranties and environmental and other
indemnities, agreed to a post-closing working capital adjustment, paid $4.0
million in full satisfaction of all intercompany debt owed to PMC, paid a
closing fee to Palladium of $0.5 million, made certain capital expenditure
adjustments included as part of the intercompany settlement amount, and agreed
to pay for certain out-of-pocket transaction expenses. PMC retained $0.4 million
of its accounts receivable. The Company established a $1.0 million letter of
credit escrow for two years to secure its working capital adjustment and certain
indemnification obligations. 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 Buyer for less than $21.0 million
up to a maximum payment by the Company of $4.0 million (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 Buyer by January 1,
2009. The definition of "Equity Value" in the Company's Certificate of
Incorporation was amended to reduce the multiple of trailing EBITDA payable in
connection with any future redemption of Series C Preferred to 6.0 from 7.5. The
amount of consideration paid and payable in connection with the Prince
Transactions and all matters in connection therewith were determined pursuant to
arm's length negotiations.

      The excess of the reduction in redeemable preferred stock over total
assets divested and costs and liabilities incurred on the Prince Transactions
was recorded as a decrease to accumulated deficit on the Company's condensed
consolidated balance sheet at December 31, 2003, and was calculated as follows
(amounts in thousands):

      Series B & C Redeemable Preferred Stock:
      Accreted value pre-transaction                                $72,184
      Accreted value post-transaction                                16,517
                                                                    -------
      Reduction in redeemable preferred stock                        55,667
                                                                    -------

      Assets Divested and Costs Incurred:
      PMC net assets divested                                         7,430
      Cash paid to Palladium Investors for:
        -reduction of redeemable preferred stock                     10,000
        -settlement of PMC intercompany debt                          3,958
        -working capital adjustment                                   1,331
        -closing fee                                                    500
      Transaction costs
                                                                      8,310
      Contingent Backstop Indemnification Amount accrued              4,000
                                                                    -------
      Total assets divested and costs and liabilities incurred       35,529
                                                                    -------

      Excess amount recorded as a decrease to accumulated deficit   $20,138
                                                                    =======


                                       32
<PAGE>

      PMC is included in the Company's Industrial Chemicals segment. The results
of operations of PMC for the three months and six months ended December 31, 2003
and 2002 were:

                                           Three Months        Six Months Ended
                                        Ended December 31,       December 31,
                                        ------------------    ------------------
                                          2003       2002       2003      2002
                                        -------    -------    -------    -------
                                           (Thousands)             (Thousands)
Net sales                               $ 5,435    $ 5,285    $11,118    $11,041
Operating income                          1,065        901      2,278      2,028
Depreciation and amortization               244        239        487        471

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

Summary Consolidated Results of Continuing Operations

                                      Three Months           Six Months Ended
                                   Ended December 31,          December 31,
                                 --------------------     ----------------------
                                   2003        2002         2003         2002
                                 --------    --------     ---------    ---------
                                      (Thousands)              (Thousands)

Net sales                        $ 96,043    $ 90,134     $ 183,213    $ 176,416
Gross profit                       22,853      24,040        44,017       46,188
Selling, general and
  administrative                   17,236      16,203        33,397       32,053
Operating income                    5,617       7,837        10,620       14,135
Interest expense, net               4,743       3,686         8,450        8,064
Other expense (income), net           (66)         19          (701)       1,205
Gain on extinguishment of debt    (23,226)                  (23,226)
Provision for income taxes          2,880       1,409         3,663        1,841
Income from continuing
  operations                     $ 21,286    $  2,723     $  22,434    $   3,025

Comparison of Three Months Ended December 31, 2003 and 2002

      Net Sales of $96.0 million increased $5.9 million, or 7%. Animal Health
and Nutrition sales of $68.7 million increased $2.0 million from the prior year.
Specialty Chemical sales of $27.4 million increased $3.9 million, primarily due
to volume increases in the All Other businesses.

      Gross Profit of $22.9 million decreased $1.2 million to 23.8% of net
sales, compared with 26.7% in 2002. Animal Health and Nutrition cost of goods
sold increased due to unfavorable currency related to the effect of the Euro on
Belgium manufacturing costs.

      Selling, General and Administrative Expenses of $17.2 million increased
$1.0 million, or 6%. Expenses in the operating segments exceeded the prior year
primarily due to unfavorable foreign exchange rates. Corporate expenses rose due
to increased levels of amortization and higher insurance, bank charges and other
general spending increases.

      Operating Income of $5.6 million decreased $2.2 million to 5.8% of sales.
The decrease was primarily due to gross profit declines in the Animal Health and
Nutrition segment offset in part by improved operating performance of the
Specialty Chemical group.

      Interest Expense, Net of $4.7 million increased $1.1 million from the
prior year, primarily due to higher average interest rates associated with the
issuance of the Company's Senior Secured Notes.

      Income Taxes of $2.9 million on consolidated pre-tax income of $24.2
million primarily were due to 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 previously had recorded valuation


                                       33
<PAGE>

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.

Comparison of Six Months Ended December 31, 2003 and 2002

      Net Sales of $183.2 million increased $6.8 million, or 4%. Animal Health
and Nutrition sales of $128.5 million increased $1.9 million from the prior
year. Specialty Chemical sales of $54.7 million increased $4.9 million,
primarily due to volume increases in the All Other businesses.

      Gross Profit of $44.0 million decreased $2.2 million to 24.0% of net
sales, compared with 26.2% in 2002. Animal Health and Nutrition cost of goods
sold increased due to unfavorable currency related to the effect of the Euro on
Belgium manufacturing costs. Improvements in the Specialty Chemical group
partially offset the Animal Health and Nutrition decline.

      Selling, General and Administrative Expenses of $33.4 million increased
$1.3 million, or 4%. Expenses in the operating segments increased over the prior
year due to unfavorable foreign exchange rates. Corporate expenses rose due to
increased levels of amortization and higher insurance, bank charges and other
general spending increases.

      Operating Income of $10.6 million decreased $3.5 million to 5.8% of sales.
The decrease was primarily due to gross profit declines in the Animal Health and
Nutrition segment offset in part by improved operating performance of the
Specialty Chemical group.

      Interest Expense, Net of $8.4 million increased $0.4 million, from the
prior year, primarily due to higher average interest rates associated with the
issuance of the Company's Senior Secured Notes.

      Other(Income) Expense, Net of ($0.7) million improved in comparison with
expense of $1.2 million last year. The (income) expense principally reflects
foreign currency transaction net (gains) losses related to short-term
inter-company balances and foreign currency translation (gains) losses.

      Income Taxes of $3.7 million on consolidated pre-tax income of $26.1
million primarily were due to 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 previously had 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 Israel, and
Koffolk Brazil. 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, until its divestiture, 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.

                                    Three Months           Six Months Ended
                                 Ended December 31,          December 31,
                               ----------------------    ----------------------
                                  2003        2002         2003         2002
                               ---------    ---------    ---------    ---------
                                     (Thousands)              (Thousands)
Net Sales
  Animal Health & Nutrition    $  68,687    $  66,650    $ 128,528    $ 126,626
  Specialty Chemicals:
       Industrial Chemicals       11,679       11,231       23,661       25,125
       Distribution                7,656        7,197       15,595       15,293
       All other                   8,021        5,056       15,429        9,372
                               ---------    ---------    ---------    ---------
                               $  96,043    $  90,134    $ 183,213    $ 176,416
                               =========    =========    =========    =========


                                       34
<PAGE>

                                    Three Months           Six Months Ended
                                 Ended December 31,          December 31,
                               ----------------------    ----------------------
                                  2003        2002         2003         2002
                               ---------    ---------    ---------    ---------
                                     (Thousands)              (Thousands)
Operating Income
  Animal Health & Nutrition    $   7,655    $  11,593    $  14,555    $  21,013
  Specialty Chemicals:
       Industrial Chemicals          778         (914)       1,600         (822)
       Distribution                  692          802        1,533        1,552
       All other                     549           54          846         (130)
  Corporate                       (4,057)      (3,698)      (7,914)      (7,478)
                               ---------    ---------    ---------    ---------
                               $   5,617    $   7,837    $  10,620    $  14,135
                               =========    =========    =========    =========

Operating Segments Comparison of Three Months Ended December 31, 2003 and 2002

      Animal Health and Nutrition

      Net Sales of $68.7 million increased $2.0 million. MFA net sales decreased
by $0.5 million. MFA revenues were lower for anticoccidials, antibiotics and
anthelmintics but were offset in part by higher sales of antibacterials and
other medicated feed additives. The decrease in MFA revenues was due to lower
average selling prices offset in part by favorable currency effect on
international sales. Nutritional Feed Additives net sales increased by $2.5
million, principally due to volume increases in core inorganic minerals, trace
mineral premixes and other ingredients.

      Operating Income of $8.0 million decreased $3.9 million. Operating income
declined due to higher cost of goods reflecting the stronger Euro's effect on
Belgian manufacturing cost and unfavorable currency effects on international
selling, general and administrative expense. Lower average selling prices also
contributed to the decrease.

      Specialty Chemicals

      Industrial Chemicals net sales of $11.7 million increased $0.4 million, or
4%. Sales of copper related products to the wood treatment markets increased by
$0.3 million due to the introduction of new copper based wood treatment
chemicals which offset the divestiture of the Company's Eastern United States
etchant business in mid-fiscal 2003. The Company continues its existing etchant
business at one remaining facility. Sales of iron and manganese compounds to the
brick, masonry, glass and other chemical industries increased $0.1 million
primarily due to higher unit volumes. Operating income of $0.8 million improved
$1.7 million. The improvement was due to new product introductions and savings
from headcount reductions and facility restructurings.

      Distribution net sales of $7.7 million increased $0.5 million, or 6%.
Higher unit sales volumes in Europe were partially offset by lower sales volumes
in the U.S. Operating income of $0.7 million decreased $0.1 million. As a
percentage of sales, operating income decreased to 9% in 2003 from 11% in 2002.
The decline in operating income margins resulted principally from increased
sales of lower margin products.

      All Other net sales of $8.0 million increased $3.0 million, or 59%.
Revenues for contract manufacturing increased $2.9 million due to increased
volumes and average selling prices. Specialized lab projects and formulations
increased $0.1 million. Other operating income of $0.5 million improved by $0.5
million from the prior year due to increased revenues for contract
manufacturing.


                                       35
<PAGE>

Operating Segments Comparison of Six Months Ended December 31, 2003 and 2002

      Animal Health and Nutrition

      Net Sales of $128.5 million increased $1.9 million. Medicated Feed
Additives net sales decreased by $3.3 million. Revenues were lower for
antibiotics and anticoccidials but were offset in part by higher sales of
antibacterials, anthelmintics and other medicated feed additives. The decrease
in MFA revenues was due to lower average selling prices offset in part by
favorable currency effect on international sales. Nutritional Feed Additives net
sales increased by $5.2 million, principally due to volume increases in core
inorganic minerals, trace mineral premixes and other ingredients.

      Operating Income of $14.6 million decreased $6.5 million. Operating income
declined due to higher cost of goods reflecting the stronger Euro's effect on
Belgian manufacturing cost and unfavorable currency effects on international
selling, general and administrative expense. Lower average selling prices also
contributed to the decrease.

      Specialty Chemicals

      Industrial Chemicals net sales of $23.7 million decreased $1.5 million, or
6%. Industrial Chemicals net sales decreased $1.6 million principally due to
lower sales of etchants and copper related products to the printed circuit board
market offset in part by higher sales to the wood treatment industry. Sales of
iron and manganese compounds to the brick, masonry, glass and other chemical
industries increased $0.1 million primarily due to higher unit volumes.
Operating income of $1.6 million improved by $2.4 million from the prior year.
The improvement principally was due to the partial disposal during the quarter
ended December 31, 2002 of the ammoniacal etchant business and savings from
headcount reductions and facility restructurings. The Company continues its
existing etchant business at one remaining facility.

      Distribution net sales of $15.6 million increased $0.3 million, or 2%.
Higher unit sales volumes in Europe were partially offset by lower sales volumes
in the U.S. Operating income of $1.5 million approximated the prior year. As a
percentage of sales, operating income was 10% in 2003 and 2002.

      All Other net sales of $15.4 million increased $6.1 million, or 65%.
Revenues for contract manufacturing increased $5.9 million due to increased
volumes and average selling prices. Specialized lab projects and formulations
increased $0.2 million. Operating income of $0.8 million improved by $1.0
million from the prior year due to higher revenues and increased margins on
contract manufacturing.

Discontinued Operations

      During fiscal 2003, the Company decided to shutdown or divest Odda
Smelteverk (Norway), Carbide Industries (U.K.) and Mineral Resource
Technologies, Inc. These businesses have been classified as discontinued
operations. During fiscal 2003, the Company decided to pursue a sale of MRT. The
sale was completed on August 28, 2003 for net proceeds, after transaction costs,
of approximately $13.8 million. The Company recorded a gain of approximately $.2
million on disposal based upon its assessment of the likely outcomes of the
post-closing adjustments. MRT was included in the Company's All Other segment.
The Company's consolidated financial statements have been reclassified to report
separately the operating results, financial position and cash flows of the
discontinued operations. Amounts in thousands.

                                                                Six Months Ended
                                                               December 31, 2003
                                                               -----------------
                                                                      MRT
                                                               -----------------
Net sales                                                           $ 3,327
                                                                    =======

Pre-tax income (loss) from discontinued operations                  $  (124)
Provision (benefit) for income tax                                  $    --
                                                                    -------
Net Income  (loss) from discontinued operations                     $  (124)
                                                                    =======

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


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                                                                     Six Months Ended December 31, 2002
                                                                         ----------------------------------------------------------
                                                                           Odda          Carbide            MRT             Total
                                                                         --------        --------         --------         --------
<S>                                                                      <C>             <C>              <C>              <C>
Net sales                                                                $  6,110        $  3,174         $ 10,459         $ 19,743
                                                                         ========        ========         ========         ========

Pre-tax income (loss) from discontinued operations                       $ 10,693        $   (190)        $   (488)        $ 10,015
Provision (benefit) for income tax                                       $     --        $    (26)        $     --         $    (26)
                                                                         --------        --------         --------         --------
Net Income  (loss) from discontinued operations                          $ 10,693        $   (164)        $   (488)        $ 10,041
                                                                         ========        ========         ========         ========

Depreciation and Amortization                                            $    643        $     59         $    636         $  1,338
                                                                         ========        ========         ========         ========

<CAPTION>
                                                                                      Three Months Ended December 31, 2002
                                                                         ----------------------------------------------------------
                                                                           Odda          Carbide            MRT             Total
                                                                         --------        --------         --------         --------
<S>                                                                      <C>             <C>              <C>              <C>
Net sales                                                                $  2,682        $  1,697         $  4,605         $  8,984
                                                                         ========        ========         ========         ========

Pre-tax income (loss) from discontinued operations                       $  9,888        $    (98)        $   (757)        $  9,033
Provision (benefit) for income tax                                       $     --        $    (11)        $     --         $    (11)
                                                                         --------        --------         --------         --------
Net Income  (loss) from discontinued operations                          $  9,888        $    (87)        $   (757)        $  9,044
                                                                         ========        ========         ========         ========

Depreciation and Amortization                                            $    325        $      5         $    327         $    657
                                                                         ========        ========         ========         ========
</TABLE>

Liquidity and Capital Resources

      Net Cash (Used) Provided by Operating Activities. Cash (used) provided by
operations for the six months ended December 31, 2003 and 2002 was ($0.7)
million and $27.4 million, respectively. Cash used in 2003 was attributable to
lower income and increased working capital requirements. Cash provided in 2002
was due to improved income from continuing operations and aggressive working
capital management. The increase in cash overdrafts of $2.2 million in 2003 is a
partial offset to the decline in working capital in 2003, and is included in the
financing activities section of the cash flow statement.

      Net Cash Provided (Used) by Investing Activities. Net cash provided (used)
by investing activities for the six months ended December 31, 2003 and 2002 was
$12.1 million and ($1.4) million, respectively. Discontinued operations provided
$14.4 million and $1.5 million in 2003 and 2002, respectively. Capital
expenditures of $2.3 million and $5.4 million in the respective 2003 and 2002
periods were for new product capacity, for maintaining the Company's existing
asset base and for environmental, health and safety projects.

      Net Cash (Used) by Financing Activities. Net cash (used) by financing
activities for the six months ended December 31, 2003 and 2002 was ($14.2)
million and ($18.9) million, respectively. Short-term debt decreased due to the
reduction of the senior credit facility of $26.5 million, debt payments related
to Odda of $5.7 million, and offset by other increases of $2.2 million. Proceeds
from long-term debt reflects the issuance of the Senior Secured Notes of $105.0
million and an increase of $2.5 million in foreign bank loans. Payments of
long-term debt primarily reflect the retirement of senior subordinated debt.
Payments of the Pfizer obligations, the Prince transactions and costs related to
the refinancing account for the remainder of funds used by financing activities.

      Working Capital and Capital Expenditures. Working capital as of December
31, 2003 was $60.4 million compared to $9.1 million at fiscal year end June 30,
2003, an increase of $51.3 million. The increase in working capital was due to
reduced current debt, accounts payable and accrued expense levels, principally
as a result of the Company's refinancing and satisfaction of its obligations due
Pfizer.

      The Company anticipates spending approximately $6.0 million for capital
expenditures related to continuing operations in fiscal 2004, primarily to cover
the Company's asset replacement needs, to improve processes, and for
environmental and regulatory compliance, subject to the availability of funds.


                                       37
<PAGE>

      Liquidity. At December 31, 2003, the Company was in compliance with the
financial covenants included in its senior credit facility. At December 31,
2003, the amount of credit extended under the Company's senior credit facility
totaled $5.7 million under the revolving credit facility and $10.5 million under
the letter of credit facility, and the Company had $9.3 million available under
the borrowing base formula in effect. In addition, certain of the Company's
foreign subsidiaries also had availability totaling $5.1 million under their
respective loan agreements. At February 16, 2004, the amount of credit extended
under the Company's senior credit facility totaled $5.8 million under the
revolving credit facility and $8.1 million under the letter of credit facility,
and the Company had $9.2 million available under the borrowing base formula in
effect.

      The senior credit facility contains a lock-box requirement and an
acceleration 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 relies upon its ability
to continue to successfully implement its efforts to improve its overall
liquidity (through cost reduction activities, working capital improvement plans,
shutdown of unprofitable operations and sales of certain business operations and
other assets) and the continued availability of borrowing under the 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 consents on favorable terms, if at all.

      The Company anticipates taxable gains on extinguishment of debt and other
aspects of the refinancing structure will be substantially offset by existing
net operating loss carry forwards, and that the Company will not incur
significant cash income tax payments related to these gains.

      The Company's contractual obligations (in millions) at December 31, 2003
mature as follows:

                                                   Years
                                        ----------------------------
                                                     Over      Over
                                        Within 1    1 to 3    3 to 5      Total
                                        --------    ------    ------      -----
Loans payable to Banks                   $  9.1     $   --    $   --      $  9.1
Lease commitments                           2.1        1.6       0.7         4.4
Long-term debt (including
   current portion)                         2.4        3.4     153.0       158.8
                                         ------     ------    ------      ------
   Total contractual                     $ 13.6     $  5.0    $153.7      $172.3
                                         ======     ======    ======      ======

Critical Accounting Policies

      The Company's discussion of results of operations and financial condition
relies on consolidated financial statements that are prepared based on certain
critical accounting policies that require management to make judgments and
estimates that are subject to varying degrees of uncertainty. The Company
believes that investors need to be aware of these policies and how they impact
our financial statements as a whole, as well as our related discussion and
analysis presented herein. While the Company believes that these accounting
policies are based on sound measurement criteria, future events can and often do
result in outcomes that can be materially different from these estimates or
forecasts. The accounting policies and related risk described in our Annual
Report on Form 10-K for the year ended June 30, 2003 are those that depend most
heavily on these judgments and estimates. As of December 31, 2003 there have
been no material changes to any of the critical accounting policies contained
therein.

New Accounting Pronouncements

      The Company adopted the following new accounting pronouncements in fiscal
2004:

      Statement of Financial Accounting Standards No. 149, "Amendment of SFAS
No. 133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS
No. 149 amends and clarifies accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities under SFAS No. 133. The adoption of SFAS
No. 149 did not result in a material impact on the Company's financial
statements.


                                       38
<PAGE>

      Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the nature of the relationship established between the
holder and the issuer. The adoption of SFAS No. 150 did not result in an impact
on the Company's financial statements.

      The Company will adopt the following new accounting pronouncement in
fiscal 2004:

      Statement of Financial Accounting Standards No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits (revised 2003)"
("SFAS No. 132"). This revision to SFAS No. 132 relates to employers'
disclosures about pension plans and other postretirement benefit plans. SFAS No.
132 now requires additional disclosures to describe the types of plan assets,
investment strategy, measurement date(s), plan obligations, cash flows, and
components of net periodic benefit cost recognized during interim periods. SFAS
No. 132 is effective for financial statements with fiscal years ending after
December 15, 2003. The interim-period disclosures required by SFAS No. 132 are
effective for interim periods beginning after December 15, 2003. The adoption of
this revision to SFAS No. 132 will not result in a material impact on the
Company's financial statements.

      FASB Interpretation No. 46, "Consolidation of Variable Interest Entities
(revised December 2003)" ("FIN No. 46"). This revision to FIN No. 46 clarifies
the application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements", to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support. FIN No. 46 is effective for financial statements
for periods ending after March 15, 2004. The adoption of FIN No. 46 will not
result in an impact on the Company's financial statements.

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


                                       39
<PAGE>

      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

      o     the risk of work stoppages

      o     our dependence on key personnel

      See also the discussion under "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

      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 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.

      The Company's debt portfolio is comprised of fixed rate and variable rate
debt of approximately $167.9 million as of December 31, 2003. Approximately 9%
of the debt is variable and would be interest rate sensitive.

Item 4. Control and Procedures

      (a)   As of the end of the period covered by this report, the Company
            carried out an evaluation by the Chief Executive Officer, Chairman
            of the Board and Chief Financial Officer of the effectiveness of the
            design and operation of the Company's disclosure controls and
            procedures pursuant to Exchange Act Rule 15d-14(c). Based upon that
            evaluation, the Company's Chief Executive Officer, Chairman of the
            Board and Chief Financial Officer concluded that the Company's
            disclosure controls and procedures are effective in timely alerting
            them to material information relating to the Company (including its
            consolidated subsidiaries) required to be included in the Company's
            reports filed under the Securities Exchange Act of 1934.

      (b)   Since the date of the most recent evaluation of the Company's
            internal controls, there have been no significant changes in such
            internal controls or in other factors that could significantly
            affect these controls nor were there any corrective actions with
            regard to significant deficiencies and material weaknesses.


                                       40
<PAGE>

PART II -- OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K.

(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.

(b)   Reports on Form 8-K.

            On October 7, 2003, the Company furnished a report on Form 8-K
            reporting items 5 and 7.

            On October 31, 2003, the Company furnished a report on Form 8-K
            reporting items 5 and 7.


                                       41
<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: February 13, 2004                     By: /s/ JACK C. BENDHEIM
                                         -----------------------------------
                                                  Jack C. Bendheim
                                                Chairman of the Board

Date: February 13, 2004                     By: /S/ GERALD K. CARLSON
                                         -----------------------------------
                                                 Gerald K. Carlson
                                              Chief Executive Officer

Date: February 13, 2004                     By: /s/ RICHARD G. JOHNSON
                                         -----------------------------------
                                                 Richard G. Johnson
                                              Chief Financial Officer
                                          (Principal Financial Officer and
                                            Principal Accounting Officer)


                                       42