<DOCUMENT>
<TYPE>EX-99.3
<SEQUENCE>5
<FILENAME>y90092exv99w3.txt
<DESCRIPTION>EXCERPTS FROM PRELM.  PRIVATE OFFERING CIRCULAR
<TEXT>
<PAGE>
                                                                    Exhibit 99.3



         CERTAIN EXCERPTS FROM PRELIMINARY PRIVATE OFFERING CIRCULAR










                                        i
<PAGE>


                 MARKET SHARE, RANKING AND OTHER INDUSTRY DATA

     The market share, ranking and other industry data contained in this
offering circular, including our position and the position of our competitors
within these markets, are based either on our management's knowledge of, and
experience in, the markets in which we operate, or derived from industry data or
third-party sources and, in each case, we believe these estimates are reasonable
as of the date of this offering circular or, if an earlier date is specified, as
of such earlier date. However, this information may prove to be inaccurate
because of the method by which we obtained some of the data for our estimates or
because this information is subject to change and cannot always be verified due
to limits on the availability and reliability of independent sources, the
voluntary nature of the data gathering process and other limitations and
uncertainties inherent in any statistical survey of market shares. In addition,
purchasing patterns and consumer preferences can and do change. As a result, you
should be aware that market share, ranking and other similar data set forth
herein, and estimates and beliefs based on such data, may not be reliable.

                                   TRADEMARKS

     The following trademarks and service marks used throughout this offering
circular belong to, are licensed to, or are otherwise used by us in our
medicated feed additives business: Stafac(R); Eskalin(R); V-Max(R);
Terramycin(R); Neo-Terramycin(R); CLTC(R); Mecadox(R); Nicarb(R); Amprol(R);
Bloatguard(R); Aviax(R); Coxistac(R); Posistac(R); Banminth(R); Oxibendazole(R);
Rumatel(R).

                           FORWARD-LOOKING STATEMENTS

     This offering circular contains forward-looking statements within the
meaning of the federal securities laws. Statements that are not historical
facts, including statements about our beliefs and expectations, are
forward-looking statements. Forward-looking statements include statements
preceded by, followed by or that include the words "may," "could," "would,"
"should," "believe," "expect," "anticipate," "plan," "estimate," "target,"
"project," "intend," or similar expressions. These statements include, among
others, statements regarding our expected business outlook, anticipated
financial and operating results, our business strategy and means to implement
the strategy, our objectives, the amount and timing of capital expenditures, the
likelihood of our success in expanding our business, financing plans, budgets,
working capital needs and sources of liquidity.

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

     - our substantial leverage and potential inability to service our debt

     - our dependence on distributions from our subsidiaries

     - risks associated with our international operations and significant
       foreign assets

     - our dependence on our Israeli operations

     - competition in each of our markets

     - potential environmental liability


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<PAGE>

     - potential legislation affecting the use of medicated feed additives

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

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

     - our reliance upon unpatented trade secrets

     - the risks of legal proceedings and general litigation expenses

     - potential operating hazards and uninsured risks

     - the risk of work stoppages

     - our dependence on key personnel

     We believe the forward-looking statements in this offering circular are
reasonable; however, you should not place undue reliance on any forward-looking
statements, which are based on current expectations. Further, forward-looking
statements speak only as of the date they are made, and we undertake no
obligation to update publicly any of them in light of new information or future
events.

                                   SEC REVIEW

     We have agreed to file a registration statement with the SEC to register an
offer to exchange the units for registered freely transferable units with
substantially identical terms to the units. In the course of any review by the
SEC of that registration statement, comments from the SEC may require us to
modify or reformulate the description of our business, our historical financial
statements and other information included in this offering circular. These
modifications or reformulations could be significant.

     Some of the financial measures presented in this offering circular, such as
EBITDA, Adjusted EBITDA, Adjusted Net Sales and Net Debt, as defined elsewhere
in this offering circular, are considered "non-GAAP financial measures" under
Regulation S-K promulgated by the SEC. See the "Summary Consolidated Financial
Data" section of this offering circular for the purposes for which we use EBITDA
and for a reconciliation of earnings from continuing operations, as calculated
under accounting principles generally accepted in the United States ("GAAP"), to
our EBITDA and Adjusted EBITDA as well as for definitions of other non-GAAP
financial measures. Our measurement of EBITDA, Adjusted EBITDA, and other
non-GAAP financial measures may not be comparable to those of other companies
and will not be included in our registration statement with the SEC. Our EBITDA
and Adjusted EBITDA have not been prepared in accordance with the guidelines of
Regulation S-K.

     The pro forma financial data presented in this offering circular is not in
compliance with the pro forma financial data requirements of Regulation S-X,
Article 11. Our registration statement will include pro forma information that
complies with Regulation S-X to the extent required, and such information is not
included in this offering circular. In addition, our registration statement to
be filed with the SEC may contain (a) additional audited financial statements
for certain foreign subsidiaries whose securities collateralize the notes
underlying the units being registered, and (b) consolidating guarantor financial
information for the three years included in the footnotes to the audited
financial statements to reflect the issuance of the units.

                                        2
<PAGE>

                           OFFERING CIRCULAR SUMMARY

     The following summary highlights information that we believe is especially
important concerning our business and this offering. The following summary is
qualified in its entirety by the more detailed information and the financial
statements and notes thereto appearing elsewhere in this offering circular. You
should carefully read this entire offering circular and should consider, among
other things, the matters set forth under "Risk Factors" before deciding to
invest in the notes offered hereby. Unless otherwise indicated or the context
requires otherwise, references in this offering circular to (1) "PAH," "our
company," "we," "our," "us" and similar expressions refer to Phibro Animal
Health Corporation, a New York corporation, and its consolidated subsidiaries,
(2) "PB Netherlands" refers to Philipp Brothers Netherlands III BV, a company
organized under the laws of the Netherlands, and its consolidated subsidiaries,
(3) the "US issuer" refers to Phibro Animal Health Corporation and not its
subsidiaries, (4) the "Dutch issuer" refers to Philipp Brothers Netherlands III
BV and not its subsidiaries, and (5) the information herein assumes the
Transactions described below have been completed. We formerly conducted business
under the name, "Philipp Brothers Chemicals, Inc." As used herein, references to
any "fiscal" year of our company refer to our fiscal year ended or ending on the
June 30 of such year.

                                  THE COMPANY

OVERVIEW

     We are a leading diversified global manufacturer and marketer of a broad
range of animal health and nutrition products, specifically medicated feed
additives (MFAs) and nutritional feed additives (NFAs), which we sell throughout
the world predominantly to the poultry, swine and cattle markets. MFAs are used
preventively and therapeutically in animal feed to produce healthy livestock. We
believe we are the third largest manufacturer and marketer of MFAs in the world,
and we believe that certain of our MFA products have leading positions in the
marketplace. We are also a specialty chemicals manufacturer and marketer,
serving primarily the United States pressure-treated wood and chemical
industries. We have several proprietary products, and many of our products
provide critical performance attributes to our customers' products, while
representing a relatively small percentage of total end-product cost. We operate
in over 17 countries around the world and sell our animal health and nutrition
products and specialty chemicals products into over 40 countries. Approximately
75% of our fiscal 2003 net sales were from our Animal Health and Nutrition
business, and approximately 25% of our fiscal 2003 net sales were from our
Specialty Chemicals business.

     Our Animal Health and Nutrition segment manufactures and markets more than
500 formulations and concentrations of medicated and nutritional feed additives,
including antibiotics, antibacterials, anticoccidials, anthelmintics, trace
minerals, vitamins, vitamin premixes and other animal health and nutrition
products, to the livestock and pet food industries. Our MFA products are
internationally recognized for quality and efficacy in the prevention and
treatment of diseases in livestock, such as coccidiosis in poultry, dysentery in
swine and acidosis in cattle. We market our Animal Health and Nutrition products
under approximately 450 governmental product registrations, approving our MFA
products with respect to animal drug safety and effectiveness.

     Our Specialty Chemicals business manufactures and markets a number of
specialty chemicals for use in the pressure-treated wood, chemical catalyst,
semiconductor, automotive, aerospace and agricultural industries. We anticipate
that our proprietary manufacturing process for one of the leading new products
for manufacturing pressure-treated wood will represent our largest growth
opportunity in our Specialty Chemicals business. Over 40% of our fiscal 2003 net
sales in our Specialty Chemicals business was derived from copper-based
compounds, solutions or mixes.

     We have in recent years focused our business on animal health and nutrition
products. As a result of the rapid decline of the printed circuit board industry
in the United States, we have substantially exited that business, including our
etchant recycling operations, and re-directed our productive capacity in niche
markets. We have also sold other non-strategic businesses, such as our Agtrol
copper fungicide business and Mineral Resource Technologies, Inc. ("MRT"),
closed our facility in Odda, Norway, and we are in the process of selling The
Prince Manufacturing Company ("PMC").


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<PAGE>

     For our fiscal year ended June 30, 2003, after giving pro forma effect to
this offering and the transactions described below in this Summary under the
heading "The Transactions," we would have had the following financial results:
total Adjusted net sales of approximately $332.9 million; Adjusted EBITDA of
approximately $36.1 million; a ratio of pro forma net senior debt to Adjusted
EBITDA of 2.8x; a ratio of pro forma net debt to Adjusted EBITDA of 4.2x; and a
ratio of Adjusted EBITDA to pro forma cash interest expense of 2.1x.

ANIMAL HEALTH INDUSTRY OVERVIEW

     According to Wood Mackenzie Animal Health Services, the MFA industry was
approximately $1.6 billion in size in calendar year 2002. The MFA market
includes antibiotics, antibacterials, anticoccidials and anthelmintics. These
products are intended to aid in the prevention and treatment of diseases in
animals, promoting healthy development and improving food quality and safety.
According to Wood Mackenzie, the animal health market will continue to grow
modestly at 1.4% per annum through 2007.

     Most MFAs are used for poultry (approximately 40%), swine (approximately
35%) and cattle (approximately 20%). The leading companies participating in the
MFA marketplace are Elanco (a division of Eli Lilly), Alpharma, Intervet (a
division of Akzo Nobel) and ourselves.

     The Asian and American markets, which have the world's largest livestock
populations (see the table below indicating 1998 numbers, prepared by FAO), are
expected to enjoy continued growth. We believe this increase is based upon a
growing world population, increasing global demand for meat protein, especially
in developing countries, and growing consumer focus on food quality and safety.

<Table>
<Caption>
                                 POULTRY                                         SWINE
COUNTRY                        (PRODUCTION)   COUNTRY                         (PRODUCTION)
-------                        ------------   -------                         ------------
<S>                            <C>            <C>                             <C>
US...........................  8.1 billion    China........................   472 million
China........................  5.7 billion    US...........................   100 million
Brazil.......................  3.3 billion    Germany......................    41 million
France.......................  2.0 billion    Spain........................    32 million
Mexico.......................  0.9 billion    France.......................    27 million
</Table>

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

Source: 1998 FAO Livestock Slaughter Numbers

     Given the large and growing demand for livestock and the widespread
adoption of modern production techniques -- characterized by growing a large
number of livestock in confined areas -- we believe the use of medicated and
nutritional supplements will continue to be necessary to ensure animal health
and the economic viability of such livestock production. The most efficient and
cost effective method to get medicated and nutritional products to such vast
number of animals is through feed additives.

BUSINESS STRENGTHS

     Top Three MFA Provider in the World.  We believe we are the world's third
largest manufacturer and marketer of medicated feed additives in the poultry and
swine markets. We manufacture and market over 200 MFA formulations and
concentrations. We believe our MFAs rank first in sales in Brazil, and third in
the United States. Our Animal Health and Nutrition business serves our customers
in over 40 countries from 17 facilities. Many of our MFA products have been
marketed for over 20 years.

     Significant Barriers to Entry.  Medicated feed additives cannot be
manufactured or marketed without governmental product registrations that are
specific to each country -- the Food and Drug Administration ("FDA") for
example, in the United States, Health Canada in Canada, and EU/EMEA authorities
in Europe. Before a product registration is granted, the applicant must show the
regulatory authority that the product and its proposed use are both effective
and safe for the specified species and application. Obtaining an MFA product
registration is comparable in cost and difficulty with obtaining approval for
drugs used to treat humans. In addition to approval of formulation and labeling,
regulatory authorities typically require approval and periodic inspection of the
manufacturing facilities. Because of the costs and difficulties associated with
obtaining MFA product registrations, there have been few new medicated feed
additives

                                        4
<PAGE>

developed and marketed over the last decade. The only two new MFA compounds
approved for use in the last 10 years were semduramycin, one of our products,
and ractopamine. Because of the inherent difficulties and high costs of
obtaining major product registrations and their absolute necessity to operate in
this business, our existing broad portfolio of product registrations provides us
strength in the marketplace.

     Strong Brand Name Recognition of Our Medicated Feed Additives.  We enjoy
strong brand name recognition with our medicated feed additives for the
prevention and control of diseases in poultry, swine and cattle. In particular,
virginiamycin, an antibiotic marketed under the Stafac(R), Eskalin(R) and
V-Max(R) brand names, is a popular and efficacious choice of medicated feed
additive in the poultry, swine and cattle industry. Semduramycin, sold under the
brand name Aviax(R), and salinomycin, sold under the brand name Coxistac(R), are
also leading poultry anticoccidials. In fiscal 2003, branded MFAs accounted for
approximately 56% of our total Animal Health and Nutrition sales.

     Established Global Network and Customer Base.  From our 20 facilities in 17
countries, we manufacture and market our products, which are sold through
multiple distribution channels to over 2,700 customers in a wide variety of end
use markets. We sell our products through an established global sales, marketing
and distribution network to customers in over 40 countries. In fiscal 2003, no
single customer accounted for more than 5% of total revenues and our top 10
customers accounted for less than 23% of total revenues. In fiscal 2003,
approximately 36% of our net sales were made outside the United States, with 11%
of sales to Europe, 9% of sales to Latin America, 8% of sales to the Middle
East, and 8% of sales to Asia and Australia.

     Extensive Technical Support for Customers.  We employ over 60 chemists,
technicians, PhDs and veterinarians (DVMs) at our various facilities involved in
providing technical services to customers. Our technical service group and sales
personnel are able to work directly with commercial feed manufacturers and
integrated poultry, swine and cattle producers to promote animal health. We are
able to offer our customers products targeted to local markets, allowing us to
serve those local markets more effectively. Our MFA field personnel are skilled
in the area of product differentiation and have extensive applications knowledge
so as to be able to work closely with customers in determining optimum benefits
from usage of our products. As agricultural food production will continue to
intensify and will adopt evolving technologies, our MFA personnel are constantly
working with customers to better understand their needs in order to best utilize
the products existing within our MFA portfolio. This commercial knowledge also
plays a pivotal role within the R&D function to ensure that research results are
applicable to customer needs and concerns.

     Manufacturing Expertise.  Our manufacturing expertise and know-how in
antibiotic manufacturing process and organic synthesis has given us unique
positions in the marketplace. We believe that we are the only manufacturer of
virginiamycin, amprolium and semduramycin in the world. Our blending,
compounding and formulation expertise is recognized by our customers in the
animal health and nutrition market. In addition, in our Specialty Chemicals
business, based on our more than 50 years of expertise in the metal chemical
area, we have become a leading supplier of the new copper-containing compound to
the pressure-treated wood industry. We also believe we hold leading positions in
agricultural and other industrial applications for copper-containing compounds.

     Proven Management Team.  We have assembled a strong and experienced
management team at both the corporate and operating levels. Our top operating
managers have an average of over 30 years of experience in the animal health and
nutrition and specialty chemicals industries. With our expanded management team,
we have added significant operational and international experience to our
businesses. Our founding family owns 100% of our common stock.

BUSINESS STRATEGY

     Expand Applications for Animal Health and Nutrition Product Offerings to
Our Primary Markets. We seek to increase our product lines through expanding the
scope of our animal health and nutrition product registrations, through both
extending the use claims and formulations and the geographic areas of such
registrations. In the United States, we recently obtained from the FDA a
zero-day withdrawal registration for the use of our oxytetracycline product in
cattle. We are actively working with the FDA and


                                        5
<PAGE>

other regulators to obtain additional registrations, as well as additional
cross-clearances so that our MFA products can continue to be used in situations
where another MFA is also in use. We have recently obtained approval for
Aviax(R) in the EU, and are pursuing a modification of our Aviax(R) registration
in the United States allowing for site change of the active ingredient. We
believe that our receipt of FDA approval of Aviax(R), together with our recent
EU approval of Aviax(R) and our other registration efforts, has the potential to
increase our sales by $7-10 million over the next two to three years. By
leveraging our global reach and our position as the only leading animal health
company dedicated to MFAs and NFAs, we are natural partners for small players in
the industry, who approach us to help them license or distribute new products
they have developed, because we do not compete with their other products.

     Expand Our Customer Base.  We intend to expand and strengthen our customer
base by (i) focusing on relationships with key accounts, (ii) continuing to
incentivize our sales force to concentrate on fast-growing, high-margin areas
within existing product groups, and (iii) pursuing growth opportunities for our
existing products in new markets. As certain of our MFA products are used in
rotation by our customers, we seek to supply all or substantially all of the
various MFA products which our customers may want to use. Our MFA business has
historically been strongest in the poultry market, and we are seeking to develop
it further in the swine and cattle markets. In fiscal year 2003, we increased
our sales force and technical professionals in the swine market for our MFAs,
increasing net sales by approximately $5 million. We expect to continue to
enhance our sales force in the swine market, and believe that there are further
growth opportunities from doing so. In addition, we believe the under-penetrated
Chinese and Latin American markets offer growth opportunities. In China, we are
seeking to partner with local distributors, to leverage our existing local sales
force.

     Capture Market Share in New Pressure-Treated Wood Business.  We seek to
become the leading supplier of the active ingredient copper solution expected to
replace the standard chromated-copper-arsenic solution, which has been banned by
the EPA in the residential and recreational pressure-treated wood markets,
effective December 31, 2003. We currently estimate that the total potential size
of this copper solution to the pressure-treated wood market will be
approximately $120 million annually. We have already signed a multi-year,
take-or-pay contract with a major chemicals supplier to the pressure-treated
wood industry to provide it with this new solution, which we estimate will
increase our sales by approximately $9 million in fiscal 2004 and by
approximately $30 million over the life of the contract, based on existing
forecasts. We have applied for a patent with respect to the manufacturing
process of our solution, and the claims in our patent application were recently
allowed by the United States Patent and Trademark Office. We believe that our
manufacturing process allows us to operate in this market with a lower cost of
capital and higher factory through-put than our competition. In addition, we
have filed a provisional patent for a new, large molecule copper compound
product. We believe that this new product may be the next generation in
copper-based wood treatment products, with the potential to substantially
increase the duration of protection for treated wood.

     Continued Rationalization of Operations.  We have taken significant steps
to refocus on our core business and to rationalize our operations by
implementing cost-saving and productivity-enhancing programs and yield
improvement programs. Since June 2002, we reduced our employee headcount from
approximately 1,250 to approximately 1,000 employees. We intend to restructure
manufacturing capacity to improve production efficiency. We are analyzing
additional opportunities to increase operating efficiencies and profitability.
We continue to evaluate our specialty chemicals businesses for adequate returns
and will continue to restructure, discontinue or sell those businesses that are
dilutive to earnings. To that end, since May 2001, we sold our Agtrol copper
fungicide business and our fresh ammoniacal etchant and spent cupric chloride
printed circuit board etchant businesses associated with our east coast and
midwestern plants, closed our facility in Odda, Norway and sold Carbide
Industries. These dispositions have in total resulted in a net increase in our
EBITDA, and we anticipate further improvements resulting from the transactions
described below under the heading "The Transactions," including the dispositions
of MRT and PMC.


                                        6
<PAGE>

RECENT DEVELOPMENTS

     Sale of MRT.  On August 28, 2003, we sold our subsidiary, MRT, to Cemex
Inc. for a net value after payment of transaction expenses of approximately $14
million in cash, subject to certain escrow arrangements and post closing
adjustments. MRT managed and sold coal combustion by-products, including fly
ash.

THE TRANSACTIONS

     The net proceeds from the offering contemplated by this offering circular
will be used as set forth under "Use of Proceeds."

     Consent Solicitation.  As a condition to the completion of the offering
contemplated by this offering circular, we are soliciting consents with respect
to our 9 7/8% Senior Subordinated Notes due 2008 ("Senior Subordinated Notes" or
"Existing Notes") to amendments to the indenture governing the Existing Notes
that will allow the completion of this offering and the other transactions
described herein and under "Recent Developments."

     Although the offering is not conditional on its completion, we also
anticipate entering into the transaction described below with respect to PMC
following completion of the offering. In connection with this offering, MRT
Holdings, LLC, PMC and a newly formed limited liability company to own its
shares will be designated unrestricted subsidiaries.

     Sale of PMC.  The Company intends to sell PMC to Palladium Equity Partners
II, LP and certain of its affiliates (the "Palladium Investors"). The material
elements of the transactions relating to PMC include the following: (i) the
transfer of ownership to the Palladium Investors of PMC; (ii) the reduction of
the preferred stock of the Palladium Investors from $68.9 million (as of June
30, 2003) to $15.2 million (as of September 30, 2003); (iii) the termination of
any obligation of the Company or any Restricted Subsidiary of the Company in
respect of the $2.25 million annual management advisory fee; (iv) a separate
cash payment to the Palladium Investors of $10 million (from the recent sale of
MRT); (v) payments by PMC to the Company for central support services for the
next three years of $1 million, $0.5 million and $0.2 million, respectively; and
(vi) supply arrangements between the Company and PMC with respect to manganous
oxide and red iron oxide. The PMC transactions are subject to definitive
documentation that is expected to include customary representations, warranties
and indemnities by the US issuer, and provisions for working capital adjustments
and settlement of intercompany accounts. Notwithstanding the foregoing, if the
PMC transactions are not completed on or prior to December 31, 2003, PMC and MRT
Holdings, LLC shall be redesignated as Restricted Subsidiaries and the Palladium
management fees shall be reinstated as an obligation of the US issuer. See
"Certain Relationships and Related Transactions."

     The transactions referred to and described above and under the caption,
"Recent Developments" are collectively referred to as the "Transactions." Unless
otherwise indicated, the information we present in this offering circular
assumes the completion of all the Transactions.

PHILIPP BROTHERS NETHERLANDS III BV

     Philipp Brothers Netherlands III BV, the Dutch issuer, is an indirect
wholly-owned subsidiary of the US issuer and is incorporated under the laws of
the Netherlands as a private company with limited liability. The Dutch issuer is
a holding company formed to finance the operations of Phibro Animal Health
(Belgium) SPRL, a Belgian company ("PAH Belgium"), which owns and operates our
Rixensart, Belgium plant. Such plant uses fermentation processes to produce the
active ingredients semduramycin and virginiamycin and conducts all of our
fermentation development activities.

     For the fiscal year ended June 30, 2003, the Dutch issuer and its
consolidated subsidiaries, including PAH Belgium, had revenue of $33.6 million,
operating income of $0.3 million, and generated EBITDA (as defined in "Summary
Consolidated Financial Data") of $3.0 million.


                                        7
<PAGE>

     As of June 30, 2003, the Dutch issuer and its consolidated subsidiaries,
including PAH Belgium, had cash and cash equivalents of $0.2 million, net trade
accounts receivable of $1.5 million, inventory of $13.5 million, net property,
plant and equipment of $17.0 million, total assets of $41.4 million, total
accounts payable and other current liabilities of $18.8 million, total debt of
$22.3 million and total liabilities of $42.4 million (of which $9.7 million due
to Pfizer is to be satisfied with proceeds of the units).
                             ---------------------

     We are a New York corporation and our principal executive offices are
located at One Parker Plaza, 400 Kelby Street, Fort Lee, New Jersey 07024 and
our phone number is (201) 944-6020.



                                        8



<PAGE>

                      SUMMARY CONSOLIDATED FINANCIAL DATA

     The summary consolidated financial data set forth below reflect continuing
operations. Our Odda, Carbide and MRT businesses have been classified as
discontinued operations and are not included below. Odda operations were
terminated in February 2003. Carbide was sold in April 2003. MRT was sold in
August 2003.

     The summary consolidated financial data included in this offering circular
have been prepared by, and are the responsibility of, our management.
PricewaterhouseCoopers LLP has neither examined nor reviewed the accompanying
summary consolidated financial data and, accordingly, PricewaterhouseCoopers LLP
does not express an opinion or any other form of assurance with respect thereto.
The PricewaterhouseCoopers LLP report included in this offering circular relates
only to our historical financial statements for the fiscal years ended June 30,
2003, 2002 and 2001. It does not extend to any other financial data and should
not be read to do so.

     The following summary consolidated financial data set forth below should be
read in conjunction with, and are qualified in their entirety by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and the notes thereto appearing
elsewhere in this offering circular.

<Table>
<Caption>
                                                                    FISCAL YEAR ENDED JUNE 30,
                                                              ---------------------------------------
                                                                 2001          2002          2003
                                                              -----------   -----------   -----------
                                                               (dollars in thousands, except ratios)
<S>                                                           <C>           <C>           <C>
RESULTS OF OPERATIONS:
Net sales...................................................   $319,664      $340,549      $355,225
Gross profit................................................     69,359        81,994        91,497
Selling, general and administrative expenses................     63,925        72,277        66,360
Operating income............................................      5,434         9,717        25,137

SUPPLEMENTAL PRO FORMA OTHER FINANCIAL DATA:
Adjusted net sales(1).......................................   $268,245      $319,098      $332,893
EBITDA(2)...................................................     15,839        22,397        38,020
Adjusted EBITDA(3)..........................................     30,450        25,154        36,092
Depreciation and amortization...............................     10,405        12,680        12,883
Capital expenditures........................................      6,610         8,677         9,045
</Table>

<Table>
<Caption>
                                                                  AS OF
                                                              JUNE 30, 2003
                                                                PRO FORMA
                                                              -------------
<S>                                                           <C>
SUPPLEMENTAL PRO FORMA ADJUSTED CREDIT STATISTICS:
Ratio of adjusted EBITDA to cash interest expense(4)........       2.1x
Ratio of net senior debt to adjusted EBITDA(5)..............       2.8x
Ratio of net debt to adjusted EBITDA(6).....................       4.2x
</Table>

<Table>
<Caption>
                                                                       As of
                                                                   June 30, 2003
                                                              -----------------------
                                                               ACTUAL     PRO FORMA
                                                              --------   ------------
                                                              (dollars in thousands)
<S>                                                           <C>        <C>
BALANCE SHEET DATA(7):
Cash and cash equivalents...................................  $ 11,179     $ 14,091
Fixed assets................................................    66,440       63,171
Total assets................................................   274,347      241,879
Total debt..................................................   165,429      164,811
Total stockholders' deficit.................................   (84,510)     (34,092)
</Table>



                                        9
<PAGE>

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

(1) Adjusted net sales is defined as net sales less the sales associated with
    our Agtrol business, which we sold in May 2001, and sales associated with
    PMC, which is an unrestricted subsidiary. See "The Transactions -- PMC" for
    more information.

(2) EBITDA is defined as net income (loss) plus (i) loss from discontinued
    operations or less income from discontinued operations, (ii) provision for
    income taxes or less benefit for income taxes, (iii) net interest expense,
    (iv) other expense or less other income, and (v) depreciation and
    amortization. EBITDA should not be considered an alternative to, or more
    meaningful than, earnings from operations or other traditional indicators of
    operating performance such as cash flow from operating activities. EBITDA is
    the basis on which we judge our operating performance. The following table
    reconciles net loss to EBITDA:

<Table>
<Caption>
                                                                FISCAL YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                2001       2002       2003
                                                              --------   --------   --------
                                                                  (dollars in thousands)
<S>                                                           <C>        <C>        <C>
Net income (loss)...........................................  $(14,895)  $(51,770)  $(17,559)
Plus:
(Loss) from discontinued operations (net of income taxes)...    (3,581)   (25,770)   (14,531)
(Loss) from disposal of discontinued operations (net of
  income taxes).............................................        --         --       (683)
Provision (benefit) for income taxes........................      (381)    14,829     10,076
Interest expense, net.......................................    17,731     17,802     16,256
Other expense (income), net.................................      (602)     3,086      1,150
Depreciation and amortization...............................    10,405     12,680     12,883
                                                              --------   --------   --------
  EBITDA....................................................  $ 15,839   $ 22,397   $ 38,020
                                                              ========   ========   ========
</Table>

(3) The table below reconciles EBITDA to Adjusted EBITDA:

<Table>
<S>                                                           <C>        <C>        <C>
EBITDA......................................................  $ 15,839   $ 22,397   $ 38,020
Adjustments:
Sale of PMC, termination of management fees and reduction of
  central support costs(a)..................................    (2,083)    (1,356)    (1,285)
Sale of Agtrol(b)...........................................     5,614         --         --
MFA acquisition pre-operating costs and purchase accounting
  adjustments(c)............................................     9,798      3,257         --
Phibro-tech regulatory reserves and permit fees
  write-off(d)..............................................        --      1,598      1,023
Vitamin settlement income(e)................................        --       (742)    (3,040)
Severance, debt restructuring costs and other(f)............     1,282         --      1,374
                                                              --------   --------   --------
  Adjusted EBITDA...........................................  $ 30,450   $ 25,154   $ 36,092
                                                              ========   ========   ========
</Table>

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

    (a) Consists of the elimination of the Palladium management fee of $1.3
        million in fiscal 2001 and approximately $2.25 million each period
        thereafter, reduction of central support costs of $1.0 million in each
        period and the EBITDA contribution of PMC in each period.

    (b) Reflects adjustments for the EBITDA contribution of our Agtrol business,
        which we sold in May 2001.

    (c) Principally represents charges to cost of sales associated with purchase
        accounting adjustments to inventory acquired from Pfizer as part of the
        purchase of Pfizer's medicated feed additives business.

    (d) Represents write-off of permit fees of $0.6 million in fiscal 2002
        associated with facilities closed at our Phibro-Tech subsidiary. Also
        reflects non-cash charges of approximately $1.0 million in each period
        associated with an increase in reserves for further environmental
        investigation and estimated remediation costs at operating sites, closed
        sites and third-party sites for the fiscal years ended June 30, 2002 and
        2003.

    (e) Represents proceeds received by us pursuant to the settlement of a class
        action suit against European vitamin manufacturers.

    (f) Consists of severance costs of $1.3 million relating to the departure of
        our CFO in 2001, $0.4 million relating to severance in the fiscal year
        ended June 30, 2003, $0.2 million related to a settlement at a divested
        business during the fiscal year ended June 30, 2003 and $0.8 million
        related to debt restructuring and other corporate charges in the fiscal
        year ended June 30, 2003, respectively.

(4) Pro forma cash interest expense is $17.4 million, assuming a pro forma
    interest rate on the notes of 11.5%, and excludes approximately $1.4 million
    of amortization of deferred financing costs.

(5) Total senior debt is defined as total debt less the amount of existing
    subordinated notes. Net senior debt is defined as total senior debt less
    cash and cash equivalents.

(6) Net debt is defined as total debt less cash and cash equivalents.

(7) Pro forma balance sheet data give effect to the Transactions.



                                        10
<PAGE>

                                  RISK FACTORS

     An investment in the units involves a significant degree of risk, including
the risks described below. You should carefully consider the following risk
factors and the other information in this offering circular before deciding to
invest in the units. The risks described below are not the only ones facing us.
This offering circular contains forward-looking statements that involve risks
and uncertainties, including, in particular, the statements about our plans,
strategies and prospects under the headings "Offering Circular Summary,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business." Although we believe that our plans, intentions and
expenditures reflected in or suggested by such forward-looking statements are
reasonable, we can give no assurance that such plans, intentions or expectations
will be achieved. Important factors that could cause actual results to differ
materially from the forward-looking statements we make in this offering circular
are set forth below and elsewhere in this offering circular. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the following cautionary statements.

RISK FACTORS RELATING TO THE UNITS AND THE NOTES

[intentionally omitted]




                                        11
<PAGE>

RISK FACTORS RELATING TO OUR BUSINESS

WE HAVE SIGNIFICANT ASSETS LOCATED OUTSIDE THE UNITED STATES AND A SIGNIFICANT
PORTION OF OUR SALES AND EARNINGS ARE ATTRIBUTABLE TO OPERATIONS CONDUCTED
ABROAD.

     During fiscal 2003, we operated manufacturing and other facilities in over
17 countries and sold our products in over 40 countries. At June 30, 2003,
approximately 52% of our assets were located outside the United States,
representing manufacturing facilities in Belgium, Brazil, Israel, the United
Kingdom and France, and, for fiscal 2003, approximately 36% of our net sales
consisted of sales made by us outside the United States. Changes in the relative
values of currencies take place from time to time and could in the future
adversely affect our results of operations as well as our ability to meet
interest and principal obligations on the notes. To the extent that the U.S.
dollar weakens or strengthens versus the applicable foreign currency, our
results are favorably or unfavorably affected. We may from time to time manage
this exposure by entering into foreign currency forward exchange contracts. Such
contracts generally are entered into with respect to anticipated revenues
denominated in foreign currencies for which timing of the receipt of payment can
be reasonably estimated. No assurances can be given that such hedging activities
will not result in losses which will have an adverse effect on our financial
condition or results of operations. In addition, there are times when we do not
hedge against foreign currency fluctuations and are therefore subject to the
risks associated with fluctuations in currency exchange rates. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 15 to our Consolidated Financial Statements included elsewhere herein.

     In addition, international manufacturing, sales and raw materials sourcing
are subject to other inherent risks, including possible nationalization or
expropriation, labor unrest, political instability, price and exchange controls,
limitation on foreign participation in local enterprises, health-care
regulation, export duties and quotas, domestic and international customs and
tariffs, unexpected changes in regulatory environments, difficulty in obtaining
distribution and support, and potentially adverse tax consequences. Although
such risks have not had a material adverse effect on us in the past, there can
be no assurance that these factors will not have a material adverse impact on
our ability to increase or maintain our international sales or on our results of
operations in the future.

WE HAVE ASSETS LOCATED IN ISRAEL AND A PORTION OF OURS SALES AND EARNINGS ARE
ATTRIBUTABLE TO OPERATIONS CONDUCTED IN ISRAEL.

     Israeli operations are conducted through Koffolk (1949) Ltd., a wholly
owned subsidiary, and accounted for approximately 14% of our consolidated assets
as of June 30, 2003 and approximately 13% of our consolidated net sales for the
same period. We maintain two manufacturing facilities in Israel, one located
near Tel Aviv in Petach Tikva, which manufacturers and markets nutritional feed
additives for the livestock feed industry, and the second located south of
Beersheba in Ramat Hovav, which synthesizes anticoccidials (nicarbazin and
amprolium) and vitamins, the bulk of which are exported from Israel to the major
world markets. Accordingly, Koffolk is dependent on foreign markets and its
ability to reach those markets. Consequently, we are affected by social,
political and economic conditions affecting Israel, and any major hostilities
involving Israel as well as the Middle East or curtailment of trade between
Israel and its current trading partners, either as a result of hostilities or
otherwise, could have a material adverse effect on us. See "Conditions in
Israel."

WE FACE COMPETITION IN EACH OF OUR MARKETS FROM A NUMBER OF LARGE AND SMALL
COMPANIES, SOME OF WHICH HAVE GREATER FINANCIAL, RESEARCH AND DEVELOPMENT,
PRODUCTION AND OTHER RESOURCES THAN WE HAVE.

     Many of our products, including our Animal Health and Nutrition and
Specialty Chemicals products, face competition from products which may be used
as an alternative or substitute therefor. In addition, we compete with several
large companies in the animal health and nutrition and specialty chemicals
businesses. To the extent these companies, or new entrants into the market,
offer comparable animal health and nutrition or specialty chemical products at
lower prices, our business could be adversely affected.

                                        12

<PAGE>

     Our competitive position is based principally on our product registrations,
customer service and support, breadth of product line, product quality,
manufacturing technology, facility location, and the selling prices of our
products. Our competitors can be expected to continue to improve the design and
performance of their products and to introduce new products with competitive
price and performance characteristics. There can be no assurance that we will
have sufficient resources to maintain our current competitive position or market
share. We typically do not enter into long-term agreements with our customers.
See "Business -- Competition" and "Business -- Sales, Marketing and
Distribution."

OUR OPERATIONS, PROPERTIES AND SUBSIDIARIES ARE SUBJECT TO A WIDE VARIETY OF
COMPLEX AND STRINGENT FEDERAL, STATE, LOCAL AND FOREIGN ENVIRONMENTAL LAWS AND
REGULATIONS, INCLUDING THOSE GOVERNING THE USE, STORAGE, HANDLING, GENERATION,
TREATMENT, EMISSION, RELEASE, DISCHARGE AND DISPOSAL OF CERTAIN MATERIALS AND
WASTES, THE REMEDIATION OF CONTAMINATED SOIL AND GROUNDWATER, THE MANUFACTURE,
SALE AND USE OF PESTICIDES AND THE HEALTH AND SAFETY OF EMPLOYEES (COLLECTIVELY,
"ENVIRONMENTAL LAWS").

     Pursuant to these Environmental Laws, certain of our subsidiaries are
required to obtain and retain numerous governmental permits and approvals,
including RCRA Part B permits, to conduct various aspects of their operations,
any of which may be subject to revocation, modification or denial under certain
circumstances. U.S. manufacturers of specialty chemicals, including certain of
our subsidiaries, have expended, and may be required to expend in the future,
substantial funds for compliance with such Environmental Laws.

     As recyclers of hazardous metal-containing chemical waste, certain of our
subsidiaries have been, and are likely to be, the focus of extensive compliance
reviews by federal, state and local environmental regulatory authorities. In the
past, certain of our subsidiaries have paid certain fines and agreed to certain
consent orders. While procedures have been implemented at each facility which
are intended to achieve compliance in all material respects with Environmental
Laws, there can be no assurance that our operations or activities or those of
certain of our subsidiaries will not result in civil or criminal enforcement
actions or private actions, resulting in mandatory clean-up requirements,
revocation of required permits or licenses or significant fines, penalties or
damages which could have a material adverse effect on us. In addition, we cannot
predict the extent to which any further legislation or regulation may affect the
market for our services or our cost of doing business. For instance, if
governmental enforcement efforts should lessen, the market for the recycling
services by certain of our subsidiaries could decline. Alternatively, changes in
Environmental Laws (some of which are set forth below) might increase the cost
of such services by imposing additional requirements. States that have received
authorization to administer their own hazardous waste management programs may
also amend their applicable Environmental Laws, and may impose requirements
which are stricter than those imposed by the U.S. Environmental Protection
Agency ("EPA"). No assurance can be provided that such changes will not
adversely affect the ability of our subsidiaries to provide services at a
competitive price and thereby reduce the market for their services.

     As such, the nature of our current and former operations and those of our
subsidiaries exposes us and our subsidiaries to the risk of claims with respect
to such matters and there can be no assurance that material costs and
liabilities will not be incurred in connection with such claims. Based upon our
experience to date, we believe that the future cost of compliance with existing
Environmental Laws, and liability for known environmental claims pursuant to
such Environmental Laws, will not have a material adverse effect on us. However,
future events, such as new information, changes in existing Environmental Laws
or their interpretation, and more vigorous enforcement policies of regulatory
agencies, may give rise to additional expenditures or liabilities that could be
material. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business -- Environmental Matters," "Business -- Legal
Proceedings," and our Consolidated Financial Statements included herein.

THE USE OF ANTIBIOTICS IN MEDICATED FEED ADDITIVES IS A SUBJECT OF LEGISLATIVE
AND REGULATORY INTEREST.

     The issue of potential for increased bacterial resistance to certain
antibiotics used in certain food-producing animals is the subject of discussions
on a worldwide basis and, in certain instances, has led to government
restrictions on the use of antibiotic MFAs in these food-producing animals. The
sale of


                                        13
<PAGE>

medicated feed additives containing antibiotics is a material portion of our
business. Legislative bills are introduced in the U.S. Congress from time to
time, some of which, if adopted, could have an adverse effect on our business.
However, in the past, such bills that could have had a material adverse effect,
have not had sufficient support to become law. The animal pharmaceutical
industry is actively engaged in the legislative process. One of these
initiatives is a proposed bill (S.1460) referred to the Committee on Health,
Education, Labor, and Pensions of the Senate, called the Preservation of
Antibiotics for Medical Treatment Act of 2003, sponsored by Senator Edward
Kennedy. Should legislative, regulatory or other developments, including
increased influence of consumer groups and other special interest lobbyists on
the legislative and/or regulatory process, result in further restrictions on the
sale of such products, it could have a material adverse impact on our financial
position, results of operations and cash flows.

     In August 2002, Japan's Ministry of Agriculture, Forests and Fisheries
(MAFF) launched a review of 29 U.S., European, and Japanese animal feed
additives to determine whether the preventive use of certain medicated animal
feed additives should be restricted because of the potential transfer of
antimicrobial resistance to similar drugs used in treating humans. In January
2003, MAFF announced that it would conduct a transparent science-based risk
assessment of certain feed additives, consistent with the World Trade
Organization's ("WTO") Agreement on the Application of Sanitary and
Phyto-Sanitary Measures (SPS Agreement), and thus was no longer considering an
immediate ban on such products. The SPS Agreement requires the 165 countries
that are WTO Members to base food safety and animal health measures on
scientific principles and evidence. Accordingly, such a risk assessment involves
a detailed study of potential risks and appropriate methods of managing such
risks, and must be based on valid scientific principles and evidence.

     Australia's National Regulatory Authority (NRA) is conducting a review of
virginiamycin, which is likely to result in additional restrictions on the
labeling of virginiamycin.

     In February 2003, the Sixtieth Joint FAO/WHO Expert Committee on Food
Additives (JECFA) was held in Geneva, Switzerland to evaluate certain residues
of veterinary drugs in food. Based on an earlier opinion from the thirty-sixth
JECFA meeting in 1990, the Committee determined that an "acceptable daily
intake" (ADI) of carbadox and another animal drug, flumequine, could not be
established, because of the lack of an internationally agreed methodology for
evaluating the scientific risks posed by such products. Accordingly, the JECFA
recommended that the international Maximum Residue Levels (MRLs) for such
products be withdrawn.

     The JECFA consists of experts from various countries acting in their
individual capacities. Its recommendations are not binding on the full Codex
Alimentarius Commission ("Codex"), which is the recognized international
standard-setting body for animal drugs. The Codex and its member countries are
responsible for any final decision regarding the MRL, and must review JECFA's
recommendations before any decision could be made. At present, the MRL for
carbadox, which was established by JECFA in 1990, remains the international
standard. Nevertheless, foreign governments could decide to restrict the uses of
carbadox in the interim, as has occurred in the European Union. Japan has banned
the use of carbadox in Japan, while allowing the import of pork from swine fed a
carbadox containing MFA so long as no residues are detectable in the imported
pork.

     In 1998, the FDA conducted an evaluation of carbadox and found that it was
safe based on the U.S. "sensitivity of the method" policy. Accordingly, the FDA
continues to permit the approved use of carbadox in the United States.

     In the European Union, the Commission withdrew marketing authorization of a
number of anticoccidials, including nicarbazin, as the Commission did not
consider the submissions to be in full compliance with its new regulations. We
have since completed the necessary data and resubmitted our nicarbazin dossier.
Feasibility and timetable for new registration will depend on the nature of
demands and remarks from the Commission.

     There can be no assurance that the United States, Japan or other countries
may not decide to ban or curtail the uses of certain medicated feed additives.
Such a ban, depending upon the product involved and

                                        14

<PAGE>

its importance to our MFA business, in one or more countries could have a
material adverse effect on our business.

THE TESTING, MANUFACTURING, AND MARKETING OF CERTAIN OF OUR PRODUCTS ARE SUBJECT
TO EXTENSIVE REGULATION BY NUMEROUS GOVERNMENT AUTHORITIES IN THE UNITED STATES
AND OTHER COUNTRIES, INCLUDING, BUT NOT LIMITED TO, THE UNITED STATES FOOD AND
DRUG ADMINISTRATION (FDA).

     Among other requirements, FDA approval of our MFA and NFA products,
including a review of the manufacturing processes and facilities used to produce
such products, is required before such products may be marketed in the United
States. Similarly, marketing approval by a foreign governmental authority is
typically required before such MFA and NFA products may be marketed in a
particular foreign country. In order to obtain FDA approval of a new animal
health and nutrition product, we must, among other things, demonstrate to the
satisfaction of the FDA that the product is safe and effective for its intended
uses and that we are capable of manufacturing the product with procedures that
conform to the FDA's then current good manufacturing practice ("cGMP")
regulations, which must be followed at all times. The process of seeking FDA
approvals can be costly, time consuming, and subject to unanticipated and
significant delays. There can be no assurance that such approvals will be
granted to us on a timely basis, or at all. Any delay in obtaining or any
failure to obtain such approvals would adversely affect our ability to introduce
and market MFA and NFA products and to generate product revenue. See
"Business -- Government Regulation."

     FIFRA, a health and safety statute, requires that all pesticides sold or
distributed in the U.S. must first be registered with the EPA. In order to
obtain a registration, an applicant typically must demonstrate through test data
that its product will not cause unreasonable adverse effects on the environment.
Depending on the specific requirements at issue, these tests can be very
expensive, running to millions of dollars. However, if the product in question
is generic in nature (i.e., chemically identical or substantially similar to a
previously-registered product), the applicant has the option of citing and
relying on the test data supporting the original registrant's product, in lieu
of submitting data. Should the generic applicant choose the citation option, it
must offer to pay compensation to the original submitter and must agree to enter
into binding arbitration with the original submitter if the parties are unable
to agree on the terms and amount of compensation.

     We have elected the citation option in the past and may use the citation
option in the future should we conclude that it is economically desirable to do
so. While there are cost savings associated with the opportunity to avoid one's
own testing and demonstration to the EPA of test data, there is, in each
instance, a risk that the level of compensation ultimately required to be paid
by us to the original registrant will be substantial. There is also the risk
that a third party will elect the citation option with respect to one of our
products, and that the level of compensation ultimately required to be paid to
us as the original registrant will not be substantial.

MR. JACK BENDHEIM OWNS A SUBSTANTIAL AMOUNT OF OUTSTANDING SHARES OF OUR VOTING
CAPITAL STOCK.

     Pursuant to corporate law and certain shareholder agreements, Mr. Bendheim
controls the election of two of five of the directors of the Company and Marvin
Sussman, Mr. Bendheim's brother-in-law, controls the election of one of the
directors of the Company. Mr. Bendheim's capital stock in the Company and board
seats give him substantial influence on the outcome of corporate transactions or
other matters submitted to the board of directors or stockholders for approval,
including mergers, consolidations and the sale of all or substantially all of
our assets, and also the power to prevent or cause a change in control. Mr.
Bendheim is also the Chairman of the Board and President.

     The interests of Mr. Bendheim could conflict with your interests. For
example, if we encounter financial difficulties or are unable to pay our debts
as they mature, the interests of Mr. Bendheim as a significant holder of our
equity might conflict with your interests as a holder of the notes. Mr. Bendheim
also may have an interest in pursuing acquisitions, divestitures, financings or
other transactions that, in his judgment, could enhance his equity investment,
even though such transactions might involve risks to you,



                                        15
<PAGE>

as holders of the notes. See "Management -- Directors and Executive Officers"
and "Principal Stockholders."

THE PRINCIPAL RAW MATERIALS USED BY US IN THE MANUFACTURE OF OUR PRODUCTS CAN BE
SUBJECT TO CYCLICAL PRICE FLUCTUATIONS.

     No single raw material accounted for more than 5% of our fiscal 2003 cost
of goods sold. While the selling prices of our products tend to increase or
decrease over time with the cost of raw materials, such changes may not occur
simultaneously or to the same degree. There can be no assurance that we will be
able to pass any increases in raw material costs through to our customers in the
form of price increases. Significant increases in the price of raw materials, if
not offset by product price increases, would have an adverse impact upon our
profitability.

OUR REVENUES ARE DEPENDENT ON THE CONTINUED OPERATION OF OUR VARIOUS
MANUFACTURING FACILITIES AND INTELLECTUAL PROPERTY.

     Although presently all our operating plants are considered to be in good
condition, the operation of animal health and nutrition and specialty chemical
manufacturing plants involves many risks, including the breakdown, failure or
substandard performance of equipment, power outages, the improper installation
or operation of equipment, natural disasters and the need to comply with
environmental and other directives of governmental agencies. Certain of our
product lines are manufactured at a single facility and production would not be
transferable to another site. The occurrence of material operational problems,
including but not limited to the above events, may adversely affect our
profitability during the period of such operational difficulties.

     Our competitive position is also dependent upon unpatented trade secrets,
which generally are difficult to protect. There can be no assurance that others
will not independently develop substantially equivalent proprietary information
and techniques or otherwise gain access to our trade secrets, that such trade
secrets will not be disclosed or that we can effectively protect our rights to
unpatented trade secrets.

WE HAVE BEEN AND MAY CONTINUE TO BE SUBJECT TO CLAIMS OF INJURY FROM DIRECT
EXPOSURE TO CERTAIN OF OUR SUBSIDIARIES' PRODUCTS, WHICH CONSTITUTE OR CONTAIN
HAZARDOUS MATERIALS AND FROM INDIRECT EXPOSURE WHEN SUCH MATERIALS ARE
INCORPORATED INTO OTHER COMPANIES' PRODUCTS.

     Because certain of our subsidiaries' products constitute or contain
hazardous materials, and because the production of certain chemicals involves
the use, handling, processing, storage and transportation of hazardous
materials, we and our subsidiaries have been subject to claims of injury from
direct exposure to such materials and from indirect exposure when such materials
are incorporated into other companies' products. There can be no assurance that
as a result of past or future operations, there will not be additional claims of
injury by employees or members of the public due to exposure, or alleged
exposure, to such materials. In most cases, such claims are covered by insurance
and, where applicable, worker's compensation insurance, subject to policy limits
and exclusions.

     Furthermore, we and our subsidiaries are parties to a number of claims and
lawsuits arising out of the normal course of business including product
liabilities and governmental regulation. Certain of these actions seek damages
in various amounts. In most cases, such claims are covered by insurance. We also
have exposure to present and future claims with respect to workplace exposure,
workers' compensation and other matters. There can be no assurance as to the
actual amount of these liabilities or the timing thereof.

WE ARE SUBJECT TO RISKS THAT MAY NOT BE COVERED BY OUR INSURANCE POLICIES.

     In addition to pollution and other environmental risks, we are subject to
risks inherent in the animal health and nutrition and specialty chemicals
industries, such as explosions, fires and spills or releases. Any significant
interruption of operations at our principal facilities could have a material
adverse effect on us. We maintain general liability insurance and property and
business interruption insurance with coverage limits that we believe are
adequate. Because of the nature of industry hazards, it is possible that
liabilities


                                        16
<PAGE>

for pollution and other damages arising from a major occurrence may not be
covered by our insurance policies or could exceed insurance coverages or policy
limits or that such insurance may not be available at reasonable rates in the
future. Any such liabilities, which could arise due to injury or loss of life,
severe damage to and destruction of property and equipment, pollution or other
environmental damage or suspension of operations, could have a material adverse
effect on us. See "-- Our operations, properties and subsidiaries are subject to
a wide variety of complex and stringent federal, state, local and foreign
environmental laws and regulations, including those governing the use, storage,
handling, generation, treatment, emission, release, discharge and disposal of
certain materials and wastes, the remediation of contaminated soil and
groundwater, the manufacture, sale and use of pesticides and the health and
safety of employees (collectively, 'Environmental Laws')."

CERTAIN OF OUR EMPLOYEES ARE COVERED BY COLLECTIVE BARGAINING AGREEMENTS.

     As of June 30, 2003, approximately 7% of our domestic employees (all of
whom are employees of PMC) were covered by two collective bargaining agreements
which expire in 2005 and 2006. Most of our employees in Israel and France are
covered by collective bargaining agreements. We believe that we have
satisfactory relations with our unions and, therefore, anticipate reaching new
agreements on satisfactory terms as the existing agreements expire or shortly
thereafter. There can be no assurance, however, that new agreements will be
reached without a work stoppage or strike or will be reached on terms
satisfactory to us. A prolonged work stoppage or strike at any of our
manufacturing facilities could have a material adverse effect on our results of
operations.

WE ARE DEPENDENT ON KEY PERSONNEL.

     Our operations are dependent on the continued efforts of our senior
executive officers, Jack Bendheim, Gerald Carlson and Richard Johnson. The loss
of the services of any of Messrs. Bendheim, Carlson or Johnson could have a
material adverse effect on us. We do not carry key-man life insurance other than
to fund stock repurchase or compensation obligations and other than pursuant to
our arrangements with the Palladium Investors. See " Management -- Directors and
Executive Officers."

                                        17

<PAGE>

                                USE OF PROCEEDS

     We expect the net proceeds available to us after deducting estimated fees
and expenses relating to this offering to be approximately $98.6 million. We
will use the net proceeds from the offering to repay approximately $33.6 million
of indebtedness outstanding under our existing credit facility as of the date of
this offering circular, purchase approximately $52.0 million of our Senior
Subordinated Notes at a price of 60% plus accrued and unpaid interest through
the purchase date, pay certain of our obligations to Pfizer Inc. ("Pfizer") as
described in footnote 3 to the table set forth in "Capitalization" below and
provide approximately $2.9 million for working capital purposes.

                                 CAPITALIZATION

     The following table sets forth our capitalization at June 30, 2003, and our
pro forma capitalization at June 30, 2003, after giving effect to this offering,
to reflect the Transactions and as described under "Use of Proceeds." This
presentation should be read in conjunction with our consolidated financial
statements and footnotes related thereto appearing elsewhere in this offering
circular.

<Table>
<Caption>
                                                                      AS OF
                                                                  JUNE 30, 2003
                                                              ----------------------
                                                               ACTUAL      PRO FORMA
                                                              ---------    ---------
                                                              (dollars in thousands)
<S>                                                           <C>          <C>
Cash and cash equivalents...................................  $ 11,179     $ 14,091
                                                              ========     ========
Total debt:
  Existing credit facility(1)...............................  $ 33,643     $     --
  Senior secured notes due 2007.............................        --      105,000
  Senior subordinated notes due 2008(2).....................   100,000       48,100
  Other debt................................................    11,711       11,711
  Pfizer note(3)............................................    20,075           --
                                                              --------     --------
          Total debt........................................   165,429      164,811
Series B and C redeemable preferred stock(4)................    68,881       15,200
Stockholders' deficit.......................................   (84,510)     (34,092)
                                                              --------     --------
     Total capitalization...................................  $149,800     $145,919
                                                              ========     ========
</Table>

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

(1) Represents indebtedness under our existing asset based revolving credit
    facility and indebtedness under our capital expenditure line, both provided
    by PNC Bank. Substantially simultaneously with the completion of this
    offering, we will enter into a new $15 million domestic working capital
    senior credit facility. See "Description of Certain Indebtedness -- New
    Credit Facility" for more information.

(2) Assumes that we purchase approximately $52.0 million of our Senior
    Subordinated Notes at a price of 60%.

(3) Our obligations to Pfizer, as of June 30, 2003, of (i) approximately $20.1
    million aggregate principal amount of our promissory note due 2004; (ii)
    approximately $12.8 million of accounts payable; (iii) approximately $9.2
    million of accrued expenses; and (iv) future contingent obligations under
    our Pfizer agreements, will be satisfied by the payment to Pfizer of
    approximately $28.5 million plus accrued interest on our existing promissory
    note.

(4) See "Offering Circular Summary -- The Transactions," "Certain Relationships
    Related Transactions," and "Description of Capital Stock."



                                        18
<PAGE>

                      SELECTED CONSOLIDATED FINANCIAL DATA

     The following selected consolidated financial data as of and for fiscal
years ended June 30, 1999, 2000, 2001, 2002 and 2003 have been derived from our
audited consolidated financial statements. The selected consolidated financial
data reflect our Odda, Carbide and MRT businesses as discontinued operations for
all periods presented. You should read the information set forth below in
conjunction with our "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes included elsewhere in this offering circular.

<Table>
<Caption>
                                                               FISCAL YEAR ENDED JUNE 30,
                                                  ----------------------------------------------------
                                                    1999       2000       2001       2002       2003
                                                  --------   --------   --------   --------   --------
                                                         (dollars in thousands, except ratios)
<S>                                               <C>        <C>        <C>        <C>        <C>
RESULTS OF OPERATIONS:
Net sales.......................................  $267,234   $280,618   $319,664   $340,549   $355,225
Cost of goods sold..............................   210,800    216,510    250,305    258,555    263,728
                                                  --------   --------   --------   --------   --------
Gross profit....................................    56,434     64,108     69,359     81,994     91,497
Selling, general and administrative expenses....    46,896     50,454     63,925     72,277     66,360
Curtailment of operations at manufacturing
  facility......................................      (500)    (1,481)        --         --         --
                                                  --------   --------   --------   --------   --------
Operating income................................    10,038     15,135      5,434      9,717     25,137
Interest expense................................    13,142     14,754     18,297     18,158     16,342
Interest (income)...............................      (628)      (600)      (566)      (356)       (86)
Other expense (income), net.....................     1,828       (506)       855      3,104      1,277
(Gain) from property damage claim...............    (3,701)      (946)        --         --         --
(Gain) from sale of assets......................        --         --     (1,457)       (18)      (127)
                                                  --------   --------   --------   --------   --------
Income (loss) from continuing operations before
  income taxes..................................      (603)     2,433    (11,695)   (11,171)     7,731
Provision (benefit) for income taxes............       773      1,188       (381)    14,829     10,076
                                                  --------   --------   --------   --------   --------
Income (loss) from continuing operations........    (1,376)     1,245    (11,314)   (26,000)    (2,345)
Income (loss) from discontinued operations......       910      8,808     (3,581)   (25,770)   (14,531)
(Loss) on disposal of discontinued operations...        --         --         --         --       (683)
                                                  --------   --------   --------   --------   --------
Net income (loss)...............................      (466)    10,053    (14,895)   (51,770)   (17,559)
Change in derivative instruments................        --         --         --      1,062       (981)
Change in foreign currency translation
  adjustments...................................    (2,043)        55     (5,146)    (6,125)     7,377
                                                  --------   --------   --------   --------   --------
Comprehensive income (loss).....................  $ (2,509)  $ 10,108   $(20,041)  $(56,833)  $(11,163)
                                                  ========   ========   ========   ========   ========
OTHER FINANCIAL DATA:
Depreciation and amortization...................  $  8,253   $  8,383   $ 10,405   $ 12,680   $ 12,883
Capital expenditures............................     7,663     11,080      6,610      8,677      9,045
Ratio of earnings to fixed charges(1)...........        --        1.2         --         --        1.5
(Deficiency) in earnings to fixed charges(2)....      (603)        --    (11,144)   (10,598)        --
BALANCE SHEET DATA:
Cash and cash equivalents.......................  $  3,022   $  2,403   $ 14,845   $  6,419   $ 11,179
Total assets....................................   238,779    258,451    330,019    296,444    274,347
Long-term debt..................................   134,088    139,722    139,464    136,641    102,391
Series B and C redeemable preferred stock.......        --         --     48,980     56,602     68,881
Total stockholders' equity (deficit)............    21,448     31,618      3,405    (61,189)   (84,510)
</Table>

---------------
(1) For purposes of computing the consolidated ratio of earnings to fixed
    charges, earnings represents earnings from continuing operations before
    income taxes and fixed charges. Fixed charges include interest expense and a
    portion of rentals determined to be representative of the interest component
    of such rental expense. Management believes that one-third is representative
    of the interest component of such rental expense.

(2) For periods in which earnings before fixed charges were insufficient to
    cover fixed charges, the dollar amount of coverage deficiency, instead of
    the ratio, is disclosed.



                                        19
<PAGE>

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

     This information should be read in conjunction with the consolidated
financial statements and related notes, contained in this offering circular. See
also "Selected Financial Data." The Company's Odda, Carbide, and MRT businesses
have been classified as discontinued operations. This discussion presents
information only for continuing operations, unless otherwise indicated. The
Company presents its consolidated financial statements on the basis of its
fiscal year ending June 30. All references to years 2003, 2002, and 2001 in this
discussion refer to the fiscal year ended June 30 of that year.

GENERAL

     The Company is a leading diversified global manufacturer and marketer of a
broad range of animal health and nutrition products, specifically medicated feed
additives (MFAs) and nutritional feed additives (NFAs), which are sold
throughout the world predominantly to the poultry, swine and cattle markets.
MFAs are used preventatively and therapeutically in animal feeds to produce
healthy livestock. The Company believes it is the third largest manufacturer and
marketer of MFAs in the world, and that certain of its MFA products have leading
positions in the marketplace. The Company is also a specialty chemicals
manufacturer and marketer, serving primarily the United States pressure-treated
wood and chemical industries. The Company has several proprietary products, and
many of the Company's products provide critical performance attributes to
customers' products, while representing a relatively small percentage of total
end-product cost. The Company operates in over 17 countries around the world and
sells its animal health and nutrition products and specialty chemicals products
into over 40 countries. Approximately 71% of 2003 net sales were from the Animal
Health and Nutrition business, and approximately 29% of 2003 net sales were from
the Specialty Chemicals businesses, included in the Industrial Chemicals,
Distribution, and All Other segments.

     The Company recently changed its name to Phibro Animal Health Corporation.
The Company was formerly known as Philipp Brothers Chemicals, Inc. The new name
reflects the core focus and strategic direction of the Company.

     During 2003, the Company took significant steps to refocus on its core
business, improve operating results and to reduce debt levels. Operating income
improved more than $15 million, and total debt, net of cash, decreased more than
$26 million. Actions included the shutdown of the Company's Norwegian
subsidiary, Odda Smelteverk ("Odda") and the sale of its Carbide business. Odda
and Carbide's operating losses (included in discontinued operations) were $13.5
million, $27.7 million and $3.1 million in 2003, 2002 and 2001, respectively.
Actions also included partial disposal of the ammoniacal etchant business
related to the printed circuit board market, headcount and other cost
reductions, and aggressive working capital management. The Company continues to
evaluate its Specialty Chemicals businesses and will continue to restructure,
discontinue or sell those businesses that are dilutive to earnings. In August
2003, the Company completed the sale of Mineral Resource Technologies, Inc.
("MRT") for net proceeds, after transaction costs, of approximately $14.0
million, the amount dependent upon certain post-closing adjustments. MRT's
operating losses (included in discontinued operations) were $3.5 million, $2.9
million and $1.3 million in 2003, 2002 and 2001, respectively.

  LIQUIDITY AND REFINANCING RISK

     The Company's senior bank credit facility and its note payable to Pfizer
mature in November 2003 and March 2004, respectively. It is unlikely the Company
will have sufficient cash resources from operations to repay these obligations
as they come due.

     In connection with the Company's acquisition in November 2000 of the
Medicated Feed Additives business of Pfizer (the "MFA acquisition"), it incurred
certain obligations to Pfizer (amounts are shown as of June 30, 2003). By the
terms of an agreement with Pfizer which is subject to certain conditions, the
following would be terminated and satisfied in full by the payment to Pfizer of
approximately $28.5 million, plus accrued interest on the existing promissory
note due 2004, from the proceeds of the


                                        20
<PAGE>

notes offering described below: (i) approximately $20.1 million aggregate
principal amount of such promissory note; (ii) approximately $12.8 million of
accounts payable; (iii) approximately $9.2 million of accrued expenses; and (iv)
future contingent purchase price obligations under the Pfizer agreements.

     The Company is currently pursuing the issuance of $105.0 million of Senior
Secured Notes due 2007. Concurrently, the Company is purchasing through
privately negotiated transactions approximately $52.0 million of its 9 7/8%
Senior Subordinated Notes due 2008 ("existing notes") at a price equal to 60% of
the principal amount thereof, plus accrued and unpaid interest. The offering is
subject to certain conditions, including, among other things, receiving consents
of holders of existing notes that represent more than 50% of the outstanding
principal amount of the existing notes. The Company will use the proceeds from
the notes to repurchase the existing notes, repay its senior domestic credit
facility, and pay certain of its outstanding obligations to Pfizer, including
the note payable due 2004.

     If the Company is unable to refinance these obligations on acceptable
terms, the creditors could declare the loans to be in default and exercise their
rights under the respective agreements, and the Company might be required to
take actions outside of the ordinary course of operations to generate cash or
otherwise settle these obligations, all of which would have a material adverse
impact on the Company's financial position, results of operations, and cash
flows. There can be no assurance the Company will be successful in executing the
refinancing plan. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

     The Company intends to sell PMC to the Palladium Investors. The material
elements of the transactions relating to PMC include the following: (i) the
transfer of ownership to the Palladium Investors of PMC; (ii) the reduction of
the preferred stock of the Palladium Investors from $68.9 million (as of June
30, 2003) to $15.2 million (as of September 30, 2003); (iii) the termination of
any obligation of the Company or any Restricted Subsidiary of the Company in
respect of the $2.25 million annual management advisory fee; (iv) a separate
cash payment to the Palladium Investors of $10 million (from the recent sale of
MRT); (v) payments by PMC to the Company for central support services for the
next three years of $1 million, $0.5 million and $0.2 million, respectively; and
(vi) supply arrangements between the Company and PMC with respect to manganous
oxide and red iron oxide. The PMC transactions are subject to definitive
documentation that is expected to include customary representations, warranties
and indemnities of the US issuer, and provisions for working capital adjustments
and settlement of intercompany accounts. Any transaction with the Palladium
Investors is dependent upon successful completion of the refinancing plan. See
"Certain Relationships and Related Transactions."

  OTHER RISKS AND UNCERTAINTIES

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

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

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



                                        21
<PAGE>

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

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

SUMMARY CONSOLIDATED RESULTS OF CONTINUING OPERATIONS

<Table>
<Caption>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                       (thousands)
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $355,225   $340,549   $319,664
Gross profit................................................    91,497     81,994     69,359
Selling, general and administrative.........................    66,360     72,277     63,925
Operating income............................................    25,137      9,717      5,434
Interest expense, net.......................................    16,256     17,802     17,731
Other expense (income), net.................................     1,150      3,086       (602)
Provision (benefit) for income taxes........................    10,076     14,829       (381)
(Loss) from continuing operations...........................  $ (2,345)  $(26,000)  $(11,314)
</Table>

2003 COMPARED WITH 2002

     Net Sales of $355.2 million increased $14.7 million, or 4%. Animal Health
and Nutrition sales of $250.7 million grew $11.1 million, or 5%, due to volume
increases. Specialty Chemical sales of $104.5 million increased $3.6 million, or
4%, primarily due to volume increases in the Distribution and All Other
businesses.

     Gross Profit of $91.5 million improved $9.5 million to 25.8% of net sales,
compared with 24.1% in 2002. Animal Health and Nutrition gross profit
improvements were responsible for the overall increase. Purchase accounting
adjustments related to the MFA acquisition resulted in a $3.3 million increase
to cost of goods sold in 2002. Excluding the purchase accounting adjustment, the
gross profit ratio would have been 25.0% in 2002.

     Selling, General and Administrative Expenses of $66.4 million decreased
$5.9 million, or 8%. Expenses declined $6.8 million in the Specialty Chemicals
businesses due to downsizing and restructuring of the Industrial Chemicals
segment, reflecting the decline in the printed circuit board market. Industrial
Chemicals included expense for additional environmental reserves and write-offs
of unamortized permit fees at closed facilities of $1.0 million and $1.6 million
for 2003 and 2002, respectively. Animal Health and Nutrition expenses decreased
by approximately $0.4 million. Corporate expenses increased $1.3 million,
primarily due to increased staff levels. Corporate also included income of $3.0
million and $0.7 million in 2003 and 2002, respectively, from the settlement of
class action litigation against European vitamin manufacturers. Debt
restructuring costs of $0.8 million, severance of $0.4 million, and expense
related to a divested business of $0.2 million were also recorded in 2003.
Included in 2002 was $0.4 million non-cash income to reflect the decrease in
value of redeemable common stock; no amount was recorded in 2003.



                                        22
<PAGE>

     Operating Income of $25.1 million increased $15.4 million to 7.1% of sales.
The improvement was due to sales growth, gross margin improvements in Animal
Health and Nutrition, and operating expense reductions.

     Interest Expense, Net of $16.3 million decreased $1.5 million, compared
with $17.8 million in 2002, primarily due to lower average interest rates and
reduced average borrowing levels.

     Other Expense, Net of $1.2 million improved in comparison with $3.1 million
last year. The expense principally reflects foreign currency transaction and
translation net losses related to short-term inter-company balances.

     Income Taxes of $10.1 million were primarily due to a $5.6 million increase
in valuation allowances for deferred tax assets in foreign jurisdictions where
future profitability is not currently considered more likely than not, and
income tax provisions in profitable foreign jurisdictions. The Company has
recorded valuation allowances related to substantially all deferred tax assets.
The Company will continue to evaluate the likelihood of recoverability of these
deferred tax assets based upon actual and expected operating performance.

2002 COMPARED WITH 2001

     Net Sales of $340.6 million increased $20.9 million, or 7%. Animal Health
and Nutrition sales increased $41.8 million, primarily due to a full year of the
MFA acquisition in 2002, compared with 7 months of operations in 2001. Specialty
Chemicals net sales decreased $20.9 million due to the divestiture of the Agtrol
crop protection business to Nufarm in the fourth quarter of 2001, the continued
decline in the sale and recycling of etchant related to the printed circuit
board market, and lower sales of the Distribution segment.

     Gross Profit of $82.0 million increased $12.6 million to 24.1% of net
sales, compared with 21.7% in 2001. Animal Health and Nutrition gross profit
increased $21.4 million due to a full year of the MFA acquisition. Purchase
accounting adjustments relating to inventory acquired in the MFA acquisition
resulted in an increase to cost of goods sold of $3.3 million and $8.9 million
for 2002 and 2001, respectively. Specialty Chemicals gross profit declined $8.8
million due to lower sales volumes and environmental recovery services revenues
related to the printed circuit board market, lower unit volume of the
Distribution segment and lower margins from contract manufacturing revenues,
compared with higher margin 2001 sales of crop protection chemicals to third
parties prior to the Agtrol divestiture.

     Selling, General and Administrative Expenses of $72.3 million increased
$8.4 million, or 13%. Animal Health and Nutrition expenses increased $10.7
million due to a full year of the MFA acquisition versus seven months in 2001.
Specialty Chemicals expenses decreased $5.6 million, due to the divestiture of
Agtrol, which reduced expenses by $8.0 million. Expenses for 2002 increased by
$1.6 million due to the write-off of unamortized permit fees at closed
facilities and additional environmental reserves. Corporate expenses increased
$3.3 million. The full year 2002 management advisory fee to Palladium was $2.3
million, compared with $1.4 million for a partial year in 2001. In 2002, the
Company recorded a $0.4 million non-cash gain to adjust the value of redeemable
common stock; the 2001 gain was $3.1 million. In 2001, the Company recorded $1.3
million of expense for the severance of an executive.

     Operating Income of $9.7 million increased $4.3 million. The improvement
was due to a full year of the MFA acquisition and improved operating results in
Animal Health and Nutrition. Specialty Chemicals reported increased losses
related to declining sales to the printed circuit board market, offset in part
by the elimination of losses related to the Agtrol business, divested in 2001.

     Interest Expense, Net of $17.8 million increased $0.1 million primarily due
to debt incurred in connection with the MFA acquisition and higher levels of
average bank borrowings, offset in part by lower interest rates.



                                        23
<PAGE>

     Other Expense, Net principally reflects foreign currency transaction and
translation gains and losses of the Company's foreign subsidiaries. During 2001,
a $1.5 million gain was recorded on the divestiture of the Agtrol crop
protection business.

     Income Taxes of $14.8 million were primarily due to an increase in
valuation allowances for domestic deferred tax assets and income tax provisions
in profitable foreign jurisdictions. The Company incurred domestic losses in
recent years and a reassessment of the likelihood of recovering net domestic
deferred tax assets resulted in the recording of a full domestic valuation
allowance of $14.7 million.

OPERATING SEGMENTS

<Table>
<Caption>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
NET SALES
  Animal Health & Nutrition.................................  $250,706   $239,602   $197,806
  Specialty Chemicals:
     Industrial Chemicals...................................    48,797     50,854     55,111
     Distribution...........................................    30,072     27,852     34,074
     All Other..............................................    25,650     22,241     32,673
                                                              --------   --------   --------
                                                              $355,225   $340,549   $319,664
                                                              ========   ========   ========
</Table>

<Table>
<Caption>
                                                                   YEAR ENDED JUNE 30,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
<S>                                                           <C>        <C>        <C>
OPERATING INCOME
  Animal Health & Nutrition.................................  $ 38,472   $ 28,298   $ 17,562
  Specialty Chemicals:
     Industrial Chemicals...................................    (1,855)    (7,324)       664
     Distribution...........................................     3,207      2,345      3,057
     All Other..............................................       261        252     (5,763)
  Corporate.................................................   (14,948)   (13,854)   (10,086)
                                                              --------   --------   --------
                                                              $ 25,137   $  9,717   $  5,434
                                                              ========   ========   ========
</Table>

     The Animal Health and Nutrition segment manufactures and markets MFAs and
NFAs to the poultry, swine and cattle markets, and includes the operations of
the Phibro Animal Health business unit, Prince AgriProducts, Koffolk Israel, and
Koffolk Brazil. The Industrial Chemicals segment manufacturers and market
specialty chemicals for use in the pressure treated wood, brick, glass, and
chemical industries, and includes Phibro-Tech and PMC. The Distribution segment
markets a variety of specialty chemicals, and includes PhibroChem and Ferro
operations. The All Other segment includes contract manufacturing of crop
protection chemicals, Wychem and all other operations. The All Other segment in
2001 includes the Agtrol crop protection business, which was sold to Nufarm in
the fourth quarter of fiscal 2001.

OPERATING SEGMENTS 2003 COMPARED TO 2002

     ANIMAL HEALTH AND NUTRITION

     NET SALES of $250.7 million increased $11.1 million, or 5%. Medicated Feed
Additives net sales increased by $6.7 million. Revenues were higher for
antibacterials, antibiotics and anticoccidials but were offset in part by lower
sales of anthelmintics and other medicated feed additives. The increased
revenues were due to volume increases offset in part by lower average selling
prices, including the effect of currency devaluations in Latin America.
Nutritional Feed Additives net sales increased by $4.4 million, principally due
to volume increases in core inorganic minerals, trace mineral premixes and other
ingredients.



                                        24
<PAGE>

     OPERATING INCOME of $38.5 million increased $10.2 million, or 36%. Purchase
accounting adjustments relating to inventory in the MFA acquisition resulted in
a $3.3 million increase to 2002 cost of goods sold. The operating income ratio
increased to 15% in 2003 from 13% in 2002 (excluding the purchase accounting
adjustments). The improvement in operating income resulted from increased sales
of higher margin products and close control of operating expenses.

     SPECIALTY CHEMICALS

     INDUSTRIAL CHEMICALS net sales of $48.8 million decreased $2.1 million, or
4%. Industrial Chemicals net sales decreased $2.9 million principally due to
reduced sales of etchants to the printed circuit board market. Sales of iron and
manganese compounds to the brick, masonry, glass, and other chemical industries
increased $0.8 million. Industrial Chemicals operating loss of $1.9 million
improved $5.5 million. The improvement principally was due to the partial
disposal during 2003 of the ammoniacal etchant business and savings from
headcount reductions and facility restructurings. The Company continues its
existing etchant business at one remaining facility. No manufacturing
facilities, equipment or inventory were included in the transaction. The gain on
the transaction was not material.

     DISTRIBUTION net sales of $30.1 million increased $2.2 million, or 8%.
Higher sales volumes in Europe and improved product mix in domestic operations
accounted for the increase. Distribution operating income of $3.2 million
increased $0.9 million, or 37%. As a percentage of sales, operating income
increased to 11% in 2003 from 8% in 2002. The improvement in operating income
margins resulted principally from increased sales of higher margin products.

     ALL OTHER net sales of $25.7 million increased $3.4 million, or 15%. Sales
to new customers accounted for the increase, as contract manufacturing declined
$0.8 million and specialized lab projects and formulations declined $0.6
million. All Other operating income of $0.3 million approximated the prior year.

OPERATING SEGMENTS 2002 COMPARED TO 2001

     ANIMAL HEALTH AND NUTRITION

     NET SALES of $239.6 million increased $41.8 million, or 21%. The net sales
increase was due to a full year of the MFA acquisition. Excluding the MFA
acquisition, 2002 net sales increased $0.4 million. The adverse business climate
in Israel and discontinuation of sales of vitamin exports by Koffolk Israel
lowered international net sales. Domestic operations reported higher net sales
due to increased unit volume sales of vitamin, mineral and other pre-mix
products offset in part by lower average selling prices and other product mix
changes.

     OPERATING INCOME of $28.3 million increased $10.7 million, or 61%. The
increase primarily was due to a full year of the MFA acquisition offset by the
adverse business climate in Israel. Purchase accounting adjustments relating to
inventory from the MFA acquisition resulted in increased cost of goods sold of
$3.3 million and $8.9 million in 2002 and 2001, respectively. Adjusted to
exclude the purchase accounting adjustments, the operating income margin was 13%
in 2002, approximately the same as the prior year.

     SPECIALTY CHEMICALS

     INDUSTRIAL CHEMICALS net sales of $50.9 million decreased $4.3 million, or
8%. Industrial Chemicals net sales declined $3.7 million due to volume declines
in the sales and recycling revenues of etchants related to the contraction of
the U.S. printed circuit board industry. Sales price declines at the Company's
PMC operations, partially offset by volume improvements of iron and manganese
oxides, decreased revenues $0.6 million. Industrial Chemicals operating loss was
$7.3 million in fiscal 2002 compared to income of $0.7 million in the prior
year. These losses were primarily due to reduced sales volumes from printed
circuit board customers.


                                        25
<PAGE>

     DISTRIBUTION net sales of $27.9 million decreased $6.2 million, or 18%. The
net sales decrease was primarily due to lower unit volumes of carbide,
dicyandiamide and cyanide products in 2002. Distribution operating income of
$2.3 million decreased $0.7 million, or 23%, primarily due to sales volume
declines.

     ALL OTHER net sales of $22.2 million decreased $10.4 million, or 32%. This
decrease principally was due to the divestiture of the Agtrol crop protection
business during the fourth quarter of 2001. The transaction included multi-year
supply agreements to continue to produce crop protection chemicals for Nufarm.
The sales decline reflects contract manufacturing volumes under the supply
agreements, compared with sales to third-party customers in 2001. Specialized
lab projects and formulations net sales increased $1.3 million. All Other
operating income was $0.3 million in 2002 compared to an operating loss of $5.8
million in the prior year. The improvement was primarily the result of the sale
of Agtrol, which generated 2001 operating losses of $6.4 million. An increase in
specialized lab projects and formulations also contributed to improved 2002
profitability.

DISCONTINUED OPERATIONS

     During 2003, the Company decided to shutdown or divest Odda Smelteverk
(Norway), Carbide Industries (U.K.), and Mineral Resource Technologies, Inc.
These businesses have been classified as discontinued operations. The Company's
consolidated financial statements have been reclassified to report separately
the operating results, financial position, and cash flows of the discontinued
operations. Prior year financial statements have been reclassified to conform to
the 2003 presentation.

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30, 2003
                                                              ---------------------------------
                                                              ODDA/CARBIDE     MRT      TOTAL
                                                              ------------   -------   --------
<S>                                                           <C>            <C>       <C>
Net sales...................................................    $ 11,217     $18,671   $ 29,888
                                                                ========     =======   ========
Loss before income taxes....................................    $(11,135)    $(3,454)  $(14,589)
Provision (benefit) for income tax..........................         (58)         --        (58)
                                                                --------     -------   --------
(Loss) from discontinued operations.........................    $(11,077)    $(3,454)  $(14,531)
                                                                ========     =======   ========
Depreciation and amortization...............................    $    894     $ 1,309   $  2,203
                                                                ========     =======   ========
</Table>

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30, 2002
                                                              ---------------------------------
                                                              ODDA/CARBIDE     MRT      TOTAL
                                                              ------------   -------   --------
<S>                                                           <C>            <C>       <C>
Net sales...................................................    $ 31,219     $17,045   $ 48,264
                                                                ========     =======   ========
Loss before income taxes....................................    $(24,010)    $(2,930)  $(26,940)
Provision (benefit) for income tax..........................      (1,170)         --     (1,170)
                                                                --------     -------   --------
(Loss) from discontinued operations.........................    $(22,840)    $(2,930)  $(25,770)
                                                                ========     =======   ========
Depreciation and amortization...............................    $ 17,676     $ 1,192   $ 18,868
                                                                ========     =======   ========
</Table>

<Table>
<Caption>
                                                                  YEAR ENDED JUNE 30, 2001
                                                              ---------------------------------
                                                              ODDA/CARBIDE     MRT      TOTAL
                                                              ------------   -------   --------
<S>                                                           <C>            <C>       <C>
Net sales...................................................    $ 30,440     $14,306   $ 44,746
                                                                ========     =======   ========
Loss before income taxes....................................    $ (3,858)    $(1,323)  $ (5,181)
Provision (benefit) for income tax..........................      (1,150)       (450)    (1,600)
                                                                --------     -------   --------
(Loss) from discontinued operations.........................    $ (2,708)    $  (873)  $ (3,581)
                                                                ========     =======   ========
Depreciation and amortization...............................    $  2,962     $   465   $  3,427
                                                                ========     =======   ========
</Table>

     Odda and Carbide.  During 2003, the Company determined that it would
permanently shutdown and no longer fund the operations of Odda. On February 28,
2003, Odda filed for bankruptcy in Norway. The



                                        26
<PAGE>

bankruptcy is proceeding in accordance with Norwegian law. The Company has been
advised that, as a result of the bankruptcy, the creditors of Odda have recourse
only to the assets of Odda, except in the case of certain debt guaranteed by the
Company. The Company has removed all assets, liabilities (except as noted
below), and cumulative translation adjustments related to Odda from the
Company's consolidated balance sheet as of June 30, 2003, and has recorded the
net result as a loss on disposal of discontinued operations. The Company is the
guarantor of certain debt of Odda. As of June 30, 2003, debt of Norwegian Krone
(NOK) 41.1 million ($5.7 million) was outstanding and was included in loans
payable to banks on the Company's consolidated balance sheet. The Company has
entered into forbearance agreements with the Norwegian banks holding the
guarantees from the Company, under which the banks have agreed not to demand
immediate payment and the Company has agreed to pay the principal amount plus
interest in installments. The Company has been advised by Norwegian counsel that
it will obtain the benefit of the banks' position as a secured creditor upon
payment pursuant to the guarantees. The Company obtained the consent of a
majority of the holders of its senior subordinated notes due 2008 to amend the
indenture governing these existing notes in such a manner that the bankruptcy of
Odda did not create an event of default there under. During 2003, the Company
sold Carbide, previously a distributor for one of Odda's product lines. Proceeds
from the divestiture were not material. Odda was included in the Company's
Industrial Chemicals segment and Carbide was included in the Company's
Distribution segment.

     The Company recorded a $0.7 million loss on disposal of Odda and Carbide.
The loss primarily related to the write-off of Odda's remaining net assets,
including the related cumulative currency translation adjustment.

     Mineral Resource Technologies, Inc. ("MRT").  During 2003, the Company
decided to pursue a sale of MRT. MRT provides management and recycling of coal
combustion residues, principally fly ash. The sale was completed in August 2003
for net proceeds, after transaction costs, of approximately $14.0 million, the
amount dependent upon certain post-closing adjustments. The Company does not
anticipate a material gain or loss on disposal based upon its assessment of the
likely outcomes of the post-closing adjustments. MRT was included in the
Company's All Other segment.

LIQUIDITY AND CAPITAL RESOURCES

     Net Cash Provided (Used) by Operating Activities.  Cash provided (used) by
operations for 2003 and 2002 was $34.7 million and ($4.7) million, respectively.
Cash provided in 2003 was due to improved income from continuing operations and
aggressive working capital management. Improvements in net working capital,
principally due to close control of accounts receivables and accounts payable,
contributed $15.8 million to operating cash flow. Cash of $6.1 million used for
the reduction of cash overdrafts is a partial offset to the working capital
improvement, and is included in the financing activities section of the cash
flow statement.

     Net Cash (Used) by Investing Activities.  Net cash used by investing
activities for 2003 and 2002 was ($4.0) million and ($17.4) million,
respectively. Capital expenditures of $9.0 million and $8.7 million for 2003 and
2002, respectively, were for new product capacity, for maintaining the Company's
existing asset base and for environmental, health and safety projects. Included
in 2002 was $7.2 million for contingent purchase price payments for the MFA
acquisition. Proceeds from sales of fixed assets and discontinued operations
accounted for the remainder of cash provided by investing activities in 2003.

     Net Cash Provided (Used) by Financing Activities.  Net cash provided (used)
by financing activities for 2003 and 2002 was ($26.4) million and $13.7 million,
respectively. The domestic credit facility and related capital expenditure line
were reduced $10.1 million during 2003. Debt payments related to Odda were $6.8
million, funded by the reductions in Odda's working capital, asset sales and
cash provided by the Company. The Company made a $2.5 million scheduled payment
on the Pfizer note. Cash overdrafts declined $6.1 million as the Company
improved its cash management practices.

     Working Capital and Capital Expenditures.  Working capital, defined as
accounts receivables, inventories and prepaid expenses and other current assets,
less accounts payable and accrued expenses and


                                        27
<PAGE>

other current liabilities, was $59.7 million and $93.8 million as of June 30,
2003 and 2002, respectively. The decrease was primarily due to improved
management of accounts receivables and accounts payable. In addition, $9.0
million of accrued purchase price payable to Pfizer, due March 2004, was
included in Other current liabilities at June 30, 2003, and was classified as a
long-term liability at the prior year end.

     The Company anticipates spending approximately $10.0 million for capital
expenditures related to continuing operations in 2004, primarily to cover the
Company's asset replacement needs, to improve processes, and for environmental
and regulatory compliance, subject to the availability of funds.

     Liquidity.  At June 30, 2003, the Company was in compliance with the
financial covenants included in its domestic senior credit facility with its
lending banks. The credit facility was amended in October 2002 to: waive
noncompliance with financial covenants as of June 30, 2002; amend financial
covenants prospectively until maturity; amend the borrowing base formula and
also reduce maximum availability under the revolving credit portion of the
facility from $70 million to $55 million; limit borrowings under the capital
expenditure line of the facility outstanding balance as of the amendment date;
and revise the interest rate to 1.5% to 1.75% per annum over the base rate (as
defined in the agreement). Management believes that the reduced maximum
availability and the revised borrowing base formula under the revolving credit
portion of the credit facility will not affect the Company's ability to meet its
cash requirements during the remainder of the agreement.

     The Company's ability to fund its operating plan depends upon continued
availability of the credit facility, which in turn, requires the Company to
maintain compliance with the amended financial covenants. The Company believes
that it will be able to comply with the terms of the amended covenants based on
its forecasted operating plan. In the event of adverse operating results and
resultant violation of the covenants, through the remaining term of the domestic
senior credit facility, there can be no assurance that the Company will be able
to obtain waivers or amendments on favorable terms, if at all.

     See the "General" section for a discussion of significant liquidity issues,
the Company's current plans to refinance its obligations, and the potential for
a material adverse impact if the Company does not succeed in its refinancing
objectives.

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

     At June 30, 2003, the amount of credit extended under the Company's
domestic senior credit facility totaled $32.1 million under the revolving credit
facility and $1.5 million under the capital expenditure facility and the Company
had $10.0 million available under the borrowing base formula in effect under the
domestic senior credit facility. In addition, certain of the Company's foreign
subsidiaries also had availability totaling $9.3 million under their respective
loan agreements.

     The Company's contractual obligations (in millions) at June 30, 2003 mature
as follows:

<Table>
<Caption>
                                                                YEARS
                                       -------------------------------------------------------
                                       WITHIN 1   OVER 1 TO 3   OVER 3 TO 5   AFTER 5   TOTAL
                                       --------   -----------   -----------   -------   ------
<S>                                    <C>        <C>           <C>           <C>       <C>
Loans payable to banks(1)............   $38.9        $ --         $   --         --     $ 38.9
Lease commitments....................     2.4         2.3            0.9        0.1        5.7
Long-term debt (including current
  portion)...........................    24.1         2.2          100.2         --      126.5
                                        -----        ----         ------       ----     ------
  Total contractual obligations......   $65.4        $4.5         $101.1       $0.1     $171.1
                                        =====        ====         ======       ====     ======
</Table>

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

     (1) Includes $33.6 million outstanding under the Company's domestic senior
         credit facility which matures in November 2003 (see Note 8).

     The Company will use a portion of the net proceeds from the offering to
repay a substantial portion of its currently outstanding indebtedness. After
giving effect to the offering as if it occurred on June 30, 2003,



                                        28
<PAGE>

we would have had $6.8 million of loans payable to banks and $158.0 million of
long-term debt, including current portion. After giving effect to the offering,
$153.1 million of long-term debt will mature in four to five years.

     On November 30, 2000, the Company issued $25 million of redeemable Series B
preferred stock and $20 million of redeemable Series C preferred stock. Each
Series is entitled to cumulative cash dividends, payable semi-annually at 15%
per annum of the liquidation value. The liquidation value of the Preferred B
stock is an amount equal to $1 per share plus all accrued and unpaid dividends
(Liquidation Value). The Preferred C stock is entitled to the Liquidation Value
plus a percentage of the equity value of the Company, as defined in the amended
Certificate of Incorporation. The equity value is calculated as a multiple of
the earnings before interest, tax, depreciation and amortization of the Company
(Equity Value). The Company may, at the date of the annual closing anniversary,
redeem the Preferred B in whole or in part at the Liquidation Value, for cash,
provided that if the Preferred B stock is redeemed separately from the Preferred
C stock then the Preferred B must be redeemed for the Liquidation Value plus an
additional amount which would generate an internal rate of return of 20% to the
holders of the shares. Redemption in part of the Preferred B shares is only
available if at least 50% of the outstanding Preferred B shares are redeemed. On
the third closing anniversary and on each closing anniversary thereafter, the
Company may redeem for cash only in whole the Preferred C shares, at the
Liquidation Value plus the Equity Value payment. At any time after the
redemption of the Company's Senior Subordinated Notes due 2008, the holders of
both series have the right to require the Company to redeem for cash all such
preferred shares outstanding.

CRITICAL ACCOUNTING POLICIES

     The Securities and Exchange Commission ("SEC" or the "Commission") recently
issued disclosure guidance for "critical accounting policies". The SEC defines
"critical accounting policies" as those that require application of management's
most difficult, subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are inherently uncertain and
may change in subsequent periods.

     The Company's significant accounting policies are described in Note 2 to
the Consolidated Financial Statements. Not all of these significant accounting
policies require management to make difficult, subjective or complex judgments
or estimates. However, management of the Company is required to make certain
estimates and assumptions during the preparation of consolidated financial
statements in accordance with accounting principles generally accepted in the
United States of America. These estimates and assumptions impact the reported
amount of assets and liabilities and disclosures of contingent assets and
liabilities as of the date of the consolidated financial statements. Estimates
and assumptions are reviewed periodically and the effects of revisions are
reflected in the period they are determined to be necessary. Actual results
could differ from those estimates. Following are some of the Company's critical
accounting policies impacted by judgments, assumptions and estimates.

     REVENUE RECOGNITION

     Revenues are recognized when title to products and risk of loss are
transferred to customers. Additional conditions for recognition of revenue are
that collection of sales proceeds is reasonably assured and the Company has no
further performance obligations. Net sales are comprised of total sales billed,
less reductions for returned goods, trade discounts and customer allowances.

     Litigation

     The Company is subject to legal proceedings and claims arising out of the
normal course of business. The Company routinely assesses the likelihood of any
adverse judgments or outcomes to these matters as well as ranges of probable
losses. A determination of the amount of the reserves required for these
contingencies is based on an analysis of the various issues, historical
experience, other third party judgments and outside specialists, where required.
The required reserves may change in the future due to


                                        29
<PAGE>

new developments in each matter. For further discussion, see Note 14 to the
Consolidated Financial Statements.

     Environmental Matters

     The Company determines the costs of environmental remediation of its
facilities and formerly owned properties on the basis of current law and
existing technologies. Uncertainties exist in these evaluations primarily due to
unknown conditions, changing governmental regulations and legal standards
regarding liability, and evolving technologies. The liabilities are adjusted
periodically as remediation efforts progress or as additional information
becomes available. The Company has recorded liabilities of $2.8 million at June
30, 2003 for such activities.

     Long Lived Assets

     Long-lived assets, including plant and equipment, and other intangible
assets are reviewed for impairment when events or circumstances indicate that a
diminution in value may have occurred, based on a comparison of undiscounted
future cash flows to the carrying amount of the long-lived asset. If the
carrying amount exceeds undiscounted future cash flows, an impairment charge is
recorded based on the difference between the carrying amount of the asset and
its fair value.

     The assessment of potential impairment for a particular asset or set of
assets requires certain judgments and estimates by the Company, including the
determination of an event indicating impairment; the future cash flows to be
generated by the asset, including the estimated life of the asset and likelihood
of alternative courses of action; the risk associated with those cash flows; and
the Company's cost of capital or discount rate to be utilized.

     Useful Lives of Long-Lived Assets

     Useful lives of long-lived assets, including plant and equipment and other
intangible assets are based on management's estimates of the periods that the
assets will be productively utilized in the revenue-generation process. Factors
that affect the determination of lives include prior experience with similar
assets and product life expectations and management's estimate of the period
that the assets will generate revenue.

     Inventories

     Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out (FIFO) and average methods for most inventories;
however certain subsidiaries of the Company use the last-in, first-out (LIFO)
method for valuing inventories. The determination of market value to compare to
cost involves assessment of numerous factors, including costs to dispose of
inventory and estimated selling prices. Reserves are recorded for inventory
determined to be damaged, obsolete, or otherwise unsaleable.

     Income Taxes

     Deferred tax assets and liabilities are determined using enacted tax rates
for the effects of net operating losses and temporary differences between the
book and tax bases of assets and liabilities. The Company records a valuation
allowance on deferred tax assets when appropriate to reflect the expected future
tax benefits to be realized. In determining the appropriate valuation allowance,
certain judgments are made relating to recoverability of deferred tax assets,
use of tax loss carryforwards, level of expected future taxable income and
available tax planning strategies. These judgments are routinely reviewed by
management. For further discussion, see Note 13 to the Consolidated Financial
Statements.



                                        30
<PAGE>

NEW ACCOUNTING PRONOUNCEMENTS

     Effective for 2003, the Company adopted the following new accounting
pronouncements:

     Statements of Financial Accounting Standards No. 141 "Business
Combinations" ("SFAS No. 141") and No. 142 "Goodwill and Other Intangibles"
("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS No.
142 establishes specific criteria for recognition of intangible assets
separately from goodwill. The statement requires that goodwill and indefinite
lived intangible assets no longer be amortized and be tested for impairment at
least annually. The amortization period of intangible assets with determinable
lives will no longer be limited to forty years. Identifiable intangible assets
with determinable useful lives will continue to be amortized. The Company has no
goodwill, but has assessed the useful lives of its intangible assets. The
adoption of SFAS No. 141 and SFAS No. 142 did not result in an impact on the
Company's financial statements.

     Statement of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 established accounting
standards for the recognition and measurement of an asset retirement obligation
("ARO") and its associated asset retirement cost. The Company has reviewed its
tangible long-lived assets for associated asset retirement obligations in
accordance with SFAS No. 143. The adoption of SFAS No. 143 did not result in an
impact on the Company's financial statements.

     Statement of Financial Accounting Standards No. 144 "Accounting for
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses significant issues relating to the implementation of FASB Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"), and the development of a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. As a result of the adoption of SFAS No. 144, the Company
classified the Odda, Carbide, and MRT businesses as discontinued operations.

     Statement of Financial Accounting Standards No. 145, "Rescission of SFAS
Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections" ("SFAS No.
145"). The adoption of SFAS No. 145 did not result in an impact on the Company's
financial statements.

     Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value when the liability
is incurred rather than at the date of a commitment to an exit or disposal plan.
Costs covered by SFAS No. 146 include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 did not result in an impact on the Company's
financial statements.

     FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN No. 45"). FIN No. 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. The adoption of FIN No. 45 did not
result in a material impact on the Company's financial statements.

     FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN No. 46"). FIN No. 46 requires consolidation by business enterprises of
variable interest entities (including entities commonly referred to as special
purpose entities), which meet certain characteristics. The adoption of FIN No.
46 did not result in an impact on the Company's financial statements.


                                        31
<PAGE>

     The Company will adopt the following new accounting pronouncements in 2004:

     Statement of Financial Accounting Standards No. 149, "Amendment of SFAS No.
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The Company is currently assessing the impact of
this pronouncement.

     Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations that can, or must, be settled by issuing equity
shares, depending on the nature of the relationship established between the
holder and the issuer. SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective at the
beginning of the first interim period beginning after June 15, 2003. Effective
in 2004, the Company will classify its Redeemable Preferred Stock as a
liability.

EFFECT OF INFLATION; FOREIGN CURRENCY EXCHANGE RATES

     Inflation generally affects the Company by increasing the cost of labor,
equipment and raw materials. The Company does not believe that inflation has had
any material effect on the Company's business over the last two years.

     The Company's substantial foreign operations expose it to risk of exchange
rate fluctuations. Financial position and results of operations of the Company's
international subsidiaries generally are measured using local currencies as the
functional currency. Assets and liabilities of these operations are translated
at the exchange rates in effect at each fiscal year end. The translation
adjustments related to assets and liabilities that arise from the use of
differing exchange rates from period to period are included in accumulated other
comprehensive loss in shareholders' equity. Income statement accounts are
translated at the average rates of exchange prevailing during the year.

     A business unit of Koffolk and all of Planalquimica operate primarily in
U.S. dollars. The U.S. dollar is designated as the functional currency for these
businesses and translation gains and losses are included in determining net
income or loss.

     Foreign currency transaction gains and losses primarily arise from
short-term intercompany balances. Net foreign currency transaction and
translation losses were $480, $3,027 and $711 for 2003, 2002 and 2001,
respectively, and were included in other expense, net in the consolidated
statements of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

     In the normal course of operations, the Company is exposed to market risks
arising from adverse changes in interest rates, foreign currency exchange rates,
and commodity prices. As a result, future earnings, cash flows and fair values
of assets and liabilities are subject to uncertainty. The Company uses, from
time to time, foreign currency forward contracts as a means of hedging exposure
to foreign currency risks. The Company also utilizes, on a limited basis,
certain commodity derivatives, primarily on copper used in its manufacturing
processes, to hedge the cost of its anticipated purchase requirements. The
Company does not utilize derivative instruments for trading purposes. The
Company does not hedge its exposure to market risks in a manner that completely
eliminates the effects of changing market conditions on earnings, cash flows and
fair values. The Company monitors the financial stability and credit standing of
its major counterparties.


                                        32
<PAGE>

Interest Rate Risk

     The Company uses sensitivity analysis to assess the market risk of its
debt-related financial instruments and derivatives. Market risk is defined for
these purposes as the potential change in the fair value resulting from an
adverse movement in interest rates.

     The Company's debt portfolio is comprised of fixed rate and variable rate
debt of approximately $165.4 million as of June 30, 2003. Approximately 27% of
the debt is variable and would be interest rate sensitive. For further details,
see Note 8, to the Consolidated Financial Statements of the Company appearing
elsewhere herein.

     For the purposes of the sensitivity analysis, an immediate 10% change in
interest rates would not have a material impact on the Company's cash flows and
earnings over a one year period.

     As of June 30, 2003, the fair value of the Company's senior subordinated
debt is estimated based on quoted market rates at $40 million and the related
carrying amount is $100 million.

Foreign Currency Exchange Rate Risk

     A significant portion of the financial results of the Company is derived
from activities conducted outside the U.S. and denominated in currencies other
than the U.S. dollar. Because the financial results of the Company are reported
in U.S. dollars, they are affected by changes in the value of the various
foreign currencies in relation to the U.S. dollar. Exchange rate risks are
reduced, however, by the diversity of the Company's foreign operations and the
fact that international activities are not concentrated in any single non-U.S.
currency. Short-term exposures to changing foreign currency exchange rates are
primarily due to operating cash flows denominated in foreign currencies. From
time to time, the Company may cover known and anticipated operating exposures by
using purchased foreign currency exchange option and forward contracts. The
primary currencies for which the Company has foreign currency exchange rate
exposure are the Euro, the Brazilian Real, and Japanese yen.

     The Company uses sensitivity analysis to assess the market risk associated
with its foreign currency transactions. Market risk is defined for these
purposes as the potential change in fair value resulting from an adverse
movement in foreign currency exchange rates. The fair value associated with the
foreign currency contracts has been estimated by valuing the net position of the
contracts using the applicable spot rates and forward rates as of the reporting
date. Based on the limited amount of foreign currency contracts at June 30,
2003, the Company does not believe that an instantaneous 10% adverse movement in
foreign currency rates from their levels at June 30, 2003, with all other
variables held constant, would have a material effect on the Company's results
of operations, financial position or cash flows.

Other

     The Company obtains third party letters of credit in connection with
certain insurance obligations. At June 30, 2003, the contract values of these
letters of credit and surety bonds were $2.6 million and their fair values did
not differ materially from their carrying value.

Commodity Price Risk

     The Company purchases certain raw materials, such as copper, under
short-term supply contracts. The purchase prices thereunder are generally
determined based on prevailing market conditions. The Company uses commodity
derivative instruments to modify some of the commodity price risks. Assuming a
10% change in the underlying commodity price, the potential change in the fair
value of commodity derivative contracts held at June 30, 2002 would not be
material when compared to the Company's operating results and financial
position.

     The foregoing market risk discussion and the estimated amounts presented
are Forward-Looking Statements that assume certain market conditions. Actual
results in the future may differ materially from these projected results due to
developments in relevant financial markets and commodity markets. The methods
used above to assess risk should not be considered projections of expected
future events or results.


                                        33
<PAGE>

                                    BUSINESS

OVERVIEW

     We are a leading diversified global manufacturer and marketer of a broad
range of animal health and nutrition products, specifically medicated feed
additives (MFAs) and nutritional feed additives (NFAs), which we sell throughout
the world predominantly to the poultry, swine and cattle markets. MFAs are used
preventively and therapeutically in animal feed to produce healthy livestock. We
believe we are the third largest manufacturer and marketer of MFAs in the world,
and we believe that certain of our MFA products have leading positions in the
marketplace. We are also a specialty chemicals manufacturer and marketer,
serving primarily the United States pressure-treated wood and chemical
industries. We have several proprietary products, and many of our products
provide critical performance attributes to our customers' products, while
representing a relatively small percentage of total end-product cost. We operate
in over 17 countries around the world and sell our animal health and nutrition
products and specialty chemicals products into over 40 countries. Approximately
75% of our fiscal 2003 net sales were from our Animal Health and Nutrition
business, and approximately 25% of our fiscal 2003 net sales were from our
Specialty Chemicals business.

     Our Animal Health and Nutrition segment manufactures and markets more than
500 formulations and concentrations of medicated and nutritional feed additives,
including antibiotics, antibacterials, anticoccidials, anthelmintics, trace
minerals, vitamins, vitamin premixes and other animal health and nutrition
products, to the livestock and pet food industries. Our MFA products are
internationally recognized for quality and efficacy in the prevention and
treatment of diseases in livestock, such as coccidiosis in poultry, dysentery in
swine and acidosis in cattle. We market our Animal Health and Nutrition products
under approximately 450 governmental product registrations, approving our MFA
products with respect to animal drug safety and effectiveness.

     Our Specialty Chemicals business manufactures and markets a number of
specialty chemicals for use in the pressure-treated wood, chemical catalyst,
semiconductor, automotive, aerospace and agricultural industries. We anticipate
that our proprietary manufacturing process for one of the leading new products
for manufacturing pressure-treated wood will represent our largest growth
opportunity in our Specialty Chemicals business. Over 40% of our fiscal 2003 net
sales in our Specialty Chemicals business was derived from copper-based
compounds, solutions or mixes.

     We have in recent years focused our business on animal health and nutrition
products. As a result of the rapid decline of the printed circuit board industry
in the United States, we have substantially exited that business, including our
etchant recycling operations, and re-directed our productive capacity in niche
markets. We have also sold other non-strategic businesses, such as our Agtrol
copper fungicide business, closed our facility in Odda, Norway, and we are in
the process of selling PMC and MRT.

     For our fiscal year ended June 30, 2003, after giving pro forma effect to
this offering and the transactions described above under the heading "Offering
Circular Summary-The Transactions," we would have had the following financial
results: total Adjusted net sales of approximately $332.9 million; Adjusted
EBITDA of approximately $36.1 million; a ratio of pro forma net senior debt to
Adjusted EBITDA of 2.8x; a ratio of pro forma net debt to Adjusted EBITDA of
4.2x; and a ratio of Adjusted EBITDA to pro forma cash interest expense of 2.1x.

ANIMAL HEALTH INDUSTRY OVERVIEW

     According to Wood Mackenzie Animal Health Services, the MFA industry was
approximately $1.6 billion in size in calendar year 2002. The MFA market
includes antibiotics, antibacterials, anticoccidials and anthelmintics. These
products are intended to aid in the prevention and treatment of diseases in
animals, promoting healthy development and improving food quality and safety.
According to Wood Mackenzie, the animal health market will continue to grow
modestly at 1.4% per annum through 2007.

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<PAGE>

     Most MFAs are used for poultry (approximately 40%), swine (approximately
35%) and cattle (approximately 20%). The leading companies participating in the
MFA marketplace are Elanco (a division of Eli Lilly), Alpharma, Intervet (a
division of Akzo Nobel) and ourselves.

     The Asian and American markets, which have the world's largest livestock
populations (see the table below indicating 1998 numbers, prepared by FAO), are
expected to enjoy continued growth. We believe this increase is based upon a
growing world population, increasing global demand for meat protein, especially
in developing countries, and growing consumer focus on food quality and safety.

<Table>
<Caption>
                                 POULTRY                                         SWINE
COUNTRY                        (PRODUCTION)   COUNTRY                         (PRODUCTION)
-------                        ------------   -------                         ------------
<S>                            <C>            <C>                             <C>
US...........................  8.1 billion    China........................   472 million
China........................  5.7 billion    US...........................   100 million
Brazil.......................  3.3 billion    Germany......................    41 million
France.......................  2.0 billion    Spain........................    32 million
Mexico.......................  0.9 billion    France.......................    27 million
</Table>

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

     Source: 1998 FAO Livestock Slaughter Numbers

     Given the large and growing demand for livestock and the widespread
adoption of modern production techniques -- characterized by growing a large
number of livestock in confined areas -- we believe the use of medicated and
nutritional supplements will continue to be necessary to ensure animal health
and the economic viability of such livestock production. The most efficient and
cost effective method to get medicated and nutritional products to such vast
number of animals is through feed additives.

BUSINESS STRENGTHS

     Top Three MFA Provider in the World.  We believe we are the world's third
largest manufacturer and marketer of medicated feed additives in the poultry and
swine markets. We manufacture and market over 200 MFA formulations and
concentrations. We believe our MFAs rank first in sales in Brazil, and third in
the United States. Our Animal Health and Nutrition business serves our customers
in over 40 countries from 17 facilities. Many of our MFA products have been
marketed for over 20 years.

     Significant Barriers to Entry.  Medicated feed additives cannot be
manufactured or marketed without governmental product registrations that are
specific to each country -- the FDA for example, in the United States, Health
Canada in Canada, EU/EMEA authorities in Europe. Before a product registration
is granted, the applicant must show the regulatory authority that the product
and its proposed use are both effective and safe for the specified species and
application. Obtaining an MFA product registration is comparable in cost and
difficulty with obtaining approval for drugs used to treat humans. In addition
to approval of formulation and labeling, regulatory authorities typically
require approval and periodic inspection of the manufacturing facilities.
Because of the costs and difficulties associated with obtaining MFA product
registrations, there have been few new medicated feed additives developed and
marketed over the last decade. The only two new MFA compounds approved for use
in the last 10 years were semduramycin, one of our products, and ractopamine.
Because of the inherent difficulties and high costs of obtaining major product
registrations and their absolute necessity to operate in this business, our
existing broad portfolio of product registrations provides us strength in the
marketplace.

     Strong Brand Name Recognition of Our Medicated Feed Additives.  We enjoy
strong brand name recognition with our medicated feed additives for the
prevention and control of diseases in poultry, swine and cattle. In particular,
virginiamycin, an antibiotic marketed under the Stafac(R), Eskalin(R) and
V-Max(R) brand names, is a popular and efficacious choice of medicated feed
additive in the poultry, swine and cattle industry. Semduramycin, sold under the
brand name, Aviax(R), and salinomycin, sold under the brand name Coxistac(R),
are also leading poultry anticoccidials. In fiscal 2003, branded MFAs accounted
for approximately 56% of our total Animal Health and Nutrition sales.

     Established Global Network and Customer Base.  From our 20 facilities in 17
countries, we manufacture and market our products, which are sold through
multiple distribution channels to over 2,700


                                        35
<PAGE>

customers in a wide variety of end use markets. We sell our products through an
established global sales, marketing and distribution network to customers in
over 40 countries. In fiscal 2003, no single customer accounted for more than 5%
of total revenues and our top 10 customers accounted for less than 23% of total
revenues. In fiscal 2003, approximately 36% of our net sales were made outside
the United States, with 11% of sales to Europe, 9% of sales to Latin America, 8%
of sales to the Middle East, and 8% of sales to Asia and Australia.

     Extensive Technical Support for Customers.  We employ over 60 chemists,
technicians, PhDs and veterinarians (DVMs) at our various facilities involved in
providing technical services to customers. Our technical service group and sales
personnel are able to work directly with commercial feed manufacturers and
integrated poultry, swine and cattle producers to promote animal health. We are
able to offer our customers products targeted to local markets, allowing us to
serve those local markets more effectively. Our MFA field personnel are skilled
in the area of product differentiation and have extensive applications knowledge
so as to be able to work closely with customers in determining optimum benefits
from usage of our products. As agricultural food production will continue to
intensify and will adopt evolving technologies, our MFA personnel are constantly
working with customers to better understand their needs in order to best utilize
the products existing within our MFA portfolio. This commercial knowledge also
plays a pivotal role within the R&D function to ensure that research results are
applicable to customer needs and concerns.

     Manufacturing Expertise.  Our manufacturing expertise and know-how in
antibiotic manufacturing process and organic synthesis has given us unique
positions in the marketplace. We believe that we are the only manufacturer of
amprolium, virginiamycin and semduramycin in the world. Our blending,
compounding and formulation expertise is recognized by our customers in the
animal health and nutrition market. In addition, in our Specialty Chemicals
business, based on our more than 50 years of expertise in the metal chemical
area, we have become a leading supplier of the new copper-containing compound to
the pressure-treated wood industry. We also believe we hold leading positions in
agricultural and other industrial applications for copper-containing compounds.

     Proven Management Team.  We have assembled a strong and experienced
management team at both the corporate and operating levels. Our top operating
managers have an average of over 30 years of experience in the animal health and
nutrition and specialty chemicals industries. With our expanded management team,
we have added significant operational and international experience to our
businesses. Our founding family owns 100% of our common stock.

BUSINESS STRATEGY

     Expand Applications for Animal Health and Nutrition Product Offerings to
Our Primary Markets. We seek to increase our product lines through expanding the
scope of our animal health and nutrition product registrations, through both
extending the use claims and formulations and the geographic areas of such
registrations. In the United States, we recently obtained from the FDA a
zero-day withdrawal registration for the use of our oxytetracycline product in
cattle. We are actively working with the FDA and other regulators to obtain
additional registrations, as well as additional cross-clearances so that our MFA
products can continue to be used in situations where another MFA is also in use.
We have recently obtained approval for Aviax(R) in the EU, and are pursuing a
modification of our Aviax(R) registration in the United States allowing for site
change of the active ingredient. We believe that our receipt of FDA approval of
Aviax(R) together with our recent EU approval of Aviax(R), and our other
registration efforts, has the potential to increase our sales by $7-10 million
over the next two to three years. By leveraging our global reach and our
position as the only leading animal health company dedicated to MFAs and NFAs,
we are natural partners for small players in the industry, who approach us to
help them license or distribute new products they have developed, because we do
not compete with their other products.

     Expand Our Customer Base.  We intend to expand and strengthen our customer
base by (i) focusing on relationships with key accounts, (ii) continuing to
incentivize our sales force to concentrate on fast-growing, high-margin areas
within existing product groups, and (iii) pursuing growth opportunities for our


                                        36
<PAGE>

existing products in new markets. As certain of our MFA products are used in
rotation by our customers, we seek to supply all or substantially all of the
various MFA products which our customers may want to use. Our MFA business has
historically been strongest in the poultry market, and we are seeking to develop
it further in the swine and cattle markets. In fiscal year 2003, we increased
our sales force and technical professionals in the swine market for our MFAs,
increasing net sales by approximately $5 million. We expect to continue to
enhance our sales force in the swine market, and believe that there are further
growth opportunities from doing so. In addition, we believe the under-penetrated
Chinese and Latin American markets offer growth opportunities. In China, we are
seeking to partner with local distributors, to leverage our existing local sales
force.

     Capture Market Share in New Pressure-Treated Wood Business.  We seek to
become the leading supplier of the active ingredient copper solution expected to
replace the standard chromated-copper-arsenic solution, which has been banned by
the EPA in the residential and recreational pressure-treated wood markets,
effective December 31, 2003. We currently estimate that the total potential size
of this copper solution to the pressure-treated wood market will be
approximately $120 million annually. We have already signed a multi-year,
take-or-pay contract with a major chemicals supplier to the pressure-treated
wood industry to provide it with this new solution, which we estimate will
increase our sales by approximately $9 million in fiscal 2004 and by
approximately $30 million over the life of the contract, based on existing
forecasts. We have applied for a patent with respect to the manufacturing
process of our solution, and the claims in our patent application were recently
allowed by the United States Patent and Trademark Office. We believe that our
manufacturing process allows us to operate in this market with a lower cost of
capital and higher factory through-put than our competition. In addition, we
have filed a provisional patent for a new, large molecule copper compound
product. We believe that this new product may be the next generation in
copper-based wood treatment products, with the potential to substantially
increase the duration of protection for treated wood.

     Continued Rationalization of Operations.  We have taken significant steps
to refocus on our core business and to rationalize our operations by
implementing cost-saving and productivity-enhancing programs and yield
improvement programs. Since June 2002, we reduced our employee headcount from
approximately 1,250 to approximately 1,000 employees. We intend to restructure
manufacturing capacity to improve production efficiency. We are analyzing
additional opportunities to increase operating efficiencies and profitability.
We continue to evaluate our specialty chemicals businesses for adequate returns
and will continue to restructure, discontinue or sell those businesses that are
dilutive to earnings. To that end, since May 2001, we sold our Agtrol copper
fungicide business and our fresh ammoniacal etchant and spent cupric chloride
printed circuit board etchant businesses associated with our east coast and
midwestern plants, closed our facility in Odda, Norway and sold Carbide
Industries. These dispositions have in total resulted in a net increase in our
EBITDA, and we anticipate further improvements resulting from the transactions
described under the heading "Offering Circular Summary -- The Transactions,"
including the dispositions of MRT and PMC.

OUR ANIMAL HEALTH AND NUTRITION BUSINESS -- MEDICATED FEED ADDITIVES

     We manufacture and market a broad range of medicated feed additive products
to the global livestock industry, either directly to large integrated producers
or through a network of independent distributors. Feed additives provide both
therapeutic benefits and increased conversion efficiency -- key drivers of
profitability for livestock producers.

     Our MFA products can be grouped into five principal categories:
antibiotics, antibacterials, anticoccidials, anthelmintics and other medicated
feed additives. In fiscal 2003, antibiotics and antibacterials generated sales
for us of approximately $80 million, anticoccidials generated sales for us of
approximately $53 million, and anthelmintics and other medicated feed additives
generated sales for us of approximately $7 million.


                                        37
<PAGE>

     Our core MFA products are listed in the table below:

<Table>
<Caption>
BRAND                        ACTIVE/ANTIGEN     MARKET ENTRY   COMMENT
-----                        --------------     ------------   -------
<S>                          <C>                <C>            <C>
Terramycin(R)/Neo-           oxytetracycline,       1951       Antibiotic with multiple
  Terramycin(R)/Neo-TM(R)    neomycin                          applications for a wide
                                                               number of species
CLTC(R)                      chlortetracycline      1954       Antibiotic with multiple
                                                               applications for a wide
                                                               number of species
Nicarb(R)                    nicarbazin             1955       Anticoccidial for poultry
Amprol(R)                    amprolium              1960       Anticoccidial for poultry
                                                               and cattle
Bloatguard(R)                poloxalene             1966       Anti-bloat treatment for
                                                               cattle
Banminth(R)                  pyrantel tartrate      1969       Anthelmintic for livestock
Mecadox(R)                   carbadox               1971       Antibacterial used in swine
                                                               feeds to control
                                                               salmonellosis and dysentery
Stafac(R)/Eskalin(R)/V-Max(R) virginiamycin         1972       Antibiotic with multiple
                                                               applications for a wide
                                                               number of species
Coxistac(R)/Posistac(R)      salinomycin            1979       Anticoccidial for poultry;
                                                               disease preventative in
                                                               swine
Rumatel(R)                   morantel tartrate      1981       Anthelmintic for livestock
Oxibendazole(R)              oxibendazole           1982       Anthelmintic for livestock
Aviax(R)                     semduramycin           1995       Anticoccidial for poultry
</Table>

  ANTIBIOTICS

     Antibiotics are natural products produced by fermentation and are used to
treat or to prevent diseases, thereby promoting more efficient growth. Several
factors contribute to limit the efficiency, the weight gain and feed conversions
of livestock production, including poor nutrition, environmental and management
problems, heat stress and subclinical disease.

     Virginiamycin.  Virginiamycin is an antibiotic marketed under our brand
names Stafac(R) for treating swine, cows, broilers and turkeys, Eskalin(R) for
dairy cows and V-Max(R) for feed lot cattle. We formulate virginiamycin to
improve health in poultry, swine and cattle and prevent necrotic enteritis in
poultry, dysentery in swine and liver abscesses in cattle. The product is sold
to large poultry and swine producers and feed companies in North America, Latin
America and Asia.

     First discovered in Belgium in 1954, virginiamycin is an antimicrobial
produced from the streptomyces virginiae fungus. The antibiotic inhibits the
bacterial destruction and degradation of nutrients such as carbohydrates and
amino acids, resulting in more energy and nutrients and less production of
harmful waste products such as lactic acid, volatile fatty acids and ammonia.

     Virginiamycin has been successful due to a number of strong product
features. For example, no withdrawal period is required since it is virtually
unabsorbed from the digestive tract. It is excreted in very low concentrations
and rapidly degraded. And it alleviates some of the effects of heat stress and
crowding on performance and improves nutrient utilization. To date, no generic
competition has been introduced due to our proprietary virginiamycin
manufacturing technology.


                                        38
<PAGE>

     Terramycin and Neo-Terramycin.  Terramycin(R) and Neo-Terramycin(R), which
are derived from the active ingredient oxytetracycline, are effective against a
range of diseases including:

     - fowl cholera in chickens,

     - airsacculitis in turkeys,

     - pneumonia and enteritis in swine, and

     - pneumonia, enteritis and liver abscesses in cattle.

     We sell Terramycin(R) and Neo-Terramycin(R) feed additive products in
various concentrations. Terramycin(R) is approved for use for poultry, swine,
cattle and sheep. Neo-Terramycin(R) combines the active ingredients
oxytetracycline and neomycin to prevent and treat a wide range of diseases
caused by gram positive and gram negative organisms, including bacterial
enteritis in chickens and turkeys, baby pig diarrhea in swine and calf diarrhea.
These terramycin products are sold mostly in the United States to livestock
producers, feed companies and distributors. Limited quantities are sold in
selected countries in Latin America and Asia.

  ANTIBACTERIALS

     Antibacterials are produced through chemistry and are used to treat and
prevent diseases.

     Carbadox.  We market carbadox under the brand name Mecadox(R). Carbadox is
an antibacterial compound recommended for use in swine feeds to promote and to
control swine salmonellosis and swine dysentry. In swine production, the primary
objective of producers is the rapid and efficient development of swine at
minimal cost. Since 1970, Mecadox(R) has been a leader in reducing livestock
production costs through meaningful performance enhancement. Mecadox(R) is a
leading product for starter/grower swine in the United States. In addition to
its antimicrobial properties, it also improves nitrogen retention and increases
the efficiency of amino acid metabolism, two critical factors in the development
of young swine. Mecadox(R) is chemically unrelated to any other antibacterial
that is used in animals or humans. Mecadox(R) is sold primarily in North America
to feed companies and large integrated swine producers.

  ANTICOCCIDIALS

     Anticoccidials are produced through fermentation and chemistry, and are
primarily used to prevent and control the disease coccidiosis in poultry and in
cattle. Coccidiosis is a disease of the digestive tract that is of great concern
to animal producers. Caused by protozoan parasites such as Eimeria spp.,
coccidiosis is one of the most destructive diseases facing the world's poultry
producers. Common effects of this disease (such as weight loss, wet droppings,
poor feed utilization and higher mortality rates) rapidly affect an entire flock
of poultry, resulting in annual losses of hundreds of millions of dollars for
the poultry industry.

     Modern, large scale poultry production is based on intensive animal
management practices. This type of animal production requires routine preventive
medications in order to prevent health problems. Coccidiosis is one of the
critical disease challenges which poultry producers face globally. We sell our
anticoccidials globally, primarily to integrated poultry producers and feed
companies in North America, the Middle East, Latin America and Asia, and to
international animal health companies.

     Nicarbazin and Amprolium.  We produce nicarbazin and amprolium for
distribution to the world-wide poultry industry through major multinational life
science and veterinary companies. Nicarbazin is a broad-spectrum anticoccidial
which works by interfering with mitochondrial metabolism. It is classified as an
oxidative phosphorylation uncoupler and is used for coccidiosis prevention in
broiler chickens.

     We believe that we are the sole world-wide producer of amprolium, and the
largest volume world-wide producer of nicarbazin. We are also the sole Latin
American producer of nicarbazin. Nicarbazin and amprolium, along with
salinomycin and semduramycin, are among the most effective medications for the


                                        39
<PAGE>

prevention of coccidiosis in chickens when used in rotation with other
anticoccidials. In the United States, we market nicarbazin under the trademark
Nicarb(R) and amprolium under the trademark Amprol(R).

     Other Anticoccidials.  From a class of compounds known as ionophores, we
developed Aviax(R) and Coxistac(R) to combat coccidiosis. These two products
have demonstrated increased feed efficiency, the ability to suppress coccidial
lesions, and provide reliable reserve potency with minimal side-effects. Through
a third product, Posistac(R), we have extended the application of the active
ingredient in Coxistac(R) to swine.

     Aviax(R) contains the ionophore semduramycin which provides protection for
poultry against all major coccidial parasites. The product can be incorporated
into virtually any type of feed, and provided to broilers of any production
stage. Commercial studies to date show that Aviax(R) significantly improves feed
conversion. We have received regulatory approval to sell Aviax(R) in the EU and
have applied in the United States for the sale of Aviax(R) in crystaline dosage
form. This dosage form is significantly more cost-effective and may improve
profitability significantly. Regulatory approvals are expected in the United
States in the last quarter of fiscal 2004.

     Coxistac(R) contains the ionophore salinomycin. The product acts early in
the coccidial life cycle by killing sporozoites, trophozoites and early
developing schizonts before poultry can be severely damaged. Coxistac(R) has
proven to be effective and safe with minimal resistance development evident in
commercial studies. The recommended dosage provides a high level of protection
against coccidiosis even through temporary periods of low feed intake caused by
disease or adverse climatic conditions. No withdrawal period is required for
poultry before slaughter. Coxistac(R) is a leading anticoccidial in Asia, Latin
America, the Middle East and Canada.

     Posistac(R) contains salinomycin which acts as a productivity enhancer for
grower/finisher swine. The compound increases the utilization and digestion of
feed ingredients by mature swine thereby allowing swine to reach market weight
earlier and at less cost than swine fed conventional feed additives. Posistac(R)
can be used up to the slaughter phase without the need for withdrawal and can be
tolerated at levels up to six times the recommended use level without adverse
effects on swine performance.

  ANTHELMINTICS

     Anthelmintics protect against internal parasites.  Our anthelmintic
products are marketed under the Rumatel(R) and Banminth(R) brand names.

     Rumatel(R).  Rumatel(R) is a potent broad-spectrum anthelmintic that
effectively eliminates the major internal nematode parasites in cattle. Unlike
other single-dose dewormers, Rumatel(R) may be administered to lactating dairy
cattle with no milk withdrawal. Dairy cattle may be treated with Rumatel(R) at
any time during their production cycle, whether dry, pregnant or lactating.

     Banminth(R).  Banminth(R) is an anthelmintic compound, a member of the
class of synthetic compounds called tetra-hydropyrimidines. Banminth(R) has a
mode of action that works effectively in protecting swine against the two major
internal parasites, large roundworms (Ascaris suum) and nodular worms
(Oesophagostomum spp.). Banminth(R) kills adult parasites and prevents roundworm
larval migration, preventing damage to the liver and lungs of swine. When used
continuously in feeds, Banminth(R) prevents re-infection of swine raised on
dirt.

  OTHER MEDICATED FEED ADDITIVES

     Our other medicated feed additives include a range of products sold under
the Bloat Guard(R) brand name. Bloat Guard(R) controls legume or wheat pasture
bloat in cattle. The products control bloat for at least 12 hours after a single
dose with no adverse effect on reproduction, rumen function or milk production.


                                        40
<PAGE>

     We manufacture bulk active ingredients for our MFA products primarily in
four modern facilities located in:

     - Guarulhos, Brazil (salinomycin and semduramycin),

     - Rixensart, Belgium (virginiamycin and semduramycin),

     - Ramat Hovav, Israel (nicarbazin and amprolium), and

     - Braganca Paulista, Brazil (nicarbazin).

Active ingredients are further processed in our facilities and in contract
premix facilities located in each major region of the world.

     We have established sales and technical offices for our MFA products in 15
countries including: the United States, Canada, Mexico, Venezuela, Brazil,
Argentina, Chile, Australia, Japan, China, Thailand, Malaysia, South Africa,
Belgium and Israel. The business is not dependent on any one customer.

     The use of MFAs is controlled by regulatory authorities that are specific
to each country (e.g., the Food and Drug Administration ("FDA") in the United
States, Health Canada in Canada, EU/EMEA authorities in Europe, etc.),
responsible for the safety and wholesomeness of the human food supply, including
feed additives for animals from which human foods are derived. Each product is
registered separately in each country where it is sold. The appropriate
registration files pertaining to such regulations and approvals are continuously
monitored, maintained and updated by us. In certain countries where we are
working with a third party distributor, local regulatory requirements may
require registration in the name of such distributor. In most countries, our MFA
registrations have already been transferred from Pfizer to us, however transfers
are continuing in several countries and under our purchase agreement with
Pfizer, Pfizer agreed to continue to support the registration transfer effort.

     Currently, our new MFA product development is focused on geographical
expansion of the present product line, new label claims and applications for
existing active ingredients and new formulations. This effort is coordinated by
product development personnel located in Belgium, Brazil, and the United States.
We also have an active program to identify and license new products and new
technologies.

ANIMAL HEALTH AND NUTRITION -- NUTRITIONAL FEED ADDITIVES

     We manufacture and market trace minerals, trace mineral premixes, vitamins
and other nutritional ingredients to the livestock feed and pet food industries,
predominantly in the United States and Israel. These products generally fortify,
enhance or make more nutritious or palatable the livestock feeds and pet foods
with which they are mixed. The majority of the other ingredients that we sell
are nutrients that are used as supplements for animal feed. We serve customers
in major feed segments, including swine, dairy, poultry and beef. We customize
trace mineral premixes at our blending facilities in Marion, Iowa, Bremen,
Indiana, Bowmanstown, Pennsylvania and Petach Tikva, Israel, and market a
diverse line of other trace minerals and macro-minerals. Our major customers for
these products are medium-to-large feed companies, co-ops, blenders, integrated
poultry operations and pet food companies. We sell other ingredients, such as
buffers, yeast, palatants, vitamin K and amino acids, including lysine,
tryptophan and threonine. We also market copper sulfate as an animal feed
supplement.

OUR SPECIALTY CHEMICALS BUSINESS

     We manufacture and market a number of specialty chemicals for use in the
wood treatment, chemical catalyst, brick, semiconductor, automotive, aerospace,
glass and agricultural industries. Our manufacturing customers incorporate our
specialty chemicals products into their finished products in various industrial
markets. We seek to take advantage of opportunistic niche markets where we
believe that our expertise and capabilities can be leveraged.


                                        41
<PAGE>

  COPPER WOOD TREATMENT PRODUCTS

     For many years, we were a major supplier of an important ingredient (copper
oxide) used in the manufacture of CCA (chromated-copper-arsenic) wood treating
solutions for the pressure-treated wood industry. The United States
Environmental Protection Agency ("EPA") has ruled that by December 31, 2003, all
pressure-treated wood for the residential and recreational markets can no longer
be treated using the standard chromated-copper-arsenic (CCA) solution. A leading
replacement solution for CCA pressure-treated wood is a copper carbonate
compound. We currently estimate that the total potential size of this copper
solution to the pressure-treated wood market is approximately $120 million
annually. We have already signed a multi-year, take-or-pay contract with a major
chemicals supplier to the pressure-treated wood industry to provide it with this
new product, which we estimate will increase our sales by approximately $9
million in fiscal 2004 and by approximately $30 million over the life of the
contract, based on existing forecasts. We have applied for a patent with respect
to the manufacturing process of our solution, and the claims in our patent
application were recently allowed by the United States Patent and Trademark
Office. We believe that our manufacturing process allows us to operate in this
market with a lower cost of capital and higher factory through-put than our
competition. To take advantage of this potential new market, we have constructed
and are operating commercially a production facility in Sumter, South Carolina
which is supplying this market, and we have begun construction on a similar
plant in Joliet, Illinois. In addition, we have filed a provisional patent for a
new, large molecule pressure-treated wood copper compound product. We believe
that this new product may be the next generation in copper-based wood treatment
products, with the potential to substantially increase the duration of
protection for treated wood.

  OTHER COPPER PRODUCTS

     We manufacture on a contract basis copper compounds for use primarily in
agricultural fungicides from our Sumter, South Carolina and Bordeaux, France
facilities. These contracts were part of the sale by us of our Agtrol business,
consisting of inventory of and intangible assets related to, copper fungicides
and other crop protection products, to Nufarm, Inc. in the fourth quarter of
fiscal 2001. Utilizing our over fifty-year history in producing copper
chemicals, we supply various metal-based chemicals to the catalyst and
electronics industries. We also manufacture copper compounds for a broad variety
of industrial customers.

  OTHER SPECIALTY CHEMICALS PRODUCTS

     Through our subsidiary, PMC, which is to be transferred to the Palladium
Investors as part of the consideration for the repurchase of a majority of their
shares of our preferred stock, we manufacture and market various mineral oxides,
including iron compounds and manganese compounds. Iron compounds include red
iron oxide (Hematite) (sold to the brick, masonry, glass, foundry, electrode,
abrasive, feed, and other chemical industries); black iron oxide (Magnetite)
(sold under the Magna Float brand name to the heavy media, coal, steel foundry,
electrode, abrasive, colorant, fertilizer, and various other chemical
industries); iron chromite (sold under the Chromox brand as a colorant or
additive to the glass industry). Manganese compounds include manganese dioxide
(sold under the Brickox brand name, which is considered a standard color in many
applications to the brick, masonry, glass, and other chemical industries); and
manganous oxide (sold to customers requiring an acid soluble form of manganese,
such as animal feed, fertilizer and chemical manufacturers). See "Offering
Circular Summary -- The Transactions."

     We also market and distribute fine and specialty chemicals to manufacturers
of health and personal care products and chemical coating products to customers
in the automotive, metal finishing and chemical intermediate markets. Among our
products for such applications are sodium fluoride and stannous fluoride, DL
Panthenol and selenium disulfide. Sodium fluoride is the active anti-cavity
ingredient in fluoride toothpaste, powders and mouthwashes. Selenium disulfide
is used as a dandricide in shampoo and hair care preparations.


                                        42
<PAGE>

SALES, MARKETING AND DISTRIBUTION

     We have approximately 2,700 customers. Sales to our top ten customers
represented approximately 23% of our fiscal 2003 net sales and no single
customer represented more than 5% of our fiscal 2003 net sales.

     Our world-wide sales and marketing network consists of approximately 126
employees, 3 independent agents and 134 distributors who specialize in
particular markets.

     Our products are often critical to the performance of our customers'
products, while representing a relatively small percentage of the total
end-product cost. We believe the three key factors to marketing our products
successfully are high quality products, a highly trained and technical sales
force, and customer service.

     Most of our plants have chemists and technicians on staff involved in
product development, quality assurance, quality control and also providing
technical services to customers. Technical assurance is an important aspect of
our overall sales effort. We field approximately 50 Animal Health and Nutrition
technical service people throughout the world, with capabilities to interface
with all key customers on a marketing, sales training and technical (product)
basis, and who work directly with commercial feed manufacturers and integrated
poultry, swine and cattle producers to promote animal health. Our MFA and NFA
field personnel are skilled in the area of product differentiation and have
extensive application knowledge so as to work closely with customers in
determining optimum benefits from product usage. As agricultural food production
will continue to intensify and will adopt evolving technologies, our MFA and NFA
personnel are constantly working with customers to better understand their needs
in order to best utilize the products existing within our portfolio. This
commercial knowledge also plays a pivotal role within the research and
development function to ensure that research results are applicable to customer
needs and concerns.

PRODUCT REGISTRATIONS, PATENTS AND TRADEMARKS

     We own certain product registrations, patents, tradenames and trademarks,
and use know-how, trade secrets, formulae and manufacturing techniques which
assist in maintaining the competitive positions of certain of our products.
Product registrations are required to manufacture and sell medicated feed
additives. Formulae and know-how are of particular importance in the manufacture
of a number of the products sold in our specialty chemicals business. We believe
that no single patent or trademark is of material importance to our business
and, accordingly, that the expiration or termination thereof would not
materially affect our business. See "Government Regulation."


                                        43
<PAGE>

PROPERTIES

     We maintain our principal executive offices and a sales office in 23,500
square feet of leased space in Fort Lee, New Jersey. We operate company-owned
manufacturing facilities and utilize third party toll manufacturers. The chart
below sets forth the locations and sizes of the principal manufacturing and
other facilities operated by us and uses of such facilities, all of which are
owned, except as noted.

<Table>
<Caption>
                                         APPROXIMATE
LOCATION                                SQUARE FOOTAGE                    USES
--------                                --------------                    ----
<S>                                     <C>              <C>
                                  ANIMAL HEALTH AND NUTRITION
Bangkok, Thailand(a)..................          500      Sales
Bowmanstown, Pennsylvania.............       56,500      Premixing and Warehouse
Braganca Paulista, Brazil.............       35,000      Sales, Manufacturing and
                                                         Administrative
Bremen, Indiana.......................       50,000      Sales, Premixing and Warehouse
Buenos Aires, Argentina(a)............          900      Sales and Administrative
Fairfield, New Jersey(a)..............        9,600      Administrative
Guarulhos, Brazil(b)..................    1,234,000      Sales, Premixing, Manufacturing and
                                                         Administrative
Hong Kong, China(a)...................          750      Sales and Administrative
Kuala Lumpur, Malaysia(a).............        7,300      Sales, Premixing and Warehouse
Ladora, Iowa..........................        9,500      Premixing and Warehouse
Lee's Summit, Missouri(a).............        1,500      Sales
Marion, Iowa..........................       32,500      Premixing and Warehouse
Petach Tikva, Israel..................       60,000      Sales, Premixing, Warehouse and
                                                         Administrative
Pretoria, South Africa(a).............        3,200      Sales and Administrative
Quincy, Illinois(c)...................      187,000      Sales, Warehouse, Research and
                                                         Administrative
Rixensart, Belgium(d).................      865,000      Sales, Manufacturing, Research and
                                                         Administrative
Ramat Hovav, Israel...................      140,000      Manufacturing and Research
Regina, Canada(a).....................        1,000      Sales
Queretaro, Mexico(a)..................        3,500      Sales
Santiago, Chile(a)....................        6,500      Sales and Administrative
Sydney, Australia(a)..................        3,500      Sales
Tokyo, Japan(a).......................        2,100      Sales and Administrative
Valencia, Venezuela(a)................        1,100      Sales and Administrative

                                      SPECIALTY CHEMICALS
Bordeaux, France......................      141,000      Sales, Manufacturing and
                                                         Administrative
Garland, Texas........................       20,000      Manufacturing
Joliet, Illinois......................       34,500      Manufacturing
Reading, United Kingdom(a)............        3,100      Sales and Administrative
Santa Fe Springs, California(e).......       90,000      Manufacturing
Stradishall, United Kingdom...........       20,000      Sales, Manufacturing and
                                                         Administrative
Sumter, South Carolina................      123,000      Manufacturing and Research
</Table>

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

(a) This facility is leased. Our leases expire through 2027. For information
    concerning our rental obligations, see Note 14 to our Consolidated Financial
    Statements included herein.


                                        44
<PAGE>

(b) Our Guarulhos, Brazil plant utilizes fermentation processes to produce the
    active ingredients semduramycin-mycelial and salinomycin. The plant also
    produces Aviax(R), Terramycin(R), and Stafac(R) formulations as well as the
    new Coxistac(R) Granular product. The plant is cGMP compliant and is in the
    process of obtaining an FDA approval.

(c) Comprises six facilities, including three warehouses, two manufacturing and
    one sales facility.

(d) Our Rixensart, Belgium plant utilizes fermentation processes to produce the
    active ingredients semduramycin-crystalline and virginiamycin. The plant
    also produces Stafac(R) formulations and is responsible for all of our
    fermentation development activities. The plant has been approved by the FDA
    and is cGMP compliant.

(e) We lease the land under this facility from a partnership owned by Jack
    Bendheim, Marvin Sussman and James Herlands. See "Certain Relationships and
    Related Transactions."

     Our subsidiary, C.P. Chemicals, Inc., leases portions of a previously owned
inactive, former manufacturing facility in Sewaren, New Jersey, and another of
our subsidiaries owns inactive, former manufacturing facilities in Powder
Springs, Georgia, Union, Illinois, Union City, California and Wilmington,
Illinois.

     We believe that our existing and planned facilities are and will be
adequate for the conduct of our business as currently conducted and as currently
contemplated to be conducted.

     We and our subsidiaries are subject to extensive regulation by numerous
governmental authorities, including the FDA and corresponding state and foreign
agencies, and to various domestic and foreign safety standards. Our
manufacturing facilities in Ramat Hovav and Brazil manufacture products that
conform to the FDA's cGMP regulations. Four domestic facilities involved with
recycling have final RCRA Part B hazardous waste storage and treatment permits.
Our regulatory compliance programs include plans to achieve compliance with
international quality standards known as ISO 9000 standards, which became
mandatory in Europe in 1999 and environmental standards known as ISO 14000. The
FDA is in the process of adopting the ISO 9000 standards as regulatory standards
for the United States, and it is anticipated that these standards will be phased
in for U.S. manufacturers over a period of time. Our plants in Bowmanstown,
Pennsylvania and Petach Tikva, Israel have achieved ISO 9000 certification. We
do not believe that adoption of the ISO 9000 standards by the FDA will have a
material effect on our financial condition, results of operations or cash flows.

RAW MATERIALS

     The raw materials used in our business include certain active drug
ingredients, a wide variety of chemicals, mineral ores and copper metal that are
purchased from manufacturers and suppliers in the United States, Europe and
Asia. In fiscal 2003, no single raw material accounted for more than 5% of our
cost of goods sold. Total raw materials cost was approximately $116 million or
35% of net sales in fiscal 2003. We believe that for most of our raw materials,
alternate sources of supply are available to us at competitive prices.

RESEARCH AND DEVELOPMENT

     Research, development and technical service efforts are conducted by 60
chemists and technicians at our various facilities. We operate research and
development facilities in Rixensart, Belgium, Sumter, South Carolina, Ramat
Hovav, Israel and at Stradishall, England. These facilities provide research and
development services relating to fermentation development in the areas of
micro-biological strain improvement as well as: process scale-up; wood treatment
products; and organic chemical intermediates.

     Technology is an important component of our competitive position, providing
us unique and low cost positions enabling us to produce high quality products.
Patents protect some of our technology, but a great deal of our competitive
advantage revolves around know-how built up over many years of commercial
operation.

                                        45
<PAGE>

CUSTOMERS

     We do not consider our business to be dependent on a single customer or a
few customers, and the loss of any of our customers would not have a material
adverse effect on our results. No single customer accounted for more than 5% of
our fiscal 2003 net sales. We typically do not enter into long-term contracts
with our customers.

COMPETITION

     We are engaged in highly competitive industries and, with respect to all of
our major products, we face competition from a substantial number of global and
regional competitors. Some of our competitors have greater financial, research
and development, production and other resources than we do. Our competitive
position is based principally on customer service and support, product quality,
manufacturing technology, facility location and price. We have competitors in
every market in which we participate. Many of our products face competition from
products that may be used as an alternative or substitute.

EMPLOYEES

     As of June 30, 2003, we had 1,018 employees worldwide. Of these, 185
employees were in management and administration, 126 were in sales and
marketing, 60 were chemists or technicians, and 647 were in production. Certain
employees are covered by individual employment agreements. Our Israeli
operations continue to operate under the terms of Israel's national collective
bargaining agreement, portions of which expired in 1994. We consider our
relations with both our union and non-union employees to be good.

ENVIRONMENTAL MATTERS

     We and our subsidiaries are subject to a wide variety of complex and
stringent federal, state, local and foreign environmental laws and regulations,
including those governing the use, storage, handling, generation, treatment,
emission, release, discharge and disposal of certain materials and wastes, the
manufacture, sale and use of pesticides and the health and safety of employees.
Pursuant to environmental laws, our subsidiaries are required to obtain and
retain numerous governmental permits and approvals to conduct various aspects of
their operations, any of which may be subject to revocation, modification or
denial under certain circumstances. Under certain circumstances, we or any of
our subsidiaries might be required to curtail operations until a particular
problem is remedied. Known costs and expenses under environmental laws
incidental to ongoing operations are generally included within operating
budgets. Potential costs and expenses may also be incurred in connection with
the repair or upgrade of facilities to meet existing or new requirements under
environmental laws or to investigate or remediate potential or actual
contamination and from time to time we establish reserves for such contemplated
investigation and remediation costs. In many instances, the ultimate costs under
environmental laws and the time period during which such costs are likely to be
incurred are difficult to predict.

     Our subsidiaries have, from time to time, implemented procedures at their
facilities designed to respond to obligations to comply with environmental laws.
We believe that our operations are currently in material compliance with such
environmental laws, although at various sites our subsidiaries are engaged in
continuing investigation, remediation and/or monitoring efforts to address
contamination associated with their historic operations. As many environmental
laws impose a strict liability standard, however, we cannot assure you that
future environmental liability will not arise.

     In addition, we cannot predict the extent to which any future environmental
laws may affect any market for our products or services or our costs of doing
business. Alternatively, changes in environmental laws might increase the cost
of our products and services by imposing additional requirements on us. States
that have received authorization to administer their own hazardous waste
management programs may also amend their applicable statutes or regulations, and
may impose requirements which are stricter than those imposed by the EPA. We can
provide no assurance that such changes will not adversely affect


                                        46
<PAGE>

our ability to provide products and services at competitive prices and thereby
reduce the market for our products and services.

     The nature of our and our subsidiaries' current and former operations
exposes us and our subsidiaries to the risk of claims with respect to
environmental matters and we cannot assure you that we will not incur material
costs and liabilities in connection with such claims. Based upon our experience
to date, we believe that the future cost of compliance with existing
environmental laws, and liability for known environmental claims pursuant to
such environmental laws, will not have a material adverse effect on us. Based
upon information available, we estimate the cost of further investigation and
remediation of identified soil and groundwater problems at operating sites,
closed sites and third-party sites, (including the Jericho litigation referred
to under "-- Legal Proceedings") to be approximately $2.0 million, which is
included in current and long-term liabilities in our June 30, 2003 condensed
consolidated balance sheet. However, future events, such as new information,
changes in existing environmental laws or their interpretation, and more
vigorous enforcement policies of regulatory agencies, may give rise to
additional expenditures or liabilities that could be material. For all purposes
of the discussion under this caption, under "Legal Proceedings" and elsewhere in
this offering circular, it should be noted that we take and have taken the
position that neither Phibro Animal Health Corporation, nor any of our
subsidiaries is liable for environmental or other claims made against one or
more of our other subsidiaries or for which any of such other subsidiaries may
ultimately be responsible.

  FEDERAL REGULATION

     The following summarizes the principal federal environmental laws affecting
our business:

     Resource Conservation and Recovery Act of 1976, as amended
("RCRA").  Congress enacted RCRA to regulate, among other things, the
generation, transportation, treatment, storage and disposal of solid and
hazardous wastes. RCRA required the EPA to promulgate regulations governing the
management of hazardous wastes, and to allow individual states to administer and
enforce their own hazardous waste management programs as long as such programs
were equivalent to and no less stringent than the federal program.

     The EPA's regulations, and most state regulations in authorized states,
establish categories of regulated entities and set standards and procedures
those entities must follow in their handling of hazardous wastes. The three
general categories of waste handlers governed by the regulations are hazardous
waste generators, hazardous waste transporters, and owners and operators of
hazardous waste treatment, storage and/or disposal facilities. Generators are
required, among other things, to obtain identification numbers and to arrange
for the proper treatment and/or disposal of their wastes by licensed or
permitted operators and all three categories of waste handlers are required to
utilize a document tracking system to maintain records of their activities.
Transporters must obtain permits, transport hazardous waste only to properly
permitted treatment, storage or disposal facilities, and maintain required
records of their activities. Treatment, storage and disposal facilities are
subject to extensive regulations concerning their location, design and
construction, as well as the operating methods, techniques and practices they
may use. Such facilities are also required to demonstrate their financial
responsibility with respect to compliance with RCRA, including closure and
post-closure requirements.

     The Federal Water Pollution Control Act, as amended (the "Clean Water
Act").  The Clean Water Act prohibits the discharge of pollutants to the waters
of the United States without governmental authorization. Like RCRA, the Clean
Water Act provides that states with programs approved by the EPA may administer
and enforce their own water pollution control programs. Pursuant to the mandate
of the Clean Water Act, the EPA has promulgated "pre-treatment" regulations,
which establish standards and limitations for the introduction of pollutants
into publicly-owned treatment works.

     Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended ("CERCLA" or "Superfund").  Under CERCLA and similar state
laws, the Company and its subsidiaries may have strict and, under certain
circumstances, joint and several liability for the investigation and remediation
of environmental pollution and natural resource damages associated with real
property

                                        47
<PAGE>

currently and formerly-owned or operated by the Company or a subsidiary and at
third-party sites at which the Company's subsidiaries disposed of or treated, or
arranged for the disposal of or treatment of, hazardous substances.

     Federal Insecticide, Fungicide and Rodenticide Act, as amended
("FIFRA").  FIFRA governs the manufacture, sale and use of pesticides, including
the copper-based fungicides sold by the Company. FIFRA requires such products
and the facilities at which they are formulated to be registered with the EPA
before they may be sold. If the product in question is generic in nature (i.e.,
chemically identical or substantially similar to a previously registered
product), the new applicant for registration is entitled to cite and rely on the
test data supporting the original registrant's product in lieu of submitting
data of its own. Should the generic applicant choose this citation option, it
must offer monetary compensation to the original registrant and must agree to
binding arbitration if the parties are unable to agree on the terms and amount
of compensation. The Company has elected this citation option in the past and
may use the citation option in the future should it conclude it is, in some
instances, economically desirable to do so. While there are cost savings
associated with the opportunity to avoid one's own testing and demonstration to
the EPA of test data, there is, in each instance, a risk that the level of
compensation ultimately required to be paid to the original registrant will be
substantial.

     Under FIFRA, the EPA also has the right to "call in" additional data from
existing registrants of a pesticide, should the EPA determine, for example, that
the data already in the file need to be updated or that a specific issue or
concern needs to be addressed. The existing registrants have the option of
submitting data separately or by joint agreement. Alternatively, if one
registrant agrees to generate and submit the data, the other(s) may meet their
obligations under the statute by making a statutory offer to jointly develop or
share in the costs of developing the data. In that event, the offering party
must, again, agree to binding arbitration to resolve any dispute as to the terms
of the data development arrangement.

     The Clean Air Act.  The Federal Clean Air Act of 1970 ("Clean Air Act") and
amendments to the Clean Air Act, and corresponding state laws regulate the
emissions of materials into the air. Such laws affect the coal industry both
directly and indirectly and, therefore, the operations of MRT, to be sold as
part of the Transaction. Phibro-Tech is also impacted by the Clean Air Act and
has various air quality permits, including a Title V operating air permit at its
Sumter, South Carolina facility.

 STATE AND LOCAL REGULATION

     In addition to those federal programs described above, a number of states
and some local governments have also enacted laws and regulations similar to the
federal laws described above governing hazardous waste generation, handling and
disposal, emissions to the water and air and the design, operation and
maintenance of recycling facilities.

 FOREIGN REGULATION

     Our foreign subsidiaries are subject to a variety of foreign environmental
laws relating to pollution and protection of the environment, including the
generation, handling, storage, management, transportation, treatment and
disposal of solid and hazardous materials and wastes, the manufacture and
processing of pesticides and animal feed additives, emissions to the air,
discharges to land, surface water and subsurface water, human exposure to
hazardous and toxic materials and the remediation of environmental pollution
relating to their past and present properties and operations.

 REGULATION OF RECYCLING ACTIVITIES

     We have substantially reduced our recycling activities at our Joliet,
Illinois; Garland, Texas; Sumter, South Carolina; and Sewaren, New Jersey sites.
Our recycling activities may be broken down into the following segments for
purposes of regulation under RCRA or equivalent state programs: (i) transport of
wastes to our facilities; (ii) storage of wastes prior to processing; (iii)
treatment and/or recycling of wastes; and (iv) corrective action at its RCRA
facilities. Although all aspects of the treatment and recycling of waste at our
recycling facilities are not currently the subject of federal RCRA regulation,
our

                                        48
<PAGE>

subsidiaries decided to permit our recycling facilities as RCRA regulated
facilities. Final RCRA "Part B" permits to operate as hazardous waste treatment
and storage facilities have been issued at our facilities in Santa Fe Springs,
California; Garland, Texas; Joliet, Illinois; Sumter, South Carolina; and
Sewaren, New Jersey. Part B renewal applications have been submitted for the
Santa Fe Springs, Garland and Joliet sites. The applications are being reviewed.

     In connection with RCRA Part B permits for the waste storage and treatment
units of various facilities, our subsidiaries have been required to perform
extensive site investigations at such facilities to identify possible
contamination and to provide regulatory authorities with plans and schedules for
remediation. Soil and groundwater contamination has been identified at several
plant sites and has required and will continue to require corrective action and
monitoring over future years. In order to maintain compliance with RCRA Part B
permits, which are subject to suspension, revocation, modification or denial
under certain circumstances, we have been, and in the future may be, required to
undertake additional capital improvements or corrective action.

     Our subsidiaries involved in recycling activities are required by the RCRA
and their Part B permits to develop and incorporate in their Part B permits
estimates of the cost of closure and post-closure monitoring for their operating
facilities. In general, in order to close a facility which has been the subject
of a RCRA Part B permit, a RCRA Part B closure permit is required which approves
the investigation, remediation and monitoring closure plan, and requires
post-closure monitoring and maintenance for up to 30 years. Accordingly, we
incur additional costs in connection with any such closure. These cost estimates
are updated annually for inflation, developments in available technology and
corrective actions already undertaken. We have, in most instances, chosen to
provide the regulatory guarantees required in connection with these matters by
means of our coverage under an environmental impairment liability insurance
policy. We cannot assure you that such policy will continue to be available in
the future at economically acceptable rates, in which event other methods of
financial assurance will be necessary.

     In addition to certain operating facilities, we or our subsidiaries have
been and will be required to investigate and remediate certain environmental
contamination at shutdown plant sites. We or our subsidiaries are also required
to monitor such sites and continue to develop controls to manage these sites
within the requirements of RCRA corrective action programs.

 WASTE BYPRODUCTS

     In connection with our subsidiaries' production of finished chemical
products, limited quantities of waste by-products are generated. Depending on
the composition of the by-product, our subsidiaries either sell it, send it to
smelters for metal recovery or send it for treatment or disposal to regulated
facilities.

 PARTICULAR FACILITIES

     The following is a description of certain environmental matters relating to
certain facilities of certain of our subsidiaries. References to us throughout
is intended to refer only to the applicable subsidiary unless the context
otherwise requires. These matters should be read in conjunction with the
description of Legal Proceedings below, certain of which involve such
facilities, and Note 13 to our Consolidated Financial Statements.

     In 1984, Congress enacted certain amendments to RCRA under which facilities
with RCRA permits were required to have RCRA facility assessments ("RFA") by the
EPA or the authorized state agency. Following an RFA, a RCRA facility
investigation, a corrective measures study, and corrective measure
implementation must, if warranted, be developed and implemented. As indicated
below, certain of our subsidiaries are in the process of developing or
completing various actions associated with these regulatory phases at certain of
their facilities.

     Sumter, SC.  In 2003, the South Carolina Department of Health and
Environmental Control ("DHEC") ordered Phibro-Tech, Inc., a subsidiary
("Phibro-Tech"), to prepare a RCRA Facility Investigation ("RFI") and to prepare
and propose Corrective Action Plans. Phibro-Tech has done so, and


                                        49
<PAGE>

such proposed investigatory activities and Corrective Action Plans are being
reviewed by the State. Additional Corrective Action is also being undertaken by
Phibro-Tech pursuant to prior agreements with DHEC to remedy certain
deficiencies in the plant's hazardous waste closure, storage and management
system.

     Santa Fe Springs, CA.  Phibro-Tech submitted an application for renewal of
the Part B Permit for the Santa Fe Springs, California facility. Such
application is presently under review by the State of California and may require
certain corrective actions including, but not limited to, a pump and treat
system utilizing existing water treatment facilities. Separately, as part of an
earlier investigation, Phibro-Tech has submitted a report to the State
recommending no further action in connection with that matter. This
recommendation is also under review by the State.

     Joliet, IL.  Phibro-Tech has submitted an application for renewal of the
Part B Permit for the Joliet, Illinois facility. In connection with this
application, Phibro-Tech completed an initial investigation and determined that
certain minor corrective action was required. The application for renewal is
presently pending and the corrective action is being done.

     Garland, TX.  The renewal application for the Part B Permit at the Garland,
Texas facility has been submitted to the State and is pending. As part of an
earlier site investigation, certain corrective action was required including
upgrading of pollution control equipment and additional site characterization.
Both of these are presently underway.

     Powder Springs, Georgia.  Phibro-Tech's facility in Powder Springs, Georgia
has been operationally closed since 1985. Phibro-Tech retains environmental
compliance responsibility for this facility and has effected a RCRA closure of
the regulated portion of the facility, a surface impoundment. Post-closure
monitoring and corrective action are required pursuant to a state-issued permit.
As required by the permit, corrective action for groundwater has begun, and
Phibro-Tech has submitted and received approval from the state for a remedial
investigation plan.

     Sewaren, NJ.  Operations at the Sewaren facility were curtailed on or about
September 30, 1999. In June, 2000, CP Chemicals, Inc., a subsidiary ("CP"),
transferred title to the Sewaren property to Woodbridge Township while, at the
same time, entering into a 10-year lease with the Township providing for lease
payments aggregating $2 million, and covering certain areas of the property,
including those areas of the property relating to the existing hazardous waste
storage, treatment and transfer permit, loading docks and pads, and a building,
as well as access, parking, scale use and office space.

     The property is the subject of an Administrative Consent Order executed in
March 1991 between the New Jersey Department of Environmental Protection and CP.
CP has ongoing obligations under that Administrative Consent Order. CP is
required to complete the implementation of the Remedial Action Work Plan
approved by the Department of Environmental Protection. Although some of the
obligations have been assumed by the Township under the Lease, for example, the
maintenance of the groundwater recovery system, CP remains responsible to the
Department of Environmental Protection under the Administrative Consent Order.
CP has posted financial assurance, based on the estimated costs of
implementation, under the Administrative Consent Order.

     The property is also regulated under the Corrective Action Program
administered by the United States Environmental Protection Agency pursuant to
the Resource Conservation and Recovery Act. The property has been designated as
a RCRA facility for which achieving the Environmental Indicators is a priority.
Currently, CP is interfacing with the Department of Environmental Protection and
the Environmental Protection Agency to coordinate its efforts under this program
and the Administrative Consent Order discussed above. Much of the effort
required by CP in this program is already being conducted as part of the
requirements of the Administrative Consent Order discussed above.

     The hazardous waste facility permit issued to CP for this facility will
expire in August 2003. CP will commence the implementation of its approved
closure plan at that time. Based on a formula established by the Department of
Environmental Protection, those closure costs were estimated at $292,822.92 and


                                        50
<PAGE>

submitted to the Department in April 2003. CP has also advised the New Jersey
Division of Law of its intent to withdraw from the licensing program governing
facilities.

     Union City, CA.  The closure plan for the Union City, California facility
was approved by the State of California and closure activities have been
substantially completed. Certain additional soil sampling is being conducted and
the Company does not expect any material additional work to be required at this
site.

     Union, IL.  The facility in Union, Illinois, has been closed since 1986. A
revised remedial action plan ("RAP") has been submitted to the Illinois
Environmental Protection Agency (the "IEPA") and is presently under review. The
work contemplated in the RAP is the result of negotiations between the IEPA and
Phibro-Tech as part of a resolution of Phibro-Tech's appeal of the IEPA's
initial closure requirements. That appeal is currently pending before the
Illinois Pollution Control Board.

     Ramat Hovav, Israel.  Koffolk Israel's Ramat Hovav plant produces a wide
range of organic chemical intermediates for the animal health, chemical,
pharmaceutical and veterinary industries. Israeli legislation enacted in 1997
amended certain environmental laws by authorizing the relevant administrative
and regulatory agencies to impose certain sanctions, including issuing an order
against any person that violates such environmental laws to remove the
environmental hazard. In addition, this legislation imposes criminal liability
on the officers and directors of a corporation that violates such environmental
laws, and increases the monetary sanctions that such officers, directors and
corporations may be ordered to pay as a result of such violations. The Ramat
Hovav plant operates under the regulation of the Ministry of Environment of the
State of Israel. The sewage system of the plant is connected to the Ramat Hovav
Local Industrial Council's central installation, where Koffolk Israel's sewage
is treated together with sewage of other local plants. Owners of the plants in
the area, including Koffolk Israel, have been required by the Israeli Ministry
of Environment to build facilities for pre-treatment of their sewage.

GOVERNMENT REGULATION

     Most of our Animal Health and Nutrition Group products require licensing by
a governmental agency before marketing. In the United States, governmental
oversight of animal nutrition and health products is shared primarily by the
United States Department of Agriculture ("USDA") and the Food and Drug
Administration. A third agency, the Environmental Protection Agency, has
jurisdiction over certain products applied topically to animals or to premises
to control external parasites.

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

     The FDA is responsible for the safety and wholesomeness of the human food
supply. It regulates foods intended for human consumption and, through The
Center for Veterinary Medicine, regulates the manufacture and distribution of
animal drugs, including feed additives and drugs that will be given to animals
from which human foods are derived, as well as feed additives and drugs for pet
(or companion) animals.

     To protect the food and drug supply for animals, the FDA develops technical
standards for animal drug safety and effectiveness and evaluates data bases
necessary to support approvals of veterinary drugs. The USDA monitors the food
supply for animal drug residues.

     FDA approval is based on satisfactory demonstration of safety and efficacy.
Efficacy requirements are based on the desired label claim and encompass all
species for which label indication is desired. Safety requirements include
target animal safety and, in the case of food animals, drug residues and the
safety of those residues must be considered. In addition to the safety and
efficacy requirements for animal drugs used in food producing animals, the
environmental impact must be determined. Depending on the compound, the
environmental studies may be quite extensive and expensive. In many instances
the

                                        51
<PAGE>

regulatory hurdles for a drug which will be used in food producing animals are
at least as stringent if not more so than those required for a drug used in
humans. For FDA approval of a new animal drug it is estimated the cost is $100
million to $150 million and time for approval is 8 to 10 years.

     The Office of New Animal Drug Evaluation ("NADE") is responsible for
reviewing information submitted by drug sponsors who wish to obtain approval to
manufacture and sell animal drugs. A new animal drug is deemed unsafe unless
there is an approved new animal drug application ("NADA"). Virtually all animal
drugs are "new animal drugs" within the meaning of the term in the Federal Food,
Drug, and Cosmetic Act. Although the procedures for licensing products by the
FDA are formalized, the acceptance standards of performance for any product are
agreed upon between the manufacturer and the NADE. A NADA in animal health is
analogous to a New Drug Application ("NDA") in human pharmaceuticals. Both are
administered by the FDA. The drug development process for human therapeutics can
be more involved than that for animal drugs. However, for food-producing
animals, food safety residue levels are an issue, making the approval process
longer than for animal drugs for non-food producing animals, such as pets.

     The FDA may deny a NADA if applicable regulatory criteria are not
satisfied, require additional testing or information, or require postmarketing
testing and surveillance to monitor the safety or efficacy of a product. There
can be no assurances that FDA approval of any NADA will be granted on a timely
basis or at all. Moreover, if regulatory approval of a product is granted, such
approval may entail limitations on the indicated uses for which it may be
marketed. Finally, product approvals may be withdrawn if compliance with
regulatory standards is not maintained or if problems occur following initial
marketing. Among the conditions for NADA approval is the requirement that the
prospective manufacturer's quality control and manufacturing procedures conform
to cGMP. The plant must be inspected biannually by the FDA for determination of
compliance with cGMP after an initial preapproval inspection. After FDA
approval, any manufacturing changes that may have an impact on the safety and/or
efficacy must be approved by the FDA prior to implementation. In complying with
standards set forth in these regulations, manufacturers must continue to expend
time, monies and effort in the area of production and quality control to ensure
compliance.

     For clinical investigation and marketing outside the United States, we are
also subject to foreign regulatory requirements governing investigation,
clinical trials and marketing approval for animal drugs. The foreign regulatory
approval process includes all of the risks associated with FDA approval set
forth above. Currently, in the EU, feed additives which are successfully
sponsored by a manufacturer are assigned to an Annex. Initially, they are
assigned to Annex II. During this period, member states may approve the feed
additive for local use. After five years or earlier, the product passes to Annex
I if no adverse reactions or trends develop over the probationary period.

     The EU is in the process of centralizing the regulatory process for animal
drugs for member states. In 1997, the EU drafted new regulations requiring the
re-registration of feed additives, including coccidiostats. Part of these
regulations include a provision for manufacturers to submit quality data for
their own formulation, in effect adopting a Product License procedure similar to
that of the FDA. The provision is known as Brand Specific Approval ("BSA"), and
provides manufacturers with the opportunity to register their own unique brands,
instead of simply the generic compound. The BSA process is being implemented
over time. The new system is more like the U.S. system, where regulatory
approval is for the formulated product or "brand." A number of manufacturers,
including us, have completed dossiers in order to re-register various
anticoccidials for the purpose of obtaining regulatory approval from the
European Commission. As a result of its review of said dossiers, the Commission
withdrew marketing authorization of a number of anticoccidials, including
nicarbazin, as the Commission did not consider the submissions to be in full
compliance with its new regulations. We have subsequently completed the
necessary data and resubmitted its nicarbazin dossier. Feasibility and timetable
for new registration will depend on the nature of demands and remarks from the
Commission. Notwithstanding the Commission's actions with respect to our
nicarbazin dossier, we are able to sell, and do sell, nicarbazin as an active
ingredient for another MFA marketer's product which has obtained a BSA and is
sold in the EU.


                                        52
<PAGE>

LEGAL PROCEEDINGS

     Reference is made to the discussion above under "Environmental Matters" for
information as to various environmental investigation and remediation
obligations of our subsidiaries associated principally with their recycling and
production facilities and to certain legal proceedings associated with such
facilities.

     In addition to such matters, we or certain of our subsidiaries are subject
to certain litigation described below.

     On or about April 17, 1997, CP and we were served with a complaint filed by
Chevron U.S.A. Inc. ("Chevron") in the United States District Court for the
District of New Jersey, alleging that the operations of CP at its Sewaren plant
affected adjoining property owned by Chevron and alleging that we, as the parent
of CP, are also responsible to Chevron. In July 2002, a phased settlement
agreement was reached and a Consent Order entered by the Court. That settlement
is in the process of being implemented. Our portion of the settlement for past
costs and expenses through the entry of the Consent Order was $495,000 and is
included in selling, general and administrative expenses in the June 30, 2002
statement of operations and comprehensive income. Such amount was paid in July
2002. The Consent Order then provides for a period of due diligence
investigation of the property owned by Chevron. The investigation has been
conducted and the results are under review. The investigation costs are being
split with one other defendant, Vulcan Materials Company. Upon completion of the
review of the results of the investigation, a decision will be made whether to
opt out of the settlement or proceed. If no party opts out of the settlement,
Phibro Animal Health Corporation and CP will take title to the adjoining Chevron
property, probably through the use of a three-member New Jersey limited
liability company. The third member of the limited liability company will be
Vulcan Materials Company. We also have commenced negotiations with Chevron
regarding its allocation of responsibility and associated costs under the
Consent Order. While the costs cannot be estimated with any degree of certainty
at this time, we believe that insurance recoveries will be available to offset
some of those costs.

     Our Phibro-Tech subsidiary was named in 1993 as a potentially responsible
party ("PRP") in connection with an action commenced under CERCLA by the EPA,
involving a former third-party fertilizer manufacturing site in Jericho, South
Carolina. An agreement has been reached under which we have agreed to contribute
up to $900,000 of which $634,596 has been paid as of June 30, 2003. Some
recovery from insurance and other sources is expected. We have also accrued our
best estimate of any future costs.

     By notice dated August 14, 2003, our Phibro-Tech subsidiary's Santa Fe
Springs, California facility was notified by the California Department of Toxic
Substances Control that it could be a potentially responsible party in
connection with a third-party site in Wilmington, California. We are
investigating this matter but believe it relates to matters that took place
before Phibro-Tech acquired the assets and began operating at its Santa Fe
Springs, California site. In any event, we do not believe that Phibro-Tech will
have any material liability in this matter.

     Phibro-Tech, Inc. has resolved certain alleged technical permit violations
with the California Department of Toxic Substance Control ("DTSC") and has
reached on oral agreement to pay $425,000 over six (6) years as a result. None
of the annual payments required under this agreement will have any material
adverse impact on us.

     In February 2000, the EPA notified numerous parties of potential liability
for waste disposed of at a licensed Casmalia, California disposal site,
including a business, assets of which were originally acquired by a subsidiary
of ours in 1984. A settlement has been reached in this matter and we have paid
$171,103 of the settlement amount.

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


                                        53
<PAGE>

                              CONDITIONS IN ISRAEL

     The following information discusses certain conditions in Israel that could
affect our Israeli subsidiary, Koffolk Israel. As of June 30, 2003 and for the
year then ended, Israeli operations (excluding Koffolk Israel's non-Israeli
subsidiaries) accounted for approximately 14% of our consolidated assets and
approximately 13% of our consolidated net sales. We are, therefore, directly
affected by the political, military and economic conditions in Israel.

POLITICAL AND MILITARY CONDITIONS

     Since the establishment of the State of Israel in 1948, a number of armed
conflicts have taken place between Israel and its Arab neighbors and a state of
hostility, varying from time to time in intensity and degree, has led to
security and economic problems for Israel. Although Israel has entered into
various agreements with certain Arab countries and the Palestinian Authority,
since October 2000 there has been a significant increase in violence and
terrorist activity in Israel. In April 2002, and from time to time thereafter,
Israel undertook military operations in several Palestinian cities and towns. We
cannot predict whether the current violence and unrest will continue and to what
extent it will have an adverse impact on Israel's economic development or on
Koffolk Israel's or our results of operations. We also cannot predict whether or
not any further hostilities will erupt in Israel and the Middle East and to what
extent such hostilities, if they do occur, will have an adverse impact on
Israel's economic development or on Koffolk Israel's or our results of
operations.

     Certain countries, companies and organizations continue to participate in a
boycott of Israeli firms and other companies doing business in Israel or with
Israel companies. We do not believe that the boycott has had a material adverse
effect on us, but we cannot assure you that restrictive laws, policies or
practices directed toward Israel or Israeli businesses will not have an adverse
impact on our operations or expansion of the our business.

     Generally, male adult citizens who are permanent residents of Israel under
the age of 54 are, unless exempt, obligated to perform certain military duty
annually. Additionally, all such residents are subject to being called to active
duty at any time under emergency circumstances and since April 2002 some
reservists have been called to active duty. Some of the employees of Koffolk
Israel currently are obligated to perform annual reserve duty. While Koffolk
Israel has operated effectively under these and similar requirements in the
past, we cannot assess the full impact of such requirements on Koffolk Israel
and us in the future, particularly if emergency circumstances occur and
employees of Koffolk Israel are called to active duty.

ECONOMIC CONDITIONS

     Israel is currently experiencing the longest recession since the
establishment of Israel in 1948. Factors affecting Israel's economy include the
Intifada, which began in September 2000, the slowdown in world trade and the
global slump in the high-tech industry. In addition, Israel's economy has been
subject to numerous destabilizing factors, including a period of rampant
inflation in the early to mid-1980's, low foreign exchange reserves,
fluctuations in world commodity prices, military conflicts and security
incidents. Further disruptions to the Israeli economy as a result of these or
other factors could have a material adverse affect on Koffolk Israel's and our
results of operations.

     Koffolk Israel receives a portion of its revenues in U.S. dollars while its
expenses are principally payable in New Israeli Shekels. Dramatic changes in the
currency rates could have an adverse effect on Koffolk Israel's results of
operations.

INVESTMENT INCENTIVES

     Certain of our Israeli production facilities have been granted Approved
Enterprise status pursuant to the Law for the Encouragement of Capital
Investments, 1959, and consequently may enjoy certain tax benefits and
investment grants. Taxable income of Koffolk Israel derived from these
production facilities is subject to a lower rate of company tax than the normal
rate applicable in Israel. Dividends distributed by


                                        54
<PAGE>

Koffolk Israel out of the same income are subject to lower rates of withholding
tax than the rate normally applicable to dividends distributed by an Israeli
company to a non-resident corporate shareholder. The grant available to newly
Approved Enterprises was decreased throughout recent years. Certain of our
Israeli production facilities further enjoyed accelerated depreciation under
regulation extended from time to time and other deductions. We cannot assure you
that we will, in the future, be eligible for or receive such or similar grants.


                                        55
<PAGE>

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth information regarding our executive officers
and directors:

<Table>
<Caption>
NAME                                AGE                              POSITION
----                                ---   --------------------------------------------------------------
<S>                                 <C>   <C>
Jack C. Bendheim..................  56    Chairman of the Board of Directors; President
Gerald K. Carlson.................  60    Chief Executive Officer
Marvin S. Sussman.................  56    Vice Chairman of the Board of Directors and President, Prince
                                          Agri
James O. Herlands.................  61    Director and Executive Vice President
Peter A. Joseph...................  51    Director
Richard G. Johnson................  53    Chief Financial Officer
Steven L. Cohen...................  59    Vice President, General Counsel and Assistant Secretary
David G. McBeath..................  56    President, Animal Health Group
William A. Mathison...............  62    President, Specialty Chemicals Group
</Table>

     Jack C. Bendheim Chairman of the Board of Directors and President. Mr.
Bendheim has been President since 1988. He was Chief Operating Officer from 1988
to 1998, and was Chief Executive Officer from 1998 to May 2002. He has been a
director since 1984. Mr. Bendheim joined us in 1969 and served as Executive Vice
President and Treasurer from 1983 to 1988 and as Vice President and Treasurer
from 1975 to 1983. Mr. Bendheim is also a director of The Berkshire Bank in New
York, New York, and Empire Resources, Inc., a metals trading company in Fort
Lee, New Jersey.

     Gerald K. Carlson Chief Executive Officer. Mr. Carlson joined us in May
2002 and has served as our Chief Executive Officer since then. Prior to joining
us, Mr. Carlson served as the Commissioner of Trade and Development for the
State of Minnesota from January 1999 to March 2001. Mr. Carlson served as Senior
Vice President -- Corporate Planning and Development from June 1996 to his
retirement in October 1998 from Ecolab, Inc. During his thirty-two year career
at Ecolab, Mr. Carlson also served as Senior Vice President of International as
well as Senior Vice President and General Manager -- Institutional North
America.

     Marvin S. Sussman Vice Chairman of the Board of Directors and President of
our Prince Agri subsidiary. He has been a director since 1988 and was Chief
Operating Officer from 1998 to 2002. Mr. Sussman joined us in 1971. Since then,
he has served in various executive positions with us and at PMC. Mr. Sussman was
President of our Prince Group from 1988 to 2002. Mr. Sussman is the brother-
in-law of Jack Bendheim.

     James O. Herlands Director; Executive Vice President. Mr. Herlands joined
us in 1964. Since then, he has served in various capacities in sales/marketing
and purchasing. He has been a director since 1988 and served as President of our
CP/PhibroChem division since 1992. In addition, Mr. Herlands has served as our
Executive Vice President since 1988. Mr. Herlands is the first cousin of Jack
Bendheim.

     Peter A. Joseph Director. Mr. Joseph has served as one of our Directors
since February 2001. From 1998 to present, he has been a member of Palladium
Equity Partners, LLC. From 1986 to 1997, Mr. Joseph was a general partner of
Joseph Littlejohn & Levy.

     Richard G. Johnson Chief Financial Officer. Mr. Johnson joined us in
September 2002 and has served as our Chief Financial Officer since then. Prior
to joining us, Mr. Johnson served as Director of Financial Management for
Laserdyne Prima, Inc. from 2001 to 2002 and as Vice President -- Planning and
Control, Latin America for Ecolab, Inc. from 1992 to 1999. In addition, Mr.
Johnson served in various senior financial positions at Ecolab over a fifteen
year period.

     Steven L. Cohen Vice President and General Counsel. Mr. Cohen joined us in
October 2000 and has served as our Vice President -- Regulatory and General
Counsel since then. Prior to joining us, Mr. Cohen


                                        56
<PAGE>

was, from 1997 to 2000, General Counsel of Troy Corporation, a multi-national
chemical company. From 1994 to 1997, Mr. Cohen was in the private practice of
law.

     David G. McBeath President Animal Health Group. Mr. McBeath joined us on
August 1, 2003. Prior to joining us, he was CEO of Scottish Health Innovations
Ltd., a company created to identify and exploit intellectual property arising
from research carried out within the National Health Service in Scotland. From
March 2001 to December 2002, he served on the Management Committee of Merial as
Head of the Production Animal business; and prior to this was on the Board of
Hoechst Roussel Vet GmbH, with direct responsibility for R&D and Regulatory
Affairs.

     William A. Mathison President, Specialty Chemicals Group. Mr. Mathison
joined us in June 2002 as President, Specialty Chemicals Group. Prior to joining
us, Mr. Mathison served as Senior Vice President, Global Industrial Accounts for
Ecolab Inc. from 2000 until his retirement in March 2002. From 1991 to 2000, Mr.
Mathison served as Vice President and General Manager of the North American Food
and Beverage Division of Ecolab Inc.

BOARD COMPOSITION

     Our entire Board of Directors consists of 5 members. Our board of directors
is elected annually, and our directors hold office until the next annual meeting
of shareholders or until their successors are elected and qualified. Each
officer serves at the discretion of the board of directors.

COMPENSATION OF DIRECTORS

     Our directors do not receive any cash compensation for service on our board
of directors, but directors may be reimbursed for certain expenses in connection
with attendance at board meetings. We have entered into certain transactions
with certain of the directors. See "Certain Relationships and Related
Transactions."

COMMITTEES OF THE BOARD OF DIRECTORS

     Our Board of Directors has not created any committees.

EXECUTIVE COMPENSATION

     The following table sets forth the cash compensation paid by us and our
subsidiaries for services during fiscal 2003, 2002, and 2001 to each of our five
most highly compensated executive officers:

<Table>
<Caption>
                                                              ANNUAL COMPENSATION
                                         -------------------------------------------------------------
NAME AND                                                                OTHER ANNUAL      ALL OTHER
PRINCIPAL POSITION                       YEAR     SALARY      BONUS     COMPENSATION   COMPENSATION(1)
------------------                       ----   ----------   --------   ------------   ---------------
<S>                                      <C>    <C>          <C>        <C>            <C>
Jack C. Bendheim                         2003   $1,650,000   $     --    $ 150,000(2)       $6,500
  Chairman of the Board; President       2002    1,500,000    265,000           --           6,000
                                         2001    1,640,000    600,000           --           5,300

Gerald K. Carlson(3)                     2003      500,000         --       24,000              --
  Chief Executive Officer                2002       49,350         --           --              --

Marvin S. Sussman(4)                     2003    1,000,000         --           --           6,500
  Vice Chairman of the Board;            2002    1,000,000         --           --           6,000
  President of Prince Agri               2001      733,500    710,000           --           5,300

James O. Herlands                        2003      400,000    150,000           --           6,500
  Executive Vice President               2002      400,000    150,000           --           6,000
                                         2001      395,000    382,500           --           5,300

William A. Mathison(5)                   2003      235,000         --       50,000              --
  President, Specialty Chemicals
</Table>


                                        57
<PAGE>

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

(1) Represents contributions by us under our 401(k) Retirement and Savings Plan.
    See "Compensation Pursuant to Plans."

(2) In fiscal 2003, Mr. Bendheim was paid $150,000 for temporary deferral of
    fiscal 2002 compensation.

(3) 2002 salary is for a partial year commencing May 2002. In fiscal 2003, Mr.
    Carlson received $24,000 for relocation and housing assistance.

(4) Pursuant to a Stockholders Agreement between us and Mr. Sussman, we are
    required to purchase, at book value, all shares of our Class B Common Stock
    owned by Mr. Sussman in the event of his retirement, death, disability or
    the termination of his employment by us. Should Mr. Sussman elect to sell
    his shares, we have a right of first offer and an option to purchase the
    shares. See "Certain Relationships and Related Transactions." As a result,
    each year, we are required to record as compensation expense (income) in our
    results of operations the change in our book value attributable to Mr.
    Sussman's shares. For 2003, 2002 and 2001, the expense (income) attributable
    to Mr. Sussman's shares was $0, ($378,000) and ($3,135,000), respectively.
    No distributions have been made to Mr. Sussman under this agreement.

(5) Salary is since date of employment for 2003. Mr. Mathison also received
    $50,000 as a signing bonus and relocation allowance.

     In fiscal 2003, we granted no options to the named executive officers and
no options were held or exercised by any of the named executive officers.

EMPLOYMENT AND SEVERANCE AGREEMENTS

     We entered into an employment agreement with Gerald K. Carlson in May 2002,
whereby Mr. Carlson will serve as our Chief Executive Officer. The agreement
provides for a base salary of $500,000 during the first year of its term. Mr.
Carlson is eligible to receive an annual bonus of up to 150% of his base salary
based on our achievement of certain specified EBITDA growth targets. If Mr.
Carlson is terminated without Cause (as defined) or he voluntarily terminates
the agreement with Good Reason (as defined), he is entitled to receive the
accrued portion of the target annual bonus, as well as an amount ranging from
two to eight months of base salary depending on when such termination occurs.
If, within six months after a Change of Control (as defined), Mr. Carlson is
terminated without cause or he voluntarily terminates the agreement with Good
Reason, he will be entitled to receive a lump sum payment equal to the amount of
annual target bonus accrued to the date of termination, plus 100% of base salary
and 50% of annual target bonus. We are obligated under the agreement to provide
separate indemnification insurance to Mr. Carlson in the amount of the current
coverage provided to our current board of directors.

     We entered into an employment agreement with Marvin S. Sussman in December
1987. The term of employment is from year-to-year, unless terminated by us at
any time or by his death or permanent disability.

     In 1995, James O. Herlands purchased stock in Phibro-Tech. In connection
therewith, we entered into a severance agreement with him. The agreement
provides that, upon his Actual or Constructive Termination or a Change in
Control Event (as such terms are defined), he is entitled to receive a cash
Severance Amount (as defined therein), based upon a multiple of Phibro-Tech's
pre-tax earnings (as defined therein). In addition, if an Extraordinary Event
(as defined) occurs within 12 months after the occurrence of an Actual or
Constructive Termination, the executive is entitled to receive an additional
Catch-up Payment (as defined). At June 30, 2003, no severance payments would
have been due to Mr. Herlands if he were terminated. See "Certain Relationships
and Related Transactions."

COMPENSATION PURSUANT TO PLANS

     401(k) Plan.  We maintain for the benefit of our employees a 401(k)
Retirement and Savings Plan (the "Plan"), which is a defined contribution,
profit sharing plan qualified under Section 401(k) of the Internal Revenue Code
of 1986, as amended (the "Code"). Our employees are eligible for participation
in the Plan once they have attained age 21 and completed a year of service (in
which the employee


                                        58
<PAGE>

completed 1,000 hours of service). Up to $200,000 (indexed for inflation) of an
employee's base salary may be taken into account for Plan purposes. Under the
Plan, employees may make pre-tax contributions of up to 60.0% of such employee's
base salary, and we will make non-matching contributions equal to 1% of an
employee's base salary and matching contribution equal to 50.0% of an employee's
pre-tax contribution up to 3.0% of such employee's base salary and 25.0% of such
employee's pre-tax contribution from 3.0% to 6.0% of base salary. Participants
are vested in employer contributions in 20% increments beginning after
completion of the second year of service and become fully vested after five
years of service. Distributions are generally payable in a lump sum after
termination of employment, retirement, death, disability, plan termination,
attainment of age 59 1/2, disposition of substantially all of our assets or upon
financial hardship. The Plan also provides for Plan loans to participants.

     The accounts of Messrs. Bendheim, Carlson, Sussman, Herlands, and Mathison
were credited with employer contributions of $6,500, $0, $6,500, $6,500, and $0,
respectively, for fiscal 2003.

     Retirement Plan.  We have adopted The Retirement Plan of Philipp Brothers
Chemicals Inc. and Subsidiaries and Affiliates, which is a defined benefit
pension plan (the "Retirement Plan"). Our employees are eligible for
participation in the Retirement Plan once they have attained age 21 and
completed a year of service (which is a Plan Year in which the employee
completes 1,000 hours of service). The Retirement Plan provides benefits equal
to the sum of (a) 1.0% of an employee's "average salary" plus 0.5% of the
employee's "average salary" in excess of the average of the employee's social
security taxable wage base, times years of service after July 1, 1989, plus (b)
the employee's frozen accrued benefit, if any, as of June 30, 1989 calculated
under the Retirement Plan formula in effect at that time. For purposes of
calculating the portion of the benefit based on "average salary" in excess of
the average wage base, years of service shall not exceed 35. "Average salary"
for these purposes means the employee's salary over the consecutive five year
period in the last ten years preceding retirement or other termination of
employment which produces the highest average; or, if an employee has fewer than
five years of service, all such years of service. An employee becomes vested in
his plan benefit once he completes five years of service with us. In general,
benefits are payable after retirement or disability in the form of a 50%, 75% or
100% joint or survivor annuity, life annuity or life annuity with a five or ten
year term. In some cases benefits may also be payable under the Retirement Plan
in the event of an employee's death.

     The following table shows estimated annual benefits payable upon retirement
in specified compensation and years of service classifications, assuming a life
annuity with a ten year term.

<Table>
<Caption>
                                                      YEARS OF SERVICE
                                       -----------------------------------------------
AVERAGE COMPENSATION                     15        20        25        30        35
--------------------                   -------   -------   -------   -------   -------
<S>                                    <C>       <C>       <C>       <C>       <C>
$25,000..............................  $ 3,750   $ 5,000   $ 6,250   $ 7,500   $ 8,750
$50,000..............................  $ 7,500   $10,000   $12,500   $15,000   $17,500
$75,000..............................  $11,590   $15,000   $18,750   $22,500   $26,250
$100,000.............................  $17,220   $22,230   $27,270   $32,320   $37,640
$150,000.............................  $28,470   $37,230   $46,020   $54,820   $63,890
$200,000.............................  $39,720   $52,230   $64,770   $77,320   $90,140
</Table>

     As of June 30, 2003, Messrs. Bendheim, Carlson, Sussman, Herlands, and
Mathison had 34, 1, 32, 39 and 1 estimated credited years of service,
respectively, under the Retirement Plan. The compensation covered by the
Retirement Plan for each of these officers as of June 30, 2003 is $200,000. Such
individuals, at normal retirement age 65, will have 43, 6, 41, 43 and 6 credited
years of service, respectively. The annual expected benefit after normal
retirement at age 65 for each of these individuals, based on the compensation
taken into account as of June 30, 2003, is $118,250, $16,590, $134,170,
$129,260, and $16,550, respectively.

     Most of our foreign subsidiaries have retirement plans covering
substantially all employees. Contributions to these plans are generally
deposited under fiduciary-type arrangements. Benefits under


                                        59
<PAGE>

these plans are primarily based on levels of compensation. Funding policies are
based on applicable legal requirements and local practices.

     Deferred Compensation Plan.  In 1994, we adopted a non-qualified Deferred
Compensation Plan and Trust, as an incentive for certain executives. The plan
provides for (i) a Retirement Income Benefit (as defined), (ii) a Survivor's
Income Benefit (as defined), and (iii) Deferred Compensation Benefit (as
defined). Three employees currently participate in this plan. A trust has been
established to provide the benefits described above.

     The following table shows the estimated benefits from this plan as of June
30, 2003.

<Table>
<Caption>
                                                     ANNUAL       SURVIVOR'S     DEFERRED
                                                   RETIREMENT       INCOME     COMPENSATION
                                                 INCOME BENEFIT    BENEFIT       BENEFIT
                                                 --------------   ----------   ------------
<S>                                              <C>              <C>          <C>
Jack C. Bendheim...............................     $27,101       $1,500,000     $315,229
Marvin S. Sussman..............................     $27,101       $1,500,000     $110,953
James O. Herlands..............................     $27,101       $  780,000     $278,999
</Table>

     We determine the Retirement Income Benefit based upon the employee's
salary, years of service and age at retirement. At present, it is contemplated
that a benefit of 1% of each participant's eligible compensation will be accrued
each year. The benefit is payable upon retirement (after age 65 with at least 10
years of service) in monthly installments over a 15 year period to the
participant or his named beneficiary. The Survivor's Income Benefit for the
current participants is two times annualized compensation at the time of death,
capped at $1,500,000, payable in 24 equal monthly installments. The Deferred
Compensation Benefit is substantially funded by compensation deferred by the
participants. Such benefit is based upon a participant making an election to
defer no less than $3,000 and no more than $20,000 of his compensation in excess
of $150,000, payable in a lump sum or in monthly installments for up to 15
years. We make a matching contribution of $3,000. Participants have no claim
against us other than as unsecured creditors. We intend to fund the payments
using the cash value or the death benefit from the life insurance policies
insuring each Executive's life.

     Executive Income Program.  On March 1, 1990, we entered into an Executive
Income Program to provide a pre-retirement death benefit and a retirement
benefit to certain of our executives. The Program consists of a Split-Dollar
Agreement and a Deferred Compensation Agreement with Jack Bendheim, Marvin S.
Sussman and James O. Herlands (the "Executives"). The Split Dollar Agreement
provides for us to own a whole life insurance policy in the amount of $1,000,000
(plus additions) on the life of each Executive.

     Each policy also contains additional paid-up insurance and extended term
insurance. On the death of the Executive prior to his 60th birthday or his
actual retirement date, whichever is later: (i) the first $1,000,000 of the
death benefit is payable to the Executive's spouse, or issue; (ii) the excess is
payable to us up to the aggregate amount of premiums paid by us; and (iii) any
balance is payable to the Executive's spouse or issue. The Split-Dollar
Agreement terminates and no benefit is payable if the Executive dies after his
retirement. The Deferred Compensation Agreement provides that upon the
Executive's retirement, at or after attaining age 65, we will make retirement
payments to the Executive during his life for 10 years or until he or his
beneficiaries have received a total of 120 monthly payments. Participants have
no claim against us other than as unsecured creditors. We intend to fund the
payments using the cash value or the death benefit from the life insurance
policies insuring each Executive's life. The retirement benefits are as follows:
Jack Bendheim $30,000; Marvin S. Sussman $30,000; and James O. Herlands $20,000.


                                        60
<PAGE>

                             PRINCIPAL STOCKHOLDERS

     The table sets forth certain information as of June 30, 2003 regarding
beneficial ownership of our capital stock by each of our directors and named
executive officers, each beneficial owner of 5% or more of the outstanding
shares of capital stock and all directors and officers as a group.

<Table>
<Caption>
                                                                 NUMBER OF COMMON SHARES
                                                                  (PERCENTAGE OF CLASS)
                                                          -------------------------------------
NAME                                                      CLASS A VOTING(1)   CLASS B VOTING(2)
----                                                      -----------------   -----------------
<S>                                                       <C>                 <C>
Jack Bendheim(3)........................................       12,600             10,699.65(90%)(4)
                                                                 (100)%
Marvin S. Sussman.......................................           --              1,188.85(10%)
All other officers and directors(5).....................           --                    --
All officers and directors as a group...................       12,600             11,888.50(100%)
                                                                 (100)%
</Table>

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

(1) The entire voting power is exercised by the holders of Class A Common Stock,
    except that the holders of Class A Common Stock are entitled to elect all
    but three of the directors. The holders of Class B Common Stock, Series B
    Preferred Stock and Series C Preferred Stock are each entitled to elect one
    director but do not vote on any other matters.

(2) Class B Common shareholders will receive the entire equity upon our
    liquidation, after payment of preferences to holders of all classes of
    preferred stock and Class A Common Stock.

(3) Jack Bendheim also owns 5,207 (100%) shares of Series A Preferred Stock.

(4) Includes 4,414.886 shares owned by trusts for the benefit of Jack Bendheim,
    his spouse, his children and their spouses and his grandchildren.

(5) Peter A. Joseph has been designated as director of the Company by Palladium
    Equity Partners II, LP ("Palladium") which beneficially owns 25,000 and
    20,000 shares of our Series B Preferred Stock and Series C Preferred Stock,
    respectively.


                                        61
<PAGE>

                          DESCRIPTION OF CAPITAL STOCK

     Our authorized capital stock consists of 30,300 shares of Common Stock,
allocated as follows: 16,200 shares of Class A Common Stock, par value $0.10 per
share, and 14,100 shares of Class B Common Stock, par value $0.10 per share, and
155,750 shares of Preferred Stock, par value $100 per share, of which the
following series have been established: 5,207 shares of Series A Preferred
Stock; 25,000 shares of Series B Redeemable Participating Preferred Stock
("Series B Preferred Stock") and 20,000 shares of Series C Redeemable
Participating Preferred Stock ("Series C Preferred Stock").

     At the date of this offering circular, there are issued and outstanding
12,600 shares of Class A Common Stock, 11,888.50 shares of Class B Common Stock,
5,207 shares of Series A Preferred Stock, 25,000 shares of Series B Preferred
Stock and 20,000 shares of Series C Preferred Stock.

     The following description of the terms of all classes and series of our
common and preferred stock is not complete and is subject to and qualified in
its entirety by reference to our amended certificate of incorporation (the
"Certificate of Incorporation").

     The entire voting power is vested in the holders of Class A Common Stock,
except that the holders of shares of Class A Common Stock are entitled to elect
all but three of the directors. The holders of Class B Common Stock are entitled
to elect one director, and the purchasers of Series B Preferred Stock and Series
C Preferred Stock are entitled by contract to elect two directors and are not
entitled to vote on any other corporate action except as required by applicable
law. The holders of shares of Class A Common Stock are entitled to one vote per
share upon all matters submitted for a vote of the shareholders. The Certificate
of Incorporation does not provide for cumulative voting. The holders of Common
Stock are entitled to preemptive rights.

     No dividends may be paid to holders of Common Stock until all dividends
have been paid to holders of Preferred Stock. The holders of Series B Preferred
Stock and Series C Preferred Stock are entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of the liquidation value. The
liquidation value of the Series B Preferred Stock is an amount equal to $1,000
per share plus all accrued and unpaid dividends (the "Liquidation Value"). The
Series C Preferred Stock is entitled to the Liquidation Value plus a percentage
of our equity value, as defined in the Certificate of Incorporation. The equity
value is calculated as a multiple of the earnings before interest, tax,
depreciation and amortization of our business ("Equity Value"). Directors
elected by the holders of Class A Common Stock have the exclusive right and
power to cause us to declare and pay other dividends. Non-cumulative dividends
are payable on the outstanding Series A Preferred Stock and Common Stock, in the
following order only when and as declared by the Board: each share of Series A
Preferred Stock -- $1.00 per year; each share of Class A Common Stock -- $0.0055
per year; and each share of Class B Common Stock, as determined by the Board.

     We may, within 90 days before and 90 days after each anniversary of the
date of original issuance, redeem the Series B Preferred Stock, in whole or in
part, at the Liquidation Value for cash, provided that if Series B Preferred
Stock is redeemed separately from the Series C Preferred Stock, then the Series
B Preferred Stock must be redeemed for the Liquidation Value plus an additional
amount that would generate an internal rate of return of 20% to the holder on
the Series B Preferred Stock purchase price. Redemption in part of Series B
Preferred Stock is only available if at least 50% of the outstanding Series B
Preferred Stock is redeemed. Beginning November 30, 2003, and on each
anniversary thereafter, we may redeem, for cash only, in whole the Series C
Preferred Stock, at the Liquidation Value plus the Equity Value payment. At any
time after the redemption of the Senior Subordinated Notes due 2008, Palladium
has the right to require us to redeem, for cash, the Series B Preferred Stock at
the Liquidation Value and the Series C Preferred C at the Liquidation Value plus
the Equity Value payment. In connection with the Palladium repurchase included
as one of the Transactions, all of the shares of Series B Preferred Stock will
be repurchased and all of the shares of Series C Preferred Stock other than
shares having a value as of September 30, 2003 of $15.2 million will be
repurchased. See "Certain Relationships and Related Transactions."


                                        62
<PAGE>

     The shares of Series A Preferred Stock are redeemable at our option, in
whole or part, at any time or from time to time, for a redemption price equal to
the par value thereof plus any declared but unpaid dividends.

     In the event of any complete liquidation, dissolution or winding up of the
business, or sale of all of our assets, after redemption of the Series B
Preferred Stock and Series C Preferred Stock, each share of Series A Preferred
Stock is entitled to a distribution equal to the par value thereof and any
declared but unpaid dividends. Thereafter, our remaining assets shall be
distributed, first to the holders of Class A Common Stock in an amount equal to
$0.10 per share, and then to the holders of Class B Common Stock. In the event
that no shares of Class B Common Stock are then outstanding, all remaining
assets will be paid to the holders of Class A Common Stock.

     The Board of Directors is authorized to issue shares of Preferred Stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of us without further action by the stockholders. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. At present, we have no plans to issue any shares of Preferred
Stock.

     The authorized share capital of the Dutch issuer is Euro 90,000, divided
into 900 ordinary shares with a nominal value of Euro 100 each, of which 180
fully paid shares have been issued.

                                        63
<PAGE>

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Our Phibro-Tech subsidiary leases the property underlying its Santa Fe
Springs, California facility from First Dice Road Company, a California limited
partnership ("First Dice"), in which Jack Bendheim, our President and principal
stockholder, Marvin S. Sussman and James O. Herlands, directors, own 39.0%,
40.0% and 20.0% limited partnership interests, respectively. The general
partner, having a 1% interest in the partnership, is Western Magnesium Corp., a
wholly-owned subsidiary of ours, of which Jack Bendheim is the president. The
lease expires on June 30, 2008. The annual rent is $250,000. Phibro-Tech is also
required to pay all real property taxes, personal property taxes and liability
and property insurance premiums. In June 2001, Jack Bendheim entered into a
secured $1.4 million revolving credit arrangement with First Union National
Bank, which replaced a prior loan from Fleet Bank. Mr. Bendheim reloans
borrowings under the First Union credit line to First Dice on the same terms as
his borrowing from First Union. We believe that the terms of such lease and loan
are on terms no less favorable to Phibro-Tech than those that reasonably could
be obtained at such time in a comparable arm's-length transaction from an
unrelated third-party.

     Pursuant to a Shareholders Agreement dated December 29, 1987 between Marvin
S. Sussman and us, we are required to purchase, at book value, all shares of our
Class B Common Stock owned by Mr. Sussman, in the event of his retirement,
death, permanent disability or the termination of his employment by us. Should
Mr. Sussman elect to sell his shares, we have a right of first offer and an
option to purchase the shares.

     A Shareholders Agreement initially entered into by Phibro-Tech and three
executives of Phibro-Tech, including James O. Herlands (the "Executives")
provides, among other things, for restrictions on their shares as to voting,
dividends, liquidation and transfer rights. The Shareholders Agreement also
provides that upon the death of an Executive or termination of an Executive's
employment, Phibro-Tech must purchase the Executive's shares at their fair
market value, as determined by a qualified appraiser. In the event of a Change
of Control (as defined), the Executive has the option to sell his shares to
Phibro-Tech at such value. The Shareholders Agreement provides, that, upon the
consent of Phibro-Tech, the Executives and us, the Executives' shares of
Phibro-Tech Common Stock may be exchanged for a number of shares of our Common
Stock, which may be non-voting Common Stock, having an equivalent value, and
upon any such exchange such shares of our Common Stock will become subject to
the Shareholders Agreement. We and Phibro-Tech also entered into Severance
Agreements with the Executives which provide, among other things, for certain
severance payments. See "Management -- Executive Compensation -- Employment and
Severance Agreements."

     In connection with the retirement of Nathan Z. Bistricer from us and
Phibro-Tech in January, 2001, pursuant to the Shareholders Agreement among the
executives and Phibro-Tech, we paid $855,000 in connection with the repurchase
of 71.67 shares of his Class B Common Stock of Phibro-Tech. In addition, in
satisfaction of Phibro Tech's severance obligation under a Severance Agreement
between Phibro Tech and Mr. Bistricer, we agreed to pay $516,070 in twenty-four
(24) equal monthly installments to Mr. Bistricer. We also agreed to provide
certain unspecific out-placement services to Mr. Bistricer not to exceed $15,000
in total costs and fees.

     We have advanced $200,000 to Marvin Sussman and his wife pursuant to a
secured promissory note that is payable on demand and bears interest at the
annual rate of 9%.

     Certain relatives of Jack Bendheim, other than certain of the executive
officers named above, provide services to us, in one case through a consulting
firm controlled by him, and in other cases as employees, including one of our
Vice Presidents, and received directly or through such consulting firm annual
aggregate payments of approximately $400,000 for the fiscal year ended June 30,
2003.

     On January 5, 2000, the United States Bankruptcy Court for the Eastern
District of New York confirmed a Plan of Reorganization for Penick Corporation
and Penick Pharmaceutical, Inc. (collectively, "Penick") which prior to such
confirmation were debtors in proceedings in such Court for reorganization under
Chapter 11 of the Bankruptcy Code, and awarded Penick to Penick Holding Company
("PHC").


                                        64
<PAGE>

PHC is a corporation formed to effect such acquisition by the Company, PBCI LLC,
a limited liability company controlled by Mr. Bendheim, and several other
investors. Pursuant to a Shareholders' Agreement among the shareholders of PHC,
Mr. Bendheim has been designated as one of three directors of PHC, and Mr.
Katzenstein, our Secretary, has been designated as Secretary and Treasurer of
PHC. The Company has invested $1,980,000 for shares of Series A Preferred Stock
of PHC bearing an 8.5 percent annual cumulative dividend, and PBCI LLC invested
approximately $20,000 for 20 percent of the Common Stock of PHC.

     In connection with the sale of our Series B and Series C Preferred Stock to
the Palladium Investors, we and Jack Bendheim entered into a Stockholders
Agreement (the "Palladium Stockholders Agreement") dated November 30, 2000 with
the Palladium Investors. The Palladium Stockholders Agreement provides for our
Board to be comprised of five directors, at least two of whom will be designees
of the Palladium Investors. Peter A. Joseph is currently the sole designee of
the Palladium Investors serving as a director. The Palladium Investors are in
discussions with us regarding filling the currently vacant directorship entitled
to be designated by the Palladium Investors. If and for so long as we fail to
redeem any share of Series B or Series C Preferred Stock requested for
redemption by a Palladium Investor after the earliest to occur of June 1, 2008
(the maturity date of our 9 7/8% Senior Subordinated Notes due 2008), the
redemption of such Notes in full prior thereto or a change in control of us,
then (x) the Palladium Investors may take control of our Board of Directors, and
(y) Jack C. Bendheim has agreed to cause all equity securities owned by him to
be voted in the manner directed by the Palladium Investors; provided, that, we
must pay Jack Bendheim and Marvin Sussman, whether or not employed by us, an
amount not less than their respective annual base salaries in effect immediately
prior to such assumption of control, until the earlier to occur of the
expiration of control by the Palladium Investors and the fifth anniversary of
their assumption of control.

     The Palladium Stockholders Agreement contains covenants which restrict,
without the consent of at least one director designated by the Palladium
Investors (or, if no such director is then serving on the Board, at least one
Palladium Investor), among other things, certain (a) issuances of any equity
securities, unless the purchaser agrees to be bound by the Palladium
Stockholders Agreement, (b) sales of assets in excess of $10 million, (c)
purchases of businesses and other investments in excess of $10 million, (d) the
incurrence of indebtedness for borrowed money, including guarantees, in excess
of $12.5 million, (e) redemptions, acquisitions or other purchases of equity
securities, (f) transactions with officers, directors, stockholders or employees
or any family member or affiliate thereof in excess of $500,000, (g)
compensation and benefits of certain officers, and (h) transactions involving a
change of control. The Palladium Stockholders Agreement also provides that we
shall furnish the Palladium Investors certain financial reporting and
environmental information each year and grant to the Palladium Investors
registration rights comparable to any such rights granted to any third party,
and requires us to maintain certain key man life insurance on Jack C. Bendheim
for the benefit of the Palladium Investors. The Palladium Stockholders Agreement
provides certain limitations on the ability of Jack C. Bendheim to transfer
voting shares, and certain limitations on the ability of the Palladium Investors
to transfer their shares, including a right of first refusal in favor of us and
Mr. Bendheim.

     Pursuant to the Management and Advisory Services Agreement dated November
30, 2000 between us and the Palladium Investors, we agreed to pay, on a
quarterly basis, the Palladium Investors an annual management advisory fee of
$2.25 million until such time as all shares of Series B and Series C Preferred
Stock are redeemed. Pursuant to the sale of PMC to Palladium described under
"Offering Circular Summary -- The Transactions," the obligation of PAHC for this
fee will be terminated.

     The sale of PMC to Palladium described under "Offering Circular
Summary -- The Transactions," as currently contemplated, would include the
following elements: (i) the transfer of ownership to the Palladium Investors of
PMC (which would be valued at approximately $21 million); (ii) the reduction of
the preferred stock of the Palladium Investors from $68.9 million (as of June
30, 2003) to $15.2 million (as of September 30, 2003); (iii) the termination of
any obligation of the US issuer or any Restricted Subsidiary of the US issuer in
respect of the $2.25 million annual management advisory fee; (iv) a separate
cash payment to the Palladium Investors of $10 million (from the recent sale of
MRT);

                                        65
<PAGE>

(v) payments by PMC to the Company for central support services for the next
three years of $1 million, $0.5 million and $0.2 million, respectively; and (vi)
supply arrangements between the Company and PMC with respect to manganous oxide
and red iron oxide. The PMC transactions are subject to definitive documentation
that is expected to include customary representations, warranties and
indemnities by the US issuer, and provisions for closing working capital balance
adjustments, settlement of intercompany accounts owed to PMC, a closing fee
payable to Palladium and the agreement of the US issuer to pay or reimburse the
Palladium Investors for their reasonable out-of-pocket transaction expenses. The
economic terms set forth above are subject to the terms upon which intercompany
accounts would be settled, the amount of minimum working capital of PMC to be
agreed upon and the amount of the closing fee payable to Palladium. The Company
also expects that it will establish a $1 million escrow or other credit support
for two years to secure its net working capital and foregoing indemnification
obligations, and indemnify the Palladium Investors, payable after the maturity
of the Existing Notes, for a portion, at the rate of $0.65 for every dollar, of
the amount they receive in respect of the disposition of PMC less than $21
million, up to a maximum payment by the Company of $4 million. Effective
immediately prior to the consummation of the offering or, if earlier, September
30, 2003, (i) the Management and Advisory Service Agreement is expected to
become the obligation of PMC, and the obligations of and annual fee payable by
the US issuer thereunder to be terminated, and (ii) PMC will become bound by
such agreement or enter into a new management agreement substantially the same
as the Management and Advisory Services Agreement, without recourse to the US
issuer or any other subsidiaries thereof. The new management agreement of PMC
with Palladium is expected to provide that if the PMC transactions are not
consummated on or before December 31, 2003 such new management agreement will
become the direct obligation of the US issuer. In the event that the transaction
is structured as an asset sale, upon consummation of the Palladium transaction
such new management agreement will become the direct obligation of the buyer,
without any recourse to PMC or the US issuer or any other subsidiaries thereof.

     Our policy with respect to the sale, lease or purchase of assets or
property of any related party is that such transaction should be on terms that
are no less favorable to us or our subsidiary, as the case may be, than those
that could reasonably be obtainable at such time in a comparable arm's length
transaction from an unrelated third party, on the same basis as the Indenture
for the Senior Subordinated Notes and our secured domestic credit agreement. The
indenture and the new domestic senior credit facility both include a similar
restriction on us and our domestic subsidiaries with respect to the sale,
purchase, exchange or lease of assets, property or services, subject to certain
limitations as to the applicability thereof.


                                        66
<PAGE>

                      DESCRIPTION OF CERTAIN INDEBTEDNESS

     The following is a summary of certain of our indebtedness. To the extent
such summary contains descriptions of the credit agreements and other loan
documents, such descriptions do not purport to be complete and are qualified in
their entirety by reference to such documents, which are available at or through
the SEC or upon request from us.

NEW CREDIT FACILITY

     Substantially simultaneously with the completion of this offering, we and
all of our domestic restricted subsidiaries will enter into a new domestic
senior working capital credit facility for up to $15 million plus a letter of
credit facility.

     Borrowings under the new domestic senior credit facility will be subject to
a borrowing base formula based on percentages of eligible domestic receivables
and domestic inventory. Under the new credit facility, we may choose between two
interest rate options: (i) the bank's or agent's published base rate as defined
plus 0.50% and (ii) the LIBOR rate as defined plus 2.75%. Indebtedness under the
new credit facility is secured by a first priority lien on substantially all of
our assets and the assets of our domestic restricted subsidiaries except real
property and machinery and equipment. We have agreed to pay a facility fee of
0.375% on the unused portion of the new credit facility, and have agreed to pay
standard letter of credit fees to issuing banks. Borrowings under the new credit
facility are available until, and are repayable no later than, October 1, 2007.

     The indebtedness outstanding under the new domestic senior credit facility
will be guaranteed by all of our domestic restricted subsidiaries.

     The new domestic senior credit facility also is likely to contain various
covenants which restrict us and our subsidiaries with respect to, among other
things, incurring indebtedness, entering into merger or consolidation
transactions, disposing of assets (other than in the ordinary course of
business), acquiring assets (with permitted exceptions), making certain
restricted payments, making optional redemptions of, or excess cash flow offers
for the notes, repaying our old notes not purchased by the Company with the
proceeds of the offering, creating any liens on our assets, making investments,
creating guarantee obligations and entering into sale and leaseback transactions
and transactions with affiliates. In the event our total availability under our
domestic senior credit facility falls below specified levels, the facility will
require that we comply with various financial covenants, including meeting a
minimum EBITDA requirement and limitations on capital expenditures. The new
credit agreement provides for certain events of default, including default upon
the nonpayment of principal, interest, fees or other amounts, a cross default
with respect to other obligations of ours and our subsidiaries, failure to
comply with certain covenants, conditions or provisions under the new domestic
senior credit facility, the existence of certain unstayed or undischarged
judgments, the invalidity or unenforceability of the relevant security
documents, the making of materially false or misleading representations or
warranties, commencement of reorganization, bankruptcy, insolvency or similar
proceedings and the occurrence of certain ERISA events. Upon the occurrence of
an event of default under the new domestic senior credit facility, the lenders
may declare all obligations thereunder to be immediately due and payable.

     We may from time to time, prior to the maturity date of the Notes,
refinance, replace, restructure, substitute for, amend or supplement the new
credit agreement. The actual terms of any new or modified credit facility which
replaces the new credit agreement could differ substantially from the facility
summarized above.

OTHER INDEBTEDNESS AND CREDIT FACILITIES

     In June 1998, we issued $100 million aggregate principal amount of 9 7/8%
Senior Subordinated Notes due 2008. Proceeds of the offering are to be used to
complete the purchase of up to approximately 52% of such old notes. The old
notes are general unsecured obligations and are subordinated in right of payment


                                        67
<PAGE>

to all existing and future senior debt (as defined in the indenture), including
the notes, and rank pari passu in right of payment with all other existing and
future senior subordinated indebtedness. The old notes are unconditionally
guaranteed on a senior subordinated basis by our domestic subsidiaries. The
restrictive covenants in the indenture for the old notes will be amended in
certain respects.

     On December 1, 2000, in connection with the Pfizer acquisition, we issued a
13% promissory note to Pfizer in the amount of $25.1 million with interest
payable semi-annually. Principal payments, each equal to 10% of the amount of
the loan, were paid December 3, 2001 and December 3, 2002. The remaining 80% of
the loan is due March 1, 2004. The note is collateralized by our facilities in
Rixensart, Belgium and Guarulhos, Brazil. This promissory note will be satisfied
as part of the Transactions. See "Offering Circular Summary -- The
Transactions."

     Certain of our foreign subsidiaries, including subsidiaries in Israel,
France and the United Kingdom, have existing local credit arrangements which
will continue in effect after the offering.

     Our subsidiary in Israel, Koffolk Israel, has a $10.5 million working
capital facility with Israeli banks for loans in various currencies, including
dollars, euros and shekels. Borrowings under such facility bear interest at the
LIBOR rate as defined plus 2.25%. Such facility matures every twelve months,
subject to renewal, and is secured by a general floating lien over the accounts
receivables and inventories of Koffolk Israel and its Israeli subsidiaries.

     Our French subsidiary, La Cornubia, has several short-term credit
facilities totalling 2.255 million Euros which are secured by French and export
receivables. Interest rates for borrowings against local receivables are at
either an average monthly money market rate (T4M) plus 1.5% or the two month
EURIBOR rate plus 0.8%. Interest rates on borrowings against export receivables
are indexed to various internal bank or money market rates. At June 30, 2003,
T4M was 2.21% and EURIBOR was 2.13%. Each of these credit facilities is subject
to annual renewal and to termination with no less than 3 months notice.

     Our Norwegian subsidiary, Odda, incurred indebtedness in Norwegian Kroner
(NOK) which is guaranteed by us. Odda's operations have been shut down, and it
has declared its insolvency and filed in bankruptcy under Norwegian law. As of
June 30, 2003, approximately NOK 41 million ($5.7 million) was outstanding under
the credit facilities guaranteed by us. Since then, we have made another payment
under a settlement agreement we have with such banks, leaving a final payment of
approximately NOK 24 million ($3.3 million) due in November 2003.

     For further information concerning such credit facilities, see Note 8 to
our Consolidated Financial Statements.

                                        68
<PAGE>

                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<Table>
<Caption>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Auditors..............................  F-2
Consolidated Balance Sheets as of June 30, 2003 and 2002....  F-3
Consolidated Statements of Operations and Comprehensive
  Income for the years ended June 30, 2003, 2002 and 2001...  F-4
Consolidated Statements of Changes in Stockholders' Equity
  for the years ended June 30, 2003, 2002 and 2001..........  F-5
Consolidated Statements of Cash Flows for the years ended
  June 30, 2003, 2002 and 2001..............................  F-6
Notes to Consolidated Financial Statements..................  F-7
</Table>

                                       F-1
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of Phibro Animal Health Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations and comprehensive income, changes in
stockholders' equity and cash flows present fairly, in all material respects,
the financial position of Phibro Animal Health Corporation (formerly Philipp
Brothers Chemicals, Inc.) and its subsidiaries at June 30, 2003 and June 30,
2002, and the results of their operations and their cash flows for each of the
three years in the period ended June 30, 2003, in conformity with accounting
principles generally accepted in the United States of America. 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
auditing standards generally accepted in the United States of America, 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 our opinion.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. As discussed in Note 2, the Company's senior
bank credit facility and note payable to Pfizer Inc. mature in November 2003 and
March 2004, respectively. It is unlikely the Company will have sufficient cash
resources from operations to repay these obligations as they come due. The
Company plans to refinance these obligations prior to their respective
maturities; however, there is no assurance that it will be able to do so on
terms acceptable to the Company, if at all. These matters raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are further described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

In fiscal 2003, the Company adopted a new accounting standard for the accounting
for the impairment or disposal of long-lived assets.

Florham Park, New Jersey
August 29, 2003

                                       F-2
<PAGE>

               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

                          CONSOLIDATED BALANCE SHEETS

<Table>
<Caption>
                                                                 AS OF JUNE 30,
                                                              ---------------------
                                                                2003        2002
                                                              ---------   ---------
                                                              (IN THOUSANDS, EXCEPT
                                                               SHARE AND PER SHARE
                                                                    AMOUNTS)
<S>                                                           <C>         <C>
                                      ASSETS
Current assets:
  Cash and cash equivalents.................................  $ 11,179    $  6,419
  Trade receivables, less allowance for doubtful accounts of
     $1,445 at June 30, 2003 and $1,485 at June 30, 2002....    55,671      57,979
  Other receivables.........................................     3,642       3,075
  Inventories...............................................    88,767      85,396
  Prepaid expenses and other current assets.................    10,188      15,325
  Current assets from discontinued operations...............     4,942      16,780
                                                              --------    --------
       Total current assets.................................   174,389     184,974
Property, plant and equipment, net..........................    66,440      65,665
Intangibles.................................................     8,669       9,633
Other assets................................................    14,199      14,448
Other assets from discontinued operations...................    10,650      21,724
                                                              --------    --------
                                                              $274,347    $296,444
                                                              ========    ========

                       LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
  Cash overdraft............................................  $  1,686    $  7,767
  Loans payable to banks....................................    38,914      41,535
  Current portion of long-term debt.........................    24,124       8,851
  Accounts payable..........................................    56,915      38,158
  Accrued expenses and other current liabilities............    41,609      29,813
  Current liabilities from discontinued operations..........     2,051       8,389
                                                              --------    --------
       Total current liabilities............................   165,299     134,513
Long-term debt..............................................   102,391     136,641
Other liabilities...........................................    22,088      28,399
Other liabilities from discontinued operations..............       198       1,478
                                                              --------    --------
       Total liabilities....................................   289,976     301,031
                                                              --------    --------
Commitments and contingencies
Redeemable securities:
  Series B and C preferred stock............................    68,881      56,602
                                                              --------    --------
Stockholders' equity (deficit):
  Preferred stock -- $100 par value, 150,543 shares
     authorized, none issued at
     June 30, 2003 and 2002; Series A preferred
      stock -- $100 par value, 6% non-cumulative, 5,207
      shares authorized and issued at June 30, 2003 and
      2002..................................................       521         521
  Common stock -- $0.10 par value, 30,300 authorized and
     24,488 shares issued
     at June 30, 2003 and 2002..............................         2           2
  Paid-in capital...........................................       860         740
  Accumulated deficit.......................................   (79,489)    (49,652)
  Accumulated other comprehensive income (loss):
     Gain on derivative instruments.........................        81       1,062
     Cumulative currency translation adjustment.............    (6,485)    (13,862)
                                                              --------    --------
       Total stockholders' equity (deficit).................   (84,510)    (61,189)
                                                              --------    --------
                                                              $274,347    $296,444
                                                              ========    ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                   statements

                                       F-3
<PAGE>

               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

<Table>
<Caption>
                                                               FOR THE YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
Net sales...................................................  $355,225   $340,549   $319,664
Cost of goods sold..........................................   263,728    258,555    250,305
                                                              --------   --------   --------
  Gross profit..............................................    91,497     81,994     69,359
Selling, general and administrative expenses (includes
  litigation income of $3,040 in 2003 and $742 in 2002).....    66,360     72,277     63,925
                                                              --------   --------   --------
  Operating income..........................................    25,137      9,717      5,434
Other:
  Interest expense..........................................    16,342     18,158     18,297
  Interest (income).........................................       (86)      (356)      (566)
  Other expense, net........................................     1,277      3,104        855
  (Gains) from sale of assets...............................      (127)       (18)    (1,457)
                                                              --------   --------   --------
  Income (loss) from continuing operations before income
     taxes..................................................     7,731    (11,171)   (11,695)
Provision (benefit) for income taxes........................    10,076     14,829       (381)
                                                              --------   --------   --------
  (Loss) from continuing operations.........................    (2,345)   (26,000)   (11,314)
Discontinued operations:
  (Loss) from discontinued operations (net of income
     taxes).................................................   (14,531)   (25,770)    (3,581)
  (Loss) on disposal of discontinued operations (net of
     income taxes)..........................................      (683)        --         --
                                                              --------   --------   --------
  Net (loss)................................................   (17,559)   (51,770)   (14,895)
Other comprehensive income (loss):
  Change in derivative instruments..........................      (981)     1,062         --
  Change in currency translation adjustment.................     7,377     (6,125)    (5,146)
                                                              --------   --------   --------
  Comprehensive (loss)......................................  $(11,163)  $(56,833)  $(20,041)
                                                              ========   ========   ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                   statements

                                       F-4
<PAGE>

               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

<Table>
<Caption>
                                                FOR THE YEARS ENDED JUNE 30, 2000, 2001, 2002 AND 2003
                             ---------------------------------------------------------------------------------------------
                                                                                 RETAINED
                             PREFERRED         COMMON STOCK                      EARNINGS     ACCUMULATED OTHER
                               STOCK     -------------------------   PAID-IN   (ACCUMULATED     COMPREHENSIVE
                             SERIES A     CLASS "A"     CLASS "B"    CAPITAL     DEFICIT)       (LOSS) INCOME      TOTAL
                             ---------   -----------   -----------   -------   ------------   -----------------   --------
                                                                    (IN THOUSANDS)
<S>                          <C>         <C>           <C>           <C>       <C>            <C>                 <C>
Balance, July 1, 2000......    $521          $1            $1         $ 878      $ 32,808         $ (2,591)       $ 31,618
  Accretion of redeemable
     preferred securities
     to fair market
     value.................                                                        (4,192)                          (4,192)
  Dividends on Series B and
     C redeemable preferred
     stock.................                                                        (3,980)                          (3,980)
  Foreign currency
     translation
     adjustment............                                                                         (5,146)         (5,146)
  Net (loss)...............                                                       (14,895)                         (14,895)
                               ----          --            --         -----      --------         --------        --------
Balance, June 30, 2001.....    $521          $1            $1         $ 878      $  9,741         $ (7,737)       $  3,405
                               ====          ==            ==         =====      ========         ========        ========
  Dividends on Series B and
     C redeemable preferred
     stock.................                                                        (7,623)                          (7,623)
  Change in derivative
     instruments...........                                                                          1,062           1,062
  Foreign currency
     translation
     adjustment............                                                                         (6,125)         (6,125)
  Receivable from principal
     shareholder...........                                            (138)                                          (138)
  Net (loss)...............                                                       (51,770)                         (51,770)
                               ----          --            --         -----      --------         --------        --------
Balance, June 30, 2002.....    $521          $1            $1         $ 740      $(49,652)        $(12,800)       $(61,189)
                               ====          ==            ==         =====      ========         ========        ========
  Dividends on Series B and
     C redeemable preferred
     stock.................                                                        (8,808)                          (8,808)
  Equity value accreted on
     Series B and C
     redeemable preferred
     stock.................                                                        (3,470)                          (3,470)
  Change in derivative
     instruments...........                                                                           (981)           (981)
  Foreign currency
     translation
     adjustment............                                                                          7,377           7,377
  Payable to principal
     shareholder...........                                             120                                            120
  Net (loss)...............                                                       (17,559)                         (17,559)
                               ----          --            --         -----      --------         --------        --------
Balance, June 30, 2003.....    $521          $1            $1         $ 860      $(79,489)        $ (6,404)       $(84,510)
                               ====          ==            ==         =====      ========         ========        ========
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                   statements

                                       F-5
<PAGE>

               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS

<Table>
<Caption>
                                                               FOR THE YEARS ENDED JUNE 30,
                                                              ------------------------------
                                                                2003       2002       2001
                                                              --------   --------   --------
                                                                      (IN THOUSANDS)
<S>                                                           <C>        <C>        <C>
OPERATING ACTIVITIES:
  Net (loss)................................................  $(17,559)  $(51,770)  $(14,895)
  Adjustment for discontinued operations....................    15,214     25,770      3,581
                                                              --------   --------   --------
  Income (loss) from continuing operations..................    (2,345)   (26,000)   (11,314)
  Adjustments to reconcile income (loss) from continuing
     operations to net cash provided (used) by operating
     activities:
     Depreciation and amortization..........................    12,883     12,680     10,405
     Deferred income taxes..................................     7,228     12,512     (5,731)
     Gains from sale of assets..............................      (127)       (18)    (1,457)
     Change in redemption amount of redeemable common
       stock................................................        --       (378)    (3,491)
     Unrealized foreign currency losses.....................       390      2,120         --
     Other..................................................        79      2,175        784
     Changes in operating assets and liabilities:
       Accounts receivable..................................     3,008      9,756     (1,607)
       Inventories..........................................      (522)   (13,853)    (1,570)
       Prepaid expenses and other current assets............    (3,177)    (2,780)     5,975
       Other assets.........................................    (2,632)     2,667      2,782
       Accounts payable.....................................    20,548     (8,058)    18,243
       Accrued expenses and other liabilities...............    (1,462)     7,222      2,725
  Cash provided (used) by discontinued operations...........       786     (2,790)    (2,603)
                                                              --------   --------   --------
          Net cash provided (used) by operating
            activities......................................    34,657     (4,745)    13,141
                                                              --------   --------   --------
INVESTING ACTIVITIES:
  Capital expenditures......................................    (9,045)    (8,677)    (6,610)
  Acquisition of a business, net of cash acquired...........        --     (7,182)   (51,700)
  Proceeds from property damage claim.......................        --        411         --
  Proceeds from sale of assets..............................     2,566         80     25,418
  Other investing...........................................       724        580       (320)
  Discontinued operations...................................     1,784     (2,573)    (6,937)
                                                              --------   --------   --------
          Net cash (used) by investing activities...........    (3,971)   (17,361)   (40,149)
                                                              --------   --------   --------
FINANCING ACTIVITIES:
  Cash overdraft............................................    (6,081)     3,438      2,654
  Net increase (decrease) in short-term debt................    (6,260)    12,656     (8,006)
  Proceeds from long-term debt..............................     2,000      2,322      9,363
  Proceeds from issuance of redeemable preferred stock......        --         --     45,000
  Payments of long-term debt................................   (16,037)    (4,739)    (4,924)
  Other financing...........................................        --         --     (4,192)
                                                              --------   --------   --------
          Net cash provided (used) by financing
            activities......................................   (26,378)    13,677     39,895
                                                              --------   --------   --------
Effect of exchange rate changes on cash.....................       452          3       (445)
                                                              --------   --------   --------
          Net increase (decrease) in cash and cash
            equivalents.....................................     4,760     (8,426)    12,442
Cash and cash equivalents at beginning of period............     6,419     14,845      2,403
                                                              --------   --------   --------
Cash and cash equivalents at end of period..................  $ 11,179   $  6,419   $ 14,845
                                                              ========   ========   ========
Supplemental Cash Flow Information:
  Interest paid.............................................  $ 16,244   $ 17,173   $ 16,810
  Income taxes paid.........................................     3,062      2,645        704
Noncash investing and financing activities:
  Debt issued in connection with acquisition................        --         --     25,093
</Table>

   The accompanying notes are an integral part of the consolidated financial
                                   statements

                                       F-6
<PAGE>

               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 (IN THOUSANDS)

1.  DESCRIPTION OF BUSINESS

     Phibro Animal Health Corporation (formerly Philipp Brothers Chemicals,
Inc.) (the "Company") is a leading diversified global manufacturer and marketer
of a broad range of animal health and nutrition products, specifically medicated
feed additives and nutritional feed additives, which the Company sells
throughout the world predominately to the poultry, swine and cattle markets. The
Company is also a specialty chemicals manufacturer and marketer, serving
numerous markets.

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION:

     The consolidated financial statements include the accounts of the Company
and all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in the consolidated financial statements.

     The Company consolidates the financial statements of Koffolk (1949) Ltd.
(Israel) ("Koffolk") and Planalquimica Industrial Ltda. (Brazil)
("Planalquimica") on the basis of their March 31 fiscal year-ends to facilitate
the timely inclusion of such entities in the Company's consolidated financial
reporting.

     The Company's Odda, Carbide, and MRT businesses have been classified as
discontinued operations, as discussed in Note 3. These footnotes present
information only for continuing operations, unless otherwise indicated.

     The Company presents its consolidated financial statements on the basis of
its fiscal year ending June 30. All references to years 2003, 2002, and 2001 in
these financial statements refer to the fiscal year ended June 30 of that year.

  LIQUIDITY AND REFINANCING RISK:

     The Company's senior bank credit facility and its note payable to Pfizer
Inc. ("Pfizer") mature in November 2003 and March 2004, respectively (See Note
8). It is unlikely the Company will have sufficient cash resources from
operations to repay these obligations as they come due.

     In connection with the Company's acquisition in November 2000 of the
Medicated Feed Additives business of Pfizer (the "MFA acquisition"), it incurred
certain obligations to Pfizer (amounts are shown as of June 30, 2003), the
following of which will be terminated and satisfied in full by the payment to
Pfizer of approximately $28,500, plus accrued interest on the existing
promissory note due 2004, from the proceeds of the Notes: (i) $20,075 aggregate
principal amount of such promissory note; (ii) $12,826 of accounts payable,
(iii) $9,257 of accrued expenses; and (iv) future contingent purchase price
obligations under the Pfizer agreements.

     The Company is currently pursuing the issuance of $105,000 of Senior
Secured Notes due 2007 (the "Notes"). Concurrently, the Company is purchasing
through privately negotiated transactions up to $51,900 of its 9 7/8% Senior
Subordinated Notes due 2008 ("Existing Notes") at a price equal to 60% of the
principal amount thereof, plus accrued and unpaid interest. The offering is
subject to certain conditions, including, among other things, receiving consents
of holders of Existing Notes that represent more than 50% of the outstanding
principal amount of the Existing Notes. The Company will use the proceeds from
the Notes to repurchase the Existing Notes, repay its senior credit facility,
and pay certain of its outstanding obligations to Pfizer, including the note
payable due 2004.

                                       F-7
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     If the Company is unable to refinance these obligations on acceptable
terms, the lenders could declare the loans to be in default and exercise their
rights under the respective agreements, and the Company might be required to
take actions outside of the ordinary course of operations to generate cash or
otherwise settle these obligations, all of which would have a material adverse
impact on the Company's financial position, results of operations, and cash
flows. There can be no assurance the Company will be successful in executing the
refinancing plan. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

     The Company intends to sell PMC to Palladium Equity Partners II, LP and
certain of its affiliates (the "Palladium Investors"). The material elements of
the transactions relating to PMC include the following: (i) the transfer of
ownership to the Palladium Investors of PMC; (ii) the reduction of the preferred
stock of the Palladium Investors from $68.9 million (as of June 30, 2003) to
$15.2 million (as of September 30, 2003); (iii) the termination of any
obligation of the Company or any Restricted Subsidiary of the Company in respect
of the $2.25 million annual management advisory fee; (iv) a separate cash
payment to the Palladium Investors of $10 million (from the recent sale of MRT);
(v) payments by PMC to the Company for central support services for the next
three years of $1 million, $0.5 million and $0.2 million, respectively; and (vi)
supply arrangements between the Company and PMC with respect to manganous oxide
and red iron oxide. The PMC transactions are subject to definitive documentation
that is expected to include customary representations, warranties and
indemnities of the Company, and provisions for working capital adjustments and
settlement of intercompany accounts. Any transaction with the Palladium
Investors is dependent upon successful completion of the refinancing plan.

  OTHER RISKS AND UNCERTAINTIES:

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

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

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

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

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

                                       F-8
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

former operations and those of its subsidiaries exposes the Company and its
subsidiaries to the risk of claims with respect to such matters.

  USE OF ESTIMATES:

     Preparation of the Company's financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and related
disclosures. Actual results could differ from these estimates. Significant
estimates include reserves for bad debts, inventory obsolescence, environmental
matters, depreciation and amortization periods of long-lived assets,
recoverability of long-lived assets and realizability of deferred tax assets.

  REVENUE RECOGNITION:

     Revenue is recognized upon transfer of title and risk of loss to the
customer, generally at time of shipment. Net sales reflect total sales billed,
less reductions for goods returned, trade discounts and customer allowances.

  CASH AND CASH EQUIVALENTS:

     Cash equivalents include highly liquid investments with maturities of three
months or less when purchased.

  INVENTORIES:

     Inventories are valued at the lower of cost or market. Cost is determined
principally under the first-in, first-out (FIFO) and average methods; cost for
certain inventories is determined under the last-in, first-out (LIFO) method.
Inventories valued at LIFO amounted to $3,805 and $3,111 at June 30, 2003 and
2002, respectively. Obsolete and unsaleable inventories are reflected at
estimated net realizable value. Inventory costs include materials, direct labor
and manufacturing overhead. Inventories were:

<Table>
<Caption>
                                                               AS OF JUNE 30,
                                                              -----------------
                                                               2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Raw materials...............................................  $22,277   $22,501
Work-in-process.............................................    1,765     2,155
Finished goods..............................................   65,357    61,261
Excess of FIFO cost over LIFO cost..........................     (632)     (521)
                                                              -------   -------
Total inventory.............................................  $88,767   $85,396
                                                              =======   =======
</Table>

  PROPERTY, PLANT AND EQUIPMENT:

     Property, plant and equipment are stated at cost. The Company capitalizes
interest expense as part of the cost of construction of facilities and
equipment. Interest expense capitalized was $0, $106 and $227 in 2003, 2002 and
2001, respectively.

     Depreciation is charged to results of operations using the straight-line
method based upon the assets' estimated useful lives ranging from 8 to 20 years
for buildings and improvements and 3 to 10 years for machinery and equipment.

                                       F-9
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  DEFERRED FINANCING COSTS:

     Deferred financing costs related to the senior subordinated notes are
amortized using the interest method over the ten-year life of the notes.
Deferred financing costs related to the senior credit facility are amortized
over the three-year life of the agreement.

  INTANGIBLES:

     Intangible assets with determinable useful lives are amortized on a
straight-line basis over their estimated useful lives of 10 years.

     Product intangibles cost arising from the MFA acquisition was $10,449 at
June 30, 2003 and 2002 and accumulated amortization of $1,780 and $816 at June
30, 2003 and 2002, respectively. Amortization expense was $964, $816 and $0 for
2003, 2002 and 2001, respectively. Amortization expense from the MFA acquisition
for each of the next five years from 2004 to 2008 will be $1,045 per year.

  FOREIGN CURRENCY TRANSLATION:

     Financial position and results of operations of the Company's international
subsidiaries generally are measured using local currencies as the functional
currency. Assets and liabilities of these operations are translated at the
exchange rates in effect at each fiscal year end. The translation adjustments
related to assets and liabilities that arise from the use of differing exchange
rates from period to period are included in accumulated other comprehensive loss
in shareholders' equity. Income statement accounts are translated at the average
rates of exchange prevailing during the year.

     A business unit of Koffolk and all of Planalquimica operate primarily in
U.S. dollars. The U.S. dollar is designated as the functional currency for these
businesses and translation gains and losses are included in determining net
income or loss.

     Foreign currency transaction gains and losses primarily arise from
short-term intercompany balances. Net foreign currency transaction and
translation losses were $480, $3,027 and $711 for 2003, 2002 and 2001,
respectively, and were included in other expense, net in the consolidated
statements of operations.

  DERIVATIVE FINANCIAL INSTRUMENTS:

     Effective for 2001, the Company adopted Statement of Financial Accounting
Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", as amended ("SFAS No. 133"). The standard requires all derivative
financial instruments be recorded on the consolidated balance sheet at fair
value. Changes in the fair value of derivatives are recorded in results of
operations or accumulated other comprehensive income, depending on whether a
derivative is designated and effective as part of a hedge transaction and, if it
is, the type of hedge transaction. Gains and losses on derivative instruments
reported in accumulated other comprehensive income are included in operations in
the periods in which operations are affected by the hedged item. The cumulative
effect of a change in accounting principle due to the adoption of SFAS No. 133
was not material.

  RECOVERABILITY OF LONG-LIVED ASSETS:

     The Company evaluates the recoverability of long-lived assets, including
intangible assets, when events or circumstances indicate that a diminution in
value may have occurred, using financial indicators such as historical and
future ability to generate cash flows from operations. The Company's policy is
to record an impairment loss in the period it is determined the carrying amount
of the asset may not be recoverable. This determination is based on an
evaluation of such factors as the occurrence of a significant event, a

                                       F-10
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

significant change in the environment in which the business operates, or if the
expected future net cash flows (undiscounted and without interest or income
taxes) are less than the carrying amount of the assets.

  ENVIRONMENTAL LIABILITIES:

     Expenditures for ongoing compliance with environmental regulations that
relate to current operations are expensed or capitalized as appropriate. The
Company capitalizes expenditures made to improve the condition of property,
compared with the condition of that property when constructed or acquired. The
Company also capitalizes expenditures that prevent future environmental
contamination. Other expenditures are expensed as incurred. The Company records
the expense and related liability in the period an environmental assessment
indicates remedial efforts are probable and the costs can be reasonably
estimated. Estimates of the liability are based upon currently available facts,
existing technology, and presently enacted laws and regulations taking into
consideration the likely effects of inflation and other societal and economic
factors. All available evidence is considered, including prior experience in
remediation of contaminated sites, other companies' experience, and data
released by the U.S. Environmental Protection Agency or other organizations.
When such costs will be incurred over a long-term period and can be reliably
estimated as to timing, the liabilities are included in the consolidated balance
sheet at their discounted amounts.

  INCOME TAXES:

     Income tax expense includes U.S. federal, state, and foreign income taxes.
The tax effect of certain temporary differences between amounts recognized for
financial reporting purposes and amounts recognized for tax purposes are
reported as deferred income taxes. Deferred tax balances are adjusted to reflect
tax rates, based on current tax laws, which will be in effect in the years in
which the temporary differences are expected to reverse. Valuation allowances
are established as necessary to reduce deferred tax assets to amounts more
likely than not to be realized.

  RESEARCH AND DEVELOPMENT EXPENDITURES:

     Research and development expenditures are expensed as incurred and were
$4,634, $4,251 and $1,889 for 2003, 2002 and 2001, respectively.

  RECLASSIFICATION:

     Certain prior-year amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to the 2003
presentation.

  NEW ACCOUNTING PRONOUNCEMENTS:

     Effective for 2003, the Company adopted the following new accounting
pronouncements:

     Statements of Financial Accounting Standards No. 141 "Business
Combinations" ("SFAS No. 141") and No. 142 "Goodwill and Other Intangibles"
("SFAS No. 142"). SFAS No. 141 requires that the purchase method of accounting
be used for all business combinations initiated after June 30, 2001. SFAS No.
142 establishes specific criteria for recognition of intangible assets
separately from goodwill. The statement requires that goodwill and indefinite
lived intangible assets no longer be amortized and be tested for impairment at
least annually. The amortization period of intangible assets with determinable
lives will no longer be limited to forty years. Identifiable intangible assets
with determinable useful lives will continue to be amortized. The Company has no
goodwill, but has assessed the useful lives of its intangible assets. The
adoption of SFAS No. 141 and SFAS No. 142 did not result in an impact on the
Company's financial statements.

                                       F-11
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Statement of Financial Accounting Standards No. 143 "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"). SFAS No. 143 established accounting
standards for the recognition and measurement of an asset retirement obligation
("ARO") and its associated asset retirement cost. The Company has reviewed its
tangible long-lived assets for associated asset retirement obligations in
accordance with SFAS No. 143. The adoption of SFAS No. 143 did not result in an
impact on the Company's financial statements.

     Statement of Financial Accounting Standards No. 144 "Accounting for
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144
addresses significant issues relating to the implementation of FASB Statement
No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" ("SFAS No. 121"), and the development of a single
accounting model, based on the framework established in SFAS No. 121, for
long-lived assets to be disposed of by sale, whether previously held and used or
newly acquired. As a result of the adoption of SFAS No. 144, the Company
classified the Odda, Carbide, and MRT businesses as discontinued operations.

     Statement of Financial Accounting Standards No. 145, "Rescission of SFAS
Nos. 4, 44 and 64, Amendment of SFAS 13, and Technical Corrections" ("SFAS No.
145"). The adoption of SFAS No. 145 did not result in an impact on the Company's
financial statements.

     Statement of Financial Accounting Standards No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized and measured initially at fair value when the liability
is incurred rather than at the date of a commitment to an exit or disposal plan.
Costs covered by SFAS No. 146 include lease termination costs and certain
employee severance costs that are associated with a restructuring, discontinued
operation, plant closing or other exit or disposal activity. SFAS No. 146 is
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 did not result in an impact on the Company's
financial statements.

     FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others" ("FIN No. 45"). FIN No. 45 elaborates on the disclosures to be made by a
guarantor in its interim and annual financial statements about its obligations
under certain guarantees that it has issued. The adoption of FIN No. 45 did not
result in a material impact on the Company's financial statements.

     FASB Interpretation No. 46, "Consolidation of Variable Interest Entities"
("FIN No. 46"). FIN No. 46 requires consolidation by business enterprises of
variable interest entities (including entities commonly referred to as special
purpose entities), which meet certain characteristics. The adoption of FIN No.
46 did not result in an impact on the Company's financial statements.

     The Company will adopt the following new accounting pronouncements in 2004:

     Statement of Financial Accounting Standards No. 149, "Amendment of SFAS No.
133 on Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
149 amends and clarifies accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities under SFAS No. 133. SFAS No. 149 is effective for contracts
entered into or modified after June 30, 2003, and for hedging relationships
designated after June 30, 2003. The Company is currently assessing the impact of
this pronouncement.

     Statement of Financial Accounting Standards No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("SFAS No. 150"). SFAS No. 150 requires that an issuer classify a
financial instrument, that is within its scope, as a liability (or an asset in
some circumstances). SFAS No. 150 also revises the definition of liabilities to
encompass certain obligations

                                       F-12
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

that can, or must, be settled by issuing equity shares, depending on the nature
of the relationship established between the holder and the issuer. SFAS No. 150
is effective for financial instruments entered into or modified after May 31,
2003, and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Effective in 2004, the Company will classify its
Redeemable Preferred Stock as a liability.

3.  DISCONTINUED OPERATIONS

     During 2003, the Company decided to shutdown or divest Odda Smelteverk
(Norway), Carbide Industries (U.K.), and Mineral Resource Technologies, Inc.
These businesses have been classified as discontinued operations. The Company's
consolidated financial statements have been reclassified to report separately
the operating results, financial position, and cash flows of the discontinued
operations. Prior year financial statements have been reclassified to conform to
the 2003 presentation.

  ODDA AND CARBIDE:

     During 2003, the Company determined that it would permanently shutdown and
no longer fund the operations of Odda. On February 28, 2003, Odda filed for
bankruptcy in Norway. The bankruptcy is proceeding in accordance with Norwegian
law. The Company has been advised that, as a result of the bankruptcy, the
creditors of Odda have recourse only to the assets of Odda, except in the case
of certain debt guaranteed by the Company. The Company has removed all assets,
liabilities (except as noted below), and cumulative translation adjustments
related to Odda from the Company's consolidated balance sheet as of June 30,
2003, and has recorded the net result as a Loss on disposal of discontinued
operations. The Company is the guarantor of certain debt of Odda. As of June 30,
2003, debt of Norwegian Krone (NOK) 41,073 ($5,731) was outstanding and was
included in Loans payable to banks on the Company's consolidated balance sheet.
The Company has entered into forbearance agreements with the Norwegian banks
holding the guarantees from the Company, under which the banks have agreed not
to demand immediate payment and the Company has agreed to pay the principal
amount plus interest in installments. The Company has been advised by Norwegian
counsel that it will obtain the benefit of the banks' position as a secured
creditor upon payment pursuant to the guarantees. The Company obtained the
consent of a majority of the holders of its senior subordinated notes due 2008
to amend the Indenture governing these notes in such a manner that the
bankruptcy of Odda did not create an event of default thereunder.

     During 2003, the Company sold Carbide, previously a distributor for one of
Odda's product lines. Proceeds from the divestiture were not material. Odda was
included in the Company's Industrial

                                       F-13
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Chemicals segment and Carbide was included in the Company's Distribution
segment. Operating results, loss on disposal, and certain balance sheet items of
Odda and Carbide were:

<Table>
<Caption>
                                                        FOR THE YEARS ENDED JUNE 30,
                                                        -----------------------------
                                                          2003       2002      2001
                                                        --------   --------   -------
<S>                                                     <C>        <C>        <C>
OPERATING RESULTS:
Net sales.............................................  $ 11,217   $ 31,219   $30,440
Cost of goods sold....................................    13,723     46,116    27,877
Selling, general and administrative expenses..........     3,175     12,812     5,698
Asset write downs.....................................     7,781         --        --
Other income (expense)................................     2,327      3,699      (723)
                                                        --------   --------   -------
Loss before income taxes..............................   (11,135)   (24,010)   (3,858)
Benefit for income taxes..............................       (58)    (1,170)   (1,150)
                                                        --------   --------   -------
Loss from operations..................................  $(11,077)  $(22,840)  $(2,708)
                                                        ========   ========   =======
Depreciation and amortization.........................  $    894   $ 17,676   $ 2,962
                                                        ========   ========   =======
LOSS ON DISPOSAL:
Assets................................................  $ (3,359)
Liabilities...........................................     6,432
Unsecured debt........................................     2,488
Currency translation adjustment.......................    (6,244)
                                                        --------
Loss on disposal......................................  $   (683)
                                                        ========
</Table>

<Table>
<Caption>
                                                          AS OF JUNE 30,
                                                        -------------------
                                                          2003       2002
                                                        --------   --------
<S>                                                     <C>        <C>        <C>
BALANCE SHEET:
Trade receivables.....................................  $     --   $  4,004
Other receivables.....................................        --        728
Inventories...........................................        --      6,592
Prepaid expenses and other current assets.............        --        445
                                                        --------   --------
Current assets from discontinued operations...........  $     --   $ 11,769
                                                        ========   ========
Property, plant and equipment, net....................  $     --   $  8,234
Intangibles...........................................        --      1,411
Other assets..........................................        --        787
                                                        --------   --------
Other assets from discontinued operations.............  $     --   $ 10,432
                                                        ========   ========
Accounts payable......................................  $     --   $  2,565
Accrued expenses and other current liabilities........        --      4,095
                                                        --------   --------
Current liabilities from discontinued operations......  $     --   $  6,660
                                                        ========   ========
Other liabilities.....................................  $     --   $  1,280
                                                        --------   --------
Other liabilities from discontinued operations........  $     --   $  1,280
                                                        ========   ========
</Table>

                                       F-14
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  MINERAL RESOURCE TECHNOLOGIES, INC. ("MRT"):

     During 2003, the Company decided to pursue a sale of MRT. The sale was
completed in August 2003 for net proceeds, after transaction costs, of
approximately $14,000, the amount dependent upon certain post-closing
adjustments. The Company does not anticipate a material gain or loss on disposal
based upon its assessment of the likely outcomes of the post-closing
adjustments. MRT was included in the Company's All Other segment. Operating
results and certain balance sheet items of MRT were:

<Table>
<Caption>
                                                           FOR THE YEARS ENDED JUNE 30,
                                                          ------------------------------
                                                            2003       2002       2001
                                                          --------   --------   --------
<S>                                                       <C>        <C>        <C>
OPERATING RESULTS:
Net sales...............................................  $18,671    $17,045    $14,306
Cost of goods sold......................................   19,943     17,676     12,955
Selling, general and administrative expenses............    2,182      2,299      2,674
                                                          -------    -------    -------
Loss before income taxes................................   (3,454)    (2,930)    (1,323)
Provision (benefit) for income taxes....................       --         --       (450)
                                                          -------    -------    -------
Loss from operations....................................  $(3,454)   $(2,930)   $  (873)
                                                          =======    =======    =======
Depreciation and amortization...........................  $ 1,309    $ 1,192    $   465
                                                          =======    =======    =======
</Table>

<Table>
<Caption>
                                                          AS OF JUNE 30,
                                                        -------------------
                                                          2003       2002
                                                        --------   --------
<S>                                                     <C>        <C>        <C>
BALANCE SHEET:
Trade receivables.....................................  $  2,633   $  3,178
Other receivables.....................................       304        109
Inventories...........................................     1,643      1,529
Prepaid expenses and other current assets.............       362        195
                                                        --------   --------
Current assets from discontinued operations...........  $  4,942   $  5,011
                                                        ========   ========
Property, plant and equipment, net....................  $  9,999   $ 10,831
Intangibles...........................................       196        149
Other assets..........................................       455        312
                                                        --------   --------
Other assets from discontinued operations.............  $ 10,650   $ 11,292
                                                        ========   ========
Accounts payable......................................  $  1,466   $  1,557
Accrued expenses and other current liabilities........       585        172
                                                        --------   --------
Current liabilities from discontinued operations......  $  2,051   $  1,729
                                                        ========   ========
Other liabilities.....................................  $    198   $    198
                                                        --------   --------
Other liabilities from discontinued operations........  $    198   $    198
                                                        ========   ========
</Table>

4.  ACQUISITION

     On November 30, 2000, the Company purchased the medicated feed additives
("MFA") business of Pfizer. The operating results of this business are included
in the Company's consolidated statements of operations from the date of
acquisition and are included in the Animal Health and Nutrition segment.

                                       F-15
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The purchase price of $76,793 (including costs of acquisition) was paid
with cash of $51,700 and the issue of a promissory note to Pfizer for $25,093.
The Company financed the cash payment through the issuance of $40,808 of
redeemable preferred securities ($45,000 of redeemable preferred securities,
less costs connected with the issue of those securities of $4,192), and through
bank credit facilities. In addition, under the terms of the purchase agreement,
the Company is required to pay Pfizer a contingent purchase price based on a
percentage of future net revenues of a certain product. The maximum contingent
purchase price due under this arrangement is limited to $55,000 over five years
with a maximum annual payment of $12,000. In addition, the Company is required
to pay Pfizer a contingent purchase price up to a maximum of $10,000 over five
years based on gross profit levels of certain other products. Contingent
purchase price paid or accrued of $7,498 has been allocated to related
production equipment and $9,349 has been allocated to product intangibles.
During 2003, Pfizer agreed to defer until March 1, 2004, without interest,
accrued purchase price amounts existing at May 31, 2002 and to waive contingent
purchase price payments on future net revenues from June 1, 2002 through March
1, 2004. Accrued purchase price payable was $9,040 at June 30, 2003 and 2002.
The accrued purchase price is expected to be paid as part of the payment to
Pfizer described in Note 2.

     The acquisition was accounted for as a purchase. The purchase price was
allocated to inventory; property, plant and equipment; product intangibles; and,
pension liabilities. Property, plant and equipment include manufacturing
facilities in Rixensart, Belgium and Guarulhos, Brazil. The Company recorded, as
a cost of acquisition, a pension liability of $1,076 relating to the employees
of the Belgium plant who elected to transfer their benefits and the amount of
their accumulated benefit obligations.

     The unaudited consolidated results of operations on a pro-forma basis as if
such acquisition had occurred at the beginning of 2001 are net sales of $367,257
and loss from continuing operations of $12,141 for 2001.

     Purchase accounting adjustments allocated to the inventory acquired from
Pfizer increased cost of goods sold by $3,257 and $8,889 in 2002 and 2001,
respectively.

5.  PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment was:

<Table>
<Caption>
                                                                AS OF JUNE 30,
                                                              -------------------
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Land........................................................  $  6,356   $  6,140
Buildings and improvements..................................    30,907     28,905
Machinery and equipment.....................................   110,885    111,553
                                                              --------   --------
                                                               148,148    146,598
Less: accumulated depreciation..............................    81,708     80,933
                                                              --------   --------
                                                              $ 66,440   $ 65,665
                                                              ========   ========
</Table>

     Certain of the buildings of Koffolk are on land leased for a nominal amount
from the Israel Land Authority. The lease expires on July 9, 2027.

     Depreciation expense was $9,561, $10,560 and $8,659 for 2003, 2002 and
2001, respectively.

6.  RELATED PARTY TRANSACTIONS

     The Company owns $1,980 par value of preferred stock of a pharmaceutical
company. The principal common stockholder of the Company owns a 20% voting
common stock interest in the pharmaceutical

                                       F-16
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

company, acquired for $20. The preferred stock investment, included in other
assets, is carried on the equity basis with a net carrying value of $1,274 at
June 30, 2003. The Company has recorded losses of $199, $289 and $218 in other
expense, net for 2003, 2002 and 2001, respectively.

     A subsidiary of the Company leases the property underlying its Santa Fe
Springs, California plant from a limited partnership controlled by common
shareholders of the Company. The lease requires annual base rent of $250 and
terminates on December 31, 2008. The Company is responsible under the lease
agreement to pay all real property taxes.

7.  ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

     Accrued expenses and other current liabilities were:

<Table>
<Caption>
                                                               AS OF JUNE 30,
                                                              -----------------
                                                               2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Employee related expenses...................................  $10,485   $ 7,717
Accrued purchase price due Pfizer...........................    9,040        --
Taxes.......................................................    7,898     3,690
Other accrued liabilities...................................   14,186    18,406
                                                              -------   -------
                                                              $41,609   $29,813
                                                              =======   =======
</Table>

     Accrued purchase price due Pfizer of $9,040 was included in Long-Term
Liabilities at June 30, 2002.

8.  DEBT

  LOANS PAYABLE TO BANKS

     At June 30, 2003, loans payable to banks included $32,147 under the
domestic senior credit facility with its lending banks, for which PNC Bank
serves as agent; NOK 41,073 ($5,731) under guarantees of certain debt of Odda;
and $1,036 under foreign revolving lines of credit.

     At June 30, 2003, the Company's senior credit facility was $55,000 and
included a revolving credit facility and amounts currently outstanding under a
capital expenditure facility. The senior credit facility was amended in October
2002 to: waive noncompliance with financial covenants as of June 30, 2002; amend
financial covenants prospectively until maturity; amend the borrowing base
formula; reduce the credit facility from $70,000 to $55,000; limit borrowings
under the capital expenditure line of the facility to the then outstanding
balance of $5,800; and revise the interest rate from 1.5% to 1.75% per annum
over the base rate (as defined in the agreement). The senior credit facility
expires November 30, 2003.

     The revolving credit facility is subject to availability under a borrowing
base formula for domestic accounts receivable and inventories (as defined in the
agreement), which also serve as collateral for the borrowings. At June 30, 2003,
the Company had $9,992 available under the borrowing base formula.

     As of June 30, 2003, the Company was in compliance with the financial
covenants in the senior credit facility. The senior credit facility requires,
among other things, the maintenance of a consolidated interest coverage ratio
calculated quarterly, a certain level of trailing three month domestic cash
flows calculated on a monthly basis, and an acceleration clause should a
material adverse event (as defined in the agreement) occur. In addition, there
are certain restrictions on additional borrowings, additional liens on the
Company's assets, guarantees, dividend payments, redemption or purchase of the
Company's stock, sale of subsidiaries' stock, disposition of assets,
investments, and mergers and acquisitions.

     The revolving credit facility contains a lock-box requirement and a
subjective acceleration clause. Accordingly, the amounts outstanding have been
classified as short-term and are included in Loans

                                       F-17
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

payable to banks in the consolidated balance sheet. Advances under the capital
expenditure facility were included in the current portion of long-term debt as
of June 30, 2003.

  LONG-TERM DEBT:

<Table>
<Caption>
                                                                AS OF JUNE 30,
                                                              -------------------
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Domestic:
  Senior subordinated notes due June 1, 2008(a).............  $100,000   $100,000
  Bank capital expenditure facility.........................     1,496      5,800
  Pfizer promissory note(b).................................    20,075     22,584
  Capitalized lease obligations and other...................       910      1,413
Foreign:
  Norwegian bank loans payable in Norwegian Krone(c)........        --      8,222
  Norwegian government loans payable in Norwegian
     Krone(d)...............................................        --      3,557
  Bank loans(e).............................................     3,750      3,000
  Capitalized lease obligations and other...................       284        916
                                                              --------   --------
                                                               126,515    145,492
  Less: current maturities..................................    24,124      8,851
                                                              --------   --------
                                                              $102,391   $136,641
                                                              ========   ========
</Table>

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

(a)  The Company issued $100 million aggregate principal amount of ten year
     9 7/8% Senior Subordinated Notes in June 1998. The Notes are general
     unsecured obligations of the Company and are subordinated in right of
     payment to all existing and future senior debt (as defined in the indenture
     agreement of the Company) and rank pari passu in right of payment with all
     other existing and future senior subordinated indebtedness of the Company.
     The Notes are unconditionally guaranteed on a senior subordinated basis by
     the domestic subsidiaries of the Company (the "Guarantors"). Additional
     future domestic subsidiaries may become Guarantors under certain
     circumstances.

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

(b)  In connection with the MFA acquisition, the Company issued a 13% promissory
     note to Pfizer in the amount of $25,093 with interest payable
     semi-annually. Principal payments of 10% were paid December 3, 2001 and
     2002. The remaining balance of $20,075 is due March 1, 2004. The note is
     collateralized by the Company's facilities in Rixensart, Belgium and
     Guarulhos, Brazil. The note is expected to be paid and the facilities
     released from the collateral agreements as part of the payment to Pfizer
     described in Note 2.

(c)  As a result of the Odda bankruptcy in 2003 (see Note 3), and due to the
     Company's guarantee of the Norwegian bank loans, the Company agreed to pay
     the remaining principal amount in installments through November 30, 2003.
     The remaining amounts outstanding of NOK 41,073 ($5,731) are included in
     Loans payable to banks at June 30, 2003. The loans accrue interest at NIBOR
     plus 2% to 2.75%.

(d)  Odda entered into two separate loan agreements with the Norwegian Bank
     Industrial and Regional Development Fund originally totaling NOK 26,500.
     The Company is not a guarantor of these loans. The outstanding balance at
     the date of Odda's bankruptcy was NOK 12,329 ($1,770) and is payable only
     from the assets of the bankruptcy estate. The Company has removed this debt
     from its June 30, 2003 balance sheet as a component of the loss on disposal
     of Odda.

                                       F-18
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e)  The bank loans are collateralized by Koffolk's receivables and inventory,
     accrue interest at LIBOR plus 1.25%, and are repayable in equal quarterly
     payments through 2005.

     The aggregate maturities of long-term debt as of June 30, 2003 are:

<Table>
<Caption>
YEAR ENDED JUNE 30,
-------------------
<S>                                                           <C>
2004........................................................  $ 24,124
2005........................................................     2,154
2006........................................................        78
2007........................................................       142
2008........................................................   100,017
                                                              --------
  Total.....................................................  $126,515
                                                              ========
</Table>

9.  REDEEMABLE COMMON STOCK OF SUBSIDIARY

     A key executive of the Company has a 2.1% ownership interest in the common
stock of a subsidiary. The subsidiary's shares are redeemable at fair market
value, based on independent appraisal, upon the death, disability or termination
of the key executive. The Company and its subsidiary have entered into a
severance agreement with the executive for payments based on a multiple of
pre-tax earnings (as defined). The payments are subject to certain restrictions
pursuant to terms of the senior credit facility. At June 30, 2003 no severance
payments would have been due upon termination.

     In connection with the 2001 separation of employment of a senior executive,
who also had an ownership interest in the subsidiary, pursuant to stock buyback
and severance provisions similar to the aforementioned agreements, the Company
recorded a charge of $1,282 in selling, general and administrative expenses and
reclassified $200 from redeemable securities to accrued expenses and other
current liabilities.

10.  REDEEMABLE PREFERRED STOCK

     Redeemable preferred securities were issued on November 30, 2000 to
Palladium Equity Partners II, LP and certain of its affiliates ("Palladium
Investors") as follows:

        Preferred B -- $25,000 - 25,000 shares

        Preferred C -- $20,000 - 20,000 shares

     The redeemable preferred stock is entitled to cumulative cash dividends,
payable semi-annually, at 15% per annum of the liquidation value. The
liquidation value of the Preferred B stock is an amount equal to $1 per share
plus all accrued and unpaid dividends (the "Liquidation Value"). The redeemable
Preferred C stock is entitled to the Liquidation Value plus a percentage of the
equity value of the Company, as defined in the amended Certificate of
Incorporation. The equity value is calculated as a multiple of earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company's
business ("Equity Value"). The Company may, within 90 days before and 90 days
after the annual anniversary of the closing date, redeem the Preferred B stock,
in whole or in part, at the Liquidation Value for cash, provided that if
Preferred B is redeemed separately from the Preferred C, then the Preferred B
must be redeemed for the Liquidation Value plus an additional amount that would
generate an internal rate of return of 20% to Palladium Investors on the
Preferred B investment.

     Redemption in part of Preferred B is only available if at least 50% of the
outstanding Preferred B is redeemed. On the third closing anniversary and on
each closing anniversary thereafter, the Company may redeem, for cash only, in
whole the Preferred C, at the Liquidation Value plus the Equity Value payment.

                                       F-19
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     At any time after the redemption of the Company's Senior Subordinated Notes
(due June 2008), Palladium Investors shall have the right to require the Company
to redeem, for cash, the Preferred B at the Liquidation Value and the Preferred
C at the Liquidation Value plus the Equity Value payment.

     In 2001, the redeemable preferred securities were initially recorded at
$40,808, representing proceeds of $45,000, net of issuance costs of $4,192.
Immediately thereafter, the Company recorded a charge of $4,192 to retained
earnings to reflect the accretion of the preferred securities to their fair
market value at the closing date.

     Dividends of $8,808, $7,623 and $3,980 for 2003, 2002 and 2001,
respectively, were accrued on the preferred securities and charged to retained
earnings. Equity Value of $3,470, $0 and $0 for 2003, 2002 and 2001,
respectively, was accrued and charged to retained earnings.

     An annual management advisory fee of $2,250 is payable to the Palladium
Investors until all Preferred B and Preferred C shares are redeemed. Payments
are due quarterly in advance and are charged to general and administrative
expense. The management fee was $2,250, $2,250 and $1,313 for 2003, 2002 and
2001, respectively.

     The agreement with the Palladium Investors contains covenants which
restrict, without the consent of at least one director designated by the
Palladium Investors (or if no such director is then serving on the Board, at
least one of the Palladium Investors), certain (a) issuances of equity
securities, (b) sales of assets in excess of $10,000, (c) purchases of business
and other investments in excess of $10,000, (d) incurrence of indebtedness for
borrowed money in excess of $12,500, (e) redemptions, acquisitions or other
purchases of equity securities, (f) transactions with officers, directors,
stockholders or employees or any family member or affiliate thereof in excess of
$500, (g) compensation and benefits of certain officers, and (h) transactions
involving a change of control.

11.  COMMON STOCK AND PAID-IN CAPITAL

  COMMON STOCK:

     Common stock at June 30, 2003 and 2002 was:

<Table>
<Caption>
                                                           AUTHORIZED   ISSUED   AMOUNT
                                                             SHARES     SHARES   AT PAR
                                                           ----------   ------   ------
<S>                                                        <C>          <C>      <C>
Class A common stock.....................................    16,200     12,600    $.10
Class B common stock.....................................    14,100     11,888    $.10
                                                             ------     ------
                                                             30,300     24,488
</Table>

     The entire voting power is vested in the holders of Class A common stock,
except the holders of Class A common stock are entitled to elect all but three
of the directors. The holders of Class B common stock are entitled to elect one
director, and the purchasers of the Preferred B and Preferred C are entitled by
contract to elect two directors. No dividends may be paid to common stockholders
until all dividends have been paid to preferred stockholders. Thereafter,
holders of Class A common stock shall receive dividends, when and as declared by
the directors, at the rate of 5.5% of the par value of such stock (non-
cumulative). After all declared dividends have been paid to Class A common
stockholders, dividends may be declared and paid to the holders of Class B
common stock. In the event of any complete liquidation, dissolution, winding-up
of the business, or sale of all the assets of the Company, and after the
redemption of the preferred stock, the Class A common stockholders are entitled
to a distribution equal to the par value of the stock plus declared and unpaid
dividends. Thereafter, the remaining assets of the Company shall be distributed
to the holders of Class B common stock.

     Issued shares include redeemable common stock held by a minority
shareholder.

                                       F-20
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  REDEEMABLE COMMON STOCK:

     Pursuant to terms of an agreement with a minority shareholder, who is also
an officer of the Company, the Company is required to purchase at book value,
the Class B shares of such shareholder upon his retirement, death, disability,
or the termination of his employment. Should such shareholder elect to sell his
shares, the Company has a right of first offer and an option to purchase the
shares. The Company records a liability for the redemption amount as calculated
at each balance sheet date. The liability was $0 as of June 30, 2003 and 2002.
Income of $0, $378 and $3,135 for 2003, 2002 and 2001, respectively, was
recorded to adjust the shares to redeemable value at the balance sheet date.

12.  EMPLOYEE BENEFIT PLANS

     The Company and its domestic subsidiaries maintain noncontributory defined
benefit pension plans for all eligible domestic nonunion employees who meet
certain requirements of age, length of service and hours worked per year. The
benefits provided by the plans are based upon years of service and the
employees' average compensation, as defined. The Company's policy is to fund the
pension plans in amounts which comply with contribution limits imposed by law.

     The Company's Belgium subsidiary maintains a defined contribution and a
defined benefit plan for eligible employees. Benefits are based on employee
compensation and service.

     Reconciliations of changes in benefit obligations, plan assets, and funded
status of the plans were:

<Table>
<Caption>
                                                             DOMESTIC              INTERNATIONAL
                                                       ---------------------   ---------------------
                                                       JUNE 2003   JUNE 2002   JUNE 2003   JUNE 2002
                                                       ---------   ---------   ---------   ---------
<S>                                                    <C>         <C>         <C>         <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year..............   $11,821     $ 9,652     $ 4,251     $ 3,518
Service cost.........................................     1,056         879         310         217
Employee contributions...............................        --          --         100          --
Interest cost........................................       784         714         259         164
Benefits paid........................................      (243)       (179)        (29)         --
Actuarial (gain) or loss.............................      (663)        (34)        879          --
Amendments...........................................        --          37          --          --
Change in discount rate..............................     3,091         752         218          --
Exchange rate effect.................................        --          --         607         352
                                                        -------     -------     -------     -------
Benefit obligation at end of year....................   $15,846     $11,821     $ 6,595     $ 4,251
                                                        =======     =======     =======     =======
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year.......   $ 9,717     $ 9,193     $ 2,882     $ 2,524
Actual return on plan assets.........................       537          75         204         123
Employer contributions...............................       376         628         841          --
Employee contributions...............................        --          --         100          --
Benefits paid........................................      (243)       (179)        (29)         --
Exchange rate effect.................................        --          --         568         235
                                                        -------     -------     -------     -------
Fair value of plan assets at end of year.............   $10,387     $ 9,717     $ 4,566     $ 2,882
                                                        =======     =======     =======     =======
</Table>

                                       F-21
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                             DOMESTIC              INTERNATIONAL
                                                       ---------------------   ---------------------
                                                       JUNE 2003   JUNE 2002   JUNE 2003   JUNE 2002
                                                       ---------   ---------   ---------   ---------
<S>                                                    <C>         <C>         <C>         <C>
FUNDED STATUS
Funded status of the plan............................   $(5,459)    $(2,104)    $(2,029)    $(1,369)
Unrecognized net actuarial (gain) or loss............     2,359        (346)        961          --
Unrecognized prior service cost......................      (554)       (715)         --          --
Unrecognized transition (asset)......................       (12)        (15)         --          --
                                                        -------     -------     -------     -------
(Accrued) pension cost...............................   $(3,666)    $(3,180)    $(1,068)    $(1,369)
                                                        =======     =======     =======     =======
</Table>

     Significant assumptions for the plans were:

<Table>
<Caption>
                                                               DOMESTIC              INTERNATIONAL
                                                    ------------------------------   -------------
                                                      2003       2002       2001     2003    2002
                                                    --------   --------   --------   -----   -----
<S>                                                 <C>        <C>        <C>        <C>     <C>
Discount rate for service and interest cost.......      7.1%       7.5%       7.5%    5.8%    5.8%
Expected rate of return on plan assets............      7.5%       7.5%       7.5%    6.0%    6.0%
Rate of compensation increase (depending on
  age)............................................  3.0%-4.5%  3.0%-4.5%  3.0%-4.5%   3.0%    3.0%
Discount rate for year-end benefit obligation.....      5.8%       7.1%       7.5%    5.5%    5.8%
</Table>

     Components of net periodic pension expense were:

<Table>
<Caption>
                                                             DOMESTIC          INTERNATIONAL
                                                      ----------------------   -------------
                                                       2003    2002    2001    2003    2002
                                                      ------   -----   -----   -----   -----
<S>                                                   <C>      <C>     <C>     <C>     <C>
Service cost -- benefits earned during the year.....  $1,056   $ 879   $ 949   $ 310   $ 217
Interest cost on benefit obligation.................     784     714     618     259     164
Expected return on plan assets......................    (756)   (709)   (576)   (203)   (123)
Amortization of initial unrecognized net transition
  (asset)...........................................      (3)     (3)     (3)     --      --
Amortization of prior service costs.................    (162)   (165)   (165)     --      --
Amortization of (gain)..............................     (57)    (57)    (31)     --      --
                                                      ------   -----   -----   -----   -----
Net periodic pension expense........................  $  862   $ 659   $ 792   $ 366   $ 258
                                                      ======   =====   =====   =====   =====
</Table>

     The Company assumed the liability for the International pension plan during
2002 as part of the MFA acquisition.

     In addition to Belgium, most of the Company's foreign subsidiaries have
retirement plans covering substantially all employees. Contributions to these
plans are generally deposited under fiduciary-type arrangements. Benefits under
these plans primarily are based on compensation levels. Funding policies are
based on legal requirements and local practices. Expense under these plans was
$682, $683 and $489 for 2003, 2002 and 2001, respectively.

     The Company and its domestic subsidiaries provide a 401(k) savings plan,
under which an employee may make a pre-tax contribution of up to 60% of base
compensation. The Company makes a non-matching contribution equal to 1% of the
employee's base compensation and a matching contribution equal to 50% of the
employee's contribution up to the first 3% of base compensation and 25% of the
employee's contribution from 3% to 6% of base compensation. All employee
contributions are subject to the maximum amounts permitted for federal income
tax purposes. Employees vest in the Company's matching contributions over 5
years. The Company's contribution was $528, $539 and $580 in 2003, 2002 and
2001, respectively.

                                       F-22
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The Company has a deferred compensation and supplemental retirement plan
for certain senior executives. The benefits provided by the plan are based upon
years of service and the executives' average compensation, subject to certain
limits. The plan also provides for death benefits before retirement. Expense
under this plan was $249, $204, and $123 in 2003, 2002 and 2001, respectively.
The aggregate liability under this plan amounted to $1,678 and $1,429 at June
30, 2003 and 2002, respectively. To assist in funding the benefits of the plan,
the Company invested in corporate-owned life insurance policies, through a
trust, which at June 30, 2003 and 2002 had cash surrender values of $1,299 and
$1,142, respectively, and are included in other assets.

     The Company has an executive income program to provide a pre-retirement
death benefit and a supplemental retirement benefit for certain senior
executives. The aggregate liability under this plan amounted to $385 and $364 at
June 30, 2003 and 2002, respectively. To assist in funding the benefits of the
plan, the Company invested in split-dollar life insurance policies, which at
June 30, 2003 and 2002 had cash surrender values to the Company of $1,392 and
$1,257, respectively, and are included in other assets.

13.  INCOME TAXES

     Income (loss) from continuing operations before income taxes was:

<Table>
<Caption>
                                                          2003      2002       2001
                                                         ------   --------   --------
<S>                                                      <C>      <C>        <C>
Domestic...............................................  $3,855   $ (5,507)  $(11,238)
Foreign................................................   3,876     (5,664)      (457)
                                                         ------   --------   --------
Income (loss) from continuing operations before income
  taxes................................................  $7,731   $(11,171)  $(11,695)
                                                         ======   ========   ========
</Table>

     Components of the provision (benefit) for income taxes were:

<Table>
<Caption>
                                                           2003      2002      2001
                                                          -------   -------   -------
<S>                                                       <C>       <C>       <C>
Current tax provision (benefit):
  U.S. Federal..........................................  $    --   $    --   $    --
  State and local.......................................      516      (256)    1,711
  Foreign...............................................    2,332     2,573     3,639
                                                          -------   -------   -------
  Total current tax provision...........................    2,848     2,317     5,350
                                                          -------   -------   -------
Deferred tax provision (benefit):
  U.S. Federal..........................................    1,705    (1,225)   (3,078)
  State and local.......................................     (345)     (590)     (210)
  Foreign...............................................    1,618      (399)   (3,373)
  Change in valuation allowance -- domestic.............   (1,360)   14,726       930
                                  -- foreign............    5,610        --        --
                                                          -------   -------   -------
  Total deferred tax provision (benefit)................    7,228    12,512    (5,731)
                                                          -------   -------   -------
Provision (benefit) for income taxes....................  $10,076   $14,829   $  (381)
                                                          =======   =======   =======
</Table>

                                       F-23
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Reconciliations of the Federal statutory rate to the Company's effective
tax rate are:

<Table>
<Caption>
                                                              2003    2002    2001
                                                              -----   -----   -----
<S>                                                           <C>     <C>     <C>
U.S. Federal income tax rate................................   35.0%  (35.0)% (35.0)%
State and local taxes, net of federal income tax effect.....    1.4    (4.9)    8.3
Foreign tax rate differences and taxes in certain profitable
  foreign jurisdictions.....................................   33.9    42.1    23.8
Change in valuation allowance...............................   55.0   131.8     8.0
Non-taxable income..........................................     --      --    (9.4)
Expenses with no tax benefit................................    4.4     1.0     1.5
Other.......................................................    0.6    (2.3)   (0.5)
                                                              -----   -----   -----
Effective tax rate..........................................  130.3%  132.7%   (3.3)%
                                                              =====   =====   =====
</Table>

     Provision has not been made for United States or additional foreign taxes
on undistributed earnings of foreign subsidiaries of approximately $37,500,
whose earnings have been or are intended to be reinvested. It is not practicable
at this time to determine the amount of income tax liability that would result
should such earnings be repatriated.

     The tax effects of significant temporary differences that comprise deferred
tax assets and liabilities at June 30, 2003 and 2002 were:

<Table>
<Caption>
                                                                AS OF JUNE 30,
                                                              -------------------
                                                                2003       2002
                                                              --------   --------
<S>                                                           <C>        <C>
Deferred tax assets:
  Employee benefits.........................................  $  3,194   $  2,440
  Property, plant and equipment.............................       686        959
  Insurance.................................................       341        440
  Receivables allowances....................................       770        878
  Inventory.................................................     4,588      4,490
  Environmental remediation.................................     1,232        852
  Alternative minimum tax...................................       163        158
  Net operating loss carry forwards -- domestic.............    20,186     12,664
                                     -- foreign.............     1,290      1,695
  Other.....................................................     2,125      3,260
                                                              --------   --------
                                                                34,575     27,836
  Valuation allowance.......................................   (32,954)   (18,495)
                                                              --------   --------
                                                                 1,621      9,341
                                                              --------   --------
Deferred tax liabilities
  Property, plant and equipment.............................    (2,354)    (2,846)
  Other.....................................................    (1,962)    (1,872)
                                                              --------   --------
                                                                (4,316)    (4,718)
                                                              --------   --------
Net deferred tax (liability) asset..........................  $ (2,695)  $  4,623
                                                              ========   ========
</Table>

                                       F-24
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Deferred taxes are included in the following line items in the consolidated
balance sheets:

<Table>
<Caption>
                                                               2003      2002
                                                              -------   -------
<S>                                                           <C>       <C>
Prepaid expenses and other current assets...................  $   690   $ 6,593
Accrued expenses, taxes and other current liabilities.......     (111)     (717)
Other assets................................................      624       305
Other liabilities...........................................   (3,898)   (1,558)
                                                              -------   -------
                                                              $(2,695)  $ 4,623
                                                              =======   =======
</Table>

     The Company has incurred domestic and foreign losses in recent years and
has reassessed the likelihood of recovering net deferred tax assets, resulting
in the recording of valuation allowances due to the uncertainty of future
profitability. The Company recorded income tax expense and increased the
valuation allowances by $5,610 and $12,154 during the fourth quarters of 2003
and 2002, respectively. The Company will continue to evaluate the likelihood of
recoverability of these deferred tax assets based upon actual and expected
operating performance.

     The Company has domestic federal net operating loss carry forwards of
approximately $52,000 that expire in 2019 through 2023, state net operating loss
carry forwards of approximately $44,000 that expire over various periods
beginning in 2005 and foreign net operating loss carry forwards of approximately
$8,000 that expire over various periods beginning in 2010.

14.  COMMITMENTS AND CONTINGENCIES

  (a) LEASES:

     The Company leases office, warehouse and manufacturing equipment and
facilities for minimum annual rentals (plus certain cost escalations) as
follows:

<Table>
<Caption>
                                                              CAPITAL   OPERATING
YEAR ENDED JUNE 30                                            LEASES     LEASES
------------------                                            -------   ---------
<S>                                                           <C>       <C>
2004........................................................   $452      $1,970
2005........................................................    125       1,357
2006........................................................     34         732
2007........................................................     32         452
2008........................................................     17         370
Thereafter..................................................     --         125
                                                               ----      ------
Total minimum lease payments................................   $660      $5,006
                                                                         ======
Amounts representing interest...............................     60
                                                               ----
Present value of minimum lease payments.....................   $600
                                                               ====
</Table>

     Equipment under capitalized leases included in the consolidated balance
sheet at June 30, 2003 was $1,245, net of accumulated depreciation of $350.

     Operating lease commitments include $1,375 with a related party controlled
by shareholders of the Company, as described in Related Party Transactions.

     Rent expense under operating leases for 2003, 2002 and 2001 was $2,271,
$2,061 and $1,851, respectively.

                                       F-25
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (b) LITIGATION:

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

     The Company's Phibro-Tech subsidiary was named in 1993 as a potentially
responsible party ("PRP") in connection with an action commenced under CERCLA by
the EPA, involving a former third-party fertilizer manufacturing site in
Jericho, South Carolina. An agreement has been reached under which such
subsidiary agreed to contribute up to $900 of which $635 has been paid as of
June 30, 2003. Some recovery from insurance and other sources is expected. The
Company also has accrued its best estimate of any future costs.

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

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

     On or about April 5, 2002, the Company was served, as a potentially
responsible party, with an information request from the EPA relating to a
third-party superfund site in Rhode Island. The Company is investigating the
matter, which relates to events in the 1950's and 1960's.

     By notice dated August 14, 2003, the Company's Phibro-Tech subsidiary's
Santa Fe Springs, California facility was notified by the California Department
of Toxic Substances Control that it was deemed a potentially responsible party
in connection with a third-party site in Wilmington, California. The Company is
investigating this matter, but believes it relates to matters that took place
before Phibro-Tech acquired the Santa Fe Springs, California operations. The
Company does not believe it will have any material liability in this matter.

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

                                       F-26
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (c) ENVIRONMENTAL REMEDIATION:

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

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

     The nature of the Company's and its subsidiaries' current and former
operations exposes the Company and its subsidiaries to the risk of claims with
respect to environmental matters and the Company cannot assure it will not incur
material costs and liabilities in connection with such claims. Based upon its
experience to date, the Company believes that the future cost of compliance with
existing environmental laws, and liability for known environmental claims
pursuant to such environmental laws, will not have a material adverse effect on
the Company's financial position. Based upon information available, the Company
estimates the cost of litigation proceedings described above and the cost of
further investigation and remediation of identified soil and groundwater
problems at operating sites, closed sites and third-party sites, and closure
costs for closed sites to be approximately $2,791, which is included in current
and long-term liabilities in the June 30, 2003 consolidated balance sheet
(approximately $2,834 in 2002). Environmental provisions were $1,630, $2,164 and
$1,252 for 2003, 2002 and 2001, respectively, and were included in selling,
general and administrative expenses in the consolidated statements of
operations.

15.  FINANCIAL INSTRUMENTS

     Financial instruments that potentially subject the Company to credit risk
consist principally of cash and cash equivalents and trade receivables. The
Company places its cash and cash equivalents with high quality financial
institutions in various countries. The Company sells to customers in a variety
of industries, markets and countries. Concentrations of credit risk with respect
to receivables arising from these sales are limited due to the large number of
customers comprising the Company's customer base. Ongoing credit evaluations of
customers' financial conditions are performed and, generally, no collateral is
required. The Company maintains appropriate reserves for uncollectible
receivables.

     The carrying amounts of cash and cash equivalents, trade receivables, trade
payables and short-term debt is considered to be representative of their fair
value because of their short maturities. The fair value of the Company's Senior
Subordinated Notes is estimated based on quoted market prices. At June 30, 2003
and 2002, the fair value of the Company's Senior Subordinated Notes was $40,000
and $51,000, respectively, and the related carrying amount was $100,000. At June
30, 2003 and 2002, the fair value of

                                       F-27
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the Company's other long-term debt does not differ materially from its carrying
amount based on the variable interest rate structure of these obligations.

     The Company obtains third-party letters of credit in connection with
certain inventory purchases and insurance obligations. The contract values of
the letters of credit at June 30, 2003 and 2002 were $2,593 and $1,793,
respectively. The difference between the carrying values and fair values of
these letters of credit was not material.

     The Company operates internationally, with manufacturing and sales
facilities in various locations around the world and utilizes certain financial
instruments to manage its foreign currency and commodity exposures, primarily
related to forecasted transactions. To qualify a derivative as a hedge at
inception and throughout the hedge period, the Company formally documents the
nature and relationships between hedging instruments and hedged items, as well
as its risk-management objectives, strategies for undertaking the various hedge
transactions and method of assessing hedge effectiveness. Additionally, for
hedges of forecasted transactions, the significant characteristics and expected
terms of a forecasted transaction must be specifically identified, and it must
be probable that each forecasted transaction would occur. If it were deemed
probable that the forecasted transaction would not occur, the gain or loss would
be recognized in operations currently. Financial instruments qualifying for
hedge accounting must maintain a specified level of effectiveness between the
hedging instrument and the item being hedged, both at inception and throughout
the hedged period. The Company hedges forecasted transactions for periods not
exceeding the next twelve months. The Company does not engage in trading or
other speculative uses of financial instruments.

     From time to time, the Company uses forward contracts and options to
mitigate its exposure to changes in foreign currency exchange rates and as a
means of hedging forecasted operating costs. When using options as a hedging
instrument, the Company excludes the time value from the assessment of
effectiveness. Pursuant to SFAS No. 133, all cumulative changes in a foreign
currency option's fair value are deferred as a component of accumulated other
comprehensive income until the underlying hedged transactions are reported on
the Company's consolidated statement of operations and comprehensive income. The
Company also utilizes, on a limited basis, certain commodity derivatives,
primarily on copper used in its manufacturing process, to hedge the cost of its
anticipated production requirements. The Company's foreign currency options and
forward contracts and commodity futures contracts were designated as cash flow
hedges and qualified for hedge accounting treatment. The Company deferred $81
and $1,062 of cumulative gains (net of losses) on various foreign exchange
options, forward contracts and copper futures contracts designated as cash flow
hedges as of June 30, 2003 and 2002, respectively.

     The fair value associated with foreign currency contracts has been
estimated by valuing the net position of the contracts using the applicable spot
rates and forward rates as of the reporting date.

     The fair value of commodity contracts is estimated based on quotes from the
market makers of these instruments and represents the estimated amounts that the
Company would expect to receive or pay to terminate the agreements as of the
reporting date.

16.  BUSINESS SEGMENTS

     The Company's reportable segments are Animal Health and Nutrition,
Industrial Chemicals, Distribution and All Other. Reportable segments have been
determined primarily on the basis of the nature of products and services and
certain similar operating units have been aggregated. The Company's Animal
Health and Nutrition segment manufactures and markets more than 500 formulations
and concentrations of medicated feed additives and nutritional feed additives
including antibiotics, antibacterials, anticoccidials, anthelmintics, trace
minerals, vitamins, vitamin premixes and other animal health and nutrition
products. The Industrial Chemicals segment manufactures and markets a number of
chemicals

                                       F-28
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

for use in the pressure-treated wood, chemical catalyst, semiconductor,
automotive, and aerospace industries. The Distribution segment markets and
distributes a variety of industrial, specialty and fine organic chemicals and
intermediates produced primarily by third parties. The All Other segment
manufactures and markets a variety of specialty custom chemicals and
copper-based fungicides. Intersegment sales and transfers were not significant.
The following segment data includes information only for continuing operations.

<Table>
<Caption>
                                  ANIMAL
                                 HEALTH &    INDUSTRIAL                              CORPORATE
2003 SEGMENT DATA                NUTRITION   CHEMICALS    DISTRIBUTION   ALL OTHER    & OTHER     TOTAL
-----------------                ---------   ----------   ------------   ---------   ---------   --------
<S>                              <C>         <C>          <C>            <C>         <C>         <C>
Net Sales......................  $250,706     $48,797       $30,072       $25,650    $     --    $355,225
Operating income (loss)........    38,472      (1,855)        3,207           261     (14,948)     25,137
Depreciation and
  amortization.................     7,690       2,904            12           723       1,554      12,883
Identifiable assets............   190,864      33,191         9,154        12,735      12,811     258,755
Capital expenditures...........     5,669       2,836            --           538           2       9,045
</Table>

<Table>
<Caption>
                                  ANIMAL
                                 HEALTH &    INDUSTRIAL                              CORPORATE
2002 SEGMENT DATA                NUTRITION   CHEMICALS    DISTRIBUTION   ALL OTHER    & OTHER     TOTAL
-----------------                ---------   ----------   ------------   ---------   ---------   --------
<S>                              <C>         <C>          <C>            <C>         <C>         <C>
Net Sales......................  $239,602     $50,854       $27,852       $22,241    $     --    $340,549
Operating income (loss)........    28,298      (7,324)        2,345           252     (13,854)      9,717
Depreciation and
  amortization.................     7,438       3,535            12           646       1,049      12,680
Identifiable assets............   186,118      38,985         8,059        14,385      10,393     257,940
Capital expenditures...........     5,915       2,328            12           303         119       8,677
</Table>

<Table>
<Caption>
                                  ANIMAL
                                 HEALTH &    INDUSTRIAL                              CORPORATE
2001 SEGMENT DATA                NUTRITION   CHEMICALS    DISTRIBUTION   ALL OTHER    & OTHER     TOTAL
-----------------                ---------   ----------   ------------   ---------   ---------   --------
<S>                              <C>         <C>          <C>            <C>         <C>         <C>
Net Sales......................  $197,806     $55,111       $34,074       $32,673    $     --    $319,664
Operating income (loss)........    17,562         664         3,057        (5,763)    (10,086)      5,434
Depreciation and
  amortization.................     5,089       3,334            42         1,158         782      10,405
Identifiable assets............   169,870      51,199        10,948        18,604      21,723     272,344
Capital expenditures...........     2,669       3,383            18           289         251       6,610
</Table>

17.  GEOGRAPHIC INFORMATION

     The following is information about the Company's geographic operations.
Information is attributed to the geographic areas based on the location of the
Company's subsidiaries.

<Table>
<Caption>
                                                         2003       2002       2001
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
NET SALES:
  United States......................................  $233,942   $219,981   $209,848
  Europe.............................................    30,122     23,877     25,133
  Israel.............................................    44,383     45,266     52,746
  Latin America......................................    25,235     28,970     19,603
  Asia/Pacific.......................................    21,543     22,455     12,334
                                                       --------   --------   --------
  Total..............................................  $355,225   $340,549   $319,664
                                                       ========   ========   ========
</Table>

                                       F-29
<PAGE>
               PHIBRO ANIMAL HEALTH CORPORATION AND SUBSIDIARIES

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<Table>
<Caption>
                                                         2003       2002       2001
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
PROPERTY, PLANT AND EQUIPMENT, NET:
  United States......................................  $ 16,720   $ 19,370   $ 20,641
  Europe.............................................    22,998     19,618     16,745
  Israel.............................................    10,990     12,647     14,219
  Latin America......................................    15,396     13,772     16,426
  Asia/Pacific.......................................       336        258        290
                                                       --------   --------   --------
  Total..............................................  $ 66,440   $ 65,665   $ 68,321
                                                       ========   ========   ========
</Table>

18.  VALUATION AND QUALIFYING ACCOUNTS

     The allowance for doubtful accounts was:

<Table>
<Caption>
                                                         2003       2002       2001
                                                       --------   --------   --------
<S>                                                    <C>        <C>        <C>
Balance at beginning of period.......................  $  1,485   $  1,769   $    677
Provision for bad debts..............................       348        994      1,164
Bad debt write-offs..................................      (388)    (1,278)       (72)
                                                       --------   --------   --------
Balance at end of period.............................  $  1,445   $  1,485   $  1,769
                                                       ========   ========   ========
</Table>

19.  DIVESTITURES

     On May 4, 2001, the Company sold its Agtrol U.S. business to Nufarm, Inc.
("Nufarm"). On June 14, 2001, the Company sold its Agtrol international business
to Nufarm. The sale included inventory and intangible assets but did not include
the manufacturing facilities. The Company entered into agreements to supply
copper fungicide products to Nufarm from its Sumter, South Carolina plant for
five years, and from its Bordeaux, France plant for three years.

     The sales price was cash of $27,139. The Company recorded a pre-tax gain of
$1,457. Approximately $1,484 of additional gain was deferred and is being
recognized over the period of the related supply agreements. Revenues for the
Agtrol business amounted to $31,333 for 2001. Operating (losses) for the Agtrol
business were ($6,444) for 2001.

20.  CONSOLIDATING FINANCIAL STATEMENTS

     The Senior Subordinated Notes due 2008 (the "Notes") (see Note 8) are
guaranteed by certain subsidiaries. The Company's U.S. subsidiaries fully and
unconditionally guaranteed such Notes on a joint and several basis. Foreign
subsidiaries do not presently guarantee the Notes.

     The following consolidating financial data summarizes the assets,
liabilities and results of operations and cash flows of the Parent, Guarantors
and Non-Guarantor Subsidiaries. The Company is the Parent. The Guarantor
Subsidiaries include all domestic subsidiaries of the Company including: CP
Chemicals, Inc.; Phibro-Tech, Inc.; Mineral Resource Technologies, Inc.; Prince
Agriproducts, Inc.; The Prince Manufacturing Company; Phibrochem, Inc.; Phibro
Chemicals, Inc.; Western Magnesium Corp.; Phibro Animal Health Holdings, Inc.;
and Phibro Animal Health U.S., Inc. The Guarantor Subsidiaries and Non-
Guarantor Subsidiaries are directly or indirectly wholly owned as to voting
stock by the Company.

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

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

                                       F-30
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                          CONSOLIDATING BALANCE SHEET

<Table>
<Caption>
                                                                  AS OF JUNE 30, 2003
                                    --------------------------------------------------------------------------------
                                               U.S. GUARANTOR    FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                     PARENT     SUBSIDIARIES        NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                    --------   ---------------   --------------------   -------------   ------------
                                                                     (IN THOUSANDS)
<S>                                 <C>        <C>               <C>                    <C>             <C>
                                                       ASSETS
Current Assets:
  Cash and cash equivalents.......  $     43      $  2,286             $  8,850                           $ 11,179
  Trade receivables...............     2,759        24,523               28,389                             55,671
  Other receivables...............       957           736                1,949                              3,642
  Inventory.......................     2,612        45,544               40,611                             88,767
  Prepaid expenses and other......     3,267         1,439                5,482                             10,188
  Current assets from discontinued
    operations....................        --         4,942                   --                              4,942
                                    --------      --------             --------           ---------       --------
    Total current assets..........     9,638        79,470               85,281                  --        174,389
                                    --------      --------             --------           ---------       --------
Property, plant & equipment,
  net.............................       153        16,566               49,721                             66,440
Intangibles.......................        --            --                8,669                              8,669
Investment in subsidiaries........    96,672         3,621                   --            (100,293)            --
Intercompany......................    35,186       (27,293)              (2,537)             (5,356)            --
Other assets......................    11,516         1,832                  851                             14,199
Other assets from discontinued
  operations......................        --        10,650                   --                             10,650
                                    --------      --------             --------           ---------       --------
                                    $153,165      $ 84,846             $141,985           $(105,649)      $274,347
                                    ========      ========             ========           =========       ========
                                       LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Cash overdraft..................  $    350      $  1,327             $      9                           $  1,686
  Loan payable to banks...........    32,147            --                6,767                             38,914
  Current portion of long term
    debt..........................    21,599           447                2,078                             24,124
  Accounts payable................     3,304        28,276               25,335                             56,915
  Accrued expenses and other......     6,924        11,082               23,603                             41,609
  Current liabilities from
    discontinued operations.......        --         2,051                   --                              2,051
                                    --------      --------             --------           ---------       --------
    Total current liabilities.....    64,324        43,183               57,792                  --        165,299
                                    --------      --------             --------           ---------       --------
Long term debt....................   100,073       (67,265)              74,939              (5,356)       102,391
Other liabilities.................     4,397        13,403                4,288                             22,088
Other liabilities from
  discontinued operations.........        --           198                   --                                198
Redeemable Securities:
  Series B and C preferred
    stock.........................    68,881            --                   --                             68,881
                                    --------      --------             --------           ---------       --------
Stockholders' Equity (Deficit):
  Series A preferred stock........       521            --                   --                                521
  Common stock....................         2            32                   --                 (32)             2
  Paid in capital.................       860       110,885                5,179            (116,064)           860
  Accumulated deficit.............   (79,489)      (15,479)               6,079               9,400        (79,489)
  Accumulated other comprehensive
    income (loss):                                                                                              --
    gain on derivative
       instruments................        81            81                   --                 (81)            81
    cumulative currency
       translation adjustment.....    (6,485)         (192)              (6,292)              6,484         (6,485)
                                    --------      --------             --------           ---------       --------
    Total stockholders' equity
       (deficit)..................   (84,510)       95,327                4,966            (100,293)       (84,510)
                                    --------      --------             --------           ---------       --------
                                    $153,165      $ 84,846             $141,985           $(105,649)      $274,347
                                    ========      ========             ========           =========       ========
</Table>

                                       F-31
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF OPERATIONS

<Table>
<Caption>
                                                        FOR THE YEAR ENDED JUNE 30, 2003
                                 -------------------------------------------------------------------------------
                                            U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                  PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                 --------   --------------   --------------------   -------------   ------------
                                                                 (IN THOUSANDS)
<S>                              <C>        <C>              <C>                    <C>             <C>
Net sales......................  $ 25,320      $210,111            $128,380           $ (8,586)       $355,225
Cost of goods sold.............    20,083       160,097              92,134             (8,586)        263,728
                                 --------      --------            --------           --------        --------
  Gross profit.................     5,237        50,014              36,246                 --          91,497
Selling, general and
  administrative expenses......    18,064        29,207              19,089                             66,360
                                 --------      --------            --------           --------        --------
Operating income (loss)........   (12,827)       20,807              17,157                 --          25,137
Other:
  Interest expense.............    (3,789)        9,670              10,461                             16,342
  Interest (income)............        (2)           --                 (84)                               (86)
  Other expense (income).......     3,283        (3,363)              1,357                              1,277
  (Gains) from sale of
     assets....................        --          (118)                 (9)                              (127)
  Intercompany allocation......   (14,980)       14,366                 614                                 --
  Loss (profit) relating to
     subsidiaries..............     4,082            --                  --             (4,082)             --
                                 --------      --------            --------           --------        --------
  Income (loss) from continuing
     operations before income
     taxes.....................    (1,421)          252               4,818              4,082           7,731
Provision for income taxes.....       924           622               8,530                             10,076
                                 --------      --------            --------           --------        --------
  Income (loss) from continuing
     operations................    (2,345)         (370)             (3,712)             4,082          (2,345)
Discontinued operations:
  Profit (loss) relating to
     discontinued operations...    14,805            --                  --            (14,805)             --
  (Loss) from discontinued
     operations (net of income
     taxes)....................        --        (3,454)            (11,077)                           (14,531)
  (Loss) income on disposal of
     discontinued operations
     (net of income taxes).....   (30,019)           --              29,336                               (683)
                                 --------      --------            --------           --------        --------
     Net income (loss).........  $(17,559)     $ (3,824)           $ 14,547           $(10,723)       $(17,559)
                                 ========      ========            ========           ========        ========
</Table>

                                       F-32
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                             FOR THE YEAR ENDED JUNE 30, 2003
                                      -------------------------------------------------------------------------------
                                                 U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                       PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                      --------   --------------   --------------------   -------------   ------------
                                                                      (IN THOUSANDS)
<S>                                   <C>        <C>              <C>                    <C>             <C>
Operating Activities:
  Net income (loss).................  $(17,559)     $(3,824)            $ 14,547           $(10,723)       $(17,559)
  Adjustment for discontinued
    operation.......................    15,214        3,454              (18,259)            14,805          15,214
                                      --------      -------             --------           --------        --------
  Income (loss) from continuing
    operations......................    (2,345)        (370)              (3,712)             4,082          (2,345)
  Adjustments to reconcile income
    (loss) from continuing
    operations to net cash provided
    (used) by operating activities:
    Depreciation and amortization...     1,554        3,856                7,473                             12,883
    Deferred income taxes...........        --           --                7,228                              7,228
    Gains from sale of assets.......        --         (118)                  (9)                              (127)
    Unrealized foreign currency
      losses........................        --         (399)                 789                                390
    Other...........................       218          553                 (692)                                79
    Changes in operating assets and
      liabilities:
      Accounts receivable...........       301        1,734                  973                              3,008
      Inventory.....................        95       (3,719)               3,102                               (522)
      Prepaid expenses and other....      (702)         363               (2,838)                            (3,177)
      Other assets..................    (3,171)       1,131                 (592)                            (2,632)
      Intercompany..................    13,064       (9,046)                  64             (4,082)             --
      Accounts payable..............     2,280       13,256                5,012                             20,548
      Accrued expenses and other....     1,415        2,421               (5,298)                            (1,462)
  Cash provided (used) by
    discontinued operations.........      (238)      (1,928)               2,952                                786
                                      --------      -------             --------           --------        --------
    Net cash provided by
      operating activities..........    12,471        7,734               14,452                 --          34,657
                                      --------      -------             --------           --------        --------
Investing Activities:
  Capital expenditures..............        (2)      (2,923)              (6,120)                            (9,045)
  Proceeds from sale of assets......        --        2,530                   36                              2,566
  Other investing...................        --           --                  724                                724
  Discontinued operations...........        --         (493)               2,277                              1,784
                                      --------      -------             --------           --------        --------
    Net cash (used) by
      investing activities..........        (2)        (886)              (3,083)                --          (3,971)
                                      --------      -------             --------           --------        --------
Financing Activities:
  Cash overdraft....................      (226)      (4,175)              (1,680)                            (6,081)
  Net (decrease) in short term
    debt............................    (5,844)          --                 (416)                            (6,260)
  Proceeds from long term debt......        --           --                2,000                              2,000
  Payments of long term debt........    (6,813)        (526)              (8,698)                           (16,037)
                                      --------      -------             --------           --------        --------
    Net cash (used) by
      financing activities..........   (12,883)      (4,701)              (8,794)                --         (26,378)
                                      --------      -------             --------           --------        --------
Effect of exchange rate
  changes on cash...................        --            9                  443                                452
                                      --------      -------             --------           --------        --------
Net increase (decrease) in
  cash and cash equivalents.........      (414)       2,156                3,018                 --           4,760
Cash and cash equivalents at
  beginning of period...............       457          130                5,832                              6,419
                                      --------      -------             --------           --------        --------
Cash and cash equivalents at end of
  period............................  $     43      $ 2,286             $  8,850           $     --        $ 11,179
                                      ========      =======             ========           ========        ========
</Table>

                                       F-33
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                          CONSOLIDATING BALANCE SHEET

<Table>
<Caption>
                                                                AS OF JUNE 30, 2002
                                  -------------------------------------------------------------------------------
                                             U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                   PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                  --------   --------------   --------------------   -------------   ------------
                                                                  (IN THOUSANDS)
<S>                               <C>        <C>              <C>                    <C>             <C>
                                                     ASSETS
Current Assets:
  Cash and cash equivalents.....  $    457      $    130            $  5,832                           $  6,419
  Trade receivables.............     3,150        25,493              29,336                             57,979
  Other receivables.............       392           746               1,937                              3,075
  Inventory.....................     2,707        43,400              39,289                             85,396
  Prepaid expenses and other....     3,010         2,265              10,050                             15,325
  Current assets from
    discontinued operations.....        --         5,011              11,769                             16,780
                                  --------      --------            --------           ---------       --------
    Total Current Assets........     9,716        77,045              98,213                  --        184,974
                                  --------      --------            --------           ---------       --------
Property, plant & equipment,
  net...........................       409        18,950              46,306                             65,665
Intangibles.....................        --            --               9,633                              9,633
Investment in subsidiaries......    82,540         3,621                  --             (86,161)            --
Intercompany....................    73,359       (36,074)             (5,240)            (32,045)            --
Other assets....................     9,770         2,952               1,726                             14,448
Other assets from discontinued
  operations....................        --        11,292              10,432                             21,724
                                  --------      --------            --------           ---------       --------
                                  $175,794      $ 77,786            $161,070           $(118,206)      $296,444
                                  ========      ========            ========           =========       ========
                                      LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
  Cash overdraft................  $    576      $  5,502            $  1,689                           $  7,767
  Loan payable to banks.........    37,991            --               3,544                             41,535
  Current portion of long term
    debt........................     3,216           530               5,105                              8,851
  Accounts payable..............     1,024        23,159              13,975                             38,158
  Accrued expenses and other....     7,579         7,920              14,314                             29,813
  Current liabilities from
    discontinued operations.....        --         1,729               6,660                              8,389
                                  --------      --------            --------           ---------       --------
    Total Current Liabilities...    50,386        38,840              45,287                  --        134,513
                                  --------      --------            --------           ---------       --------
Long term debt..................   127,643       (68,271)            109,314             (32,045)       136,641
Other liabilities...............     2,352         5,958              20,089                             28,399
Other liabilities from
  discontinued operations.......        --           198               1,280                              1,478
Redeemable Securities:
Series B and C preferred
  stock.........................    56,602            --                  --                             56,602
Stockholders' Equity (Deficit):
Series A preferred stock........       521            --                  --                                521
Common stock....................         2            32                  --                 (32)             2
Paid in capital.................       740       110,885               8,166            (119,051)           740
Accumulated deficit.............   (49,652)      (10,271)             (9,852)             20,123        (49,652)
Accumulated other comprehensive
  income (loss):                                                                                             --
  gain on derivative
    instruments.................     1,062           384                 678              (1,062)         1,062
  cumulative currency
    translation adjustment......   (13,862)           31             (13,892)             13,861        (13,862)
                                  --------      --------            --------           ---------       --------
    Total Stockholders' Equity
      (Deficit).................   (61,189)      101,061             (14,900)            (86,161)       (61,189)
                                  --------      --------            --------           ---------       --------
                                  $175,794      $ 77,786            $161,070           $(118,206)      $296,444
                                  ========      ========            ========           =========       ========
</Table>

                                       F-34
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF OPERATIONS

<Table>
<Caption>
                                                        FOR THE YEAR ENDED JUNE 30, 2002
                                 -------------------------------------------------------------------------------
                                            U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                  PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                 --------   --------------   --------------------   -------------   ------------
                                                                 (IN THOUSANDS)
<S>                              <C>        <C>              <C>                    <C>             <C>
Net sales......................  $ 25,692      $191,479            $134,422           $(11,044)       $340,549
Cost of goods sold.............    20,837       146,364             102,398            (11,044)        258,555
                                 --------      --------            --------           --------        --------
  Gross profit.................     4,855        45,115              32,024                 --          81,994
Selling, general and
  administrative expenses......    16,786        34,614              20,877                             72,277
                                 --------      --------            --------           --------        --------
  Operating income (loss)......   (11,931)       10,501              11,147                 --           9,717
Other:
  Interest expense.............     2,394         2,075              13,689                             18,158
  Interest (income)............       (15)           --                (341)                              (356)
  Other expense (income).......       499          (876)              3,481                              3,104
  (Gains) from sale of
     assets....................        --            --                 (18)                               (18)
  Intercompany allocation......   (15,070)       15,070                  --                                 --
  Loss (profit) relating to
     subsidiaries..............    16,202            --                  --            (16,202)             --
                                 --------      --------            --------           --------        --------
  Income (loss) from continuing
     operations before income
     taxes.....................   (15,941)       (5,768)             (5,664)            16,202         (11,171)
Provision for income taxes.....    10,059         4,229                 541                             14,829
                                 --------      --------            --------           --------        --------
  Income (loss) from continuing
     operations................   (26,000)       (9,997)             (6,205)            16,202         (26,000)
Discontinued operations:
  Profit (loss) relating to
     discontinued operations...   (25,770)           --                  --             25,770              --
  (Loss) from discontinued
     operations (net of income
     taxes)....................        --        (2,930)            (22,840)                           (25,770)
                                 --------      --------            --------           --------        --------
     Net income (loss).........  $(51,770)     $(12,927)           $(29,045)          $ 41,972        $(51,770)
                                 ========      ========            ========           ========        ========
</Table>

                                       F-35
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                               FOR THE YEAR ENDED JUNE 30, 2002
                                       --------------------------------------------------------------------------------
                                                  U.S. GUARANTOR    FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                        PARENT     SUBSIDIARIES        NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                       --------   ---------------   --------------------   -------------   ------------
                                                                        (IN THOUSANDS)
<S>                                    <C>        <C>               <C>                    <C>             <C>
Operating Activities:
  Net income (loss)..................  $(51,770)     $(12,927)            $(29,045)          $ 41,972        $(51,770)
  Adjustment for discontinued
    operation........................    25,770         2,930               22,840            (25,770)         25,770
                                       --------      --------             --------           --------        --------
  Income (loss) from continuing
    operations.......................   (26,000)       (9,997)              (6,205)            16,202         (26,000)
  Adjustments to reconcile income
    (loss) from continuing operations
    to net cash provided (used) by
    operating activities:
    Depreciation and amortization....     1,049         4,400                7,231                             12,680
    Deferred income taxes............     8,021         4,890                 (399)                            12,512
    Gains from sale of assets........        --            --                  (18)                               (18)
    Change in redemption amount of
      redeemable common stock........      (378)           --                   --                               (378)
    Unrealized foreign currency
      losses.........................        --            --                2,120                              2,120
    Other............................     1,233           897                   45                              2,175
    Changes in operating assets and
      liabilities:
      Accounts receivable............     1,299         2,210                6,247                              9,756
      Inventory......................       606        (1,750)             (12,709)                           (13,853)
      Prepaid expenses and other.....       210        (1,707)              (1,283)                            (2,780)
      Other assets...................    (1,335)        2,520                1,482                              2,667
      Intercompany...................     1,262         6,917                8,023            (16,202)             --
      Accounts payable...............      (719)          616               (7,955)                            (8,058)
      Accrued expenses and other.....      (119)       (4,163)              11,504                              7,222
  Cash (used) by discontinued
    operations.......................        --        (2,437)                (353)                --          (2,790)
                                       --------      --------             --------           --------        --------
    Net cash provided (used) by
    operating activities.............   (14,871)        2,396                7,730                 --          (4,745)
                                       --------      --------             --------           --------        --------
Investing Activities:
  Capital expenditures...............      (119)       (3,214)              (5,344)                            (8,677)
  Acquisition of a business..........        --            --               (7,182)                            (7,182)
  Proceeds from property damage
    claim............................        --           411                   --                                411
  Proceeds from sale of assets.......        --            --                   80                                 80
  Other investing....................       613            --                  (33)                               580
  Discontinued operations............        --        (1,832)                (741)                            (2,573)
                                       --------      --------             --------           --------        --------
    Net cash provided (used) by
    investing activities.............       494        (4,635)             (13,220)                --         (17,361)
                                       --------      --------             --------           --------        --------
Financing Activities:
  Cash overdraft.....................       563         1,331                1,544                              3,438
  Net increase (decrease) in short
    term debt........................    13,520            --                 (864)                            12,656
  Proceeds from long term debt.......     2,000           322                   --                              2,322
  Payments of long term debt.........    (2,541)         (494)              (1,704)                            (4,739)
                                       --------      --------             --------           --------        --------
    Net cash provided (used) by
    financing activities.............    13,542         1,159               (1,024)                --          13,677
                                       --------      --------             --------           --------        --------
Effect of exchange rate changes on
  cash...............................        --            --                    3                                  3
                                       --------      --------             --------           --------        --------
Net (decrease) in cash and cash
  equivalents........................      (835)       (1,080)              (6,511)                --          (8,426)
Cash and cash equivalents at
  beginning of period................     1,292         1,210               12,343                             14,845
                                       --------      --------             --------           --------        --------
Cash and cash equivalents at end of
  period.............................  $    457      $    130             $  5,832           $     --        $  6,419
                                       ========      ========             ========           ========        ========
</Table>

                                       F-36
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF OPERATIONS

<Table>
<Caption>
                                                    FOR THE YEAR ENDED JUNE 30, 2001
                             -------------------------------------------------------------------------------
                                        U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                              PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                             --------   --------------   --------------------   -------------   ------------
                                                             (IN THOUSANDS)
<S>                          <C>        <C>              <C>                    <C>             <C>
Net sales..................  $ 33,350      $183,723            $127,073           $(24,482)       $319,664
Cost of goods sold.........    27,936       144,030             102,821            (24,482)        250,305
                             --------      --------            --------           --------        --------
  Gross profit.............     5,414        39,693              24,252                 --          69,359
Selling, general and
  administrative
  expenses.................    14,686        33,970              15,269                             63,925
                             --------      --------            --------           --------        --------
  Operating income
     (loss)................    (9,272)        5,723               8,983                 --           5,434
Other:
  Interest expense.........    12,623            45               5,629                             18,297
  Interest (income)........      (117)          (10)               (439)                              (566)
  Other expense............       407           260                 188                                855
  Loss (gain) from sale of
     assets................        --        (1,790)                333                             (1,457)
  Intercompany
     allocation............   (16,216)       12,487               3,729                                 --
  Loss (profit) relating to
     subsidiaries..........     5,458            --                  --             (5,458)             --
                             --------      --------            --------           --------        --------
  Income (loss) from
     continuing operations
     before income taxes...   (11,427)       (5,269)               (457)             5,458         (11,695)
Provision (benefit) for
  income taxes.............      (113)         (720)                452                               (381)
                             --------      --------            --------           --------        --------
  Income (loss) from
     continuing
     operations............   (11,314)       (4,549)               (909)             5,458         (11,314)
Discontinued operations:
  Profit (loss) relating to
     discontinued
     operations............    (3,581)           --                  --              3,581              --
  (Loss) from discontinued
     operations (net of
     income taxes..........        --          (873)             (2,708)                            (3,581)
                             --------      --------            --------           --------        --------
     Net income (loss).....  $(14,895)     $ (5,422)           $ (3,617)          $  9,039        $(14,895)
                             ========      ========            ========           ========        ========
</Table>

                                       F-37
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

                     CONSOLIDATING STATEMENT OF CASH FLOWS

<Table>
<Caption>
                                                             FOR THE YEAR ENDED JUNE 30, 2001
                                      -------------------------------------------------------------------------------
                                                 U.S. GUARANTOR   FOREIGN SUBSIDIARIES   CONSOLIDATION   CONSOLIDATED
                                       PARENT     SUBSIDIARIES       NON-GUARANTORS       ADJUSTMENTS      BALANCE
                                      --------   --------------   --------------------   -------------   ------------
                                                                      (IN THOUSANDS)
<S>                                   <C>        <C>              <C>                    <C>             <C>
Operating Activities:
  Net income (loss).................  $(14,895)     $(5,422)            $(3,617)            $ 9,039        $(14,895)
  Adjustment for discontinued
    operation.......................     3,581          873               2,708              (3,581)          3,581
                                      --------      -------             -------             -------        --------
  Income (loss) from continuing
    operations......................   (11,314)      (4,549)               (909)              5,458         (11,314)
  Adjustments to reconcile income
    (loss) from continuing
    operations to net cash provided
    (used) by operating activities:
    Depreciation and amortization...       782        4,638               4,985                              10,405
    Deferred income taxes...........    (2,591)         233              (3,373)                             (5,731)
    Loss (gain) from sale of
      assets........................        --       (1,790)                333                              (1,457)
    Change in redemption amount of
      redeemable common stock.......    (1,512)        (356)             (1,623)                             (3,491)
    Other...........................    (1,043)       1,113                 714                                 784
    Changes in operating assets and
      liabilities:
      Accounts receivable...........     1,549        9,565             (12,721)                             (1,607)
      Inventory.....................       552      (12,478)             10,356                              (1,570)
      Prepaid expenses and other....     2,179        6,122              (2,326)                              5,975
      Other assets..................     1,281         (526)              2,027                               2,782
      Intercompany..................    25,520      (26,301)              6,239              (5,458)             --
      Accounts payable..............      (397)       7,831              10,809                              18,243
      Accrued expenses and other....    (2,186)         557               4,354                               2,725
  Cash (used) by discontinued
    operations......................        --       (1,234)             (1,369)                 --          (2,603)
                                      --------      -------             -------             -------        --------
    Net cash provided (used) by
      operating activities..........    12,820      (17,175)             17,496                  --          13,141
                                      --------      -------             -------             -------        --------
Investing Activities:
  Capital expenditures..............      (251)      (4,006)             (2,353)                             (6,610)
  Acquisition of a business.........   (51,700)          --                  --                             (51,700)
  Proceeds from sale of assets......        --       25,418                  --                              25,418
  Other investing...................       (50)          --                (270)                               (320)
  Discontinued operations...........        --       (5,195)             (1,742)                             (6,937)
                                      --------      -------             -------             -------        --------
    Net cash provided (used) by
      investing activities..........   (52,001)      16,217              (4,365)                 --         (40,149)
                                      --------      -------             -------             -------        --------
Financing Activities:
  Cash overdraft....................      (145)       2,905                (106)                              2,654
  Net (decrease) in short term
    debt............................    (3,969)          --              (4,037)                             (8,006)
  Proceeds from long term debt......     3,800           24               5,539                               9,363
  Proceeds from issuance of
    redeemable preferred stock......    45,000           --                  --                              45,000
  Payments of long term debt........       (32)        (862)             (4,030)                             (4,924)
  Other financing...................    (4,192)          --                  --                              (4,192)
                                      --------      -------             -------             -------        --------
    Net cash provided (used) by
      financing activities..........    40,462        2,067              (2,634)                 --          39,895
                                      --------      -------             -------             -------        --------
Effect of exchange rate changes on
  cash..............................        --            2                (447)                               (445)
                                      --------      -------             -------             -------        --------
Net increase in cash and cash
  equivalents.......................     1,281        1,111              10,050                  --          12,442
Cash and cash equivalents at
  beginning of period...............        11           99               2,293                               2,403
                                      --------      -------             -------             -------        --------
Cash and cash equivalents at end of
  period............................  $  1,292      $ 1,210             $12,343             $    --        $ 14,845
                                      ========      =======             =======             =======        ========
</Table>

                                       F-38
<PAGE>

                SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS

     The following consolidating financial data summarizes the assets,
liabilities and results of operations and cash flows of the Parent issuer, Dutch
issuer, Guarantor Subsidiaries and Non-Guarantor Subsidiaries of the proposed
issuance of the new senior secured notes by this Offering. The Parent is Phibro
Animal Health Corporation ("PAH"). The Dutch issuer is Philipp Brothers
Netherlands III BV and its consolidated subsidiaries, including Phibro Animal
Health (Belgium) SPRL, which is a guarantor of the Dutch notes ("Dutch Issuer").
The Guarantor Subsidiaries include all domestic subsidiaries of PAH, other than
the Unrestricted Subsidiaries, including the following: C.P. Chemicals, Inc.,
Phibro-Tech, Inc., Prince Agriproducts, Inc., Phibrochem, Inc., Phibro
Chemicals, Inc., Western Magnesium Corp., Phibro Animal Health Holdings, Inc.
and Phibro Animal Health U.S., Inc. The U.S. and foreign Guarantor and
Non-Guarantor Subsidiaries are directly or indirectly wholly owned as to voting
stock by PAH.

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

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

     The supplemental consolidating financial statements are unaudited.

                                       F-39
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

           CONSOLIDATING BALANCE SHEET SUPPLEMENTAL DATA (UNAUDITED)

<Table>
<Caption>
                                                             AS OF JUNE 30, 2003
                               --------------------------------------------------------------------------------
                                PARENT     GUARANTOR      DUTCH    NON-GUARANTOR   CONSOLIDATION   CONSOLIDATED
                                ISSUER    SUBSIDIARIES   ISSUER    SUBSIDIARIES     ADJUSTMENTS      BALANCE
                               --------   ------------   -------   -------------   -------------   ------------
                                                                (IN THOUSANDS)
<S>                            <C>        <C>            <C>       <C>             <C>             <C>
                                                    ASSETS
Current Assets:
Cash and cash equivalents....  $     43     $ 2,167      $   185     $  8,784                        $ 11,179
Trade receivables............     2,759      22,071        1,542       29,299                          55,671
Other receivables............       957         733          518        1,434                           3,642
Inventory....................     2,612      41,266       13,459       31,430                          88,767
  Prepaid expenses and
    other....................     3,267         981          (68)       6,008                          10,188
Current assets from
  discontinued operations....        --          --           --        4,942                           4,942
                               --------     -------      -------     --------        ---------       --------
    Total current assets.....     9,638      67,218       15,636       81,897               --        174,389
                               --------     -------      -------     --------        ---------       --------
Property, plant & equipment,
  net........................       153      13,297       17,049       35,941                          66,440
Intangibles..................        --          --        1,818        6,851                           8,669
Investment in subsidiaries...    96,672       3,621           --           --         (100,293)            --
Intercompany.................    35,186      (7,862)       6,881      (28,849)          (5,356)            --
Other assets.................    11,516       1,122           --        1,561                          14,199
Other assets from
  discontinued operations....        --          --           --       10,650                          10,650
                               --------     -------      -------     --------        ---------       --------
                               $153,165     $77,396      $41,384     $108,051        $(105,649)      $274,347
                               ========     =======      =======     ========        =========       ========

                                     LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Cash overdraft...............  $    350     $ 1,041      $    --     $    295                        $  1,686
Loan payable to banks........    32,147          --           --        6,767                          38,914
Current portion of long term
  debt.......................    21,599         381           --        2,144                          24,124
Accounts payable.............     3,304      25,926       12,115       15,570                          56,915
Accrued expenses and other...     6,924       9,931        6,715       18,039                          41,609
Current liabilities from
  discontinued operations....        --          --           --        2,051                           2,051
                               --------     -------      -------     --------        ---------       --------
    Total current
      liabilities............    64,324      37,279       18,830       44,866               --        165,299
                               --------     -------      -------     --------        ---------       --------
Long term debt...............   100,073     (67,478)      22,302       52,850           (5,356)       102,391
Other liabilities............     4,397      13,289        1,256        3,146                          22,088
Other liabilities from
  discontinued operations....        --          --           --          198                             198
Redeemable securities:
  Series B and C preferred
    stock....................    68,881          --           --           --                          68,881
                               --------     -------      -------     --------        ---------       --------
Stockholders' Deficit:
  Series A preferred stock...       521          --           --           --                             521
  Common stock...............         2          32           --           --              (32)             2
  Paid in capital............       860     110,884           --        5,180         (116,064)           860
  Accumulated deficit........   (79,489)    (16,499)      (4,781)      11,880            9,400        (79,489)
  Accumulated other
    comprehensive income
    (loss):..................                                                                              --
    gain on derivative
      instruments............        81          81           --           --              (81)            81
    cumulative currency
      translation
      adjustment.............    (6,485)       (192)       3,777      (10,069)           6,484         (6,485)
                               --------     -------      -------     --------        ---------       --------
    Total stockholders'
      deficit................   (84,510)     94,306       (1,004)       6,991         (100,293)       (84,510)
                               --------     -------      -------     --------        ---------       --------
                               $153,165     $77,396      $41,384     $108,051        $(105,649)      $274,347
                               ========     =======      =======     ========        =========       ========
</Table>

                                       F-40
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

      CONSOLIDATING STATEMENT OF OPERATIONS SUPPLEMENTAL DATA (UNAUDITED)

<Table>
<Caption>
                                                        FOR THE YEAR ENDED JUNE 30, 2003
                                ---------------------------------------------------------------------------------
                                 PARENT     GUARANTOR      DUTCH    NON-GUARANTORS   CONSOLIDATION   CONSOLIDATED
                                 ISSUER    SUBSIDIARIES   ISSUER     SUBSIDIARIES     ADJUSTMENTS      BALANCE
                                --------   ------------   -------   --------------   -------------   ------------
                                                                 (IN THOUSANDS)
<S>                             <C>        <C>            <C>       <C>              <C>             <C>
Net sales.....................  $ 23,982     $187,628     $ 6,625      $136,990        $     --        $355,225
Net sales -- intercompany.....     1,338          151      26,994        11,341         (39,824)             --
Cost of goods sold............    20,083      143,919      31,299       108,251         (39,824)        263,728
                                --------     --------     -------      --------        --------        --------
  Gross profit................     5,237       43,860       2,320        40,080              --          91,497
Selling, general and
  administrative expenses.....    18,064       26,632       2,003        19,661                          66,360
                                --------     --------     -------      --------        --------        --------
  Operating income (loss).....   (12,827)      17,228         317        20,419              --          25,137
Other:
  Interest expense............    (3,789)       6,733       2,911        10,487                          16,342
  Interest (income)...........        (2)          --          --           (84)                            (86)
  Other expense (income)......     3,283       (3,363)      1,132           225                           1,277
  (Gains) from sale of
    assets....................        --         (118)         --            (9)                           (127)
  Intercompany allocation.....   (14,980)      12,265          --         2,715                              --
  Loss (profit) relating to
    subsidiaries..............     4,082           --          --            --          (4,082)             --
                                --------     --------     -------      --------        --------        --------
  Income (loss) from
    continuing operations
    before income taxes.......    (1,421)       1,711      (3,726)        7,085           4,082           7,731
Provision for income taxes....       924          570         325         8,257                          10,076
                                --------     --------     -------      --------        --------        --------
  Income (loss) from
    continuing operations.....    (2,345)       1,141      (4,051)       (1,172)          4,082          (2,345)
DISCONTINUED OPERATIONS:
  Profit (loss) relating to
    discontinued operations...    14,805           --          --            --         (14,805)             --
  (Loss) from discontinued
    operations (net of income
    taxes)....................        --           --          --       (14,531)                        (14,531)
  (Loss) income on disposal of
    discontinued operations
    (net of income taxes).....   (30,019)          --          --        29,336                            (683)
                                --------     --------     -------      --------        --------        --------
    Net income (loss).........  $(17,559)    $  1,141     $(4,051)     $ 13,633        $(10,723)       $(17,559)
                                ========     ========     =======      ========        ========        ========
</Table>

                                       F-41
<PAGE>

                        PHIBRO ANIMAL HEALTH CORPORATION

      CONSOLIDATING STATEMENT OF CASH FLOWS SUPPLEMENTAL DATA (UNAUDITED)

<Table>
<Caption>
                                                            FOR THE YEAR ENDED JUNE 30, 2003
                                    --------------------------------------------------------------------------------
                                     PARENT     GUARANTOR      DUTCH    NON-GUARANTOR   CONSOLIDATION   CONSOLIDATED
                                     ISSUER    SUBSIDIARIES   ISSUER    SUBSIDIARIES     ADJUSTMENTS      BALANCE
                                    --------   ------------   -------   -------------   -------------   ------------
                                                                     (IN THOUSANDS)
<S>                                 <C>        <C>            <C>       <C>             <C>             <C>
Operating activities:
  Net income (loss)...............  $(17,559)    $  1,141     $(4,051)    $ 13,633        $(10,723)       $(17,559)
  Adjustment for discontinued
    operation.....................    15,214           --          --      (14,805)         14,805          15,214
                                    --------     --------     -------     --------        --------        --------
  Income (loss) from continuing
    operations....................    (2,345)       1,141      (4,051)      (1,172)          4,082          (2,345)
  Adjustments to reconcile income
    (loss) from continuing
    operations to net cash
    provided (used) by operating
    activities:
    Depreciation and
      amortization................     1,554        2,900       2,689        5,740                          12,883
    Deferred income taxes.........        --           --          --        7,228                           7,228
    Gains from sale of assets.....        --         (118)         --           (9)                           (127)
    Unrealized foreign currency
      losses......................        --         (399)      1,268         (479)                            390
    Other.........................       218          540          --         (679)                             79
    Changes in operating assets
      and liabilities:
      Accounts receivable.........       301        1,489        (322)       1,540                           3,008
      Inventory...................        95       (3,658)      2,271          770                            (522)
      Prepaid expenses and
         other....................      (702)         558         508       (3,541)                         (3,177)
      Other assets................    (3,171)       1,131          --         (592)                         (2,632)
      Intercompany................    13,064      (11,763)      4,758       (1,977)         (4,082)             --
      Accounts payable............     2,280       12,542       3,523        2,203                          20,548
      Accrued expenses and
         other....................     1,415        2,326      (8,982)       3,779                          (1,462)
Cash provided (used) by
  discontinued operations.........      (238)          --          --        1,024                             786
                                    --------     --------     -------     --------        --------        --------
  Net cash provided by operating
    activities....................    12,471        6,689       1,662       13,835              --          34,657
                                    --------     --------     -------     --------        --------        --------
Investing activities:
  Capital expenditures............        (2)      (2,573)     (2,149)      (4,321)                         (9,045)
  Proceeds from sale of assets....        --        2,530          --           36                           2,566
  Other investing.................        --           --          --          724                             724
  Discontinued operations.........        --           --          --        1,784                           1,784
                                    --------     --------     -------     --------        --------        --------
    Net cash (used) by investing
      activities..................        (2)         (43)     (2,149)      (1,777)             --          (3,971)
                                    --------     --------     -------     --------        --------        --------
Financing activities:
  Cash overdraft..................      (226)      (4,151)         --       (1,704)                         (6,081)
  Net (decrease) in short term
    debt..........................    (5,844)          --          --         (416)                         (6,260)
  Proceeds from long term debt....        --           --          --        2,000                           2,000
  Payments of long term debt......    (6,813)        (415)         --       (8,809)                        (16,037)
                                    --------     --------     -------     --------        --------        --------
    Net cash (used) by financing
      activities..................   (12,883)      (4,566)         --       (8,929)             --         (26,378)
                                    --------     --------     -------     --------        --------        --------
Effect of exchange rate changes on
  cash............................        --            9          54          389                             452
                                    --------     --------     -------     --------        --------        --------
Net increase (decrease) in cash
  and cash equivalents............      (414)       2,089        (433)       3,518              --           4,760
Cash and cash equivalents at
  beginning of period.............       457           78         618        5,266                           6,419
                                    --------     --------     -------     --------        --------        --------
Cash and cash equivalents at end
  of period.......................  $     43     $  2,167     $   185     $  8,784        $     --        $ 11,179
                                    ========     ========     =======     ========        ========        ========
</Table>

                                       F-42

</TEXT>
</DOCUMENT>
