PROFESSIONAL VETERINARY PRODUCTS LTD /MO/, 424A, 1999-12-20

PROFESSIONAL VETERINARY PRODUCTS LTD /MO/
424A, 1999-12-20
AGRICULTURAL SERVICES

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500 SHARES

[LOGO]

PROFESSIONAL VETERINARY PRODUCTS, LTD.

COMMON STOCK

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

PROFESSIONAL VETERINARY PRODUCTS, LTD. IS OFFERING 500 SHARES OF ITS COMMON
STOCK.

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INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 5.

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PRICE $3,000 A SHARE
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<TABLE>
<CAPTION>
PRICE TO
QUALIFIED PROCEEDS TO
SHAREHOLDERS* COMPANY
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<S> <C> <C>
Per Share............................................................................ $ 3,000 $ 3,000
Total................................................................................ $ 1,500,000 $ 1,500,000
</TABLE>

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* Ownership of common stock is limited to licensed, practicing veterinarians
(or businesses comprised of veterinarians). Each veterinarian shareholder is
limited to ownership of one share of stock. There is no trading market for
the common stock.

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

October 19, 1999
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary............................ 3
Risk Factors.................................. 5
Forward-Looking Statements.................... 7
Use of Proceeds............................... 7
Dividend Policy............................... 7
Capitalization................................ 8
Dilution...................................... 8
Selected Financial Data....................... 9
Management's Discussion and Analysis of
Financial Condition and
Results of Operations....................... 10
Business...................................... 13

<CAPTION>
PAGE
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<S> <C>
Management.................................... 17
Principal Shareholders........................ 21
Description of Common Stock................... 21
Shares are not Eligible for Future Sale....... 23
Subscription to Company Stock................. 23
Legal Matters................................. 23
Experts....................................... 24
Additional Information........................ 24
Index to Financial Statements................. F-1
Exhibit A1 (Instruction to Subscribers)....... A1-1
Exhibit A2 (Purchaser Questionnaire).......... A2-1
Exhibit A3 (Subscription Agreement)........... A3-1
</TABLE>

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PROSPECTUS SUMMARY

Professional Veterinary Products, Ltd. was organized as a Missouri
corporation on August 2, 1982 with the sole purpose of acting as a wholesale
buyer of pharmaceuticals, vaccines, supplies, equipment and other items related
to the practice of veterinary medicine so that it might sell such items at a
reduced cost to its shareholders.

Ownership of stock in our Company is limited to licensed, practicing
veterinarians (or businesses comprised of veterinarians such as a partnership or
corporation). Each veterinarian shareholder is limited to ownership of one share
of stock, which is purchased at the fixed price of $3,000. The share of stock
may not be sold or transferred, except back to the Company at the same $3,000
price.

Our business purpose has been to provide services and products to our
veterinarian shareholders at competitive prices to assist them in being more
competitive within their practice areas. As part of these cooperative efforts,
we annually provide rebates to our shareholders based on their purchases of
goods from the Company. Our shareholders place product orders with our offices
in Omaha, Nebraska, which are filled from our warehouse facilities in Omaha and
then promptly shipped to our customers. As a wholesaler, we acquire our products
from original manufacturers of the products.

We do not manufacture, relabel, or in any other manner alter packaged goods
or products. We sell and distribute nearly 18,000 different items designed to
meet nearly every veterinary practitioner's product needs. Both our
shareholders' business and our business continues to change. Continual
integration of the large food animal producers has changed the method of
distribution of animal health products. We are experiencing increasing interest
by companion animal veterinarians which has led to more shareholders in the
metropolitan areas.

We have never paid dividends on our stock, and we do not anticipate paying
any dividends in the near future. We will use the funds from our sale of shares
for working capital. There is no market for our shares.

Our Board of Directors is comprised of eight veterinarian shareholders who
are elected on staggered terms from eight geographic districts. Our Chief
Executive Officer, Dr. Lionel L. Reilly, is also our President and answers
directly to the Board of Directors. Dr. Reilly is not a shareholder of the
Company.

In 1996 the Company obtained a no-action letter from the Securities and
Exchange Commission (SEC) permitting the sale of our shares without registration
based on a number of factual representations concerning our company and common
stock. In obtaining this SEC no-action letter, we confirmed that we would not
deviate from our previous practice of selling our products primarily to
shareholders, limiting any economic benefit received from sales to
non-shareholders. While our efforts have continued to be focused on providing to
our shareholders products at the lowest possible cost to them, we have
determined that it will be beneficial to our shareholders to sell products not
only to them, but also to non-shareholders. It is principally this change--the
desired expansion of sales of products to non-shareholders which we believe will
enhance the benefit of owning our shares--that requires SEC registration.
However, even after this change, our shares will continue to have the following
unique characteristics:

- Our shares will continue to be sold for a fixed price of $3,000 per share.

- Our shares will continue to be redeemed for a fixed price of $3,000 per
share. Shareholders may only sell their shares back to the Company. They
cannot sell shares to other persons or entities.

- Only one class of stock will continue to be issued, and each shareholder
is limited to ownership of one share of stock.

- Shares will continue to be issued only to licensed individual
veterinarians/veterinary clinics.

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THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered 500 shares

Common Stock to be outstanding
after the offering 1,688 shares, based on 1,188 shares outstanding as of
July 31, 1999.

Price per Share $3,000 per share, which is fixed in our Articles of
Incorporation

Use of Proceeds For working capital and general corporate purposes. See
"Use of Proceeds."

Dividend Policy We do not anticipate paying cash dividends in the
foreseeable future. See "Dividend Policy."
</TABLE>

4
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RISK FACTORS

BEFORE YOU INVEST IN OUR COMMON STOCK, YOU SHOULD BE AWARE THAT THERE ARE
VARIOUS RISKS, INCLUDING THOSE DESCRIBED BELOW. YOU SHOULD CAREFULLY CONSIDER
THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER INFORMATION INCLUDED IN THIS
PROSPECTUS.

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THESE STATEMENTS RELATE
TO FUTURE EVENTS OR FUTURE FINANCIAL PERFORMANCE. IN SOME CASES, YOU CAN
IDENTIFY FORWARD-LOOKING STATEMENTS BY TERMINOLOGY SUCH AS "MAY," "WILL,"
"SHOULD," "COULD," "EXPECTS," "PLANS," "ANTICIPATES," "BELIEVES," "ESTIMATES,"
"PREDICTS," "POTENTIAL," OR "CONTINUE" OR THE NEGATIVE OF SUCH TERMS AND OTHER
COMPARABLE TERMINOLOGY. THESE STATEMENTS ARE ONLY PREDICTIONS. IN EVALUATING
THESE STATEMENTS, YOU SHOULD SPECIFICALLY CONSIDER VARIOUS FACTORS, INCLUDING
THE RISKS OUTLINED BELOW. THESE FACTORS MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM ANY FORWARD-LOOKING STATEMENT.

FAILURE TO MANAGE GROWTH COULD IMPAIR OUR BUSINESS

Our business has grown rapidly. Our sales increased from $62.6 million in
fiscal 1995 to $118.7 million in 1999. During that same period we have
significantly expanded our operations in the United States. Our number of
employees increased by approximately 44 individuals during this period.

It is difficult to manage this rapid growth, and our future success depends
on our ability to implement and/or maintain:

- Sales and marketing programs

- Customer support programs

- Operational and financial control systems

- Recruitment and training of new personnel

- Technological support which equals or exceeds our competitors

Our ability to successfully offer products and services and implement our
business plan in a rapidly evolving market requires an effective planning and
management process. We expect that we will need to continue to improve our
financial and managerial controls, reporting systems and procedures and to
expand the training of our work force.

LOSS OF KEY PERSONNEL COULD HURT OUR BUSINESS

Our future success depends to a significant extent on the skills, experience
and efforts of company President and Chief Executive Officer Dr. Lionel Reilly
and key members of his staff. The loss of any or all of these individuals could
damage our business. The Company has purchased two $250,000 life insurance
policies on the life of Dr. Reilly. The Company is the beneficiary of one of the
policies. The other policy is a split dollar policy and the estate of Dr. Reilly
is the ultimate beneficiary.

In addition, our products and services are specialized in nature. In general
only highly qualified and trained individuals have the necessary skills to
market our products and provide our services. We face intense competition for
the hiring of these professionals. Any failure on our part to hire, train and
retain a sufficient number of qualified professionals would damage our business.
We do not generally enter into employment agreements requiring these employees
to continue in our employment for any period of time.

THERE IS NO MARKET FOR OUR STOCK AND THE VALUE OF THE STOCK WILL NOT INCREASE

There has been no market for our common stock prior to this offering, and
there will be no market after this offering. Sales are limited to licensed
veterinarians/veterinary practices--our common stock will not be sold to anyone
else. The price of each share is fixed at $3,000, as provided in our Articles of
Incorporation. A share will not increase in value. If a shareholder wishes to
redeem his/her share, the

5
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shareholder must sell it to the Company and will receive only $3,000. Shares may
not be transferred or sold by a shareholder to anyone other than the Company.

IT IS UNLIKELY WE WILL PAY DIVIDENDS

Some investors favor companies that pay dividends, particularly in market
downturns. We have never declared or paid any cash dividends on our common
stock, and, in fact, our Articles of Incorporation and Bylaws have in the past
prohibited the payment of dividends. While the amendments to our Articles of
Incorporation and Bylaws approved by the Company shareholders at the Company's
1999 annual meeting do allow the payment of dividends, we currently intend to
retain any future earnings for funding growth of our business and therefore we
do not currently anticipate paying cash dividends on our common stock in the
foreseeable future.

WE RELY ON STRATEGIC RELATIONSHIPS TO GENERATE REVENUE

To be successful, we must establish and maintain strategic relationships
with leaders in the manufacturing industry. This is critical to our success
because we believe that these relationships will enable us to:

- Extend the reach of our distribution and services to the various
participants in the veterinary industry

- Obtain specialized expertise

- Generate revenue

Entering into strategic relationships is complicated because some of our
current and future partners may decide to compete with us. In addition, we may
not be able to establish relationships with key participants in the veterinary
distribution industry if we have established relationships with competitors of
these key participants. Consequently, it is important that we are perceived as
independent of any particular customer or partner.

Most of our agreements with manufacturers run for one year. We may not be
able to renew our existing agreements on favorable terms, or at all. If we lose
the right to distribute products under such agreements, we may lose access to
certain of our products and lose a competitive advantage. Potential competitors
could sell products from manufacturers that we fail to continue with and erode
our market share.

PERFORMANCE OR SECURITY PROBLEMS WITH OUR SYSTEMS COULD DAMAGE OUR BUSINESS

Our customer satisfaction and our business could be harmed if we or our
suppliers experience any system delays, failures or loss of data. We currently
process all our customer transactions and data at our facilities in Omaha,
Nebraska. Although we have safeguards for emergencies, the occurrence of a major
catastrophic event or other system failure at our Omaha facility could interrupt
data processing or result in the loss of stored data.

WE FACE SIGNIFICANT COMPETITION

The market for veterinary distribution services is intensely competitive,
rapidly evolving and subject to rapid technological change. Some of our
competitors have comparable product lines, technical experience and financial
resources. These organizations may be better known and have more customers than
us. We may be unable to compete successfully against these organizations.

Many of our competitors have distribution strategies that directly compete
with us. We have many competitors including:

- Walco International

- Lextron

- J. A. Webster, Inc.

- The Butler Company

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In addition, we expect that companies and others specializing in the veterinary
products industry will offer competitive products. Some of our large
manufacturers/suppliers may also compete with us through direct marketing and
sales of their products.

CHANGES IN THE VETERINARY DISTRIBUTION INDUSTRY COULD ADVERSELY AFFECT OUR
BUSINESS

The veterinary distribution industry is subject to changing political,
economic and regulatory influences. These factors affect our purchasing
practices and operation of our business. Some of our competitors are
consolidating to create integrated delivery systems with greater market
presence. These competitors may try to use their market power to negotiate price
reductions with the manufacturers. If we were forced to reduce our prices, our
operating results would suffer. As the veterinary distribution industry
consolidates, competition for customers will become more intense and the
importance of acquiring each customer will become greater.

FORWARD-LOOKING STATEMENTS

Some of the information in this prospectus including the above risk factors
section, contains forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such
as "may," "will," "expect," "anticipate," "believe," "estimate," "project," and
"continue" or similar words. You should read statements that contain these words
carefully because they:

- Discuss our future expectations

- Contain projections of our future results of operations or of our
financial condition

- State other "forward-looking" information

We believe it is important to communicate our expectations to our investors.
However, there may be events in the future that we are not able to predict
accurately or over which we have no control. The risk factors listed above, as
well as any cautionary language in this prospectus, provide examples of risks,
uncertainties and events that may cause our actual results to differ materially
from the expectations we describe in our forward-looking statements. Before you
invest in our common stock you should be aware that the occurrence of the events
described in these risk factors and elsewhere in this prospectus could have a
material adverse effect on our business, operating results and financial
condition.

USE OF PROCEEDS

The net proceeds from the sale of shares of common stock, after estimated
offering expenses, and assuming the sale of all shares, will be $1,376,583. We
intend to use the proceeds from the sale of shares of common stock for the
repayment of Company's obligations to the U.S. Bank National Association
pursuant to a Promissory Note. The proceeds will be used only to pay down a
portion of the Promissory Note. The Promissory Note is renewed annually on
December 1st of each year, and the maximum amount which can be borrowed
thereunder is six million dollars. The actual principal amount outstanding
varies as the Company borrows and repays its obligations throughout the term of
the loan. The interest rate on the Promissory Note is a variable rate based on
changes in the U.S. Bank N.A. Reference Rate. As of July 31, 1999, the interest
rate was 7.75%.

DIVIDEND POLICY

The Company shareholders approved Amended and Restated Articles of
Incorporation and Bylaws at the Company's Annual Meeting held in August, 1999 to
permit the Company to pay dividends. Any such payment of dividends would be
solely in the discretion of the Board of Directors, and at this time, we do not
anticipate that a dividend will be paid in the foreseeable future. We intend to
retain future earnings, if any, to finance the expansion of our business.

7
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CAPITALIZATION

The following table sets forth our capitalization as of July 31, 1999 and as
adjusted to reflect the sale of 500 shares of common stock we are offering and
application of the estimated net proceeds from the offering. This table should
be read in conjunction with our financial statements and notes thereto appearing
elsewhere in this prospectus.

<TABLE>
<CAPTION>
AT JULY 31, 1999
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ACTUAL AS ADJUSTED
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<S> <C> <C>
Short-term debt (including current portion of long term debt)........................ $ 4,413,238 $ 4,413,238
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Long-term debt (excluding current portion)........................................... $ 0 $ 0

Stockholders' equity:
Common stock, no par value per share
Authorized 30,000 shares; 1,188 shares issued and outstanding; and shares
issued and outstanding adjusted.................................................. $ 3,493,000 $ 4,993,000
Retained earnings.................................................................. $ 960,224 960,224
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Total stockholders' equity......................................................... $ 4,453,224 5,953,224
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Total capitalization............................................................... $ 8,866,462 $ 10,366,462
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</TABLE>

DILUTION

The price for a share of Company common stock is set in our Articles of
Incorporation at $3,000 per share, or such lesser amount as determined by the
Board of Directors in its discretion. Therefore, unless the Board of Directors
lowers the future price of common stock, an event which we do not currently
anticipate occurring, the price will remain at $3,000 per share and there will
be no dilution of existing shareholders' interests. The book value per share as
of July 31, 1999 was $3,748. This value was derived by dividing the $4,453,224
stockholders' equity as of July 31, 1999 by the 1,188 shares outstanding as of
July 31, 1999. The book value per share does not correspond to the liquidation
value per share. The price for a share of common stock may not be increased
without an amendment to our Articles of Incorporation.

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SELECTED FINANCIAL DATA

The following table presents selected financial data for the Company for
each of the years in the five-year period ended July 31, 1999. The historical
selected financial data are derived from the Company's Financial Statements
included elsewhere in this prospectus and should be read in conjunction with
those financial statements and notes thereto. These financial statements have
been audited by Marvin E. Jewell & Co., P.C. independent public accountants,
whose report with respect thereto appears elsewhere in this prospectus.

<TABLE>
<CAPTION>
FISCAL YEARS
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STATED IN DOLLARS 1995 1996 1997 1998 1999
- --------------------------------------------- ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF DATA
Revenues..................................... $63,536,749 $67,999,340 $80,938,835 $94,245,375 $122,253,200
Cost of goods sold........................... 59,038,665 62,103,482 73,701,533 85,261,574 111,875,873
Gross profit................................. 4,498,084 5,895,858 7,237,302 8,983,801 10,377,327
Operating, general and administrative
expenses................................... 4,392,557 5,794,348 7,077,385 8,725,912 10,366,843
Operating income............................. 105,527 101,510 159,917 257,889 10,484
Other income................................. 101,890 120,787 125,256 161,205 486,355
Other expenses............................... (105,631) (148,291) (208,407) (244,111) 263,198
Income before income taxes................... 101,786 74,006 76,766 174,983 233,641
Income taxes................................. 39,132 28,469 30,736 73,440 92,907
----------- ----------- ----------- ----------- ------------
Net income................................... $ 62,654 $ 45,537 $ 46,030 $ 101,543 $ 140,734
=========== =========== =========== =========== ============
Net income per share:
Basic earnings per share..................... $ 76.40 $ 50.30 $ 47.65 $ 96.89 $ 118.46
=========== =========== =========== =========== ============
Basic common shares outstanding used in the
calculation................................ 820 906 966 1,048 1,188

SUPPLEMENTAL OPERATING DATA
Net cash provided by (used in) operating
activities................................. $ (409,507) $ (320,149) $ (647,441) $(2,115,978) $ 1,863,413
Net cash provided by (used in) investing
activities................................. (1,172,433) (610,821) (194,181) (442,604) (1,033,443)
Net cash provided by (used in) financing
activities................................. 1,624,817 745,938 721,767 1,317,233 1,372,564
</TABLE>

<TABLE>
<CAPTION>
FISCAL YEARS
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STATED IN DOLLARS 1995 1996 1997 1998 1999
- ---------------------------------------------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Working capital............................... $ 2,119,581 $ 2,106,023 $ 2,456,944 $ 2,698,906 $ 1,052,710
Total Assets.................................. 11,151,627 12,859,118 14,175,862 20,007,753 28,358,152
Total long-term obligations................... 1,422,320 1,364,594 1,301,609 1,225,089 0
**Total short-term borrowings................. 52,907 557,726 1,062,985 3,285,273 4,413,238
Shareholder equity............................ 3,013,380 3,316,917 3,542,947 3,891,490 4,453,224
</TABLE>

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

THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY FROM THOSE
INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. THE FOLLOWING DISCUSSION OF THE
FINANCIAL CONDITION AND RESULTS OF OUR OPERATIONS SHOULD BE READ IN CONJUNCTION
WITH THE FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE IN
THIS PROSPECTUS.

OVERVIEW

The Company was chartered on August 2, 1982 as a Missouri corporation. Since
January 1, 1983 the Company has operated from various facilities in Omaha,
Nebraska. The Company shareholders approved Amended and Restated Articles of
Incorporation at the Company's Annual Meeting held in August, 1999 to permit the
Company to become a Nebraska corporation. The Company surrendered its Missouri
charter and became a Nebraska corporation on September 22, 1999. The Company's
fiscal year begins on August 1 and concludes on July 31 of the following year.

The Company is one of the largest distributors of animal health products to
veterinarians who practice food animal medicine in the United States. The
Company was founded in 1982 by veterinarians whose primary interests were "food
animal" related. The changing trends of veterinary medicine has resulted in a
gradual shift toward the sale of more "companion animal" products.

The Company's sales have increased from $62.6 million in fiscal year 1995 to
$118.7 million in fiscal year 1999, and we expect this trend of increases in
sales to continue. We will continue our strategy of supporting the food animal
veterinarian with a broad range of products and value-added services. However,
sales in the food animal sector are subject to very low margins. In view of the
increasing maturity of the food animal market the Company must continue to look
for future growth in the companion animal sector.

Historically companion animal product related transactions have enjoyed
higher margins than sales of food animal products. However, as competition
increases in the companion animal sector it is likely that margins will begin to
erode. We believe there is likely to be consolidation of the many small
privately owned veterinary clinics, which will result in an increasing number of
larger veterinary practice business units. As a result, the larger veterinary
practices will have increased purchasing leverage and will negotiate for lower
product costs which will reduce margins at the distribution level and impact
Company revenue and net income.

There are two major types of transactions that affect the flow of products
to the Company's customers. Traditional "buy/sell" transactions account for over
eighty percent of the Company's business. In this type of transaction the
customer places an order with the Company, which is then picked, packed,
shipped, invoiced to the customer, followed by payment from the customer to the
Company. There are several product lines where the Company provides all
transactional activities described above, except that the manufacturer retains
title to the product.

A second transaction model used by the Company is termed the "agency
agreement". Under this approach, the Company receives orders for products from
its customer. The Company transmits the order to the manufacturer who than
picks, packs, ships, invoices and collects payment from the customer. The
Company receives a commission payment for soliciting the order as well as other
customer service activities. The Company's operating expenses associated with
this type of sale may be lower than the traditional buy/sell transaction. Agency
selling allows the manufacturer and the Company to immediately react to market
conditions. This arrangement allows the manufacturer to establish and
standardize price of its products in the market. This current information often
is used by the Company and the various manufacturers to develop data based
marketing programs.

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The mode of selling products to veterinarians is dictated by the
manufacturer. There has been a recent slight shift away from agency agreements
returning to the traditional buy/sell transactional business model.

Product returns from our customers and to our suppliers occur in the
ordinary course of business. The Company extends to its customers the same
return of goods policies as extended to the Company by the various
manufacturers. The Company does not believe its operations will be adversely
impacted due to the return of products.

RESULTS OF OPERATIONS

The following discussion is based on the historical results of operations
for fiscal 1997, 1998 and 1999.

FISCAL 1997 COMPARED TO FISCAL 1996

Net sales for the fiscal year ending July 31, 1997 increased by 18.8% or
$12.3 million for the year. Sales for the 1997 fiscal year totaled
$78.3 million compared to $66.0 million for the previous fiscal year. The growth
was attributable to increased sales to existing veterinary shareholders and also
the addition of new shareholders.

During the year 60 veterinary practices became shareholders of the Company.
On July 31, 1997 there were 966 shareholders of the Company.

Gross profit increased by $1.3 million to $7.2 million compared to
$5.9 million for the previous fiscal year. Gross profit as a percentage of total
revenues was 9.0% in fiscal 1997 compared to 9.0% in fiscal 1996.

Operating, general and administrative expenses increased by $1.3 million to
$7.1 million in fiscal year 1997 compared to $5.8 million for the previous
fiscal year. Such operating, general and administrative expenses as a percentage
of total revenues fiscal 1997 were 8.7% vs. 8.8% in fiscal 1996.

FISCAL 1998 COMPARED WITH FISCAL 1997

Net sales for the fiscal year ended July 31, 1998 increased by 15.7% or
$12.3 million for the year. Sales for the 1998 fiscal year totaled
$90.6 million compared to $78.3 for the previous fiscal year. The growth was
attributable to increased sales to existing veterinary shareholders and also the
addition new shareholders. During the year 82 veterinary practices became
shareholders of the Company. On July 31, 1998 there were 1,048 shareholders of
the Company.

Gross profit increased by $1.8 million to $9.0 million compared to
$7.2 million for the previous fiscal year. Gross profit as a percentage of total
revenues was 9.5% in fiscal 1998 compared to 9.0% in fiscal 1997.

Operating, general and administrative expenses increased by $1.6 million to
$8.7 million in fiscal year 1998 compared to $7.1 million for the previous
fiscal year. Such operating, general and administrative expenses as a percentage
of total revenues fiscal 1998 was 9.3% vs. 8.7% in fiscal 1997.

FISCAL 1999 COMPARED TO FISCAL 1998

Net sales for the fiscal year ending July 31, 1999 increased by 31.0% or
$28.1 million for the year. Sales totaled $118.7 million compared to
$90.6 million for the previous fiscal year. The growth was attributable to
increased sales to existing veterinary shareholders and also the addition of new
shareholders. During this period 140 veterinary practices became shareholders of
the Company. On July 31, 1999 there were 1,188 shareholders of the Company.

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Gross profit increased by $1.4 million to $10.4 million compared to
$9.0 million for the previous fiscal year. Gross profit as a percentage of total
revenues was 8.5% in fiscal 1999 compared to 9.5% in fiscal 1998.

Operating, general and administrative expenses increased by $1.6 million to
$10.3 million in fiscal 1999 compared to $8.7 million for the previous year.
Such operating, general and administrative expenses as a percentage of total
revenues fiscal 1999 was 8.5% vs. 9.3% in fiscal 1998.

LIQUIDITY AND CAPITAL RESOURCES

Our capital requirements relate primarily to working capital and the
expansion of our operations to accommodate sales growth. We maintain significant
inventory levels to fulfill our operating commitment to our customers.
Historically, we have financed our cash requirements primarily from short-term
bank borrowings and cash from operations.

Net cash used by operating activities of $320,149 in fiscal year ending
July 1996 was primarily attributable to increases of $140,367 in accounts
receivable and $1,535,369 in inventories. These were partially offset by an
increase of $934,492 in accounts payable. For the fiscal year ending July 1997,
net cash used by operating activities of $647,441 was primarily attributable to
increases of $525,777 in accounts receivable and $1,207,904 in inventories.
These were partially offset by an increase of $492,484 in accounts payable. Net
cash used by operating activities of $2,115,978 in fiscal year ending July 1998
was primarily attributable to increases of $1,493,853 in accounts receivable and
$4,473,791 in inventories. These were partially offset by an increase of
$2,594,480 in accounts payable. Net cash provided by operating activities of
$1,863,413 in fiscal year ending July 1999 was primarily attributable to an
increase of $6,631,793 in accounts receivable. It was partially offset by
increases of $7,736,556 in accounts payable and $418,081 in inventories.

Net cash used by investing activities of $610,821 in fiscal year ending July
1996 was primarily attributable to investments in property and equipment. Net
cash used by investing activities of $194,181 in fiscal year ending July 1997
was primarily attributable to investments in property and equipment. In the
fiscal year ending July 1998, net cash used by investing activities of $442,604
was primarily attributable to investments in property and equipment. Net cash
provided by investing activities of $1,033,433 in fiscal year ending July 1999
was primarily attributable to investments in property and equipment.

Net cash provided by financing activities of $745,938 in fiscal year ending
July 1996 was primarily attributable to increases of $500,000 in loan proceeds
and $298,845 from net proceeds from issuance of common stock. In the fiscal year
ending July 1997, net cash provided by financing activities of $721,767 was
primarily attributable to increases of $500,000 in loan proceeds and $279,493
from net proceeds from issuance of common stock. Net cash provided by financing
activities of $1,317,233 in fiscal year ending July 1998 was primarily
attributable to increases of $1,035,913 in loan proceeds and $281,320 from net
proceeds from issuance of common stock. Net cash used by financing activities of
$1,372,564 for fiscal year ending July 1999 was primarily attributable to
increases of $1,012,731 in loan proceeds and $359,833 from net proceeds from
issuance of common stock.

SEASONALITY IN OPERATING RESULTS

The Company's quarterly sales and operating results have varied
significantly in the past and will likely continue to do so in the future.
Historically, our sales are seasonal with peak sales in the late spring and
early fall. The cyclical nature is directly tied to the significant amount of
business the Company does in the livestock sector. Product use cycles are
directly related to certain medical procedures performed by veterinarians on
livestock during the spring and fall.

In the last few years the Company has been selling more companion animal
related products. These products tend to have a seasonal nature which minimally
overlaps the livestock business cycles. The net

12
<PAGE>
result is a reduction of the cyclical seasonal nature of the business.
Minimizing the cyclical nature of the Company's business has allowed for more
efficient utilization of all resources.

YEAR 2000

In late 1995 the Company conducted an overall assessment of its computer
systems, including Year 2000 readiness. Based on this assessment, the Company
determined that the system was not Y2K compliant and was inadequate to support
the projected growth of the Company. A consultant was hired to analyze the
Company's operations and then assisted management to determine the software
system which best suited its needs.

The selected system became operational in late 1996. All aspects of the
business are driven by this modern application system. The Company continually
installs hardware and software updates and upgrades to the latest versions
applicable. Certain licenses and registrations with expiration dates well into
the next millennium have been accepted and are currently operational by the
system.

With respect to non-information technology systems, the Company has nearly
completed the inventory and assessment of known embedded systems. The Company's
telecommunications hardware and software system will be the latest technology
when installed in the Company's new facility later in 1999. A new security
system also will be installed.

The Company has begun the process of initiating formal communications with
significant vendors and customers to determine the extent to which the Company
may be vulnerable to failure by any of these third parties to remedy their own
Year 2000 Issues. The Company also relies upon governmental agencies, utility
companies, telecommunication service companies and other service providers. If
such governmental agencies or other third parties suffer a Year 2000 business
disruption it could have a material adverse effect on the Company's results of
operations or financial position.

BUSINESS

The Company is a leading wholesale distributor of animal health products to
practicing veterinarians. We also offer a broad array of prescription,
non-prescription and sundry items to assist veterinarians in their practice. The
Company does not sell pet foods. A small quantity of feed additive type products
are sold by the Company.

The Company distributes approximately 18,000 different items including
biologicals, pharmaceuticals, parasiticides, instruments and equipment.
Routinely some 11,000 items are inventoried for immediate shipment. The balance
of items are either drop-shipped from the manufacturer to the customer or are
special order items.

As of July 31, 1999, the Company had 1,188 shareholder veterinary clinics.
These shareholders are principally located from the Rocky Mountains to the
Atlantic Seaboard with some presence in the South. The following describes the
ten states with the highest concentration of shareholders (with the number of
shareholders in such state shown in parentheses): Missouri (140), Iowa (116),
Illinois (112), Nebraska (104), Pennsylvania (101), Kansas (94), Minnesota (41),
Kentucky (40), Ohio (39) and Indiana (36). No shareholder/customer represented
more than 1% of the Company's total revenues during the past fiscal year.

Due to the geographical location of the majority of its shareholders nearly
65% of the Company's gross sales are related to products used for the treatment
and/or prevention of diseases in food animals. The balance of product sales are
for the treatment and/or prevention of diseases in companion animals and equine.

13
<PAGE>
The Company primarily sells branded products as marketed by the major animal
health manufacturers and suppliers. The Company does not currently private label
any products, but would consider a private label product agreement if there was
a decisive competitive advantage for doing such.

The Company's business strategy is to be the leading supplier of animal
health products to veterinary clinics by offering a complete assortment of items
at competitive prices which are supported by superior levels of customer
service. The Company believes that this strategy provides it with a competitive
advantage by combining the broad product selection with everyday low prices and
support from very efficient operations. The shareholder veterinary clinics are
able to lower their product acquisition costs which both increases profitability
and gives them a competitive market advantage.

The Company has heavily invested in electronic information systems to
maximize efficiencies. All phases of the transactional process are
electronically driven. The Company believes this advanced electronic technology
will assist in earlier adoption of electronic commerce through the internet by
both its customers and suppliers.

VALUE-ADDED SERVICES

The Company offers its customers and suppliers a comprehensive menu of
value-added services. These services allow individual customers various
selections based on their individual needs. The Company manages a database of
all transactions so that its customers may maximize their participation in
promotions frequently offered by suppliers. The customer is periodically
apprised, either by phone or mailings, of their level of participation in these
promotions. This promotional tracking service gives the customer the option to
maximize their participation in a promotion which can ultimately increase their
profitability and allow them to more effectively compete in certain markets.

The Company has developed a multi-day inventory management and purchasing
techniques seminar for its customers. This seminar is held at the Company's
headquarters. The customer is trained to better use the Company's resources and
also be increasingly efficient in managing their product and inventory
activities.

The Company has Electronic Data Interchange (EDI) capability which provides
the supplier with product sales and movement. The supplier is able to monitor
sales activities, advertising effectiveness and market trends in an efficient
manner. The Company also assists the manufacturer in the design of effective
promotions. The historical transactional database and the promotional tracking
service are unique tools to assist the manufacturer in tailoring effective
promotions.

REBATES TO SHAREHOLDERS

The Company and its shareholders are in a contractual relationship evidenced
in the Company's Articles of Incorporation which requires that all sales of
Company products to Company shareholders be at no more than 5% over the cost of
the Company as determined by the Company's certified public accountant. Based on
this requirement, the Company's certified public accounting firm annually makes
a determination of the Company's product costs. This valuation of product costs
is then multiplied by 105% and compared to the Company's product sales. Amounts
in excess of the 105% computation are overcharges which are then rebated back to
shareholders by credit memo. Such rebates are made on a pro rata basis to
shareholders, based on the aggregate amount of products purchased by each
shareholder during the year for which the rebate is made. Rebates are included
in the Company's financial statements and are netted against sales on the
Company's income statement/balance sheet.

THE ANIMAL HEALTH INDUSTRY

A recent survey by a national veterinary organization lists over 25,000
veterinary practices in the United States. There are some 43,000 veterinarians
practicing in the various disciplines of veterinary

14
<PAGE>
medicine. This survey indicated nearly 71% of the veterinarians in private
clinical practice predominately specialize in companion animal medicine.

The U.S. animal health manufacturer sales of biologicals, pharmaceuticals,
insecticides and other packaged goods was approximately $2.75 billion for 1998.
This segment of business in which the Company participates is intended to meet
the product and supply needs of the private clinical practice.

Sundry items such as collars, leashes, cages, books, aquatic supplies and
equine tack are primarily sold through retail pet supply outlets. These products
typically are not purchased from veterinary practices. The Company makes a few
of these items available, however annual sales are very minimal.

Consolidation is a primary force reshaping the animal health industry. Sales
by the top ten animal health product manufacturers account for over 75% of the
U.S. market. At this time the top five U.S. animal health product companies have
a market share that exceeds 50% of the total animal health business.

Livestock production continues the consolidation trend that started a number
of years ago. Agribusiness integrators continue to build larger livestock
raising facilities. Improved management systems coupled with new preventative
products have resulted in an ongoing reduction in food animal product sales for
the past several years. There also has been a loss of market share in several
key product groups due to generic competition. The generic products generally
sell for lower prices which causes a pricing deflation in the market.

The companion animal market is experiencing considerable growth. Several new
therapeutic and preventative products have contributed to most of this increased
sales volume. Nutraceuticals (nutritional pharmaceuticals) have an increasing
presence in the companion animal market. During the past five years companion
animal product sales have grown from 25% to 35% of the total U.S. market.

COMPETITION

Distribution of animal health products is characterized by either "ethical"
or "OTC" channels of product movement. Ethical distribution is defined as those
sales of goods to licensed veterinarians for use in their professional practice.
Many of these products are prescription and must only be sold to a licensed
professional. OTC (over-the-counter) distribution is the movement of those goods
to the animal owner or the end user of such products. Many of these products
will also be purchased by the licensed veterinarian for professional use or for
resale to their client.

There are numerous ethical distribution companies operating in the same
geographical regions as the Company and competition in this distribution
industry is intense. Most of the competitors generally offer a similar range of
products at prices often comparable to the Company's. The Company seeks to
distinguish itself from its competitors by offering a higher level of customer
service as well as having its principal customers also as its
shareholders/owners. In addition to competition from other distributors, the
Company also faces existing and potentially increased competition from
manufacturers and suppliers who distribute some percentage of their products
directly to veterinarians. Although the Company competes against direct sales by
manufacturers and suppliers, it is often able to compete with such direct sales
by adding new value-added services and pricing differentiation.

The Company's customers, licensed practicing veterinarians, compete with the
OTC distributors for the sale of products to the animal owner. Several large OTC
distributors sell products directly to the large agribusiness integrator or the
livestock owner. Pet food and supplies are sold by a highly fragmented industry
which includes supermarkets, discount stores and other mass merchandisers,
specialty pet stores, direct mail houses and veterinarians. The Company does not
sell products directly to the animal owner and therefore does not compete with
its customer for the sale of such product.

15
<PAGE>
The role of the animal health distributor has changed dramatically during
the last decade. Successful distributors have shifted from a selling mentality
to providing products and services in a consultative environment. Declining
profit margins typify current financial trends. Currently there is an over
capacity in the animal health distribution network, although there have been few
animal health distributor mergers or acquisitions. We believe the Company must
continue to add value to the distribution channel, and reduce the redundancies
that exist, while removing unnecessary costs associated with product movement.

GOVERNMENT REGULATION

Both state and federal government agencies regulate the distribution of
certain animal health products. The Company is subject to regulation by the US
Department of Agriculture, the Food and Drug Administration and the Drug
Enforcement Administration. Several State Boards of Pharmacy require the Company
to be licensed in their state for the sale of animal health products with their
jurisdiction. Each state (as well as certain cities and counties) requires the
Company to collect sales taxes/use taxes on differing types of animal health
products.

The Company is subject to laws governing its relationship with employees,
including minimum wage requirements, overtime, working conditions and
citizenship requirements.

ENVIRONMENTAL CONSIDERATIONS

The Company does not manufacture, re-label or in any way alter the
composition or packaging of products. All products are distributed in compliance
with the relevant rules and regulations as approved by various State and Federal
Regulatory Agencies. The Company's distribution business practices create no or
minimal impact on the environment.

EMPLOYEES

As of July 31, 1999 the Company had 127 employees. We are not subject to any
collective bargaining agreements and have not experienced any work stoppages. We
consider our relationship with our employees to be good.

PROPERTIES

The Company leases the distribution facility and the offices it currently
occupies in Omaha, Nebraska. This property was purchased by the Company in 1991,
with a large addition built in 1994. The Company sold this property in
April 1999 and negotiated a short-term lease with the purchaser that expires
December 31, 1999. The Company also leases a small offsite warehouse bay for the
storage of products. This lease also expires late in 1999. The Company also
stores some of its products at a public warehouse facility.

The Company purchased 9.6 acres of land in a newly developed industrial
subdivision in Omaha, Nebraska in September 1998 for the purpose of building a
larger and more efficient distribution center. This new facility will contain
nearly 100,000 square feet of open warehouse space and some 30,000 square feet
of finished office area. In late 1999, the Company plans to move to the new
facility, which will be encumbered by a deed of trust. The latest in technology
is being incorporated into the design of the new facility to maximize
distribution efficiencies.

16
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The Company's day-to-day affairs are managed by its executive officers who
are appointed by the Board of Directors for a one-year term. Our Board of
Directors is composed of eight (8) shareholders who are elected for 3-year
staggered terms from eight geographic districts. All Directors are practicing
veterinarians, and are not eligible to continue on the Board beyond their
initial three-year term, unless they have been off the Board for at least one
year. Each Director, or the practice of which he is a member, owns one share of
Company common stock.

Each director's professional practice must be located in the district in
which he or she is elected from at the time of the election. Under our Bylaws,
our Board of Directors, at its discretion, and no more frequently than annually,
may alter the boundaries of each geographic district to more accurately
represent an equitable number of shareholders.

Our Board of Directors is divided into three staggered classes of directors.
The appropriate class of directors is elected at each annual meeting of our
shareholders.

<TABLE>
<CAPTION>
NAME AGE POSITION DISTRICT CLASS
- ------------------------------------------------ ----------- ----------------------------------------- ------------- -----------
<S> <C> <C> <C> <C>
Lionel L. Reilly, D.V.M......................... 56 President, CEO, non-voting Director

Neal B. Soderquist.............................. 43 Controller

Eric R. Phillips................................ 50 Director of Logistics and Product
Management

Kenneth R. Liska, D.V.M......................... 55 Director 1 II

Wayne E. Rychnovsky, D.V.M...................... 42 Director 2 II

Russ R. Weston, D.V.M........................... 49 Chairman, Director 3 I

Raymond C. Ebert II, D.V.M...................... 53 Director 4 III

Michael L. Whitehair, D.V.M..................... 49 Director 5 III

Mark A. Basinger, D.V.M......................... 51 Director 6 II

Timothy P. Trayer, D.V.M........................ 46 Secretary, Director 7 I

Fred G. Garrison, D.V.M......................... 54 Vice-Chairman, Director 8 III
</TABLE>

Class I directors currently serve until the 2000 annual meeting of
shareholders; Class II directors serve until the 2001 annual meeting of
shareholders; and Class III directors serve until the 2002 annual meeting.

17
<PAGE>
The following map illustrates the geographic breakdown of the eight
districts.

[MAP]

Lionel L. Reilly, D.V.M. has served as President and CEO of the Company
since 1994. Prior to that he was Vice President, Business Operations and
functioned as the CEO. He has been with the Company since 1983, shortly after
its founding. Dr. Reilly spent several years as a military veterinarian, over
five years in private clinical veterinary practice and five years in industry as
a researcher and technical services veterinarian. He has a degree from Kansas
Wesleyan University in Salina, Kansas. Dr. Reilly graduated in 1970 from the
College of Veterinary Medicine, Kansas State University, Manhattan, Kansas.

Neal B. Soderquist was appointed Controller in 1994. From 1989 to 1994 he
served in that position as well as managed much of the human resources
functions. For the previous 14 years Mr. Soderquist was controller/officer
manager for Lincoln Lumber Co., Lincoln, NE. In 1975 he received an Associates
Degree from Lincoln School of Commerce, Lincoln, Nebraska.

Eric R. Phillips has served as Director of Logistics and Product Management
of the Company since July, 1999. Prior to that he was the part owner of Olson
Phillips Wassinger Financial Services, where he was responsible for insurance
and mutual funds investments.

Kenneth R. Liska, D.V.M., has served as a Director of the Company since
1997. He is the owner of a veterinary clinic located in Wayne, Nebraska.
Dr. Liska received a Doctor of Veterinary Medicine degree from Iowa State
University in 1969.

Wayne E. Rychnovsky, D.V.M., has served as a Director of the Company since
1998. He is the owner of a three person veterinary practice in Southwest Iowa.
Dr. Rychnovsky has a degree in Animal Science from Iowa State University. In
1978 he graduated with a Doctor of Veterinary Medicine degree, also from Iowa
State University.

Russ R. Weston, D.V.M., has served as Chairman since 1999 and has been a
member of the Company's Board of Directors since 1997. He is the
secretary-treasurer of a mixed animal veterinary clinic

18
<PAGE>
in Stephenson County, Illinois. Dr. Weston received a Doctor of Veterinary
Medicine degree from Iowa State University in 1973.

Raymond C. Ebert II, D.V.M., has served as a Director of the Company since
1999. He is the owner of an animal clinic located in Pleasant Hill, Missouri.
Dr. Ebert received a Doctor of Veterinary Medicine degree from the University of
Missouri in 1970.

Michael L. Whitehair, D.V.M., has served as a Director of the Company since
1999. He is a partner of an animal hospital located in Abilene, Kansas. Dr.
Whitehair received a Doctor of Veterinary Medicine degree from Kansas State
University in 1974.

Mark A. Basinger, D.V.M., has served as a Director of the Company since
1997. He is the owner of a veterinary clinic located in Ottawa, Ohio.
Dr. Basinger has a degree in Agriculture from Ohio State University. In 1973 he
graduated with a Doctor of Veterinary Medicine degree, also from Ohio State
University.

Timothy P. Trayer, D.V.M., has served as Secretary since 1998 and has been a
member of the Company's Board of Directors since 1997. He is the founder and
partner of a five person food animal practice located in Denver, Pennsylvania.
Dr. Trayer has a degree in Biology Chemistry from Wilmington College and
graduated in 1979 with a Doctor of Veterinary Medicine degree from Ohio State
Veterinary College.

Fred G. Garrison, D.V.M., has served as Vice-Chairman since 1999 and has
been a Director of the Company since 1998. He is the president of a three person
veterinary clinic located in Centreville, Virginia. Dr. Garrison received a
degree in Animal Science from Pennsylvania State University. He graduated from
Cornell University in 1971 with a Doctor of Veterinary Medicine degree.

The Executive Committee, which among other duties is actually involved in
long-range planning and the formulation of corporate policies, also makes
recommendations to the Board concerning salaries and incentive compensation for
our officers and employees, is comprised of Dr. Garrison, Dr. Liska and
Dr. Weston. The Audit Committee is comprised of Dr. Garrison, Dr. Rychnovsky and
Dr. Whitehair. This Committee serves as a direct link between the Board and the
auditors, and regularly meets with the auditor to review the audit function. The
Nominating Committee is comprised of Dr. Trayer, Dr. Basinger and Dr. Ebert. Its
specific responsibility is to devise criteria for Board membership and to
identify specific individuals for nomination.

COMPENSATION

Directors are paid $500 per day for attendance at the Company's Mid-Year and
Annual Meetings, and any specially-called Board meetings where attendance is
required. In addition, Directors are reimbursed for their expenses, including
meeting related travel and lodging at the meeting location. Directors are paid
$750 annually for participation in Board teleconference meetings and $250 for
attendance at each District meeting they attend. No other compensation is paid
to Directors without further action by the Board.

19
<PAGE>
The following table represents the cash compensation paid by the Company to
the named executive officer for the years 1996 through 1998 whose compensation
from the Company exceeded $100,000 for these years.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- ----------------------------------------------------------------- --------- ---------- --------- ----------------
<S> <C> <C> <C> <C>
Lionel L. Reilly................................................. 1998 $ 186,000 $ 8,300 20,200
President and Chief Executive Officer and Non-Voting Director 1997 177,100 0 14,600
1996 169,300 12,900 17,155
</TABLE>

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

(1) These amounts represent contributions by the Company to Dr. Reilly's 401(k)
Plan and profit-sharing Plan.

CERTAIN TRANSACTIONS

We have not made loans to, loan guarantees on behalf of, or engaged in
material transactions with the Company officers, directors or shareholders. The
Directors, acting in their capacity as shareholders, have purchased items
related to the practice of veterinary medicine from the Company on the same
terms and conditions as every other shareholder. As a matter of policy, all
future material transactions between the Company and any of its officers,
directors, or shareholders will be approved by a majority of the independent and
disinterested members of the Board of Directors, will be on terms no less
favorable to the Company than could be obtained from unaffiliated third parties
and will be in connection with bona fide business purposes of the Company.

LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS

As permitted by the Nebraska Business Corporation Act, the Company's
Articles of Incorporation provide that no director will be personally liable to
the Company or its shareholders for monetary damages for any action taken, or
for any failure to take action as a director except for liability

- for the amount of a financial benefit received by a director to which he
or she is not entitled

- for intentional infliction of harm on the Company or its shareholders

- for a violation of Section 21-2096 of the Nebraska Business Corporation
Act

- for an intentional violation of criminal law

The Company's Articles of Incorporation provide that the Company must
indemnify its directors, officers, employee or agent to the fullest extent
permitted by law. Generally under Nebraska law, a director or officer may be
indemnified if that individual acted in good faith and had reasonable basis to
believe that (1) in the case of conduct in the individual's official capacity
with the company, that the individual's conduct was in the company's best
interests; (2) in all other cases, that the individual's conduct was at least
not opposed to the company's best interest; and (3) regarding any criminal
proceedings, the individual had no reasonable cause to believe the individual's
conduct was unlawful.

There is no pending litigation or proceeding involving a director, officer,
employee or agent of the Company as to which indemnification is being sought.
The Company is not aware of any other threatened litigation that may result in
claims for indemnification by any director, officer, employee or agent.

20
<PAGE>
PRINCIPAL SHAREHOLDERS

The Company's Articles and Bylaws specifically provide that each shareholder
is entitled to own only a single share of stock. Thus, there is no shareholder
that has more than one share currently or will own more than one share in the
future and no shareholder owns less than or a fractional portion of the single
share. No single shareholder owns more than 5 percent of the outstanding common
stock. Each director is also a holder of one share of stock. None of the
executive officers are shareholders.

DESCRIPTION OF COMMON STOCK

The Company has total authorized capital stock of 30,000 shares of common
stock, with a par value of $1.00 per share. Our shareholders approved the change
from no par value at the annual meeting held

on August 20, 1999. As of July 31, 1999, 1188 shares of common stock were
outstanding held by 1188 shareholders.

The holders of common stock are entitled to one vote for each share held of
record on all matters submitted to a vote of stockholders. The holders of common
stock are entitled to receive ratably such dividends, if any, as may be declared
from time to time by the board out of funds legally available therefor. The
Company does not anticipate paying dividends on the common stock in the
foreseeable future. See "Dividend Policy."

In the event of a liquidation, dissolution or winding up of the Company, the
holders of common stock are entitled to share ratably in all assets remaining
after payment of liabilities. Holders of common stock have no preemptive rights
or rights to convert their common stock into any other securities. There are no
redemption or sinking fund provisions applicable to the common stock. All shares
of common stock are, and the share of common stock to be outstanding upon
completion of this offering will be, fully paid and non-assessable. The Company
does not have any preferred stock authorized, and has not issued any stock
options, stock option plans, warrants, or other outstanding rights or
entitlements to common stock.

Our stock has several ownership restrictions. Under Article V of our
Articles of Incorporation, unless otherwise approved by our Board of Directors,
the Company can sell shares of stock only to: 1) individual licensed
veterinarians; or 2) any lawful form of business entity established to deliver
veterinary services and/or products in which all medical decisions are made by
licensed veterinarians. Additionally, the Company may also sell shares to
veterinary practices which are locally operated but owned by a non-local entity.
No solo practitioner nor practice with multiple veterinarians may own more than
one share and veterinarians involved in a multiple veterinary practice may not
own stock if the practice itself already owns one share or if any of that
veterinarian's fellow practitioners own a share.

In the event that a shareholder is no longer qualified to own the Company
stock, the shareholder must sell the share of stock back to the Company, which
will repurchase the share at the price paid by the shareholder for such share of
stock. The Company also has the option, for a period of six months after the due
date of the debt, to repurchase its stock if a shareholder owes money to the
Company and fails to make payments by the due date, at the price the shareholder
paid for the stock.

As a shareholder you are not permitted to sell, assign, or otherwise
transfer (including through any pledge or hypothecation) your share of stock
except in compliance with the Company's Articles and Bylaws, which permit a sale
only back to the Company. The shareholder must give the Company written notice
of the proposed sale and the Company will repurchase the share of stock within
ninety (90) days of receiving such written notice, at a price of $3,000.00. The
Company must also repurchase the share of stock in the event of the death of a
shareholder, at the price the deceased shareholder paid for such share of stock.

Our Board of Directors is composed of eight (8) shareholders who are elected
for 3-year staggered terms from eight geographic districts. Each director's
professional practice must be located in the district in which he or she is
elected from at the time of the election. Under our Bylaws, our Board of
Directors, at

21
<PAGE>
its discretion, and no more frequently than annually, may alter the boundaries
of each geographic district to more accurately represent an equitable number of
shareholders.

Our Board of Directors is divided into three staggered classes of directors.
The appropriate class of directors is elected at each annual meeting of our
shareholders. Each director serves a three year term and cannot be re-elected
unless that director has been off the Board for at least one year.

Our Articles of Incorporation may be amended by the affirmative vote of more
than 60% of the members of the Board of Directors unless either one of the
following is applicable: 1) if half or more of the seats of the Board of
Directors are vacant, then 75% or more affirmative vote of the remaining sitting
members shall be required; or 2) the Nebraska Business Corporation Act requires
otherwise. Under the Nebraska Business Corporation Act, the Board of Directors
may adopt the following amendments without shareholder action: 1) to extend the
duration of the Company; 2) to delete the names and addresses of the initial
directors; 3) to delete the name and address of the initial registered agent or
registered office; 4) to change each issued and unissued authorized share of an
outstanding class into a greater number of whole shares if the Company has only
shares of that class outstanding; 5) to change the Company name by substituting
the word corporation, incorporated, company, or limited, or the abbreviation
corp., inc., co., or ltd., for a similar word or abbreviation in the name, or by
adding, deleting, or changing a geographical attribution for the name; or 6) to
make any other change expressly permitted by the Nebraska Business Corporation
Act to be made without shareholder action. Otherwise, an amendment must be
approved by a majority of shareholder votes entitled to be cast unless the
amendment would create dissenters' rights, in which case a two-thirds majority
of the votes entitled to be cast on the amendment is required.

Our Articles and Bylaws prevent a change in control of the Company, as they
specifically provide that each shareholder is entitled to own only a single
share of stock. Therefore, there is no shareholder that has more than one share
or can own more than one share.

22
<PAGE>
SHARES ARE NOT ELIGIBLE FOR FUTURE SALE

In the event that a shareholder is no longer qualified to own the Company
stock, the shareholder must sell the share of stock back to the Company, which
will repurchase the share at the price paid by the shareholder for such share of
stock. We also have the option, for a period of six months after the due date of
the debt, to repurchase our stock if a shareholder owes money to us and fails to
make payments by the due date, at the price the shareholder paid for the stock.

SUBSCRIPTION TO COMPANY STOCK

PLAN OF DISTRIBUTION

The Company intends to offer the stock directly by the Company, and no
underwriting fees, finder's fees or commissions will be paid in connection with
such offers and sales.

METHOD OF SUBSCRIBING

Subscription to the share of Company Common Stock offered hereby may be
exercised by completing and signing the attached Subscription Agreement
(Exhibit A3) and related Exhibit A documents in accordance with the accompanying
Instruction Packet (Exhibit A1) and this Prospectus, and mailing or delivering
such Subscription Agreement and related documents together with payment to the
Company as designated in the Instruction Packet.

An investor may choose from three payment plans: (1) one payment for the
full $3000 cost of the share; (2) three installments of $1000 each, with the
second and third installments due thirty and sixty days after the first
installment is paid; and (3) an initial payment of $500 with the $2500 balance
paid on a 12 month installment payment schedule with 8% interest. Under the
third payment plan, each month the Company will send an invoice to you
reflecting the principal and interest of $217.43 due. Payment is due 10 days
following the date of such invoice and the Company's stated finance charge is
assessed for any payments received thereafter. There is no prepayment penalty.
The second and third payment plans are not available to investors located in
Nebraska.

By executing and submitting the Subscription Agreement, each subscriber
agrees to be bound by all the terms and conditions thereof.

All Subscription Agreements are subject to acceptance by the Company and may
be rejected by the Company in its sole discretion.

LEGAL MATTERS

The validity of the shares of common stock being offered by the Company will
be passed upon for the Company by Baird, Holm, McEachen, Pedersen, Hamann &
Strasheim, which has acted as counsel to the Company in connection with
this offering.

23
<PAGE>
EXPERTS

The financial statements of the Company as of July 31, 1997, July 31, 1998
and July 31, 1999 included in this prospectus have been audited by Marvin E.
Jewell & Co., P.C. as stated in the report appearing herein and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Securities and Exchange Commission a
registration statement on Form S-1 under the Securities Act with respect to the
shares of common stock offered hereby. This prospectus does not contain all of
the information set forth in the registration statement and the exhibits
thereto. For further information with respect to Professional Veterinary
Products, Ltd. and the common stock offered hereby, reference is made to the
registration statement and the exhibits thereto. Statements contained in this
prospectus regarding the contents of any contract or any other document to which
reference is made are not necessarily complete, and, in each instance where a
copy of such contract or other document has been filed as an exhibit to the
registration statement, reference is made to the copy so filed, each such
statement being qualified in all respects by such reference. A copy of the
registration statement and the exhibits thereto may be inspected without charge
at the Public Reference Room of the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and copies of all or any part of the
registration statement may be obtained from the Public Reference Section of the
Commission upon the payment of the fees prescribed by the Commission. The public
may obtain information on the operation of the Public Reference Room by calling
the Commission at 1-800-SEC-0330. The Commission also maintains a Web site
(http://www.sec.gov) that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.

We intend to provide our shareholders with annual reports containing
financial statements audited by an independent accounting firm and make
available upon request quarterly reports containing unaudited financial data for
the first three quarters of each fiscal year.

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. This prospectus is an offer to sell, or a
solicitation of offers to buy, shares of common stock only in jurisdictions
where offers and sales are permitted. The information contained in this
prospectus is accurate only as of the date of this prospectus, regardless of the
time of delivery of this prospectus or any sale of common stock.

24
<PAGE>
INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INDEPENDENT AUDITOR'S REPORT............................................................................... F-2

Balance Sheets at July 31, 1999, 1998 and 1997............................................................. F-3

Statements of Income for years ended July 31, 1999, 1998 and 1997.......................................... F-4

Statements of Retained Earnings for years ended July 31, 1999, 1998 and 1997............................... F-5

Statements of Cash Flows for years ended July 31, 1999, 1998 and 1997...................................... F-6

Notes to Consolidated Financial Statements................................................................. F-7

Schedule of Operating, General and Administrative Expenses................................................. F-10
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
Professional Veterinary Products, Ltd.
Omaha, Nebraska

We have audited the accompanying balance sheets of Professional Veterinary
Products, Ltd., a corporation, as of July 31, 1999, 1998 and 1997, and the
related statements of income, retained earnings, cash flows and accompanying
schedule for the years then ended. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Professional Veterinary
Products, Ltd. as of July 31, 1999, 1998 and 1997, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

MARVIN E. JEWELL & CO., P.C.

Lincoln, Nebraska
September 22, 1999

F-2
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

BALANCE SHEETS

ASSETS

<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
-------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
Current assets:
Cash.............................................................. $ 1,092,679 $ -- $ 131,494
Accounts receivable, trade, less allowance for doubtful accounts
(0)............................................................. 9,950,155 4,497,433 3,004,580
Accounts receivable, stock........................................ 139,501 78,334 112,654
Accounts receivable, other........................................ 1,188,071 9,000 8,000
Inventory......................................................... 12,587,232 13,005,313 8,531,522
------------- ------------- -------------
Total current assets.......................................... 24,957,638 17,590,080 11,788,250
------------- ------------- -------------
Property and equipment.............................................. 4,640,831 3,934,491 3,491,886
Less accumulated depreciation..................................... 1,604,504 1,730,215 1,334,456
------------- ------------- -------------
3,036,327 2,204,276 2,157,430
------------- ------------- -------------
Other assets:
Organization expense less accumulated amortization $15,188 (1998),
$54 (1997), $30,322 (1999)...................................... 196,476 211,610 46
Loan origination fee less accumulated amortization
$6,463 (1998), $4,812 (1997), $833 (1999)....................... 19,167 1,787 3,438
Trademark, less accumulated amortization
$306 (1999), $-0- (1998), $-0- (1997)........................... 4,694 -- --
Investments....................................................... 143,850 -- 226,698
------------- ------------- -------------
364,187 213,397 230,182
------------- ------------- -------------
$ 28,358,152 $ 20,007,753 $ 14,175,862
============= ============= =============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft.................................................... $ -- $ 1,109,855 $ --
Notes payable, bank............................................... 4,319,388 2,100,000 1,000,000
Notes payable, other.............................................. 93,850 -- --
Current portion of long-term debt................................. -- 75,418 62,985
Accounts payable, trade........................................... 18,176,783 10,440,227 7,845,747
Accrued interest.................................................. 22,613 17,140 11,880
Accrued expenses.................................................. 547,887 471,963 89,105
Accrued wages..................................................... 484,462 383,402 171,727
Accrued profit-sharing............................................ 242,038 250,729 149,326
Accrued income taxes.............................................. 17,907 42,440 536
------------- ------------- -------------
Total current liabilities..................................... 23,904,928 14,891,174 9,331,306
------------- ------------- -------------
Long-term debt...................................................... -- 1,225,089 1,301,609
------------- ------------- -------------
Stockholders' equity:
Common stock, no par value per share. Authorized 30,000 shares;
issued and outstanding 1,048 shares (1998), 966 shares (1997),
1,188 shares (1999)............................................. 3,493,000 3,072,000 2,825,000
Retained earnings................................................. 960,224 819,490 717,947
------------- ------------- -------------
4,453,224 3,891,490 3,542,947
------------- ------------- -------------
$ 28,358,152 $ 20,007,753 $ 14,175,862
============= ============= =============
</TABLE>

See accompanying notes to financial statements and independent auditor's report.

F-3
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

STATEMENTS OF INCOME

<TABLE>
<CAPTION>
AMOUNT PERCENT
------------------------------------- ----------------------
YEARS ENDED JULY 31, YEARS ENDED JULY 31,
------------------------------------- ----------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net sales................... $118,760,595 $90,641,232 $78,335,182 97.14 96.18 96.78
Shipping.................... 101,435 82,252 76,045 .08 .09 .09
Commissions................. 1,630,808 1,778,811 1,278,033 1.33 1.89 1.58
Sales promotion............. 1,716,677 1,699,626 1,214,982 1.41 1.80 1.50
Annual meeting
reimbursement............. 16,609 12,055 16,685 .02 .01 .02
Miscellaneous............... 27,076 31,399 17,908 .02 .03 .03
----------- ----------- ----------- ------ ------ ------
122,253,200 94,245,375 80,938,835 100.00 100.00 100.00
----------- ----------- ----------- ------ ------ ------

Cost of sales:
Net purchases............... 114,061,177 86,689,358 74,140,723 93.30 91.98 91.60
Freight out................. 2,451,266 1,974,411 1,589,930 2.00 2.09 1.96
Less--Vendor rebates........ (4,636,570) (3,402,195) (2,029,120) (3.79) (3.60) (2.51)
----------- ----------- ----------- ------ ------ ------
111,875,873 85,261,574 73,701,533 91.51 90.47 91.05
----------- ----------- ----------- ------ ------ ------
Gross profit............ 10,377,327 8,983,801 7,237,302 8.49 9.53 8.95
Operating, general and
administrative expenses
(Schedule).................. 10,366,843 8,725,912 7,077,385 8.48 9.26 8.74
----------- ----------- ----------- ------ ------ ------
Operating income............ 10,484 257,889 159,917 .01 .27 .21

Other income:
Interest.................... 249,143 161,205 125,256 .20 .17 .15
Gain on sale of property and
equipment................. 237,212 .20
----------- ----------- ----------- ------ ------ ------
486,355 161,205 125,256 .40
----------- ----------- ----------- ------ ------ ------
496,839 419,094 285,173 .41 .44 .36
Other expenses--Interest...... 263,198 244,111 208,407 .22 .25 .26
----------- ----------- ----------- ------ ------ ------
Income before income
taxes................. 233,641 174,983 76,766 .19 .19 .10
Income taxes.................. 92,907 73,440 30,736 .08 .08 .04
----------- ----------- ----------- ------ ------ ------
Net income.............. $ 140,734 $ 101,543 $ 46,030 .11 .11 .06
=========== =========== =========== ====== ====== ======
</TABLE>

See accompanying notes to financial statements and independent auditor's report.

F-4
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

STATEMENTS OF RETAINED EARNINGS

<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year................................................. $ 819,490 $ 717,947 $ 671,917
Net income................................................................... 140,734 101,543 46,030
---------- ---------- ----------
Balance at end of year....................................................... $ 960,224 $ 819,490 $ 717,947
========== ========== ==========
</TABLE>

See accompanying notes to financial statements and independent auditor's report.

F-5
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED JULY 31,
------------------------------------------------------------------------
1999 1998 1997
------------------------ ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. 140,734 $ 101,543 $ 46,030
Adjustments for reconcile
net income to net cash
provided (used) by
operating activities:
Depreciation and
amortization............ 287,814 $ 412,543 $ 382,057
Gain on sale of
property................ (237,212) -- --
Adjustments for working
capital changes:
(Increase) decrease in:
Receivables........... (6,631,793) (1,493,853) (525,777)
Inventories........... 418,081 (4,473,791) (1,207,904)
Prepaid income
taxes............... -- 9,713
Increase (decrease) in:
Accounts payable...... 7,736,556 2,594,480 492,484
Accrued expenses...... 173,766 701,196 155,420
Income taxes.......... (24,533) 41,904 536
----------- ----------- -----------
Total adjustments... 1,722,679 (2,217,521) (693,471)
----------- --------- ---------
Net cash provided
(used) by
operating
activities........ 1,863,413 (2,115,978) (647,441)

Cash flows from investing
activities:
Purchase of property and
equipment................. 2,762,815 (442,604) (194,181)
Purchase of trademark....... (5,000) -- --
Sale (acquisition) of
investments............... (143,850) -- --
Proceeds from sale of
property.................. 1,878,222 -- --
----------- ----------- -----------
Net cash provided
(used) by
investing
activities........ (1,003,443) (442,604) (194,171)

Cash flows from financing
activities:
Loan proceeds............... 4,413,238 1,100,000 500,000
Reduction of loans.......... (3,400,507) (64,087) (57,726)
Net proceeds from issuance
of common stock........... 359,833 281,320 279,493
----------- ----------- -----------
Net cash provided
(used) by
financing
activities........ 1,372,564 1,317,233 721,767
----------- --------- ---------
Net increase (decrease) in
cash........................ 2,202,534 (1,241,349) (119,855)
Cash (deficit) at beginning of
year........................ (1,109,855) 131,494 251,349
----------- --------- ---------
Cash (deficit) at end of
year........................ 1,092,679 $(1,109,855) $ 131,494
=========== ========= =========

Supplement disclosure of cash
flow information:
Interest paid............... 257,725 $ 238,851 $ 207,919
=========== ========= =========
Income taxes paid........... 117,440 $ 31,536 $ 20,487
=========== ========= =========
</TABLE>

See accompanying notes to financial statements and independent auditor's report.

F-6
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO JULY 31, 1998 AND JULY 31, 1999 (AUDITED))

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

ORGANIZATION:

Professional Veterinary Products, Ltd. was incorporated in the State of
Missouri in 1982. The corporation was formed to buy, sell and warehouse
pharmaceuticals and other veterinary related items. The purpose of the
corporation is to act as a wholesale distributor primarily to shareholders.
Shareholders are limited to the ownership of one share of stock and must be a
licensed veterinarian or business entity comprised of licensed veterinarians.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

(a) BASIS OF ACCOUNTING:

The corporation uses the accrual method of accounting for financial
statement and income tax purposes.

(b) CONCENTRATION OF CASH BALANCES:

The Company's cash funds are located in a single financial institution. The
amount on deposit at July 31, 1999, 1998 and 1997 exceeded the $100,000
federally insured limit.

Management considers accounts receivable to be fully collectible,
accordingly, no allowance for doubtful accounts is required.

(d) INVENTORY:

Inventory is valued at the lower of cost or market on the first-in,
first-out basis.

(e) PROPERTY AND EQUIPMENT AND DEPRECIATION:

Property and equipment are stated at cost. For financial reporting purposes
and income tax purposes, the company uses accelerated depreciation methods over
the estimated useful lives of the assets.

(f) CASH AND CASH EQUIVALENTS:

The corporation considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents.

(g) AMORTIZATION:

Organizational costs are being amortized over sixty months on a
straight-line basis.

Financing costs are being amortized over the term of the notes on a
straight-line basis. This amortization is included in interest expense in the
income statement.

The intangible costs are being amortized over fifteen years on a
straight-line basis.

See independent auditor's report.

F-7
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JULY 31, 1998 AND JULY 31, 1999 (AUDITED))

(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
(h) USE OF ESTIMATES:

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

(i) INCOME TAXES:

Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due. The amount of
income taxes paid or payable for a year is determined by applying the provisions
of the enacted tax law to the taxable income for that year.

(2) For the years ended July 31, the Company recognized liabilities for
overcharges on sales in excess of an agreed to profit margin of 5% totaling
$4,889,037 (1999), $3,565,009 (1998), $2,390,451 (1997).

(3) PROPERTY AND EQUIPMENT:

For the years ended July 31, 1999, 1998 and 1997:

<TABLE>
<CAPTION>
BOOK VALUE
ACCUMULATED ----------------------------------------
COST DEPRECIATION 1999 1998 1997
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Land................... $ 953,780 $ -- $ 953,780 $ 15,455 $ 15,455
Buildings.............. 1,684,221 -- 1,684,221 1,683,944 1,546,381
Equipment.............. 2,002,830 1,604,504 398,326 504,877 595,594
------------ ------------ ------------ ------------ ------------
$ 4,640,831 $ 1,604,504 $ 3,036,327 $ 2,204,276 $ 2,157,430
============ ============ ============ ============ ============
</TABLE>

(4) LONG-TERM DEBT:

<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Note payable, bank, 8.25% interest................ -- $ 1,300,507 $ 1,364,594
Less current portion due within one year........ -- 75,418 62,985
----------- ----------- -----------
-- $ 1,225,089 $ 1,301,609
=========== =========== ===========
</TABLE>

(5) COMMITMENTS AND CONTINGENT LIABILITIES--LEASES:

On February 1, 1996, the company entered into a lease with Nebraska Leasing
Services, Inc. for the purpose of leasing a vehicle. The lease minimum rentals
are $431.36 per month for a term of 48 months with a final rental installment of
$11,000. The lease expires February 1, 2000.

On October 16, 1996, the company entered into a lease with IBM Credit
Corporation for the purpose of leasing related computer hardware. The lease
minimum rentals are $7,000 per month. The lease expires October 30, 1999.

See independent auditor's report.

F-8
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

(INFORMATION WITH RESPECT TO JULY 31, 1998 AND JULY 31, 1999 (AUDITED))

(5) COMMITMENTS AND CONTINGENT LIABILITIES--LEASES: (CONTINUED)
On July 28, 1997, the company entered into a lease with IBM Credit
Corporation for the purpose of leasing related computer hardware. The lease
minimum rentals are $6,541 per month. The lease expires July 30, 2002.

On February 4, 1998, the company entered into a lease with Nebraska Leasing
Services, Inc. for the purpose of leasing a vehicle. The lease minimum rentals
are $649.92 per month for a term of 36 months with a final rental installment of
$19,500. The lease expires January 4, 2001.

On February 18, 1998, the company entered into a lease with Nebraska Leasing
Services, Inc. for the purpose of leasing a truck. The lease minimum rentals are
$451.13 per month for a term of 36 months with a final rental installment of
$12,000. The lease expires January 18, 2001.

On August 14, 1998, the Company entered into a lease with IBM Credit
Corporation for the purpose of leasing related computer hardware. The lease
minimum rentals are $3,017 per month for a term of 48 months. The lease expires
August 14, 2002.

Minimum future obligations on operating leases in effect on July 31, 1998
are:

<TABLE>
<CAPTION>
COMPUTER VEHICLE COMPUTER VEHICLE COMPUTER TRUCK
HARDWARE LEASE HARDWARE LEASE HARDWARE LEASE
EXPENSE EXPENSE EXPENSE EXPENSE EXPENSE EXPENSE
---------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended July 31, 2000......... $ 21,000 $ 13,589 $ 78,492 $ 7,799 $ 37,284 $ 5,414
Year ended July 31, 2001......... -- -- 78,492 23,398 37,284 14,707
Year ended July 31, 2002......... -- -- 78,492 -- 37,284 --
---------- --------- ---------- --------- ---------- ----------
$ 21,000 $ 13,589 $ 235,476 $ 31,197 $ 111,852 $ 20,121
========== ========= ========== ========= ========== ==========
</TABLE>

(6) TRANSACTIONS BETWEEN BOARD OF DIRECTORS, KEY EMPLOYEES AND THE COMPANY:

Professional Veterinary Products, Ltd. had sales to the Board of Directors
and key employees for the year ended July 31, 1999 as follows:

<TABLE>
<S> <C>
Members of the Board of Directors................. $ 2,843,718
Key employees..................................... 5,563
-----------
$ 2,849,281
===========
</TABLE>

(7) PROFIT-SHARING AND 401-K RETIREMENT PLANS:

The Company provides a non-contributory profit-sharing plan covering all
full-time employees who qualify as to age and length of service. It has been the
Company's policy to make contributions to the plan as provided annually by the
Board of Directors. The total provision for the contribution to the plan was
$242,038 for 1999, $250,728 for 1998 and $149,326 for 1997.

The Company also provides a contributory 401-K retirement plan covering all
full-time employees who qualify as to age and length of service. It is the
Company's policy to match a maximum 10% employee contribution with a 3%
contribution. The total provision to the plan was $88,849 for 1999, $67,942 for
1998 and $62,745 for 1997.

See independent auditor's report.

F-9
<PAGE>
PROFESSIONAL VETERINARY PRODUCTS, LTD.

SCHEDULE OF OPERATING, GENERAL AND ADMINISTRATIVE EXPENSES

<TABLE>
<CAPTION>
AMOUNT PERCENT
----------------------------------- ----------------------
YEARS ENDED JULY 31, YEARS ENDED JULY 31,
----------------------------------- ----------------------
1999 1998 1997 1999 1998 1997
----------- ---------- ---------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Salaries........................... $ 4,745,347 $4,107,946 $3,200,806 3.88 4.36 3.95
Directors' fees.................... 34,250 30,750 25,000 .03 .03 .03
Annual meeting..................... 44,940 39,582 43,994 .04 .04 .05
Convention and seminars............ 89,557 53,377 26,990 .07 .07 .03
Insurance.......................... 393,077 291,761 219,969 .32 .30 .27
Life Insurance..................... 15,681 15,875 15,422 .01 .02 .02
Office supplies and expense........ 325,345 289,608 328,010 .27 .30 .41
Operating supplies................. 815,023 545,764 431,840 .67 .58 .53
Equipment rent..................... 234,983 192,541 168,989 .19 .20 .21
Telephone.......................... 212,562 155,783 176,354 .17 .17 .22
Utilities.......................... 50,988 49,743 51,861 .04 .05 .06
Accounting fees.................... 33,330 28,770 28,582 .03 .03 .04
Legal fees......................... 94,326 46,524 51,409 .08 .05 .06
Taxes, payroll..................... 316,736 261,996 234,126 .26 .28 .29
Taxes, general..................... 51,397 46,748 37,823 .04 .05 .05
Repairs and maintenance............ 252,345 101,492 66,163 .21 .11 .08
Depreciation....................... 269,760 395,758 380,389 .22 .42 .48
Amortization....................... 15,440 15,134 -- .01 .02 --
Contract labor..................... 23,515 44,903 201,494 .02 .05 .25
Advertising........................ 5,754 7,764 4,161 .01 .01 .01
Postage............................ 51,345 35,447 40,117 .04 .04 .05
Travel and promotion............... 347,062 272,043 237,749 .28 .29 .29
Dues and subscriptions............. 26,014 19,456 19,984 .02 .02 .02
Profit-sharing and pension
contribution..................... 330,887 318,670 212,071 .27 .34 .26
Sales promotion.................... 993,836 936,201 411,938 .81 .99 .51
Marketing services................. -- -- 59,020 -- -- .07
Equipment maintenance.............. 52,227 45,559 42,251 .04 .05 .05
Bad debts.......................... 3,784 -- 13,744 .01 -- .02
Bank fees.......................... 402,980 297,323 212,784 .33 .32 .26
Miscellaneous...................... 134,352 79,394 134,345 .11 .07 .17
----------- ---------- ---------- ------ ------ ------
$10,366,843 $8,725,912 $7,077,385 8.48 9.26 8.74
=========== ========== ========== ====== ====== ======
</TABLE>

See accompanying notes to financial statements and independent auditor's report.

F-10
<PAGE>
EXHIBIT A1
INSTRUCTIONS TO SUBSCRIBERS

Qualified persons wishing to subscribe for one share of Common Stock (the
"Stock"), par value $1.00, of Professional Veterinary Products, Ltd. (the
"Company") are required to complete the documents in this Subscription Booklet.
PLEASE DO NOT REMOVE ANY OF THE DOCUMENTS. An additional copy of the documents
in this Subscription Booklet is included with the Prospectus of the Company
delivered to you.

1. PURCHASER QUESTIONNAIRE. (Exhibit A2) Please provide all information
requested on the Purchaser Questionnaire.

2. SUBSCRIPTION AGREEMENT. (Exhibit A3) Please complete the Subscription
Agreement in the following manner:

a. Complete the appropriate signature page.

b. If the subscriber is a partnership, corporation, or other business
entity the appropriate signature page and acknowledgment in the
Subscription Agreement should be completed. Special procedures are
required for execution and additional documentation may be required
as set forth in the Subscription Agreement.

3. DELIVERY INSTRUCTIONS. After you have completed the Purchaser
Questionnaire and Subscription Agreement, please deliver or mail this entire
Subscription Booklet to:

Professional Veterinary Products, Ltd.
10077 South 134th Street
Omaha, Nebraska 68138
Attn: Jill Meehan

If you have any questions concerning completion of the documentation, please
call Jill Meehan at (402) 331-4440.

A1-1
<PAGE>
EXHIBIT A2

PURCHASER QUESTIONNAIRE

1. The Name of the Practice is: ______________________________________________.

2. The Practice is a: ___ Sole Proprietorship; ___ Partnership; ___ Corporation

3. If the Practice is a Sole Proprietorship, the Doctor's name is: __________.

4. If the Practice is a Partnership, the partners names are: _________________
___________________________________________________________________________.

5. If the Practice is a Partnership, the managing partner with whom
Professional Veterinary Products, Ltd. is to communicate: ________________.

6. If the Practice if a Corporation, the President's name is: _______________.

7. The mailing address of the Practice for correspondence and product delivery
is:

Practice name: _______________________________________
Address: _____________________________________________
City, State Zip Code: ________________________________
Phone Number: ________________________________________
Fax Number: __________________________________________
Federal Employer I.D. Number: ________________________
or Social Security Number: _________________________
Please attach a copy of your Federal D.E.A.
Certificate.

Computer System: Hardware: _______________ Software: ______________
Names of persons placing orders with PVPL: ________________________
___________________________________________________________________
Names of veterinarians (other than partners listed above) in the
practice:

__________________________________________________________________.

8. Bank name and address: _____________________________________________________

Bank phone number: _________________________________________________________

Contact person at the Bank: ________________________________________________

9. Exact name of Individual, Partnership, or Corporation to whom stock
certificate is to be issued: __
___________________________________________________________________________.

A2-1
<PAGE>
EXHIBIT A3

SUBSCRIPTION AGREEMENT

PROFESSIONAL VETERINARY PRODUCTS, LTD.

Professional Veterinary Products, Ltd.
10077 South 134th St.
Omaha, Nebraska 68138

Ladies and Gentlemen:

1. SUBSCRIPTION. Subject to acceptance by the Company, the undersigned
hereby subscribes to purchase one share of Common Stock (the "Stock"), par value
$1.00, indicated below in accordance with the terms of this Agreement, and the
Prospectus of the Company dated October 19, 1999, relating to the Stock.

THIS SUBSCRIPTION MAY BE REJECTED BY THE COMPANY IN ITS SOLE DISCRETION.

2. REPRESENTATIONS AND WARRANTIES. The undersigned represents and warrants
to the Company as follows:

(a) The undersigned has received the Prospectus.

(b) The undersigned is: ____________ an individual licensed
veterinarian; or ____________ any lawful form of business entity established
to deliver veterinary services and/or products in which all medical
decisions are made by licensed veterinarians. (Please check appropriate
status).

3. MISCELLANEOUS.

(a) The undersigned agrees not to transfer or assign this Agreement, or
any of the undersigned's interest herein, and further agrees that the
transfer or assignment of the Stock acquired pursuant hereto shall be made
only in accordance with the Articles of Incorporation and Bylaws of the
Company and all applicable laws.

(b) Notwithstanding any of the representations, warranties,
acknowledgments, or agreements made herein by the undersigned, the
undersigned does not thereby or in any other manner waive any rights granted
to the undersigned under federal or state securities laws.

(c) This Agreement constitutes the entire agreement among the parties
hereto with respect to the subject matter hereof and may be amended only by
a writing executed by all parties.

(d) This Agreement shall be enforced, governed, and construed in all
respects in accordance with the laws of the State of Nebraska without regard
to its conflicts of laws provisions.

(e) Upon request from the Company, the undersigned agrees to provide
such information and to execute and deliver such documents as reasonably may
be necessary to comply with any and all laws and ordinances to which the
Company is subject.

4. SUBSCRIPTION AND METHOD OF PAYMENT. There are three payment plans from
which to choose, please check the appropriate plan. The second and third payment
plans are not available to investors located in Nebraska. The undersigned hereby
subscribes for the Stock as follows:

Plan 1: ____________ One payment for the full $3,000 cost of the share.

Plan 2: ____________ Three installments of $1,000 each, with the second and
third installments due thirty and sixty days after the first installment is
paid.

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<PAGE>
Plan 3: ____________ An initial payment of $500 with the $2,500 balance paid
on a 12 month installment payment schedule with 8% interest. Each month the
Company will send an invoice reflecting the principal and interest of $217.43
due. Payment is due 10 days following the date of such invoice and the Company's
stated finance charge will be assessed for any payments received thereafter.
There is no prepayment penalty.

ALL SUBSCRIPTIONS ARE SUBJECT TO ACCEPTANCE BY THE COMPANY AND MAY BE
REJECTED BY THE COMPANY IN ITS SOLE DISCRETION.

A3-2
<PAGE>
TYPE OF OWNERSHIP
(Check One)

<TABLE>
<S> <C>
Individual (One signature required)
- ------------

Limited Liability Company
- ------------

Corporation
- ------------

Partnership
- ------------

Other--please designate below.
- ------------

------------------------------------------------------------
Please print here the exact name (registration)
investor desires for Stock.
</TABLE>

A3-3
<PAGE>
SIGNATURE PAGE
FOR INDIVIDUAL INVESTORS

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

Signature

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

Social Security Number

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

Print or Type Name

Residence Address:

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

Executed at:

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

City

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

State

this
---------- day of
---------------------------,
-----------.

Mailing Address:

SUBSCRIPTION ACCEPTED:
PROFESSIONAL VETERINARY PRODUCTS, LTD.

By:
-----------------------------------------------
Dr. Lionel L. Reilly, President

Date:
---------------------------------------------

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<PAGE>
SIGNATURE PAGE
FOR PARTNERSHIP, CORPORATE OR OTHER BUSINESS ENTITY INVESTORS

Name of partnership, corporation or other business entity (please print
or type)

By: ______________________________________________________________
(Signature of authorized agent)

Title: ___________________________________________________________
Taxpayer Identification No.: _____________________________________

Address of Principal Partnership,
Corporate or Business Office:

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

Mailing Address, if different:

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

Attention:

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

Executed at ______________ effective this ____ day of
______________, ____.

SUBSCRIPTION ACCEPTED:
PROFESSIONAL VETERINARY PRODUCTS, LTD.

By:
- ----------------------------------------
Dr. Lionel L. Reilly, President

Date:
- --------------------------------------

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