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CORRESP
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corresp

Dr. Lionel L. Reilly

President and Chief Executive Officer

Professional Veterinary Products, Ltd.

10077 South 134th Street

Omaha, NE 68138

May 26, 2005

VIA EDGAR

Mr. Michael Moran

Branch Chief

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

    RE:

    Form 10-K for the year ended July 31, 2004

File No. 0-26326

Dear Mr. Moran:

     In response to the Securities and Exchange Commission’s comment letter dated May 12, 2005,
Professional Veterinary Products, Ltd. (the “Company”) has prepared the following responses to
questions 1 and 2.

Form 10-K for the Year Ended July 31, 2004

Consolidated Balance Sheets, page F-2

    1.

    We note your response to prior comment 2. Topic D-98 states that Rule 5-02.28 of Regulation
S-X provides analogous guidance for equity instruments that are not preferred securities.
Explain why common shares that remain classified in stockholders’ equity that are not within
the scope of SFAS 150 are not presented outside of permanent equity where redemption, for
cash, is outside of your control upon notice from the shareholder. In your response please
provide the number of shares and outstanding amounts for each class of shareholders at July
31, 2004 and revise as appropriate.

     In March 2004, the SEC Observer clarified the SEC staff’s position relating to interaction of
topic D-98 and SFAS 150 for conditionally redeemable preferred shares and analogous guidance for
equity instruments that are not preferred securities. EITF D-98

1

“Classification and Measurement of
Redeemable Securities,” states that if a company issues equity instruments that are conditionally
redeemable, for example, at the holder’s option or upon the occurrence of an uncertain event not
solely within the company’s control, the shares are not within the scope of SFAS 150 because there
is no unconditional obligation to redeem the shares by transferring assets at a specified or
determinable date or upon an event certain to occur. If the uncertain event occurs, the condition
is resolved, or the event becomes certain to occur, then the shares become mandatorily redeemable
under SFAS 150 and would require reclassification to a liability.

     The Company’s shareholders are licensed veterinarians or business entities comprised of
licensed veterinarians. Shareholders may be corporations, single member limited liability
companies, multi member limited liability companies, partnerships, or sole proprietors. Each
shareholder must give the Company written notice of the proposed sale of its single share and
except as provided below, the Company must redeem the share of stock for cost within ninety days of
receiving such notice, at the price the shareholder paid for the share. As noted in the
prospectus, if a significant majority of the shareholders want to sell their shares at the same
time, there is a risk the Company would not have the financial resources to repurchase all
outstanding shares. The redemption is thus conditional upon adequate resources being available.

     It is the unique nature of the Company and its share structure which reinforces the
“conditional” aspect of the possible redemption. As described in the prospectus, and highlighted
in previous correspondence with the SEC, the Company’s shares can only be sold to licensed
veterinarians. The shares are sold for $3,000 and, if redeemed, a shareholder can only receive
$3,000 for the share. There is no market beyond veterinarians; there is no opportunity for
appreciation absent an extraordinary event.1 The Company also has no obligation to pay
interest or similar remuneration on its common stock, and there is no set date of redemption or
payment. Such remuneration and dates are characteristics of preferred shares and debt and not
applicable to the Company’s shares. Investors in preferred shares and debt often focus on income;
ownership of the Company’s shares provide no promise of income but other rights and privileges,
such as discounts on the Company’s products.

     The Company has to make the determination at the time of any requested redemption if adequate
funds are available to repurchase the shares. The Company and its Board, if faced with such a
decision, would act in the best interests of the shareholders. Unlike many other registered
companies, there is no potential to alleviate the need for maintenance of necessary adequate
capital by selling shares on the open market. While each shareholder has the right to request his,
her, and its share be redeemed, the shares will be redeemed only if the Company at any given time
deems it prudent to do so.

     The Company has fully disclosed the nature of the securities. In EITF D-98, the SEC looked to
ASR 268 for the basis of its analogy to preferred securities:

    1

    In the event the Company liquidates, the
shareholders may be entitled under state law to receive their pro rata share of
the proceeds of the liquidation, which may exceed their purchase price, and in
the event of a merger or purchase of substantially all of the Company’s assets,
the shareholders may be entitled to a premium as a result of such ownership.

2

As noted in Accounting Series Release No. 268 (ASR 268), the Commission reasoned
that “there is a significant difference between a security with mandatory
redemption requirements or whose redemption is outside the control of the issuer
and conventional equity capital. The Commission believes that it is necessary to
highlight the future cash obligations attached to this type of security so as to
distinguish it from permanent capital.

     While the presentation requirements outlined in ASR 268 do not apply to instruments within the
scope of Statement 150, the reasoning remains sound in the case of the Company. The Company has
specifically highlighted the future cash obligations attributed to its type of security. In Note
11 to the prospectus under the heading “Stock Redemption”, the Company states:

The Company is required by its Articles of Incorporation to repurchase stock within
90 days of receiving written notice from the shareholder requesting redemption of
their stock. The redemption amount is the original purchase price of the stock
paid by the shareholder. The Company was contingently liable for $5.7 million as
of July 31, 2004.

     At July 31, 2004, the amount and number of shares outstanding for each class of shareholders
were as follows:

    Entity Type

    Number of Shares

    Outstanding Amount

    Corporations

    1,054

    $3.1 million

    Single Member Limited
Liability Companies

    50

    $0.2 million

    Multi-Member Limited
Liability Companies

    44

    $0.1 million

    Partnerships

    138

    $0.4 million

    Sole Proprietorships

    666

    $2.0 million

    Total:

    1,952

    $5.8 million

Consolidated Statements of Stockholders’ Equity, page F-4

    2.

    We note your response to prior comment 3. Please state on the face of the balance sheet or
disclose in a note the amount and number of common shares receivable as of your balance sheet
dates. See Rule 5-02.30 of Regulation S-X.

NOTE 6 – COMMON STOCK ( )

The common shares stock receivable and number subscribed but unissued is $20 thousand and 14 shares
and $119 thousand and 71 shares as of July 31, 2004 and July 31, 2003, respectively.

3

     In connection with responding to the comments, the Company acknowledges:

    •
    The Company is responsible for the adequacy and accuracy of the disclosure in the
filing.

    •
    Staff comments or changes to disclosure in response to staff comments do not
foreclose the Commission from taking any action with respect to the filing.

    •
    The Company may not assert staff comments as a defense in any proceeding initiated
by the Commission or any person under the federal securities laws of the United
States.

     Please feel free to contact Pam Mittlieder at (402) 829-5362 if you have any additional
questions.

    Respectfully Submitted,

    /s/  Dr. Lionel L. Reilly

    Dr. Lionel L. Reilly

    President and Chief Executive Officer

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