VIRBAC CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2001

Commission File Number 0-24312

VIRBAC CORPORATION
(Exact name of registrant as specified in its charter)

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

3200 Meacham Blvd.
Fort Worth, TX 76137
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (817) 831-5030

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common
Stock, $.01 par value

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

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

The aggregate market value of the registrant's Common Stock held by
non-affiliates of the registrant as of March 1, 2002 (computed by reference to
the closing price of such stock on the NASDAQ/National Market) was $41,350,037.

As of March 1, 2002, there were 22,032,239 shares of the registrant's
Common Stock outstanding.

DOCUMENT INCORPORATED BY REFERENCE*

Definitive proxy statement for the registrant's 2002 annual meeting of
stockholders, in Part III (items 10 - 13).

* Only certain specified portions of such documents are incorporated by
reference in this report.

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VIRBAC CORPORATION

FORM 10-K

CROSS REFERENCE SHEET

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PART I

ITEM 1. BUSINESS

BUSINESS OVERVIEW

Virbac Corporation ("Virbac" or "the Company"), based in Fort Worth,
Texas, develops, manufactures, markets, distributes and sells a variety of pet
and companion animal health products, focusing on dermatological, parasiticide,
and dental products. Its PM Resources division ("PMR"), based in Bridgeton,
Missouri, formulates products under private-label and third party contract
manufacturing for use in the animal health and specialty chemicals industries.
Some of the Company's products are manufactured and distributed under license
from Virbac S.A. ("VBSA") a French veterinary pharmaceutical manufacturer, which
since 1999 has indirectly owned approximately 61% of the Company's outstanding
common stock. The Company distributes and sells its products throughout the
United States and Canada, and, through a distribution agreement with VBSA, in
foreign markets.

VBSA had annual sales in 2000 in excess of E.325 million, ranking it
among the top ten distributors of animal health products worldwide. VBSA focuses
on two segments of the animal health market: the pet and companion animal
segment and the livestock segment. VBSA has 22 subsidiaries and distributes its
products in more than 100 countries. VBSA has a multi-million dollar research
and development budget for developing new products.

The Company has exclusive North American manufacturing and distribution
rights to any new product developed by VBSA for sale in the United States. Where
appropriate, the Company leverages these rights by sublicensing rights to those
products to third parties.

PRODUCTS

The Company's products are used to promote the health and hygiene of
companion animals - principally dogs, cats, and fish. The principal products
manufactured by the Company include:

o Dermatological products for dogs and cats, including
anti-itch, anti-microbial, and anti-inflammatory lotions and
shampoos,

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

o Flea and tick products, including collars, shampoos, dip
concentrates, and oral rinses,

o Ear cleaners, including anti-microbial and anti-inflammatory
treatments,

o Aquarium water conditioners and test strips,

o Pest control products, including rodenticides,

o Nutritional supplements to promote healthy coat and skin,

o Anthelmintics, or dewormers, to treat gastrointestinal worms
in livestock and in companion animals as well as heartworm
prevention in dogs,

o Gastrointestinal products for dogs and cats, including
hairball remedies, and

o Specialty chemicals

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SALES AND MARKETING

The Company markets two basic lines of products - a veterinary line
sold at the retail level by veterinary clinics and a consumer brand line sold by
specialty pet retail stores and superstores, mass merchandisers, and farm and
fleet distributors. The Company sells both lines of products to national or
regional wholesale distributors serving the animal health markets, specialty pet
retail stores and superstores, mass merchandisers, and farm and fleet
distributors. Sales are made through a combination of full-time sales persons
and independent sales representatives, utilizing direct sales, telemarketing,
and other means. Separate sales forces are employed for each of the veterinary
and consumer brand lines, as well as for PMR.

The Company's veterinary marketing and sales promotions target
veterinarians through education and sampling to encourage veterinarians to
prescribe and sell more of Virbac's products. The Company's principal veterinary
line labels are Allerderm(R) dermatological products, C.E.T.(R) dental products,
and Preventic(R) tick collars.

The promotion of the Company's consumer brand line is focused on
obtaining shelf space in retail outlets. The Company's principal consumer brand
labels are St. JON(R), Zema(R), Mardel(R), Francodex(R) and Pet-Tabs(R).

PMR's products are primarily contract manufactured for significant
animal health and specialty chemical customers. In addition, PMR distributes
animal health products to the farm and fleet market, rural, and urban feed and
pet retailers.

Members of one veterinary buying group represent the Company's largest
group of customers and accounted for approximately 12% of net revenues in both
2001 and 2000.

In addition to its direct marketing and distribution activities, the
Company licenses marketing and distribution rights to some of its products to
third parties. During 2000 the Company sublicensed to Pfizer Inc. the North
American distribution rights to two products, which will be manufactured by the
Company under license from VBSA.

RESEARCH AND DEVELOPMENT

Virbac maintains a research and development staff for the purpose of
developing improved products and filings with various regulatory agencies.
Currently, Virbac's product development efforts are focused on new formulations
for dermatology. Virbac believes it is an international leader in pet
dermatology product development. Virbac does not produce chemical compounds, but
develops formulas adapted to the needs of companion animals either from generic
compounds or proprietary compounds licensed from others.

Virbac also has the exclusive North American rights to any products
developed by VBSA intended for companion animals and livestock, for which it
pays royalties to VBSA ranging from 3% to 6% of its sales of such products. In
2001, those royalties totaled $0.2 million. In 1999 and 2000, VBSA reimbursed
the Company $315,000 and $400,000 respectively, for internal costs incurred by
the Company in readying VBSA products for distribution in North America.
Beginning in 2001, the Company was responsible for all such costs.

In developing new or improved products, the Company considers a variety
of factors, including (i) existing or potential marketing opportunities for such
products, (ii) the capability of Virbac to manufacture such products, (iii)
whether such products complement existing products

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of Virbac, and (iv) the opportunities to leverage such products with the
development of additional products. In 1999, 2000 and 2001, the Company spent
(net of reimbursement from VBSA) approximately $1.0 million, $1.3 million and
$3.0 million, respectively on research and development. Virbac also conducts
research on VBSA products that have the potential to be distributed on a
worldwide basis.

In addition to developing its own products and obtaining North American
manufacturing and distribution rights to products developed by VBSA, the Company
obtains both North American and worldwide manufacturing and distribution rights
with respect to products developed by third parties.

REGISTRATIONS, TRADEMARKS AND PATENTS

The Company has numerous Environmental Protection Agency ("EPA") and
Food and Drug Administration ("FDA") product registrations, trademarks and
patents. Its EPA product registrations permit it to sell pesticide and
rodenticide products, as well as ectoparasite products for the treatment of
fleas and ticks on dogs and cats. While EPA registrations do not expire,
registrants are required periodically to re-register certain products with the
EPA. Certain of the Company's facilities are qualified as EPA registered
manufacturing sites, which permits the Company to manufacture products not only
under its own EPA product registrations, but also under the registrations of
other companies.

The Company's FDA-approved new animal drug applications ("NADAs")
permit it to sell medicated treatments, anthelmintics, feed additives and other
animal drug products. NADAs do not expire, but are subject to modification or
withdrawal by the FDA based upon the related drugs' performance in the market.
The Company also has FDA manufacturing site approvals enabling the Company to
manufacture animal drugs covered by NADAs held by other companies.

The Company's numerous trademarks relate primarily to its veterinary
and consumer brand products which are marketed under the St. JON(R), Mardel(R),
Zema(R) and Allerderm(R) labels. The Company also has trademark registrations
pending for various additional companion animal products.

The Company also has several patents covering pet toothbrushes, tartar
remover, pet shampoo, and flea traps. In addition, the Company has the exclusive
right to use several patents owned by others, most notably patents relating to
enzyme generation formulae for use in animal toothpaste, on rawhide chews,
insect growth regulators and VBSA's Spherulite technology, which enables active
ingredients to be progressively discharged following application of the product.

PROCUREMENT OF RAW MATERIALS

The active ingredients in the Company's products are not manufactured
by the Company, but are generally purchased from large raw materials
manufacturers. The Company generally purchases materials on an as-needed basis,
as it is generally unnecessary for the Company to maintain large inventories of
such materials in order to meet rapid delivery requirements or assure itself of
adequate supply. The Company purchases certain raw materials from multiple
suppliers; some materials, however, are proprietary, and the Company's ability
to procure such

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materials is limited to suppliers with proprietary rights. The Company considers
its relationship with its suppliers to be good. The Company also purchases
certain raw materials, the availability of which is subject to EPA, FDA, or
other regulatory approvals. Some of the Company's customers provide the Company
with the raw materials used in the production of their products.

COMPETITION

The Company's competitors fall into roughly four categories:
manufacturers, formulators and blenders of animal health products; animal health
product distributors; pet care product producers and suppliers; and specialty
chemical and pest control manufacturers.

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

REGULATORY AND ENVIRONMENTAL MATTERS

The Company's operations subject it to federal, state, and local laws
and regulations relating to environmental affairs, health and safety. These laws
and regulations are administered by the EPA, the FDA, the Occupational Safety
and Health Administration ("OSHA"), the Department of Transportation, and
various state and local regulatory agencies. Governmental authorities, and in
some cases third parties, have the power to enforce compliance with health and
safety laws and regulations, and violators may be subject to sanctions,
including civil and criminal penalties and injunctions. While the Company
believes that the procedures currently in effect at its facilities are
consistent with industry standards and that it is in substantial compliance with
applicable health and safety laws and regulations, failure to comply with such
laws and regulations could have a material adverse effect on the Company.

The Company's operations also subject it to numerous environmental laws
and regulations administered by the EPA, including the Resource Conservation and
Recovery Act ("RCRA"), the Comprehensive Environmental Response, Compensation
and Liability Act, the Federal Water Pollution Control Act, the Federal Clean
Air Act, the Federal Insecticide, Fungicide and Rodenticide Act, and the Toxic
Substances Control Act, as well as various state and municipal environmental
laws and regulations.

Although the Company believes it is in material compliance with
applicable environmental laws, regulations and permits and has a policy designed
to ensure that it continues to operate in material compliance therewith, there
can be no assurance that the Company will not be exposed to significant
environmental liability. The Company could be held liable for property damage or
personal injury caused by the release, spill, or other discharge of hazardous
substances or materials and could be held responsible for cleanup of any
affected sites.

The Company has environmental compliance programs addressing
environmental and other regulatory compliance issues. Future developments, such
as stricter environmental laws, regulations or enforcement policies, could
increase the Company's environmental compliance costs. While the Company is not
aware of any pending legislation or proposed regulations that,

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if enacted, would have a material adverse effect on the Company, there can be no
assurance that future legislation or regulation will not have such effect.

The federal government has extensive enforcement powers over the
activities of veterinary pharmaceutical manufacturers, including authority to
withdraw product approvals, commence actions to seize and prohibit sale of
unapproved or non-complying products, and to halt manufacturing of any
operations that are not in compliance with applicable laws and regulations.
Virbac has not experienced any such restrictions or prohibitions. However, any
such restrictions or prohibitions on sales or withdrawal of approval of products
marketed by Virbac could materially adversely affect Virbac's business,
financial condition, and results to operation.

While Virbac believes that all of its current pharmaceuticals are in
compliance with applicable FDA regulations and have received required government
approvals for manufacture and sale, approvals are subject to revocation by the
applicable government agencies. In addition, modifications or enhancements of
approved products are in many circumstances, subject to additional approvals,
which may be subject to a lengthy application process. Virbac's manufacturing
facilities are subject to continual inspection by regulatory agencies and
manufacturing operations could be interrupted or halted in any such facilities
as a result of such inspections.

The product development and approval process within applicable
regulatory frameworks may take a number of years to successfully complete and
involves the expenditure of substantial resources. Additional government
regulation may be established that could prevent or delay regulatory approval of
any one or more of Virbac's products. Delays or rejections in obtaining
regulatory approvals would adversely affect Virbac's ability to commercialize
any product Virbac develops and Virbac's ability to receive product revenues or
royalties. If regulatory approval of a product is granted, the approval may
include limitations on the indicated uses for which the product may be marketed.

EMPLOYEES

The Company has approximately 278 full-time employees, of which
approximately 164 are engaged in manufacturing activities and 61 in sales and
marketing activities. Sixty-three of the full-time employees located at the
Bridgeton, Missouri facility are covered by collective bargaining agreements
with international unions that will expire in the fourth quarter of 2004. The
Company also employs workers on a temporary basis, the number of which
fluctuates on an annual basis because demand for the Company's products is
seasonal. The Company considers its employees and union relations to be good.

ITEM 2. PROPERTIES

The Company owns the Fort Worth, Texas and the Bridgeton, Missouri
manufacturing facilities where most of the Company's products are produced. The
Fort Worth facility is a 127,000 square foot manufacturing, warehousing and
office facility. Most of the Company's non-EPA regulated products are
manufactured at this facility. The Bridgeton facility, at which PMR's operations
are conducted and most EPA regulated products are manufactured, consists of a
176,000 square foot manufacturing and warehousing building located on 37 acres.
This facility has been pledged as collateral under the Company's revolving
credit facility.

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The Company also leases a manufacturing, warehousing, and office
facility near Los Angeles, California. During 1999, the production of the
majority of products manufactured at this facility was transferred to the Fort
Worth facility, with only specialized product manufacturing remaining. The
remaining manufacturing is conducted in a facility leased under a non-cancelable
operating lease that expires August 2005. The Company also leases certain
equipment under non-cancelable operating leases.

Management believes that the Company's facilities are adequate and
suitable for its current operations.

ITEM 3. LEGAL PROCEEDINGS

The Company is aware of various disputes and potential claims and is a
party to certain litigation involving claims against the Company. Based on facts
currently known to the Company, it believes that these disputes, claims and
litigation, if determined adversely, will not have a material adverse affect on
the Company's consolidated financial position, its results of operations or its
cash flows with or without consideration of insurance coverage. See Note 13 to
the Consolidated Financial Statements included in this Annual Report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the stockholders of the Company
during the quarter ended December 31, 2001.

ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT

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

Thomas L. Bell has been President and Chief Executive Officer of the
Company since May 1999. Mr. Bell held various management positions during the
previous 13 years with Fort Dodge Animal Health/American Cyanamid, an
international manufacturer and distributor of animal health pharmaceuticals and
biologicals, and a subsidiary of American Home Products. Mr. Bell was most
recently Vice President for the International Animal Health and Nutrition
Division, where he was responsible for 26 worldwide profit centers.

Joseph A. Rougraff has been Vice President and Chief Financial Officer
since May 2000. Mr. Rougraff was employed previously for 14 years with Lacy
Distribution, Inc. Immediately prior to joining the Company, Mr. Rougraff was
the Vice President - Finance for four years for Ed Tucker Distributor, Inc., a
subsidiary of Lacy Distribution, Inc. Mr. Rougraff has an MBA from Indiana
University and is a certified public accountant.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's common stock is traded on the NASDAQ National Market
under the symbol VBAC. The following table sets forth the quarterly range of
high and low closing sale prices per share for the common stock during the
period indicated.

The Company has never paid any dividends on its common stock. It
presently intends to retain its earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future. Further, under
its credit facility, the Company is prohibited from paying dividends without the
consent of the Company's lender. As of March 6, 2002, the Company had a total of
approximately 1,800 stockholders, including approximately 200 stockholders of
record and approximately 1,600 persons or entities holding common stock in
nominee name.

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ITEM 6. SELECTED FINANCIAL DATA

The Company is the result of a March 5, 1999 merger of Virbac, Inc. and
Agri-Nutrition Group Limited. The following data has been derived from the
Company's audited financial statements for each of the five years in the period
ended December 31, 2001. The data should be read in conjunction with the
Consolidated Financial Statements of the Company, and the related notes thereto,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and other financial information included elsewhere in this report.

- ----------

(1) On December 3, 1999, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin 101 ("SAB 101"), which
became effective for the Company during the fourth quarter of 2000.
This pronouncement required a change in the way in which the Company
records revenue. Prior to the implementation of SAB 101, the Company
recognized revenues when the product was shipped from the Company's
distribution facility due to the transfer of the risk of loss. The net
effect for fiscal 2000 of this change was to reduce sales by $763,000,
and diluted earnings per share by $0.02. The pro forma amounts for
1999, 1998, and 1997 are not determinable due to the unavailability of
the accounting records. During 2001, the Company changed its shipping
terms with its customers so that ownership transferred at the time of
shipment.

(2) The results for the year ended December 31, 1999 include the operations
of Virbac, Inc. plus the results of Agri-Nutrition since March 5, 1999.

(3) Earnings per share for the periods ending December 31, 1998 and 1997
have been restated to reflect the number of equivalent shares received
by Virbac, Inc. in connection with the March 5, 1999 purchase of
Agri-Nutrition Group Limited.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

The Company manufactures and distributes companion animal health
products. The Company is a leader in dermatological and oral hygiene products
for companion animals, or pets, and provides a broad array of health care
products to its customers under the C.E.T., Allerderm, St. JON, Zema, Mardel,
Francodex and Pet Tabs brand names.

On March 5, 1999, the Company, formerly named Agri-Nutrition Group
Limited, merged with Virbac, Inc., with the Company being the surviving
corporation. Virbac S. A., the parent of Virbac, Inc., received 60% of the
voting equity of the Company; therefore, Virbac, Inc. was considered to be the
acquirer for financial statement purposes. Accordingly, the merger was accounted
for as a purchase of Agri-Nutrition Group Limited by Virbac, Inc.

In conjunction with the merger, the Company assessed, formulated, and
announced plans to consolidate its manufacturing and distribution operations.
Under the plan, which was completed prior to the end of 1999, nearly all pet
product distribution operations were transferred from AGNU's Chicago, Illinois,
and Los Angeles, California facilities to the Company's larger Fort Worth, Texas
facility. All manufacturing and distribution operations, which had been carried
out at the Chicago facility, ceased, and such operations were transferred to
other existing Company facilities. In addition, manufacturing and distribution
operations related to the majority of products previously produced at the Los
Angeles facility were transferred to the Fort Worth facility, with only certain
production and marketing activities remaining in California.

The cost to close the Chicago facility comprised mostly of severance
costs and future lease obligations and relocation costs for certain key members
of the manufacturing team, were approximately $350,000. The severance costs were
paid as of December 31, 1999 and the lease obligation was paid in fiscal 2000.
These costs are included in the purchase price allocation of the merger.

On December 3, 1999, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin 101 ("SAB 101"), which became
effective for the Company during the fourth quarter of 2000. This pronouncement
required a change in the way in which the Company recorded revenues. Prior to
the implementation of SAB 101, the Company recognized revenues when the product
was shipped from the Company's distribution facility due to the transfer of the
risk of loss. The cumulative effect of this change for periods prior to December
31, 2000 of $469,000, or $0.02 per share, is shown as the cumulative effect of
accounting change in the Consolidated Statements of Operations for the year
ended December 31, 2000. The net effect for fiscal 2000 of this change was to
reduce sales by $763,000, and diluted earnings per share by $0.02. The pro forma
amounts for 1999 are not determinable due to the unavailability of the
accounting records. During 2001, the Company changed its shipping terms with its
customers so that ownership transferred at the time of shipment.

Because of the accounting change discussed above, the Company recorded
$1.8 million of sales and diluted earnings per share of $0.02 in the first
quarter of 2001 when the risk of ownership had passed to its customers while the
product had shipped in the fourth quarter of 2000. During 2001, the Company
changed its shipping terms with its customers so that the risk

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of ownership transferred at the time of shipment. Therefore, there was not a
similar offsetting amount in the fourth quarter of 2001 to be carried over to
2002.

The Management's Discussion and Analysis that follows and the other
documents incorporated by reference contain forward-looking information made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements involve a number of risks, uncertainties
and other factors that could cause actual results to differ materially from
those stated, including without limitation:

o Inaccurate projections of new competitive products or
technological entries into the market could adversely affect
sales forecasts.

o A lack of acceptance of the Company's products by the market
could adversely affect sales projections.

o Projections of future revenues related to products not yet
registered with certain governmental agencies could differ
significantly if those registrations are not received in the
time periods anticipated.

o Projections regarding interest rates and changes to those
rates could differ significantly from Company projections.

o The Company receives significant support from its majority
owner, VBSA. This support includes product development,
research expenditures made that benefit the Company,
short-term borrowings, and worldwide distribution of the
Company's products.

o The Company could experience a decrease in the demand for its
products, which could result in reduced funding available
under the Company's lines of credit.

Therefore, the Company's actual results could differ materially from
such forward-looking statements.

RESULTS OF OPERATIONS

The results of operations of the Company are prepared in accordance
with generally accepted accounting principles in the United States. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent liabilities and the reported amounts of revenues
and expenses. On an on-going basis, management evaluates its estimates and
judgements, including those related to customer incentives, product returns, bad
debts, inventories, intangible assets, income taxes, contingencies and
litigation. Management bases its assumptions on historical experience and on
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgements about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

Management believes the following critical accounting policies, among
others, affect its more significant judgements and estimates used in the
preparation of its consolidated financial statements.

o The Company records estimated reductions in revenue for
product returns. Should a greater proportion of product be
returned in later periods than was estimated, additional
reductions to revenue may be required.

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o The Company maintains allowances for doubtful accounts for
estimated losses resulting from the inability of its customers
to make required payments. If the financial condition of the
Company's customers were to deteriorate, resulting in
impairment in their ability to make payments, additional
provisions may be required.

o The Company writes down its inventory for estimated
obsolescence or unmarketable inventory equal to the difference
between cost of the inventory and the estimated market value
based upon assumptions about future demand and market
conditions. If actual market conditions or demand is less
favorable than management projected, additional write-downs
may be required.

o The Company records a valuation allowance to reduce its
deferred tax assets to the amount that it believes is more
likely than not to be realized. While the Company has
considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the
valuation allowance, in the event that the Company were to
determine that it would not be able to realize all or part of
its net deferred tax assets in the future, an adjustment to
the deferred tax assets would be charged to income in the
period such determination was made.

o The Company has recorded unearned income related to its
distribution agreement with Pfizer. The ability of the Company
to recognize this as income is dependent upon the Company
obtaining registrations permitting it to sell these products
from the appropriate governmental agencies. The Company also
will record the income based upon estimates of when the sales
of these products will occur. If the registrations are not
received in a timely manner or certain other conditions are
not met, the Company would be required to repay some or all of
the unearned income to Pfizer. In addition, if the actual
sales of the products are lower than the initial estimates,
the Company would have to reduce future period revenues.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

Net Revenues

Sales increased by approximately $7.7 million or 14% for the year ended
December 31, 2001 compared with the year ended December 31, 2000 due to
increased sales in all segments.

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As was previously discussed, the Company had a one-time sales benefit of $1.8
million in 2001 due to changed shipping terms with its customers. The specific
net revenues by segment were as follows:

o Veterinary net revenues were up due to higher sales of Iverhart Plus,
pesticide, and dental products. The Company's parasiticide line of
products, which includes Iverhart Plus and pesticides, increased by
$2.6 million. Iverhart Plus is the Company's newly registered canine
heartworm preventive product and shipments for this product commenced
in December 2001. The pesticide increase was due to increased sales in
the Company's Preventic product line. The increased Preventic sales
occurred due to the introduction of a new product in this line that
controls both fleas and ticks and due to increased market share
achieved from the existing Preventic products. The dental line of
products was up by $1.1 million due to the Company's efforts to
increase awareness about the importance of dental hygiene for dogs and
cats. These sales were offset by lower sales of dermatology products
(down $0.5 million) and nutraceutical products (down $0.2 million). The
overall dermatology market is flat due to the availability of better
flea and tick control products in the marketplace resulting in fewer
skin ailments. The Company expects sales in this segment to slightly
improve with several new product introductions, which should increase
market share. The nutraceutical product line was revamped in 2001 and,
as a result, sales were down. The Company expects sales of this line to
grow slightly in 2002.

o Consumer Brand net revenues were up due to the full year impact of
having Pet Tabs for sale in 2001. Pet Tabs were first sold in September
2000. Pet Tab sales were up by $3.0 million for 2001 compared to 2000.
All other product lines were down due to weak economic conditions at
the retail level. The Company expects retail sales activity to improve
somewhat in 2002.

o PMR net revenues were up primarily due to sales of the Company's
recently approved livestock parasiticide product, sold under the trade
names of Virbamec or Bovimec.

Gross Profit

Gross profit increased by $2.0 million or 9%. The gross profit increase
was attributable to increased sales partially offset by a lower gross profit
percentage. The gross profit as a percentage of net revenues declined from 43%
to 41%. The decline in the gross profit percentage was due to the decline in the
Consumer Brands segment. As discussed previously, the Company had a one-time
gross profit benefit of $0.9 million due to changed shipping terms with its
customers. The specific gross profit by segment was as follows:

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o Veterinary products' gross profit increased primarily due to increases
in sales volume. The Company expects gross profits in this segment to
average between 55% and 60%.

o Consumer Brands gross profit decreased due to higher production costs
that were not passed on to the Company's customers. The Company expects
the Consumer Brands gross profit percentage to range between 37% and
40% for the next twelve months. The sales volume increase accounted for
$0.4 million of the gross profit variance and the decreased gross
profit percentage accounted for $1.2 million.

o PMR gross profit increased due to sales of the livestock parasiticide
product, which carries a higher gross profit percentage than is
typically earned in this segment. The favorable gross profit percentage
for the year contributed $0.2 million to the overall favorable
variance. The higher sales volume increased the overall variance by
$0.8 million. The Company expects gross profits in this segment to
range between 15% and 22%.

Operating Expenses

Operating expenses have increased $1.7 million or 9% for the year ended
December 31, 2001 compared to the year ended December 31, 2000. As a percent of
sales, operating expenses decreased to 36% in 2001 compared to 38% in 2000.
Research and development expenses increased by $1.7 million for the year due to
the Company's efforts to obtain new product registrations from the FDA. In
addition, the Company received a reimbursement of research and development costs
from VBSA of $0.4 million in 2000 and no such reimbursement in 2001. The Company
expects research and development expenses to be approximately 5% to 6% of net
revenues for the foreseeable future. Selling, general and administrative costs
were also higher by approximately $0.5 million mostly due to costs incurred for
the launch of the Company's canine heartworm product, Iverhart Plus. Sales of
the canine heartworm product commenced in the fourth quarter of 2001. Warehouse
and distribution expenses were down by $0.4 million compared to the prior year.
This was achieved by the Company's efforts to continue to manage expenses so
that they grow at a slower rate than sales.

Interest Expense and Other Income (Expense)

Interest expense for the year ended December 31, 2001 and December 31,
2000 was $0.6 million and $1.0 million respectively, primarily due to lower
interest rates in 2001. The interest rate on the Company's credit agreement was
4.0% at December 31, 2001 as compared to 9.0% at December 31, 2000.

Taxes

In the fourth quarter 2000, the valuation allowance for net deferred
tax assets decreased by $6.2 million. The reduction to the valuation allowance
was based on improved operating

13

results in 2000 and projected operating results in 2001 and beyond. At December
31, 2001, the Company has available net operating loss carryforwards totaling
approximately $4.8 million, which expire in the years 2011 to 2019. The Company
also has available general business tax credit and alternative minimum tax
credit carryforwards totaling approximately $0.1 million. The general business
tax credits expire in the years 2010 to 2020; the alternative minimum tax
carryforwards may be carried forward indefinitely. The tax rate for 2001 was 48%
and the Company expects the rate for 2002 to be 40% because the Company will no
longer be amortizing goodwill and because of lower anticipated state income tax
rates.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

The results of operations for the year ended December 31, 2000 include
the operations of Virbac, Inc. and Agri-Nutrition for the entire year. For the
year ended December 31, 1999 the results of operations include the results of
Virbac, Inc. for the entire year and Agri-Nutrition since the date of the
merger, March 5, 1999. For purposes of this discussion, 1999 amounts have been
adjusted to include Agri-Nutrition for the entire year of 1999. In addition, in
the fourth quarter of 2000, the Company was required to implement SAB 101. This
discussion (exclusive of the tax benefit) does not reflect the net effect of
implementation of SAB 101.

Net Revenues

Sales of $53.7 million in 2000 reflected an increase of 10% compared to
the prior year. Positive factors affecting sales were:

o The Company's Consumer Brands Division acquired the rights to Pet Tabs
(a nutritional supplement for dogs and cats) in September.

o PMR realized increased volumes due to new products being manufactured
for customers.

o Increased sales of oral hygiene and dermatological products benefited
the Veterinary Division for the year.

These positive factors were somewhat offset by distribution delays in
the first quarter caused by the Company's consolidation efforts begun in late
1999.

14

Gross Profit

Gross profit percentage increased to 43.0% in 2000 compared to 39.6% in
1999 due in part to the impact of the write-off of $0.8 million of inventory in
the fourth quarter 1999. In addition, the Company's gross profit was favorably
affected in 2000 by cost-cutting efforts to reduce overhead costs associated
with the Company's 1999 facility closure plan. The Veterinary Division in 2000
had gross profit percentage for the year of 55%. For 2000, the Consumer Brands
Division had gross profit percentage of 44%. PMR had a gross profit percentage
of 22%.

Operating Expenses

Operating expenses include expenses incurred for sales, marketing,
research and development, warehouse and distribution, as well as general and
administrative costs. Operating expenses in 2000 were $0.5 million higher than
1999 or a 2% increase. As a percent of sales, the 2000 expenses were 37%
compared to 40% for 1999. The decline in this ratio was attributable to the
cost-cutting efforts undertaken by the Company in its 1999 facility closure
plan. Somewhat offsetting this favorable trend was warehouse and distribution
expenses, which were higher in 2000 due to higher sales volumes. In addition,
research and development expenses increased by $0.3 million due to the Company's
increased efforts to get new products registered with the FDA.

Interest and Other Income

Interest expense for 2000 was $1.0 million, which represents a $0.4
million increase over 1999. The increase was due to higher borrowing levels
during the year and higher interest rates. The higher borrowing levels were due
to the increased working capital the Company needed to support its higher sales
volumes. The higher interest rates were due to the rising interest rate
environment in the overall economy of the United States.

Other income was $0.6 million for 2000 and there was no other income in
1999. Other income in 2000 included the sale of licensing rights for $0.2
million to a third party for the use of the Company's rodenticide product. In
addition, the Company received a settlement related to a class action lawsuit
brought against the manufacturers of nutritional supplements of $0.1 million.
Finally, the Company received non-recurring royalties and miscellaneous income
during 2000 totaling $0.3 million.

Tax Benefit

In 2000, the Company recognized the reversal of the valuation allowance
against deferred tax assets of $6.2 million. Of this amount, $4.3 million
relating to deferred tax amounts of AGNU at the date of the merger is recognized
in the financial statements as a reduction to the goodwill created by the
merger, not as an income tax benefit. The remaining $1.9 million, of such
decrease in the valuation allowance relates to Virbac, Inc. and Virbac
Corporation and is recognized in the financial statements as an income tax
benefit before income tax expense of $0.9 million on 2000 income. The reduction
to the valuation allowance was based on improved operating results in 2000 and
projected operating results in 2001 and beyond.

15

LIQUIDITY AND CAPITAL RESOURCES

FOR YEAR ENDED DECEMBER 31, 2001

The Company's primary sources of liquidity during 2001 were cash flows
from bank borrowings. Net income, recognition of deferred tax expense, and
depreciation and amortization generated operating cash flows of $4.1 million,
which was offset by use of cash to fund increased accounts receivable.
Receivables increased due to the increased sales volume the Company experienced
in the fourth quarter 2001 compared to the same period in 2000, and to more
liberal payment terms allowed on the sales of the newly registered products. The
Company expects to collect the $3.1 million in receivables on these newly
registered products by the end of the second quarter 2002.

The Company expects to meet its operating cash needs in 2002 due to
increased cash flow from net income, increased collection of accounts
receivable, and better management of inventory.

Cash used for investing activities were primarily the acquisition of
equipment used in the Company's manufacturing operations and the acquisition of
product licenses and patents. The Company expects capital expenditures in the
future to range between $1.5 million and $2.5 million.

Cash flows from financing activities in 2001 reflect the activity of
the Company's revolving bank line of credit. This line of credit is primarily
used to fund working capital needs. The Company paid interest on the advance at
75 basis points below the prime rate then in effect in the United States.

In 1999, the Company acquired the rights to manufacture and sell
products under development by a third party for a period of 15 years. In fiscal
2001 and 2000, the Company made milestone payments of $0.5 million and $1.7
million, respectively for such rights. During 2001, the Company entered into an
agreement with the third party that eliminated any future milestone payments,
reduced the amount of future royalties payable to the third party, and gave the
Company ownership of all registrations and rights for the products. In return,
the Company will bear the costs to complete the registration process for all
future products. The Company expects the costs to complete the registration
process for projects in process to total approximately $1.4 million.

On April 4, 2001, the Company entered into an amendment of its
revolving credit facility that extended its expiration date by one year to July
31, 2003 and temporarily increased the facility to $12.1 million. The Company
was required to repay $250,000 per month commencing August 31, 2001 until
November 30, 2001 when the facility was $11.1 million. Beginning February 28,
2002, the Company is required to repay $150,000 each quarter until the amount
available under the facility is $8.0 million. At December 31, 2001, $0.8 million
was available under the $11.1 million facility and the interest rate was 4.0%.

The revolving credit facility contains financial covenants, including
requirements to meet tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At December 31, 2001, the Company was in
compliance with all of these covenants.

The Company has no current plans to significantly increase capacity of
any of its plant facilities or to expend significant capital in modifying them.

16

The Company had net issuances of $0.3 million of common stock during
2001. These issuances were primarily related to the Company's Incentive Stock
Option Plan that is available to most of the management of the Company.

The Company expects to be able to fund its fiscal 2002 cash
requirements through cash flows from operations and borrowings under the credit
agreement. The Company believes that these sources of funds will be sufficient
to meet its current debt maturity requirements, licensing fees commitments, and
capital expenditure needs.

The Company has no plans to pay dividends to stockholders in the
foreseeable future.

The Company receives significant research and development support from
VBSA. VBSA performs most of the initial research to develop certain products and
creates most of the documentation needed to file registration applications with
the governmental regulatory bodies in the United States. In return, the Company
pays a royalty to VBSA when the Company begins to sell the product. As a result,
the Company has lower costs to develop and register a product and the Company
can get the product to the marketplace sooner than if the Company performed
these tasks by itself.

FOR YEAR ENDED DECEMBER 31, 2000

The Company's primary sources of liquidity during 2000 were cash flows
from operations, sales of product licenses, and bank borrowings. Net income and
depreciation and amortization generated operating cash flows of $4.7 million,
which was partially offset by uses of cash to purchase inventory and to fund
increased accounts receivable. The inventory increase was a planned increase of
inventory so that product would be available for sale in the first quarter 2001
to meet expected demand resulting from an oral hygiene promotional campaign the
Company is undertaking. Receivables increased due to the increased sales volume
the Company experienced in the fourth quarter 2000 compared to the same period
in 1999.

In 2000, the Company reached an agreement to sublicense to Pfizer Inc.
the Company's North American distribution rights for two equine products. Under
the terms of the agreement, the Company received an initial cash payment of
$5.25 million, some or all of which is subject to repayment if the Company has
not obtained FDA approval to sell the products or certain other conditions are
not met by December 31, 2003. This product license fee will be recognized over
the longer of the contract period, 15 years or the expected period of future
benefits. The expected period of future benefits has not yet been determined.

In 1999, the Company acquired the rights to manufacture and sell
products then in development by a third party for a period of 15 years. In
fiscal 2000 and 1999, the Company made milestone payments of $1.7 million and
$1.0 million, respectively for such rights. See a further discussion concerning
this agreement in the liquidity discussion for 2001.

Cash flows from investing activities were favorably affected by the
Pfizer agreement reached in 2000 and were unfavorably affected by the payments
to a third party for rights to new products.

17

Cash flows from financing activities in 2000 reflect the activity of
the Company's bank revolving line of credit. During 2000, VBSA advanced and the
Company repaid $1.5 million. The Company paid interest on the advance at the
prime rate then in effect in the United States.

On September 7, 1999, the Company replaced all of its then-existing
credit facilities with a three-year $10 million facility that expires on July
31, 2002. In December 1999, the Company obtained a temporary $2.5 million
increase to its line of credit to fund acquisition fees related to its
acquisition of certain product manufacturing and distribution rights discussed
above and to fund working capital increases related to the consolidation of the
Company's production facilities. This temporary increase was to be repaid in
installments from February to July 2000. Of the remaining $10 million, $7
million is subject to a borrowing formula based upon eligible accounts
receivable and inventory and serves as a revolving line of credit. The
availability of the remaining $3 million will be reduced by $150,000 per
quarter. The interest rate and fees vary based upon the financial performance of
the Company as measured by the ratio of EBITDA to interest expense paid and
current maturities due. Interest rates can vary from prime plus 25 basis points
to prime minus 75 basis points. At December 31, 2000, $1.8 million was available
under the credit facility, as amended, and the interest rate was prime minus 50
basis points, or 9.00%. A commitment fee, ranging from .25% to 1.25%, is
calculated on the unused portion of the facility to be paid quarterly. In
addition, a letter of credit commitment fee, ranging from 1% to 1.375%, per
annum, based upon financial performance ratios, are calculated for all letters
of credit issued up to and including October 31, 1999 and thereafter. At
December 31, 2000, there were $200,000 in letters of credit outstanding under
the credit facility, issued principally in conjunction with the purchase of
inventory.

The revolving credit facility contains financial covenants, including
requirements to meet tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At December 31, 2000, the Company was in
compliance with all of these covenants.

The Company has no current plans to significantly increase capacity of
any of its plant facilities or to expend significant capital in modifying them.

The Company had net issuances of $0.5 million of common stock during
2000. These issuances were primarily related to the Company's Incentive Stock
Option Plan that is available to most of the management of the Company.

FOR YEAR ENDED DECEMBER 31, 1999

The Company's primary sources of liquidity were cash flows from
operations, proceeds from bank borrowings and cash infusion from VBSA. Although
$1.0 million was generated by the Company's operations before depreciation and
amortization, operating activities used $3.2 million of cash in 1999 due
primarily to an increase in inventory and a reduction to trade payables.
Inventory increased for several reasons including: (1) the build-up in inventory
prior to commencing the consolidation of the manufacturing and distribution
facilities to reduce the interruption of service to customers; (2) low levels of
inventory at the beginning of the year, which had created a significant
back-order position; and (3) the build-up of inventory by PMR to serve the
dealer distribution network. In addition, accounts payable decreased by
approximately $1.0 million reflecting more timely payments to vendors and
suppliers.

18

Cash flows used in investing activities in 1999 include cash costs
related to the merger, capital improvements at the Company's Bridgeton and Fort
Worth facilities, and acquisition fees related to the in-licensing of certain
products.

Cash flows from financing activities in 1999 reflect primarily the
merger with Agri-Nutrition Group. In conjunction with the merger, Virbac S.A.
invested approximately $13.7 million of cash in the Company. These funds were
used to pay down debt and to repurchase 1,000,000 shares of the Company's
outstanding common stock at $3.00 per share in April 1999 pursuant to the
mandatory tender offer required under the merger agreement. In addition,
borrowing under a credit facility increased to fund working capital needs and
the investments described above.

At December 31, 1999, the Company was not in compliance with certain
covenants under its credit facility. However, the lending bank waived such
non-compliance for periods through April 30, 2000. On May 1, 2000, the bank
amended the revolving Credit Facility and the Company would have been in
compliance with such amended covenants at December 31, 1999. At December 31,
1999, $1.7 million was available under the credit facility, as amended.

The Company was committed to conduct a public tender offer to purchase
up to 1,395,000 of the Company's outstanding common stock at a price of $3.00
per share if, prior to the second anniversary of the merger (March 2001), the
closing sale price of the Company's common stock has not reached $3.00 per share
for a period of 40 consecutive trading days. Pursuant to the merger agreement,
such tender offer, if necessary, would be funded by VBSA's direct purchase from
the Company of 1,395,000 shares of common stock at $3.00 per share. However, as
of August 4, 2000, the closing price of the Company's stock was $3.00 per share
or greater for 40 consecutive trading days, so this tender offer was not
required and will not be made.

QUARTERLY EFFECTS AND SEASONALITY

The results of operations of certain products in the veterinary product
line, including Virbac's flea and tick collars, have been seasonal with a lower
volume of its sales and earnings being generated during the Company's first and
fourth fiscal quarters. The canine heartworm products are expected to have
higher sales volumes in the first and second quarters each year.

The results of operations of the Company's Consumer Brands segment have
also been seasonal with a relatively lower volume of its sales and earnings
being generated during the Company's fourth quarter.

Seasonal patterns of PMR's operations are highly dependent on weather,
feeding economics, and the timing of customer orders. The livestock pour-on
product sales are typically higher in the second and third quarters each year.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141 Business Combinations. SFAS No. 141 requires business combinations
initiated after June 30, 2001 to be accounted for using the purchase method of
accounting and broadens the criteria for recording intangible assets separate
from goodwill. Recorded goodwill and intangibles have

19

been evaluated against these new criteria and no reclassifications were
necessary. The Company adopted SFAS No. 141 in 2001.

In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 142 requires the use
of a nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The Company adopted the provisions of SFAS No. 142
effective January 1, 2002. As a result of this change in accounting rule, the
Company will not be amortizing its goodwill and so expenses in future years will
be reduced by $0.4 million.

In August 2001, the FASB issued Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or Disposal of Long-lived
Assets. SFAS No. 144 supercedes Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-lived Assets and Assets to be
Disposed Of, and the accounting and reporting provisions of Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual
and Infrequently Occurring Events and Transactions. SFAS No. 144 also amends
Accounting Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which control is
likely to be temporary. The provision of SFAS No. 144 will be effective for
fiscal years beginning after December 15, 2001. The most significant changes
made by SFAS No. 144 are: (1) removes goodwill from its scope and, therefore,
eliminates the requirements of SFAS 121 to allocate goodwill to long-lived
assets to be tested for impairment, and (2) describes a probability-weighted
cash flow estimation approach to deal with situations in which an alternative
course of action to recover the carrying amount of long-lived assets are under
consideration or a range is estimated for the amount of possible future cash
flows. The Company does not anticipate the necessity to record a charge to
income or an adjustment to its long-lived assets because of this pronouncement.

ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

The Company does not have any derivative instruments that materially
increase its exposure to market risks for interest rates, foreign currency
rates, commodity prices or other market price risks. In addition, the Company
does not use derivatives for speculative purposes.

The Company's exposure to market risks results from changes in interest
rates. Interest rate risk exists principally with respect to long-term
indebtedness, which bears interest at floating rates. At December 31, 2001, the
Company had $10.3 million of indebtedness bearing interest at floating rates. If
an unfavorable change of 100 basis points in the interest rate applicable to the
Company's floating-rate indebtedness had occurred in the twelve-month period
ended December 31, 2001, the Company would have experienced additional interest
expense of $103,000 for this twelve-month period. This assumes no change in the
principal or a reduction of such indebtedness.

20

ITEM 8. FINANCIAL STATEMENTS

The financial statements prepared in accordance with Regulation S-X are
included in a separate section of this report. See the index to Financial
Statements at Item 14(a)(1) and (2) of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

21

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

This information is incorporated by reference to the Company's
definitive proxy statement to be filed for the 2001 annual shareholders'
meeting.

ITEM 11. EXECUTIVE COMPENSATION

This information is incorporated by reference to the Company's
definitive proxy statement to be filed for the 2001 annual shareholders'
meeting.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

This information is incorporated by reference to the Company's
definitive proxy statement to be filed for the 2001 annual shareholders'
meeting.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

This information is incorporated by reference to the Company's
definitive proxy statement to be filed for the 2001 annual shareholders'
meeting.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) LIST OF FINANCIAL STATEMENTS The following is a list of the
financial statements included at pages F-1 through F-30 in this
Report on Form 10-K:
Report of Independent Accountants
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 2001 and 2000
Consolidated Statements of Operations for the Years Ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2001, 2000, and 1999
Consolidated Statements of Shareholder's Equity for Years
Ended December 31, 2001, 2000, and 1999
Notes to Consolidated Financial Statements

(2) LIST OF FINANCIAL STATEMENT SCHEDULES Schedule II - Valuation
and Qualifying Accounts and Reserves is furnished. All other
schedules have been omitted because they are either not
applicable or not required, or the required information is
provided in the financial statements or notes thereto.

(b) REPORTS ON FORM 8-K The following reports on Form 8-K were filed
during the fiscal quarter ended December 31, 2001:

None

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

22

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

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

2.11(i) Agreement and Plan of Merger, dated October 16, 1998, by and among
Agri-Nutrition Group Limited, Virbac, S.A. and Virbac, Inc.

3.1(b) Restated Certificate of Incorporation

3.2(b) Amended and Restated By-Laws

4(a) Specimen stock certificate

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

10.10(a) Form of Indemnification Agreement

10.11(a) 1994 Incentive Stock Plan

10.13(c) Reload Option and Exchange Exercise Plan

10.14(d) 1995 Incentive Stock Plan

10.15(e) 1996 Incentive Stock Plan

10.24(g) Credit Agreement by and between Agri-Nutrition Group Limited, PM
Resources, Inc., St. JON Laboratories, Inc. and First Bank, dated May
14, 1998

10.25(h) Amended Credit Agreement by and between Agri-Nutrition Group Limited,
PM Resources, Inc., St. JON Laboratories, Inc. and First Bank dated
August 6, 1998

10.26(k) Second Amendment to Credit Agreement by and between Agri-Nutrition
Group Limited, PM Resources, Inc., and St. JON Laboratories, Inc., and
First Bank dated October 2, 1998.

10.27(l) Second Amendment to Credit Agreement by and between Virbac Corporation,
PM Resources, Inc., St. JON Laboratories, Inc., Francodex Laboratories,
Inc., and Virbac AH, Inc. and First Bank dated May 1, 2000.

10.28(m) Third Amendment to Credit Agreement by and between Virbac Corporation,
PM Resources, Inc., St. JON Laboratories, Inc., Francodex Laboratories,
Inc., and Virbac AH, Inc. and First Bank dated April 4, 2001.

21+ List of subsidiaries

23+ Consent of PricewaterhouseCoopers LLP

99(j) Press Release of the Company dated October 19, 1998.

- ----------

+ Filed herewith.

(a) Filed as Exhibit of same number to the Registrant's Registration
Statement on Form S-1, File No. 33-78646, and incorporated herein by
reference.

23

(b) Filed as Exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended January 31, 1996, and incorporated herein by
reference.

(c) Filed as Exhibit 4.2 to the Registrant's Registration Statement on Form
S-8, File No. 33-86892, and incorporated herein by reference.

(d) Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form
S-8, File No. 33-93340, and incorporated herein by reference.

(e) Filed as exhibit of the same number to the Registrant's Registration
Statement on Form S-8, File No. 33-3192, and incorporated herein by
reference.

(f) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1997, and incorporated herein by
reference.

(g) Filed as exhibit of the same number to the Registrant's Form 10-Q for
the Quarterly Period ended April 30, 1998, and incorporated herein by
reference.

(h) Filed as exhibit of the same number to the Registrant's Form 10-Q for
the Quarterly Period ended July 31, 1998, and incorporated herein by
reference.

(i) Filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K,
filed November 17, 1998, and incorporated herein by reference.

(j) Filed as exhibit of the same number to the Registrant's Current Report
on Form 8-K, filed November 17, 1998, and incorporated herein by
reference.

(k) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1998, and incorporated herein by
reference.

(l) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended December 31, 1999, and incorporated herein by
reference.

(m) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Fiscal Quarter ended March 31, 2001, and incorporated herein by
reference.

24

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

VIRBAC CORPORATION

BY: /s/ THOMAS L. BELL
-----------------------------------------
THOMAS L. BELL
PRESIDENT AND CHIEF EXECUTIVE OFFICER

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

25

INDEX TO FINANCIAL STATEMENTS

F-1

REPORT OF INDEPENDENT ACCOUNTANTS

To Board of Directors and
Shareholders of Virbac Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, shareholders' equity, and cash flows
present fairly, in all material respects, the financial position of Virbac
Corporation and its subsidiaries at December 31, 2001 and December 31, 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 2001 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.

As discussed in Note 4 to the consolidated financial statements, the Company
changed its method of accounting associated with revenue recognition effective
October 1, 2000.

The selected quarterly financial data in Note 14 contains information that we
did not audit, and, accordingly, we do not express an opinion on that data. We
attempted but were unable to review the quarterly data prior to September 30,
2000 in accordance with standards established by the American Institute of
Certified Public Accountants because we believed that the Company's internal
control for the preparation of interim financial information did not provide an
adequate basis to enable us to complete such a review.

/s/ PricewaterhouseCoopers LLP
Fort Worth, Texas
March 8, 2002

F-2

VIRBAC CORPORATION

CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------

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

F-3

VIRBAC CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------

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

F-4

VIRBAC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------

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

F-5

VIRBAC CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
- --------------------------------------------------------------------------------

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES:

During 2000, the Company determined that due to the profit realized in
2000 and the expectation of future profits, the valuation allowance for deferred
tax assets was no longer necessary. Accordingly, the valuation allowance was
reversed in the quarter ended December 31, 2000, and a non-cash tax benefit of
$1.1 million was recorded and goodwill from the merger, described below, was
reduced by $4.3 million.

On March 5, 1999, Agri-Nutrition Group Limited ("AGNU") consummated a
merger with Virbac, Inc., a Delaware corporation and indirect subsidiary of
Virbac S. A., a French corporation, pursuant to which (i) Virbac received a cash
infusion from VBSA of approximately $13.7 million plus a contribution of $2.0
million of intercompany debt that was recapitalized to Virbac, Inc.'s equity,
(ii) AGNU issued 12.6 million shares of its common stock to a subsidiary of VBSA
and (iii) Virbac was merged with and into AGNU, with AGNU being the surviving
entity and VBSA its controlling stockholder (see Note 1). Because VBSA, the
parent of Virbac, received 60% of the voting equity of the Company, Virbac is
considered to be the acquirer for financial statement purposes. Therefore,
Virbac has accounted for the merger as a purchase of AGNU.

In order to maintain VBSA's 60% ownership interest in the Company until
the expiration, termination, or exercise of all options to purchase the
Company's common stock outstanding as of the date of the merger and until the
Company's last issuance of common stock pursuant to the "Mardel Merger
Agreement", the Company will contemporaneously, with the issuance of common
stock upon the exercise of pre-merger AGNU options or pursuant to the Mardel
Merger Agreement, issue to VBSA a number of additional shares of common stock
equal to the product of (a) the aggregate number of shares of common stock
issued upon the exercise of such AGNU options or pursuant to the Mardel Merger
Agreement and (b) 1.5. Accordingly, 0 and 606,000 shares were issued to VBSA in
2001 and 2000, respectively. No shares will be issued to VBSA in the event that
treasury shares are reissued to satisfy these pre-merger obligations.

In each of September 1999 and 2000, the Company repaid debt in the
amount of $51,000 by issuing 37,000 shares and 13,000 shares, respectively of
the Company's common stock.

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

F-6

VIRBAC CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------

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

F-7

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Virbac Corporation (the "Company" or "Virbac") manufactures and
distributes a wide variety of health, grooming, dental, and parasiticidal
products for pets and other companion animals under the C.E.T., Allerderm, St.
JON, Zema, Mardel, Pet Tabs and Francodex brand names.

The Company is the result of the March 5, 1999 merger of Virbac, Inc.,
a wholly owned subsidiary of Virbac S. A., a French veterinary pharmaceutical
manufacturer, and Agri-Nutrition Group Limited ("AGNU"), a publicly held
company. Pursuant to the merger agreement dated October 16, 1998 (the "Merger
Agreement"), the merger was completed by the following series of transactions:
(i) VBSA contributed a total of $15.7 million to Virbac, Inc. consisting of
$13.7 million in cash and $2.0 million in intercompany debt recapitalized as
equity; (ii) AGNU issued 12.6 million shares of AGNU stock to Interlab S.A.S., a
wholly owned subsidiary of VBSA ("VBSA sub"); and (iii) Virbac, Inc. merged with
AGNU with AGNU being the surviving entity and VBSA its majority stockholder. The
name of the surviving entity was then changed to Virbac Corporation.

2. THE MERGER

As discussed in Note 1, the Company is the combination of Virbac, Inc.
and AGNU, the merger of which has been accounted for as a purchase of AGNU by
Virbac, Inc. The purchase price of $13.0 million assigned to the transaction is
the market value of the outstanding common stock shares of AGNU at the time of
the merger announcement (9.4 million shares of AGNU at $1.25 per share, or $11.7
million) plus the direct acquisition cost incurred by Virbac, Inc. The purchase
price has been allocated to the acquired assets and liabilities based on
estimated fair market values as follows ($000's).

Working Capital $ (2,970)

Fixed Assets 8,413

Deferred Tax Assets 4,285

Identifiable Intangible Assets 223

Goodwill 3,010
--------------
$ 12,961
==============

Goodwill is being amortized over twenty years.

The deferred tax assets at December 31, 1999 were evaluated for
recoverability in the future. Based on this review, it was determined that due
to the Company's history of losses, the recoverability of those assets was not
assured and so a valuation allowance was recorded for the entire amount of the
deferred tax assets. During 2000, the Company adjusted its deferred tax assets
increasing them by $3.8 million and recognized a corresponding increase in the
valuation

F-8

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

allowance. Also during 2000, the Company determined that recoverability was more
likely than not and the valuation allowance was reversed. Of the reversal, $4.3
million relating to deferred tax assets of AGNU at the merger date is recognized
in the financial statements as a reduction to goodwill created by the merger,
not as an income tax benefit.

The acquisition was accounted for as a purchase and the results of the
operations of AGNU have been included in the Company's consolidated financial
statements only since the date of the merger, March 5, 1999. The unaudited
Consolidated Statements of Operations data are presented below on a pro forma
basis as though the merger had occurred as of the beginning of 1999. Adjustments
to net loss include a reduction in interest expense to reflect a contribution of
$15.7 million from Virbac S.A., which was primarily used to reduce debt.

PRO FORMA INFORMATION
(unaudited, and in thousands except per share data)

Also, pursuant to the Merger Agreement, in April 1999, the Company
commenced a public tender offer to purchase 1.0 million shares of the Company's
outstanding common stock for $3.00 per share (the "Mandatory Tender Offer"). The
shares issued to VBSA sub as part of the merger were excluded from this tender
offer. Although these treasury shares were not formally retired by the Board of
Directors until January 2000, they are deemed to have been constructively
retired when purchased. Following the Mandatory Tender Offer, VBSA controls
approximately 61% of the outstanding common stock of the Company. In addition,
if prior to the second anniversary of the merger, the closing sale price of the
Company's common stock had not reached $3.00 per share for 40 consecutive
trading days, the Company would conduct another public tender offer to purchase
up to 1.4 million shares of the Company's outstanding common stock at a price of
$3.00 per share. Pursuant to the Merger Agreement, such tender offer would be
funded by VBSA's direct purchase from the Company of 1.4 million shares of
unissued common stock at a price of $3.00 per share. As of August 4, 2000, the
closing price of the Company's stock was $3.00 per share or greater for 40
consecutive days so this tender offer was not required and was not made.

F-9

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

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

ESTIMATES

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

REVENUE RECOGNITION

The Company recognizes revenue when the risks of ownership
have transferred to the Company's customers. See the discussion in Note
4 regarding a change in accounting principle in 2000.

Revenue related to certain contract manufacturing customers,
for whom the Company provides warehousing and/or distribution services,
is contractually recognized upon the completion of the manufacturing
process.

Accounts receivable consists of the amounts estimated to be
collectible on sales, after allowance for uncollectible amounts based
on historical experience. At December 31, 2001 and 2000, the allowance
for uncollectible accounts was $106,000 and $101,000, respectively.

CASH AND CASH EQUIVALENTS

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

The Company uses a revolving credit facility to fund working
capital needs. Under terms of this facility, the bank automatically
sweeps the Company's checking accounts and either increases or reduces
the amounts outstanding under the revolving line of credit. At any
given point in time, the Company has checks outstanding that have not
been presented to the bank for payment. The Company's outstanding
checks in excess of funds on deposit are classified as accounts payable
in the amounts of $1.1 million and $1.3 million at December 31, 2001
and December 31, 2000, respectively.

F-10

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

CONCENTRATION OF CREDIT RISK

The Company sells its products to customers in the animal
health and specialty chemical business throughout the United States and
abroad. Members of one veterinary buying group represent the Company's
largest group of customers and accounted for approximately 12% of net
sales in 2001 and 2000. Accounts receivable outstanding to this same
buying group at years ended December 31, 2001 and December 31, 2000
were approximately $3.8 million and $1.8 million, respectively.

RELATIONSHIP WITH SUPPLIERS

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

FAIR VALUE OF FINANCIAL INSTRUMENTS

For purposes of financial reporting, the Company has
determined that the fair value of the Company's debt approximates book
value at December 31, 2001 and 2000, based on terms currently available
to the Company in financial markets.

INVENTORIES

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

PROPERTY, PLANT AND EQUIPMENT

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

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

F-11

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

A summary of estimated useful lives used in computing
depreciation for financial statement reporting is as follows:

GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill represents the excess of purchase price over the fair
value of net assets acquired in business combinations and is
capitalized and amortized on a straight-line basis over 20 years. Other
intangible assets, which consist primarily of licenses, patents, and
trademarks, are amortized on a straight-line basis over the lives of
the related assets, which range from one to twenty years.

The carrying value of goodwill and other intangible assets is
assessed for recoverability by management based on an analysis of
future expected undiscounted cash flows from the underlying operations
of the Company when there is an indication that the carrying amounts
may not be recoverable. To the extent expected future discounted cash
flows are less than the carrying value of goodwill and other intangible
assets, a write-down to the extent of such shortfall may be recognized.
Management believes that there has been no impairment as of December
31, 2001.

LONG-LIVED ASSETS

Pursuant to Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" the Company's management
continually evaluates whether events and circumstances indicate that
the remaining estimated useful life of intangible assets may warrant
revisions or that the remaining balance of intangibles or other
long-lived assets may not be recoverable, based on the undiscounted
cash flows of operations over the remaining amortization period, then
the carrying value of the asset will be reduced to fair value.
Management believes that its long-lived and intangible assets are fully
recoverable.

ADVERTISING EXPENSE

Advertising costs are expensed the first time the advertising
takes place. Advertising expense for fiscal 2001, 2000, and 1999 was
$2.4 million, $1.5 million, and $1.8 million, respectively. Prepaid
expenses at December 31, 2001 and December 31, 2000 include deferred
advertising costs of $0.3 million, which will be expensed during the
quarterly period that advertising first takes place.

F-12

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

FREIGHT TO CUSTOMERS

During fiscal 2000, the Financial Accounting Standards Board's
Emerging Issues Task Force issued EITF 00-10, "Accounting for Shipping
and Handling Costs." The Company has chosen to adopt this standard in
the fourth quarter. Freight and handling expense for 2001, 2000, and
1999 was $1.5 million, $1.2 million, and $1.2 million, respectively,
and is classified as warehouse and distribution expense.

RESEARCH AND DEVELOPMENT EXPENSES, NET OF REIMBURSEMENT

Research and development costs are charged to expense when
incurred. In 1999, the Company entered into a contract with VBSA to
perform research and development services for specific products to be
launched in 2001. For 2000 and 1999, the Company was reimbursed
$400,000 and $315,000, respectively, by VBSA for services performed in
those years, and research and development costs as presented in the
accompanying statement of operations were reduced by such
reimbursement. Beginning in 2001, the Company will be responsible for
all such costs.

INCOME TAXES

The Company uses the liability method of accounting for income
taxes in accordance with Statement of Financial Accounting Standards
No. 109. Under the liability method, deferred taxes are recognized for
the estimated future tax effects attributable to temporary differences
between the book and tax basis of assets and liabilities, as well as
carryforward items. These tax effects are measured based on provisions
of enacted tax laws. The classification of any net deferred tax assets
and/or liabilities (i.e., current or non-current) will be based
primarily on the classification of the related assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or
all of the deferred tax assets will not be realized.

EARNINGS (LOSS) PER SHARE

Basic EPS is based on the weighted average number of
outstanding common shares during the period, but does not consider
dilution for potentially dilutive securities. Diluted EPS reflects
dilutive potential common shares. Dilutive potential common shares
arising from the effect of outstanding stock options are computed using
the treasury stock method, if dilutive.

For fiscal 2001, 2000, and 1999, the number of weighted
average shares and potential common shares is as follows:

F-13

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

For the year 1999, the potential common shares have not been
included in the computation of diluted EPS because to do so would have
been anti-dilutive.

PREFERRED STOCK

The Company's Board of Directors may, without further action
by stockholders, from time-to-time direct the issuances of shares of
preferred stock in series and may, at time of issuance, determine the
rights, preferences, and limitations of each series. No shares of
preferred stock have been issued as of December 31, 2001.

ENVIRONMENTAL POLICY

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

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

EMPLOYEE STOCK-BASED COMPENSATION

Statement of Financial Accounting Standard No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), allows companies
to use the fair value method defined

F-14

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

in the statement or to continue use of the intrinsic value method as
outlined in APB Opinion No. 25, "Accounting for Stock Issued to
Employees," (APB 25). The Company will continue to use the provision of
APB 25 in determining net income.

NEW ACCOUNTING STANDARDS

In July 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 141 Business Combinations. SFAS No. 141 requires
business combinations initiated after June 30, 2001 to be accounted for
using the purchase method of accounting and broadens the criteria for
recording intangible assets separate from goodwill. Recorded goodwill
and intangibles have been evaluated against these new criteria and no
reclassifications were necessary. The Company adopted SFAS No. 141 in
2001.

In July 2001, the Financial Accounting Standards Board (FASB)
issued SFAS No. 142 Goodwill and Other Intangible Assets. SFAS No. 142
requires the use of a nonamortization approach to account for purchased
goodwill and certain intangibles. Under a nonamortization approach,
goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written
down and charged to results of operations only in periods in which the
recorded value of goodwill and certain intangibles is more than its
fair value. The Company adopted the provisions of SFAS No. 142
effective January 1, 2002. As a result of this change in accounting
rule, the company will not be amortizing its goodwill and so expenses
in future years will be reduced by $0.4 million.

In August 2001, the FASB issued Statement of Financial
Accounting Standards No. 144, Accounting for the Impairment or Disposal
of Long-lived Assets. SFAS No. 144 supercedes Statement of Financial
Accounting Standards No. 121, Accounting for the Impairment of
Long-lived Assets and Assets to be Disposed Of, and the accounting and
reporting provisions of Accounting Principles Board Opinion No. 30,
Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS No. 144 also amends Accounting
Research Bulletin No. 51, Consolidated Financial Statements, to
eliminate the exception to consolidation for a subsidiary for which
control is likely to be temporary. The provision of SFAS No. 144 will
be effective for fiscal years beginning after December 15, 2001. The
most significant changes made by SFAS No. 144 are: (1) removes goodwill
from its scope and, therefore, eliminates the requirements of SFAS 121
to allocate goodwill to long-lived assets to be tested for impairment,
and (2) describes a probability-weighted cash flow estimation approach
to deal with situations in which alternative course of action to
recover the carrying amount of long-lived assets are under
consideration or a range is estimated for the amount of possible future
cash flows. The Company does not anticipate the necessity to record a
charge to income or an adjustment to its long-lived assets because of
this pronouncement.

F-15

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

4. CHANGE IN ACCOUNTING PRINCIPLE

On December 3, 1999, the United States Securities and Exchange
Commission issued Staff Accounting Bulletin 101 ("SAB 101"), which
became effective for the Company during the fourth quarter of 2000.
This pronouncement required a change in the way in which the Company
recorded revenues. Prior to the implementation of SAB 101, the Company
recognized revenues when the product was shipped from the Company's
distribution facility due to the transfer of the risk of loss. The
cumulative effect of this change for periods prior to December 31, 2000
of $469,000, or $0.02 per share, is shown as the cumulative effect of
accounting change in the Consolidated Statements of Income for the year
ended December 31, 2000. The net effect for fiscal 2000 of this change
was to reduce sales by $763,000, and diluted earnings per share by
$0.02. The pro forma amount for 1999 is not determinable due to the
unavailability of the accounting records. During 2001, the Company
changed its shipping terms with its customers so that ownership
transferred at the time of shipment.

5. INVENTORIES

Inventories consist of the following:

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consist of the following:

F-16

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

In 2001, 2000, and 1999, depreciation expense was $1.2 million, $1.2
million, and $1.1 million, respectively.

7. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consist of the following:

See Note 11 for a discussion of the reduction of goodwill in 2000
relating to the AGNU acquisition. See Note 13 for discussion of the acquisition
of licensing rights in 2001 and 2000. In 2001, 2000, and 1999, amortization
expense was approximately $0.4 million, $0.6 million, and $0.4 million,
respectively.

8. LONG-TERM DEBT AND NOTES PAYABLE

On April 4, 2001, the Company entered into an amendment of its
revolving credit facility that extended its expiration date by one year to July
31, 2003 and temporarily increased the facility to $12.1 million. The Company
was required to repay $250,000 per month commencing August 31, 2001 until
November 30, 2001 when the facility was $11.1 million. Beginning

F-17

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

February 28, 2002, the Company is required to repay $150,000 each quarter until
the amount available under the facility is $8.0 million. At December 31, 2001,
$800,000 was available under the $11.1 million facility and the interest rate
was 4.00%.

The interest rate and fees vary based upon the financial performance of
the Company as measured by the ratio of EBITDA to interest expense paid and
current maturities due. Interest rates can vary from prime plus 25 basis points
to prime minus 75 basis points. At December 31, 2001, the Company is paying
prime minus 75 basis points (4.00%). A commitment fee, ranging from .25% to
1.25%, is calculated on the unused portion of the facility to be paid quarterly.
In addition, a letter of credit commitment fee, ranging from 1% to 1.375%, per
annum, based upon financial performance ratios, are calculated for all letters
of credit issued up to and including October 31, 1999, and thereafter. At
December 31, 2000, there was $200,000 in letters of credit outstanding under the
credit facility, issued principally in conjunction with the purchase of
inventory.

The revolving credit facility contains financial covenants, including
but not limited to, tangible net worth and interest coverage ratios, and
restricts the payment of dividends. At December 31, 2001, the Company was in
compliance with all covenants.

No interest was capitalized for the three years in the period ended
December 31, 2001.

9. COMMON STOCK TRANSACTIONS

During 2000, the Company issued 13,000 shares of stock to retire
$51,000 of debt. In addition, under certain antidilution provisions of the
merger agreement, the Company issued 606,000 shares of common stock to Interlab
SAS. Also during 2000, the Company issued 34,000 shares of common stock to
certain directors as part of their compensation for serving on the Company's
Board of Directors. The Company had several treasury stock transactions related
to the issuance and purchase of shares of stock associated with the activity of
its Incentive Stock Option Plan and for compensation to directors.

10. STOCK OPTIONS

The Company has a Reload Option and Exchange Exercise Plan (the Reload
Plan), which permits employees holding options to elect, in accordance with
terms of the Reload Plan, to pay the exercise price of such options by
surrendering shares of the Company's common stock already owned by the employee.
The shares surrendered are valued at the reported closing market price of the
Company's common stock on the date that the employee provides the notice of
intent to exercise the option and surrenders the shares in payment of the
exercise price. The Reload Plan also provides for the issuance to the employee
of a new option to acquire the number of shares of the Company's common stock
surrendered in the option exercise with an exercise price per share equal to the
per-share valuation applicable to the shares surrendered. There are 200,000
shares reserved for issuance under the Reload Plan. During 2000, 37,000 options
were granted under this plan to an employee/director.

F-18

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

Under terms of the Company's Incentive Stock Option Plans, officers and
certain other employees may be granted options to purchase the Company's common
stock at the closing market price on the date that the option is granted.
Options generally vest over three years and have a maximum term of ten years. At
December 31, 2001, a total of 1,900,000 shares were reserved for issuance under
the plans.

A summary of the Reload and Incentive Stock Option Plans' activity for
the years shown is as follows:

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

F-19

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions: For grants in fiscal 2000, a weighted average risk free interest
rate of 5.11%; weighted average expected volatility of 104.92%; no dividends and
an expected life of five years. For grants in fiscal 2001, a weighted average
risk free interest rate of 5.17%; weighted average expected volatility of
95.84%; no dividends and expected life of seven years. FAS 123 does not require
pro forma disclosure of the effect of options and warrants granted in years
prior to fiscal 1996. The pro forma effect of compensation costs using the fair
value based method is not indicative of future amounts when the new method will
apply to all outstanding option and warrant grants.

The following table summarizes information for stock options
outstanding and exercisable at December 31, 2001:

11. INCOME TAXES

The Company has recognized a net income tax provision, (benefit) as
follows:

F-20

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

During 2000, the Company adjusted its deferred tax assets increasing
them by $3.8 million and recognized a corresponding increase in the valuation
allowance. The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities are presented
below:

The valuation allowance for net deferred tax assets decreased by $6.2
million in 2000. Of this amount, $4.3 million, relating to deferred tax assets
of AGNU at the date of the merger is recognized in the financial statements as a
reduction to the goodwill created by the merger, not as an income tax benefit.
The remaining $1.9 million of such decrease in the valuation allowance relates
to Virbac, Inc. and Virbac Corporation and was recognized in the financial
statements as an income tax benefit netted against income tax expense of $0.9
million. The reduction to the valuation allowance was based on improved
operating results in 2000 and projected operating

F-21

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

results in 2001 and beyond. The Company has available net operating loss
carryforwards totaling approximately $4.8 million, which expire in the years
2011 to 2019. The Company also has available general business tax credit and
alternative minimum tax credit carryforwards totaling approximately $0.1
million. The general business tax credits expire in the years 2010 to 2020; the
alternative minimum tax carryforwards may be carried forward indefinitely.

Although realization of the net deferred tax assets is not assured,
management believes that it is more likely than not that all of the net deferred
tax assets will be realized. The amount of net deferred tax assets considered
realizable, however, could be reduced in the near term based on changing
conditions. Realization of the deferred tax asset is dependent on generating
sufficient taxable income prior to expiration of any net operating loss
carryforwards.

The 2001 expense and 2000 benefit for income taxes is different than
the amount computed using the applicable statutory federal income tax rate with
the differences summarized below:

12. EMPLOYEE SAVINGS PLAN

The Company sponsors three 401(k) savings plans (the Plans). Former
employees of Virbac, Inc. participate in one plan, non-union former employees of
AGNU participate in a separate plan, and union employees of PMR participate in a
third plan. Substantially all employees of the Company may participate in one of
the Plans, subject to certain eligibility and entry requirements. Contributions
to the Plans result primarily from voluntary contributions from employees in the
form of deferrals of up to 15% or 20% of the employees' salaries, depending upon
the Plan. The Plans permit various employer contributions. Employer
contributions were approximately $280,000, $123,000, and $175,000, for 2001,
2000, and 1999, respectively.

F-22

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

13. COMMITMENTS AND CONTINGENCIES:

OPERATING LEASES

The Company leases facilities and certain machinery under
non-cancelable operating leases that expire at various dates through December
2005 and have renewal options ranging from 1 to 5 years. Future lease payments
under non-cancelable operating leases as of December 31, 2001, are as follows
($000's):

2002 $ 326
2003 296
2004 253
2005 157
2006 4
--------------
TOTAL MINIMUM LEASE PAYMENTS $ 1,036
==============

Total rent expense under operating leases was $438,000, $401,000, and
$163,000, in fiscal years 2001, 2000, and 1999, respectively.

ACQUISITION OF LICENSING RIGHTS

In 1999, the Company acquired the rights to manufacture and sell
products then in development by a third party for a period of 15 years. In
fiscal 2001, 2000, and 1999, the Company made milestone payments of $0.5
million, $1.7 million, and $1.0 million, respectively for such rights. Depending
upon the third party reaching certain milestones with respect to obtaining U. S.
Food and Drug Administration ("FDA") approval to sell such products, the Company
was committed to paying in fiscal 2001 and 2002 approximately $0.8 million and
$0.7 million, respectively. During 2001, the Company entered into an agreement
with the third party whereby the Company acquired ownership of all rights and
data for the products and the Company's future royalty payments under the
agreement were reduced in exchange for the Company assuming all remaining costs
of registering the products. The Company estimates those costs to be
approximately $1.4 million and they will be recorded as research and development
expense. The Company began to amortize its payments to the third party over the
period of expected future benefit in the fourth quarter of 2001.

PFIZER AGREEMENT

In 2000, the Company reached an agreement to sublicense to Pfizer Inc.
the Company's North American distribution rights for two equine products. Under
the terms of the agreement, the Company received an initial cash payment of
$5.25 million, some or all of which is subject to repayment if the Company has
not obtained FDA approval to sell the products or certain other conditions are
not met by December 31, 2003. This product license fee will be recognized over
the longer of the contract period, 15 years, or the expected period of future
benefits. The expected period of future benefits has not yet been determined.

F-23

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

LITIGATION

The Company is subject to certain litigation and claims arising out of
the conduct of its business. While the final outcome of any litigation or claim
cannot be determined with certainty, management believes that the final outcome
of any current litigation or claim will not have a material adverse effect on
the Company's financial position, cash flows, or results of operations.

REGULATORY AND ENVIRONMENTAL MATTERS

The Company is subject to certain rules and regulations of various
governmental regulatory bodies. The Company believes that it is in compliance
with these rules and regulations.

ADJUSTMENT OF THE MERGER SHARES

In order to maintain VBSA's 60% ownership interest in the Company until
the expiration, termination, or exercise of all options to purchase the
Company's common stock outstanding as of the date of the merger and until the
Company's last issuance of common stock pursuant to the "Mardel Merger
Agreement", the Company will contemporaneously, with the issuance of common
stock upon the exercise of pre-merger AGNU options or pursuant to the Mardel
Merger Agreement, issue to VBSA a number of additional shares of common stock
equal to the product of (a) the aggregate number of shares of common stock
issued upon the exercise of such AGNU options or pursuant to the Mardel Merger
Agreement and (b) 1.5. Each such post-merger adjustment will dilute the voting
power of current stockholders. As of December 31, 2001, 279,000 pre-merger
options were outstanding. In 2001, 20,000 pre-merger options were exercised.
However, since these shares were reissued from treasury, no shares were issued
to VBSA. In the future and to the extent available, no shares will be issued to
VBSA in the event that treasury shares are reissued to satisfy these pre-merger
obligations.

14. SELECTED QUARTERLY DATA (UNAUDITED)

The table below details quarterly results for each quarter for the last
two years. The Company's independent accountants have not reviewed the Company's
unaudited quarterly financial statements for any period prior to September 30,
2000. The data for the year ended December 31, 2000 has been restated to reflect
the change in accounting principle as described in Note 4.

F-24

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

15. FACILITY CLOSURES

During 1999, and in conjunction with the merger, the Company assessed,
formulated, and announced plans to consolidate its manufacturing and
distribution operations. Under the plan, which was completed prior to the end of
1999, all pet product distribution operations were transferred from AGNU's
Chicago, Illinois, and Los Angeles, California facilities to the Company's
larger Fort Worth, Texas facility. All manufacturing and distribution
operations, which had been carried out at the Chicago facility, ceased, and such
operations were transferred to other existing Company facilities. In addition,
manufacturing and distribution operations related to the majority of products
previously produced at the Los Angeles facility were

F-25

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

transferred to the Fort Worth facility, with only certain production and
marketing activities remaining in California.

The cost to close the Chicago facility comprised mostly of severance
costs and future lease obligations, and relocation costs for certain key members
of the manufacturing team were approximately $350,000. The severance costs were
paid as of December 31, 1999 and the lease obligation was paid in fiscal 2000.
These costs are included in the purchase price allocation of the merger.

16. RELATED PARTY TRANSACTIONS

The Company purchased raw materials and finished goods from VBSA and
its related affiliates in the amount of $2.5 million, $1.1 million, and $1.8
million in 2001, 2000, and 1999, respectively. The Company had sales to VBSA and
its related affiliates in the amounts of $1.2 million, $1.2 million, and $0.2
million in 2001, 2000, and 1999, respectively.

In 2000 and 1999, the Company was reimbursed $400,000 and $315,000,
respectively by VBSA for obtaining U. S. registration and internal and external
research and development costs that were incurred on behalf of VBSA. During
1999, the Company entered into an agreement with VBSA, giving the Company the
exclusive U.S. and Canadian rights to manufacture and sell products currently in
development and previously developed by VBSA. Beginning in 2001, the Company
paid VBSA a royalty ranging from 3% to 6% on VBSA-developed products sold by the
Company. In 2001, those royalties totaled $0.2 million.

During 2000, the Company rented the land and building at the Company's
Harbor City, California facility from the former owner of St. JON and the former
president of the Company's Consumer Brands Division. The lease, as amended,
expired in August 2000 and the Company exercised an option to extend the term
for an additional five years. Rent expense under this agreement was $167,000 in
2000. Subsequent to December 31, 2000, the building was sold to an unrelated
third party.

In 1999, the Company entered into an agreement with VBSA appointing
VBSA as its exclusive distributor for its pet health care products outside of
the U.S. and Canada.

17. SEGMENT AND RELATED INFORMATION

The Company has three reportable segments. The Veterinary segment
manufactures and distributes pet health products mainly to veterinarian offices.
The Consumer Brands segment manufactures and distributes pet health products to
pet stores, farm and feed stores, and the mass retail market. PMR manufactures
and distributes animal health and specialty chemicals under private label brands
and for third parties.

Each segment uses the accounting policies described in Note 3. In
evaluating segment performance (excluding PMR), management focuses on income
from operations excluding

F-26

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

depreciation, amortization, interest, other expenses, (income), and taxes. All
intercompany sales and transfers between segments are at cost. Such sales are
eliminated in consolidation. Total assets are monitored by the Company's
administrative segment (except for accounts receivable which are reviewed by
Veterinary and Consumer Brands segments). Management separately monitors PMR's
results and total assets.

The Company's reportable segments utilize different channels of
distribution. They are managed separately because each business distributes
different products and each has different marketing strategies.

Summarized financial information concerning the Company's reportable
segments is shown in the following table (dollars in thousands):

During 2001, 2000, and 1999, the Company sold its products in the
United States and Canada. In addition, as a result of the merger, the Company
recognized export sales, primarily to

F-27

VIRBAC CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
- --------------------------------------------------------------------------------

the United Kingdom and Germany. All property owned by the Company is located in
the United States. The following table presents revenue by country based on
location of the customer:

18. OTHER INCOME, (EXPENSE)

Other income, (expense) consists of:

F-28

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES

To the Board of Directors and
Shareholders of Virbac Corporation

Our audits of the consolidated financial statements referred to in our report
dated March 8, 2002, appearing on page F-2 of this Annual Report on Form 10-K
also included an audit of the financial statement schedules included on page
S-2, S-3 and S-4 of this Form 10-K. In our opinion, the financial statement
schedules presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

/s/ PricewaterhouseCoopers LLP

Fort Worth, Texas
March 8, 2002

S-1

VIRBAC CORPORATION
SCHEDULE II - RULE 12-09
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DECEMBER 31, 2001

(1) During the year, $326,000 of inventory was removed from stock and
destroyed.

(2) Accounts receivable of 306,000 were written off during the year because
they were deemed to be uncollectible.

S-2

VIRBAC CORPORATION
SCHEDULE II - RULE 12-09
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DECEMBER 31, 2000

(1) During the third quarter the Company recorded additional deferred tax
assets and a corresponding increase in its valuation allowance.

(2) The reduction to the valuation allowance was based on improved
operating results in 2000 and projected operating results in 2001 and
beyond.

(3) During the year, inventory was removed from stock and destroyed. As a
result the reserve was reduced. In addition the reserve was evaluated
for appropriateness and an adjustment was made to reflect the current
estimated balance needed.

(4) Accounts receivable written off during the year due to uncollectibility
totaled $20,979. In addition, the reserve was evaluated for
appropriateness at December 31, 2000 and an adjustment of $177,000 was
deemed necessary to reflect the estimated balance needed.

S-3

VIRBAC CORPORATION
SCHEDULE II - RULE 12-09
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
DECEMBER 31, 1999

(1) The FAS 109 valuation allowance, inventory reserve and allowance for
doubtful account allowances were increased by this amount in connection
with the Company's purchase of Agri-Nutrition Group Limited in March
1999.

(2) Net write-off of uncollectible accounts in the ordinary course of
business.

S-4

EXHIBIT INDEX

- ----------
+ Filed herewith.

(a) Filed as Exhibit of same number to the Registrant's Registration
Statement on Form S-1, File No. 33-78646, and incorporated herein by
reference.

(b) Filed as Exhibit of same number to the Registrant's Form 10-Q for the
Quarterly Period ended January 31, 1996, and incorporated herein by
reference.

(c) Filed as Exhibit 4.2 to the Registrant's Registration Statement on Form
S-8, File No. 33-86892, and incorporated herein by reference.

(d) Filed as Exhibit 4.1 to the Registrant's Registration Statement on Form
S-8, File No. 33-93340, and incorporated herein by reference.

(e) Filed as exhibit of the same number to the Registrant's Registration
Statement on Form S-8, File No. 33-3192, and incorporated herein by
reference.

(f) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1997, and incorporated herein by
reference.

(g) Filed as exhibit of the same number to the Registrant's Form 10-Q for
the Quarterly Period ended April 30, 1998, and incorporated herein by
reference.

(h) Filed as exhibit of the same number to the Registrant's Form 10-Q for
the Quarterly Period ended July 31, 1998, and incorporated herein by
reference.

(i) Filed as Exhibit 2.1 to the Registrant's Current Report on Form 8-K,
filed November 17, 1998, and incorporated herein by reference.

(j) Filed as exhibit of the same number to the Registrant's Current Report
on Form 8-K, filed November 17, 1998, and incorporated herein by
reference.

(k) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended October 31, 1998, and incorporated herein by
reference.

(l) Filed as exhibit of same number to the Registrant's Form 10-K for the
Fiscal Year ended December 31, 1999, and incorporated herein by
reference.

(m) Filed as exhibit of same number to the Registrant's Form 10-Q for the
Fiscal Quarter ended March 31, 2001, and incorporated herein by
reference.