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Abaxis, Inc. (NASDAQ:ABAX)

F3Q09 (Qtr End 12/31/08) Earnings Call Transcript

January 29, 2009 4:15 pm ET

Executives

Joe Dorame – Investor Relations, Lytham Partners

Clinton H. Severson – Chairman, President and Chief Executive Officer

Alberto R. Santa Ines – Chief Financial Officer and Vice President of Finance

Martin Mulroy – Vice President, Veterinary, Sales and Marketing of North America

Christopher Bernard – Vice President, Sales and Marketing, Domestic Medical Market,

Donald Wood – Vice President, Operations

Analysts

James Sidoti – Sidoti & Company.

Ross Taylor – C.L. King & Associates, Inc.

Neal Goldman – Goldman Capital Management

David Clair – Piper Jaffray

William Gibson – Nollenberger Capital

Steve Kruger – Foresight Investing

Kevin [Loria] – Decade Capital Management

Scott Gleason – Stephens Inc.

Tilton Gardner – Mutual Security

Roger Goodspeed – Private Investor

David Zorub – Hawkshaw Capital Management

[Albert Alman] – Private Investor.

Operator

Good afternoon. My name is Stephanie and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Abaxis third quarter 2009 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator instructions) Thank you. Mr. Dorame. You may begin your conference.

Joe Dorame

Good afternoon. Thanks for joining us today to review the financial results for Abaxis for the third quarter fiscal year 2009 ended December 31, 2008. As Stephanie indicated, my name is Joe Dorame. I'm with Lytham Partners and we are the financial relations consulting firm for Abaxis.

With us today representing the company are Mr. Clint Severson, Chairman and Chief Executive Officer; Mr. Al Santa Ines, Chief Financial Officer; Mr. Martin Mulroy, Vice President, Veterinary, Sales and Marketing of North America, Mr. Christopher Bernard, Vice President, Sales and Marketing, Domestic Medical Market, and Mr. Donald Wood, Vice President of Operations:

At the conclusion of today's prepared remarks we will open the call for Q&A session.

Before we begin, I would like to remind everyone this conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Abaxis claims the protection of the Safe Harbor for forward-looking statements contained in the Reform Act.

These forward-looking statements are often characterized by the terms may, believe, projects, expects, or anticipates, and do not reflect historical facts. Specific forward-looking statements contained in this conference call maybe affected by risks and uncertainties including, but not limited to, those risks related to the market acceptance of the company's products and the continuing development of its products, required United States Food and Drug Administration clearance and other governmental approvals, risks associated with manufacturing and distributing its products on a commercial scale, free of defects, risks related to the introduction of new instruments manufactured by third parties, risks associated with entering the human diagnostic market on a larger scale, risks related to the protection of the company's intellectual property or claims of infringement of intellectual property asserted by third parties, risks related to the condition of the United States economy, risks involved in carrying of inventory, and other risks detailed from time-to-time in the company's periodic reports filed with the United States Securities and Exchange Commission.

Forward-looking statements speak only as of the date of statements were made. Abaxis does not undertake and specifically disclaims any obligation to update any forward-looking statements.

With that having been said, I would like to turn the call over to Mr. Clint Severson, Chairman and Chief Executive Officer of Abaxis. Clint?

Clinton Severson

Thank you Joe, and good afternoon, everybody. I will review the accomplishments and the challenges for Q3 FY ’09 and some of our goals for Q4 and then after my short presentation, I’ll ask Martin Mulroy, our VP of North American Vet Sales and Marketing, and Chris Bernard, our VP of North American Medical Sales and Marketing, to give an update on their respective businesses. We’ll then take questions.

Now that we are dealing with a difficult operating environment, we had two significant challenges in Q3 that negatively affected our financial performance. The first was a one-time expense of about $500,000 for due diligence tied to a potential acquisition we eventually did not complete. The second was a vet disc order for about $900,000 that is shipped by container to one of our large European distributors expected in January but did not arrive until very early January. Now despite these challenges, we grew our business year-over-year by about 5%, finishing the quarter at 27 million.

Chemistry instrument sales grew in both the vet and medical side. Total instruments shipped finished at 886 units, up six units versus a much better operating environment Q3 of last year.

VetScan instrument sales for Q3 at 403 units were up 18%, or 62 instruments versus 341 sold in Q3 '08 and up 42 units over last quarter sales of 361.

Piccolo instrument sales for Q3 totaled 242 units, a new record, but up only four units versus Q3 last year. Quarter-over-quarter Piccolo instrument sales were up 45% or 75 units. Hematology instrument sales at 241 units were up 17% or 35 instruments quarter-over-quarter, but down year-over-year by about 60 units.

Total disc sales of $1.3 million units were up 7% year-over-year. Medical disc sales of 467,288 discs, also a new record, or up 48% versus Q3 last year. Quarter-over-quarter medical disc sales were up about 8%. Fewer business to the Vet for routine care and the delay in the European container, led to fewer disc sales in Q3, which finished at 832,663 units, down about 63,000 units, or about 7% compared to Q3 last year.

In dollars, Vet disc sales finished of 11,340,000 and was flat versus Q3 last year. Total Vet sales of $18 million were flat year-over-year but medical sales of $7.2 million, or up 19% year-over-year and quarter-on-quarter. U.S. sales totaled $22.9 million, up about 6% while international sales finished at $4.1 million, up about 1% versus Q3 last year. European sales of $3 million were down a 11% mostly due to the delay in the German container, while Pac rim sales of $1.1 million were up 61% due to higher sales in Japan. Government sales of $1.2 million were up 32% year-over-year and 7% quarter-over-quarter.

With the management now focused on this large opportunity we should see continued growth here. Domestic sales made up 85% of the total sales while international sales made up 15%. This compares to 84:16 Q3, last year and 81:19 last quarter. Capital sales made up 30% of total sales while consumable sales made up 70%. This compares to 33:67 Q3, last year and 25:75 last quarter.

Medical sales were 27% of total sales Vet sales 66% and others 7%. This compares to 23:77 Q3, last year and 22:72:6 last quarter.

Disc average selling price at $11.97 was up $0.21 versus the same period last year, while costs were down $0.27, a new record low of $4.07. Gross margins on discs finished at 66% about the same as last quarter, but up 300 basis points versus Q3 last year.

Improvements in the factory led to total gross margin increasing 300 basis points, finishing at 56% versus 53% last year. Quarter-over-quarter gross margins improved 100 basis points.

Total gross profit of $15.1 million, was up a 11% year-over-year and down slightly above 1% quarter-over-quarter due to the mix of higher instrument sales in Q3.

On the operating side, as I mentioned before, we spent an additional $500,000 for due diligence on an acquisition we never completed, so our admin expenses were higher than normal finishing at $2.2 million, or 8.3% of sales. This compares to 6.1% of sales Q3 last year and 7% of sales last quarter.

Total operating expenses of $10.3 million, or 38% of sales were up from 36% of sales Q3 last year and flat over last quarter. R&D expenses of $2 million, or 7.6% of sales were up from 6.3% of sales year-over-year and flat quarter-over-quarter.

Sales and marketing expenses at $6.1 million, or 22.5% of sales were down over Q3 last year’s 23.6% of sales and Q2 '09 of 23.5% of sales.

Good expense control and higher gross margins led to a 9% increase in operating earnings year-over-year, which finished at $4.8 million or about 18% of sales. Excluding the one-time 500,000 in due diligence expenses, operating income would have been up 21%.

Net earnings of $3.4 million, or $0.15 a share, were up one penny versus Q3 last year. Excluding the one-time $500,000 in due diligence expenses, net earnings would have been about $0.17 a share.

Other highlights for Q3 of ’09 includes securing the IP for the lateral flow technology and launching our rapid canine hormone test. In addition we made a deal with SMB a Danish company on a new coag instrument that was well received at the NAB seashore earlier this month.

From the R&D side of the business we’ve received CLIA waivers for phosphorus and CK, which went into our renal and cardiovascular panel, the MetLyte 8. The goal is to DBIL and magnesium recalibrated this quarter and submitted in late March or early April.

Our C-reactive protein test is in clinical trials in MI University and when completed we will submit the 510(k). Our heartworm on the rotors in clinical trials at three sites and also should be completed in about 30 days. Once this is done they will be submitted to the USDA. So, with that I will turn the call over to Martin. Martin?

Martin Mulroy

Thanks Clint. Good afternoon everybody. In North American Veterinary business was up only 2% year-over-year and 1% quarter-over-quarter still contributed record revenue of $15.1 million in Q3 FY '09. Year-over-year sales in units of chemistry instruments were up 13% having sold 285 instruments in Q3 '09 versus 252 units in Q3 '08. Chemistry instrument revenue was up 16% year-over-year, quarter-over-quarter chemistry instruments were up 7% in units and the associated revenue up 6%.

Hematology instruments were considerably down both in units and revenues year-over-year, 20% and 24% respectively, was up quarter-over-quarter 23% units and 19% in revenue. Our consumable business was down 3% quarter-over-quarter, was up 6% year-over-year, our direct consumable business that is our research business, national accounts and areas to which we have no or very limited distribution, last quarter generated $2.5 million in revenue, up 17% quarter-over-quarter and is up 109% year-over-year.

At the North American Veterinary Conference last week we launched two new products as Clint mentioned. They are VetScan Canine Heartworm Rapid Diagnostic Test, which we anticipate to be the first in a full line of lateral flow test for infectious diseases. And the VetScan Vspro, an instrument for measuring coagulation parameters in-clinic and in minutes. The rapid assay we are shipping now and the coagulation instrument we are taking orders for and we anticipate shipping in six to eight weeks.

While registration slips show we understand it’s down 12% and the traffic in the exhibit areas was in my opinion down considerably more. Both new products were very well received and garnered a lot of attention for the practice owners in attendance. Also in January, we held our National Sales Meeting where we intensely trained our teams on the new products and using our core economic strengths across the entire product portfolio to our advantage. So, a key goal in the current quarter is same as it was for last quarter. Continued emphasis and focus by our marketing team and sales force on the economic advantages and efficiencies provided by the Abaxis laboratory relative to any alterative.

The operating costs of the Abaxis VetScan instruments are significantly lower in competition and clearly more efficient than using a commercial lab. While our Canine Heartworm Test is aggressively priced to take market share fast.

And with that I will turn it back over to Clint.

Clinton Severson

Great, thank you Martin. Next Chris Bernard. Chris.

Christopher Bernard

Thanks. Good afternoon folks. U.S. medical sales minus the military were up 10% at $4.66 million year-over-year and up 3% quarter-over-quarter. U.S. medical disc sales minus the military were up 51% at 357,000 versus 235,000 a year ago, and flat quarter-over-quarter. In this economy of declining workforce and office business, we continue to focus on treatment centers paid dividends this past quarter.

We closed 47 Piccolo's at Urgent Care walk-in clinics and added 15 oncology centers to the customer list. This compares to only 18 total placements in the FP/GP internal medicine arena. The average daily rotor usage amongst all customers remained steady at 5.2 panels per day.

In the U.S., we sold a 136 Piccolo's at total placement of a 144 sets with pistons but the selectiveness of the capital spending at the office level, we continue to explore alternative acquisition programs for the offices while maintaining our capital revenue growth.

This past Q3 historically a very strong capital quarter, so a slow down primarily attributed to software labs on this year from PSM. Top rep sold 15, 14 and 13 units respectively. We currently have 14 and 15 territories are currently filled.

The lab for evaluations concluded near the end of Q3. We will be meeting with them in the coming weeks to discuss next steps. In the health-screening sector we've commitments from industrial pilots, two large health-screening organizations, also evaluation of two occupational screening sites. Our goal is to conclude all of these pilots and evaluations by the end of the Q4.

Marketing strategies for Q4 includes, by the end of Q4 we would have touched via marketing all the pertinent officers from the national CLIA list, selling in the neighborhood of 170,000 sites.

We'll continue to target all levels of treatment centers, oncology, urgent care, cardiology and pediatric. Overall we will turn off our direct marketing efforts two fold in an effort to identify physicians in our offices, who’re still looking to purchase in the near-term.

Lastly, we've completed materials for full educational campaign aimed at occupational health-screening companies, employers and employees. Initial feedback has been very positive from the screeners.

Q4 will be transitional quarter for us, as we compete for the reduced capital spending dollars with other manufacturers. The key will be our ability to customize pricing and programs that mitigate the risk and commitment concerns that are increasing at the office level. Sales force has been given a clear direction and now will provide flexibility solutions to new prospects of the circle back to the accounts that have been on the sideline waiting for the economy to change.

With that I'll pass it back to Clint.

Clinton Severson

Great, and thank you Chris. With those comments concluded we are open for questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from the line of James Sidoti with Sidoti and Company.

James Sidoti – Sidoti & Co.

Clint can you hear me?

Clinton Severson

Yep.

James Sidoti – Sidoti & Co.

Can you just clarify this German order, this $900,000 order, was this something that you thought was going to come in the third quarter, but because of shipping delay it’s got pushed back?

Clinton Severson

Yeah, so what you had here is a situation where in our Q3 in past periods, we would get the container orders sometime in December and ship at the same month. And when the forecast was done in October it was then there like it is then there every year. And but the order didn’t come in until early January instead of late December. So, it’s going to ship this quarter at the last quarter. So, clearly the distributor felt that he had enough for couple of extra days and he didn’t want the inventory on his books, he didn't want to pay the extra money and so it ships this quarter rather than last quarter.

James Sidoti – Sidoti & Co.

So sure you would expect the fourth quarter then to be a little bit stronger in Germany than it traditional is?

Clinton Severson

We would expect that yes.

James Sidoti – Sidoti & Co.

Okay, all right, and then on the Vet side, I think Martin said the Vet chemistry instruments were up 13% is that right?

Clinton Severson

Yes.

James Sidoti – Sidoti & Co.

Okay, so this is part of the third quarter where there has been a more comprehensive well out of catalyst. It sounds like you're really not seeing much in your effect from your customers. Are you hearing anything on catalyst?

Clinton Severson

I believe its still a very, very controlled rollout. No, we’re seeing the review in clinics.

James Sidoti – Sidoti & Co.

With 13% growth in this economy, I can’t imagine that it’s having a lot of impact on your business?

Clinton Severson

Yep, and we’ve got 50 reps out there. Cost on everyday in the clinics and seven field sales managers and we can’t find them.

James Sidoti – Sidoti & Co.

And you said Marty the Heartworm Test had already started to ship?

Martin Mulroy

Heartworm is shipping yes.

James Sidoti – Sidoti & Co.

Can you tell us what the pricing is?

Martin Mulroy

$4 a test, no minimum.

James Sidoti – Sidoti & Co.

No, minimums. Okay

Clinton Severson

In other words, the competitor is in order to get this type of pricing, there is load in deals and significant commitments.

James Sidoti – Sidoti & Co.

Right, I understand. And then on the medical side, Chris I think what you said this sales ex-military were up 51%?

Christopher Bernard

Correct year-over-year.

James Sidoti – Sidoti & Co.

That’s do you have any explanation on things that are stronger than the previous quarters?

Clinton Severson

Yeah, I mean certainly Q3 historically a strong capital quarter for us and the reagent business is a little bit slower because of the holiday. So we have our distributors who traditionally have been on 30-day standing orders, in fact, during Thanksgiving and Christmas and usually lose a week of orders in Q3. We have a couple of our distributors making adjustments to their ordering patterns as they move to larger volumes and look at alternatively the shipping the product versus through the air versus a refrigerated truck. I think a closer look at the volumes they start entertaining quarterly shipments as opposed to monthly shipments. So we had saw a little bit of that in Q3. Historically Q4 is a pretty strong disc quarter for us we said in last few year.

James Sidoti – Sidoti & Co.

Okay, and then in general on capital equipment it seems like across the board, hospitals and officers are pushing off any kind of capital equipment purchases, and its with $75 million of cash, are there new ways you can come with to finance the units - get more units for you quickly?

Clinton Severson

Yeah certainly, You know two different sectors certainly the hospital market and heavily driven by budgetary cycles. If we get to the physician level, the physician office level, what you're really looking at is that the commitment part. We are looking at a five-year lease, which is not to purchase outright but 95% transitions lease. So certainly the absolute cost of the capital is the discussion point. I would say that the challenge has more been with the lease terms going out five years. So, we are looking at programs direct as well to distribution. They help mitigate some of that concern or risk as it pertains to the term.

James Sidoti – Sidoti & Company

Okay. Then my last questions have come on the size of the sales force. Chris, where are you know?

Christopher Bernard

15 territories 14 of them are currently filled. 15th one will be filled by next Thursday.

James Sidoti – Sidoti & Company

Okay. Thank you.

Christopher Bernard

Thank you.

Operator

Your next question comes from the line of Ross Taylor with C.L. King.

Ross Taylor – C.L. King & Associates, Inc.

I had a couple of questions. I don’t know if you can give any color or commentary about how you think the veterinary market in the U.S. is performing versus Europe and can you give any detail on what your U.S. veterinary rotor shipments were compared to last year?

Christopher Bernard

Yeah. So clearly in the veterinary market you are seeing – your routine visit to the West. So when the economy is slow and people are looking at controlling our discretionary spending and they lose their job bringing the pattern for a routine visit, when he is not sick, is something that, you’re seeing last. On the other side of the coin, if you look at the advantageous of switching from a lab or competitive instrument to a VetScan, we can save a month. So the goal here in this difficult and operating environment here is to focus on having new machines. So, in Q3 '09 we sold 696,331 Vet rotors in the U.S. and in dollars that was about let see, $9.9 million. In Q3 '08, we sold 772,940 rotors or discs and the revenue was $9.358 million, or $9.359 million so in dollars that was up.

Ross Taylor – C.L. King & Associates, Inc.

Okay. I’m just trying to do the math real quick. I guess in percentage terms and it looks like the rotors where down pretty substantially in the U.S.?

Martin Mulroy

Okay, well in dollars they were up, and units were down little bit.

Ross Taylor – C.L. King & Associates, Inc.

Okay, maybe just couple other questions. In terms of the hematology units, I mean where do you think that's going to kind of level out in terms of unit placements on an annual basis?

Clinton Severson

The capital equipment in this environment is difficult to forecast. We’ve got a very good instrument that performs well, reliable easy to use but at a very low cost per test. But with the economic environment as it is I’m not prepared to give guidance on that.

Christopher Bernard

I would say somewhere between 900 and 1100 units on a yearly basis.

Ross Taylor – C.L. King & Associates, Inc.

All right, okay. And last question. I don‘t know if you can give any sort of rough guidance or milestones in terms of what you need to accomplish before the CRP test gets regulatory approval?

Clinton Severson

Yeah, so the clinical trial means to be completed and then will be submitted to the FDA for 510(k) clearance, and probably April we’ll do our European, Asian launch, which is our international launch where the high demand for the product is and we’ll probably do the U.S launch after 510(k) is cleared, which is probably March – I’m sorry May or June.

Ross Taylor - C.L. King & Associates, Inc.

Okay, all right. That’s all my questions. Thank you.

Clinton Severson

Thanks, welcome.

Operator

Your next question comes from the line of Neal Goldman with Goldman Capital Management.

Neal Goldman – Goldman Capital Management

Hi guys. On the German shipment over the $700,000, $900,000 and so the profitability would have been somewhere in the $600 plus range?

Christopher Bernard

The margin on the rotors last quarter was 66%.

Neal Goldman – Goldman Capital Management

So close to 600,000, which is another $0.02 a share that you would have had in this quarter, which will be deferred to this current quarter that were in.

Christopher Bernard

That’s right.

Neal Goldman – Goldman Capital Management

Okay, with $75 million in cash, while I assume this is the end of the quarter we did the deal on the lateral flow right, so we have that 70 million?

Christopher Bernard

About, yes.

Neal Goldman – Goldman Capital Management

Why are we aggressively buying back stock at this point?

Christopher Bernard

Well we had a discussion with the Board. Yesterday we had our Board meeting and they have agreed to think about it, and get back to me. So, we had a debate pluses or minuses and yeah.

Neal Goldman – Goldman Capital Management

Okay. Thank you.

Christopher Bernard

Thank you.

Operator

Your next question comes from the line of David Clair with Piper Jaffray.

David Clair – Piper Jaffray

Yeah, hi guys, how are you doing?

Christopher Bernard

Good David.

David Clair – Piper Jaffray

Yeah just a quick question I know only a month into the quarter here but can you give us any color how things are tracking? So I mean just with the economy and every time I mean January-to-January, any kind of color you can give there?

Christopher Bernard

Right. So, one month doesn’t really spell out of a quarter, but I can say that so far when you look at the bookings we've had in January, it's pretty much on track with what we expect, and we would expect a better quarter than last quarter. But you never know because more than 50% of the business comes in the last month of the quarter. So, but so far I think we look fine.

David Clair – Piper Jaffray

Okay, and Dan, did you tell us what the particular orders from the government where?

Donald Wood

Yeah

David Clair – Piper Jaffray

In the quarter?

Donald Wood

I can. 49.

David Clair – Piper Jaffray

Okay. And Dan can you let’s us know what’s the foreign exchange impact was in the quarter?

Donald Wood

It’s not significant because most of our sales in Europe dominated in dollars.

David Clair – Piper Jaffray

But Germany pays in euro right?

Donald Wood

No, last quarter they are buying in U.S. dollars. 80% of my customers are in U.S. dollars.

David Clair – Piper Jaffray

Okay. All right and then just on the M&A front, I mean it sounds like that might be something you guys might think about doing with your cash? What can we think about there? Are there any areas of the business that you want to beef up?

Christopher Bernard

Well we get two deals on the Vet side last quarter, so we secured the intellectual property for the lateral flow and did an OEM deal with a company in Texas to manufacture our rapid test.

David Clair – Piper Jaffray

Yep.

Christopher Bernard

So that took a lot of time to negotiate and get all the specs in. We launched the product really fast. Then the second deal we did in the quarter is with a company called SMB in Denmark and they do the coag. And clearly if the coag machine is that successful, the indications, of course they are very early indications. There is certainly any potential that should they come up for sale we might be interested in buying that. Now on the medical side of the business we are focused on moving Piccolo from a couple of 100 a quarter to a 1000 a quarter and that takes the full, yeah effort and energy of the team here to do that. So, on the medical side we're not going to look at acquiring anything. On the Vet side if another opportunistic deal comes along we'll take a look.

David Clair – Piper Jaffray

Okay. And then just one more question. Do you get the feeling that your distributors are running at lower volumes here or any kind insight into distributor levels?

Christopher Bernard

So what happens in an economy like this, when money is tight the banks are squeezing everybody, your distributors do not have the kind of purchasing power that they have in normal times. And so when it comes to putting in an order for $900,000 or $1 million or whatever they sometimes can secure all the funds on a timely basis, so they sometimes have to wait. And so what happens is the inventory levels can run much lower in tough economic times than in normal times and I think that we are seeing that, we were seeing it worldwide, and I think that and you deal with it.

David Clair – Piper Jaffray

Okay, thanks a lot guys.

Christopher Bernard

Thank you.

Operator

Your next question comes from the line of Jonathan Block with SunTrust.

Jonathan Block – SunTrust Robinson Humphrey

Hi guys good afternoon.

Christopher Bernard

Hi Jonathan.

Jonathan Block – SunTrust Robinson Humphrey

Maybe just three or four, Chris if I could start with you the Piccolo placement seem pretty solid. I didn’t get a revenue number. Just curious if you held the price, I know you talked a little bit about it last quarter on capitulating to get M&A - the whole price or was there any concession there?

Christopher Bernard

For the most part on the new Piccolo xpress is the new customers we helped price on it.

Jonathan Block – SunTrust Robinson Humphrey

Okay so that would be 15,000 less than about 12,000 at the door?

Christopher Bernard

Roughly correct.

Jonathan Block – SunTrust Robinson Humphrey

Okay. And then Kaiser or Labcorp any sort of an update there I know there were some pretty high profile placements last quarter. Have they reached out to you? Any feedback?

Martin Mulroy

Yeah. Some actually headed out to Research Triangle Park next week. I mean the Labcorp, have started, if we've phone a conference call discussions with Kaiser / Broadlane. Broadlaane is there GPO. If you will service that works hand-in-hand with Kaiser for a purchasing standpoint.

Jonathan Block – SunTrust Robinson Humphrey

Okay, okay and then maybe just one more on the medical side. Abbott had a press release maybe was a couple of weeks ago alluding to some I think they might call them cartridges. I'm not sure but. I don’t know if they actually had other analytes waived but they reconfigured some cartridges. Just would love your thoughts there. Are they getting more active? Are you seeing them out in the marketplace? And the way that they reconfigure those cartridges, where would they likely get more aggressive? In other words what types of the submarkets?

Martin Mulroy

So, the recent Abbott approvals is what they would call lock over. So, they had certain to analytes because the way they submit to the FDA for approval, they had certain analyte on certain cartridges that were waived, which did not necessarily mean that they were waived on the other cartridges. So, they have to resubmit those separate cartridges even though the particular analytes may have been previously waived. So, that was more of a walkover. Those cartridges that are now waived really don’t play anymore of a role in the sectors that were called on namely decision off the labs, primary care family practice than they did before.

Jonathan Block – SunTrust Robinson Humphrey

Okay. And then Martin just jumping over to the Vet side, first question would just be pockets of weakness. Did anything standout I mean we’ve been looking into what could be the factors are you seeing areas into the housing markets are areas with higher unemployment, where you are facing more headwinds than other parts of the U.S.?

Martin Mulroy

Now I think it's pretty much across the Board. The rural veterinarian is affected with some economic concerns and tightening credits as much as the urban clinic.

Jonathan Block – SunTrust Robinson Humphrey

Okay, maybe one last one guys. Clint the heartworm open the door and get to the heartworm market. But then ideally further down the road would be the multi analyte test, so maybe two-part question. One what you got from maybe in the lateral flow? Does that have the ability to do multi analyte testing and then if so, what sort of timeframe do you think you can possibly be in that market?

Martin Mulroy

Okay. So you never know whether you can do it until it’s done. But we believe we can do it, and the first step in this process is introducing the heartworm to those accounts that don’t use the multiple ones. That’s the first step get a firm foothold there. And then adding some of the other rapid test that also have a significant need out there the parvo virus and feline leukemia, and there are some other rapid tests that aren’t infectious diseases that we believe there is a good market as well. And then adding the other infectious disease to the heartworm, so that’s kind of the priorities.

Jonathan Block – SunTrust Robinson Humphrey

Okay. And of course I got to slip one last one in there. Just on that 900,000 consumable that you alluded to I think you said your 66% gross margin. Just I might have missed my model correctly someone has got to get a sales commission on that right?

Martin Mulroy

No, that’s got no commission on that.

Jonathan Block – SunTrust Robinson Humphrey

It just goes right up the door to 66% gross margin.

Martin Mulroy

It does.

Jonathan Block – SunTrust Robinson Humphrey

Okay. Great, thank guys.

Martin Mulroy

Thank you.

Operator

Your next comes from the line of Bill Gibson with Nollenberger.

William Gibson – Nollenberger Capital

Thank you. My questions relate to the medical market and Clint you talked about trying to go from 200 Piccolo placements a quarter to a 1000 and do you need the last two CLIA waivers to get there or now that you got most of the test that would be done in a doctor’s office or in a urgent-care center completed? Is that what you need to drive the sales?

Clinton Severson

Okay, so the direct bilirubin is mostly for pediatric patients, so that one market segment with that test mostly newborn babies who probably don’t CLIA waiver is probably not an issue. The magnesium we don’t even sell on a CLIA waiver family, so that’s not an issue at all.

William Gibson – Nollenberger Capital

Okay. And would you refer to on the leasing side of it having giving over the doctors’ objection to signing the five-year lease. How do you round that say just turn that into a shorter-term lease or maybe Chris wants to answer that?

Clinton Severson

Well, I will answer it then I’ll turn it over to Chris, for his comments. There is many way to doing that. You can rent that for instance. So a doctor could rent this. You can do a shorter-term lease, where doctors participate so the doctor feels that he can only sign up for year because he doesn’t want to take the risk. It is not working out in his practice that doctors can take part in that risk. You can give it to period of time. No charge you can do that. You can tie rental into the price of the rotor is another way of doing that or the disc, so there is multiple ways. Chris you want to comment.

Christopher Bernard

Certainly that the flexibility is looking at these opportunity more from a drug basis is higher than in some cases weren’t distributions, so that what we’re looking at currently.

William Gibson – Nollenberger Capital

Okay, good thanks Chris.

Christopher Bernard

Thank you.

Operator

(Operator Instructions) Your next question comes from the line of Steve Kruger with Foresight Investing

Steve Kruger – Foresight Investing

Hi, Clint.

Clinton Severson

Hi Steve it's been a long talk.

Steve Kruger – Foresight Investing

It has but I've been more – I've following you continuing to do a great job.

Clinton Severson

Thank you.

Steve Kruger – Foresight Investing

Clint, would you say that the medical market softness is due primarily to the difficulty the doctors are having getting financing that they would want to purchase but cant get the financing or would is it more because the doctors just afraid to make any commitment at all or not even bothering to acquire by the availability of financing?

Clinton Severson

Okay. So I'll give you my comments and I will turn it over to Chris for his. Fundamentally, when we go into sell Piccolo we need present it as the type of product that allow us position to be more efficient, make more money, do less work and have a happier customer. And we have some positions that say well how much, and well $15,000 for the machine and about $10 for the disc and they say oh, is that all where do I sign. Let me have others that say wait a minute, if I'm going to give you $15,000 for a machine. I need to know how much I’m going to get back and I need to no pressure. Well of course the reimbursement as a wide range and well we can get them an estimate of what we think it would be there is no way we can guarantee at until you said that research running themselves. So, some of those strokes they what you know what I am not willing to take that risk. So, our sales guide moves on to the next deal. And so far us to capture, yeah, our sells machines to quarter versus a couple of 100 we need to sell these guys. So, Abaxis needs to identify how you will get short-term risk. So, that’s what Chris and his team are doing this quarter.

Steve Kruger – Foresight Investing

They took their client tools to do that, now financing credit, - no doubt about it. And what’s you have the credits score that’s give about 600 and some there are not going to finance to you. And we do see peoples are credit score below that and get – get financing on that – but I will turn it over to Chris and he can comment.

Clinton Severson

So, certainly since over the last 20 years used to be - and pre secured on need so.

Christopher Bernard

Clint, makes to good point and we are certainly seen in credit challenges and then that tell me that credit as they just make speak to they don’t have been at credit for long period of time, that certainly in the bank become a little bit tighter on that. The flexibility peace certainly this is not a one side to 12 market because of reimbursement and in some cases because of distributions so when you add in trying what I would like a square take it around whole sometimes with all of these sectors then we practice instruments and oncology, urgent care buying for different reasons or warning to buy for different reason. It’s got to be able to put it picking OEM there to meet their needs financially.

Steve Kruger – Foresight Investing

Most avoid you have just explained you would answer the same way even in the decent economy.

Christopher Bernard

Yeah.

Steve Kruger – Foresight Investing

And so and yet here you are saying that the – so are you saying that the economy is not really having that big in effect on the demand for the Piccolo at this point and it’s more that they still haven’t figured out to way to make the value proposition dramatically more attractive and you are going from 200 a quarter 1000 in a quarter is not going be couple of little steps here and there again are clearly this some major hurdle you’ve got over and it doesn’t sound like the economic softness, it’s sound like it’s something more secular.

Clinton Severson

So I will comment now and give it back to Chris. When the economy is tough, people are more risk adverse. So the number of people let say wait a minute I am not going to do any think until I know what I am going to get is probably higher in a slower economy, net in a strong economy.

Steve Kruger – Foresight Investing

Okay, you are saying that lot of those people aren't even get to the point of you acquiring about financing they just not going to take the risk at all right now?

Clinton Severson

Right but what happens is and if you look at our growth you can see it that when you add a Piccolo you are more efficient. You make more money you have happy your customer and to less work. So that’s all right in line with their economy if you had that economy you won all those things.

Steve Kruger – Foresight Investing

Yeah well you want negative economy – that economy.

Clinton Severson

Yes, right you want it but even more into that economy so the challenge is hardly I am mitigate that short-term with the customer really know that is true or not. It’s not going to know so Chris.

Christopher Bernard

All good points I think certainly its very similar between a good and bad and get the difference right now as that that the once we do get to the lease inquires the lot more checks and balances going on today then perhaps in the past so the dark blue fairly happy break and even are making a few hundred dollars among as taken a harder look at the risk involve with that for patients and force. So they are taken a harder look in all different stages of the sales spots us and even with accounts where we find program in very low cost about the capital and I can tell you the long-term reimbursement picture or the reagent is always going to be a question, here in respect to what they pay for the instrument. So, just more tightened right now in this product.

Steve Kruger – Foresight Investing

What about the amount of traction that you are getting from having pretty much everything clear way to this point, is that – with that kind of magic bullet that you expected to generate a big leap forward in the demand or can you comment on whether the traction you're getting from clear wave status is meeting your expectations are not?

Clinton Severson

Certainly the expanded menu has expanded the universe of opportunities fight for. So if you look the CMP and the Lipid are the number one and number two test order in the United States every single day roughly about 60 to 65% of we ship on a monthly basis. So, those are the two magical panels or rotors that most of the physicians will run the other panels become very specifically specific.

Steve Kruger – Foresight Investing

Yeah.

Clinton Severson

Liver Panels, Renal Panels, Gen Chem 13 for Urgent Care. So those have became as I mentioned 47 Urgent Care walk-in clinics this past quarter, the Gen Chem 13 panel with NOI side has become a very special rotor for that particular sector.

Steve Kruger – Foresight Investing

Right. So, if you get the clear way status on the blood about our mainstream with panels and yet. So universe of opportunities you've said has increased by 54 that the demand they doesn’t increase very much at all, with the disconnect?

Clinton Severson

It’s a disconnect he got two things that are going to drive sales. One is market coverage, the more people you have out there – there is a limit that how many what instruments one person can sell, install call back to make sure everything is work to well and they are happy.

Steve Kruger – Foresight Investing

Yeah.

Clinton Severson

So market coverage is one; the second one how do you mitigate at short term risks for that and at least 30% of potential customers, you’re going to call on maybe more in some territories so, that when you make a sales call in – demo, you’ve got a tools with your bag I have to close the sale. Because you don’t want to scale up your sales force from 15 people to a 100 people if you can get a pretty high closed ratio.

Steve Kruger – Foresight Investing

Yeah.

Clinton Severson

So what Chris has work it on right now are those tools. Now once he has those tools in place and we can consistently get some more between 10 and 15 Piccolo’s per RevPAR quarter, then you going to scale or up?

Clinton Severson

Okay, then when your scale it up, you are going to do more demo, see more people solve more problems, sell more machines.

Steve Kruger – Foresight Investing

Though Clint I hear you suggesting that the time for seeing a fairly significant ramp in the Piccolo sales force is an not too far, obvious for the future?

Clinton Severson

Soon as we figure out, this is mitigating short-term risk.

Christopher Bernard

What they are test them make sure they work then we scale it up.

Steve Kruger – Foresight Investing

What kind of vision do you have for the size of the Piccolo sales force for two, three, four years?

Christopher Bernard

Well its if you can do the calculation if a balance in the quarters is to goal and you do turn the quarter which is kind of what Chris track record is now that’s a 100 people.

Steve Kruger – Foresight Investing

Okay.

Christopher Bernard

Let’s take it to 20 a quarter, it’s 50 people.

Steve Kruger – Foresight Investing

All right, Clint we will see. Yeah 14 or 15 now so you are thinking in terms of a fairly rapid ramp up in the sides of the Piccolos sales force.

Christopher Bernard

Once we figure it out.

Steve Kruger – Foresight Investing

Yeah. Okay, last question this maybe a done question I apologize but the lateral flow I assume that’s whole different platform from the Piccolos VetScan platform?

Christopher Bernard

It is a rapid test just like pregnancy test.

Steve Kruger – Foresight Investing

Okay. So you can sell that without selling a Piccolo?

Christopher Bernard

That’s correct.

Steve Kruger – Foresight Investing

What's the big attraction for you?

Christopher Bernard

In case of the big attraction is number one it’s a large market its majority of the market share is one big competitor and the product A sale is come for some to use its expensive and we believer we have a better offering.

Steve Kruger – Foresight Investing

Okay. Thanks Clint.

Christopher Bernard

Thank you.

Operator

Your next question comes from the Kevin [Loria] with Decade Capital Management.

Unidentified Analyst

Clint.

Clinton Severson

Yes.

Unidentified Analyst

How are you?

Clinton Severson

Good.

Unidentified Analyst

So I'm just trying to understand the situation with this German distributor a little bit, and correct and my correct and my understand that last quarter you put up some pretty exceptional growth in Europe and that was in part Because a large order from the German distributor and this quarter the rest being a little bit light from the German distributor may be over to seeing is normalization across the couple of quarters. That is the right way for me to think about it?

Clinton Severson

Yeah. Here is the deal, so usually in our Q2, our rotor business and disc business is very strong. So, our distributors normally order when they need the inventory and they can get the financing depending toward then the order so, the timing of this is a few days so, it few days.

Unidentified Analyst

Got it.

Clinton Severson

Yeah. So yeah and that’s clearly and in economy like we are having at I would guess and this is what I believe is that the economy over near Europe is no different, the are not experiencing any different we are stress over here. So the routine, vet business in Europe are probably down as well. So we didn’t need it, the first week in January.

Christopher Bernard

Yep. Okay. In order until the first week in January.

Unidentified Analyst

Fair enough. Fair enough. And then I appreciate the exploration a moment ago the evolution on the strategy on Piccolo and medical side of the business I am just curious and I will get it in the queue but, could you tell what was the increase in sales and marketing expense on the medical side of the business in the quarter.

Clinton Severson

Actually our spend on the marketing front for the quarter was down do you have percent 200,000 quarter-over-quarter.

Unidentified Analyst

Right

Clinton Severson

Most of our is back historically most of are spend in Q3, it’s heavily through two programs the PSS lab zone capital program and Abaxis every Q3 as well pre traditional split program that we run in the same quarter concurrently with own reps.

Unidentified Analyst

Okay. All right thanks very much.

Clinton Severson

Right, Thanks very much.

Operator

Your next question comes from the line of Scott Gleason with Stephens Inc.

Scott Gleason – Stephens Inc.

Hi, guys thanks for taking my call, this is actually Michael sitting in for Scott. And just quick questions most of my questions have been answered right now but – if I recall correctly I think you guys have about 25% of the Vet market can you kind of run me through the assumptions on heartworm relative to tick kind of your expected ramp and revenue?

Clinton Severson

Okay, Martin you want to take that.

Martin Mulroy

Yes, sure. The rapid diagnosis lateral flow market is about $100 in the U.S. out that came under hard work

Clinton Severson

$70 million market. We anticipate that this product will open at the sale doors to get up to their 40% market penetrating goal remain.

Martin Mulroy

Today approximately 22 to 23% of veterinary clinics in this country have impacted instruments. The heartworm, we are taking to our existing customer base and early results looked very, very exciting. At the same time, we’re taking our heartworm to our competitors customers as a lean and we have an opportunity to provide these clinics with chemistry, hematology and Coagulation at the same time.

Scott Gleason – Stephens Inc.

So, the 40% what sort of a target date on that or target year?

Clinton Severson

By Friday...

Martin Mulroy

We don’t have a target year.

Scott Gleason – Stephens Inc.

Okay. And whenever, just one more housing keeping question, whenever heartworm is added to the rotor is that going to be a similar price or margin as well?

Clinton Severson

It’s totally different.

Scott Gleason - Stephens Inc.

Okay.

Clinton Severson

It’s totally different. Yeah, and look at the pricing will be different. Depending on if the customer uses our rapid test or not. So if the customer uses our rapid test, he will get a much better deal on the heartworm and the rotor.

Scott Gleason – Stephens Inc.

Okay. Great, thanks.

Clinton Severson

Also back to the earlier question multiple analyte format, in terms of infectious diseases the heartworm on the rotor is our first infectious disease on the rotor while that is our multiple assay format. So the path we’re on right now is the lateral flow disposable device is our single test option while the rotor is in fact our multiple assay format.

Scott Gleason - Stephens Inc.

Great thanks.

Clinton Severson

Thank you.

Operator

Your next question comes from the line of Tilton Gardner with Mutual Security.

Tilton Gardner – Mutual Security

Hi Clint.

Clinton Severson

Yes Tilton.

Tilton Gardner – Mutual Security

Well you guys are abrading it there, that’s great.

Clinton Severson

Thank you.

Tilton Gardner – Mutual Security

So, on the rapid test license and so forth who else is using that technology?

Clinton Severson

Okay so (indiscernible) which is a competitor has hormone test made by Quadel. And Quadel has a license for hormone. And over than that there is nobody else.

Tilton Gardner – Mutual Security

So, you have that?

Clinton Severson

They are different – they have a different technology so when you are out there with the heartworm in the rapid test, does that give you a competitive lead with IDEX. Our product is easier to use and has a better price.

Tilton Gardner – Mutual Security

Okay and so when do you think that, you will start to see an impact in the number with this move forward?

Clinton Severson

We are seeing the impact as we speak. Already we shipping heartworm, we ship no heartworm in Q3 we are shipping heartworm in Q4.

Tilton Gardner – Mutual Security

Is there some, goal that you have for the quarter on heartworm?

Clinton Severson

We have goals here but we don’t guide.

Tilton Gardner – Mutual Security

So, sell some?

Clinton Severson

Yep. Sell a lot.

Tilton Gardner – Mutual Security

Sell a lot, okay. We like that. Okay thanks a lot.

Clinton Severson

Thank you Tilton.

Operator

Your next question comes the line or Roger Goodspeed a Private Investor.

Roger Goodspeed – Private Investor

Hi, Clint how are you?

Clinton Severson

I am good Roger.

Roger Goodspeed – Private Investor

A nice quarter, guys.

Clinton Severson

Thank you.

Roger Goodspeed – Private Investor

I have – I think three real quick follow ups.

Clinton Severson

Okay.

Roger Goodspeed – Private Investor

I am probably last in the queue here, thanks for the patience and hanging in there.

Clinton Severson

No problem.

Roger Goodspeed – Private Investor

As I recall from the last quarter you said that in this most recent calendar quarter you expect that the auction rate securities to be redeemed in their entirety it looks like you have got a little bit more than right around 25 million does that clean all that up is that the end of that or do you have anything still outstanding.

Clinton Severson

It is clean everything has been redeemed.

Roger Goodspeed – Private Investor

A 100 at PAR.

Clinton Severson

Yes.

Roger Goodspeed – Private Investor

Okay, terrific. Following up a couple of questions that have preceded here regarding this lateral flow pattern right if I understand it properly you paid a $5 million upfront license fee and then have some minimum annual license fee commitments I understand as you – as this is your habit you don’t guide but can you give any sense us to the earnings impact of – obviously that the annual minimum royalty will grew within the range – based on volumes but how are you going to handle the $5 million upfront and as a general matter you are hopeful of selling lots but what kind of drag on earnings as the – the pretty substantial upfront license you are going to cost.

Clinton Severson

Okay, so license fee is $5 million and the patterns run for about 10 years so that is about $0.5 a year.

Roger Goodspeed – Private Investor

So, you are going to advertise it over 10 years that’s the length of the okay.

Clinton Severson

I mean that’s what the account sell us today now the accounts may change their mind I don’t think they will but that’s up to that.

Roger Goodspeed – Private Investor

So that the aggregate earnings effect of the license agreement is somewhere between a $1 and $0.5 half year depending upon volumes is that correct.

Clinton Severson

No, so what happens is that $500,000 goes into the cost of goods. So if you pay dollar of test to the OEM manufacturer as an example I am not saying that’s we pay and not just saying as an example because its easy to calculate a dollar, and you sell 500,000 units a year that major cost of good is $2 a dollar from the OEM and a dollar for the minimum royalty.

Roger Goodspeed – Private Investor

But the if I understand properly, the aggregate still going to end up the same if you are amortizing 5 million over 10 years that’s 500,000 a year.

Clinton Severson

Yeah.

Roger Goodspeed – Private Investor

And you pay minimum royalties ranging between half a million and million a year. The aggregate will still be a million to million and half even though they may be spread over various units.

Clinton Severson

So year one, the minimum royalty is 0, but the percent is 8.5% of sales, but there is no minimum.

Roger Goodspeed – Private Investor

Okay. So may be that there more details there then…

Clinton Severson

I mean in the end it becomes pretty material compared product, but the first year is zero, the second year is the half a million. So we add two together is a million. The third year 750,000, the fourth year is a million.

Roger Goodspeed – Private Investor

Okay.

Clinton Severson

So maximum we pay if we don’t sell anything as a million and half.

Roger Goodspeed – Private Investor

Okay, okay. So okay, fine. That's sufficient enough. My final question is so you would expect that to be a positive earnings contributor having done that deal for calendar 2009 is that way your fiscal 2010?

Clinton Severson

Yeah. We did this for a couple of reasons. Number one, we believe that Canine heartworm will get us into more accounts since allow us to show more VetScans and sell more discs that’s a number one that’s the primary reason. And then number two anytime you can add another product to the sales person's bag. Your selling cost go down.

Roger Goodspeed – Private Investor

Right, yeah. Understood. Final question what’s going to following upon other increase? The whole team has been emphasizing the need to solve the risk, mitigation problem on the medical side to try and drive sales. Is it one of the potential uses of the cash on the balance sheet that the board is debating is a 16 creating financing products opportunities to assist customers in getting over that hump that that may be an alternative use of a substantial cash balance is suppose to buying stock, I mean you thinking of providing more directs financing assistance to customers?

Clinton Severson

Yeah, we our mind is actually pretty open here, we’re looking at trying multiple approaches here to helping our customers, get through the three months or whatever takes to truly understand the benefit of adding this product to their partners. And when you have cash in the bank that allows you the flexibility and do these things, and it allows you to flexibility to have the opportunity to take advantage of – of IP that we’ve acquired give us the opportunity to add contract manufacturing of the rapid test sides that give us the flexibility to do with deal to acquire of the rights to sell these very competitive and unusual [Coag] machine. So having the cash allows you all of this flexibility and in an environment like we’re operating in today where, there is all these restrictions all around you with the cash being squeezed and people be scared having this flexibility gives you a huge operating advantage. As we’ve got to be very careful about how we got, so that’s what the board debates.

Roger Goodspeed – Private Investor

Right, so that’s been foreseen the basis Piccolo emotion that once you get a product in the customers facility and it using that he or she is using that that for the wind because that will work and we’ll meet all their objectives ultimately we got to overcome that.

Clinton Severson

Yeah, that’s what we believe.

Roger Goodspeed – Private Investor

Okay, thank you.

Clinton Severson

Okay, thank you.

Operator

Your next question comes from line of David Clair with Piper Jaffray.

David Clair – Piper Jaffray

Hi, guys. Sorry just one follow-up question here, I was hoping you could just kind of stratified the credit quality of your distributors that is how many would you kind of put in the prime bucket versus the sub-prime bucket?

Clinton Severson

Okay, so this is my comment now the analyte and finance group they do all the detail, but I would rate none of them is credit worthy. That’s what I would rate, so we watch him close. We watch everybody close, I can’t remember a time when we had to take a charge because distributor went bring, I don’t think it ever happened in 12 years but, yeah, they are on a short list off.

David Clair – Piper Jaffray

Okay, thanks a lot Clint.

Clinton Severson

Thank you.

Operator

Your next question comes from line of David Zorub with Hawkshaw Capital.

David Zorub – Hawkshaw Capital

Good afternoon.

Clinton Severson

Good afternoon.

David Zorub – Hawkshaw Capital

Few short of random housekeeping thing in a particular order. The delayed order from the German distributor. Can you just comment on what exactly that order was – was it medical or Vet market, was its capital equipment versus discs?

Clinton Severson

It was a veterinary discs.

David Zorub – Hawkshaw Capital

Okay. And so when we look at the number that’s you gave year-over-year in that decline how much of that decline would it just been from that order that’s been delayed?

Clinton Severson

Probably all of that.

David Zorub – Hawkshaw Capital

All of that, okay. And then with regards to that to the mix shift, the decline in that discs but seeing increased revenue at the same time what drove that positive revenue mix shift.

Clinton Severson

Two things we've raised surprised in April and I haven’t study just probably the mix it was more towards the higher price orders.

David Zorub – Hawkshaw Capital

Okay. And then on the VetScan can you I apologize if I missed this but what's the installed base as of the end of the quarter and what was it a year ago on VetScan?

Clinton Severson

Okay so we sell most of our instruments direct so we know when our new direct sales are pretty very close but, prior to couple of years ago most of our veterinary sales were done through distribution. So we don’t always have a hard number there but it’s about 7,000 customers or 7,000 instruments in the U.S.

David Zorub – Hawkshaw Capital

As of the end of the quarter.

Clinton Severson

Right.

David Zorub – Hawkshaw Capital

Okay, and so year ago its if we just track that what you sold over 12 months or that being pretty good proxy here is there get turned in there.

Clinton Severson

That’s a pretty good proxy. Clearly they are always some clinics that merge or clinics where the veterinary and dies are that’s not immaterial number.

David Zorub – Hawkshaw Capital

Okay. And then on the medical side Piccolo again I apologize if I miss this just but what is the number of government across military sales a year ago?

Clinton Severson

Year ago it was 21

David Zorub – Hawkshaw Capital

21. So if I adjust for this military it look I think you said you guys did 49 this quarter so that’s military was about 193 versus 217 of last year that would be the step would be apples-to-apples.

Clinton Severson

That’s good.

Christopher Bernard

I mean we comp the military of sales now we have a full time sales manager working on the government business and so we are used to be more of a part time job around here its more than full time job now so we should be seeing a cause effect probably in another couple of quarters on this market coverage we've added and increase government sales.

David Zorub – Hawkshaw Capital

Okay. And then just lastly when you were asked about just sort of the current trends that you are seeing obviously pointed out the big junk of sale come in the last month of this quarter is that across the whole business are just the capital equipment side, and if it’s not capital equipment side are the rotors more sort of radiable during the given quarter.

Clinton Severson

Okay. So, the customer ordered directly from us it’s pretty normalized, pretty normalized throughout the whole quarter.

David Zorub – Hawkshaw Capital

Okay.

Clinton Severson

Distributors that order to by container or order by re freighted truck those standard be ordered towards the middle to the end of the quarter.

David Zorub – Hawkshaw Capital

And roughly sort of what percent of discs are ordered directly for sum in a given quarter.

Clinton Severson

It was been consumables its about a little under 25% total consumables and three rotors in the packs.

David Zorub – Hawkshaw Capital

So, I realized that’s only a quarter of the consumables business but would you be willing to just sort of comment on what trends that you are seeing sort of months year-to-date I guess quarter-to-date I should say in those sales.

Christopher Bernard

In terms of the consumable sales.

David Zorub – Hawkshaw Capital

Yeah.

Christopher Bernard

Yeah I think in Martin's comment he said that is consumables direct year-over-year ruffle were 100%.

David Zorub – Hawkshaw Capital

No, I'm talking about in January.

Christopher Bernard

Do you got by January. January does not looks down, but we have day left with one day left.

David Zorub – Hawkshaw Capital

Okay great thank you very much.

Christopher Bernard

Thank you.

Operator

Your next question comes from the line of [Albert Alman], a Private Investor.

Unidentified Analyst

Hi Clint.

Clinton Severson

Hello.

Unidentified Analyst

Good work, all the things concerned.

Clinton Severson

Thank you very much.

Unidentified Analyst

I would like to know a fewer we’re demographic studies that might have been made showing that retirees might have a higher ownership percentage of that’s as suppose working firmly?

Clinton Severson

Well we have any total information that clearly when all the kids move out pretty lonely in the house. So people tend to bought to in their later eaters and of course those pets become a member of the family become very important. So, if that annually get sick it’s gives and go to bed, and the user willing to pay whatever takes the fixed animal. So, I think the growth in companion animals continues and as the aging and the population takes place it’s we are going to grow even more, we think the Vet market is a fantastic market.

Unidentified Analyst

I think you are right, I got a lot of retirees and it's just amazing that many of these people spent over pets. Thanks very much.

Clinton Severson

Thank you.

Unidentified Analyst

Bye.

Operator

There are no further questions at this time. Mr. Severson do you have any closing remarks.

Clinton Severson

Yeah I want to thank everybody for tuning in and we look forward to another strong quarter here at Q4, and we look forward to presenting it sometime around the last week of April. So, thank you all for tuning in. Have a great day. Thank you.

Operator

Thank you. This concludes today's conference call. You may now disconnect.

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