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


                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C.  20549

                                      FORM 10-K

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

                     For the fiscal year ended October 31, 1997

                           Commission File Number 0-24312

                             AGRI-NUTRITION GROUP LIMITED
               (Exact name of registrant as specified in its charter)

             Delaware                                   43-1648680
  (State or other jurisdiction of                    (I.R.S. Employer
   incorporation or organization)                   Identification Number)

      Riverport Executive Center II
     13801 Riverport Drive, Suite 111
        Maryland Heights, Missouri                           63043
    (Address of principal executive offices)               (Zip Code)

      Registrant's telephone number, including area code:  (314) 298-7330

       Securities registered pursuant to Section 12(b) of the Act:  None
 
  Securities registered pursuant to Section 12(g) of the Act:  Common Stock,
                                $.01 par value

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES  X .  NO     .

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [x]

         The  aggregate  market value of the  registrant's  Common Stock held by
non-affiliates  of the  registrant as of January 23, 1998 (computed by reference
to  the  closing  price  of  such  stock  on  the  NASDAQ/National  Market)  was
$8,150,177.

         As of January 23, 1996, there were 9,304,280 shares of the registrant's
Common Stock outstanding.

                  DOCUMENTS INCORPORATED BY REFERENCE

          DOCUMENT                                            WHERE INCORPORATED

Portions of the Registrant's definitive Proxy Statement
  regarding the 1998 Annual Meeting of Stockholders                Part III


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



<PAGE>





                         Agri-Nutrition Group Limited

                                 FORM 10-K


                           Cross Reference Sheet

Item                                                                      Page

                                  Part I

1        Business.........................................................  2
2        Properties.......................................................  7
3        Legal Proceedings................................................  7
4        Submission of Matters to a Vote of Security Holders..............  7
4A       Executive Officers of the Registrant.............................  8

                                  Part II

5        Market for Registrant's Common Equity and 
         Related Stockholder Matters......................................  8
6        Selected Financial Data..........................................  10
7        Management's Discussion and Analysis of Financial 
         Condition and Results of Operations..............................  11
8        Financial Statements.............................................  18
9        Changes in and Disagreements With Accountants 
         on Accounting and Financial Disclosure...........................  18

                                   Part III

10       Directors and Executive Officers of the Registrant...............  18
11       Executive Compensation...........................................  18
12       Security Ownership of Certain Beneficial Owners and Management...  18
13       Certain Relationships and Related Transactions...................  18

                                    Part IV

14       Exhibits, Financial Statement Schedules and 
         Reports on Form 8-K..............................................  19
         Signatures ......................................................  22


                                       1

<PAGE>



                                     Part I

Item 1.  Business.

General

         The Company  manufactures  and  distributes  a wide  variety of health,
grooming and nutritional  products for the pet and animal health  industries and
selective  products for the chemical  specialties  industry.  The  Company's Pet
Health Care Division  represents the  consolidation of four businesses  acquired
between 1995 and 1997 -- Zema Corporation based in Raleigh,  NC (Zema),  St. JON
Laboratories, Inc. in Los Angeles, CA (St. JON), St. JON VRx Products in London,
UK, and Mardel  Laboratories,  Inc. of Glendale  Heights,  IL  (Mardel).  Its PM
Resources division, based in St. Louis, MO (Resources), formulates private-label
products for the animal health and specialty chemical industries.

Products

         The Company's  products are generally ingested by or used on animals or
in animal husbandry to promote health and production efficiency, or, in the case
of  companion  animals,  to  promote  health  and  hygiene.   The  Company  also
manufactures  several products,  including home, lawn, and garden products,  and
other specialty  compounds unrelated to animal health and pet care. The products
manufactured by the Company include:

         o        medicated treatments to prevent and treat disease and/or 
                  promote growth in livestock and pets, including fish;

         o        anthelmetics, or dewormers, to prevent gastrointestinal worms 
                  in livestock and pets;

         o        nutritional supplements to promote animal growth and 
                  reproduction and ensure efficient feed utilization, and 
                  vitamins for dogs and cats;

         o        aquarium water conditioners and test strips;

         o        pest control products, including pesticides and rodenticides;

         o        flea and tick products, including shampoos, dip concentrates,
                  collars, and sprays for dogs and cats, and flea traps;

         o        oral hygiene products for dogs and cats, including toothpaste 
                  and toothbrushes, sprays, and enzymatic rawhide chews;

         o        gastrointestinal products for dogs and cats, including 
                  hairball remedies;

         o        dermatological products for dogs and cats, including anti-itch
                  lotions and shampoos;

         o        cleaners  and  disinfectants  for use on animals and in animal
                  quarters including shampoos, dip concentrates,  animal sprays,
                  surface  cleaners,  dairy pipeline  cleaners,  and all-purpose
                  detergents;


                                       2

<PAGE>



         o        home, lawn, and garden products to prevent insect infestation 
                  in turf and shrubs; and

         o        specialty compounds used by manufacturers in the formulation 
                  of plastics and related products.

         In June 1997, the Company  discontinued the distribution of ingredients
to Purina Mills Inc. (Purina).  In July 1997, the Company distributed all of its
remaining  ingredients  inventories to Purina and discontinued its operations in
this area.  This segment of the  Company's  business has been  accounted for and
presented as a discontinued  operation in accordance with Accounting  Principles
Board Opinion No. 30,  "Reporting  the Results of  Operations"  (APB 30) for all
periods reflected in the Company's  consolidated  financial  statements included
herein. At October 31, 1997, substantially all of the net assets relating to the
ingredients  segment had either  been  disposed  or had been  deployed  into the
Company's other operations.


Customers

         The  Company  sells  its  products  to  approximately   850  customers,
comprised of national or dominant  regional  companies serving the animal health
and specialty compound markets, pet product  distributors,  specialty pet retail
stores and superstores,  mass  merchandisers,  warehouse clubs,  grocery,  drug,
discount,  and feed stores, and veterinary clinics.  The Company's employees and
independent  sales  representatives  attend all major  industry  trade  shows to
market the Company's products.

         Purina is the Company's largest single customer.  During the year ended
October 31, 1997,  approximately 14% of net sales from continuing operations was
attributable  to Purina.  In connection with the acquisition of HIB, the Company
entered into a  manufacturing  and supply  agreement  with Purina whereby Purina
agreed to purchase sufficient volume and mix of products to generate income (net
of ingredient,  direct  manufacturing  and other direct costs) of  approximately
$2.9 million  annually for the Company through October 31, 1996. Under the terms
of the  agreement,  Purina was required to pay the Company for its products upon
delivery.  Although Purina continues to be a customer of the Company,  there can
be no assurance as to the future level of sales to Purina.

         The Company's pet care products are sold primarily  under its own brand
names,  including  C.E.T.(R),  Petrodex(R),  Maracyn(R)  and Zema(R),  and, to a
lesser extent,  on a private-label  basis.  The Company's animal health products
other than pet care products are sold primarily on a  private-label  basis under
its  customers'  brand names.  During the year ended  October 31, 1997,  branded
products accounted for approximately 48% of the Company's net sales.

         The Company does business with most of its customers  exclusively  on a
purchase-order  basis.  Payment  generally  is made by the  Company's  customers
either upon delivery or within 45 days, and the Company  generally has been able
to deliver  products to its customers on a timely basis.  The Company  generally
does not provide  its  customers  with  extended  payment  terms or the right to
return products purchased from the Company.

Services

         The Company offers its customers a wide range of services in connection
with the products it provides,  including  laboratory  formulation and services,
technical support,  registration services, and business and marketing consulting
services. Laboratory formulation and services and technical support

                                  3

<PAGE>



includes assisting customers in developing and refining products,  advising them
as to suitable  forms for their  products or suitable  packaging,  and assisting
them in testing their products to enable them to provide data to their customers
or  regulators.  Registration  services  consist  primarily of  maintaining  the
Company's  Environmental  Protection Agency and Food and Drug Administration and
assisting  customers in maintaining  their  registrations.  See  "Registrations,
Trademarks,  and Patents." Business and marketing consulting services consist of
assisting customers in determining new products they might successfully  market,
as well as assisting them with the distribution of new and existing products.

         The Company also  provides  distribution  and  warehousing  services to
numerous  customers,  including  Purina.  In connection  with the acquisition of
Purina's  Health  Industries  Business (HIB) in September  1993, the Company and
Purina  entered  into  a  warehousing  and  distribution   agreement  which  was
subsequently  extended  through  April 30,  1998,  under  which  Purina pays the
Company approximately  $350,000 annually for certain warehousing,  distribution,
inventory  management,  and  inventory-reporting   services.  There  can  be  no
assurance  that the Company will continue to perform such services at such rates
subsequent to April 30, 1998.

Registrations, Trademarks, and Patents

         The Company has numerous  EPA and FDA  registrations,  trademarks,  and
patents. The Company's EPA product registrations and subregistrations  permit it
to sell pesticide and rodenticide products, as well as ectoparasite products for
the treatment of fleas and ticks on dogs and cats.  While EPA  registrations  do
not expire, the Company is required  periodically to reregister certain products
with  the  EPA.  Certain  of its  facilities  are  qualified  as EPA  Registered
Manufacturing  Sites, which permits the Company to manufacture products not only
under its own EPA product  registrations,  but also under the  registrations  of
other companies.

         The  Company's  FDA New Animal  Drug  Applications  (NADAs)  permit the
Company to sell medicated treatments,  anthelmetics,  feed additives,  and other
animal drug products.  NADAs do not expire,  but are subject to  modification or
withdrawal by the FDA based upon the related  drugs'  performance in the market.
The Company also has FDA  Manufacturing  Site Approvals  enabling the Company to
manufacture animal drugs covered by NADAs held by other companies.

         The  Company's  trademarks  relate  primarily to its pet care  products
which are  marketed  under the St. JON Pet Care,  Mardel,  VRx,  Zema and Pulvex
labels. The Company's  trademarks also include Petromalt,  a hairball remedy for
cats  originally  introduced  in 1923;  Petrodex  and  C.E.T.,  lines of  dental
products for dogs and cats;  Petrelief,  a line of  dermatological  products for
cats and dogs; Doggydent, a line of oral hygiene products for dogs; and Maracyn,
a leading fish  antibiotic  introduced in 1969. The  trademarks  must be renewed
between 2000 and 2009.  In  addition,  the Company has  trademark  registrations
pending for various pet care products.

         The Company also has several patents covering pet toothbrushes,  tartar
remover,  pet shampoo,  and flea traps,  which expire between 2004 and 2009, and
the  exclusive  right to use  several  patents  relating  to  enzyme  generation
formulae for use in animal  toothpaste and on rawhide  chews.  In December 1997,
the Company obtained  exclusive rights to patents supporting a bioadhesive patch
technology,   including  exclusive  distribution  rights  to  Stomadhex(TM),   a
chlorhexidine  based  antibacterial patch which can be placed in the pet's mouth
following dental procedures to maintain oral health.

         In addition, the Company owns the worldwide patents for Bromethalin,  a
highly  effective and  proprietary  rodenticide  serving  agricultural  and Pest
Control Operator (PCO) markets. Certain Bromethalin patents expired in 1997 with
remaining patents expiring in 1999, and the trademarks

                                     4

<PAGE>



"Trounce"  and  "Farmgard,"  used to market  insecticides  and  supplements  and
rodenticides, respectively, must be renewed in 1998.

         The Company  intends to aggressively  protect its trademarks,  patents,
and licensing rights, to reregister  products with the EPA, and to renew most of
its trademarks.

Procurement of Raw Materials

         The active  ingredients in the Company's  products are not manufactured
by  the  Company,   but  are  generally   purchased  from  major  raw  materials
manufacturers.  The Company generally purchases materials on an as-needed basis,
as it is generally  unnecessary for the Company to maintain large inventories of
such materials in order to meet rapid delivery  requirements or assure itself of
adequate  supply.  The Company  purchases  certain raw  materials  from multiple
suppliers; some materials,  however, are proprietary,  and the Company's ability
to procure such materials is limited to suppliers with proprietary  rights.  The
Company considers its  relationships  with its suppliers to be good. The Company
also  purchases  certain raw materials the  availability  of which is subject to
EPA, FDA, or other regulatory approvals. Some of the Company's customers provide
the Company with the raw materials used in the production of their products.

Competition

         The Company's  competitors  fall into roughly four  categories:  animal
health distributors;  manufacturers,  formulators, and blenders of animal health
products;  pet care product producers and suppliers;  and specialty chemical and
pest control manufacturers. Each of these groups, with the exception of pet care
product  producers and  suppliers,  are comprised  primarily of privately  owned
regional and local  companies,  although each also includes  national  companies
that produce or distribute  certain  animal health and other  products.  The pet
care product  producer and supplier  group is comprised of national and regional
companies.

         Many of the Company's  competitors in specific market niches are larger
and have greater financial resources than the Company.  In addition,  regulatory
surveillance  and  enforcement  are  accelerating,  which is likely to result in
fewer competitors that have even greater  resources.  Much of the competition in
the  industries  served by the  Company  centers  around  price.  The Company is
focusing  on  the  production  of  high-performance,  valued-added  and  branded
products designed to be marketed on the basis of quality as well as price.

Regulatory and Environmental Matters

         The Company's  operations subject it to federal,  state, and local laws
and regulations  relating to environmental  affairs,  health, and safety.  These
laws and  regulations  are  administered  by the EPA, the FDA, the  Occupational
Safety and Health Administration,  the Department of Transportation, and various
state and local regulatory agencies.

         Governmental  authorities,  and in some cases third  parties,  have the
power to enforce  compliance  with health and safety laws and  regulations,  and
violators may be subject to sanctions,  including  civil and criminal  penalties
and  injunctions.  While the Company  believes that the procedures  currently in
effect at its facilities are consistent  with industry  standards and that it is
in material  compliance with applicable  health and safety laws and regulations,
failure to comply with such laws and regulations  could have a material  adverse
effect on the Company.


                                       5

<PAGE>



         The Company's operations subject it to numerous  environmental laws and
regulations  administered by the EPA,  including the Resource  Conservation  and
Recovery Act (RCRA), the Comprehensive Environmental Response,  Compensation and
Liability  Act, the Federal Water  Pollution  Control Act, the Federal Clean Air
Act,  the Federal  Insecticide,  Fungicide  and  Rodenticide  Act, and the Toxic
Substances  Control Act, as well as various  state and  municipal  environmental
laws and regulations.  See "Legal  Proceedings" for a description of a Notice of
Order to Abate Violations and a Notice of Violations  issued to Resources by the
Missouri  Department of Natural Resources (MDNR) relating to alleged  violations
of Missouri's  hazardous waste laws and regulations.  Resources has discontinued
the use of underground storage tanks subject to RCRA and has submitted a closure
plan  to  the  MDNR  relating  to  closure  of  its  permitted  hazardous  waste
operations.

         Although  the  Company  believes  it is  in  material  compliance  with
applicable  environmental  laws,  regulations,  and  permits  and  has a  policy
designed  to  ensure  that  it  continues  to  operate  in  material  compliance
therewith,  there can be no  assurance  that the Company  will not be exposed to
significant  environmental  liability.  The  Company  could be held  liable  for
property  damage or  personal  injury  caused by the  release,  spill,  or other
discharge of hazardous substances or materials and could be held responsible for
cleanup of any affected sites. In connection with the acquisitions of HIB, Zema,
St. JON and Mardel,  the Company entered into  agreements  pursuant to which the
former owners of such  companies  have agreed to indemnify  the Company  against
liabilities,  including certain environmental liabilities,  relating to the use,
condition,  ownership,  or operation of the  Company's  facilities  prior to the
acquisitions.

         The   Company  has   environmental   compliance   programs   addressing
environmental and other regulatory compliance issues. Future developments,  such
as stricter  environmental  laws,  regulations  or enforcement  policies,  could
increase the Company's environmental  compliance costs. While the Company is not
aware of any pending legislation or proposed regulations that, if enacted, would
have a material  adverse  effect on the Company,  there can be no assurance that
future legislation or regulation will not have such effect.

Employees

         The Company has 229 full-time  employees and four part-time  employees.
Fifty-seven  of the  full-time  employees  located  at the  Bridgeton,  Missouri
facility are represented by the International  Longshoremen's  Association,  and
eight are represented by the  International  Brotherhood of Electrical  Workers.
Such  employees'  wages and  benefits  are  governed  by  bargaining  agreements
negotiated  with the unions,  which expire on October 31, 1998. The Company also
employs an average of  approximately 26 persons on a temporary basis. The number
of temporary  employees  fluctuates  on an annual basis  because  demand for the
Company's  products is seasonal.  The Company  considers  its employee and union
relations to be good.

Insurance

         The Company believes that it maintains  adequate liability and property
insurance  coverage.  There  can be no  assurance  that  the  coverage  will  be
sufficient for all future claims or that insurance will continue to be available
in adequate amounts at reasonable rates.

Year 2000

         The Company utilizes computer  information systems to internally record
and track information, as well as interact with customers,  suppliers, financial
institutions  and other  organizations.  Management has  preliminarily  assessed
risks and costs related to addressing Year 2000 issues as they pertain to the

                                       6

<PAGE>



Company and its information systems.  Based on this assessment,  management does
not believe  that the  modification  of the  Company's  systems to address  such
issues  will have a  material  impact on the  Company's  financial  position  or
results of operations.  However,  there are numerous  uncertainties  relating to
addressing  Year 2000 issues,  including  actual  implementation  of measures to
address these issues, impact of outside parties  appropriately  addressing these
issues,  and other factors,  some of which may be out of the Company's  control,
and all of which may cause results to be different than currently anticipated by
Management.

Item 2.  Properties.

         The Company owns the Bridgeton,  Missouri  facility at which Resources'
operations  are  conducted and most of the  equipment  located on the site.  The
facility  consists  of  a  176,600-square-foot   manufacturing  and  warehousing
building  and three  buildings  for  administration,  retained  sample  storage,
equipment, and maintenance.

         The Company  leases its  corporate  headquarters  in Maryland  Heights,
Missouri,  and manufacturing,  office,  warehouse,  and distribution  facilities
located near Raleigh, North Carolina, Los Angeles, California, Glendale Heights,
IL and Yeovil,  UK, under  non-cancelable  leases  expiring in June 1999,  April
2000, August 2000,  February 1999 and December 2002,  respectively.  The Company
also leases other warehouse and distribution  space and certain  equipment under
non-cancelable   operating  leases.   Management  believes  that  the  Company's
facilities are adequate and suitable for its current operations.

Item 3.  Legal Proceedings.

         On  November  27,  1994,  the MDNR  issued  a Notice  of Order to Abate
Violations to the Company relating to alleged  violations of Missouri's laws and
regulations  relating  to the  storage  of  hazardous  waste  at  the  Bridgeton
facility.   The  order  alleges  that  the  Company  had  not  remedied  certain
deficiencies  relating to the storage of hazardous waste cited in inspections by
the MDNR in May 1993 and March 1994, and directs remedial action.

         On December 21,  1995,  the MDNR issued a Notice of  Violations  to the
Company relating to  contamination in the vicinity of an underground  collection
system that was removed from the Bridgeton  facility in 1994. The notice alleges
that the collection system should have been included in the Company's  hazardous
waste storage  permit,  states that the collection  system was classified by the
MDNR as a leaking underground storage tank, and directs remedial action.

         The  Company is  currently  in  negotiations  with the MDNR  related to
certain  issues raised in the November 1994 Notice of Order to Abate  Violations
and the December 1995 Notice of Violations  issued by the MDNR.  Management does
not believe that either of the matters pose a  significant  risk to human health
or the  environment,  or that the resolution of either of the claims made by the
MDNR will have a material adverse effect on the Company's  financial position or
results of operations.

         Although the Company is not currently a party to any legal proceedings,
it anticipates  that from time to time it may be subject to claims that arise in
the ordinary course of its business.

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

         No matters were submitted to a vote of the  stockholders of the Company
during the fourth quarter of the fiscal year covered by this Report.


                                      7

<PAGE>



Item 4A.  Executive Officers of the Registrant.

         The  following  table  sets forth  certain  information  regarding  the
Company's executive officers:

      Name                   Age             Position
-------------------          ---      -----------------------
 Bruce G. Baker               54     President and Chief Executive Officer

 Robert J. Elfanbaum          34     Vice President and Chief Financial Officer

         Bruce G. Baker has been  President and Chief  Executive  Officer of the
Company  since  November 1, 1996.  From March 1994 through  October 1996, he was
Vice  President and Deputy Chief  Executive  Officer of the Company,  and he has
been a Director  since August 1993.  From 1965 to February 1993, he held various
management  positions  with  Ralston  Purina and Purina  Mills,  including  Vice
President  Research and  Marketing  of Purina Mills from 1990 to February  1993.
This was  preceded  by  responsibilities  as Vice  President  - Consumer  Group,
directing research,  marketing,  manufacturing,  sales, and administration for a
division  of Purina  Mills.  Mr.  Baker also has  served in  various  capacities
relating to European, Canadian, and Mexican market development.

         Robert  J.  Elfanbaum,  C.P.A.,  has  been  Vice  President  and  Chief
Financial  Officer of the Company  since August 23,  1996.  From  November  1994
through August 22, 1996, he served the Company as Assistant Corporate Controller
and Corporate  Controller.  He was Manager of Internal Auditing for Brown Group,
Inc., an  international  footwear company from February 1993 until he joined the
Company.  From August  1985  through  February  1993,  he was  employed by Price
Waterhouse in St.  Louis,  MO, most recently as a manager in their Middle Market
Group.  Mr. Elfanbaum is currently the president of the St. Louis Chapter of the
Institute  of  Management  Accountants  and  has  been a  board  member  of this
organization since 1990.

                                 Part II

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

         The Company's  Common Stock traded on the NASDAQ  National Market under
the symbol AGNU. The following tables sets forth the quarterly range of high and
low  closing  sale  prices  per share for the  Common  Stock  during  the period
indicated.

                                                         High              Low
Fiscal year ended October 31, 1996
      First Quarter                                       2.81             1.75
      Second Quarter                                      2.56             2.00
      Third Quarter                                       2.41             1.59
      Fourth Quarter                                      2.06             1.38

Fiscal year ended October 31, 1997
      First Quarter                                       1.63             1.13
      Second Quarter                                      1.75             1.13
      Third Quarter                                       1.38             1.06
      Fourth Quarter                                      1.69             1.13

Fiscal 1998
      Through January 23, 1998                            1.50             1.19

                                       8

<PAGE>





         The Company has not paid any  dividends  on its Common  Stock since its
formation.  It presently  intends to retain its earnings for use in its business
and does not  anticipate  paying any cash dividends in the  foreseeable  future.
Further,  the Company is prohibited from paying dividends without the consent of
the Company's  lender.  As of January 12, 1997, the Company had a total of 2,210
stockholders,  including  260  stockholders  of record and  approximately  1,950
persons or entities holding Common Stock in nominee name.


                                       9

<PAGE>



Item 6.  Selected Financial Data.

         The following  table  presents  selected  financial data for the period
from  January  1,  1993  through  September  8, 1993 for the  Health  Industries
Business of Purina Mills, Inc. (HIB), the Company's  predecessor,  and from July
20, 1993 through October 31, 1993 and the four years in the period ended October
31, 1997 for the Company.  The selected financial data for the period January 1,
1993 through September 8, 1993 are derived from the Financial Statements of HIB,
and the selected financial data for the period July 20, 1993 through October 31,
1993 and for each of the four years in the period  ended  October  31,  1997 are
derived from the Consolidated Financial Statements of the Company, each of which
has been  audited  by  Price  Waterhouse  LLP,  independent  accountants.  HIB's
financial data have been obtained from the historical  accounting records of HIB
as the  Company's  predecessor  and  include  all  revenues  and costs  directly
attributable to HIB,  including  allocations of the costs of the  administrative
functions and services  performed on behalf of HIB by Purina. The data should be
read in conjunction with the Consolidated  Financial  Statements of the Company,
and the related notes thereto,"Management's Discussion and Analysis of Financial
Condition and Results of Operations," and other financial  information  included
herein.
<TABLE>
<CAPTION>

                                  HIB (Predecessor)                                       Company
                                  -----------------   ----------------------------------------------------------------------------
                                                      July 20, 1993
                                     Jan.1, 1993       (inception)
                                       through        through Oct. 31,                 Fiscal Year Ended October 31,
                                    Sept. 8, 1993         1993 (1)            1994          1995            1996          1997
<S>                                 <C>                 <C>              <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS
 DATA (2):
Net sales (3).......................$ 10,301,685        $ 2,381,777      $ 13,671,588   $ 20,062,942   $ 28,661,307   $ 31,051,537

Operating income (loss) from
   continuing operations............     190,709           (136,099)         (484,272)      (484,315)        47,399        978,481

Income (loss) from continuing
   operations.......................     131,415           (116,189)         (482,817)      (108,333)      (241,320)       118,671

Income from discontinued 
   operations.......................     105,489             18,616           147,206        139,766        113,900         14,659

Net income (loss)...................     236,904            (97,573)         (335,611)        31,433       (127,420)       133,330

Primary net income (loss) per 
common and and common equivalent 
share:
    Continuing operations...........       (4)               (.02)             (.07)          (.01)         (.03)         .02
    Discontinued operations.........       (4)                 --               .02            .01           .01           --
    Net income .....................       (4)               (.02)             (.05)            --          (.02)         .02

Weighted average number of primary 
   common and common equivalent 
   shares outstanding...............                      6,572,872         6,636,811      8,112,851      8,397,686     8,699,914


BALANCE SHEET DATA:
Total assets........................$  8,688,193        $ 8,935,071      $ 21,141,513   $ 23,473,103   $ 25,850,052   $26,596,150

Long term obligations ..............      --                  --            3,066,667      4,914,614      7,824,012     7,236,204
</TABLE>

(1)  Includes the operating activities of the Company's subsidiary, PM 
     Resources, Inc., from September 9, 1993, the effective date of the
     acquisition.
(2)  The  above  results  have  been  retroactively   restated  to  reflect  the
     discontinuation of the ingredients segment.  
(3)  Net  sales  from  continuing operations to Purina were as follows for the 
     respective periods:
     January 1, 1993 through September 8, 1993 (HIB, 
       the Predecessor)........................................  $  5.5 million
     July 20, 1993 through October 31, 1993 (the Company, 
       which includes operating results from September 9, 
       1993, the date of the HIB acquisition)..................  $  1.4 million
     Fiscal year ended October 31, 1994........................  $  7.7 million
     Fiscal year ended October 31, 1995........................  $  7.1 million
     Fiscal year ended October 31, 1996........................  $  5.4 million
     Fiscal year ended October 31, 1997........................  $  4.3 million
(4)  Given the historical organization and capital structure of HIB, earnings 
     per share information is not considered meaningful or relevant.

                                       10

<PAGE>



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

Overview

         Organized in 1993,  the Company  manufactures  and  distributes  animal
health and pet care products.  In September  1993,  the Company,  through its PM
Resources, Inc. subsidiary ( Resources), acquired the Health Industries Business
of Purina Mills,  Inc. which formulates,  manufacturers  and distributes  animal
health  products  and to a lesser  extent,  home,  lawn and  garden,  and  other
products.  In July 1994, the Company  completed its initial  public  offering of
Common Stock (IPO), the net proceeds of which were approximately  $12.1 million.
Effective  March 31, 1995, the Company  purchased  substantially  all of the net
assets and business of Zema Corporation  (Zema), a formulator,  manufacturer and
supplier of health care and  grooming  products to the pet  industry.  Effective
August 31, 1995, the Company  purchased  substantially all of the net assets and
business of St. JON Laboratories, Inc. (St. JON), a developer,  manufacturer and
marketer of oral hygiene,  dermatological and gastrointestinal products for dogs
and cats. In September 1997, the Company purchased  substantially all of the net
assets  and  business  of  Mardel  Laboratories,  Inc.  Mardel  is a  developer,
manufacturer and marketer of high quality care products to the pet industry with
expertise  extending to fresh water and marine fish,  birds,  dogs,  cats, small
animals and pond accessories.

         The Company's results of operations presented and discussed herein only
include the results of Mardel's operations  subsequent to its acquisition by the
Company in September 1997.

         The Company historically reported certain financial information for two
segments -  ingredients  and  specialty  products.  Ingredients  consist of feed
products that are purchased or blended by the Company and distributed for Purina
(see Note 15 to the Company's  Consolidated Financial Statements included in the
1997  Annual  Report).   Specialty   products  consist  of  all  other  products
formulated,  manufactured,  and distributed by the Company to various customers,
including  Purina.  Included  in the  specialty  products  segment  are sales of
private  label and branded  products  for which the Company  manufactures  goods
using registrations  and/or formulas owned by the Company, and sales of products
manufactured  under contract for which the Company  manufactures  products using
the customers' registrations and/or formulas.

         Given the  acquisitions of businesses  with branded,  consumer-targeted
products and the continued  emphasis on growth of the specialty product segment,
the  significance  of the  ingredients  segment had decreased in fiscal 1996 and
1997. As discussed in prior reports,  management expected this trend to continue
in the  future.  In June 1997,  the Company  discontinued  the  distribution  of
ingredients  to  Purina.  In  July  1997,  the  Company  distributed  all of its
remaining ingredients inventories and discontinued operations in its ingredients
segment. This segment is accounted for as discontinued  operations in accordance
with  Accounting  Principles  Board  Opinion No. 30,  "Reporting  the Results of
Operations".  Accordingly,  the Company has reported the ingredients  segment as
discontinued  operations and the  consolidated  financial  statements  have been
reclassified to report  separately the financial  position and operating results
of the segment.  The Company's  consolidated  operating  results for years ended
October 31,  1995,  1996 and 1997 have been  restated  to reflect the  Company's
continuing operations related to its specialty products business. Net assets for
the ingredients  segment no longer meets the requirements for segment disclosure
under generally accepted accounting principles.

         In the fourth  quarter of 1997,  the Company formed the Pet Health Care
Division,  which is  comprised  of St. JON,  St. JON VRx,  Zema and Mardel.  The
integration of these companies is expected

                                    11

<PAGE>



to produce  certain  operating  synergies,  creating a  platform  for  continued
expansion. Costs associated with the integration are not expected to be material
to the Company's  consolidated  results of operations.  The Company continues to
pursue  selective  complementary  acquisitions,  alignments  and/or  licenses in
support of its core businesses.

Fiscal Year Ended  October 31,  1996  Compared to Fiscal Year Ended  October 31,
1997 (in 000's except percentages)
<TABLE>
<CAPTION>

                                    Fiscal year ended October 31, 1996      Fiscal year ended October 31, 1997
                                                           % of                                   % of
                                          Dollar            Net                Dollar              Net
                                          Amount           Sales               Amount             Sales
<S>                                    <C>              <C>                  <C>                <C>
Continuing operations:
Net sales............................  $   28,661        100.0               $   31,052         100.0

Cost of sales........................      20,784         72.5                   22,851          73.6

Gross profit.........................       7,877         27.5                    8,201          26.4

Selling, general and administrative
  expenses...........................       7,447         26.0                    7,130          23.0

Research and development.............         143           .5                       92            .3

Nonrecurring severance costs.........         240           .8

Operating income ....................          47           .2                      979           3.2
</TABLE>

         Total net sales  increased  8.3% from $28.7  million in fiscal  1996 to
$31.1  million for 1997,  which  included net sales of Mardel  subsequent to its
acquisition in September 1997. The ingredients  segment was discontinued in 1997
and  accordingly  sales  related  to this  segment  are  included  in results of
discontinued  operations for all periods  presented and are not reflected in the
table above. The discontinuance of the ingredients segment resulted in a minimal
impact on gross profit due to it sales being of lower margin commodity products.
Sales of pet care  products  grew 27%  reflecting  the  impact  of new  products
introduced  into  the  veterinary  channel  during  fiscal  1996 and  1997,  and
continued strong growth from the Company's sales and  distribution  operation in
the United Kingdom which was acquired in July 1996.

         The Company's  manufacturing  and supply agreement with Purina pursuant
to which Purina had guaranteed the Company  sufficient  sales to generate annual
income,  net of  ingredient,  direct  manufacturing,  and other  direct costs of
approximately  $2.9 million for the  three-year  period  ended  October 31, 1996
expired  as of that  date.  Although  the  Company  continues  to have a  supply
relationship  with  Purina,  there can be no  assurance  what  level of sales or
income  will be  obtained in the  future.  Sales to Purina,  excluding  sales of
Ingredients which were  discontinued in July 1997,  totaled $4.3 million for the
year ended  October 31,  1997  compared  to $5.4  million  during the year ended
October 31, 1996. Fiscal 1996 income from Purina was approximately  $1.2 million
less than that required under the agreement.  The entire amount of the shortfall
under the  agreement was billed to Purina and included in net sales of specialty
products  during  October  1996;  such  billing was  collected by the Company in
December 1996.


                                       12

<PAGE>



          Gross profit  increased from $7.9 million in 1996 (27.5% of net sales)
to $8.2  million in 1997 (26.4% of net sales),  primarily  due to the  increased
sales in 1997. As a percent of sales,  gross profit decreased  approximately one
percentage point due primarily to changes in product mix.

         Selling,  general and  administrative  expenses were approximately $7.4
million in 1996 and $7.1 million in 1997,  decreasing  as a percent of net sales
from  26.0% in 1996 to 23.0% in 1997.  The  decrease  in  selling,  general  and
administrative  expenses  as a percent  of sales is related to the impact of the
corporate management  restructuring  announced in August 1996, combined with the
impact of cost reduction measures implemented at the operating companies.

         Severance  costs of  $240,000  related  to the August  1996  management
restructuring  were accrued in fiscal 1996 and paid in fiscal  1997.  Such costs
were nonrecurring and did not impact fiscal 1997 results.

         The  factors   discussed  above  resulted  in  operating   income  from
continuing  operations of  approximately  $979,000 during the year ended October
31,  1997,  a  $932,000   improvement   compared  to  the  operating  income  of
approximately $47,000 in the prior year.

         Interest expense was  approximately  $.6 million in both 1996 and 1997,
with a small  increase that reflects  increased debt balances that resulted from
the Company's investment in Mardel and increased sales volume in fiscal 1997.

         In March 1997,  the Company  terminated its letter of intent related to
its proposed  acquisition of Anthony Products Company.  In conjunction with this
action,  the Company  recorded a $202,000  pre-tax  charge in fiscal 1997.  Such
amount was included in other  income  (expense)  in the  Company's  consolidated
statement of operations.

         The effective income tax rate of the Company was  approximately 38% for
1996 and  1997.  The  aggregate  amount  of the  deferred  tax  asset  valuation
allowance at October 31, 1997 was approximately $.1 million.

         Ingredients sales were  approximately  $7.7 million and $5.5 million in
1996  and  1997,  respectively.  Income  from  discontinued  operations  in 1997
decreased  approximately  $99,000 from $114,000 in 1996 to $15,000 in 1997. This
is primarily  attributable  to decreasing  margins from the sales of ingredients
compared to the prior year,  combined with decreased  volume of units shipped in
1997. In July 1997, the Company shipped its remaining  ingredients inventory and
discontinued operations related to this segment.

         Net income in 1997 of  $133,000  increased  by  approximately  $260,000
compared  to the net loss of  $127,000  incurred  in  fiscal  1996  based on the
various factors described above.

                                        13

<PAGE>



Fiscal Year Ended  October 31,  1995  Compared to Fiscal Year Ended  October 31,
1996 (in 000's except percentages)
<TABLE>
<CAPTION>

                                    Fiscal year ended October 31, 1995      Fiscal year ended October 31, 1996
                                                           % of                                   % of
                                          Dollar            Net                Dollar              Net
                                          Amount           Sales               Amount             Sales
<S>                                    <C>              <C>                 <C>                <C>
Continuing operations:
Net sales............................  $   20,063        100.0               $   28,661         100.0

Cost of sales........................      15,979         79.6                   20,784          72.5

Gross profit.........................       4,084         20.4                    7,877          27.5

Selling, general and administrative
  expenses...........................       4,382         21.8                    7,447          26.0

Research and development.............         186           .9                      143            .5

Nonrecurring severance costs.........                                               240            .8

Operating income (loss)..............        (484)        (2.4)                      47            .2
</TABLE>


         Total net sales  increased  42.9% from $20.1  million in fiscal 1995 to
$28.7 million for 1996. The  ingredients  segment was  discontinued  in 1997 and
accordingly  sales  related  to this  segment  are  included  in net  results of
discontinued  operations for all periods  presented and are not reflected in the
table above. The  discontinuance of the ingredient segment resulted in a minimal
impact  on  gross  profit  due to its  sales  being of  lower  margin  commodity
products.

         Net sales  increased  $8.6  million  compared to the same period of the
prior year, primarily due to the full year effects of Zema's and St. JON's sales
during fiscal 1996,  but also due to a 5.5% increase in specialty  product sales
at Resources. As was the case throughout the industry for flea and tick products
sold over the counter, Zema sales were negatively impacted by lower incidence of
infestation  than  normal  during  the year and by the  introduction  of  highly
promoted new products distributed exclusively through veterinaries. Furthermore,
Zema's sales were  adversely  affected by the  decision of one of its  principal
customers to substantially  reduce product offerings in all categories including
companion  animals.   However,   partially  offsetting  these  factors  was  the
introduction by Zema of several new product lines developed in association  with
St. JON and Resources.

         The Company was a party to a  manufacturing  and supply  agreement with
Purina which provided,  among other things,  that for the three-year term of the
agreement,  Purina  would  guarantee  the  Company  sufficient  annual  sales to
generate income, net of ingredient, direct manufacturing, and other direct costs
of approximately $2.9 million (which represents a historically consistent margin
level).  Fiscal 1996 income from Purina was approximately $1.2 million less than
that required under the agreement.  The entire amount of the shortfall under the
agreement  was billed to Purina and included in net sales of specialty  products
during October 1996; such billing was collected by the Company in December 1996.
The  manufacturing  and supply agreement  expired on October 31, 1996.  Although
Purina  continues to be a customer of the company,  there can be no assurance as
to future level of sales to Purina.


                                         14

<PAGE>



         Gross profit  increased  from $4.1 million in 1995 (20.4% of net sales)
to $7.9 million in 1996 (27.5% of net sales),  primarily due to the full year of
gross profit  generated by Zema and St. JON in 1996 compared to only recognizing
amounts in 1995 subsequent to their  acquisition by the Company  effective March
31, 1995 and August 31, 1995,  respectively.  Gross  profit as a  percentage  of
sales  increased  primarily due to higher margins  realized by Zema and St. JON,
compared  to  margins  realized  from the  Company's  operations  prior to these
acquisitions.  While not  significantly  impacting net sales, the acquisition of
Bromethalin in May 1996 also contributed to an increase in gross profit.

         Selling,  general  and  administrative  expenses  increased  from  $4.4
million  or 21.8% of net sales in 1995 to $7.5  million or 26.0% of net sales in
1996. The increase in selling,  general and  administrative  expenses  primarily
reflects  the impact of costs at Zema and St. JON incurred  subsequent  to their
acquisition by the Company. As a percent of each of their respective sales, Zema
and St. JON selling, general and administrative expenses have been approximately
33% of net sales during the periods  subsequent to their acquisition  reflecting
higher  selling  costs  associated  with  these  subsidiaries'  sales of branded
products into consumer  markets,  thereby  resulting in the overall  increase of
selling, general and administrative expenses as a percent of sales.

         Research  and  development  expenses  incurred  in 1996 were  generally
consistent with those incurred by the Company in the prior year.

          In August  1996,  the  Company  announced a  management  restructuring
reflecting  the shift in the  Company's  strategy  from  that of an  acquisition
vehicle to that of an operating  company focused on improving  financial results
and searching for acquisition  candidates on a strategic basis.  This management
restructuring  resulted in a non-recurring  pre-tax charge in the fourth quarter
of fiscal 1996 of $240,000 related to severance  payments.  On an ongoing basis,
however, management anticipates annual savings of approximately $600,000 related
to this  restructuring,  primarily  as the result of a  reduction  in  executive
salaries.

         The  factors   discussed   above   resulted  in  operating   income  of
approximately  $50,000 or approximately  .2% of net sales in 1996 compared to an
operating loss of approximately $490,000 or 2.4% of net sales in 1995. Operating
income in 1996  exclusive  of one-time  payments  related to the  aforementioned
management  restructuring would have been approximately $.3 million or 1% of net
sales.

         Interest  expense in 1996 increased to  approximately  $.6 million from
approximately  $.35 million in 1995 reflecting a full year of the increased debt
incurred in  conjunction  with the 1995  acquisitions,  as well as the impact of
increased  investments  in  working  capital  during  the  year.  Other  income,
consisting primarily of interest income,  totaled  approximately $.15 million in
1996 compared to approximately $.5 million during 1995, primarily reflecting the
usage of funds in the acquisitions of Zema and St. JON during 1995.

         The effective  income tax rate of the Company was 142% and 38% for 1995
and 1996, respectively. The effective rate in 1995 is based on the Company's net
loss  before  taxes  during  the  period  and  also  reflects  the  reversal  of
approximately  $.1 million of  valuation  allowance  recorded  in prior  periods
related to deferred tax assets,  pursuant to  Statement of Financial  Accounting
Standards  No.  109,  "Accounting  for Income  Taxes" (FAS 109).  The  valuation
allowance at October 31, 1995 and the related  effective  tax rate were adjusted
to reflect  future tax  benefits  related  to  certain  previously  unrecognized
temporary  differences and net operating loss carryforwards.  The effective rate
in 1996 more closely reflects the Company's  ongoing effective tax rate based on
current  operations.  The aggregate  amount of the deferred tax asset  valuation
allowance at October 31, 1996 is approximately $.1 million.

                                       15

<PAGE>




         Ingredients sales were  approximately  $8.9 million and $7.7 million in
1995  and  1996,  respectively.  Income  from  discontinued  operations  in 1996
remained relatively  consistent between the years with $140,000 in 1995 compared
to $114,000 in 1996. In July 1997, the Company shipped its remaining ingredients
inventory and discontinued operations related to this segment.

Liquidity and Capital Resources

         The  Company's  existing  capital  requirements  are  primarily to fund
equipment  purchases and working  capital needs.  During April 1995, the Company
completed the acquisition of Zema,  which required  utilization of approximately
$3.2 million of net proceeds from its July 1994 initial public  offering for the
acquisition and related expenses in 1995 and will require additional payments of
$300,000 plus interest prior to April 1998, and potentially  additional payments
conditioned  upon the  achievement of certain  operating  criteria by Zema which
would be due in April 2000. In August 1995, the Company  acquired the net assets
of St. JON, which required approximately $3.5 million of cash, the assumption of
certain  liabilities  aggregating  approximately  $1.5  million  which were paid
within four months of closing,  and an additional $2 million plus interest to be
paid in annual  installments  over six years commencing  March 31, 1997.  During
fiscal 1997, the Company  utilized  approximately  $1 million of cash related to
payment of this obligation and related accrued  interest,  and  restructured the
agreement,  with annual  payments of $325,000 being required over the five years
commencing  March  31,  1998.  Effective  May 1996,  the  Company  acquired  the
worldwide  patents and other assets and rights to  Bromethalin,  which  required
payments of $1 million including  related expenses at closing,  and will require
additional  consideration  based on  shipments of  Bromethalin  to Purina over a
five-year period.  In September 1997, the Company acquired Mardel  Laboratories,
Inc. for cash of approximately $1 million and stock valued at approximately $1.1
million. As additional  consideration for the acquisition of Mardel, the Company
also  issued a note  payable of $300,000  to the former  owners of the  acquired
company  to be paid in cash and  stock  over a period of three  years.  With the
acquisition  of Mardel,  the Company  utilized its  remaining  proceeds from its
initial public offering.

         During the fiscal year ended October 31, 1995,  cash used by operations
approximated  $.1  million.  The  Company's  operating   subsidiaries  generated
sufficient cash flows to fund operating  requirements and capital  expenditures,
as well as to fully  service the Company's  existing  debt and related  interest
charges.  Corporate  administrative  and  acquisition-related  costs,  including
payment in 1995 of accrued executive bonuses related to fiscal 1994, were funded
through  interest income earned on proceeds from the IPO, excess funds generated
by  the  Company's   operating   subsidiaries,   and  through   utilization   of
approximately $.7 million, or 6%, of the proceeds from the IPO.

         During fiscal 1996, cash used by operations  approximated $2.3 million,
primarily  related  to  increased  working  capital  requirements.   Inventories
increased by  approximately  $1.7 million  reflecting  investments in adding new
products to the Company's lines and moving existing  products and  product-lines
from one operating company's  distribution channel into distribution channels of
other operating companies. Increases in accounts receivable of approximately $.5
million  compared to the prior year reflect  temporary  increases in certain key
accounts that were subsequently collected during fiscal 1997.

         During  fiscal 1997,  cash  generated by operations  approximated  $1.8
million compared to a use of cash by operations of approximately $2.3 million in
1996.  This  improvement  in cash flows in 1997 was  primarily  due to  emphasis
placed on the operating  companies to control and reduce  inventory  levels,  as
well  as  certain  changes  to the  product  mix  at  Resources,  including  the
discontinuation  of the  Ingredients  segment.  The Company's  inventories  from
continuing operations decreased $.7 million during 1997

                                      16

<PAGE>



compared to an  increase of $1.7  million in 1996.  The  discontinuation  of the
ingredients segment generated cash of $1.3 million during the year ended October
31, 1997,  compared to a use of cash related to this discontinued  segment of $1
million  during the  comparable  period in the prior year.  Cash  generated from
operations in fiscal 1997 was generally utilized for capital expenditures and to
pay down debt.

         The Company has  revolving  credit  facilities  which  aggregated  $8.0
million at October 31,  1997.  In June 1997,  the Company  modified its existing
credit  agreements  increasing the aggregate lines by $650,000,  extending their
maturity  dates  through  March  31,  1999,  lowering  the  interest  rates  and
commitment fees charged and revising certain of the debt covenant  calculations.
The  amended  facilities  consist  of up to an  aggregate  of  $4.8  million  in
revolving  credit  lines,  the  available  amount  being  based  upon  specified
percentages of qualified accounts receivable and inventory,  and a $3.35 million
revolving credit line with available amounts being reduced $125,000 per quarter.
The interest rate will range from prime minus .25% to prime plus .5%,  depending
on the Company's ratio of debt to net worth,  as defined in the  agreements.  At
October 31, 1997, the interest rate charged on borrowings  outstanding under the
agreements,  as amended, was 8.50% which is the bank's prime rate. Approximately
$2.8 million was  available  under these  facilities  at October 31,  1997.  The
Company and its subsidiaries are in compliance with all covenants related to its
various  financing  arrangements.  The agreements allow the Company to sweep all
cash  balances  against  outstanding  borrowings,  thus  reducing the  Company's
overall interest expense.

         In December  1995,  the  Company's  board of directors  authorized  the
repurchase of up to 500,000 shares of the Company's  Common Stock. The amount of
funds required will depend upon the actual number of shares  repurchased and the
market  price paid by the Company for those  shares.  The Company  will  utilize
available  funds to  implement  this stock  repurchase.  As of October 31, 1997,
46,850 shares had been  repurchased  under this program at an aggregate  cost of
$79,542.

         Management  believes that the Company will  generally  have  sufficient
cash to meet the needs of the current operations for the foreseeable future from
cash flows from current  operations,  available  funds,  and existing  financing
facilities.

         The Company has no plans to significantly increase any of its operating
subsidiaries' plant facilities capacity. Capital expenditures for the year ended
October 31, 1997 were approximately $1 million.  Future capital expenditures for
the Company's  operating  subsidiaries are not expected to significantly  exceed
historical amounts,  which in prior periods  approximated  current  depreciation
expense.


Quarterly Effects and Seasonality

         Seasonal  patterns of  Resources'  operations  are highly  dependent on
weather,  feeding  economics and the timing of customer  orders.  The results of
operations of the Pet Health Care Division  historically have been seasonal with
a relatively  lower volume of its sales and earnings being generated  during the
Company's first fiscal quarter. In addition,  consolidation of certain functions
within the Pet Health Care Division are  anticipated  to be completed by the end
of the second quarter of fiscal 1998.

New Accounting Standard

         In  March  1997,  the  Financial   Accounting  Standards  Board  issued
Statement of Financial  Accounting  Standards No. 128, "Earnings per Share" (FAS
128),  which requires public entities to present both basic and diluted earnings
per share amounts on the face of their financial statements, replacing the

                                       17

<PAGE>



former calculations of primary and fully diluted earnings per share. The Company
will adopt FAS 128 effective with its fiscal 1998 first quarter, and anticipates
that,  when  adopted,  FAS 128 will not have a material  effect on its  reported
earnings per common share.

Item 8.  Financial Statements.

         The Consolidated Financial Statements of the Company, together with the
report  thereon of Price  Waterhouse  LLP dated  December 12, 1997 are listed in
Item 14(a)(1) and are included at the end of this Report on Form 10-K, beginning
on page F-1, and are incorporated herein by reference.

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

         None.

                                    Part III

Item 10.  Directors and Executive Officers of the Registrant.

         The information required by Item 10 is contained in the Company's Proxy
Statement  for the 1998  Annual  Meeting  of  Stockholders  under  the  captions
"Directors  and Nominees" and  "Compliance  with Section 16(a) of the Securities
Exchange  Act of  1934,"  and in Item 4A of this  Report  on Form  10-K,  and is
incorporated herein by reference.

Item 11.  Executive Compensation.

         The information required by Item 11 is contained in the Company's Proxy
Statement  for the  1998  Annual  Meeting  of  Stockholders  under  the  caption
"Executive Compensation," and is incorporated herein by reference.

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

         The information required by Item 12 is contained in the Company's Proxy
Statement for the 1998 Annual Meeting of Stockholders  under the caption "Common
Stock  Ownership  of  Certain   Beneficial   Owners  and   Management,"  and  is
incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions.

         The information required by Item 13 is contained in the Company's Proxy
Statement  for the  1998  Annual  Meeting  of  Stockholders  under  the  caption
"Compensation   Committee  Interlocks  and  Insider  Participation  and  Certain
Transactions," and is incorporated herein by reference.

                                        18

<PAGE>



                                      Part IV

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

         (a) (1) List of Financial  Statements.  The  following is a list of the
financial  statements  included at pages F-1 through F-22 in this Report on Form
10-K:

         Report of Independent Accountants
         Consolidated Balance Sheet as of October 31, 1996 and 1997
         Consolidated  Statement of  Operations  for the Years Ended October 31,
         1995, 1996 and 1997 Consolidated  Statement of Cash Flows for the Years
         Ended  October  31,  1995,  1996 and  1997  Consolidated  Statement  of
         Shareholders'  Equity for Years Ended  October 31, 1995,  1996 and 1997
         Notes to Consolidated Financial Statements

              (2)  List  of  Financial  Statement  Schedules.  Schedule  VIII  -
Valuation of Qualifying Accounts and Reserves is furnished.  All other schedules
have been omitted because they are either not applicable or not required, or the
required information is provided in the financial statements or notes thereto.

         (b)  Reports on Form 8-K.

         The following  report on Form 8-K was filed during the fiscal  quarter
ended October 31, 1997:

      1.  On October 8, 1997, a Current  Report on Form 8-K was filed to report,
          pursuant to Item 2 thereof,  the  acquisition of Mardel  Laboratories,
          Inc.

      (c) List of  Exhibits.  The  following  is a list of  exhibits  furnished.
Copies of exhibits will be furnished upon written  request of any stockholder at
a charge of $.25 per page plus postage.

2.2(a)     Amended and Restated Revolving Credit Agreement between PM Resources,
           Inc.,  Zema  Corporation  and First  Bank,  along  with  accompanying
           Guaranty  by Agri-  Nutrition  Group  Limited in favor of First Bank,
           both dated as of July 14, 1995

2.3(b)     Manufacturing and Supply Agreement between Purina Mills, Inc. and PM 
           Resources, Inc. dated September 9, 1993, along with list of schedules

2.4(b)     Warehousing and Distribution Agreement between Purina Mills, Inc. and
           PM Resources, Inc. dated September 9, 1993

2.5(b)     Indemnity Agreement between Purina Mills, Inc. and PM Resources, Inc.
           dated September 9, 1993

2.6(j)     Asset Purchase Agreement among Agri-Nutrition Group Limited, Zema 
           Acquisition Corporation, and Zema Corporation dated April 28, 1995

2.7(c)     Asset Purchase Agreement among Agri-Nutrition Group Limited, St. JON 
           Acquisition Corporation, St. JON Laboratories, Inc., and John Nelson 
           dated August 30, 1995

                                        19

<PAGE>



2.8(k)     Agreement and Plan of Merger among Agri-Nutrition Group Limited, 
           Mardel Acquisition Corporation, and Mardel Laboratories, Inc.

2.9(k)     Indemnity Agreement

2.10(k)    Share Transfer and Registration Rights Agreement

3.1(d)     Restated Certificate of Incorporation

3.2(d)     Amended and Restated By-laws

4(b)       Specimen stock certificate

10.1(j)    Third Restated Employment Agreement between Agri-Nutrition Group 
           Limited and W.M. Jones, Jr. dated as of November 1, 1996

10.2(j)    Fourth Restated Employment Agreement between Agri-Nutrition Group 
           Limited and Bruce G. Baker dated as of November 1, 1996

10.3(j)    Agreement between Agri-Nutrition Group Limited and George W. 
           Daignault dated as of August 23, 1996

10.4(j)    Amended and Restated Stock Option Agreement between Agri-Nutrition 
           Group Limited and George W. Daignault dated as of August 23, 1996

10.9(e)    Revolving Credit Agreement between St. JON Laboratories, Inc. and 
           First Bank, along with accompanying Guaranty by Agri-Nutrition Group 
           Limited in favor of First Bank both dated as of January 19, 1996

10.10(b)   Form of Indemnification Agreement

10.11(b)   1994 Incentive Stock Plan

10.13(f)   Reload Option and Exchange Exercise Plan

10.14(g)   1995 Incentive Stock Plan

10.15(h)   1996 Incentive Stock Plan

10.16(d)   Consulting Agreement between Agri-Nutrition Group Limited and Brakke 
           and Associates, Inc. dated October 11, 1995

10.17(i)   Amendment to Amended and Restated Revolving Credit Agreement between 
           PM Resources, Inc., Zema Corporation and First Bank dated as of May 
           31, 1996

10.18(i)   Amendment to Revolving Credit Agreement between St. JON Laboratories,
           Inc. and First Bank dated as of May 31, 1996


                                          20

<PAGE>



10.19(l)   Second amendment to amended and restated revolving credit agreement 
           by and between PM Resources, Inc., Zema Corporation and First Bank

10.20(l)   Second amendment to revolving credit agreement by and between St. 
           JON Laboratories, Inc. and First Bank

10.21(m)   Amended and Restated Revolving Credit Agreement between St. JON 
           Laboratories, Inc. and First Bank

10.22(m)   Second Amended and Restated Revolving Credit Agreement between PM 
           Resources, Inc., Zema Corporation and First Bank

10.23+     Amendment to Second Amended and Restated Revolving Credit Agreement 
           between PM Resources, Inc., Zema Corporation, Mardel Acquisition 
           Corporation and First Bank

21+        List of subsidiaries

23+        Consents of Price Waterhouse LLP

27+        Financial data schedule

+       Filed herewith.
(a)     Filed as exhibit of same  number to the  Registrant's Form 10-Q for the
        Quarterly  Period  ended  July 31, 1995, and incorporated herein by 
        reference.
(b)     Filed as exhibit of same number to the Registrant's Registration 
        Statement on Form S-1, File No.  33-78646, and incorporated herein by 
        reference.
(c)     Filed as exhibit of the same number to the Registrant's Current Report 
        on Form 8-K, filed September 13, 1995, and incorporated herein by
        reference.
(d)     Filed as exhibit of same  number to the  Registrant's Form 10-Q for the 
        Quarterly  Period ended January 31, 1996, and incorporated herein by 
        reference.
(e)     Filed as exhibit of same  number to the  Registrant's Form 10-K for the 
        Fiscal Year ended October 31, 1995, and incorporated herein by 
        reference.
(f)     Filed as exhibit 4.2 to the Registrant's Registration Statement on Form 
        S-8, File No. 33-86892, and incorporated herein by reference.
(g)     Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form 
        S-8, File No. 33-93340, and incorporated herein by reference.
(h)     Filed  as   exhibit   of  the  same   number  to  the Registrant's 
        Registration Statement on Form S-8, File No. 33-3192, and incorporated 
        herein by reference.
(i)     Filed as exhibit of same  number to the  Registrant's Form 10-Q for the 
        Quarterly Period ended April 30, 1996, and incorporated herein by 
        reference.
(j)     Filed as exhibit of same  number to the  Registrant's Form 10-K for the 
        Fiscal Year ended October 31, 1996, and incorporated herein by 
        reference.
(k)     Filed as exhibit of same  number to the  Registrant's Current Report on 
        Form 8-K, filed October 8, 1997, and incorporated herein by reference.
(l)     Filed as exhibit of same  number to the  Registrant's Form 10-Q for the 
        Quarterly  Period ended January 31, 1997, and incorporated herein by 
        reference.
(m)     Filed as exhibit of same number to the Registrant's  Form 10-Q for
        the Quarterly Period ended July 31, 1997, and incorporated  herein
        by reference.


                                         21
<PAGE>



                                      SIGNATURES

        Pursuant to the  requirements  of Section 13 or 15(d) 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.

                                        AGRI-NUTRITION GROUP LIMITED

                                        By:     /s/ Bruce G. Baker
                                                   Bruce G. Baker
                                         President and Chief Executive Officer


        Pursuant to the  requirements  of the  Securities  Exchange Act of 1934,
this report has been signed by the following  persons in the  capacities  and on
the dates indicated.

<TABLE>
<CAPTION>
Signature                                                 Title                                  Date

<S>                                             <C>                                         <C>
 /s/ Bruce G. Baker                             President, Chief Executive                  January 28, 1998
----------------------------------
Bruce G. Baker                                  Officer, and Director



 /s/ Robert J. Elfanbaum                        Vice President and Chief                    January 28, 1998
----------------------------------
Robert J. Elfanbaum                             Financial Officer
                                                (Principal Accounting Officer)



 /s/ Alec L. Poitevint, II                      Chairman of the Board                       January 28, 1998
----------------------------------
Alec L. Poitevint, II



 /s/ Robert E. Hormann                         Vice Chairman of the Board                   January 28, 1998
----------------------------------
Robert E. Hormann



 /s/ W.M. Jones, Jr.                            Director                                    January 28, 1998
----------------------------------
W.M. Jones, Jr.



 /s/ Robert W. Schlutz                          Director                                    January 28, 1998
----------------------------------
Robert W. Schlutz
</TABLE>




                                    22
<PAGE>



                                INDEX TO FINANCIAL STATEMENTS

Agri-Nutrition Group Limited                                               Page

Report of Independent Accountants.........................................  F-1
Consolidated Balance Sheet as of October 31, 1996 and 1997 ...............  F-2
Consolidated Statement of Operations for the Three Years 
  Ended October 31, 1997..................................................  F-3
Consolidated Statement of Cash Flows for the Three Years 
  Ended October 31, 1997..................................................  F-4
Consolidated Statement of Shareholders' Equity for the 
  Three Years Ended October 31, 1997......................................  F-6
Notes to Consolidated Financial Statements................................  F-7



<PAGE>





                        REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited



In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations, of cash flows and of shareholders' equity
present fairly, in all material respects, the consolidated financial position of
Agri-Nutrition  Group  Limited  and its  subsidiaries  at October  31,  1996 and
October 31, 1997,  and the results of their  operations and their cash flows for
each of the three years in the period ended October 31, 1997, in conformity with
generally accepted  accounting  principles.  These financial  statements are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these  financial  statements  based on our audits.  We conducted  our
audits of these  statements  in  accordance  with  generally  accepted  auditing
standards which require that we plan and perform the audit to obtain  reasonable
assurance   about  whether  the  financial   statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.



PRICE WATERHOUSE LLP
St. Louis, Missouri
December 12, 1997



                                        F-1

<PAGE>



                              AGRI-NUTRITION GROUP LIMITED
                                Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                                                             October 31,
                                                                                       1996              1997
<S>                                                                               <C>              <C>
Assets
Current assets:
   Cash and cash equivalents                                                      $     2,186,877  $        145,505
   Accounts receivable, net                                                             3,065,612         3,817,417
   Inventories (Note 7)                                                                 5,863,548         6,355,310
   Prepaid expenses and other current assets                                              914,312         1,016,098
   Deferred income taxes (Note 11)                                                        254,065           244,574
   Net assets of discontinued operations                                                1,347,539
                                                                                  ---------------   ---------------
                                                                                       13,631,953        11,578,904
Property, plant and equipment, net (Note 8)                                             4,798,813         5,788,688
Goodwill                                                                                6,372,687         8,095,049
Other assets                                                                            1,046,599         1,133,509
                                                                                  ---------------  ----------------
                                                                                  $    25,850,052  $     26,596,150
                                                                                  ===============  ================

Liabilities and  Shareholders' Equity
Current liabilities:
   Current portion of long-term debt and notes payable (Note 9)                   $       291,817  $        201,636
   Current portion of acquisition notes payable (Note 9)                                  195,352           719,716
   Accounts payable                                                                     1,950,467         1,417,286
   Accrued compensation expense                                                           727,250            86,532
   Accrued expenses                                                                       538,819         1,381,416
                                                                                  ---------------  ----------------
                                                                                        3,703,705         3,806,586
Long-term debt and notes payable (Note 9)                                               5,719,364         5,665,955
Acquisition notes payable (Note 9)                                                      2,104,648         1,570,249

Commitments and contingencies (Notes 2, 3, 4, 8 and 16)

Shareholders' equity (Notes 4, 12 and 13):
   Common stock ($.01 par value; 20,000,000 shares
     authorized; 8,430,949 and 9,304,280 shares
     issued and outstanding, respectively)                                                 84,309            93,043
   Additional paid-in-capital                                                          14,817,183        15,935,700
   Accumulated deficit                                                                   (529,171)         (395,841)
                                                                                  ---------------  ----------------
                                                                                       14,372,321        15,632,902
   Cost of common stock held in treasury
   (25,650 and 46,850 shares in 1996 and 1997, respectively)                              (49,986)          (79,542)
                                                                                  ---------------  ----------------
                                                                                       14,322,335        15,553,360
                                                                                  ---------------  ----------------
                                                                                  $    25,850,052  $     26,596,150
                                                                                  ===============  ================
</TABLE>

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


                                       F-2

<PAGE>



                           AGRI-NUTRITION GROUP LIMITED
                        Consolidated Statement of Operations

<TABLE>
<CAPTION>
                                                                            For the Year Ended October 31,
                                                                       1995              1996             1997
<S>                                                            <C>               <C>              <C>
Net sales (including sales to Purina of $7.1 million,
   $5.4 million and $4.3 million for the years ended 
   October 31, 1995, 1996 and 1997, respectively)              $   20,062,942    $   28,661,307   $   31,051,537
Cost of sales                                                      15,978,924        20,783,847       22,850,923
                                                               --------------    --------------   --------------
Gross profit                                                        4,084,018         7,877,460        8,200,614
Selling, general and administrative expenses                        4,382,451         7,447,301        7,129,860
Research and development                                              185,882           142,760           92,273
Nonrecurring severance costs (Note 17)                                                  240,000
                                                               --------------    --------------   --------------
Operating (loss) income                                              (484,315)           47,399          978,481

Interest expense                                                     (345,779)         (596,086)        (638,599)
Interest income and other                                             528,361           158,904         (146,883)
                                                               --------------     -------------   --------------
Income (loss) before income tax benefit (expense)                    (301,733)         (389,783)         192,999
Income tax benefit (expense)                                          193,400           148,463          (74,328)
                                                               --------------     -------------   --------------
Income (loss) from continuing operations                             (108,333)         (241,320)         118,671
Income from discontinued operations, net                              139,766           113,900           14,659
                                                               --------------     -------------   --------------
Net income (loss)                                              $       31,433    $     (127,420)  $      133,330
                                                               ==============    ==============   ==============

Primary net (loss) income per common and
   common equivalent share from continuing operations          $         (.01)   $         (.03)  $          .02
Primary net income per common and common
   equivalent share from discontinued operations                          .01               .01               --
                                                               --------------    --------------   --------------
Primary net income (loss) per common and
   common equivalent share                                     $           --    $         (.02)  $          .02
                                                               ==============    ==============   ==============

Fully diluted net (loss) income per common and
   common equivalent share from continuing operations          $         (.01)   $         (.03)  $          .02
Fully diluted net income per common and common
   equivalent share from discontinued operations                          .01               .01               --
                                                               --------------    --------------   --------------
Fully diluted net income (loss) per common
 and common equivalent share                                   $           --    $         (.02)  $          .02
                                                               ==============    ==============   ==============

Weighted average number of primary common and
   common equivalent shares outstanding (Note 6)                     8,112,85         8,397,686        8,699,914
                                                                =============    ==============   ==============

Weighted average number of fully diluted common and
   common equivalent shares outstanding (Note 6)                    8,751,327         8,397,686        8,750,743
                                                                =============    ==============   ==============
</TABLE>


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


                                     F-3

<PAGE>



                               AGRI-NUTRITION GROUP LIMITED
                           Consolidated Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                      For the Year Ended October 31,
                                                                                1995                  1996              1997
<S>                                                                      <C>                    <C>               <C>
Operating activities
Net income (loss) from continuing operations                              $     (108,333)        $    (241,320)    $       118,671
Adjustments to reconcile net income (loss) to
net cash provided (used) by operating activities:
   Depreciation and amortization                                                 512,918               847,723             966,022
   (Increase) decrease in deferred income taxes                                 (140,851)              (66,611)             58,491
   Income from discontinued operations, net of taxes                             139,766               113,900              14,659
   Change in net assets from discontinued operations                           1,065,206            (1,007,633)          1,347,539
   Changes in operating assets and liabilities,
   excluding the effects of acquisitions (Notes 2 and 4):
     Increase in accounts receivable                                            (483,143)             (528,806)           (410,942)
     (Increase) decrease in inventories                                           61,714            (1,677,051)            692,492
     (Increase) decrease in prepaids and other                                   157,781              (281,520)             48,984
     Increase (decrease) in accounts payable                                  (2,313,996)            1,419,731            (785,558)
     Increase (decrease) in accounts payable to Purina                           930,954              (930,954)
     Increase (decrease) in accrued compensation expense                         255,064               278,189            (640,718)
     Increase (decrease) in accrued expenses                                    (224,349)             (214,833)            373,423
                                                                           -------------         -------------     ---------------
Net cash provided (used) by operating activities                                (147,269)           (2,289,185)          1,783,063
                                                                           -------------         -------------     ---------------

Investing activities
Acquisitions (Notes 2 and 4), net of cash acquired                            (8,120,233)             (520,189)           (970,537)
Purchase of property, plant and equipment                                       (464,052)             (592,678)           (996,683)
Purchase of Bromethalin Assets (Note 3)                                                             (1,056,097)
Sale of short-term investments                                                 1,357,832             1,191,379
                                                                           -------------         -------------     ---------------
Net cash used by investing activities                                         (7,226,453)             (977,585)         (1,967,220)
                                                                           -------------         -------------     ---------------

Financing activities
Proceeds from (repayment of) long-term debt
   and notes payable                                                          (1,731,536)            3,090,125          (1,154,911)
Repayment of acquisition notes payable                                                                                    (700,000)
Proceeds from sale of common stock                                               250,000                52,823              27,252
Payments of loans from employees                                                                        30,000
Purchase of Treasury Stock                                                                             (49,986)            (29,556)
                                                                           -------------         -------------     ---------------
Net cash provided (used) by financing activities                              (1,481,536)            3,122,962          (1,857,215)
                                                                           -------------         -------------     ---------------

Decrease in cash and cash equivalents                                         (8,855,258)             (143,808)         (2,041,372)

Cash and cash equivalents, beginning of period                                11,185,943             2,330,685           2,186,877
                                                                           -------------         -------------     ---------------

Cash and cash equivalents, end of period                                   $   2,330,685         $   2,186,877     $       145,505
                                                                           =============         =============     ===============
</TABLE>



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


                                      F-4

<PAGE>



                         AGRI-NUTRITION GROUP LIMITED
             Consolidated Statement of Cash Flows (continued)
<TABLE>
<CAPTION>
                                                                                      For the Year Ended October 31,
                                                                                1995                  1996              1997
<S>                                                                      <C>                    <C>               <C>
Supplemental disclosure of cash flow information:
   Cash paid for interest                                                 $   285,415            $   363,422       $    667,922
   Cash paid for taxes                                                         10,000                 47,189             25,873
</TABLE>

Supplemental  disclosure of non-cash investing and financing activities:  During
the year ended October 31, 1995, the Company  acquired Zema  Corporation and St.
JON  Laboratories,  Inc.  for cash of  approximately  $6,500,000  (Note  2).  As
consideration for the acquisitions of Zema Corporation and St. JON Laboratories,
Inc.,  the Company also issued  aggregate  notes  payable of  $2,300,000  to the
former owners of the acquired companies.  Fair value assigned to assets acquired
was approximately $6,000,000,  fair value assigned to goodwill was approximately
$6,500,000 and liabilities assumed were approximately $3,500,000.

During  the  year  ended  October  31,  1997,   the  Company   acquired   Mardel
Laboratories,  Inc.  for cash of  approximately  $1,000,000  (Note 4) and  stock
valued  at  approximately   $1,100,000.  As  additional  consideration  for  the
acquisition of Mardel, the Company also issued a note payable of $300,000 to the
former owners of the acquired company to be paid in cash and stock over a period
of three  years.  Fair  value  assigned  to assets  acquired  was  approximately
$2,600,000,  fair value  assigned to goodwill was  approximately  $2,000,000 and
liabilities assumed were approximately $2,200,000.

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


                                       F-5

<PAGE>



                               AGRI-NUTRITION GROUP LIMITED
                     Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>

                                                                     Common Stock in
                                    Common Stock                    Treasury, at Cost
                           Number                  Additional      Number
                             of           Par        Paid in         of                    Accumulated
                           Shares        Value       Capital       Shares       Amount       Deficit       Total
<S>                       <C>         <C>        <C>             <C>         <C>        <C>           <C>
Balance, November 1,
 1994                      8,079,914  $  80,799  $  14,447,744                           $ (433,184)   $ 14,095,359

Issuance of common
   stock to employees         11,430        114         40,012                                               40,126
Sale of common stock
   pursuant to exercise
   of stock options          310,000      3,100        246,900                                              250,000
Net income                                                                                    31,433         31,433
                         ------------------------------------------------------------------------------------------

Balance, October 31,
   1995                    8,401,344     84,013     14,734,656                              (401,751)    14,416,918

Repayment of employee
   stock purchase loans                                 30,000                                               30,000
Issuance of stock to
   directors and officers     29,605        296         52,527                                               52,823
Treasury stock
   purchased                                                       (25,650)  $  (49,986)                   (49,986)
Net loss                                                                                   (127,420)      (127,420)
                         ------------------------------------------------------------------------------------------

Balance, October 31,
   1996                    8,430,949     84,309     14,817,183     (25,650)     (49,986)    (529,171)    14,322,335

Issuance of stock to
   directors and officers     20,556        206         27,045                                               27,251
Issuance of stock for
   acquisition               852,775      8,528      1,091,472                                            1,100,000
Treasury stock
   purchased                                                      (21,200)     (29,556)                    (29,556)
Net income                                                                                   133,330        133,330
                         ------------------------------------------------------------------------------------------

Balance, October 31,
   1997                    9,304,280  $  93,043  $  15,935,700    (46,850)   $ (79,542)  $ (395,841)   $ 15,553,360
                         ==========================================================================================
</TABLE>


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


                                     F-6

<PAGE>


                             AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements

1.       Organization

Agri-Nutrition  Group  Limited  (the  Company),  a  Delaware  corporation,   was
organized on July 20, 1993,  to acquire and operate  businesses  in the domestic
and  international  food,  agriculture  and pet  industries.  In September 1993,
through its wholly-owned subsidiary, PM Resources, Inc. (Resources), the Company
acquired certain assets and assumed certain liabilities of the Health Industries
Business (the Business) of Purina Mills, Inc. (Purina).  See Note 14 for further
discussion of related matters involving Purina.  Resources commenced  operations
on September 9, 1993,  the effective  date of the  acquisition  of the Business.
Resources  formulates,  manufactures and distributes  feed additives,  medicated
treatments,  anthelmetics,  nutritional supplements, cleaners and disinfectants,
pest control products, home, lawn and garden products, and specialty compounds.

Effective  March 31, 1995, the Company  purchased  substantially  all of the net
assets and  business of Zema  Corporation  (Zema).  The Company  also  purchased
substantially all of the net assets and business of St. JON  Laboratories,  Inc.
(St. JON) effective  August 31, 1995. In September  1997,  the Company  acquired
Mardel Laboratories, Inc. (Mardel). Zema, St. JON and Mardel formulate, package,
market  and  distribute  pet  health  care,  veterinary  and  grooming  products
domestically  and  abroad.  See Notes 2 and 4 for  further  discussion  of these
acquisitions.

2.       Acquisitions - Zema and St. JON

Through the Company's wholly owned  subsidiary,  Zema  Acquisition  Corporation,
substantially  all of the net assets of Zema were acquired  effective  March 31,
1995.  The sales price  included a base price of $3,000,000 in cash and $300,000
in the form of a note payable to the former owner of Zema.  The note payable and
related interest are due on or before April 28, 1998 and were conditioned on the
continued  employment  of Zema's  president  (see Note 9). In  conjunction  with
renegotiation  of the  employment  contract of Zema's  president in fiscal 1997,
such employment requirement of the note was waived. Additional purchase price is
required  to be paid by the  Company  to the  former  owner of Zema based upon a
percentage of Zema's cumulative  earnings before taxes and interest in excess of
$3,345,000 for the five years ending October 31, 1999. Through October 31, 1997,
no accrued  liability  or increase in excess  purchase  price has been  recorded
relative to the contingent purchase price provision.  The Company primarily used
proceeds  from its initial  public  offering  of common  stock (IPO) to fund the
$3,000,000  initial payment and related  acquisition  expenses of  approximately
$200,000.

The  acquisition  of Zema was accounted  for pursuant to the purchase  method of
accounting.  The purchase  price paid for Zema has been  allocated to net assets
acquired based on their  estimated fair values at the date of  acquisition.  The
excess of the  purchase  price  over the fair value of net  assets  acquired  of
approximately  $1,700,000  was recorded as goodwill and is being  amortized on a
straight-line basis over 40 years. The results of Zema's operations are included
in  the  Company's  consolidated  financial  statements  from  the  date  of the
acquisition.


                                       F-7

<PAGE>


                            AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements
                                   (Continued)

Substantially  all of the net  assets  of St.  JON  were  acquired  through  the
Company's wholly-owned subsidiary,  St. JON Acquisition  Corporation,  effective
August 31, 1995.  The purchase price included a base price of $3,500,410 in cash
and additional  purchase  price of $2,000,000 in the form of a promissory  note.
The  balance of the note  payable to the former  owner of St. JON at October 31,
1997 is $1,300,000 and is due in five remaining  annual  installments,  together
with interest thereon, commencing March 1998 (see Note 9). The Company primarily
used  proceeds  from  its IPO to fund the  $3,500,410  initial  payment  and the
related acquisition expenses of approximately  $200,000.  The acquisition of St.
JON was  accounted  for  pursuant  to the  purchase  method of  accounting.  The
purchase price paid for St. JON has been allocated to net assets  acquired based
on their  estimated  fair values at the date of  acquisition.  The excess of the
purchase  price  over  fair  value  of  net  assets  acquired  of  approximately
$4,800,000,  was recorded as goodwill and is being  amortized on a straight-line
basis over 30 years.  The results of St.  JON's  operations  are included in the
Company's consolidated financial statements from the date of the acquisition.

3.       Acquisition of Certain Bromethalin Assets

Effective May 1996, Resources acquired the worldwide patents,  active ingredient
inventory,  registrations and rights to Bromethalin (the Bromethalin  Assets), a
highly  effective and  proprietary  rodenticide  serving  agricultural  and Pest
Control  Operator  (PCO)  markets  from  Purina.  The sales  price  and  related
acquisition costs was approximately $1 million, plus an additional consideration
based on subsequent  shipments of Bromethalin to Purina over a five-year period.
The Company primarily used proceeds from its IPO to fund the initial payment.

4.       Acquisition - Mardel

Through the Company's wholly owned subsidiary,  Mardel Acquisition  Corporation,
substantially all of the net assets of Mardel were acquired effective  September
1997.  Mardel's  expertise extends to fresh water and marine fish, birds,  dogs,
cats, small animals and pond accessories.  Mardel had net sales of approximately
$6,800,000 for the year ended December 31, 1996. The purchase price consisted of
approximately  $1,000,000  in cash,  $1,100,000 in common stock and a promissory
note of  $300,000  payable in three  annual  installments,  each  consisting  of
$49,000 of cash plus  interest  at prime,  and $51,000 of the  Company's  common
stock,  beginning  September  1998.  The Company  primarily  used the  remaining
proceeds from its IPO to fund the $1,000,000 initial payment.

The  acquisition of Mardel was accounted for pursuant to the purchase  method of
accounting.  The purchase price paid for Mardel has been preliminarily allocated
to net  assets  acquired  based on their  estimated  fair  values at the date of
acquisition.  The excess of the purchase price over the fair value of net assets
acquired of  approximately  $2,000,000  was  recorded  as goodwill  and is being
amortized  on a  straight-line  basis over 30 years.  The  results  of  Mardel's
operations are included in the Company's  consolidated financial statements from
the date of the acquisition.


                                       F-8

<PAGE>


                              AGRI-NUTRITION GROUP LIMITED
                              Notes to Financial Statements
                                     (Continued)

The following table sets forth pro forma  information for  Agri-Nutrition  Group
Limited as if the acquisition of Mardel had taken place on November 1, 1995. The
information is unaudited and does not purport to represent  actual revenue,  net
income or earnings per share had the acquisitions  actually occurred on November
1, 1995 and is not necessarily indicative of results that may be obtained in the
future ($ in 000's except per share amounts):

                                                          Pro Forma Information
                                                               (Unaudited)
                                                          Year Ended October 31,
                                                            1996        1997

Net sales                                                 $ 35,456    $  35,967
Income (loss) from continuing operations                      (450)         158
Primary earnings (loss) per share                             (.05)         .02
Fully diluted earnings (loss) per share                       (.05)         .02
Primary weighted average shares outstanding               9,250,462   9,552,689
Fully diluted weighted average shares outstanding         9,250,462   9,603,518

5.       Initial public offering

In July 1994,  the Company  completed the initial  public  offering of 2,435,000
shares of its  common  stock at $6.00 per share  resulting  in net  proceeds  of
approximately $12,100,000 to be used to finance acquisitions, strategic business
alliances  and joint  ventures,  including  the  payment  of  certain  executive
salaries and other administrative expenses incurred in the implementation of the
Company's  acquisition  strategy.  In  September  1997,  the  Company  used  its
remaining  IPO  proceeds  in  conjunction  with the  acquisition  of Mardel,  as
discussed in Note 4. As of October 31, 1997, all proceeds had been expended.

6.       Summary of significant accounting policies

Principles of consolidation
The consolidated  financial  statements  include the accounts of the Company and
its   subsidiaries.   All  significant   intercompany   transactions  have  been
eliminated.

Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect the reported  amounts of assets,  liabilities,  revenues and expenses and
the disclosure of contingent assets and liabilities. Actual results could differ
from those estimates.

Revenue  recognition  Revenue is generally  recognized  upon shipment of orders.
Revenue  related  to  certain  contract  manufacturing  is  recognized  upon the
completion of the manufacturing process. Accounts

                                  F-9

<PAGE>


                       AGRI-NUTRITION GROUP LIMITED
                       Notes to Financial Statements
                                (Continued)

receivable  consists of the amounts estimated to be collectible on sales,  after
provision for uncollectible amounts, based on historical experience.  At October
31, 1995,  1996 and 1997, the provision for  uncollectible  amounts was $47,031,
$53,029, and $133,705, respectively.

Cash and cash equivalents
For purposes of the consolidated  statement of cash flows, the Company considers
all highly liquid  investments with an original maturity of three months or less
to be cash equivalents.

Concentration of credit risk
Financial  instruments  which  potentially  subject the  Company to  significant
concentrations  of credit risk as defined by Statement  of Financial  Accounting
Standards No. 105,  "Disclosure of Information about Financial  Instruments with
Off-Balance-Sheet  Risk and Financial  Instruments with Concentrations of Credit
Risk," consist of cash investments and accounts receivable.

The Company  sells its products to customers in the animal  health and specialty
chemical  businesses  throughout the United States and abroad. The three largest
customers accounted for 46%, 31% and 25% of sales from continuing  operations in
the years ended October 31, 1995, 1996 and 1997, respectively,  and 42% and 22 %
of accounts receivable at October 31, 1996 and 1997, respectively (see Note 14).
The Company generally does not require collateral from its customers.

Relationship with suppliers
The Company purchases certain chemical  materials from multiple  suppliers,  for
which  alternative  suppliers  also  exist and are  adequate.  However,  certain
chemical  materials are  proprietary  in nature,  and the  Company's  ability to
procure such chemical  materials is limited to those suppliers with  proprietary
rights. The Company considers its relationships with its primary suppliers to be
strong.

Fair value of financial instruments
For purposes of financial  reporting,  the Company has determined  that the fair
value of the Company's debt and investments  approximates  book value at October
31,  1996 and  1997,  based on  terms  currently  available  to the  Company  in
financial markets.

Inventories
Inventories  are valued at the lower of cost,  determined  on the  average  cost
method  which   approximates  the  first-in,   first-out   method,   or  market.
Inventoriable costs include materials,  direct labor and manufacturing overhead.
Inventories  are  stated net of a reserve  for  estimated  excess  and  obsolete
inventory.

                                          F-10

<PAGE>


                                AGRI-NUTRITION GROUP LIMITED
                                Notes to Financial Statements
                                        (Continued)

Property and equipment
Property and equipment are recorded at cost.  Expenditures  for  maintenance and
repairs are charged to operations as incurred; acquisitions, major renewals, and
betterments are capitalized.  When property is retired or otherwise disposed of,
the related cost and accumulated depreciation are removed from the accounts, and
any profit or loss on disposition is credited or charged to income.

The Company provides for depreciation by charging amounts sufficient to amortize
the cost of the properties over their estimated useful lives. The  straight-line
method of depreciation is utilized for substantially all asset categories.

A summary of estimated useful lives used in computing depreciation for financial
statement reporting purposes follows:
                                                                 Estimated
                                                                useful life
Building and leasehold improvements                             5-30 years
Machinery and equipment                                            8-12
Furniture and fixtures                                              5-7
Vehicles                                                             5

Goodwill
The excess of  purchase  price over the fair  value of net  assets  acquired  in
business combinations is capitalized and amortized on a straight-line basis over
the  estimated  period  benefited  which  ranges  from 30 to 40 years.  Goodwill
amortization  charged to income for the years ended  October 31, 1995,  1996 and
1997, was $50,000, $195,000 and $209,000, respectively.

The carrying  value of goodwill is assessed  for  recoverability  by  management
based  on an  analysis  of  future  expected  cash  flows  from  the  underlying
operations of the Company. Management believes that there has been no impairment
at October 31, 1997.

Other assets
Other assets, which is comprised of deferred compensation,  patents,  tradenames
and other  intangible  assets,  including  those acquired in connection with the
acquisition  of the  Bromethalin  Assets  as  discussed  in  Note 3,  are  being
amortized on a straight-line  basis over the lives of the related assets,  which
range from one to fifteen years.  Amortization  expense  related to other assets
for the years ended October 31, 1995, 1996 and 1997, was approximately  $57,000,
$142,000 and $87,000, respectively.

                                     F-11

<PAGE>


                             AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements
                                      (Continued)

Income taxes
The Company uses the liability method of accounting for income taxes as mandated
by Statement of Financial  Accounting  Standards  No. 109.  Under the  liability
method,  deferred  taxes are  recognized  for the  estimated  future tax effects
attributable to temporary  differences  between the book and tax bases of assets
and  liabilities as well as carryforward  items.  These tax effects are measured
based on provisions of enacted tax laws. The  classification of net deferred tax
assets and/or liabilities,  i.e., current or non-current,  is based primarily on
the classification of the related assets and liabilities.

Net income (loss) per common and common equivalent share
Net income (loss) per common and common  equivalent share is calculated based on
the weighted average number of common and common equivalent  shares  outstanding
during the periods  presented,  using the treasury  stock  method.  Common share
equivalents  consist of common  stock  which may be  issuable  upon  exercise of
outstanding stock warrants and options.  The Company's  outstanding options were
excluded  from  primary and fully  diluted per share  computations  for the year
ended October 31, 1996, due to their anti-dilutive effect. The fully diluted per
share  computation  for the year ended  October 31, 1995  includes  warrants and
options  exercised during the year ended October 31, 1995 on the assumption that
the exercises took place at the beginning of the fiscal year.

Preferred stock
The Company's Board of Directors may,  without  further action by  stockholders,
from time-to-time direct the issuance of shares of preferred stock in series and
may, at time of issuance,  determine the rights,  preferences and limitations of
each  series.  No shares of  preferred  stock have been issued as of October 31,
1997.

Environmental Policy
Environmental  expenditures  that relate to current  operations  are expensed or
capitalized as appropriate.  Expenditures  that relate to an existing  condition
caused by past  operations,  and which do not  contribute  to  current or future
revenue  generation,  are expensed.  Liabilities are recorded when environmental
assessments  and/or  remedial  efforts  are  probable,  and  the  costs  can  be
reasonably estimated.

Purina,  and the former owners of Zema and St. JON, have indemnified the Company
from environmental  claims resulting from any liabilities or obligations arising
from  events  occurring  prior to the  acquisitions  which the  Company  did not
expressly  assume in these three respective  acquisitions.  The Company has been
notified by certain  state  agencies of  non-compliance  with certain  state and
federal  environmental  regulations.   However,  management  believes  that  the
resolution  of these  issues  will  have no  material  effect  on the  Company's
financial position or results of operations.

                                        F-12

<PAGE>


                                AGRI-NUTRITION GROUP LIMITED
                               Notes to Financial Statements
                                        (Continued)

Impairment of Long-Lived Assets
Long-lived  assets are reviewed  for  impairment  whenever  events or changes in
circumstances  indicate that the carrying amount may not be recoverable.  If the
sum of the  expected  future  undiscounted  cash flows is less than the carrying
amount of the asset, a loss is recognized  for the  difference  between the fair
value and the carrying  value of the asset.  Management  believes that there has
been no impairment at October 31, 1997.

Recently issued accounting pronouncements
Beginning in 1998, the Company will be subject to the provisions of Statement of
Financial  Accounting  Standards No. 128 "Earnings Per Share" (FAS 128) that was
adopted by the Financial  Accounting  Standards Board in February 1997. FAS 128,
which is effective  for  financial  statements  issued for periods  ending after
December 15, 1997, simplifies the standards for computing earnings per share and
makes them comparable to international earnings per share standards.  Management
does  not  expect  the  adoption  of FAS 128 to have a  material  impact  on the
Company's financial statements.

In October 1995, the FASB issued Statement of Financial  Accounting Standard No.
123, "Accounting for Stock-Based Compensation" (FAS 123), which defines the fair
value based method of accounting for  stock-based  compensation  plans.  FAS 123
allows  companies  to use the fair value method  defined in the  statement or to
continue  use the  intrinsic  value  method as  outlined  in APB Opinion No. 25,
"Accounting for Stock Issued to Employees," (APB 25). FAS 123 was adopted during
the Company's fiscal 1997 and the Company will continue to use the provisions of
APB 25 in  determining  net income.  See Note 12 for the pro forma impact on the
net income  (loss) and net income  (loss) per share for the years ended  October
31, 1996 and 1997.


                                           F-13

<PAGE>


                                 AGRI-NUTRITION GROUP LIMITED
                                Notes to Financial Statements
                                           (Continued)


7.       Inventories

Inventories consist of the following:
<TABLE>
<CAPTION>

                                                                                          October 31,
                                                                                   1996               1997
<S>                                                                         <C>                <C>
Raw materials                                                               $     3,700,881    $        4,049,028
Work-in-process                                                                     312,300               501,801
Finished goods                                                                    1,998,799             2,081,771
                                                                            ---------------    ------------------
                                                                                  6,011,980             6,632,600
Less reserve for excess and obsolete inventories                                   (148,432)             (277,290)
                                                                            ---------------    ------------------
                                                                            $     5,863,548    $        6,355,310
                                                                            ===============    ==================
</TABLE>

8.       Property, plant and equipment

Property, plant and equipment consists of the following:
                                                       October 31,
                                                 1996              1997
Land                                       $     638,794     $      638,794
Buildings                                      1,668,183          1,895,779
Machinery and equipment                        3,399,986          4,583,080
Leasehold improvements                           228,880            374,203
Furniture and fixtures                           158,607            229,243
Vehicles                                          39,232             34,944
                                           -------------     --------------
                                               6,133,682          7,756,043
Less accumulated depreciation                 (1,384,511)        (1,968,282)
                                           -------------     --------------
                                               4,749,171          5,787,761
Construction in progress                          49,642                927
                                           -------------     --------------
                                           $   4,798,813     $    5,788,688
                                           =============     ==============

The  Company  leases  certain  equipment  and  facilities  under   noncancelable
operating  leases.  The  primary  operating  facilities  of Zema and St. JON are
leased from related parties (see Note 13).  Minimum lease payments for operating
leases,  including  leases  with  related  parties,  at October  31, 1997 are as
follows:

                  1998                               $       561,469
                  1999                                       429,479
                  2000                                       277,554
                  2001                                       209,631
                                                     ---------------
                  Total minimum lease payments       $     1,478,133
                                                     ===============


                                       F-14

<PAGE>


                            AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements
                                     (Continued)

Rental expense under all operating leases  approximated  $392,000,  $548,000 and
$406,000 for the years ended October 31, 1995, 1996 and 1997, respectively.

9.       Financing

Revolving credit agreement
The Company has revolving credit  facilities which aggregated  $8.025 million at
October  31,  1997.  In June 1997,  the Company  modified  its  existing  credit
agreements increasing the aggregate lines by $650,000,  extending their maturity
dates through March 31, 1999,  lowering the interest rates and  commitment  fees
charged and  revising  certain of the debt  covenant  calculations.  The amended
facilities  consist of up to an aggregate  of $4.8  million in revolving  credit
lines, the available amount being based upon specified  percentages of qualified
accounts  receivable and inventory,  and a $3.35 million  revolving  credit line
with  available  amounts being reduced  $125,000 per quarter.  The interest rate
will range from prime minus .25% to prime plus .5%,  depending on the  Company's
ratio of debt to net worth, as defined in the  agreements.  At October 31, 1997,
the interest rate charged on borrowings  outstanding  under the  agreements,  as
amended,  was 8.5%  which  is the  bank's  prime  rate.  At  October  31,  1997,
approximately  $2.8 million is available for additional  borrowings  under these
facilities.

At October 31, 1997, the Company and its  subsidiaries  were in compliance  with
all covenants related to its various financing arrangements.

Acquisition notes payable
In connection with the  acquisitions  completed during fiscal 1995 (see Note 2),
the Company entered into notes payable agreements with the former owners of Zema
and St. JON. At October 31, 1997, the Company had an outstanding note payable of
$300,000  to the former  owner of Zema,  of which 55% of that  company's  common
stock is owned by the president of the Company's Zema  subsidiary (see Note 13).
That amount,  plus interest  accrued monthly at the Wall Street  Journal's prime
rate (8.5% at October 31,  1997),  is due and payable in full on or before April
28,  1998,  is recorded in current  liabilities,  and  aggregates  approximately
$372,000 at October 31, 1997.

At October 31, 1997, the Company had a $1,300,000 note payable  outstanding that
has been  assigned to the former  owner of St. JON who is the  president  of the
Company's St. JON subsidiary.  In April 1997, the Company restructured this debt
agreement. Under the revised agreement, the Company paid $500,000 in April 1997,
in addition to the $450,000 scheduled payment of principle and accrued interest,
and will pay off the remaining  amounts in five annual  installments of $324,563
beginning in March 1998.  The  interest  rate on the note was not revised and is
fixed at 7.6% per annum. Accrued interest on this note is approximately  $59,000
at October 31, 1997 and is recorded in current liabilities as of such date.

                                     F-15

<PAGE>


                           AGRI-NUTRITION GROUP LIMITED
                           Notes to Financial Statements
                                    (Continued)

In  connection  with the  acquisition  of St. JON,  the  Company  assumed a note
payable and related  accrued  interest due to the former owner of St. JON who is
the  president  of  the  Company's  St.  JON  subsidiary.  Concurrent  with  the
completion  of  the  acquisition,   the  Company  deposited   $1,038,000  in  an
irrevocable  trust to complete an  in-substance  defeasance of the note payable.
The funds were placed in trust solely to satisfy the $949,882 note payable (plus
accrued interest) due and paid on December 31, 1995. Accordingly, the restricted
cash, the note payable and the related accrued  interest are not included on the
October 31, 1995 and 1996 consolidated balance sheets.

In connection  with the  acquisition  of Mardel during fiscal 1997,  the Company
entered into a notes payable  agreement with the former  owners.  At October 31,
1997 the  Company  had a note  balance  of  $300,000  payable  in  three  annual
installments  of  $49,000 of cash plus  interest  at prime,  and  $51,000 of the
Company's common stock, beginning September 1998.

Financing agreements
The  Company  entered  into  agreements  to  finance  certain  of its  insurance
premiums.  The financing  agreements  provide for monthly principal and interest
payments of approximately $30,000 and $28,832, covering periods from August 1996
to August 1997 and August 1997 to August 1998,  respectively,  and an additional
$6,882 monthly  principle and interest  covering  periods from July 1997 to July
2000. The aggregate  amount  financed under these  agreements are  approximately
$292,000 and $372,087,  respectively.  Of these amounts,  approximately $292,000
and $243,232 remain outstanding at October 31, 1996 and 1997, respectively,  and
are  included in current  portion of long-term  debt and notes  payable at those
dates. Additionally, $128,855 represents premiums for fiscal years ended October
31, 1999 and 2000, and are recorded in long-term debt.

10.      Common stock transactions

During the year ended October 31, 1996, the Company  purchased  25,650 shares of
its common stock at an aggregate cost of $49,986. These purchases were the first
under the stock repurchase plan authorized by the Board of Directors in December
1995.

During the year ended October 31, 1997, the Company  purchased  21,200 shares of
its common  stock at an  aggregate  cost of $29,556  under the stock  repurchase
plan.  At October 31, 1997,  the number of shares  available to acquire that was
authorized by the 1995 stock repurchase plan was 444,794. The Company expects to
finance additional treasury stock purchases, if any, with available funds.



                                         F-16

<PAGE>


                               AGRI-NUTRITION GROUP LIMITED
                              Notes to Financial Statements
                                        (Continued)

11.      Income taxes

The components of the net income tax expense (benefit) are as follows:

                             For the Year Ended October 31,
                         1995                 1996              1997
Current:
     Federal         $     (63,836)      $     (71,156)     $          --
     State                  11,287             (10,696)            15,837
                     ----------------------------------------------------
                           (52,549)            (81,852)            15,837
                     ----------------------------------------------------
Deferred:
     Federal              (143,279)            (62,567)            73,854
     State                   2,428              (4,044)           (15,363)
                     ----------------------------------------------------
                          (140,851)            (66,611)            58,491
                     ----------------------------------------------------
                     $    (193,400)      $    (148,463)     $      74,328
                     ====================================================

Total tax expense (benefit) above excludes tax provision of $87,000, $71,000 and
$9,000, related to discontinued operations for the years ended October 31, 1995,
1996 and 1997, respectively.

The net  benefit  for  income  taxes  differs  from the  amount  of  income  tax
determined by applying the  statuatory  U.S.  federal  income tax rate to pretax
loss as a result of the following:

                         For the Year Ended October 31,
                                 1995 1996 1997

Income tax benefit at statutory rate           $(102,589)  $(132,526)  $65,620
(Decrease) in valuation allowance                (95,732)
State income taxes, net of federal benefit         9,052      (9,728)      313
Other, net                                        (4,131)     (6,209)    8,395
                                               -------------------------------
                                               $(193,400)  $(148,463)  $74,328
                                               ===============================


                                     F-17

<PAGE>


                             AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements
                                      (Continued)


Deferred tax (assets) liabilities are comprised of the following at October 31:
<TABLE>
<CAPTION>

                                                                             For the Year Ended October 31,
                                                                         1995              1996             1997
<S>                                                             <C>               <C>                <C>
Purchase accounting basis differences                           $      94,573     $      180,307     $   272,162
Fixed assets                                                            7,223             50,302         359,182
Other                                                                  27,351              4,074          29,367
                                                                ------------------------------------------------
     Gross deferred tax liabilities                                   129,147            234,683         660,711
                                                                ------------------------------------------------
Inventories                                                          (135,679)            (192,329)     (273,503)
Accruals                                                              (79,884)            (101,943)     (270,146)
Net operating loss carryforward                                      (195,065)            (271,)63      (441,670)
Other                                                                  (4,823)            (21,4)3        (43,810)
                                                                ------------------------------------------------
     Gross deferred tax assets                                       (415,451)            (587,598)   (1,029,129)
                                                                ------------------------------------------------

Deferred tax assets valuation allowance                                98,850              98,850        123,844
                                                                ------------------------------------------------
Net deferred tax assets                                         $    (187,454)    $      (254,065)  $   (244,574)
                                                                ================================================
</TABLE>


At October 31, 1997, the Company has  approximately  $1,028,000 of net operating
loss  carryforwards  which are available to offset future taxable income.  These
carryforwards begin to expire in 2010.

12.      Employee benefit plans

The Company  maintains three 401(k) savings plans (the Plans).  Employees of the
Company and non-union  employees of Resources  participate in one 401(k) plan; a
separate 401(k) plan was established for union employees of Resources. Employees
of Zema and St. JON each  participated  in separate plans that were  established
prior to the  acquisitions of Zema and St. JON by the Company (see Note 2) until
November  1,  1996,  at which  time such plans  were  merged  with PM  Resources
non-union  plan into a single plan for Company  employees.  Employees  of Mardel
participate in a separate plan established prior to the acquisition of Mardel by
the Company (see Note 4).  However,  the Company  anticipates  merging such plan
into  the   Company's   plan  for  non-union   employees   during  fiscal  1998.
Contributions  to the Plans result primarily from voluntary  contributions  from
employees in the form of deferrals of up to 15% of the employees' salaries.  The
Plans permit various employer  matching  contributions.  Employer  contributions
were $135,513,  $227,600 and $181,418 for the years ended October 31, 1995, 1996
and 1997, respectively.


                                        F-18

<PAGE>


                               AGRI-NUTRITION GROUP LIMITED
                               Notes to Financial Statements
                                        (Continued)

In September  1993,  the Company  adopted a Stock Purchase Plan for Employees of
Resources.  The Company  provided  financing  of $30,000  for certain  Resources
employees  related to their  purchase  via notes  receivable.  These  loans were
repaid in fiscal 1996.

Effective June 1, 1994, the Company adopted the Incentive Stock Plan (1994 ISP).
An aggregate of 400,000  shares of the  Company's  common stock are reserved for
issuance to eligible  employees under the 1994 ISP.  Options to purchase 237,500
and 121,500 shares of the Company's common stock were granted to employees under
the 1994 ISP during the years ended October 31, 1995 and 1996, respectively. The
exercise prices of the options granted in fiscal 1995 ranged from $3.50 to $4.25
per share, and the options granted in fiscal 1996 ranged from $1.56 to $2.63 per
share, all of which approximated fair value on the dates of grant. These options
vest ratably up to three years from the date of grant and will expire five years
after the vesting  date.  Additionally  in fiscal  1997,  the  Company  repriced
232,500  outstanding  employee options previously issued under the 1994 ISP at a
revised exercise range of $1.4375 to $1.5625 per share,  which approximated fair
value on the  dates of  installment.  All  other  terms  of the  options  remain
unchanged.  The Company also issued  11,430  shares of common stock to employees
under the 1994 ISP,  during the year ended  October  31,  1995.  During the year
ended  October 31, 1996,  the Company also issued 28,365 shares of the Company's
Common  Stock  under the 1994 ISP to  executives  and outside  directors  of the
Company.  No shares were issued under the 1994 ISP in the year ended October 31,
1997.

Effective  March 9, 1995, the Company  adopted the 1995  Incentive  Stock Option
Plan (1995 ISP). An aggregate of 500,000  shares of the  Company's  common stock
are reserved for issuance to eligible employees, consultants and advisors to the
Company under the 1995 ISP.  Options to purchase 100,000 shares of the Company's
common stock were granted to a consultant  under this plan at an exercise  price
of $3.00 per share,  under an amended option agreement,  which approximated fair
value at the amended date of grant. These options were not exercised and expired
in June 1996. No other shares or options have been issued in connection with the
1995 ISP.

In March 1995, the  shareholders  of the Company  approved the Reload Option and
Exchange Exercise Plan (the Reload Plan) which permits employees holding options
to elect, in accordance with terms of the Reload Plan, to pay the exercise price
of such options by surrendering  the shares of the Company's  common stock.  The
shares  surrendered  are  valued at the  reported  closing  market  price of the
Company's  common  stock on the date that the  employee  provides  the notice of
intent to  exercise  the  option  and  surrenders  the  shares in payment of the
exercise  price.  The Reload Plan also provides for the issuance to the employee
of a new option to acquire the number of shares of the  Company's  common  stock
surrendered in the option exercise with an exercise price per share equal to the
per-share valuation applicable to the shares surrendered. There are

                                      F-19

<PAGE>


                               AGRI-NUTRITION GROUP LIMITED
                               Notes to Financial Statements
                                      (Continued)

200,000  shares  reserved  for issuance  under the Reload Plan;  no options were
granted during the years ended October 31, 1996 and 1997.

Effective March 7, 1996, the Company's  shareholders approved the 1996 Incentive
Stock Option Plan (1996 ISP). An aggregate of 1,000,000  shares of the Company's
common stock are reserved for issuance to eligible Directors, officers and other
employees,  and  consultants  to the  Company  under  the 1996 ISP.  Options  to
purchase  370,000 and 257,000 shares of the Company's  common stock were granted
to employees under the 1996 ISP during the year ended October 31, 1996 and 1997,
respectively.  The exercise  prices of the options  granted  range from $1.37 to
$1.56 per share,  which  approximated  fair  value on the dates of grant.  These
options  vest  ratably up to three  years from the date of grant and will expire
ten years from the grant date. Also, during the year ended October 31, 1997, the
Company issued 20,556 shares of the Company's common stock under the 1996 ISP to
executives and outside directors of the Company.

FAS 123 was  adopted  during the  Company's  fiscal  1997 and the  Company  will
continue to use the  provisions of APB 25 in determining  net income.  See below
for various  disclosures  related to FAS 123 and the pro forma impact of FAS 123
on the net income  (loss) and net  income  (loss) per share for the years  ended
October 31, 1996 and 1997.

                                          Incentive Stock       Weighted Average
                                            Option Plan          Exercise Price

Outstanding at October 31, 1995                 795,500          $    1.20

Granted ($1.56 to $2.63)                        989,000               1.58
                                     ------------------
Outstanding at October 31, 1996               1,784,500               1.41

Granted ($1.19 to $1.56)                        192,000               1.46
                                     ------------------
Outstanding at October 31, 1997               1,976,500          $    1.42
                                     ==================

During  fiscal  1997 a total of 185,000  options  issued in prior  years had the
exercise  prices  reduced  from a weighted  average  price of $3.27 an option to
$1.56 an option, respectively.

During fiscal 1997, the Company adopted FAS 123, which addresses  accounting for
stock options and warrant plans and selected the "intrinsic  value based method"
for valuing stock options granted to employees. Had compensation cost for all of
the Company's  stock option plans been  determined  based upon the fair value at
the grant dates  consistent  with the  methodology  prescribed  in FAS 123,  the
Company's net income (loss) and net income (loss) per share would have increased
(decreased)  to the pro forma  amounts  listed below using the weighted  average
fair values indicated.

                                      F-20

<PAGE>


                              AGRI-NUTRITION GROUP LIMITED
                             Notes to Financial Statements
                                      (Continued)



                                                For the Year Ended October 31,
                                                   1996               1997

Net income (loss) as reported                   $(127,420)          $ 133,330
Pro forma net loss                               (232,858)            (75,278)

Net income (loss) per share as reported              (.02)                 .02
Pro forma loss per share                             (.03)                (.01)

Weighted average fair value of options granted  $    1.14           $     1.10

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following  assumptions for grants in
fiscal  1996 and  1997:  risk-free  interest  rates  ranging  from 5.4% to 6.5%,
expected volatility of 75% to 95%, no dividends, and an expected life of four to
six  years.  FAS 123 does not  require  pro forma  disclosure  of the  effect of
options and warrants granted in years prior to fiscal 1996. The pro forma effect
of  compensation  costs using the fair value based method are not  indicative of
future  amounts  when the new method  will apply to all  outstanding  option and
warrant grants.

The  following  table  summarizes  information  for stock  warrants  and options
outstanding at October 31, 1997:
<TABLE>
<CAPTION>

                                              Weighted Average                               Exercisable
    Range of                Number               Remaining             Exercise        Number      Weighted Average
Exercise Price           Outstanding              Life                   Price      Outstanding    Exercise Price
<S>                     <C>                   <C>                      <C>          <C>                <C>
$           .81              558,000           1.3 years               $   .81         558,000         $   .81
    1.19-  2.00            1,353,500           6.8 years                  1.55       1,353,500            1.55
           2.62               15,000           8.3 years                  2.62          15,000            2.62
           4.25               50,000           2.5 years                  4.25          41,667            4.25
</TABLE>


13.      Related party transactions

During fiscal 1996, the Company  amended  previously  issued options to purchase
387,500  shares of common stock  increasing the exercise price of $.81 per share
to $1.56 per share, in conjunction with the management  restructuring  discussed
in Note 17.


                                     F-21

<PAGE>


                            AGRI-NUTRITION GROUP LIMITED
                            Notes to Financial Statements
                                   (Continued)

In January 1995, the Company entered into an agreement with the Vice Chairman of
the Company to provide  financial  services  through  August 1995.  Compensation
under the agreement,  including all related expenses,  totaled $85,000. The Vice
Chairman resigned from the Company in September 1995.

In April 1995,  in  connection  with the  acquisition  of Zema (see Note 2), the
Company entered into an operating lease agreement with a limited  partnership of
which the general  partner is president of the Company's  Zema  subsidiary.  The
lease,  which  expires in April  2000,  with an option to extend the term for an
additional  five years,  and relates to the land and building  that comprise the
primary  operating  facility for Zema.  Rent expense  under this  agreement  was
$47,500,  $95,000 and  $132,000 for the years ended  October 31, 1995,  1996 and
1997, respectively.

In September  1995,  options  issued to the  Company's  former Vice  Chairman to
purchase  310,000  shares of common  stock for an  aggregate  exercise  price of
$250,000 were exercised.

In September  1995, in connection  with the acquisition of St. JON (see Note 2),
the Company  entered into an operating  lease agreement with the former owner of
St. JON and the  president of the Company's St. JON  subsidiary.  The lease,  as
amended  expires  in August  2000,  with an  option  to  extend  the term for an
additional  five years,  and relates to the land and buildings that comprise St.
JON's primary operating facility. Rent expense under this agreement was $27,884,
$167,301  and  $231,680  for the years ended  October 31,  1995,  1996 and 1997,
respectively.

In September  1997, in connection  with the  acquisition of Mardel (see Note 4),
the Company  entered into an operating lease agreement with the former owners of
Mardel.  The lease expires in February  1999,  with an option to extend the term
for an  additional  five  years,  and  relates  to the land and  buildings  that
comprise Mardel's primary operating facility.  Rent expense under this agreement
was  $10,500  for the  period  from the date of the Mardel  acquisition  through
October 31, 1997.

During the years ended October 31, 1995, 1996 and 1997 the Company had net sales
of approximately $822,000,  $954,000 and $944,000,  respectively,  to a national
animal health marketing,  warehousing,  and distribution  company that is also a
shareholder of the Company. An officer of such corporation is also a shareholder
of the Company and the Vice  Chairman of the Company's  Board of Directors.  The
Company's  management  considers  sales to said  corporation  to be arms  length
transactions.

As  discussed  in Note 9, the Company  entered  into  acquisition  note  payable
agreements with the former owners of Zema, St. JON and Mardel.

                                    F-22

<PAGE>


                            AGRI-NUTRITION GROUP LIMITED
                           Notes to Financial Statements
                                   (Continued)

14.      Manufacturing and Supply Agreement

In connection with Resources' acquisition,  Purina agreed to purchase sufficient
volume  and mix of  products  to  generate  income,  net of  ingredient,  direct
manufacturing,  and other  direct  costs of  approximately  $2,900,000  annually
(which  represents a historically  consistent  margin level) through October 31,
1996.

For fiscal 1994 and 1995, income, net of ingredient,  direct manufacturing,  and
other direct costs to date from Purina was approximately $525,000 less than that
required under the  agreement.  Such amount was billed to Purina and included in
net sales by the Company  during  October  1995.  In fiscal 1996,  the shortfall
under the agreement approximated  $1,200,000,  which amount was billed to Purina
and included in net sales in October 1996, and collected from Purina in December
1996. The manufacturing and supply agreement expired on October 31, 1996.

15.      Discontinued operations

In June 1997,  the Company  discontinued  the  distribution  of  ingredients  to
Purina. Consequently, in July 1997, the Company distributed all of its remaining
ingredients  inventories to Purina and discontinued its operations in this area.
This segment of the Company's business has been accounted for and presented as a
discontinued  operation in accordance with Accounting  Principles  Board Opinion
No. 30, "Reporting the Results of Operations" (APB 30) for all periods reflected
herein. At October 31, 1997, substantially all of the net assets relating to the
ingredients  segment have either been  disposed or have been  deployed  into the
Company's existing operations.

Management  does not  anticipate  that the  ingredients  segment  will  have any
significant operations in the future.  Furthermore,  management does not believe
that  there  are  any  separately  identifiable  fixed  assets  related  to  the
ingredients  segment and proceeds,  if any,  related to  disposition of such net
assets subsequent to the June 1997 measurement date have not to date and are not
expected to result in a material  net gain or loss in future  periods.  However,
the ultimate financial impact of the discontinuation of the segment could differ
from management's current estimates.

The operating results of the discontinued operations are summarized as follows:
<TABLE>
<CAPTION>

                                                                    For the Year Ended October 31,
                                                                 1995             1996               1997
<S>                                                         <C>             <C>                <C>
Net sales                                                   $    8,914,317   $     7,722,255   $    5,531,411
Income before income tax provision                                 227,262           185,204           23,835
Income tax  provision                                               87,496            71,304            9,176
                                                            --------------   ---------------   --------------
Net income                                                  $      139,766   $       113,900   $       14,659
                                                            ==============   ===============   ==============
</TABLE>


                                          F-23

<PAGE>


                                AGRI-NUTRITION GROUP LIMITED
                                Notes to Financial Statements
                                       (Continued)




The net assets of the discontinued operations are summarized as follows:

                                                              October 31,
                                                     1996                1997
Current assets, primarily accounts receivable
     and inventories                              $    1,738,000       $     --
Property, plant and equipment, net                       109,000
Current liabilities                                     (499,461)
                                                  --------------
Net assets of discontinued operations             $    1,347,539       $     --
                                                  ==============       ========


16.    Commitment and contingencies

From time to time, the Company becomes party to various claims and legal actions
arising  during the ordinary  course of business.  Management  believes that the
Company's  costs and any  potential  judgments  resulting  from such  claims and
actions would be covered by the Company's  product liability  insurance,  except
for deductible  limits. The Company intends to defend such claims and actions in
cooperation  with its insurers.  It is management's  opinion that, in any event,
their  outcome  would  not have a  material  effect on the  Company's  financial
position or results of operations.

17.    Other matters

Termination of Anthony Products Letter of Intent
In March  1997,  the  Company  terminated  its  letter of intent  related to its
proposed  acquisition of Anthony  Products  Company.  In  conjunction  with this
action,  the Company recorded a $202,000 pre-tax charge in the second quarter of
fiscal  1997.  Such  amount  is  included  in  other  income  (expense)  in  the
accompanying consolidated statement of operations.

Corporate reorganization
In August 1996, the Company  announced the  resignation  of the Company's  Chief
Executive  Officer and  President,  effective  October 31,  1996,  and its Chief
Financial  Officer,   effective  August  23,  1996.  In  connection  with  these
resignations,  the Company incurred a non-recurring  charge of $240,000 relative
to severance  costs in the fourth quarter of fiscal 1996.  These costs were paid
during fiscal 1997.

                                    F-24

<PAGE>




                       REPORT OF INDEPENDENT ACCOUNTANTS ON
                          FINANCIAL STATEMENT SCHEDULE



To the Board of Directors and
Shareholders of Agri-Nutrition
Group Limited



Our audits of the consolidated  financial  statements  referred to in our report
dated  December  12, 1997,  appearing on page F-1 of this Annual  Report on Form
10-K also included an audit of the Financial  Statement  Schedule listed in Item
14(a) of this Form  10-K.  In our  opinion,  the  Financial  Statement  Schedule
presents  fairly,  in all material  respects,  the information set forth therein
when read in conjunction with the related consolidated financial statements.



PRICE WATERHOUSE LLP
St. Louis, Missouri
December 12, 1997

                                         S-1

<PAGE>


AGRI-NUTRITION GROUP LIMITED
SCHEDULE VIII - RULE 12-09
VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
OCTOBER 31, 1997


<TABLE>
<CAPTION>



       COLUMN A                   COLUMN B                            COLUMN C                       COLUMN D             COLUMN E
                                 BALANCE AT                                                                              BALANCE AT
                                 BEGINNING                                                           DEDUCTIONS           END OF
      DESCRIPTION                OF PERIOD                           ADDITIONS                       - DESCRIBE           PERIOD
                                                      ----------------------------------------
                                                       CHARGED TO COSTS      CHARGED TO OTHER
                                                        AND EXPENSES       ACCOUNTS - DESCRIBE

<S>                             <C>                     <C>                  <C>                     <C>             <C>
FAS 109 Valuation
  Allowance                     $   98,850                --                  $ 24,994 (1)               --            $ 123,844

Inventory Reserve               $  148,432              $ (31,806)            $160,664 (1)               --            $ 277,290

Allowance for                      
   Doubtful Accounts            $   53,029              $  (5,518)            $ 86,194 (1)               --            $  33,705
</TABLE>

(1) The  FAS 109  valuation  allowance,  inventory  reserve  and  allowance  for
doubtful account allowances were increased by this amount in connection with the
Company's acquisition of Mardel Laboratories, Inc. in September 1997.




                                       S-2