According to the Animal Health Institute, animal health product sales in the United States for 2003 totaled $4.7 billion, an increase of 5.7% compared to 2002. The market for animal health products in the United States is split almost evenly between products sold for companion and production animals. Companion animals include dogs, cats, other pets and horses, while production animals include cattle and other food-producing animals.

It is believed the companion animal health products market is growing due to the increasing number of households with companion animals, increased expenditures on animal health and preventative care, advancements in pharmaceuticals and diagnostic testing and extensive marketing programs sponsored by companion animal nutrition and pharmaceutical companies. It is believed that product sales in the production animal health products market are largely driven by continued spending on animal health products to improve productivity, weight gain and disease prevention, as well as a growing focus on food safety. It is believed that these growth factors are mitigated by the downward influence of generic drugs on pricing.

Veterinarians are one of the primary purchasers of animal health products, particularly in the companion animal market. According to AVMA, there are approximately 47,000 veterinarians in private practice in 23,600 veterinary practices nationwide. Based on data provided by AVMA, it is estimated that these veterinary practices purchase an average of $140,000 of animal health products, including food, annually, the majority of which is ordered through distributors. It is believed veterinary practices typically place at least one order per week to avoid storing and managing large volumes of supplies.

It is believed that distributors play a vital role for veterinary practices by providing access to a broad selection of products through a single channel and helping them efficiently manage their inventory levels. Distributors also offer product vendors substantial value by providing cost-effective access to a highly fragmented and geographically diverse customer base.

The Company offers a variety of pharmaceuticals, vaccines and parasiticides. The Company’s pharmaceutical products typically include anesthetics, analgesics, antibiotics, ophthalmics and hormones. The Comany’s vaccine products are primarily comprised of small animal, equine and production animal biologicals. The Company’s parasiticides are used for control of fleas, ticks, flies, mosquitoes and internal parasites.

The Company offers a wide range of diagnostics, capital equipment and supplies to veterinarians. Diagnostic sales typically include consumable in-clinic tests for detecting heartworm, lyme, feline leukemia and parvovirus, as well as consumable products for measuring blood chemistry, electrolyte balance and cell counts. The Company’s capital equipment sales include anesthesia machines, surgical monitors, diagnostic equipment, dental machines, cages, lights and x-ray machines.

The Company offers a broad selection of veterinary pet foods and nutritional products. The Company considers veterinary pet food to consist of two categories: foods for specialty diets and premium pet foods. Specialty diets are recommended by veterinarians to address specific medical and nutritional needs. Premium pet foods are recommended by veterinarians to promote optimal nutrition in healthy animals.

The Company offers a variety of value-added services. These services include e-commerce platform, pharmacy fulfillment, inventory management system, equipment procurement consultation, special order fulfillment, educational seminars and pet cremation.

Gross profit increased by $2.9 million, or 21.1%, to $16.6 million for the three months ended December 31, 2004 from $13.7 million for the three months ended December 31, 2003.

Selling, general and administrative expenses, excluding depreciation and amortization, increased by $1.1 million, or 11.6%, to $11.0 million for the three months ended December 31, 2004 from $9.9 million for the three months ended December 31, 2003.

Other expenses increased $349,000, or 25.2%, to $1.7 million for the three months ended December 31, 2004 from $1.4 million for the three months ended December 31, 2003.

Income tax expense increased $514,000, or 36.0%, to $1.9 million for the three months ended December 31, 2004 from $1.4 million for the three months ended December 31, 2003.