Item 3. Quantitative and Qualitative Disclosures about Market Risk

In September 2019, we issued $86.25 million aggregate principal amount of Notes. The fair market value of the Notes is affected by our common stock price. The fair value of the Notes will generally increase as our common stock price increases and will generally decrease as our common stock price declines in value. In addition, the fair market value of the Notes are exposed to interest rate risk. Generally, the fair market value of our fixed interest rate Notes will increase as interest rates fall and decrease as interest rates rise. Additionally, on our balance sheet we carry the Notes at face value less unamortized discount and debt issuance cost and we present the fair value for required disclosure purposes only.

For quantitative and qualitative disclosures about other market risk affecting us, see the section under the heading ~~“Part~~“Part II, Item 7A. Quantitative and Qualitative Disclosures About Market ~~Risk”~~Risk” of our Annual Report on Form 10-K for the year ended December 31, 2018, which is incorporated by reference herein. As of the date of this Quarterly Report on Form 10-Q, except as described above, there have been no material changes to the market risks described in our Annual Report on Form 10-K for the year ended December 31, 2018.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our principal executive officer and our principal financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15(e) of the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred since our last fiscal year-end that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information required by this item is incorporated by reference to Note 14 (Commitments and Contingencies) to the unaudited Condensed Consolidated Financial Statements included in Part 1, Item 1 of this Form 10-Q.

Item 1A.Risk Factors

~~For~~Our future operating results may vary substantially from period to period due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on future results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks or uncertainties not presently known to us or that we deem to be currently immaterial also may impair our business operations. If any of the following factors actually occur, our

business, financial condition or results of operations could be harmed. In that case, the price of our ~~risk factors, see Item 1A. Risk Factors~~Public Common Stock could decline and investors in ~~Part I~~our Public Common Stock could experience losses on their investment.

Risks related to our business and our industry

If the third parties that have substantial marketing rights for certain of our ~~Annual Report on Form 10-K~~historical products, existing products or future products under development are not successful in marketing those products, then our sales and financial position may suffer.

We are party to an agreement with Merck Animal Health, which grants Merck Animal Health exclusive distribution and marketing rights for our canine heartworm preventive product, TRI-HEART Plus Chewable Tablets, ultimately sold to or through veterinarians in the United States and Canada. Historically, a significant portion of our OVP segment’s revenue has been generated from the sale of certain bovine vaccines, which have been sold primarily under the Titanium and MasterGuard brands. We have a supply agreement with Eli Lilly and its affiliates operating through Elanco for the ~~year~~production of these vaccines. Either of these marketing partners may not devote sufficient resources to marketing our products and our sales and financial position could suffer significantly as a result. Revenue from Merck & Co., Inc. (“Merck”) entities, including Merck Animal Health, for example, represented approximately 12% of our 2018 revenue, but is expected to represent approximately 1% of our 2019 revenue. Revenue from Eli Lilly entities, including Elanco, represents approximately 10% of our revenue for the nine months ended September 30, 2019, and represented approximately 9% of our 2018 revenue. If Elanco were to fail to market, sell and support the bovine vaccines we produce and sell to Elanco sufficiently, similar to Merck Animal Health's failure to market, sell and support our heartworm preventive product in 2019, our sales could decline. Furthermore, there may be nothing to prevent these partners from pursuing alternative technologies, products or supply arrangements, including as part of mergers, acquisitions or divestitures. Third party marketing assistance may not be available in the future on reasonable terms, if at all. If the third parties with marketing rights for our products were to merge or go out of business, the sale and promotion of our products could be diminished.

Our Chief Executive Officer has acknowledged outside business interests which may occupy a portion of his time.

On November 26, 2018, Heska Imaging, LLC entered into a Purchase Agreement for Certain Assets with Cuattro, LLC, pursuant to which Heska Imaging, LLC purchased certain software and related assets and terminated its existing Amended and Restated Master License Agreement and Supply Agreement with Cuattro, LLC. Heska Imaging, LLC is required to make a good faith effort to transition to a new cloud provider in a timely way; however Cuattro, LLC is required to provide services until that transition happens. As discussed below, Mr. Wilson has an interest in these agreements and any time and resources devoted to monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

Mr. Wilson’s employment agreement with us acknowledges that Mr. Wilson has business interests in Cuattro, LLC, Cuattro Software, LLC and Cuattro Medical, LLC which may require a portion of his time, resources and attention during his working hours. If Mr. Wilson is distracted by these or other business interests, he may not contribute as much as he otherwise would have to enhancing our business, to the detriment of our shareholder value. Mr. Wilson is the spouse of Shawna M. Wilson (“Mrs. Wilson”). Mr. Wilson, Mrs. Wilson and trusts for their children and family own a majority interest in Cuattro Medical, LLC. In addition, including equity held by Mrs. Wilson and by trusts for the benefit of Mr. and Mrs. Wilson’s children and family, Mr. Wilson also owns a 100% interest in Cuattro, LLC, the largest supplier to Heska Imaging, LLC, our wholly-owned subsidiary. Cuattro, LLC owns a 100% interest in Cuattro Software, LLC.

Cuattro, LLC charged Heska Imaging, LLC $6.0 thousand during the nine months ended September 30, 2019, and $4.6 million, $17.7 million, and $14.5 million in the years ended December 31, 2018, 2017, and 2016, respectively, primarily related to digital imaging products, for which there was an underlying supply contract with minimum purchase obligations, software and services as well as other operating expenses. Heska Corporation charged Cuattro, LLC $0.0 during the nine months ended September 30, 2019, and $3 thousand, $0.1 million, and $0.2 million in the years ended December 31, 2018, 2017, and 2016, respectively, primarily related to facility usage and other services.

We rely substantially on third party suppliers. The loss of products or delays in product availability from one or more third party suppliers could substantially harm our business.

To be successful, we must contract for the supply of, or manufacture ourselves, current and future products of appropriate quantity, quality and cost. Such products must be available on a timely basis and be in compliance with any regulatory requirements. Similarly, we must provide ourselves, or contract for the supply of, certain services. Such services must be provided in a timely and appropriate manner. Failure to do any of the above could substantially harm our business.

We rely on third party suppliers to manufacture those products we do not manufacture ourselves and to provide services we do not provide ourselves. Proprietary products provided by these suppliers represent a majority of our revenue. We currently rely on these suppliers for our point of care laboratory instruments and consumable supplies for these instruments, for our imaging products and related software and services, for key components of our point-of-care diagnostic tests as well as for the manufacture of other products.

The loss of access to products from one or more suppliers could have a significant, negative impact on our business. Major suppliers that sell us proprietary products are FUJIFILM Corporation and Shenzen Mindray Bio-Medical Electronics Co., Ltd.We often purchase products from our suppliers under agreements that are of limited duration or potentially can be terminated on an annual basis. In the case of our point of care laboratory instruments and our digital radiography solutions, post-termination, we are typically entitled to non-exclusive access to consumable supplies, or ongoing non-exclusive access to products and services to meet the needs of an existing customer base, respectively, for a defined period upon expiration of exclusive rights, which could subject us to competitive pressures in the period of non-exclusive access. There can be no assurance that our suppliers will meet their obligations under any agreements we may have in place with them or that we will be able to compel them to do so. Risks of relying on suppliers include:

Inability to meet minimum obligations. Current agreements, or agreements we may negotiate in the future, may commit us to certain minimum purchase or other spending obligations. It is possible we will not be able to create the market demand to meet such obligations, which could create a drain on our financial resources and liquidity. Some agreements may require minimum purchases and/or sales to maintain product rights and we may be significantly harmed if we are unable to meet such requirements and lose product rights.

Loss of exclusivity. In the case of our point of care laboratory instruments, if we are entitled to non-exclusive access to consumable supplies for a defined period upon expiration of exclusive rights, we may face increased competition from a third party with similar non-exclusive access or our former supplier, which could cause us to lose customers and/or significantly decrease our margins and could significantly affect our financial results. In addition, current agreements, or agreements we may negotiate in the future, with suppliers may require us to meet minimum annual sales levels to maintain our position as the exclusive distributor of these products. We may not meet these minimum sales levels and maintain exclusivity over the distribution and sale of these products. If we are not the exclusive distributor of these products, competition may increase significantly, reducing our revenues and/or decreasing our margins.

Changes in economics. An underlying change in the economics with a supplier, such as a large price increase or new requirement of large minimum purchase amounts, could have a significant, adverse effect

on our business, particularly if we are unable to identify and implement an alternative source of supply in a timely manner.

The loss of product rights upon expiration or termination of an existing agreement. Unless we are able to find an alternate supply of a similar product, we would not be able to continue to offer our customers the same breadth of products and our sales and operating results would likely suffer. In the case of an instrument supplier, we could also potentially suffer the loss of sales of consumable supplies, which would be significant in cases where we have built a significant installed base, further harming our sales prospects and opportunities. Even if we were able to find an alternate supply for a product to which we lost rights, we would likely face increased competition from the product whose rights we lost being marketed by a third party or the former supplier and it may take us additional time and expense to gain the necessary approvals and launch an alternative product.

High switching costs. In our point of care laboratory instrument products, we could face significant competition and lose all or some of the consumable revenues from the installed base of those instruments if we were to switch to a competitive instrument. If we need to change to other commercial manufacturing contractors for certain of our regulated products, additional regulatory licenses or approvals generally must be obtained for these contractors prior to our use. This would require new testing and compliance inspections prior to sale, thus resulting in potential delays. Any new manufacturer would have to be educated in, or develop, substantially equivalent processes necessary for the production of our products. We likely would have to train our sales force, distribution network employees and customer support organization on the new product and spend significant funds marketing the new product to our customer base.

The involuntary or voluntary discontinuation of a product line. Unless we are able to find an alternate supply of a similar product in this or similar circumstances with any product, we would not be able to continue to offer our customers the same breadth of products and our sales would likely suffer. Even if we are able to identify an alternate supply, it may take us additional time and expense to gain the necessary approvals and launch an alternative product, especially if the product is discontinued unexpectedly.

Inconsistent or inadequate quality control. We may not be able to control or adequately monitor the quality of products we receive from our suppliers. Poor quality items could damage our reputation with our customers.

Limited capacity or ability to scale capacity. If market demand for our products increases suddenly, our current suppliers might not be able to fulfill our commercial needs, which would require us to seek new manufacturing arrangements and may result in substantial delays in meeting market demand. If we consistently generate more demand for a product than a given supplier is capable of handling, it could lead to large backorders and potentially lost sales to competitive products that are readily available. This could require us to seek or fund new sources of supply, which may be difficult to find or may require terms that are less advantageous if available at all.

Regulatory risk. Our manufacturing facility and those of some of our third party suppliers are subject to ongoing periodic unannounced inspection by regulatory authorities, including the FDA, USDA and other federal, state and foreign agencies for compliance with strictly enforced Good Manufacturing Practices, regulations and similar foreign standards. We do not have control over our suppliers’ compliance with these regulations and standards. Regulatory violations could potentially lead to interruptions in supply that could cause us to lose sales to readily available competitive products. If one of our suppliers is unable to provide a raw material or finished product due to regulatory issues, it could have a material adverse financial impact on our business and could expose us to legal action if we are unable to perform on contracts to our customers involving related products.

Developmental delays. We may experience delays in the scale-up quantities needed for product development that could delay regulatory submissions and commercialization of our products in development, causing us to miss key opportunities.

Limited geographic rights. We typically do not have global geographic rights to products supplied by third parties. If we were to determine a market opportunity in a geography where we did not have distribution

rights and were unable to obtain such rights from the supplier, it might hamper our ability to succeed in such geography and our sales and profits would be lower than they otherwise would have been.

Limited intellectual property rights. We typically do not have intellectual property rights, or may have to share intellectual property rights, to the products supplied by third parties and any improvements to the manufacturing processes or new manufacturing processes for these products.

Changes to United States tariff and import/export regulations. Changes to United States trade policies, treaties and tariffs could have a material adverse effect on global trade. These changes could result in increased costs of goods imported into the United States for the Company and our third party suppliers. Our third party suppliers may limit their trade with companies in the United States, including us.

Potential problems with suppliers such as those discussed above could substantially decrease sales, lead to higher costs and/or damage our reputation with our customers due to factors such as poor quality goods or delays in order fulfillment, resulting in our being unable to sell our products effectively and substantially harming our business.

We depend on key personnel for our future success. If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve our goals.

Our future success is substantially dependent on the efforts of our senior management and other key personnel, including our Chief Executive Officer (“CEO”) and President, Kevin Wilson. The loss of the services of members of our senior management or other key personnel may significantly delay or prevent the achievement of our business objectives. Although we have employment agreements with many of these individuals, all are at-will employees, which means that either the employee or Heska may terminate employment at any time without prior notice. If we lose the services of, or fail to recruit, key personnel, the growth of our business could be substantially impaired. We do not maintain key person life insurance for any of our senior management or key personnel.

The loss of significant customers which, for example, are historically large purchasers or which are considered leaders in their fields could damage our business and financial results.

In our CCA segment, revenue from Covetrus, Inc., formerly known as Henry Schein Animal Health ("Covetrus"), represented approximately 14% of our consolidated revenue for the nine months ended September 30, 2019, and represented approximately 15%, 13% and 13% of our consolidated revenue for the years ended December 31, 2018, 2017 and 2016, respectively. Revenue from Merck entities, including Merck Animal Health, represented approximately 0% of our consolidated revenue for the nine months ended September 30, 2019, but represented approximately 12%, 12% and 11% of our consolidated revenue for the years ended December 31, 2018, 2017 and 2016, respectively. Revenue from De Lage Landen Financial Services, Inc. (“DLL”) represented approximately 6% of our consolidated revenue for the nine months ended September 30, 2019, and represented approximately 6%, 7% and 11% of our consolidated revenue for the years ended December 31, 2018, 2017 and 2016, respectively. DLL is a third party financing company that provides financing and leasing for, primarily, our imaging product customers. In our OVP segment, revenue from Eli Lilly entities, including Elanco, represented approximately 10% of our consolidated revenue for the nine months ended September 30, 2019, and represented approximately 9%, 11% and 12% of our consolidated revenue for the years ended December 31, 2018, 2017 and 2016, respectively. No other customer accounted for more than 10% of our consolidated revenue for the nine months ended September 30, 2019, or accounted for more than 10% of our consolidated revenue for the years ended December 31, 2018, 2017 or 2016.

Covetrus represented approximately 18% of our consolidated accounts receivable at September 30, 2019, and represented 12% and 17% of our consolidated accounts receivable at December 31, 2018 and 2017, respectively. Merck entities, including Merck Animal Health, represented approximately 0% of our

consolidated accounts receivable for the nine months ended September 30, 2019, and represented approximately 10% and 15% of our consolidated accounts receivable at December 31, 2018 and 2017, respectively. DLL represented approximately 10% of our consolidated accounts receivable for the nine months ended September 30, 2019, and represented 8% and 11% of our consolidated accounts receivable at December 31, 2018 and 2017, respectively. Eli Lilly entities, including Elanco, represented approximately 20% of our consolidated accounts receivable for the nine months ended September 30, 2019, and represented approximately 32% and 4% of our consolidated accounts receivable at December 31, 2018 and 2017, respectively. No other customer accounted for more than 10% of our consolidated accounts receivable at September 30, 2019, or accounted for more than 10% of our consolidated accounts receivable at December 31, 2018 or 2017.

The loss of these or other significant customers could damage our business, reputation, and financial results.

We operate in a highly competitive industry, which could render our products obsolete or substantially limit the volume of products that we sell. This would limit our ability to compete and maintain sustained profitability.

The market in which we compete is intensely competitive. Our competitors include independent animal health companies and major pharmaceutical companies that have animal health divisions. We also compete with independent, third party distributors, including distributors that sell products under their own private labels. In the point-of-care diagnostic testing market, our major competitors include IDEXX Laboratories, Inc. (‘‘IDEXX”) and Zoetis Inc. (‘‘Zoetis’). The products manufactured by our OVP segment for sale by third parties compete with similar products offered by a number of other companies, some of which have substantially greater financial, technical, research and other resources than us and may have more established marketing, sales, distribution and service organizations than those of our OVP segment customers. Competitors may have facilities with similar capabilities to our OVP segment, which they may operate and sell at a lower unit price to customers than our OVP segment does, which could cause us to lose customers. Companies with a significant presence in the companion animal health market, such as Bayer AG, CEVA Sante´ Animale, Eli Lilly, Merck, Sanofi, Vétoquinol S.A. and Virbac S.A. may be marketing or developing products that compete with our products or would compete with them if developed. These and other competitors and potential competitors may have substantially greater financial, technical, research and other resources and larger, more established marketing, sales and service organizations than we do. For example, if Zoetis devotes its significant commercial and financial resources to growing its market share in the veterinary allergy market, our allergy-related sales could suffer significantly. Our competitors may offer broader product lines and have greater name recognition than we do. Our competitors may also develop or market technologies or products that are more effective or commercially attractive than our current or future products or that would render our technologies and products obsolete. Further, additional competition could come from new entrants to the animal health care market. Moreover, we may not have the financial resources, technical expertise or marketing, sales or support capabilities to compete successfully. Zoetis has recently launched allergy products which may diminish the competitiveness and sales prospects for our own allergy immunotherapy products. IDEXX has recently launched an SDMA test in its point of care laboratory chemistry line, which may cause veterinary customers to prefer IDEXX products to ours.

If we fail to compete successfully, our ability to achieve sustained profitability will be limited and sustained profitability, or profitability at all, may not be possible.

We benefit from relationships or collaboration with third parties, including but not limited to, companies, buying groups, veterinary hospital groups and reference laboratory entities that operate in our markets. Beneficial third party, semi-competitive, directly competitive and cooperative relationships that affect how we go to market, develop products, generate leads and other commercial efforts of Heska may be negatively

affected as a result of consolidation, acquisition, merger, exclusive arrangement or other agreements or activities between and amongst those third parties and others.

We often depend on third parties for products we intend to introduce in the future. If our current relationships and collaborations are not successful, we may not be able to introduce the products we intend to introduce in the future.

We are often dependent on third parties and collaborative partners to successfully and timely perform research and development activities to successfully develop new products. We routinely discuss Heska marketing in the veterinary market instruments being developed by third parties for use in the human health care market. In the future, one or more of these third parties or collaborative partners may not complete research and development activities in a timely fashion, or at all. Even if these third parties are successful in their research and development activities, we may not be able to come to an economic agreement with them. If these third parties or collaborative partners fail to complete research and development activities or fail to complete them in a timely fashion, or if we are unable to negotiate economic agreements with such third parties or collaborative partners, our ability to introduce new products will be impacted negatively and our revenues may decline.

We may be unable to market and sell our products successfully.

We may not develop and maintain marketing and/or sales capabilities successfully, and we may not be able to make arrangements with third parties to perform these activities on satisfactory terms, or at all. If our marketing and sales strategy is unsuccessful, our ability to sell our products will be negatively impacted and our revenues will decrease. This could result in the loss of distribution rights for products or failure to gain access to new products and could cause damage to our reputation and adversely affect our business and future prospects. The market for companion animal healthcare products is highly fragmented. Because our CCA proprietary products are generally available only to veterinarians or by prescription and our medical instruments require technical training to operate, we ultimately sell all our CCA products primarily to or through veterinarians. The acceptance of our products by veterinarians is critical to our success. Changes in our ability to obtain or maintain such acceptance or changes in veterinary medical practice could significantly decrease our anticipated sales. As the vast majority of cash flow to veterinarians ultimately is funded by pet owners without private insurance or government support, our business may be more susceptible to severe economic downturns than other health care businesses that rely less on individual consumers.

For our point of care laboratory blood diagnostics products, we primarily rely on contracts with our veterinary customers for their use of our owned equipment and our consumable supplies over a multiple year period. If veterinarians under these contracts experience a significant downturn in their business, they may not fulfill their use and financial obligations under these contracts. If veterinarians breach our contracts, and we are unable to collect on default payment provisions or otherwise enforce the terms of our contracts, our business will be adversely affected. If we have to litigate against customer(s) to enforce our contracts, our expenses may increase, our sales may decrease to those customers, and our reputation may suffer. If significant numbers of our customers under contracts for use of our equipment and consumable supplies do not renew their contracts, our business will be adversely affected.

We have entered into agreements with independent third party distributors, including Covetrus, who we anticipate will market and sell our products to a greater degree than in the recent past. Independent third party distributors may be effective in increasing sales of our products to veterinarians, although we would expect a corresponding lower gross margin as such distributors typically buy products from us at a discount to end user prices. It is possible new or existing independent third party distributors could cannibalize our direct sales efforts and lower our total gross margin. For us to be effective when working with an independent third party distributor, the distributor must agree to market and/or sell our products and we

must provide proper economic incentives to the distributor as well as contend effectively for the time, energy and focus of the employees of such distributor given other products the distributor may be carrying, potentially including those of our competitors. If we fail to be effective with new or existing independent third party distributors, our financial performance may suffer.

A core component of our future growth strategy is international expansion. As we continue to expand our international footprint, we will be increasingly susceptible to the risks associated with international operations including, but not limited to, the following:

uncertain political and economic climates, fluctuations in exchange rates that may increase the volatility of foreign-based revenue and expenses.

burdens of complying with and unexpected changes in foreign laws, accounting and legal standards, regulatory requirements, taxes, tariffs and other barriers or trade restrictions.

lack of experience in connection with the customs, cultures, languages and sales cycle.

reduced or altered protection for intellectual property rights in foreign countries data privacy laws which require that data storage and processing be subject to laws different than the United States.

As a result of these and other factors, international expansion may be more difficult and not generate the results we anticipate, which could negatively impact our business.

We may face costly legal disputes, including disputes related to our intellectual property or technology or that of our suppliers or collaborators.

We may face legal disputes related to our business. Even if meritless, these disputes may require significant expenditures on our part and could entail a significant distraction to members of our management team or other key employees. For example, it took us until October 10, 2018, to reach an agreement in principle to settle the complaint that was filed against the Company by Shaun Fauley on March 12, 2015 in the United States District Court for the Northern District of Illinois alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action (the “Fauley class action”). The settlement, which was approved by the court on February 28, 2019, required us, among other things, to pay $6.75 million to class members, as well as to pay attorneys’ fees and expenses to legal counsel to the class, which we paid in full on April 3, 2019. Insurance coverage may not cover any costs required to litigate a legal dispute or an unfavorable ruling or settlement. We did not have insurance coverage for the settlement arrangement regarding the Fauley class action and had to borrow under our Credit Facility to fund the settlement. A legal dispute leading to an unfavorable ruling or settlement, whether or not insurance coverage may be available for any portion thereof, could have material adverse consequences on our business. Moreover, we may have to use legal means and incur affiliated costs to secure the benefits to which we are entitled under third party agreements, such as to collect payment for goods shipped to third parties, which would reduce our income as compared to what it otherwise would have been.

We may become subject to patent infringement claims and litigation in the United States or other countries or interference proceedings conducted in the United States Patent and Trademark Office, or USPTO, to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are likely to be costly, time-consuming and distracting. As is typical in our industry, from time to time we and our collaborators and suppliers have received, and may in the future receive, notices from third parties claiming infringement and invitations to take licenses under third-party patents. Any legal action against us or our collaborators or suppliers may require us or our collaborators or suppliers to obtain one or more licenses in order to market or manufacture affected products or services. We or our collaborators or suppliers may not, however, be able to obtain licenses for technology patented by others on commercially reasonable terms, or at all, or to develop

alternative approaches to access or replace such technology if we or they are unable to obtain such licenses or if current and future licenses prove inadequate, any of which could substantially harm our business.

We may also need to pursue litigation to enforce any patents issued to us or our collaborative partners, to protect trade secrets or know-how owned by us or our collaborative partners, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will likely result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Any adverse determination in litigation or interference proceedings could subject us to significant liabilities to third parties. Further, as a result of litigation or other proceedings, we may be required to seek licenses from third parties which may not be available on commercially reasonable terms, or at all.

Interpretation of existing legislation, regulations and rules, including financial accounting standards, or implementation of future legislation, regulations and rules could cause our costs to increase or could harm us in other ways.

We prepare our financial statements in conformance with GAAP. These accounting principles are established by and are subject to interpretation by the SEC, the FASB and others which interpret and create accounting policies. A change in those policies or how those policies are interpreted can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is made effective. Such changes may adversely affect our reported financial results and the way we conduct our business, or have a negative impact on us if we fail to track such changes.

If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we could experience unanticipated changes in our reported financial statements, including but not limited to restatements, which could adversely affect our business due to litigation and investor confidence in our financial statements. In addition, changes in the underlying circumstances to which we apply given accounting standards and principles may affect our results of operations and have a negative impact on us. For example, we review goodwill recognized on our consolidated balance sheets at least annually and if we were to conclude there was an impairment of goodwill, we would reduce the corresponding goodwill to its estimated fair value and recognize a corresponding expense in our statement of operations. This impairment and corresponding expense could be as large as the total amount of goodwill recognized on our consolidated balance sheets, which was $27.2 million at September 30, 2019, and $26.7 million at December 31, 2018. There can be no assurance that future goodwill impairments will not occur if projected financial results are not met, or otherwise.

The Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”) has increased our required administrative actions and expenses as a public company since its enactment. The general and administrative costs of complying with Sarbanes-Oxley will depend on how it is interpreted over time. Of particular concern are the level of standards for internal control evaluation and reporting adopted under Section 404 of Sarbanes-Oxley. If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we and/or our auditors may be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect investor confidence in our financial statements and cause our stock price to decline. Even if we and our auditors are able to conclude that our internal control over financial reporting is designed and operating effectively in such a circumstance, our general and administrative costs are likely to increase. For example, in both 2018 and 2017, we were required to have our independent registered public accountant conduct an audit of our internal control over financial reporting because as of June 30 of both years our stock market value was above a certain level prescribed by regulation. This increased our general and administrative costs from what they otherwise would have been.

Similarly, we are required to comply with the SEC’s mandate to provide interactive data using the eXtensible Business Reporting Language as an exhibit to certain SEC filings. Compliance with this mandate has

required a significant time investment, which has and may in the future preclude some of our employees from spending time on more productive matters. In addition, future legislative, regulatory or rule-making action or more stringent interpretations of existing legislation, regulations and rules may increase our general and administrative costs or have other adverse effects on us.

We are currently evaluating, and we intend to pursue, acquisitions and other strategic development opportunities, which may not have desired results and could be detrimental to our financial position.

We are currently evaluating, and we intend to pursue, acquisitions and other strategic development opportunities, including minority investments where strategic. The ultimate business and financial performance of these opportunities may not create, and may end up adversely affecting materially, the value we hope to enhance by pursuing them. Any acquisition may significantly underperform relative to our financial expectations and may serve to diminish rather than enhance shareholder value. We may also diminish our cash resources or dilute stockholders in order to finance any such acquisition or other strategic transaction.

The success of any acquisition will depend on, among other things, our ability to integrate assets and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The integration of acquisitions may require significant attention from our management, and the diversion of management’s attention and resources could have a material adverse effect on our ability to manage our business. Furthermore, we may not realize the degree or timing of benefits we anticipated when we first entered into the acquisition transaction. If actual integration costs are higher than amounts originally anticipated, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies, our business, financial condition, results of operations and cash flows could be materially adversely affected. Furthermore, it is possible we will use management time and resources to pursue opportunities we ultimately are unable or decide not to consummate, in which case, we may not be able to utilize such management time and resources on what may have proved to be more productive matters in other areas of our business.

Obtaining and maintaining regulatory approvals in order to market our products may be costly and could delay the marketing and sales of our products. Failure to meet all regulatory requirements could cause significant losses from affected inventory and the loss of market share.

Many of the products we develop, market or manufacture may subject us to extensive regulation by one or more of the USDA, the FDA, the EPA and foreign and other regulatory authorities. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion and sale of some of our products. Satisfaction of these requirements can take several years and time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. The decision by a regulatory authority to regulate a currently non-regulated product or product area could significantly impact our revenue and have a corresponding adverse impact on our financial performance and position while we attempt to comply with the new regulation, if such compliance is possible at all.

The effect of government regulation may be to delay or to prevent marketing of our products for a considerable period of time and to impose costly procedures upon our activities. We may not be able to estimate the time to obtain required regulatory approvals accurately and such approvals may require significantly more time than we anticipate. We have experienced in the past, and may experience in the future, difficulties that could delay or prevent us from obtaining the regulatory approval or license necessary to introduce or market our products. Such delays in approval may cause us to forego a significant portion of a new product’s sales in its first year due to seasonality and advanced booking periods associated with certain

products. Regulatory approval of our products may also impose limitations on the indicated or intended uses for which our products may be marketed.

Difficulties in making established products to all regulatory specifications may lead to significant losses related to affected inventory as well as market share. Among the conditions for certain regulatory approvals is the requirement that our facilities and/or the facilities of our third party manufacturers conform to current Good Manufacturing Practices and other analogous or additional requirements. If any regulatory authority determines that our manufacturing facilities or those of our third party manufacturers do not conform to appropriate manufacturing requirements, we or the manufacturers of our products may be subject to sanctions, including, but not limited to, warning letters, manufacturing suspensions, product recalls or seizures, injunctions, refusal to permit products to be imported into or exported out of the United States, refusals of regulatory authorities to grant approval or to allow us to enter into government supply contracts, withdrawals of previously approved marketing applications, civil fines and criminal prosecutions. Furthermore, third parties may perceive procedures required to obtain regulatory approval objectionable and may attempt to disrupt or otherwise damage our business as a result. In addition, certain of our agreements may require us to pay penalties if we are unable to supply products, including for failure to maintain regulatory approvals.

Any of these events, alone or in combination with others, could significantly damage our business or results of operations.

Our future revenues depend on successful product development, commercialization and/or market acceptance, any of which can be slower than we expect or may not occur.

The product development and regulatory approval process for many of our potential products is extensive and may take substantially longer than we anticipate. Research projects may fail. New products that we may be developing for the veterinary marketplace may not perform consistently within our expectations. Because we have limited resources to devote to product development and commercialization, any delay in the development of one product or reallocation of resources to product development efforts that prove unsuccessful may delay or jeopardize the development of other product candidates. If we fail to successfully develop new products and bring them to market in a timely manner, our ability to generate additional revenue will decrease.

Even if we are successful in the development of a product or obtain rights to a product from a third party supplier, we may experience delays or shortfalls in commercialization and/or market acceptance of the product. For example, veterinarians may be slow to adopt a product, a product may not achieve the anticipated technical performance in field use or there may be delays in producing large volumes of a product. The former is particularly likely where there is no comparable product available or historical precedent for such a product. The ultimate adoption of a new product by veterinarians, the rate of such adoption and the extent veterinarians choose to integrate such a product into their practice are all important factors in the economic success of any new products and are factors that we do not control to a large extent. If our products do not achieve a significant level of market acceptance, demand for our products will not develop as expected and our revenues will be lower than we anticipate.

Many of our expenses are fixed and if factors beyond our control cause our revenue to fluctuate, this fluctuation could cause greater than expected losses, cash flow and liquidity shortfalls.

We believe that our future operating results will fluctuate on a quarterly basis due to a variety of factors which are generally beyond our control, including:

supply of products, including minimum purchase agreements, from third party suppliers or termination, cancellation or expiration of such relationships;

competition and pricing pressures from competitive products;

the introduction of new products or services by our competitors or by us;

large customers failing to purchase at historical levels;

fundamental shifts in market demand;

manufacturing delays;

shipment problems;

information technology problems, which may prevent us from conducting our business effectively, or at all, and may also raise our costs;

regulatory and other delays in product development;

product recalls or other issues which may raise our costs;

changes in our reputation and/or market acceptance of our current or new products; and

changes in the mix of products sold.

We have high operating expenses, including those related to personnel. Many of these expenses are fixed in the short term and may increase over time. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed.

Cyberattack related breaches of our information technology systems could have an adverse effect on our business.

Cyberattacks are increasing in their frequency, sophistication and intensity, and have become increasingly difficult to detect and defend against, notwithstanding our ongoing evaluation of and improvements to the preventive measures we take on to reduce the risks associated with these threats based on our own experience and those observed in the broader market. Cyberattacks, ranging from the use of malware, computer viruses, dedicated denial of services attacks, credential harvesting, social engineering and other means for obtaining unauthorized access to our Company's confidential information or assets or disrupting our Company’s ability to operate normally, could have a material adverse effect on our business.

Cyberattacks may cause equipment failures, loss of information or assets, including sensitive personal information of third party vendors, customers or employees, or valuable technical and marketing information, as well as disruptions to our or our vendor or customers’ operations. These attacks may be committed by company employees or external actors operating in any geography, including jurisdictions where law enforcement measures to address such attacks are unavailable or ineffective. Cyberattacks may occur alone or in conjunction with physical attacks, especially where disruption of service is an objective of the attacker. The preventive actions we take on an ongoing basis to reduce the risks and mitigate the potential damages associated with cyberattacks, including protection of our systems, networks and assets and the retention of cybersecurity insurance policies, may be insufficient to repel or mitigate entirely the effects of a cyberattack.

We devote significant resources to network security, data encryption and other security measures to protect our systems and data, but these security measures cannot provide absolute security. To the extent we were to experience a breach of our systems and were unable to protect sensitive data in the wake of the breach, such a breach could materially damage business partner and customer relationships, and reduce or otherwise negatively impact access to online services. Moreover, if a computer security breach affects our systems or results in the unauthorized release of Personally Identifiable Information (“PII”), our reputation and brand could be materially damaged; use of our products and services could decrease, we could suffer from reputational harm impacting sales revenue, and we could be faced with unforeseen regulatory investigation, remediation and litigation costs. Our cybersecurity insurance policies may not cover the full extent, or any, of the potential financial harm that could be caused by a breach of our systems, including in respect of theft or possible damages claims that may be brought against us by our business partners and customers in respect of any such breach.

The frequently changing attack techniques, along with the increased volume and sophistication of the attacks, create additional potential for us to be adversely impacted by this activity. This impact could result in

reputational, competitive, operational or other business harm as well as management distraction, financial losses and costs, and regulatory action.

We may be unable to protect our stakeholders’ privacy or we may fail to comply with privacy laws.

The protection of customer, employee, supplier and company data is critical and the regulatory environment surrounding information security, storage, use, processing, disclosure and privacy is demanding, with the frequent imposition of new and changing requirements. In addition, our customers, employees and suppliers expect that we will protect their personal information. Any actual or perceived significant breakdown, intrusion, interruption, cyberattack or corruption of customer, employee or supplier data or our failure to comply with federal, state, local and foreign privacy laws, including the European Union’s General Data Protection Regulation (“GDPR”) and the Health Insurance Portability and Accountability Act, could result in lost sales, remediation costs, and legal liability including severe penalties, regulatory action and reputational harm. GDPR became effective in 2018, for example, and requires companies to meet new and enhanced requirements regarding the handling of personal data, including its use, protection and the rights of data subjects to request correction or deletion of their personal data. Failure to meet GDPR requirements could result in penalties of up to 4% of worldwide revenue. Despite our efforts and investments in technology to secure our computer network, security could be compromised, confidential information could be misappropriated or system disruptions could occur. Failure to comply with the security requirements or rectify a security issue may result in fines and the imposition of restrictions on our ability to accept payment by credit or debit cards. In addition, the payment card industry (“PCI”) is controlled by a limited number of vendors that have the ability to impose changes in PCI’s fee structure and operational requirements on us without negotiation. Such changes in fees and operational requirements may result in our failure to comply with PCI security standards, as well as significant unanticipated expenses. Such failures could materially adversely affect our operating results and financial condition. Furthermore, we maintain cybersecurity insurance coverage at levels that we believe are appropriate for our business. The costs related to significant security breaches or disruptions, however, could be material and exceed the limits of the cybersecurity insurance we maintain against such risks. If the amounts of our insurance coverage are inadequate to satisfy any damages and losses in the event of a cybersecurity incident, we may have to expend significant resources to mitigate the impact of such an incident, and to develop and implement protections to prevent future incidents of this nature from occurring. Such financial exposure could have a material adverse effect on our business.

We may not be able to continue to achieve sustained profitability or increase profitability on a quarterly or annual basis.

Prior to 2005, we incurred net losses on an annual basis since our inception in 1988 and, as of September 30, 2019 and December 31, 2018, we had an accumulated deficit of $134.7 million and $135.0 million, respectively. Relatively small differences in our performance metrics may cause us to generate an operating or net loss in future periods. Our ability to continue to be profitable in future periods will depend, in part, on our ability to increase sales in our CCA segment, including maintaining and growing our installed base of instruments and related consumables, to maintain or increase gross margins and to limit the increase in our operating expenses to a reasonable level as well as avoid or effectively manage any unanticipated issues. We may not be able to generate, sustain or increase profitability on a quarterly or annual basis. If we cannot achieve or sustain profitability for an extended period, we may not be able to fund our expected cash needs, including the repayment of debt as it comes due, or continue our operations.

We may face product returns and product liability litigation in excess of, or not covered by, our insurance coverage or indemnities and/or warranties from our suppliers. If we become subject to product liability claims resulting from defects in our products, we may fail to achieve market acceptance of our products and our sales could substantially decline.

The testing, manufacturing and marketing of our current products as well as those currently under development entail an inherent risk of product liability claims and associated adverse publicity. Following the introduction of a product, adverse side effects may be discovered. Adverse publicity regarding such effects could affect sales of our other products for an indeterminate time period. To date, we have not experienced any material product liability claims, but any claim arising in the future could substantially harm our business. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. We may not be able to continue to obtain adequate insurance at a reasonable cost, if at all. In the event that we are held liable for a claim against which we are not indemnified or for damages exceeding the $10 million limit of our insurance coverage or which results in significant adverse publicity against us, we may lose revenue, be required to make substantial payments which could exceed our financial capacity and/or lose or fail to achieve market acceptance.

We may be held liable for the release of hazardous materials, which could result in extensive remediation costs or otherwise harm our business.

Certain of our products and development programs produced at our Des Moines, Iowa facility involve the controlled use of hazardous and bio hazardous materials, including chemicals and infectious disease agents. We cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any fines, penalties, remediation costs or other damages that result. Our liability for the release of hazardous materials could exceed our resources, which could lead to a shutdown of our operations, significant remediation costs and potential legal liability. In addition, we may incur substantial costs to comply with environmental regulations if we choose to expand our manufacturing capacity.

Risks related to our common stock

Our stock price has historically experienced high volatility, and could do so in the future, including experiencing a material price decline resulting from a large sale in a short period of time. This volatility could affect the value of our common stock.

Should a relatively large stockholder decide to sell a large number of shares in a short period of time, it could lead to an excess supply of our shares available for sale and correspondingly result in a significant decline in our stock price.

The securities markets have experienced significant price and volume fluctuations and the market prices of securities of many small cap companies have in the past been, and can in the future be expected to be, especially volatile. During the twelve months ended September 30, 2019, the closing stock price of our common stock has ranged from a low of $64.17 to a high of $110.34, and the closing sale price of our common stock on November 5, 2019 was $94.30 per share. Fluctuations in the trading price or liquidity of our common stock may adversely affect our ability to raise capital through future equity financings. Factors that may have a significant impact on the market price and marketability of our common stock include:

stock sales by large stockholders or by insiders;

changes in the outlook for our business;

our quarterly operating results, including as compared to expected revenue or earnings and in comparison to historical results;

termination, cancellation or expiration of our third-party supplier relationships;

announcements of technological innovations or new products by our competitors or by us;

litigation;

regulatory developments, including delays in product introductions;

developments or disputes concerning patents or proprietary rights;

availability of our revolving line of credit and compliance with debt covenants;

releases of reports by securities analysts;

economic and other external factors;

issuances of equity or equity-linked securities by us; and

general market conditions

In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, it is likely we would incur substantial legal fees and our management’s attention and resources would be diverted from operating our business in order to respond to the litigation.

On May 4, 2010, our stockholders approved an amendment (the “NOL Protective Amendment”) to our Certificate of Incorporation. The NOL Protective Amendment places restrictions on the transfer of our common stock that could adversely affect our ability to use our domestic Federal Net Operating Loss carryforward (“NOL”). In particular, the NOL Protective Amendment prevents the transfer of shares without the approval of our board of directors if, as a consequence, an individual, entity or groups of individuals or entities would become a 5-percent holder under Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury regulations, and also prevents any existing 5-percent holder from increasing his or her ownership position in the Company without the approval of our board of directors. Any transfer of shares in violation of the NOL Protective Amendment (a “Transfer Violation”) shall be void ab initio under the our Certificate of Incorporation and our board of directors has procedures under our Certificate of Incorporation to remedy a Transfer Violation including requiring the shares causing such Transfer Violation to be sold and any profit resulting from such sale to be transferred to a charitable entity chosen by the Company’s board of directors in specified circumstances. The NOL Protective Amendment could have an adverse impact on the value and trading liquidity of our stock if certain buyers who would otherwise have bid on or purchased our stock, including buyers who may not be comfortable owning stock with transfer restrictions, do not bid on or purchase our stock as a result of the NOL Protective Amendment. In addition, because some corporate takeovers occur through the acquirer’s purchase, in the public market or otherwise, of sufficient shares to give it control of a company, any provision that restricts the transfer of shares can have the effect of preventing a takeover. The NOL Protective Amendment could discourage or otherwise prevent accumulations of substantial blocks of shares in which our stockholders might receive a substantial premium above market value and might tend to insulate management and the board of directors against the possibility of removal to a greater degree than had the NOL Protective Amendment not passed.

In February 2018, our board of directors granted a waiver to a non-affiliated stockholder to allow the purchase, subject to certain limitations, of up to 730,000 shares of our common stock without causing a Transfer Violation. This waiver can be withdrawn by our board of directors at any time, in which case the non-affiliated stockholder is to only sell our stock until the non-affiliated stockholder ceases to be a Five Percent Shareholder (as defined in our Certificate of Incorporation). On August 7, 2019, our board of directors determined to waive the application of any NOL transfer restrictions contained in our Certificate of Incorporation with respect to the issuance and transfer of the Notes, any issuance of shares of the Company’s common stock upon conversion of any of the Notes, and any subsequent and further transfer of any such common stock, to the extent such restrictions would otherwise have been applicable thereto. These waivers, and any similar waivers that our board of directors may grant in the future, may make it more likely that we have a “change of ownership” as defined under the provisions of Section 382 of the Internal Revenue Code of 1986, as amended, which could place a significant restriction on our ability to utilize our domestic Federal NOL in the future and materially adversely affect our results of operations. State net operating loss

carryforwards may be similarly or more stringently limited. Any limitations on our ability to use our pre-change of ownership net operating losses to offset taxable income could potentially result in increased future tax liability to us.

If securities analysts do not publish research or reports about our business, or if they downgrade our stock, the price of our stock could decline.

The trading market for our common stock will likely be influenced by research and reports that securities or industry analysts publish about us or our business. In the event securities or industry analysts cover our company and one or more of these analysts downgrades our stock, lowers their price target, or publishes unfavorable or inaccurate research about our business, our stock price would likely decline. If one or more of these analysts ceases coverage of our company or fails to publish reports on us regularly, demand for our stock could decrease, which could cause our stock price and trading volume to decline.

We have not declared or paid any dividends on our common stock since 2012 and we do not anticipate paying any cash dividends in the foreseeable future.

We have not declared or paid any dividends on our common stock since October 2012. We intend to retain any earnings to finance the operation and expansion of our business, and we do not anticipate paying any cash dividends in the future. As a result, investors in our common stock may only receive a return on their investment in our common stock if the market price of our common stock increases.

We have fewer than 300 holders of record, which could allow us to terminate voluntarily the registration of our common stock with the SEC and after which we would no longer be eligible to maintain the listing of our common stock on The Nasdaq Capital Market. We may also be unable to otherwise maintain our listing on The Nasdaq Capital Market.

We have fewer than 300 holders of record as of our latest information, a fact which could make us eligible to terminate voluntarily the registration of our common stock with the SEC and therefore suspend our reporting obligations with the SEC under the Exchange Act and become a non-reporting company. If we were to cease reporting with the SEC, we would no longer be eligible to maintain the listing of our common stock on The Nasdaq Capital Market, which we would expect to materially adversely affect the liquidity and market price for our common stock. The Nasdaq Capital Market has several additional quantitative and qualitative requirements companies must comply with to maintain this listing. While we believe we are currently in compliance with all Nasdaq requirements, there can be no assurance we will continue to meet Nasdaq listing requirements, that Nasdaq will interpret these requirements in the same manner we do if we believe we meet the requirements, or that Nasdaq will not change such requirements or add new requirements to include requirements we do not meet in the future.

If we were delisted from The Nasdaq Capital Market, our common stock may be considered a penny stock under the regulations of the SEC and would therefore be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our common stock, which could severely limit market liquidity of the common stock and any stockholder’s ability to sell our securities in the secondary market. This lack of liquidity would also likely make it more difficult for us to raise capital in the future.

Provisions in our Certificate of Incorporation and bylaws and under Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Our Certificate of Incorporation and bylaws contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change of control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:

place restrictions on the transfer of our common stock that could adversely affect our ability to use our domestic NOL, which can have an effect of preventing a takeover;

establish a classified board of directors through our 2020 annual meeting of stockholders so that not all members of our board of directors are elected at one time;

provide that our board of directors may, without stockholder approval, issue shares of preferred stock with special voting or economic rights;

prohibit stockholders from calling a special meeting of our stockholders;

set forth supermajority requirements for amending certain provisions of our Certificate of Incorporation or our bylaws;

provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and

establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.

Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested’ stockholder and which may discourage, delay, or prevent a change of control of our company.

Any provision of our Certificate of Incorporation, bylaws or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also negatively affect the price that some investors are willing to pay for our common stock.

Risks related to the outstanding Notes

Servicing our debt will require a significant amount of cash, and we may not have sufficient cash flow from our business to pay our substantial debt.

Our ability to make scheduled payments of the principal of, to pay interest on or to refinance our indebtedness, including the amounts payable under the Notes and any future borrowings under our $2.0 million, cash collateralized, letter of credit facility, depends on our future performance, which is ~~incorporated herein~~subject to economic, financial, competitive and other factors beyond our control. Our business may not continue to generate cash flow from operations in the future sufficient to service our debt and make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as selling assets, restructuring debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt obligations.

We may not have the ability to raise the funds necessary to settle conversions of the Notes in cash or to repurchase the notes upon a fundamental change, and our future debt may contain, limitations on our ability to pay cash upon conversion or repurchase of the notes.

Holders of the Notes will have the right to require us to repurchase their notes upon the occurrence of a fundamental change at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any. In addition, upon conversion of the Notes, unless we elect to deliver solely shares of our common stock to settle such conversion (other than paying cash in lieu of delivering any fractional share), we will be required to make cash payments in respect of the Notes being converted. However, we may not have enough available cash or be able to obtain financing at the time we are required to make repurchases of Notes surrendered therefor or Notes being converted. In addition, our ability to repurchase the Notes or to pay cash upon conversions of the Notes may be limited by ~~reference.~~law, by regulatory authority or by agreements governing our existing and future indebtedness. Our failure to repurchase Notes at a time when the repurchase is required by the indenture or to pay any cash payable on future conversions of the Notes as required by the indenture would constitute a default under the indenture. If a fundamental change occurs, or if the Notes are accelerated due to an event of default under the indenture, such events may lead to a default under agreements governing our future indebtedness. Any future indebtedness of ours may contain restrictions on our ability to pay cash upon conversion or repurchase of the Notes. If the repayment of the related indebtedness were to be accelerated after any applicable notice or grace periods, we may not have sufficient funds to repay the indebtedness and repurchase the Notes or make cash payments upon conversions thereof.

The conditional conversion feature of the Notes, if triggered, may adversely affect our financial condition and operating results.

In the event the conditional conversion feature of the Notes is triggered, holders of Notes will be entitled to convert the Notes at any time during specified periods at their option. If one or more holders elect to convert their Notes, unless we elect to satisfy our conversion obligation by delivering solely shares of our common stock (other than paying cash in lieu of delivering any fractional share) or by electing an exchange process for the Notes and a designated financial institution delivers the applicable conversion consideration, we would be required to settle a portion or all of our conversion obligation through the payment of cash, which could adversely affect our liquidity. In addition, even if holders of Notes do not elect to convert their Notes, we could be required under applicable accounting rules to reclassify all or a portion of the outstanding principal of the Notes as a current rather than long-term liability, which would result in a material reduction of our net working capital.

The accounting method for convertible debt securities that may be settled in cash, such as the Notes, could have a material effect on our reported financial results.

Under Accounting Standards Codification 470-20, Debt with Conversion and Other Options (“ASC 470-20”), an entity must separately account for the liability and equity components of the convertible debt instruments (such as the Notes) that may be settled entirely or partially in cash upon conversion in a manner that reflects the issuer’s economic interest cost. The effect of ASC 470-20 on the accounting for the Notes is that the equity component is required to be included in the additional paid-in capital section of stockholders’ equity on our consolidated balance sheet at the issuance date and the value of the equity component would be treated as debt discount for purposes of accounting for the debt component of the Notes. As a result, we will be required to record a greater amount of non-cash interest expense as a result of the amortization of the discounted carrying value of the Notes to their face amount over the term of the Notes. We will report lower net income (or larger net losses) in our financial results because ASC 470-20 will require interest to include both the amortization of the debt discount and the instrument’s non-convertible coupon interest rate, which could adversely affect our reported or future financial results and the trading price of our common stock and the trading price of the notes.

In addition, under certain circumstances, convertible debt instruments (such as the Notes) that may be settled entirely or partly in cash may be accounted for utilizing the treasury stock method, the effect of which is that

the shares issuable upon conversion of such Notes are not included in the calculation of diluted earnings per share except to the extent that the conversion value of such Notes exceeds their principal amount. Under the treasury stock method, for diluted earnings per share purposes, the transaction is accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares, are issued. We cannot be sure that the accounting standards in the future will continue to permit the use of the treasury stock method. If we are unable or otherwise elect not to use the treasury stock method in accounting for the shares issuable upon conversion of the Notes, then our diluted earnings per share could be adversely affected.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In September 2019, the Company issued and sold $86.25 million in aggregate principal amount of Notes (which included the exercise in full by the Initial Purchasers of their option to purchase an additional $11.25 million in aggregate principal amount of the Notes) in a private offering to the Initial Purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), and for resale by the Initial Purchasers to qualified institutional buyers pursuant to the exemption from registration provided by Rule 144A under the Securities Act. Additional disclosure concerning this issuance can be found in our Current Report on Form 8-K filed with the SEC on September 11, 2019 and in our Current Report on Form 8-K filed with the SEC on September 17, 2019. The ~~following table sets forth information about our purchases~~shares of ~~our outstanding Public Common Stock during~~ the ~~quarter ended March 31, 2019.~~

Period Total Number of Shares Purchased (1) Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs
January 2019 16,243
$ 97.66
—
$ —
February 2019 17,737
$ 98.17
—
$ —
33,980
$ 97.92
—
$ —

(1) Shares of Public Common Stock we purchased between January 1, 2019 and March 31, 2019 were solely for the cancellation of shares of stock withheld for related tax obligations

common stock issuable upon conversion of the Notes, if any, have not been registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements.

Item 6. Exhibits



~~Exhibit Number~~	~~Notes~~	~~Description of Document~~
~~31.1~~		~~Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~
~~31.2~~		~~Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.~~
~~32.1~~	*	~~Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.~~
~~101.INS~~		~~XBRL Instance Document.~~
~~101.SCH~~		~~XBRL Taxonomy Extension Schema Document.~~
~~101.CAL~~		~~XBRL Taxonomy Extension Calculation Linkbase Document.~~
~~101.DEF~~		~~XBRL Taxonomy Extension Definition Linkbase Document.~~
~~101.PRE~~		~~XBRL Taxonomy Extension Presentation Linkbase Document.~~
~~101.LAB~~		~~XBRL Taxonomy Extension Label Linkbase Document.~~



Exhibit Number	Notes	Description of Document
4.1	(1)	Indenture, dated as of September 17, 2019, by and between the Heska Corporation and U.S. Bank National Association, as Trustee (including the form of the Notes)
4.2	(1)	Form of 3.750% Convertible Senior Notes due 2026 (included with Exhibit 4.1)
10.1	(2)	Amendment to Credit Facility
31.1		Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2		Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	*	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document.
101.SCH		XBRL Taxonomy Extension Schema Document.
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.



Notes
*	Furnished and not filed herewith.
(1)	Filed with the Registrant's Form 8-K on September 17, 2019.
(2)	Filed with the Registrant's Form 8-K on September 11, 2019.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on ~~May 8,~~November 6, 2019.



	HESKA CORPORATION

	By: /s/ KEVIN S. WILSON Kevin S. Wilson Chief Executive Officer and President (Principal Executive Officer)
	By: /s/ CATHERINE GRASSMAN Catherine Grassman Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

~~-34-~~-58-



Delaware	77-0192527
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification ~~Number)~~No.)
3760 Rocky Mountain Avenue Loveland, Colorado	80538
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (970) 493-7272



Title of each class	Trading Symbol	Name of each exchange on which registered
Common stock, $0.01 par value	HSKA	The Nasdaq Stock Market LLC



Large accelerated filer o	Accelerated filer x
Non-accelerated filer o	Smaller Reporting Company ¨
	Emerging growth company o



~~Title of each class~~	~~Trading Symbol~~	~~Name of each exchange where registered~~
~~Common stock, $0.01 par value~~	~~HSKA~~	~~The Nasdaq Stock Market LLC~~



			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Financial Statements	1
		Condensed Consolidated Balance Sheets	1
		Condensed Consolidated Statements of Income	2
		Condensed Consolidated Statements of Comprehensive Income	3
		Condensed Consolidated Statements of Stockholders' Equity	4
		Condensed Consolidated Statements of Cash Flows	5
		Notes to Condensed Consolidated Financial Statements	6
		Note 1, Operations and Summary of Significant Accounting Policies	6
		Note 2, Revenue	910
		Note 3, Acquisitions and Related Party Items	1112
		Note 4, Investments in Unconsolidated Affiliates	1314
		Note 5, Income Taxes	1415
		Note 6, Leases	1415
		Note 7, Earnings Per Share	1517
		Note 8, Goodwill and Other Intangibles	1618
		Note 9, Property and Equipment, Net~~, Net~~	1719
		Note 10, Inventories, Net	1819
		Note 11, Accrued Liabilities	1820
		Note 12, Capital Stock	1820
		Note 13, Accumulated Other Comprehensive Income	2123
		Note 14, Commitments and Contingencies	2123
		Note 15, Interest and Other Income, Net	2225
		Note 16, Convertible Notes and Credit Facility	2325
		Note 17, Segment Reporting	2329
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2531
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3239
	Item 4.	Controls and Procedures	3239
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	3239
	Item 1A.	Risk Factors	3339
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3357
	Item 6.	Exhibits	3357
		Signatures	3458



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



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


	March 31,			December 31,			September 30,			December 31,
	2019			2018			2019			2018
	(unaudited)						(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,101		$	13,389		$	80,505		$	13,389
Accounts receivable, net of allowance for doubtful accounts of $259 and $245, respectively	16,202			16,454
Accounts receivable, net of allowance for doubtful accounts of $170 and $245, respectively							13,715			16,454
Inventories, net	27,388			25,104			26,215			25,104
Net investment in leases, current, net of allowance for doubtful accounts of $40 and $40, respectively	3,225			2,989
Net investment in leases, current, net of allowance for doubtful accounts of $89 and $40, respectively							3,593			2,989
Prepaid expenses							3,028			1,533
Other current assets	4,620			4,471			2,695			2,938
Total current assets	60,536			62,407			129,751			62,407

Property and equipment, net	15,511			15,981			14,623			15,981
Operating lease right-of-use assets	6,414			—			5,870			—
Goodwill	27,311			26,679			27,216			26,679
Other intangible assets, net	9,923			9,764			9,206			9,764
Deferred tax asset, net	15,176			14,121			6,634			14,121
Net investment in leases, non-current	12,615			11,908			13,515			11,908
Investments in unconsolidated affiliates	7,837			8,018			7,563			8,018
Other non-current assets	7,457			7,574			9,633			7,574
Total assets	$	162,780		$	156,452		$	224,011		$	156,452

LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	7,746		$	7,469		$	5,524		$	7,469
Due to – related parties	—			226
Due to related parties							—			226
Accrued liabilities	10,647			10,142			5,302			10,142
Current operating lease liability	1,693			—
Current operating lease liabilities							1,714			—
Current portion of deferred revenue, and other	2,704			2,526			2,687			2,526
Total current liabilities	22,790			20,363			15,227			20,363

Convertible note, long-term, net							43,823			—
Deferred revenue, net of current portion	6,728			7,082			6,183			7,082
Line of credit and other long-term borrowings	6,026			6,031
Non-current operating lease liability	5,122			—
Line of credit							—			6,000
Non-current operating lease liabilities							4,578			—
Other liabilities	175			567			217			598
Total liabilities	40,841			34,043			70,028			34,043

Commitments and contingencies (Note 14)

Redeemable non-controlling interest and mezzanine equity	662			—			300			—

Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding	—			—
Preferred stock, $.01 par value, 2,500,000 and 2,500,000 shares authorized, respectively, none issued or outstanding							—			—
Common stock, $.01 par value, 10,250,000 and 10,250,000 shares authorized, respectively, none issued or outstanding	—			—			—			—
Public common stock, $.01 par value, 10,250,000 and 10,250,000 shares authorized, 7,746,602 and 7,675,692 shares issued and outstanding, respectively	77			77
Public common stock, $.01 par value, 10,250,000 and 10,250,000 shares authorized, 7,823,802 and 7,675,692 shares issued and outstanding, respectively							78			77
Additional paid-in capital	255,150			257,034			288,181			257,034
Accumulated other comprehensive income	215			277			140			277
Accumulated deficit	(134,165		)	(134,979		)	(134,716		)	(134,979		)
Total stockholders' equity	121,277			122,409			153,683			122,409
Total liabilities, mezzanine equity and stockholders' equity	$	162,780		$	156,452		$	224,011		$	156,452


	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018			2019			2018
Revenue:
Core companion animal	$	24,716		$	26,819		$	26,339		$	27,190		$	75,771		$	80,652
Other vaccines and pharmaceuticals	4,795			5,946			4,898			3,765			13,123			12,729
Total revenue, net	29,511			32,765			31,237			30,955			88,894			93,381

Cost of revenue	16,968			19,458			17,573			16,161			50,275			52,215

Gross profit	12,543			13,307			13,664			14,794			38,619			41,166

Operating expenses:
Selling and marketing	7,033			6,140			6,709			6,215			20,457			18,299
Research and development	1,366			670			2,532			935			6,137			2,165
General and administrative	4,219			4,626			4,230			11,239			12,473			20,223
Total operating expenses	12,618			11,436			13,471			18,389			39,067			40,687
Operating (loss) income	(75		)	1,871
Interest and other income, net	(16		)	(4		)
Operating income (loss)							193			(3,595		)	(448		)	479
Interest and other expense (income), net							927			(50		)	932			37
(Loss) income before income taxes and equity in losses of unconsolidated affiliates	(59		)	1,875			(734		)	(3,545		)	(1,380		)	442
Income tax (benefit) expense:
Current income tax expense	45			17			40			27			112			56
Deferred income tax benefit	(1,055		)	(297		)	(570		)	(1,902		)	(2,078		)	(1,997		)
Total income tax benefit	(1,010		)	(280		)	(530		)	(1,875		)	(1,966		)	(1,941		)

Net income before equity in losses of unconsolidated affiliates	951			2,155
Net (loss) income before equity in losses of unconsolidated affiliates							(204		)	(1,670		)	586			2,383
Equity in losses of unconsolidated affiliates	(181		)	—			(147		)	—			(455		)	—
Net income after equity in losses of unconsolidated affiliates	770			2,155
Net (loss) income after equity in losses of unconsolidated affiliates							(351		)	(1,670		)	131			2,383
Net loss attributable to redeemable non-controlling interest	(44		)	—			(41		)	—			(132		)	—
Net income attributable to Heska Corporation	$	814		$	2,155
Net (loss) income attributable to Heska Corporation							$	(310	)	$	(1,670	)	$	263		$	2,383

Basic earnings per share attributable to Heska Corporation	$	0.11		$	0.30
Diluted earnings per share attributable to Heska Corporation	$	0.10		$	0.28
Basic (loss) earnings per share attributable to Heska Corporation							$	(0.04	)	$	(0.23	)	$	0.04		$	0.33
Diluted (loss) earnings per share attributable to Heska Corporation							$	(0.04	)	$	(0.23	)	$	0.03		$	0.30

Weighted average outstanding shares used to compute basic earnings per share attributable to Heska Corporation	7,459			7,102
Weighted average outstanding shares used to compute diluted earnings per share attributable to Heska Corporation	7,965			7,711
Weighted average outstanding shares used to compute basic (loss) earnings per share attributable to Heska Corporation							7,501			7,289			7,461			7,194
Weighted average outstanding shares used to compute diluted (loss) earnings per share attributable to Heska Corporation							7,501			7,289			7,960			7,820



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders' Equity
Three Months Ended March 31, 2018 and 2019	Shares	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Total Stockholders' Equity
Balances, December 31, 2017	7,303	$	73	$	243,598		$	232		$	(143,463	)	$	100,440
Adoption of accounting standards	—	—		—			—			2,634			2,634
Balances, January 1, 2018, as adjusted	7,303	73		243,598			232			(140,829		)	103,074
Net income attributable to Heska Corporation	—	—		—			—			2,155			2,155
Issuance of common stock, net of shares withheld for employee taxes	116	1		(1,285		)	—			—			(1,284		)
Stock-based compensation	—	—		1,064			—			—			1,064
Other comprehensive income	—	—		—			81			—			81
Balances, March 31, 2018	7,419	$	74	$	243,377		$	313		$	(138,674	)	$	105,090

Balances, December 31, 2018	7,676	$	77	$	257,034		$	277		$	(134,979	)	$	122,409
Net income attributable to Heska Corporation	—	—		—			—			814			814
Issuance of common stock, net of shares withheld for employee taxes	71	—		(3,070		)	—			—			(3,070		)
Stock-based compensation	—	—		1,186			—			—			1,186
Other comprehensive loss	—	—		—			(62		)	—			(62		)
Balances, March 31, 2019	7,747	$	77	$	255,150		$	215		$	(134,165	)	$	121,277

Note: Excludes amounts related to redeemable non-controlling interests recorded in mezzanine equity.


	Three Months Ended March 31,						Nine Months Ended September 30,
	2019			2018			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash flows from operating activities:
Net income after equity in losses from unconsolidated affiliates	$	770		$	2,155		$	131		$	2,383
Adjustments to reconcile net income to cash provided by operating activities:
Adjustments to reconcile net income to cash (used in) provided by operating activities:
Depreciation and amortization	1,265			1,196			3,759			3,473
Non-cash impact of operating leases	375			—			1,126			—
Deferred income tax benefit	(1,055		)	(297		)	(2,078		)	(1,997		)
Stock-based compensation	1,186			1,064			3,625			3,774
Other losses	191			10
Equity in losses of unconsolidated affiliates							455			—
Amortization of debt discount and issuance costs							282			30
Other losses (gains)							340			(32		)
Changes in operating assets and liabilities (net of the effect of acquisitions):
Accounts receivable	624			1,465			2,808			2,102
Inventories	(1,052		)	2,047			(438		)	3,935
Due from related parties	—			1			—			1
Lease receivable, current	(237		)	(233		)	(605		)	(708		)
Other current assets	(151		)	257			(892		)	(451		)
Accounts payable	(110		)	(3,265		)	(2,491		)	(5,092		)
Due to related parties	(226		)	(1,026		)	(226		)	(1,422		)
Accrued liabilities and other	39			2,981			(6,528		)	6,076
Lease receivable, non-current	(668		)	(754		)	(1,551		)	(1,906		)
Other non-current assets	101			244			(65		)	(843		)
Deferred revenue and other	(325		)	(1,638		)	(928		)	(2,865		)
Net cash provided by operating activities	727			4,207
CASH FLOWS FROM INVESTING ACTIVITIES:
Net cash (used in) provided by operating activities							(3,276		)	6,458
Cash flows from investing activities:
Investment in subsidiary, net of cash acquired	(224		)	—			(622		)	—
Investments in unconsolidated affiliates							—			(8,089		)
Purchases of property and equipment	(234		)	(375		)	(722		)	(1,061		)
Net cash used in investing activities	(458		)	(375		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from disposition of property and equipment							—			24
Net cash (used in) investing activities							(1,344		)	(9,126		)
Cash flows from financing activities:
Borrowings on line of credit							6,750			3,000
Repayments of line of credit borrowings							(12,750		)	(3,000		)
Payment of debt issuance costs							(3,072		)	—
Convertible debt proceeds							86,250			—
Proceeds from issuance of common stock	410			288			1,233			3,627
Repurchase of common stock	(3,480		)	(1,571		)	(3,480		)	(1,241		)
Distributions to non-controlling interest members	—			(126		)	—			(126		)
Repayments of other debt	(1,486		)	—			(1,164		)	(5		)
Net cash used in financing activities	(4,556		)	(1,409		)
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH	(1		)	44
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS	(4,288		)	2,467
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	13,389			9,659
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	9,101		$	12,126
Net cash provided by financing activities							73,767			2,255
Foreign exchange effect on cash, cash equivalents and restricted cash							(31		)	(10		)
Net increase (decrease) in cash, cash equivalents and restricted cash							69,116			(423		)
Cash, cash equivalents and restricted cash, beginning of period							13,389			9,659
Cash, cash equivalents and restricted cash, end of period							$	82,505		$	9,236

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Supplemental disclosure of cash flow information:
Non-cash transfers of equipment between inventory and property and equipment, net	$	227		$	251		$	1,118		$	1,019
Accrued debt issuance costs							$	105		$	—



	September 30, 2019		December 31, 2018
Cash and cash equivalents	$	80,505	$	13,389
Restricted cash in other non-current assets	2,000		—
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	82,505	$	13,389


Year Ending December 31,	Revenue		Revenue
2019 (remaining)	$	18,023	$	6,409
2020	21,101		23,605
2021	17,078		19,858
2022	13,925		16,831
2023	10,337		13,453
Thereafter	6,727		13,993
	$	87,191	$	94,149


	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Equity method investment	$	4,819	$	5,000	$	4,545	$	5,000
Non-marketable equity security investment	3,018		3,018		3,018		3,018
	$	7,837	$	8,018	$	7,563	$	8,018


Cash paid for amounts included in the measurement of operating lease liabilities	$	444	$	1,344
ROU assets obtained in exchange for operating lease obligations	293		498


	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018		2019		2018
Point of Care laboratory revenue:	$	15,961	$	13,641	$	17,524	$	14,584	$	49,605	$	43,277
Consumables	12,317		10,821		14,021		11,598		39,545		33,942
Sales-type leases	1,742		1,538		1,587		1,228		4,821		4,559
Outright instrument sales	1,528		811		1,547		1,382		4,122		3,528
Other	374		471		369		376		1,117		1,248

Point of Care imaging revenue:	5,410		5,972		5,337		5,326		15,976		15,759
Outright instrument sales	4,546		5,137		4,479		4,453		13,431		13,157
Service revenue	562		556		544		590		1,663		1,689
Operating type leases and other	302		279		314		283		882		913

Other CCA revenue:	3,345		7,206		3,478		7,280		10,190		21,616
Other pharmaceuticals, vaccines and diagnostic tests	3,246		7,109		3,400		7,176		9,927		21,278
Research and development, license and royalty revenue	99		97		78		104		263		338

Total CCA revenue	$	24,716	$	26,819	$	26,339	$	27,190	$	75,771	$	80,652


Remainder of 2019	$	1,396	$	727
2020	1,611		1,633
2021	1,453		1,439
2022	1,320		1,328
2023	1,766		1,766
Total operating lease payments	7,546		6,893
Less: imputed interest	731		601
Total operating lease liabilities	$	6,815	$	6,292


Year Ending December 31,
Remainder of 2019	$	2,409	$	799
2020	3,430		3,788
2021	3,364		3,797
2022	2,989		3,455
2023	2,147		2,698
Thereafter	1,501		2,571
	$	15,840	$	17,108


	March 31,			December 31,
	2019			2018			September 30, 2019			December 31, 2018
Land	$	377		$	377		$	377		$	377
Building	2,978			2,978			2,978			2,978
Machinery and equipment	33,591			33,087			30,039			33,087
Office furniture and equipment	1,767			1,687			1,699			1,687
Computer hardware and software	4,725			4,704			4,318			4,704
Leasehold and building improvements	10,086			9,953			10,545			9,953
Construction in progress	947			1,274			747			1,274
	54,471			54,060			50,703			54,060
Less accumulated depreciation	(38,960		)	(38,079		)	(36,080		)	(38,079		)
Total property and equipment, net	$	15,511		$	15,981		$	14,623		$	15,981



Weighted average remaining lease term	~~4.4~~3.9 years
Weighted average discount rate	~~4.45~~4.44	%



Carrying amount, December 31, 2018	$	26,679
Goodwill attributable to acquisitions (subject to change)	643
Foreign currency adjustments	(11		)
Carrying amount, March 31, 2019	$	27,311



	March 31, 2019							December 31, 2018
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Developed technology	$	8,200	$	(205	)	$	7,995	$	8,200	$	—		$	8,200
Customer relationships and other	3,793		(1,865		)	1,928		3,303		(1,739		)	1,564
Total intangible assets	$	11,993	$	(2,070	)	$	9,923	$	11,503	$	(1,739	)	$	9,764



Carrying amount, December 31, 2018	$	26,679
Goodwill attributable to acquisitions	547
Foreign currency adjustments	(10		)
Carrying amount, September 30, 2019	$	27,216



	September 30, 2019			December 31, 2018
Raw materials	$	15,292		$	15,000
Work in process	2,959			3,592
Finished goods	9,145			8,085
Allowance for excess or obsolete inventory	(1,181		)	(1,573		)
Total inventory, net	$	26,215		$	25,104


	March 31, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Accrued settlement (see Note 14)	$	6,750	$	6,750	$	—	$	6,750
Accrued payroll and employee benefits	840		759		1,189		759
Accrued property taxes	232		632		510		632
Inventory in transit	1,281		327
Accrued purchase orders					1,957		699
Other	1,544		1,674		1,646		1,302
Total accrued liabilities	$	10,647	$	10,142	$	5,302	$	10,142


	Three Months Ended March 31,				Year Ended December 31,				Nine Months Ended September 30,				Year Ended December 31,
	2019				2018				2019				2018
	Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding at beginning of period	620,553		$	40.741	630,847		$	29.312	620,553		$	40.741	630,847		$	29.312
Granted at market	1,200		$	98.970	153,700		$	75.244	35,200		$	72.271	153,700		$	75.244
Forfeited	—		$	—	(18,978	)	$	53.010	(664	)	$	98.660	(18,978	)	$	53.010
Expired	—		$	—	(896	)	$	25.740	(234	)	$	98.660	(896	)	$	65.414
Exercised	(122,895	)	$	17.013	(144,120	)	$	65.414	(153,227	)	$	16.583	(144,120	)	$	25.740
Outstanding at end of period	498,858		$	46.727	620,553		$	40.741	501,628		$	50.230	620,553		$	40.741
Exercisable at end of period	319,523		$	31.026	386,176		$	21.214	321,229		$	36.493	386,176		$	21.214


	Options Outstanding				Options Exercisable			Options Outstanding				Options Exercisable
Exercise Prices	Number of Options Outstanding at March 31, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2019	Weighted Average Exercise Price		Number of Options Outstanding at September 30, 2019	Weighted Average Remaining Contractual Life in Years	Weighted Average Exercise Price		Number of Options Exercisable at September 30, 2019	Weighted Average Exercise Price
$ 4.50 - $ 7.36	101,502	3.65	$	6.807	101,502	$	6.807
$ 4.96 - $ 7.36								90,852	3.38	$	6.988	90,852	$	6.988
$ 7.37 - $ 32.21	94,485	5.05	$	15.917	93,758	$	15.793	78,374	4.55	$	15.964	78,374	$	15.964
$ 32.22 - $ 62.50	61,104	6.84	$	39.783	44,672	$	39.693	57,533	6.31	$	39.797	51,945	$	39.740
$ 62.51 - $ 69.77	130,000	8.93	$	69.770	43,337	$	69.770	130,000	8.43	$	69.770	43,337	$	69.770
$ 69.78 - $ 108.25	111,767	8.20	$	86.020	36,254	$	81.236	144,869	8.19	$	82.494	56,721	$	83.719
$ 4.50 - $ 108.25	498,858	6.70	$	46.727	319,523	$	31.026
$ 4.96 - $ 108.25								501,628	6.60	$	50.230	321,229	$	36.493



	RSAs	Weighted-Average Grant Date Fair Value Per Award
Non-vested as of December 31, 2018	259,430	$	74.26
Granted	117	77.52
Vested	—	—
Forfeited	—	—
Non-vested as of March 31, 2019	259,547	$	74.26


	Minimum Pension Liability			Foreign Currency Translation			Total Accumulated Other Comprehensive Income			Minimum Pension Liability			Foreign Currency Translation			Total Accumulated Other Comprehensive Income
Balances at December 31, 2018	$	(419	)	$	696		$	277		$	(419	)	$	696		$	277
Current period other comprehensive loss	—			(62		)	(62		)	—			(137		)	(137		)
Balances at March 31, 2019	$	(419	)	$	634		$	215
Balances at September 30, 2019										$	(419	)	$	559		$	140



	September 30, 2019
Carrying amount of equity component	$	39,508

Principal amount of the Notes	86,250
Unamortized debt discount	(42,427		)
Net carrying amount	$	43,823



	Three and Nine Months Ended
	September 30, 2019
Interest expense related to contractual coupon interest	$	117
Interest expense related to amortization of the debt discount	220
	$	337



Three Months Ended September 30, 2019	Core Companion Animal			Other Vaccines and Pharmaceuticals			Total
Total revenue	$	26,339		$	4,898		$	31,237
Operating income (loss)	560			(367		)	193
Loss before income taxes	(367		)	(367		)	(734		)
Capital expenditures	27			66			93
Depreciation and amortization	908			329			1,237



Three Months Ended September 30, 2018	Core Companion Animal			Other Vaccines and Pharmaceuticals		Total
Total revenue	$	27,190		$	3,765	$	30,955
Operating (loss) income	(4,402		)	807		(3,595		)
(Loss) income before income taxes	(4,352		)	807		(3,545		)
Capital expenditures	20			229		249
Depreciation and amortization	823			317		1,140


Three Months Ended March 31, 2019	Core Companion Animal			Other Vaccines and Pharmaceuticals			Total
Nine Months Ended September 30, 2019										Core Companion Animal			Other Vaccines and Pharmaceuticals			Total
Total revenue	$	24,716		$	4,795		$	29,511		$	75,771		$	13,123		$	88,894
Operating loss	(51		)	(24		)	(75		)
Operating income (loss)										255			(703		)	(448		)
Loss before income taxes	(35		)	(24		)	(59		)	(677		)	(703		)	(1,380		)
Capital expenditures	44			190			234			103			619			722
Depreciation and amortization	947			318			1,265			2,789			970			3,759


Three Months Ended March 31, 2018	Core Companion Animal		Other Vaccines and Pharmaceuticals			Total
Nine Months Ended September 30, 2018								Core Companion Animal		Other Vaccines and Pharmaceuticals		Total
Total revenue	$	26,819	$	5,946		$	32,765	$	80,652	$	12,729	$	93,381
Operating income (loss)	1,923		(52		)	1,871
Income (loss) before income taxes	1,927		(52		)	1,875
Operating income								384		95		479
Income before income taxes								347		95		442
Capital expenditures	57		318			375		117		944		1,061
Depreciation and amortization	908		288			1,196		2,568		905		3,473


Year Ended December 31, 2018	Core Companion Animal		Other Vaccines and Pharmaceuticals		Total
As of December 31, 2018							Core Companion Animal		Other Vaccines and Pharmaceuticals		Total
Investments in unconsolidated affiliates	$	8,018	$	—	$	8,018	$	8,018	$	—	$	8,018
Total assets	133,586		22,866		156,452		133,586		22,866		156,452
Net assets	96,129		26,280		122,409		96,129		26,280		122,409


	Three Months Ended March 31,						Change					Three Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2019			2018			Dollar Change			% Change		2019			2018			Dollar Change			% Change		2019			2018			Dollar Change			% Change
Point of Care laboratory:	$	15,961		$	13,641		$	2,320		17.0	%	$	17,524		$	14,584		$	2,940		20.2	%	$	49,605		$	43,277		$	6,328		14.6	%
Consumables	12,317			10,821			1,496			13.8	%	14,021			11,598			2,423			20.9	%	39,545			33,942			5,603			16.5	%
Instruments	3,270			2,349			921			39.2	%	3,134			2,610			524			20.1	%	8,943			8,087			856			10.6	%
Other	374			471			(97		)	(20.6	)%	369			376			(7		)	(1.9	)%	1,117			1,248			(131		)	(10.5	)%
Point of Care imaging	5,410			5,972			(562		)	(9.4	)%	5,337			5,326			11			0.2	%	15,976			15,759			217			1.4	%
Other CCA revenue	3,345			7,206			(3,861		)	(53.6	)%	3,478			7,280			(3,802		)	(52.2	)%	10,190			21,616			(11,426		)	(52.9	)%
Total CCA revenue	$	24,716		$	26,819		$	(2,103	)	(7.8	)%	$	26,339		$	27,190		$	(851	)	(3.1	)%	$	75,771		$	80,652		$	(4,881	)	(6.1	)%
Percent of total revenue	83.8		%	81.9		%						84.3		%	87.8		%						85.2		%	86.4		%
Cost of revenue	12,622			14,069			(1,447		)	(10.3	)%	12,735			13,759			(1,024		)	(7.4	)%	37,818			41,294			(3,476		)	(8.4	)%
Gross profit	12,094			12,750			(656		)	(5.1	)%	13,604			13,431			173			1.3	%	37,953			39,358			(1,405		)	(3.6	)%
Operating (loss) income	$	(51	)	$	1,923		$	(1,974	)	(102.7	)%
Operating income (loss)												$	560		$	(4,402	)	$	4,962		(112.7	)%	$	255		$	384		$	(129	)	(33.6	)%



Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under Plans or Programs
January 2019	16,243	$	97.66	—	$	—
February 2019	17,737	$	98.17	—	$	—
	33,980	$	97.92	—	$	—

(1) Shares of Public Common Stock we purchased between January 1, 2019 and March 31, 2019 were solely for the cancellation of shares of stock withheld for related tax obligations