10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549
FORM 10-Q
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2013
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from _________________ to _______________________
Commission file number: 000-22427
HESKA CORPORATION
(Exact name of registrant as specified in its charter)
Delaware		77-0192527
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
3760 Rocky Mountain Avenue Loveland, Colorado		80538
(Address of principal executive offices)		(Zip Code)
Registrant's telephone number, including area code:  (970) 493-7272
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes  x       No  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes   x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company as defined in Rule 12b-2 of the Exchange Act.  See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):
Large accelerated filer  o			Accelerated filer  o
Non-accelerated filer  o  (Do not check if a small reporting company)			Smaller reporting company  x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o    No x
The number of shares of the Registrant's Public Common Stock outstanding at May 14, 2013 was 5,803,777.

TABLE OF CONTENTS

		Page
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Condensed Consolidated Balance Sheets (Unaudited) as of December 31, 2012 and        March 31, 2013	2
	Condensed Consolidated Statements of Operations (Unaudited) for the three months  ended March 31, 2012 and 2013	3
	Condensed Consolidated Statements of Comprehensive Income (Unaudited) for the three months ended March 31, 2012 and 2013	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) for the        three months ended March 31, 2012 and 2013	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	20
PART II -  OTHER INFORMATION
Item 1.	Legal Proceedings	21
Item 1A.	Risk Factors	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
Item 3.	Defaults Upon Senior Securities	33
Item 4.	(Removed and Reserved)	33
Item 5.	Other Information	33
Item 6.	Exhibits	34
Signatures		35
Exhibit Index		36

HESKA, ALLERCEPT, AVERT,  E-SCREEN, FELINE ULTRANASAL, HEMATRUE, SOLO STEP, THYROMED, VET/OX and VITALPATH are registered trademarks and CBC-DIFF,  ELEMENT DC and VET/IV are trademarks of Heska Corporation.  TRI-HEART is a registered trademark of Schering-Plough Animal Health Corporation ("SPAH") in the United States and is a registered trademark of Heska Corporation in other countries.  DRI-CHEM is a registered trademark of FUJIFILM Corporation. This Form 10-Q also refers to trademarks and trade names of other organizations.

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(amounts in thousands except shares and per share amounts)

(unaudited)

ASSETS
	December 31, 2012			March 31, 2013
Current assets:
Cash and cash equivalents	$	5,784			$		5,459
Accounts receivable, net of allowance for doubtful accounts of $155 and $171, respectively		11,044					9,945
Inventories, net		12,483					15,082
Deferred tax asset, current		1,130					455
Other current assets		2,514					1,148
Total current assets		32,955					32,089
Property and equipment, net		6,005					6,543
Note receivable – related party		—					1,364
Goodwill		1,120					21,739
Deferred tax asset, net of current portion		26,746					27,757
Other long-term assets		—					72
Total assets	$	66,826			$		89,564
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	5,298			$	7,590
Accrued liabilities		4,132				3,475
Current portion of deferred revenue		2,407				2,756
Line of credit		2,552				5,106
Other short-term borrowings, including current portion    of long-term note payable		—				982
Total current liabilities		14,389				19,909
Long-term note payable, net of current portion		—				468
Deferred revenue, net of current portion, and other		3,575				5,233
Total liabilities		17,964				25,610
Commitments and contingencies
Non-Controlling Interest		—						12,003
Public Common Stock subject to redemption		—						3,894
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized; none issued or outstanding		—						—
Common stock, $.01 par value, 7,500,000 shares authorized; none issued or outstanding		—						—
Public common stock, $.01 par value, 7,500,000 shares         authorized; 5,372,336 and 5,802,672 shares issued and        outstanding, respectively		54						58
Additional paid-in capital		218,544						218,405
Accumulated other comprehensive income		296						189
Accumulated deficit		(170,032	)					(170,595	)
Total stockholders' equity		48,862						48,057
Total liabilities and stockholders' equity	$	66,826		$				89,564

See accompanying notes to condensed consolidated financial statements.

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(in thousands, except per share amounts)

(unaudited)

	Three Months Ended March 31,
	2012		2013
Revenue, net:
Core companion animal health	$	16,580	$	15,649
Other vaccines, pharmaceuticals and products		2,595		3,330
Total revenue, net		19,175		18,979
Cost of revenue		10,252		11,177
Gross profit		8,923		7,802
Operating expenses:
Selling and marketing		4,888		5,125
Research and development		334		390
General and administrative		2,619		2,969
Total operating expenses		7,841		8,484
Operating income (loss)		1,082		(682	)
Interest and other (income) expense, net		142		(11	)
Income (loss) before income taxes		940		(671	)
Income tax expense (benefit):
Current tax expense		48		6
Deferred tax expense (benefit)		308		(325	)
Total income tax expense (benefit)		356		(319	)
Net income (loss)	$	584	$	(352	)
Net income attributable to non-controlling interest		—		34
Net income (loss) attributable to Heska Corporation	$	584	$	(386	)
Basic net income (loss) per share attributable to Heska Corporation	$	0.11	$	(0.07	)
Diluted net income (loss) per share attributable to Heska Corporation	$	0.11	$	(0.07	)
Weighted average outstanding shares used to compute basic net income (loss) per share attributable to Heska Corporation		5,264		5,547
Weighted average outstanding shares used to compute diluted net income (loss) per share attributable to Heska Corporation		5,434		5,547

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

(in thousands)

(unaudited)

		Three Months Ended March 31,
		2012	2013
Net income (loss)	$	584	$	(352	)
Other comprehensive income (expense):
Foreign currency translation		108		(107	)
Unrealized gain on available for sale investments		—		—
Comprehensive income (loss)	$	692	$	(459	)
Comprehensive income attributable to non-controlling interest	$	—	$	34
Comprehensive income (loss) attributable to Heska Corporation	$	692	$	(493	)

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

(in thousands)

(unaudited)

	Three Months Ended March 31,
	2012			2013
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss)	$	584		$	(352	)
Adjustments to reconcile net income to cash provided by (used in) operating activities:
Depreciation and amortization		413			474
Deferred tax expense (benefit)		308			(325	)
Stock-based compensation		90			118
Unrealized (gain) loss on foreign currency translation		36			(34	)
Changes in operating assets and liabilities:
Accounts receivable		(1,713	)		1,613
Inventories		(711	)		(1,293	)
Other current assets		(170	)		488
Accounts payable		1,163			868
Accrued liabilities		(127	)		(874	)
Deferred revenue and other liabilities		(128	)		(173	)
Net cash provided by (used in) operating activities		(255	)		510
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investment in subsidiary		—			(3,019	)
Purchase of property and equipment		(271	)		(317	)
Net cash provided by (used in) investing activities		(271	)		(3,336	)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock		184			59
Proceeds from (repayments of) line of credit borrowings, net		—			2,553
Proceeds from (repayments of) other debt		—			(77	)
Net cash provided by (used in) financing activities		184			2,535
EFFECT OF EXCHANGE RATE CHANGES ON CASH		18			(34	)
INCREASE (DECREASE)  IN CASH AND CASH EQUIVALENTS		(324	)		(325	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		6,332			5,784
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	6,008		$	5,459
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Dividends payable	$	532		$	—
Cash paid for interest	$	46		$	14
Non-cash transfer of inventory to property and equipment	$	354		$	160
Prepaid applied to acquisition of Heska Imaging	$	—		$	1,000

See accompanying notes to condensed consolidated financial statements.

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HESKA CORPORATION AND SUBSIDIARIES

1.           ORGANIZATION AND BUSINESS

Heska Corporation ("Heska" or the "Company") develops, manufactures, markets, sells and supports veterinary products.  Heska's core focus is on the canine and feline companion animal health markets.

2.           SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are the responsibility of the Company's management and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission (the "SEC").  The condensed consolidated balance sheet as of March 31, 2013, the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2013, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2012 and 2013 and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2013 are unaudited, but include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented.  All material intercompany transactions and balances have been eliminated in consolidation.  Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year.  The accompanying financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year.  Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K filed with the SEC on March 14, 2013.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reported period.  Actual results could differ from those estimates.  Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess/obsolete inventory, in determining the period over which the Company's obligations are fulfilled under agreements to license product rights and/or technology rights, in determining the need for, and the amount of, a valuation allowance on certain deferred tax assets and in determining the need for, and the amount of, an accrued liability for future payments related to minimum purchase obligations the Company may make in order to maintain certain product rights.

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Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method.  Inventory manufactured by the Company includes the cost of material, labor and overhead.  If the cost of inventories exceeds estimated fair value, provisions are made to reduce the carrying value to estimated fair value.

Inventories, net consist of the following (in thousands):

	December 31, 2012			March 31, 2013
Raw materials	$	5,275		$	5,662
Work in process		3,342			2,986
Finished goods		4,671			7,652
Allowance for excess or obsolete inventory		(805	)		(1,218	)
	$	12,483		$	15,082

Basic and Diluted Net Income (Loss) Per Share

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period.  Diluted net income (loss) per share is computed using the sum of the weighted average number of shares of common stock outstanding, and, if not anti-dilutive, the effect of outstanding common stock equivalents (such as stock options and warrants) determined using the treasury stock method.  For the three months ended March 31, 2012, the Company reported net income and therefore, dilutive common stock equivalent securities, as computed using the treasury method, were added to basic weighted average shares outstanding for the period to derive the weighted average shares for diluted earnings per share calculation.  For the three months ended March 31, 2013, the Company reported a net loss and therefore all common stock equivalent securities would be anti-dilutive and were not included in the diluted earnings per share calculation for the period.  Common stock equivalent securities that were anti-dilutive for the three months ended March 31, 2012, and therefore excluded, were outstanding options to purchase 697,503 shares of common stock.  These securities are anti-dilutive primarily due to exercise prices greater than the average trading price of the Company's common stock during the three months ended March 31, 2012.

3.           ACQUISITION

Cuattro Veterinary USA, LLC

On February 24, 2013, the Company acquired a 54.6% interest in Cuattro Veterinary USA, LLC

("Cuattro Vet USA") for approximately $7.6 million in cash and stock, including more than $4 million in cash (the "Acquisition").  Immediately following and as a result of the transaction, former Cuattro Vet USA unit holders owned approximately 7.2% of the Company's Public Common Stock. The remaining minority position (45.4%) in Cuattro Vet USA is subject to purchase by Heska under performance-based puts and calls following calendar year 2015, 2016 and 2017.  Should Heska undergo a change in control, as defined, prior to the end of 2017, Cuattro Vet USA minority unit holders will be entitled to sell their Cuattro Vet USA units to Heska at the highest call value they could have otherwise obtained.  The Company's position in Cuattro Vet USA is subject to premium repurchase or discounted sale under calls and puts expiring 18 months following the closing of the transaction.

Cuattro Vet USA was subsequently renamed Heska Imaging US, LLC ("Heska Imaging") and markets, sells and supports digital radiography and ultrasound products along with embedded software and support, data hosting and other services.

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The Company accounted for the acquisition pursuant to ASC No. 805, "Business Combinations." Accordingly, it recorded assets acquired, liabilities assumed and non-controlling interests at their fair values.  The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price based on current estimates as the Company continues to gather information to evaluate the appropriate accounting result (in thousands):

Consideration
Cash	$	4,073
Stock		3,571
Total	$	7,644

Inventories	$	1,466
Note from Cuattro Veterinary, LLC, due March 15, 2016		1,360
Other tangible assets		1,278
Intangible assets		688
Goodwill		19,994
Notes payable and other borrowings		(1,527	)
Accounts payable		(1,424	)
Other assumed liabilities		(2,399	)
	$	19,436
Non-controlling interest		(11,792	)
Total	$	7,644

Intangible assets and their amortization periods are as follows:

	Useful Life (in years)	Fair Value
Trade name	2.75	$	688
		$	688

Cuattro Vet USA contributed net revenue of $1.9 million and net income of $75 thousand to the Company for the period from February 24, 2013 to March 31, 2013.  The following unaudited pro forma financial information presents the combined results of the Company and Cuattro Vet USA's as if the Acquisition had closed on January 1, 2012.

	Three Months Ended March 31,
	2012		2013
Revenue, net	$	20,828	$	19,879
Net income (loss) attributable to Heska Corporation		498		(420	)
Basic earnings (loss) per share attributable to Heska Corporation	$	0.09	$	(0.08	)
Diluted earnings (loss) per share attributable to Heska Corporation		0.09		(0.08	)

4.           CAPITAL STOCK

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions for options granted in the three months ended March 31, 2012 and 2013.

	Three Months Ended March 31,
	2012	2013
Risk-free interest rate	0.56%		0.54%
Expected lives	3.0 years		3.4 years
Expected volatility	60%		52%
Expected dividend yield	3.43%		0.00%

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A summary of the Company's stock option plans, excluding options to purchase fractional shares resulting from the Company's December 2010 1-for-10 reverse stock split is as follows:

	Year Ended December 31, 2012					Three Months Ended March 31, 2013
	Options			Weighted Average Exercise Price		Options			Weighted Average Exercise Price
Outstanding at beginning of period		1,448,675		$	10.425		1,245,161		$	11.054
Granted at market		137,950		$	9.534		31,230		$	8.344
Cancelled		(118,330	)	$	11.373		(13,758	)	$	5.101
Exercised		(223,134	)	$	5.863		(17,752	)	$	6.430
Outstanding at end of period		1,245,161		$	11.054		1,244,881		$	11.118
Exercisable at end of period		971,029		$	12.129		966,038		$	12.191

The estimated fair value of stock options granted during the three months ended March 31, 2013 and 2012 was computed to be approximately $97 thousand and $13 thousand, respectively.  The amount is amortized ratably over the vesting period of the options.  The per share weighted average estimated fair value of options granted during the three months ended March 31, 2013 and 2012 was computed to be approximately $3.13 and $3.91, respectively.  The total intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was approximately $35 thousand and $652 thousand, respectively.  The cash proceeds from options exercised during the three months ended March 31, 2013 and 2012 were approximately $84 thousand and $184 thousand, respectively.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013, excluding outstanding options to purchase an aggregate of 105.1 fractional shares resulting from the Company's December 2010 1-for-10 reverse stock split with a weighted average remaining contractual life of 1.63 years, a weighted average exercise price of $13.71 and exercise prices ranging from $4.40 to $31.50.  The Company intends to issue whole shares only from option exercises.

		Options Outstanding						Options Exercisable
Exercise Prices		Number of Options Outstanding at March 31, 2013		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2013		Weighted Average Exercise Price
$	2.70 - $ 6.76		258,803		5.76	$	5.229		189,533		$	5.131
$	6.77 - $ 8.55		259,423		8.19	$	7.811		63,035		$	7.513
$	8.56 - $12.40		259,272		3.23	$	9.587		246,087		$	9.575
$	12.41 - $16.50		237,811		2.08	$	14.051		237,811		$	14.051
$	16.51 - $31.50		229,572		2.47	$	20.182		229,572		$	20.182
$	2.70 - $31.50		1,244,881		4.43	$	11.118		966,038		$	12.191

As of March 31, 2013, there was approximately $646 thousand of total unrecognized compensation cost related to outstanding stock options.  That cost is expected to be recognized over a weighted average period of 2.0 years, with approximately $236 thousand to be recognized in the nine months ending December 31, 2013 and all the cost to be recognized as of February 2017, assuming all options vest according to the vesting schedules in place at March 31, 2013.  As of March 31, 2013, the aggregate intrinsic value of outstanding options was approximately $1.5 million and the aggregate intrinsic value of exercisable options was approximately $984 thousand.

5.           SEGMENT REPORTING

The Company is comprised of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP").  The CCA segment includes diagnostic instruments and

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supplies, as well as single use diagnostic and other tests, pharmaceuticals and vaccines, primarily for canine and feline use.  The CCA segment also includes digital radiography and ultrasound products along with embedded software and support, data hosting and other services from Heska Imaging after February 24, 2013.  These products are sold directly by the Company as well as through other distribution relationships.  CCA segment products manufactured at the Des Moines, Iowa production facility included in our OVP segment's assets are transferred at cost and are not recorded as revenue for our OVP segment.  The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle, but also for other animals including small mammals and fish.  All OVP products are sold by third parties under third-party labels.

Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):

	Core Companion Animal Health				Other Vaccines, Pharmaceuticals and Products		Total
Three Months Ended March 31, 2012:
Total  revenue		$	16,580		$	2,595	$	19,175
Operating income			545			537		1,082
Interest expense			24			6		30
Total assets			52,777			11,167		63,944
Net assets			41,044			7,894		48,938
Capital expenditures			182			89		271
Depreciation and amortization			189			224		413
Three Months Ended March 31, 2013:
Total  revenue		$	15,649		$	3,330	$	18,979
Operating income			(1,093	)		411		(682	)
Interest expense			51			6		57
Total assets			78,285			11,279		89,564
Net assets			41,034			7,023		48,057
Capital expenditures			309			8		317
Depreciation and amortization			279			195		474

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Item 2.

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with "Selected Consolidated Financial Data" and the Unaudited Condensed Consolidated Financial Statements and related Notes included in Part I Item 1 of this Form 10-Q.

This discussion contains forward-looking statements that involve risks and uncertainties.  Such statements, which include statements concerning future revenue sources and concentration, gross profit margins, selling and marketing expenses, general and administrative expenses, research and development expenses, capital resources, capital expenditures and additional financings or borrowings, are subject to risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Form 10-Q, particularly in Part II Item 1A. "Risk Factors," that could cause actual results to differ materially from those projected.  The forward-looking statements set forth in this Form 10-Q are as of the close of business on May 14, 2013, and we do not intend to update this forward-looking information.

Overview

We develop, manufacture, market, sell and support veterinary products.  Our business is comprised of two reportable segments, Core Companion Animal Health ("CCA"), which represented 85% of our revenue for the twelve months ended March 31, 2013 assuming we had consolidated Heska Imaging for the entire period (which we define as "Pro forma LTM") and Other Vaccines, Pharmaceuticals and Products ("OVP"), which represented 15% of Pro forma LTM revenue.

The CCA segment includes in-clinic blood testing and other non-imaging instruments and supplies, imaging hardware, software and services as well as single use diagnostic and other tests, pharmaceuticals and vaccines, primarily for canine and feline use.  

Blood testing and other non-imaging instruments and supplies represented approximately 39% of our Pro forma LTM revenue.  Many products in this area involve placing an instrument in the field and generating future revenue from consumables, including items such as supplies and service, as that instrument is used.  Approximately 28% of our Pro forma LTM revenue resulted from the sale of such consumables to an installed base of instruments and approximately 11% of our Pro forma LTM revenue was from new hardware sales.  A loss of or disruption in supply of consumables we are selling to an installed base of instruments could substantially harm our business.  All of our blood testing and other non-imaging instruments and supplies are supplied by third parties, who typically own the product rights and supply the product to us under marketing and/or distribution agreements.  In many cases, we have collaborated with a third party to adapt a human instrument for veterinary use.  Major products in this area include our chemistry instruments, our hematology instruments and our blood gas instruments and their affiliated operating consumables.  Revenue from products in these three areas, including revenues from consumables, represented approximately 35% of our Pro forma LTM revenue.

Imaging hardware, software and services represented approximately 14% of Pro forma LTM revenue.  Digital radiography is the largest product offering in this area, which also includes ultrasound instruments.  Digital radiography solutions typically consist of a combination of hardware and software placed with a customer, often combined with an ongoing service and support contract.  It has been our experience that most of the economic benefit is generated at the time of sale in this area, in contrast to the blood testing category discussed above where ongoing consumable revenue is often a larger component of economic value.

Other CCA revenue, including single use diagnostic and other tests, pharmaceuticals and vaccines as well as research and development, licensing and royalty revenue, represented approximately 32% of our Pro forma LTM revenue.  Since items in this area are often single use by their nature, our typical aim is to build customer satisfaction and loyalty for each product, generate repeat annual sales from existing customers and expand our customer base in the future.  Products in this area are both supplied by third parties and provided by us.  Major products in this area include our heartworm diagnostic tests, our heartworm preventives, our allergy test kits, our

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allergy immunotherapy and our allergy diagnostic tests.  Combined revenue from heartworm-related products and allergy-related products represented 28% of our Pro forma LTM revenue.

We consider the CCA segment to be our core business and devote most of our management time and other resources to improving the prospects for this segment.  Maintaining a continuing, reliable and economic supply of products we currently obtain from third parties is critical to our success in this area.  Virtually all of our sales and marketing expenses occur in the CCA segment.  The majority of our research and development spending is dedicated to this segment as well.

All our CCA products are ultimately sold primarily to or through veterinarians.  In many cases, veterinarians will mark up their costs to the end user.  The acceptance of our products by veterinarians is critical to our success.  CCA products are sold directly to end users by us as well as through distribution relationships, such as our corporate agreement with Intervet Inc., formerly known as Schering-Plough Animal Health Corporation ("Merck Animal Health"), a unit of Merck & Co., Inc., the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors.  Revenue from direct sales and distribution relationships represented approximately 72% and 28%, respectively, of CCA Pro forma LTM revenue.

We intend to sustain profitability over the long term through a combination of revenue growth, gross margin improvement and expense control.  Accordingly, we closely monitor revenue growth trends in our CCA segment.  Pro forma LTM revenue in this segment increased 13% as compared to Pro forma revenue for the twelve months ended March 31, 2012, assuming we had consolidated Heska Imaging for the entire period.  We believe poor economic conditions over the past several years have impacted our revenue as, for example, veterinarians have continued to delay or defer capital expenditures on new diagnostic instrumentation.

The OVP segment includes our 168,000 square foot USDA- and FDA-licensed production facility in Des Moines, Iowa.  We view this facility as an asset which could allow us to control our cost of goods on any vaccines and pharmaceuticals that we may commercialize in the future.  We have increased integrating this facility with our operations elsewhere.  For example, virtually all our U.S. inventory is now stored at this facility and fulfillment logistics are managed there.  CCA segment products manufactured at this facility are transferred at cost and are not recorded as revenue for our OVP segment.  We view OVP reported revenue as revenue primarily to cover the overhead costs of the facility and to generate incremental cash flow to fund our CCA segment.

Our OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle but also for other animals such as small mammals.  All OVP products are sold by third parties under third-party labels.

We have developed our own line of bovine vaccines that are licensed by the USDA.  We have a long-term agreement with a distributor, Agri Laboratories, Ltd., ("AgriLabs"), for the marketing and sale of certain of these vaccines which are sold primarily under the TitaniumÒ and MasterGuardÒ brands which are registered trademarks of AgriLabs.  This agreement generates a significant portion of our OVP segment's revenue.  Our OVP segment also produces vaccines and pharmaceuticals for other third parties.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations is based upon the consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP").  The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenue and expense during the periods.  These estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances.  We have identified those critical accounting policies used in reporting our financial position and results of operations based upon a consideration of those accounting policies that involve the most complex or subjective decisions or assessment.  We consider the following to be our critical policies.

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Revenue Recognition

We generate our revenue through the sale of products, as well as through licensing of technology product rights, royalties and sponsored research and development.  Our policy is to recognize revenue when the applicable revenue recognition criteria have been met, which generally include the following:

· Persuasive evidence of an arrangement exists;

· Delivery has occurred or services rendered;

· Price is fixed or determinable; and

· Collectability is reasonably assured.

Revenue from the sale of products is recognized after both the goods are shipped to the customer and acceptance has been received, if required, with an appropriate provision for estimated returns and allowances.  We do not permit general returns of products sold.  Certain of our products have expiration dates.  Our policy is to exchange certain outdated, expired product with the same product.  We record an accrual for the estimated cost of replacing the expired product expected to be returned in the future, based on our historical experience, adjusted for any known factors that reasonably could be expected to change historical patterns, such as regulatory actions which allow us to extend the shelf lives of our products.  Revenue from both direct sales to veterinarians and sales to independent third-party distributors are generally recognized when goods are shipped.  Our products are shipped complete and ready to use by the customer.  The terms of the customer arrangements generally pass title and risk of ownership to the customer at the time of shipment.  Certain customer arrangements provide for acceptance provisions.  Revenue for these arrangements is not recognized until the acceptance has been received or the acceptance period has lapsed.  We reduce our revenue by the estimated cost of any rebates, allowances or similar programs, which are used as promotional programs.

Recording revenue from the sale of products involves the use of estimates and management judgment.  We must make a determination at the time of sale whether the customer has the ability to make payments in accordance with arrangements.  While we do utilize past payment history, and, to the extent available for new customers, public credit information in making our assessment, the determination of whether collectability is reasonably assured is ultimately a judgment decision that must be made by management.  We must also make estimates regarding our future obligation relating to returns, rebates, allowances and similar other programs.

License revenue under arrangements to sell or license product rights or technology rights is recognized as obligations under the agreement are satisfied, which generally occurs over a period of time.  Generally, licensing revenue is deferred and recognized over the estimated life of the related agreements, products, patents or technology.  Nonrefundable licensing fees, marketing rights and milestone payments received under contractual arrangements are deferred and recognized over the remaining contractual term using the straight-line method.

Recording revenue from license arrangements involves the use of estimates.  The primary estimate made by management is determining the useful life of the related agreement, product, patent or technology.  We evaluate all of our licensing arrangements by estimating the useful life of either the product or the technology, the length of the agreement or the legal patent life and defer the revenue for recognition over the appropriate period.

Occasionally we enter into arrangements that include multiple elements.  Such arrangements may include the licensing of technology and manufacturing of product.  In these situations we must determine whether the various elements meet the criteria to be accounted for as separate elements.  If the elements cannot be separated, revenue is recognized once revenue recognition criteria for the entire arrangement have been met or over the period that the Company's obligations to the customer are fulfilled, as appropriate.  If the elements are determined to be separable, the revenue is allocated to the separate elements based on relative fair value and recognized separately for each element when the applicable revenue recognition criteria have been met.  In accounting for these multiple element

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arrangements, we must make determinations about whether elements can be accounted for separately and make estimates regarding their relative fair values.

Allowance for Doubtful Accounts

We maintain an allowance for doubtful accounts receivable based on client-specific allowances, as well as a general allowance.  Specific allowances are maintained for clients which are determined to have a high degree of collectability risk based on such factors, among others, as: (i) the aging of the accounts receivable balance; (ii) the client's past payment history; (iii) a deterioration in the client's financial condition, evidenced by weak financial condition and/or continued poor operating results, reduced credit ratings, and/or a bankruptcy filing.  In addition to the specific allowance, the Company maintains a general allowance for credit risk in its accounts receivable which is not covered by a specific allowance.  The general allowance is established based on such factors, among others, as: (i) the total balance of the outstanding accounts receivable, including considerations of the aging categories of those accounts receivable; (ii) past history of uncollectable accounts receivable write-offs; and (iii) the overall creditworthiness of the client base.  A considerable amount of judgment is required in assessing the realizability of accounts receivable.  Should any of the factors considered in determining the adequacy of the overall allowance change, an adjustment to the provision for doubtful accounts receivable may be necessary.

Inventories

Inventories are stated at the lower of cost or market, cost being determined on the first-in, first-out method.  Inventories are written down if the estimated net realizable value of an inventory item is less than its recorded value.  We review the carrying cost of our inventories by product each quarter to determine the adequacy of our reserves for excess/obsolescence inventory.  In accounting for inventories we must make estimates regarding the estimated net realizable value of our inventory.  This estimate is based, in part, on our forecasts of future sales and shelf life of product.

Deferred Tax Assets – Valuation Allowance

Our deferred tax assets, such as a domestic Net Operating Loss ("NOL"), are reduced by an offsetting valuation allowance based on judgmental assessment of available evidence if we are unable to conclude that it is more likely than not that some or all of the related deferred tax assets will be realized.  If we are able to conclude it is more likely than not that we will realize a future benefit from a deferred tax asset, we will reduce the related valuation allowance by an amount equal to the estimated quantity of income taxes we would pay in cash if we were not to utilize the deferred tax asset in the future.  The first time this occurs in a given jurisdiction, it will result in a net deferred tax asset on our balance sheet and an income tax benefit of equal magnitude in our statement of operations in the period we make the determination.  In future periods, we will then recognize as income tax expense the estimated quantity of income taxes we would have paid in cash had we not utilized the related deferred tax asset.  The corresponding journal entry will be a reduction of our deferred tax asset.  If there is a change regarding our tax position in the future, we will make a corresponding adjustment to the related valuation allowance.  For example, if we were to conclude we were not more likely than not to utilize deferred tax assets recognized on our balance sheet, we would increase the valuation allowance affiliated with these deferred tax assets and recognize an income tax expense of an equal magnitude in our statement of operations.

Results of Operations

Revenue

Total revenue decreased to $19.0 million for the three months ended March 31, 2013 as compared to $19.2 million in the corresponding period in 2012.

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Revenue from our CCA segment was $15.6 million for the three months ended March 31, 2013, a decrease of 6% as compared to $16.6 million for the corresponding period in 2012.  Lower revenue from sales of our heartworm diagnostic tests, both internationally and domestically, our international allergy business and our instrument consumables were key factors in the decline.  This was somewhat offset by $1.9 million in revenue from Heska Imaging, which represents the revenue from sales after our acquisition of Heska Imaging on February 24, 2013.  A large distributor of our products sold more instrument consumables and domestic heartworm diagnostic tests, respectively, than such distributor purchased from us in the first quarter of 2013, which was a factor in the decline in both areas.  Purchases by end users of our instrument consumables increased in the three months ended March 31, 2013 as compared to the prior year period but the reverse was true for financial reporting purposes due to the distributor’s ordering pattern.  Similarly, purchases by end users of our heartworm diagnostic tests increased in the three months ended March 31, 2013 as compared to the prior year period but were essentially flat for financial reporting purposes due to the distributor’s ordering pattern.  We believe this distributor’s ordering pattern will normalize in the near future.  The market for heartworm diagnostic tests remains highly competitive and we experienced lower average selling prices in this area in the three months ended March 31, 2013 as compared to the prior year period, which contributed to the revenue decline in this area.  We believe there are similar competitive pressures in Japan, our largest international market for heartworm diagnostic tests.  We lost a large customer in our international allergy business which was a factor in the revenue decline.

Revenue from our OVP segment was $3.3 million for the three months ended March 31, 2013, an increase as compared to $2.6 million in the corresponding period in 2012.  Increased sales of cattle products for international distribution and sales to a new customer contributed to the increase.

Cost of Revenue

Cost of revenue totaled $11.2 million for the three months ended March 31, 2013, an increase of $925 thousand or 9% as compared to $10.3 million for the corresponding period in 2012.  Gross profit decreased by $1.1 million to $7.8 million for the three months ended March 31, 2013 as compared to $8.9 million in the prior year period.  Gross profit for the three months ended March 31, 2013 includes $683 thousand in gross profit from Heska Imaging.  Gross Margin, i.e. gross profit divided by total revenue, increased to 41.1% for the three months ended March 31, 2013 from 46.5% in the prior year period.  A shift in product mix to relatively lower  margin products was a factor in the decline.

Operating Expenses

Total operating expenses increased 8% to $8.5 million in the three months ended March 31, 2013 from $7.8 million in the prior year period.

Selling and marketing expenses increased 5% to $5.1 million in the three months ended March 31, 2013 as compared to $4.9 million in the corresponding period in 2012.  Heska Imaging sales and marketing expense of $416 thousand recognized in the three months ended March 31, 2013 but not the prior year period was a key factor in the increase.

Research and development expenses were $390 thousand and included $17 thousand in expense from Heska Imaging in the three months ended March 31, 2013, an increase of $56 thousand as compared to $334 thousand in the corresponding period in 2012.  The largest factor in the change was a reserve for equipment that had been previously used in a project that was recently discontinued.

General and administrative expenses were $3.0 million and included approximately $153 thousand in expense from Heska Imaging in the three months ended March 31, 2013, up 13% from $2.6 million in the prior year period.  Expenses related to the acquisition of Heska Imaging on February 24, 2013 were a factor in the increase.

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Interest and Other (Income) Expense, Net

Interest and other (income) expense, net was $11 thousand of income in the three months ended March 31, 2013, a change of $153 thousand as compared to $142 thousand of expense in the prior year period.  A net foreign currency gain in the 2013 period as opposed to a net currency loss in the 2012 period was a key factor in the change.

Income Tax Expense

We recognized an income tax benefit of $319 thousand in the three months ended March 31, 2013, a $675 thousand increase as compared to a tax expense of $356 thousand in the prior year period.  The change is due to income before income taxes in the 2012 period as opposed to a loss before income taxes in the 2013 period.

Current tax expense was $6 thousand in the three months ended March 31, 2013, a decline of $42 thousand as compared to $48 thousand in the prior year period.  The current tax expense in the 2013 period was related to our Swiss subsidiary.  The decline in current tax expense is due to domestic income before income taxes in the 2012 period as opposed to a domestic loss before income taxes in the 2013 period.  Current tax expense represents taxes we are expected to pay in cash as a result of a given period's operations.

For the three months ended March 31, 2013, deferred tax benefit was $325 thousand, a $633 thousand change from $308 thousand in tax expense in the prior year period.  The change is due to income before income taxes in the 2012 period as opposed to a loss before income taxes in the 2013 period.

Net Income (Loss)

   Net loss was $352 thousand in the three months ended March 31, 2013, a decrease of approximately $936 thousand compared to $584 thousand net income in the prior year period.  The change was primarily due to lower Gross Margin and higher operating expense.

Liquidity and Capital Resources

We have incurred net cumulative negative cash flow from operations since our inception in 1988.  For the three months ended March 31, 2013, we had net loss of $352 thousand.  During the three months ended March 31, 2013, our operations provided cash of approximately $510 thousand.  At March 31, 2013, we had $5.5 million of cash and cash equivalents, $12.2 million of working capital, and $5.1 million of outstanding borrowings under our revolving line of credit, discussed below.

Net cash provided by operating activities was approximately $510 thousand for the three months ended March 31, 2013 as compared to $255 thousand of cash used by operating activities in the prior year period, a change of approximately $765 thousand.  Major factors increasing the cash provided year-over-year were a $3.3 million increase in cash provided by accounts receivable as a large order that had shipped in the fourth quarter of 2012 was paid for in the first quarter of 2013 as compared to relatively lower sales in the fourth quarter of 2011 and relatively higher sales in the first quarter of 2012 which led to greater cash usage by accounts receivable in the 2012 period as compared to the 2013 period, and a $658 thousand increase in cash provided by other current assets where a greater utilization of previously paid funds occurred.  This was somewhat offset by increasing cash used year-over-year by $1.6 million related to net loss in the 2013 period and net income in the 2012 period as well as affiliate deferred tax effects on cash, $1.1 million related to accounts payable and accrued liabilities where greater sales commission and taxes were a factor as the 2012 period had greater sales than the 2013 period, and $582 thousand related to inventory as the Company is carrying a relatively higher level of inventory in the 2013 period as opposed to the 2012 period.

Net cash flows used in investing activities were $3.4 million in the three months ended March 31, 2013, an increase of approximately $3.1 million compared to $271 thousand used during the corresponding period in

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2012.  The change is accounted for by $3.0 million in cash paid as part of the acquisition of Heska Imaging in February 2013 and slightly higher capital expenditures in the 2012 period.

Net cash flows provided by financing activities were $2.5 million during the three months ended March 31, 2013, a $2.4 million change as compared to $184 thousand used in financing activities in the prior year period.  The largest factor in the change was $2.6 million in borrowings under our revolving line of credit in the 2013 period, somewhat offset by $125 thousand in lower proceeds from the issuance of common stock, and $77 thousand in net repayments of other debts by Heska Imaging.  Heska Corporation lent Heska Imaging $125 thousand, which is currently outstanding and which eliminates upon consolidation of our financial statements, in the three months ended March 31, 2013, at the same interest rate as Heska Corporation pays under its asset-based revolving line of credit with Wells Fargo Bank, National Association ("Wells Fargo"), with the proceeds to be used to pay off other debt.

At March 31, 2013, we had a $1.4 million note receivable from Cuattro Veterinary, LLC.  The note is to pay interest at the same interest rate as Heska Corporation pays under its asset-based revolving line of credit with Wells Fargo and is due on March 15, 2016.  Cuattro Veterinary, LLC sells the same digital radiography solutions outside the United States that Heska Imaging sells in the United States.  The note is listed on our balance sheet as a note receivable – related party as Kevin S. Wilson, our President and Chief Operating Officer, Mrs. Wilson and trusts for their children and family hold a majority interest in Cuattro Veterinary, LLC.  This note was held by Heska Imaging at the time of our acquisition of Heska Imaging on February 24, 2013.

At March 31, 2013, we had a $15.0 million asset-based revolving line of credit with Wells Fargo which has a maturity date of December 31, 2013 as part of our credit and security agreement with Wells Fargo.  At March 31, 2013, we had $5.1 million in outstanding borrowings under this line of credit.  Our ability to borrow under this facility varies based upon available cash, eligible accounts receivable and eligible inventory.  On March 31, 2013, interest on borrowings due was to be charged at a stated rate of three month LIBOR plus 2.75%, and increased to be charged at a stated rate of three month LIBOR plus 3.75% and payable monthly as of April 1, 2013.  We are required to comply with various financial and non-financial covenants, and we have made various representations and warranties under our agreement with Wells Fargo.  Among the financial covenants is a requirement to maintain a minimum liquidity (cash plus excess borrowing base) of $1.5 million.  Additional requirements include covenants for minimum capital monthly and minimum net income quarterly.  Failure to comply with any of the covenants, representations or warranties could result in our being in default on the loan and could cause all outstanding amounts payable to Wells Fargo to become immediately due and payable or impact our ability to borrow under the agreement.  We were in compliance with all financial covenants as of March 31, 2013.  At March 31, 2013, we had $5.0 million of borrowing capacity based upon eligible accounts receivable and eligible inventory under our revolving line of credit.

At March 31, 2013, we had other borrowings outstanding totaling $1.4 million, all of which were obligations of Heska Imaging, as follows.  We had $595 thousand outstanding on loan from De Lage Landen Financial Services, Inc. ("DLL").  The note bears an interest rate of 6% and is due in monthly payments of $13 thousand through June 2017.  The note may be prepaid prior to maturity, but is subject to a surcharge in such a circumstance.  $127 thousand of principal associated with this note is listed as short term on our balance sheet as it is due within a year.  We also had $346 thousand in additional short term debt from DLL as of March 31, 2013 related to Heska Imaging’s leasing activities.  In addition, we had a $509 thousand principal, short term demand, non-interest bearing note from Esaote North America, Inc. which was collateralized by certain items in our ultrasound inventory.

At March 31, 2013, our balance sheet included $12.0 million in non-controlling interest.  This represents the value of the aggregate position in Heska Imaging of the unit holders of the 45.4% of Heska Imaging we do not own (the "Imaging Minority").  We estimated a weighted average valuation for this position and are accreting to this value over a three year period using a weighted average cost of capital of 18.65%.  The cost of capital assumptions was provided to us by a third party with expertise in estimating such items.  The accretion is to be recorded as a credit which will tend to increase this entry over time, with the corresponding debit to directly reduce retained earnings.  We intend to evaluate the value of this position every reporting period and adjust our accretion accordingly if necessary.

At March 31, 2013, our balance sheet included $3.9 million in Public Common Stock subject to redemption.  This represents the stock we issued to acquire our position in Heska Imaging, which may be used to

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meet the purchase obligation if a Cuattro 12-month Call Option or a Cuattro 18-month Call Option is exercised under the Amended and Restated Operating Agreement of Heska Imaging (the "Operating Agreement").  We intend to mark this line item to market every reporting period with the corresponding debit or credit taken directly to additional paid-in-capital.

Our financial plan for 2013 indicates that our available cash and cash equivalents, together with cash from operations and borrowings expected to be available under our revolving line of credit, will be sufficient to fund our operations through 2013 and into 2014.  However, our actual results may differ from this plan, and we may be required to consider alternative strategies.  We may be required to raise additional capital in the future.  If necessary, we expect to raise these additional funds through the sale of equity securities or the issuance of new term debt secured by the same assets as the term loans which were fully repaid in 2010.  There is no guarantee that additional capital will be available from these sources on acceptable terms, if at all, and certain of these sources may require approval by existing lenders.  If we cannot raise the additional funds through these options on acceptable terms or with the necessary timing, management could also reduce discretionary spending to decrease our cash burn rate through actions such as delaying or canceling marketing plans.  These actions would likely extend the then available cash and cash equivalents, and then available borrowings to some degree.  See "Risk Factors" in Item 1A of this Form 10-Q for a discussion of some of the factors that affect our capital raising alternatives.

Under the Operating Agreement, should Heska Imaging meet certain performance criteria, the Imaging Minority has been granted a put option to sell us some or all of the Imaging Minority's remaining 45.4% position in Heska Imaging following the audit of our financial statements in 2015, 2016 and 2017.  Furthermore, should Heska Imaging meet certain performance criteria, and the Imaging Minority fail to exercise an applicable put to sell us all of the Imaging Minority's position in Heska Imaging following the audit of our financial statements in 2015, 2016 and 2017, we would have a call option to purchase all, but not less than all, of the Imaging Minority's position in Heska Imaging.

We believe it is likely that Heska Imaging will meet the required performance criteria for its 2015 highest strike put in 2015.  In this case, the Imaging Minority would be granted a put following our 2015 audit which could require us to deliver up to $17.0 million, as well as 25% of Heska Imaging’s cash, to purchase the 45.4% of Heska Imaging we do not own.  If this put is not exercised in full, we would have a call option to purchase all, but not less than all, of the Imaging Minority's position in Heska Imaging for $19.6 million, as well as 25% of Heska Imaging’s cash.  In both cases, while we have the right to deliver up to 55% of the consideration in our Public Common Stock under certain circumstances, such stock is to be valued based on 90% of market value (the "Delivery Stock Value") and is limited to approximately 650 thousand shares in any case.  If the Delivery Stock Value is less than the market value of our stock at the time of the Acquisition, we do not have the right to deliver any Public Common Stock as consideration.

If Heska Imaging meets the required performance criteria for its 2015 highest strike put in 2015, we anticipate that either the Imaging Minority will exercise its put or we will desire to exercise our call, or perhaps both, following our 2015 audit in 2016.  While our financial plan calls for us to meet this payment obligation with funds provided by our ongoing operations and assets, likely supplemented by debt financing, there can be no assurance our results will unfold according to our plan.  This potential payment obligation in 2016 is an important consideration for us in our cash management decisions.

We would consider acquisitions if we felt they were consistent with our strategic direction.  We paid $1.6 million in dividends in 2012, and while we may consider paying dividends again in the long term, we do not anticipate the payment of any further dividends for the foreseeable future.  We conducted an odd lot tender offer in 2012 which could have led to the repurchase of approximately $400 thousand of our stock if all eligible holders had chosen to participate, and while we may consider stock repurchase alternatives again in the long term, we do not anticipate any stock repurchases in the foreseeable future.

Recent Accounting Pronouncements

None.

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Item 3.

Market risk represents the risk of loss that may impact the financial position, results of operations or cash flows due to adverse changes in financial and commodity market prices and rates.  We are exposed to market risk in the areas of changes in United States and foreign interest rates and changes in foreign currency exchange rates as measured against the United States dollar and against other foreign currency exchange rates.  These exposures are directly related to our normal operating and funding activities.

Interest Rate Risk

At March 31, 2013, there was $5.1 million in debt outstanding on our line of credit with Wells Fargo and we had $1.4 million in additional borrowings.  We also had approximately $5.5 million of cash and cash equivalents at March 31, 2013, the majority of which was invested in liquid interest bearing accounts.  We had no interest rate hedge transactions in place on March 31, 2013.  We completed an interest rate risk sensitivity analysis based on the above and an assumed one percentage point increase/decrease in interest rates.  If market rates increase/decrease by one percentage point, we would experience a decrease/increase in annual net interest expense of approximately $11 thousand based on our outstanding balances as of March 31, 2013.

Foreign Currency Risk

Our investment in foreign assets consists primarily of our investment in our European subsidiary.  Foreign currency risk may impact our results of operations.  In cases where we purchase inventory in one currency and sell corresponding products in another, our gross margin percentage is typically at risk based on foreign currency exchange rates.  In addition, in cases where we may be generating operating income in foreign currencies, the magnitude of such operating income when translated into U.S. dollars will be at risk based on foreign currency exchange rates.  Our agreements with customers and suppliers vary significantly in regard to the existence and extent of currency adjustment and other currency risk sharing provisions.  We had no foreign currency hedge transactions in place on March 31, 2013.

We have a wholly-owned subsidiary in Switzerland which uses the Swiss Franc as its functional currency.  We purchase inventory in foreign currencies, primarily Japanese Yen and Euros, and sell corresponding products in U.S. dollars.  We also sell products in foreign currencies, primarily Japanese Yen and Euros, where our inventory costs are in U.S. dollars.  Based on our results of operations for the most recent twelve months, if foreign currency exchange rates were to strengthen/weaken by 25% against the dollar, we would expect a resulting pre-tax loss/gain of approximately $294 thousand.

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Item 4.

(a)  Evaluation of Disclosure Controls and Procedures.  Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15 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 chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are 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 chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

(b)  Changes in Internal Control over Financial Reporting.  There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II.  OTHER INFORMATION

Item 1.                              Legal Proceedings

From time to time, we may be involved in litigation relating to claims arising out of our operations.  As of March 31, 2013, we were not a party to any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results.

Item 1A.                           Risk Factors

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 Public Common Stock could decline and you could experience losses on your investment.

Our February 2013 acquisition of a 54.6% majority interest (the "Acquisition") in Cuattro Veterinary USA, LLC, which has been renamed Heska Imaging US, LLC, is subject to various puts and calls and other provisions which could be detrimental to the interests of our shareholders.

Under the Operating Agreement  for up to 18 months following the Acquisition, the Imaging Minority may repurchase our 54.6% interest in Heska Imaging at a premium to our Acquisition purchase price under a call option we have granted the Imaging Minority.  Through the first year anniversary of the Acquisition, such repurchase may be made at 1.3 times our purchase price and following the first year anniversary of the Acquisition and through the 18-month anniversary of the Acquisition, such repurchase may be made at 1.45 times our purchase price.  Furthermore, the Imaging Minority may deliver any Heska shares resulting from and held since the Acquisition as consideration, with such shares to be valued based on market value, although not less than $5 per share.  Should the Imaging Minority exercise this call, it could be significantly disruptive to our business and if Heska Imaging represents a significant portion of our revenue and earnings at the time of such exercise, our stock price could decline significantly following such exercise.  Furthermore, should Heska stock have appreciated significantly, the Imaging Minority might not have to repay some or all of the cash we paid in the Acquisition, or even deliver all the shares we issued in the Acquisition.  In addition, if our stock price has declined below $5 per share prior to the time of exercise, we may not realize the full economic premium (either 1.3 or 1.45), or any premium, anticipated in the repurchase.  In addition, should our stock price decline enough, we could be placed in a position where the repurchase is at an economic discount to our purchase price.

Under the Operating Agreement, should Heska Imaging meet certain performance criteria, the Imaging Minority has been granted a put option to sell us some or all of the Imaging Minority's position in Heska Imaging following the audit of our financial statements in 2015, 2016 and 2017.  Based on Heska Imaging's current ownership position, this put option could require us to deliver either up to $17.0 million following calendar year 2015, $25.5 million following calendar year 2016 or $36.9 million following calendar year 2017 as well as 25% of Heska Imaging’s cash (any applicable payment in aggregate to be defined as the "Put Payment") to acquire the outstanding minority interest in Heska Imaging.  While we have the right to deliver up to 55% of the consideration in our Public Common Stock under certain circumstances, such stock is to be valued based on 90% of market value (the "Delivery Stock Value") and is limited to approximately 650 thousand shares in any case.  If the Delivery Stock Value is less than the market value of our Public Common Stock at the time of the Acquisition, we do not have the right to deliver any Public Common Stock as consideration.  Cash required under any Put Payment could put a significant strain on our financial position or require us to raise additional capital.  There is no guarantee that additional capital will be available in such a circumstance on reasonable terms, if at all.  We may be unable to obtain debt financing, the public markets may be unreceptive to equity financing and we may not be able to obtain financing from other alternative sources, such as private equity.  Any debt financing, if available, may include restrictive covenants and high interest rates and any equity financing would likely be dilutive to stockholders in this scenario.  If additional funds are required and are not available, it would likely have a material adverse effect on our business, financial condition and our ability to continue as a going concern.

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Under the Operating Agreement, should Heska Imaging meet certain performance criteria, and the Imaging Minority fail to exercise an applicable put to sell us all of the Imaging Minority's position in Heska Imaging following the audit of our financial statements in 2015, 2016 and 2017, we would have a call option to purchase all, but not less than all, of the Imaging Minority's position in Heska Imaging.  Based on Heska Imaging's current ownership position, exercising this call option could require us to deliver up to $19.6 million following calendar year 2015, $29.4 million following calendar year 2016 or $42.4 million following calendar year 2017 as well as 25% of Heska Imaging’s cash (any applicable payment in aggregate to be defined as the "Call Payment") to acquire the outstanding minority interest in Heska Imaging.  While we have the right to deliver up to 55% of the consideration in our Public Common Stock under certain circumstances, such stock is to be valued based on 90% of market value (the "Delivery Stock Value") and is limited to approximately 650 thousand shares in any case.  If the Delivery Stock Value is less than the market value of our stock at the time of the Acquisition, we do not have the right to deliver any Public Common Stock as consideration.  If we believe it is desirable to exercise any one of these calls, cash required under the Call Payment could put a significant strain on our financial position or require us to raise additional capital.  There is no guarantee that additional capital will be available in such a circumstance on reasonable terms, if at all.  If we believe it is desirable to exercise any such call, determine we are unable to economically finance the Call Payment and do not exercise the call as a result, we could be subject to a more expensive Put Payment less than a year in the future.  In this circumstance, unless there is a significant change in our financial position or market conditions, such a Put Payment could have a material adverse effect on our business, financial condition and our ability to continue as a going concern.

Under and as defined in the Operating Agreement, should we undergo a change in control prior to the end of 2017, the Imaging Minority will be entitled to sell their Heska Imaging units to us for cash at the highest call value they otherwise could have obtained (the "Change in Control Payment").  If Heska Imaging meets certain minimum performance criteria, this will be $42.4 million as well as 25% of Heska Imaging’s cash until at least the end of 2015.  The Change in Control Payment may materially decrease the interest of third parties in acquiring the Company or a majority of the Company's shares, which could otherwise have occurred at a significant premium to the Company's then current market price for the benefit of some or all of our shareholders.  This could make some investors less likely to buy and hold our stock.

Under the terms of the Operating Agreement, Heska Imaging will be managed by a three-person board of managers, two of which are to be appointed by Heska Corporation and one of which is to be appointed by Kevin S. Wilson, who has been Heska Corporation's President and Chief Operating Officer since the Acquisition closing and is a founder of Heska Imaging.  The current board of managers consists of Robert B. Grieve, Ph.D., Heska Corporation's Chairman and Chief Executive Officer, Mr. Wilson and Jason A. Napolitano, Heska Corporation's Executive Vice President, Chief Financial Officer and Secretary.  Until the earlier of (1) our acquiring 100% of the units of Heska Imaging pursuant to the puts and/or calls discussed above or (2) the sixth anniversary of the acquisition, Heska Imaging may only take the following actions, among others, by unanimous consent of the board of managers: (i) issue securities, (ii) incur, guarantee, prepay, refinance, renew, modify or extend debt, (iii) enter into material contracts, (iv) hire or terminate an officer or amend the terms of their employment, (v) make a distribution other than a tax or liquidation distribution, (vi) enter into a material acquisition or disposition arrangement or a merger, (vii) lease or acquire an interest in real property, (viii) convert or reorganize Heska Imaging, or (ix) amend its certificate of formation or the Heska Imaging Agreement.  This unanimous consent provision may hinder our ability to optimize the value of its investment in Heska Imaging in certain circumstances.

Mr. Wilson's employment agreement with us requires that he devote 80% of his working hours' attention, skills, time and business efforts to Heska Corporation.  However, Mr. Wilson has business interests in Cuattro, LLC, Cuattro Software, LLC, Cuattro Medical, LLC and Cuattro Veterinary, LLC which may require a portion of his time, resources and attention in the remaining 20% of 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.  In addition, including shares 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.  While the terms of both the Amended and Restated Master License Agreement and the Supply Agreement between Heska Imaging and Cuattro, LLC were negotiated at arm's length as part of the Acquisition, Mr. Wilson has an interest in these agreements and any time and resources devoted to

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monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

Mrs. Wilson, Mr. Asakowicz, Mr. Lippincott, Mr. Wilson and Cuattro, LLC own approximately 29.75%, 4.09%, 3.07%, 0.05% and 0.05% of Heska Imaging, respectively, are each a member of Heska Imaging, and each have an interest in the puts and calls discussed above.  If Mr. Wilson, Mr. Asakowicz or Mr. Lippincott is distracted by these holdings or interests, they may not contribute as much as they otherwise would have to enhancing our business, to the detriment of our shareholder value.  While the Operating Agreement was negotiated at arm's length as part of the Acquisition, and requires that none of the members shall cause Heska Imaging to operate its business in any manner other than the ordinary course of business, any time and resources devoted to monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

In addition, like any acquisition, if Heska Imaging significantly underperforms our financial expectations, it may serve to diminish rather than enhance shareholder value.

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.  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.

We believe the recent worldwide economic weakness has had a negative effect on our business, and this may continue in the future.  This is particularly notable in the sale of new instruments, which is a capital expenditure many, if not most, veterinarians may choose to defer in times of perceived economic weakness.  Even if the overall economy begins to grow in the future, there may be a lag before veterinarians display confidence such growth will continue and return to historical capital expenditure purchasing patterns.  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 which rely less on individual consumers.

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.

We believe that currently one of our largest competitors, IDEXX Laboratories, Inc. ("IDEXX"), in effect prohibits all of its distributors except for MWI Veterinary Supply, Inc. ("MWI") from selling certain competitive products, including our blood testing instruments and heartworm diagnostic tests.  This situation may hinder our ability to sell and market our products if these distributors are increasingly successful.  While we have an agreement with MWI to sell our blood testing instruments and heartworm diagnostic tests, there can be no assurance this agreement will prove to be ultimately successful in enhancing our profitability or market presence.

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 who sell products under their own private labels.  In the point-of-care diagnostic testing market, our major competitors include IDEXX, Abaxis, Inc. ("Abaxis"), and Synbiotics Corporation ("Synbiotics"), a unit of Zoetis Inc. ("Zoetis").  The products manufactured by our OVP

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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's 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 Santé Animale, Eli Lilly and Company, Merck & Co., Inc. ("Merck"), Novartis AG, sanofi-aventis, Vétoquinol S.A., Virbac S.A. and Zoetis (a company majority-owned by Pfizer Inc.) 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.  Our competitors may offer broader product lines and have greater name recognition than we do.  For example, if Zoetis and/or Pfizer devotes its significant commercial and financial resources to growing Synbiotics' market share, our sales could suffer significantly.  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.  We believe that currently one of our largest competitors, IDEXX, in effect prohibits all of its distributors except one from selling certain competitive products, including our blood testing instruments and heartworm diagnostic tests.  Another of our competitors, Abaxis, recently launched a veterinary diagnostic laboratory offering which may serve to intensify competition and lower our margins.

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 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 December 31, 2012, we had an accumulated deficit of $170.0 million.  We have achieved only two quarters with income before income taxes greater than $1.5 million.  Accordingly, 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.

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

Revenue from Merck entities, including Merck Animal Health, represented approximately 12% of our consolidated revenue for the three months ended March 31, 2013.  No other single customer accounted for more than 10% of our consolidated revenue for the three months ended March 31, 2013.  Merck entities accounted for approximately 12% of our consolidated accounts receivable at March 31, 2013.  No other single customer accounted for more than 10% of our consolidated accounts receivable at March 31, 2013.

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

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

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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 veterinary instruments and consumable supplies for these instruments, 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 who sell us proprietary products which are responsible for more than 5% of our Pro forma LTM revenue are Boule Medical AB, Cuattro, LLC, FUJIFILM Corporation and Quidel Corporation.  None of these suppliers sold us proprietary products which were responsible for more than 25% of our Pro forma LTM revenue, although the proprietary products of one of these suppliers was responsible for more than 20% of our Pro forma LTM revenue and each of the three others was responsible for more than 10% of our Pro forma LTM revenue.  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 major veterinary blood testing instruments and our digital radiography solutions 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.  Although we believe we will be able to maintain supply of our major product and service offerings in the near future, 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 such 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 veterinary blood testing 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.

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· High switching costs. In our blood testing 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 under terms that are less advantageous if available.

· 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.

· 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 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.

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 harm our business.

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We have historically not consistently generated positive cash flow from operations, may need additional capital and any required capital may not be available on reasonable terms or at all.

If our actual performance deviates from our operating plan, we may be required to raise additional capital in the future.  If necessary, we expect to raise these additional funds by borrowing under our revolving line of credit, the sale of equity securities or the issuance of new term debt secured by the same assets as the term loans which we fully repaid in 2010.  There is no guarantee that additional capital will be available from these sources on reasonable terms, if at all, and certain of these sources may require approval by existing lenders.  Funds we expect to be available under our existing revolving line of credit may not be available and other lenders could refuse to provide us with additional debt financing.  The public markets may be unreceptive to equity financings and we may not be able to obtain additional private equity or debt financing.  Any equity financing would likely be dilutive to stockholders and additional debt financing, if available, may include restrictive covenants and increased interest rates that would limit our currently planned operations and strategies.  We believe the credit markets are particularly restrictive and it may be more difficult to obtain funding versus recent history.  Furthermore, even if additional capital is available, it may not be of the magnitude required to meet our needs under these or other scenarios.  If additional funds are required and are not available, it would likely have a material adverse effect on our business, financial condition and our ability to continue as a going concern.

If the third parties to whom we granted substantial marketing rights for certain of our existing products or future products under development are not successful in marketing those products, then our sales and financial position may suffer.

Our agreements with our corporate marketing partners generally contain no or small minimum purchase requirements in order for them to maintain their exclusive marketing rights.  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.  Novartis Agro K.K., Tokyo ("Novartis Japan") markets and distributes our SOLO STEP CH heartworm test in Japan under an exclusive arrangement.  AgriLabs has the non-exclusive right to sell certain of our bovine vaccines in the United States, Africa and Mexico and currently generates the majority of our sales of those vaccines in those territories.  One or more 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 entities, including Merck Animal Health, represented 9% of our Pro forma LTM revenue.  If Merck Animal Health personnel fail to market, sell and support our heartworm preventive sufficiently, our sales could decline significantly.  Furthermore, there may be nothing to prevent these partners from pursuing alternative technologies or products that may compete with our products in current or future agreements.  For example, we believe a unit of Merck has obtained FDA approval for a canine heartworm preventive product with additional claims compared with our TRI-HEART Plus Chewable Tablets, which we believe is not currently being marketed actively.  Should Merck decide to emphasize sales and marketing efforts of this product rather than our TRI-HEART Plus Chewable Tablets or cancel our agreement regarding canine heartworm preventive distribution and marketing, our sales could decline significantly.  In the future, third-party marketing assistance may not be available on reasonable terms, if at all.  If any of these events occur, we may not be able to maintain our current market share or commercialize our products and our sales will decline accordingly.

If we are unable to maintain various financial and other covenants required by our credit facility agreement we will be unable to borrow any funds under the agreement and fund our operations.

Under our credit and security agreement with Wells Fargo, we are required to comply with various financial and non-financial covenants in order to borrow under the agreement.  The availability of borrowings under this agreement may be important to continue to fund our operations.  Among the financial covenants is a requirement to maintain minimum liquidity (cash plus excess borrowing base) of $1.5 million.  Additional requirements include covenants for minimum capital monthly and minimum net income quarterly.  Although we believe we will be able to maintain compliance with all these covenants and any covenants we may negotiate in the future, there can be no assurance thereof.  We have not always been able to maintain compliance with all covenants under our credit and security agreement with Wells Fargo.  Although Wells Fargo granted us a waiver of non-compliance in each case, there can be no assurance we will be able to obtain similar waivers or other modifications if needed in the future on economic terms, if at all.  Failure to comply with any of the covenants,

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representations or warranties, or failure to modify them to allow future compliance, could result in our being in default and could cause all outstanding borrowings under our credit and security agreement to become immediately due and payable, or impact our ability to borrow under the agreement.  In addition, Wells Fargo has discretion in setting the advance rates which we may borrow against eligible assets.  We may need to rely on available borrowings under the credit and security agreement to fund our operations in the future.  If we are unable to borrow funds under this agreement, we will need to raise additional capital from other sources to continue our operations, which capital may not be available on acceptable terms, or at all.

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.  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 an employment agreement 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.

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 consistent with 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 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 use of 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 one of our 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.  For example, our VitalPath Blood Gas and Electrolyte Analyzer generated less revenue than we anticipated following its launch in May 2010 as placements of this product with customers have not occurred as we expected.

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 from third-party suppliers or termination, cancelation 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.

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

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 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.  For example, we jointly developed point-of-care diagnostic products with Quidel.  In other cases, we have discussed Heska marketing in the veterinary market an instrument being developed by a third party 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, 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.  For example, we have experienced delays compared to our expectations in our development of products in collaboration with Rapid Diagnostek, Inc.

We may face costly legal disputes, including 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.  We may have to use legal means to collect payment for goods shipped to third parties.  A legal dispute leading to an unfavorable ruling or settlement could have significant material adverse consequences on our business.

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.  However, we or our collaborators or suppliers may not be able to obtain licenses for technology patented by others on commercially reasonable terms, or at all, may not be able to develop alternative approaches if unable to obtain licenses or current and future licenses may not be adequate, 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

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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, if 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 United States generally accepted accounting principles, or GAAP.  These accounting principles are established by and are subject to interpretation by the SEC, the Financial Accounting Standards Board ("FASB") and others who interpret and create accounting policies.  A change in those policies 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, the way we conduct our business or have a negative impact on us if we fail to track such changes.  For example, we have found FASB's recent decision to codify the accounting standards has made it more difficult to research complex accounting matters, increasing the risk we will fail to account consistent with FASB rules in the future.  Similarly, changes in the underlying circumstances which we apply given accounting standards and principles may affect our results of operations and have a negative impact on us.

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.  Even if we and our auditors are able to conclude that our internal controls over financial reporting are designed and operating effectively in such a circumstance, our general and administrative costs are likely to increase.  In addition, if our stock market value increases to a certain level on June 30, we will be required to have our independent registered public accountant conduct an audit of our internal controls, which would increase our general and administrative costs.  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 in 2013.  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, actions by other entities, such as enhanced rules to maintain our listing on the Nasdaq Capital Market, could also increase our general and administrative costs or have other adverse effects on us, as could further legislative, regulatory or rule-making action or more stringent interpretations of existing legislation, regulations and rules.

Obtaining and maintaining regulatory approvals in order to market our products may be costly and 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 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

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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.  For instance, in 2010 we discovered we had produced a significant level of cattle vaccine product in our OVP segment which conformed to regulatory specifications for safety, potency and efficacy but not purity.  We did not ship any related cattle vaccine product in the three months ended June 30, 2010 as we investigated and worked to resolve the situation.  There can be no assurance that our efforts at remediation to ensure this or similar problems will not recur in the future will be successful or that the USDA will not suspend our ability to produce these, similar or other products for an extended time at some point in the future.

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 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.  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 unison, could damage our business.

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.  In addition, our Public Common Stock has certain transfer restrictions which could reduce trading liquidity from what it otherwise would have been and have other undesired effects. Our recently completed 1-for-10 reverse stock split could also reduce liquidity in our stock.

According to the latest available filings with the SEC of which we are aware, we have two shareholders who each hold approximately 9% of our shares outstanding.  Should either of these shareholders or another relatively large shareholder 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.  For example, we had a shareholder who held over 16% of our shares outstanding as of September 30, 2011 sell all of its holdings in our stock on or before December 7, 2011 – and we believe this contributed to a corresponding decline in our stock price during this period.

The securities markets have experienced significant price and volume fluctuations and the market prices of securities of many microcap and smallcap companies have in the past been, and can in the future be expected to be, especially volatile.  During the twelve months ended March 31, 2013, our closing stock price has ranged from a low of $7.05 to a high of $12.84.  Fluctuations in the trading price or liquidity of our Public 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 Public 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; and

· general market conditions.

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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 shareholders approved an amendment (the "Amendment") to our Restated Certificate of Incorporation.  The Amendment places restrictions on the transfer of our stock that could adversely affect our ability to use our domestic Federal Net Operating Loss carryforward ("NOL").  In particular, the 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.  This may cause certain individuals or entities who may have otherwise been willing and able to bid on our stock to not do so, reducing the class of potential acquirers and trading liquidity from what it otherwise might have been.  The Amendment could also have an adverse impact on the value of our stock if certain buyers who would otherwise have purchased our stock, including buyers who may not be comfortable owning stock with transfer restrictions, do not purchase our stock as a result of the 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 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 Amendment not passed.

We completed a 1-for-10 reverse stock split effective December 30, 2010.  The liquidity of our Public Common Stock could be adversely affected by the reduced number of shares resulting from the reverse stock split.  Our reverse stock split may have left certain stockholders with one or more "odd lots", which are stock holdings in fewer than 100 shares of Public Common Stock.  These odd lots may be more difficult to sell and may incur higher brokerage commissions when sold than shares of our Public Common Stock in multiples of 100, reducing liquidity.  Furthermore, due to the increased price per share following our 1-for-10 reverse stock split, certain smaller investors may be unwilling or unable to purchase shares of our Public Common Stock, also reducing liquidity.

Our Public Common Stock is listed on the Nasdaq Capital Market and we may not be able to maintain that listing, which may make it more difficult for you to sell your shares.  In addition, we have less than 300 recordholders, which would 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 Public Common Stock on the Nasdaq Capital Market.

Our Public Common Stock is listed on the Nasdaq Capital Market.  The Nasdaq has several quantitative and qualitative requirements companies must comply with to maintain this listing, including a $1.00 minimum bid price.  We completed a 1-for-10 reverse stock split effective December 30, 2010 in order to resolve an ongoing minimum bid price deficiency.  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 including the minimum bid price, 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 are delisted from the Nasdaq Capital Market, our Public 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 Public Common Stock, which could severely limit market liquidity of the Public 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.

We have less than 300 recordholders as of our latest information, a fact which would make us eligible to terminate voluntarily the registration of our common stock with the SEC and therefore suspend our reporting

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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 Stock Market, which we would expect to materially adversely affect the liquidity and market price for our common stock.

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 clean-up 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 biohazardous materials, including chemicals and infectious disease agents.  Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by applicable local, state and federal regulations, 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.

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

None.

Item 3.   Defaults upon Senior Securities

None.

Item 4.   Removed and Reserved

None.

Item 5.   Other Information

None.

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Item 6.   Exhibits

(a) Exhibits

Number                                       Description

10.1 1997 Stock Incentive Plan of Registrant, as amended and restated.

10.2 1997 Employee Stock Purchase Plan of Registrant, as amended and restated.

10.3* Seventh Amendment to Amended and Restated Bovine Vaccine Distribution Agreement between Diamond Animal Health, Inc. and Agri Laboratories, Ltd., dated February 1, 2013.

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, 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, 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.

* Confidential portions of this agreement have been omitted pursuant to a request for confidential treatment filed separately with the Secutities and Exchange Commission.

**   Furnished electronically with this report.

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HESKA CORPORATION

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.

HESKA CORPORATION

Date:	May 15, 2013	By	/s/ Robert B. Grieve
			ROBERT B. GRIEVE
			Chairman of the Board and Chief Executive Officer (on behalf of the Registrant and as the Registrant's Principal Executive Officer)
Date:	May 15, 2013	By	/s/ Jason A. Napolitano
			JASON A. NAPOLITANO
			Executive Vice President and Chief Financial Officer (on behalf of the Registrant and as the Registrant's Principal Financial Officer)

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Number                                       Description

10.1 1997 Stock Incentive Plan of Registrant, as amended and restated.

10.2 1997 Employee Stock Purchase Plan of Registrant, as amended and restated.

10.3* Seventh Amendment to Amended and Restated Bovine Vaccine Distribution Agreement between Diamond Animal Health, Inc. and Agri Laboratories, Ltd., dated February 1, 2013.

31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, 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, 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.

* Confidential portions of this agreement have been omitted pursuant to a request for confidential treatment filed separately with the Secutities and Exchange Commission.

**   Furnished electronically with this report.

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EX-10.1

Exhibit 10.1

HESKA CORPORATION

1997 STOCK INCENTIVE PLAN

(AS AMENDED MARCH 6, 2007 AND MAY 5, 2009

AND AMENDED AND RESTATED ON FEBRUARY 22, 2012)

TABLE OF CONTENTS

ARTICLE 1.			INTRODUCTION.	1
ARTICLE 2.			ADMINISTRATION.	1
	2.1	Committee Composition		1
	2.2	Committee Responsibilities		1
ARTICLE 3.			SHARES AVAILABLE FOR GRANTS.	1
	3.1	Basic Limitation		1
	3.2	Annual Increase in Shares		2
	3.3	Additional Shares		2
ARTICLE 4.			ELIGIBILITY.	2
	4.1	Nonstatutory Stock Options and Restricted Shares		2
	4.2	Incentive Stock Options		2
ARTICLE 5.			OPTIONS.	2
	5.1	Stock Option Agreement		2
	5.2	Number of Shares		3
	5.3	Exercise Price		3
	5.4	Exercisability and Term		3
	5.5	Effect of Change in Control		3
	5.6	Modification or Assumption of Options		3
	5.7	Buyout Provisions		3
ARTICLE 6.			PAYMENT FOR OPTION SHARES.	3
	6.1	General Rule		3
	6.2	Surrender of Stock		4
	6.3	Exercise/Sale		4
	6.4	Exercise/Pledge		4
	6.5	Promissory Note		4
	6.6	Other Forms of Payment		4
ARTICLE 7.			[Reserved]	4
ARTICLE 8.			RESTRICTED SHARES.	4
	8.1	Time, Amount and Form of Awards		4
	8.2	Payment for Awards		4
	8.3	Vesting Conditions		4
	8.4	Voting and Dividend Rights		4
ARTICLE 9.			PROTECTION AGAINST DILUTION.	5
	9.1	Adjustments		5
	9.2	Dissolution or Liquidation		5
	9.3	Reorganizations		5

i

ARTICLE 10.			AWARDS UNDER OTHER PLANS.	5
ARTICLE 11.			LIMITATION ON RIGHTS.	5
	11.1	Retention Rights		5
	11.2	Stockholders’ Rights		5
	11.3	Regulatory Requirements		5
ARTICLE 12.			WITHHOLDING TAXES.	6
	12.1	General		6
	12.2	Share Withholding		6
ARTICLE 13.			FUTURE OF THE PLAN.	6
	13.1	Term of the Plan		6
	13.2	Amendment or Termination		6
ARTICLE 14.			DEFINITIONS.	6
ARTICLE 15.			EXECUTION.	9

ii

HESKA CORPORATION

1997 STOCK INCENTIVE PLAN

ARTICLE 1. INTRODUCTION.

The Plan was adopted by the Board effective March 15, 1997, and was subsequently amended on each of March 6, 2007 and May 5, 2009.  In connection with completion of the Company’s 1-for-10 Reverse Stock Split on December 30, 2010, pursuant to Article 9 the Compensation Committee of the Board approved adjustments to the Plan to reduce by a factor of ten the number of Options and Restricted Shares, and related underlying Common Shares, available for issuance under the Plan.  On February 22, 2012, the Board approved, subject to stockholder approval, further amendments to the Plan to increase the aggregate number of Common Shares available for issuance under the Plan.

The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares or Options (which may constitute incentive stock options or nonstatutory stock options).

The Plan shall be governed by, and construed in accordance with, the laws of the State of Colorado (except its choice-of-law provisions).

ARTICLE 2. ADMINISTRATION.

2.1           Committee Composition. The Plan shall be administered by the Committee. The Committee shall consist exclusively of two or more directors of the Company, who shall be appointed by the Board. In addition, the composition of the Committee shall satisfy:

(a) Such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act; and

(b) Such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under section 162(m)(4)(C) of the Code.

The Board may also appoint one or more separate committees of the Board, each composed of one or more directors of the Company who need not satisfy the foregoing requirements, who may administer the Plan with respect to Employees and Consultants who are not considered officers or directors of the Company under section 16 of the Exchange Act, may grant Awards under the Plan to such Employees and Consultants and may determine all terms of such Awards.

2.2           Committee Responsibilities. The Committee shall (a) select the Employees, Outside Directors and Consultants who are to receive Awards under the Plan, (b) determine the type, number, vesting requirements and other features and conditions of such Awards, (c) interpret the Plan and (d) make all other decisions relating to the operation of the Plan. The Committee may adopt such rules or guidelines as it deems appropriate to implement the Plan. The Committee’s determinations under the Plan shall be final and binding on all persons.

ARTICLE 3. SHARES AVAILABLE FOR GRANTS.

3.1           Basic Limitation. Common Shares issued pursuant to the Plan may be authorized but unissued shares or treasury shares. Prior to December 30, 2010, the effective date of the Reverse Stock Split, the aggregate number of Options and Restricted Shares awarded under the Plan were not to exceed: (a) 1,350,000; plus (b) the aggregate number of Common Shares remaining available for grants under the Predecessor Plans on March 15, 1997; plus

1

(c) the additional Common Shares described in Sections 3.2(a) and 3.3; less (d) 250,000. From and after the effective date of the Reverse Stock Split, the aggregate number of Options and Restricted Shares available for award under the Plan were reduced (pursuant to Article 9) by a factor of ten as follows: (a) 135,000; plus (b) 10% of the aggregate number of Common Shares that remained available for grants under the Predecessor Plans on March 15, 1997; plus (c) the additional Common Shares described in Sections 3.2(b) and 3.3 plus 10% of the additional Common Shares described in Section 3.2(a); less (d) 25,000.  Subject to stockholder approval, from and after the effective date of this amended and restated Plan, the aggregate number of Options and Restricted Shares that may be awarded under the Plan shall be increased by 250,000.  No additional grants have been or are permitted to be made under the Predecessor Plans after March 15, 1997. The limitation of this Section 3.1 shall be further subject to adjustment pursuant to Article 9.

3.2           Annual Increase in Shares.

(a)           As of January 1 of each year, commencing with the year 1998 and continuing through January 1, 2007, the aggregate number of Options and Restricted Shares that may be awarded under the Plan shall be increased by a number of Common Shares equal to the lesser of (i) 5% of the total number of Common Shares outstanding as of the next preceding December 31 or (ii) 1,500,000. Afterthe annual increase on January 1, 2007, there shall be no further annual increases under the Plan pursuant to this Section 3.2(a) unless and until stockholder approval of such increase has been obtained.

(b)           Subject to stockholder approval, as of the Company’s Annual meeting of stockholders of each given year, commencing with the Company’s Annual meeting of stockholders in 2012 and continuing through the Company’s Annual meeting of stockholders in 2016, the aggregate number of Options and Restricted Shares that may be awarded under the Plan shall be increased by a number of Common Shares equal to the lesser of (A) 45,000  and (B) the product of 5,000 multiplied by the number of non-employee directors serving on the Board as of the Company’s Annual meeting of stockholders in the particular year of determination. Afterthe annual increase as of the Company’s Annual meeting of stockholders in 2016, there shall be no further annual increases under the Plan pursuant to this Section 3.2(b) unless and until stockholder approval of such increase has been obtained.

3.3           Additional Shares. If Options granted under this Plan or under the Predecessor Plans are forfeited or terminate for any other reason before being exercised, then the corresponding Common Shares shall become available for the grant of Options and Restricted Shares under this Plan. If Restricted Shares are forfeited, then the corresponding Common Shares shall again become available for the grant of NQOs and Restricted Shares under the Plan. The aggregate number of Common Shares that may be issued under the Plan upon the exercise of ISOs shall not be increased when Restricted Shares are forfeited.

ARTICLE 4. ELIGIBILITY.

4.1           Nonstatutory Stock Options and Restricted Shares. Only Employees, Outside Directors and Consultants shall be eligible for the grant of NQOs and Restricted Shares.

4.2           Incentive Stock Options. Only Employees who are common-law employees of the Company, a Parent or a Subsidiary shall be eligible for the grant of ISOs. In addition, an Employee who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company or any of its Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the requirements set forth in section 422(c)(6) of the Code are satisfied.

ARTICLE 5. OPTIONS.

5.1           Stock Option Agreement. Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company. Such Option shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Stock Option Agreement shall specify whether the Option is an ISO or an NQO. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical. Options may be granted in consideration of a cash payment or in consideration of a reduction in the Optionee’s other compensation. A Stock Option Agreement may provide that a

2

new Option will be granted automatically to the Optionee when he or she exercises a prior Option and pays the Exercise Price in the form described in Section 6.2.

5.2           Number of Shares. Each Stock Option Agreement shall specify the number of Common Shares subject to the Option and shall provide for the adjustment of such number in accordance with Article 9. Options granted to any Optionee in a single fiscal year of the Company shall not cover more than 50,000 Common Shares, except that Options granted to a new Employee in the fiscal year of the Company in which his or her service as an Employee first commences shall not cover more than 100,000 Common Shares. The limitations set forth in the preceding sentence shall be subject to adjustment in accordance with Article 9.

5.3           Exercise Price. Each Stock Option Agreement shall specify the Exercise Price; provided that the Exercise Price under an ISO shall in no event be less than 100% of the Fair Market Value of a Common Share on the date of grant and the Exercise Price under an NQO shall in no event be less than 85% of the Fair Market Value of a Common Share on the date of grant. In the case of an NQO, a Stock Option Agreement may specify an Exercise Price that varies in accordance with a predetermined formula while the NQO is outstanding.

5.4           Exercisability and Term. Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable. The Stock Option Agreement shall also specify the term of the Option; provided that the term of an ISO shall in no event exceed 10 years from the date of grant. A Stock Option Agreement may provide for accelerated exercisability in the event of the Optionee’s death, disability or retirement or other events and may provide for expiration prior to the end of its term in the event of the termination of the Optionee’s service. NQOs may also be awarded in combination with Restricted Shares, and such an Award may provide that the NQOs will not be exercisable unless the related Restricted Shares are forfeited.

5.5           Effect of Change in Control. The Committee may determine, at the time of granting an Option or thereafter, that such Option shall become exercisable as to all or part of the Common Shares subject to such Option in the event that a Change in Control occurs with respect to the Company, subject to the following limitations:

(a) In the case of an ISO, the acceleration of exercisability shall not occur without the Optionee’s written consent.

(b) If the Company and the other party to the transaction constituting a Change in Control agree that such transaction is to be treated as a “pooling of interests” for financial reporting purposes, and if such transaction in fact is so treated, then the acceleration of exercisability shall not occur to the extent that the surviving entity’s independent public accountants determine in good faith that such acceleration would preclude the use of “pooling of interests” accounting.

5.6           Modification or Assumption of Options. Within the limitations of the Plan, the Committee may modify, extend or assume outstanding options or may accept the cancellation of outstanding options (whether granted by the Company or by another issuer) in return for the grant of new options for the same or a different number of shares and at the same or a different exercise price. The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, alter or impair his or her rights or obligations under such Option.

5.7           Buyout Provisions. The Committee may at any time (a) offer to buy out for a payment in cash or cash equivalents an Option previously granted or (b) authorize an Optionee to elect to cash out an Option previously granted, in either case at such time and based upon such terms and conditions as the Committee shall establish.

ARTICLE 6. PAYMENT FOR OPTION SHARES.

6.1           General Rule. The entire Exercise Price of Common Shares issued upon exercise of Options shall be payable in cash or cash equivalents at the time when such Common Shares are purchased, except as follows:

(a) In the case of an ISO granted under the Plan, payment shall be made only pursuant to the express provisions of the applicable Stock Option Agreement. The Stock Option Agreement may specify that payment may be made in any form(s) described in this Article 6.

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(b) In the case of an NQO, the Committee may at any time accept payment in any form(s) described in this Article 6.

6.2           Surrender of Stock. To the extent that this Section 6.2 is applicable, all or any part of the Exercise Price may be paid by surrendering, Common Shares that are already owned by the Optionee. Such Common Shares shall be valued at their Fair Market Value on the date when the new Common Shares are purchased under the Plan. The Optionee shall not surrender Common Shares in payment of the Exercise Price if such action would cause the Company to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.

6.3           Exercise/Sale. To the extent that this Section 6.3 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to a securities broker approved by the Company to sell all or part of the Common Shares being purchased under the Plan and to deliver all or part of the sales proceeds to the Company.

6.4           Exercise/Pledge. To the extent that this Section 6.4 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) an irrevocable direction to pledge all or part of the Common Shares being purchased under the Plan to a securities broker or lender approved by the Company, as security for a loan, and to deliver all or part of the loan proceeds to the Company.

6.5           Promissory Note. To the extent that this Section 6.5 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid by delivering (on a form prescribed by the Company) a full-recourse promissory note; provided that the par value of the Common Shares being purchased under the Plan shall be paid in cash or cash equivalents.

6.6           Other Forms of Payment. To the extent that this Section 6.6 is applicable, all or any part of the Exercise Price and any withholding taxes may be paid in any other form that is consistent with applicable laws, regulations and rules.

ARTICLE 7. [Reserved]

ARTICLE 8. RESTRICTED SHARES.

8.1           Time, Amount and Form of Awards. Awards under the Plan may be granted in the form of Restricted Shares. Restricted Shares may also be awarded in combination with NQOs, and such an Award may provide that the Restricted Shares will be forfeited in the event that the related NQOs are exercised.

8.2           Payment for Awards. To the extent that an Award is granted in the form of newly issued Restricted Shares, the Award recipient, as a condition to the grant of such Award, shall be required to pay the Company in cash or cash equivalents an amount equal to the par value of such Restricted Shares. To the extent that an Award is granted in the form of Restricted Shares from the Company’s treasury, no cash consideration shall be required of the Award recipients. Any amount not paid in cash may be paid with a full recourse promissory note.

8.3           Vesting Conditions. Each Award of Restricted Shares may or may not be subject to vesting. Vesting shall occur, in full or in installments, upon satisfaction of the conditions specified in the Stock Award Agreement. A Stock Award Agreement may provide for accelerated vesting in the event of the Participant’s death, disability or retirement or other events. The Committee may determine, at the time of granting Restricted Shares or thereafter, that all or part of such Restricted Shares shall become vested in the event that a Change in Control occurs with respect to the Company, except as provided in the next following sentence. If the Company and the other party to the transaction constituting a Change in Control agree that such transaction is to be treated as a “pooling of interests” for financial reporting purposes, and if such transaction in fact is so treated, then the acceleration of vesting shall not occur to the extent that the surviving entity’s independent public accountants determine in good faith that such acceleration would preclude the use of “pooling of interests” accounting.

8.4 Voting and Dividend Rights. The holders of Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company’s other stockholders. A Stock Award Agreement, however, may

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require that the holders of Restricted Shares invest any cash dividends received in additional Restricted Shares. Such additional Restricted Shares shall be subject to the same conditions and restrictions as the Award with respect to which the dividends were paid.

ARTICLE 9. PROTECTION AGAINST DILUTION.

9.1           Adjustments. In the event of a subdivision of the outstanding Common Shares, a declaration of a dividend payable in Common Shares, a declaration of a dividend payable in a form other than Common Shares in an amount that has a material effect on the price of Common Shares, a combination or consolidation of the outstanding Common Shares (by reclassification or otherwise) into a lesser number of Common Shares, a recapitalization, a spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of (a) the number of Options and Restricted Shares available for future Awards under Article 3, (b) the limitations set forth in Section 5.2, (c) the number of Common Shares covered by each outstanding Option or (d) the Exercise Price under each outstanding Option. Except as provided in this Article 9, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class.

9.2           Dissolution or Liquidation. To the extent not previously exercised, Options shall terminate immediately prior to the dissolution or liquidation of the Company.

9.3           Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Options and Restricted Shares shall be subject to the agreement of merger or reorganization. Such agreement may provide, without limitation, for the continuation of outstanding Awards by the Company (if the Company is a surviving corporation), for their assumption by the surviving corporation or its parent or subsidiary, for the substitution by the surviving corporation or its parent or subsidiary of its own awards for such Awards, for accelerated vesting and accelerated expiration, or for settlement in cash or cash equivalents.

ARTICLE 10. AWARDS UNDER OTHER PLANS.

The Company may grant awards under other plans or programs. Such awards may be settled in the form of Common Shares issued under this Plan. Such Common Shares shall be treated for all purposes under the Plan like Restricted Shares and shall, when issued, reduce the number of Common Shares available under Article 3.

ARTICLE 11. LIMITATION ON RIGHTS.

11.1           Retention Rights. Neither the Plan nor any Award granted under the Plan shall be deemed to give any individual a right to remain an Employee, Outside Director or Consultant. The Company and its Parents, Subsidiaries and Affiliates reserve the right to terminate the service of any Employee, Outside Director or Consultant at any time, with or without cause, subject to applicable laws, the Company’s certificate of incorporation and bylaws and a written employment agreement (if any).

11.2           Stockholders’ Rights. A Participant shall have no dividend rights, voting rights or other rights as a stockholder with respect to any Common Shares covered by his or her Award prior to the time when a stock certificate for such Common Shares is issued or, in the case of an Option, the time when he or she becomes entitled to receive such Common Shares by filing a notice of exercise and paying the Exercise Price. No adjustment shall be made for cash dividends or other rights for which the record date is prior to such time, except as expressly provided in the Plan.

11.3           Regulatory Requirements. Any other provision of the Plan notwithstanding, the obligation of the Company to issue Common Shares under the Plan shall be subject to all applicable laws, rules and regulations and such approval by any regulatory body as may be required. The Company reserves the right to restrict, in whole or in part, the delivery of Common Shares pursuant to any Award prior to the satisfaction of all legal requirements relating to the issuance of such Common Shares, to their registration, qualification or listing or to an exemption from registration, qualification or listing.

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ARTICLE 12. WITHHOLDING TAXES.

12.1           General. To the extent required by applicable federal, state, local or foreign law, a Participant or his or her successor shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Common Shares or make any cash payment under the Plan until such obligations are satisfied.

12.2           Share Withholding. The Committee may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Common Shares that otherwise would be issued to him or her or by surrendering all or a portion of any Common Shares that he or she previously acquired. Such Common Shares shall be valued at their Fair Market Value on the date when taxes otherwise would be withheld in cash.

ARTICLE 13. FUTURE OF THE PLAN.

13.1           Term of the Plan. The Plan, as set forth herein, shall become effective on March 14, 1997. The Plan shall remain in effect until it is terminated under Section 13.2, except that no ISOs shall be granted after May 8, 2022.

13.2           Amendment or Termination. The Board may, at any time and for any reason, amend or terminate the Plan. An amendment of the Plan shall be subject to the approval of the Company’s stockholders only to the extent required by applicable laws, regulations or rules. No Awards shall be granted under the Plan after the termination thereof. The termination of the Plan, or any amendment thereof, shall not affect any Award previously granted under the Plan.

ARTICLE 14. DEFINITIONS.

14.1           “Affiliate” means any entity other than a Subsidiary, if the Company and/or one or more Subsidiaries own not less than 50% of such entity.

14.2           “Award” means any award of an Option or a Restricted Share under the Plan.

14.3           “Board” means the Company’s Board of Directors, as constituted from time to time.

14.4           “Change in Control” shall mean:

(a) The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization;

(b) The sale, transfer or other disposition of all or substantially all of the Company’s assets;

(c) A change in the composition of the Board, a result of which fewer than 50% of the incumbent directors are directors who either (i) had been directors of the Company on the date 24 months prior to the date of the event that may constitute a Change in Control (the “original directors”) or (ii) were elected, or nominated for election, to the Board with the affirmative votes of at least a majority of the aggregate of the original directors who were still in office at the time of the election or nomination and the directors whose election or nomination was previously so approved; or

(d) Any transaction as a result of which any person is the “beneficial owner” (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing at least 30% of the total voting power represented by the Company’s then outstanding voting securities. For purposes of this Paragraph (d), the term “person” shall have the same meaning as when used in sections 13(d) and 14(d) of the Exchange Act but shall exclude (i) any person, or person affiliated with said person, who, on March 15, 1997,is the beneficial owner of securities of the Company representing at least 20% of the total voting power represented by the Company’s then

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outstanding voting securities (11,607,764), (ii) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or of a Parent or Subsidiary and (iii) a corporation owned directly or indirectly by the stockholders of the Company in substantially the same proportions as their ownership of the common stock of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

14.5           “Code” means the Internal Revenue Code of 1986, as amended.

14.6           “Committee” means a committee of the Board, as described in Article 2.

14.7           “Common Share” means, as may be applicable, one share of Common Stock, par value $0.01 per share, of the Company to the extent any remains outstanding at the time of determination, or one share of Public Common Stock, par value $0.01 per share, of the Company, to the extent any remains outstanding at the time of determination.

14.8           “Company” means either (a) Heska Corporation, a California corporation (prior to the formation of Heska Corporation, a Delaware corporation), or (b) Heska Corporation, a Delaware corporation (following its formation).

14.9           “Consultant” means a consultant or adviser who provides bona fide services to the Company, a Parent, a Subsidiary or an Affiliate as an independent contractor. Service as a Consultant shall be considered employment for all purposes of the Plan, except as provided in Section 4.2.

14.10           “Employee” means a common-law employee of the Company, a Parent, a Subsidiary or an Affiliate.

14.11           “Exchange Act” means the Securities Exchange Act of 1934, as amended.

14.12           “Exercise Price” means the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Stock Option Agreement.

14.13           “Fair Market Value” means the market price of Common Shares, determined by the Committee in good faith on such basis as it deems appropriate. Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices reported in The Wall Street Journal. Such determination shall be conclusive and binding on all persons.

14.14           “ISO” means an incentive stock option described in section 422(b) of the Code.

14.15           “NQO” means a stock option not described in sections 422 or 423 of the Code.

14.16           “Option” means an ISO or NQO granted under the Plan and entitling the holder to purchase Common Shares.

14.17           “Optionee” means an individual or estate who holds an Option.

14.18           “Outside Director” shall mean a member of the Board who is not an Employee. Service as an Outside Director shall be considered employment for all purposes of the Plan, except as provided in Section 4.2.

14.19           “Parent” means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

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14.20           “Participant” means an individual or estate who holds an Award.

14.21           “Plan” means this Heska Corporation 1997 Stock Incentive Plan, as amended from time to time.

14.22           “Predecessor Plans” means (a) the 1988 Heska Corporation Stock Plan and (b) the Heska Corporation 1994 Key Executive Stock Plan.

14.23           “Restricted Share” means a Common Share awarded under the Plan.

14.24           “Reverse Stock Split” means the Company’s 1-for-10 reverse stock split of its then outstanding Common Shares, which was approved by the Company’s stockholders and consummated and made effective December 30, 2010.

14.25           “Stock Award Agreement” means the agreement between the Company and the recipient of a Restricted Share that contains the terms, conditions and restrictions pertaining to such Restricted Share.

14.26           “Stock Option Agreement” means the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to his or her Option.

14.27           “Subsidiary” means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

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ARTICLE 15. EXECUTION.

To record the adoption of the Plan by the Board, the Company has caused its duly authorized officer to execute this document in the name of the Company.

HESKA CORPORATION
By:	/s/ Jason A. Napolitano
	Executive Vice President and
	Chief Financial Officer

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EX-10.2

Exhibit 10.2

HESKA CORPORATION

1997 EMPLOYEE STOCK PURCHASE PLAN

(AS AMENDED AND RESTATED, EFFECTIVE APRIL 30, 2013)

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TABLE OF CONTENTS

SECTION 1.			PURPOSE OF THE PLAN.	5
SECTION 2.			ADMINISTRATION OF THE PLAN.	5
	(a)	Committee Composition		5
	(b)	Committee Responsibilities		5
SECTION 3.			ENROLLMENT AND PARTICIPATION.	5
	(a)	Offering Periods		5
	(b)	Accumulation Periods		5
	(c)	Enrollment		5
	(d)	Duration of Participation		6
	(e)	Applicable Offering Period		6
SECTION 4.			EMPLOYEE PAYROLL CONTRIBUTIONS.	7
	(a)	Frequency of Payroll Deductions		7
	(b)	Amount of Payroll Deductions		7
	(c)	Changing Withholding Rate		7
	(d)	Discontinuing Payroll Deductions		7
	(e)	Limit on Number of Elections		7
SECTION 5.			WITHDRAWAL FROM THE PLAN.	7
	(a)	Withdrawal		7
	(b)	Failure to Participate		8
	(c)	Re-Enrollment After Withdrawal		8
SECTION 6.			CHANGE IN EMPLOYMENT STATUS.	8
	(a)	Termination of Employment		8
	(b)	Leave of Absence		8
	(c)	Death		8
SECTION 7.			PLAN ACCOUNTS AND PURCHASE OF SHARES.	8
	(a)	Contribution Accounts and Purchase Accounts		8
	(b)	Immediate Notification Share Purchase		8
	(c)	Purchase Price at the Close of an Accumulation Period		9
	(d)	Number of Shares Purchased at the Close of an Accumulation Period		9
	(e)	Available Shares Insufficient		9

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	(f)	Issuance of Stock		10
	(g)	Contribution Account Unused Cash Balances		10
SECTION 8.			LIMITATIONS ON STOCK OWNERSHIP.	10
	(a)	Five Percent Limit		10
	(b)	$25,000 Limit		10
SECTION 9.			RIGHTS NOT TRANSFERABLE.	11
SECTION 10.			NO RIGHTS AS AN EMPLOYEE.	11
SECTION 11.			NO RIGHTS AS A STOCKHOLDER.	11
SECTION 12.			STOCK OFFERED UNDER THE PLAN.	11
	(a)	Authorized Shares		11
	(b)	Anti-Dilution Adjustments		11
	(c)	Reorganizations		11
SECTION 13.			AMENDMENT OR DISCONTINUANCE.	12
SECTION 14.			DEFINITIONS.	12
	(a)	Accumulation Period		12
	(b)	Board		12
	(c)	Change in Control		12
	(d)	Code		12
	(e)	Committee		12
	(f)	Company		12
	(g)	Compensation		12
	(h)	Contribution Account		13
	(i)	Eligible Employee		13
	(j)	Exchange Act		13
	(k)	Fair Market Value		13
	(l)	Immediate Price		13
	(m)	Immediate Purchase Notification		13
	(n)	Lookback Price		13
	(o)	New Offering Date		14
	(p)	Notification Offering Period		14
	(q)	Notification Price		14
	(r)	Offering Period		14
	(s)	Participant		14
	(t)	Participating Company		14
	(u)	Plan		14

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	(v)	Purchase Account		14
	(w)	Purchase Price		14
	(x)	Remaining Shares		14
	(y)	Stock		14
	(z)	Subsidiary		14
SECTION 15.			EXECUTION.	15

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HESKA CORPORATION

1997 EMPLOYEE STOCK PURCHASE PLAN

AS AMENDED AND RESTATED EFFECTIVE APRIL 30, 2013

SECTION 1.                         PURPOSE OF THE PLAN.

The Plan was adopted by the Board on April 23, 1997.  The purpose of the Plan is to provide Eligible Employees with an opportunity to increase their proprietary interest in the success of the Company by purchasing Stock from the Company on favorable terms.  The Plan is intended to qualify under section 423 of the Code.

The Plan was amended and restated on May 16, 2002, February 6, 2004, February 24, 2005, June 17, 2008 and May 4, 2010.  The Plan is now amended and restated, effective April 30, 2013.

SECTION 2.                         ADMINISTRATION OF THE PLAN.

(a)         Committee Composition.  The Plan shall be administered by the Committee.  The Committee shall consist exclusively of one or more directors of the Company, who shall be appointed by the Board.

(b)         Committee Responsibilities.  The Committee shall interpret the Plan and make all other policy decisions relating to the operation of the Plan.  The Committee may adopt such rules, guidelines and forms as it deems appropriate to implement the Plan.  The Committee’s determinations under the Plan shall be final and binding on all persons.

SECTION 3.                         ENROLLMENT AND PARTICIPATION.

(a)         Offering Periods.  Any and all then outstanding Offering Periods shall end on June 30, 2013.  While the Plan is in effect thereafter, four overlapping Offering Periods shall commence in each calendar year.  The Offering Periods shall consist of the 27-month periods commencing on each January 1, April 1, July 1 and October 1.

(b)         Accumulation Periods.  The then outstanding Accumulation Period shall end on June 30, 2013.  While the Plan is in effect thereafter, four Accumulation Periods shall commence in each calendar year.  The Accumulation Periods shall consist of the three-month periods commencing on each January 1, April 1, July 1 and October 1.

(c)         Enrollment.  Any individual who, at the end of the day immediately preceding the first day of an Offering Period, qualifies as an Eligible Employee may elect to become a Participant in the Plan for such Offering Period by executing the prescribed form, which shall be filed with the Company at the prescribed location prior to the commencement of such Offering Period; provided, however, that no Eligible Employee who does not comply with the five percent limit outlined in Section 8(a) at the commencement of such Offering Period shall become a Participant in the Plan under this Subsection (c) and, furthermore, that no Eligible Employee shall be enrolled in an Offering Period beginning prior to the New Offering Date applicable to such Eligible Employee.

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(d)         Duration of Participation.  Once enrolled in the Plan, a Participant shall continue to participate in the Plan until he or she ceases to be an Eligible Employee, withdraws from the Plan under Section 5(a) or is withdrawn from the Plan under Section 5(b).  A Participant who withdrew from the Plan under Section 5(a) or was withdrawn from the Plan under Section 5(b) may again become a Participant, if he or she then is an Eligible Employee, by following the procedure described in Subsection (c) above.

(e)         Applicable Offering Period.  Only one Offering Period may apply to a Participant at one time.  The applicable Offering Period for a given Participant shall be determined as follows:

(i)       Once a Participant is enrolled in the Plan for an Offering Period, such Offering Period shall continue to apply to him or her until the earliest of (A) the end of such Offering Period, (B) the end of his or her participation under Subsection (d) above, (C) enrollment by the Participant in a subsequent Offering Period following a written request on the prescribed form to enroll in an immediately subsequent Offering Period filed with the Company at the prescribed location prior to the commencement of such subsequent Offering Period, which shall only be effective if (1) such Participant has designated on the prescribed form filed with the Company at the prescribed location prior to the commencement of such subsequent Offering Period that he or she elects to have withheld at least 1% of Compensation in the first month of such subsequent Offering Period, (2) such subsequent Offering Period begins on or after the New Offering Date applicable to such Participant and (3) such Participant complies with the five percent limit outlined in Section 8(a), or (D) automatic enrollment in a subsequent Offering Period under Paragraph (ii) below.

(ii)       In the event that the Fair Market Value of Stock at the commencement of the Offering Period in which the Participant is enrolled is higher than at the commencement of any subsequent Offering Period, the Participant shall automatically be enrolled in such subsequent Offering Period if (A) the Participant has designated on the prescribed form filed with the Company at the prescribed location prior to the commencement of such subsequent Offering Period that he or she elects to have withheld at least 1% of Compensation in the first month of such subsequent Offering Period, (B) such subsequent Offering Period begins on or after the New Offering Date applicable to such Participant and (C) such Participant complies with the five percent limit outlined in Section 8(a), unless the Participant has filed a written request on the prescribed form not to be enrolled in such subsequent Offering Period with the Company at the prescribed location prior to the commencement of such subsequent Offering Period.

(iii)       When a Participant reaches the end of an Offering Period but his or her participation is to continue as the Participant has not discontinued payroll deductions under Section 4(d) at the end of such Offering Period, then such Participant shall be enrolled automatically for the Offering Period that commences immediately thereafter unless such Participant does not comply with the five percent limit outlined in Section 8(a).

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SECTION 4.                         EMPLOYEE PAYROLL CONTRIBUTIONS.

(a)         Frequency of Payroll Deductions.  A Participant may purchase shares of Stock under the Plan by means of payroll deductions.  Payroll deductions, as designated by the Participant pursuant to Subsection (b) below, shall occur on each payday during participation in the Plan.

(b)         Amount of Payroll Deductions.  An Eligible Employee shall designate on the prescribed form the portion of his or her Compensation that he or she elects to have withheld for the purchase of Stock.  Such portion shall be a whole percentage of the Eligible Employee’s Compensation, but not less than 1% nor more than 10%.  Any other provision of the Plan notwithstanding, no Participant shall have more than $25,000 from payroll deductions used to purchase Stock under the Plan in the same calendar year, which for the avoidance of doubt shall exclude any deposit made pursuant to Section 7(b).  If a Participant is precluded by this Subsection (b) from making additional purchases of Stock under the Plan in a given calendar year, then his or her payroll deductions shall be discontinued automatically and shall resume automatically at the beginning of the first Accumulation Period ending in the next calendar year or, if later, the first Accumulation Period during which the Participant is enrolled in an Offering Period other than a Notification Offering Period attributable to the Participant.

(c)         Changing Withholding Rate.  If a Participant wishes to change the rate of payroll withholding, he or she may do so by filing the prescribed form with the Company at the prescribed location at any time.  The new withholding rate shall be effective as soon as reasonably practicable after such form has been received by the Company.  The new withholding rate shall be a whole percentage of the Eligible Employee’s Compensation, but not less than 1% nor more than 10%.

(d)         Discontinuing Payroll Deductions.  If a Participant wishes to discontinue employee contributions entirely, he or she may do so by filing the prescribed form with the Company at the prescribed location at any time.  Payroll withholding shall cease as soon as reasonably practicable after such form has been received by the Company.  (In addition, employee contributions may be discontinued automatically pursuant to Section 4(b), 7(b) or 8(b).)  A Participant who has discontinued employee contributions may resume such contributions by filing the prescribed form with the Company at the prescribed location.  Payroll withholding shall resume as soon as reasonably practicable after such form has been received by the Company.

(e)         Limit on Number of Elections.  No Participant shall make more than two elections under Subsection (c) or (d) above, combined, during any Accumulation Period.

SECTION 5.                         WITHDRAWAL FROM THE PLAN.

(a)         Withdrawal.  A Participant may elect to withdraw from the Plan by filing the prescribed form with the Company at the prescribed location at any time before the last day of an Accumulation Period.  As soon as reasonably practicable thereafter, payroll deductions shall cease and the entire amount credited to the Participant’s Contribution Account and Purchase Account shall be refunded to him or her in cash, without interest.  No partial withdrawals shall be permitted.

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(b)         Failure to Participate.  A participant who did not purchase Stock under the Plan during an Accumulation Period due to a decision to discontinue employee contributions under Section 4(d) shall be deemed as failing to participate in the Plan and shall be withdrawn from the Plan automatically.  As soon as reasonably practicable thereafter, the entire amount credited to the Participant’s Contribution Account shall be refunded to him or her in cash, without interest.

(c)         Re-Enrollment After Withdrawal.  A former Participant who has withdrawn or was withdrawn from the Plan shall not be a Participant until he or she re-enrolls in the Plan under Section 3(c).  Re-enrollment may be effective only at the commencement of an Offering Period.

SECTION 6.                         CHANGE IN EMPLOYMENT STATUS.

(a)         Termination of Employment.  Termination of employment as an Eligible Employee for any reason, including death, shall be treated as an automatic withdrawal from the Plan under Section 5(a).  (A transfer from one Participating Company to another shall not be treated as a termination of employment.)

(b)         Leave of Absence.  For purposes of the Plan, employment shall not be deemed to terminate when the Participant goes on a military leave, a sick leave or another bona fide leave of absence, if the leave was approved by the Company in writing and if continued crediting of service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).  Employment, however, shall be deemed to terminate 90 days after the Participant goes on a leave, unless a contract or statute protects his or her right to return to work.  Employment shall be deemed to terminate in any event when the approved leave ends, unless the Participant immediately returns to work.

(c)         Death.  In the event of the Participant’s death, unless otherwise prohibited by law, the entire amount credited to his or her Contribution Account and his or her Purchase Account shall be paid to a beneficiary designated by him or her for this purpose on the prescribed form or, if none, to the Participant’s estate.  Such form shall be valid only if it was filed with the Company at the prescribed location before the Participant’s death and is not otherwise prohibited by law.

SECTION 7.                         PLAN ACCOUNTS AND PURCHASE OF SHARES.

(a)         Contribution Accounts and Purchase Accounts.  The Company shall maintain a Contribution Account on its books in the name of each Participant.  Whenever an amount is deducted from the Participant’s Compensation under the Plan, such amount shall be credited to the Participant’s Contribution Account.  The Company shall also maintain a Purchase Account on its books in the name of each Participant.  Whenever any Participant makes a deposit pursuant to an Immediate Purchase Notification under Subsection (b) below, the amount of such deposit shall be credited to the Participant’s Purchase Account.  Amounts credited to Contribution Accounts and Purchase Accounts shall not be trust funds and may be commingled with the Company’s general assets and applied to general corporate purposes.  No interest shall be credited to Contribution Accounts and Purchase Accounts.

(b)         Immediate Notification Share Purchase.  A Participant may elect to purchase Stock at the commencement of an Offering Period, or effective at 5 p.m. on any day other than the last day of an Accumulation Period, by filing the prescribed form with the Company prior to such

8

purchase - an Immediate Purchase Notification for such Participant. A Participant may make a deposit at the time of an Immediate Purchase Notification. The Offering Period in which an Immediate Purchase Notification is to be effective is a Notification Offering Period for such Participant. At the time the Immediate Purchase Notification is to be effective, the combined amount in the Participant’s Contribution Account and the Participant’s Purchase Account is divided by the Immediate Price at that time and the number of shares that results shall be purchased from the Company with the funds in the Participant’s Contribution Account and the Participant’s Purchase Account. The foregoing notwithstanding, no Participant shall purchase more than Remaining Shares nor more than the amounts of Stock set forth in Sections 8(b) and 12(a) at this time. Any remaining funds in the Participant’s Contribution Account shall then be deposited into the Participant’s Purchase Account. During the Notification Offering Period, at 5 p.m. on January 31 of each year following the year of the Immediate Purchase Notification, any amount in the Participant’s Purchase Account shall be divided by the Notification Price and the number of shares that results shall be purchased from the Company with the funds in the Participant’s Purchase Account. The foregoing notwithstanding, no Participant shall purchase more than Remaining Shares nor more than the amounts of Stock set forth in Sections 8(b) and 12(a) on any such January 31. Any fractional share, as calculated under this Subsection (b), shall be rounded down to the next lower whole share. As soon as reasonably practicable following an Immediate Purchase Notification, payroll deductions shall be discontinued automatically and shall automatically resume at the beginning of the next Offering Period in which the Participant is enrolled. Any amount remaining in the Participant’s Purchase Account at the end of the Notification Offering Period shall be refunded to the Participant in cash, without interest, at that time.

(c)         Purchase Price at the close of an Accumulation Period.  The Purchase Price for each share of Stock purchased at the close of an Accumulation Period shall be the greater of: (i) the Lookback Price or (ii) 65% of the Fair Market Value of a share of Stock at the close of such Accumulation Period.

(d)         Number of Shares Purchased at the close of an Accumulation Period.  As of the last day of each Accumulation Period, each Participant shall be deemed to have elected to purchase the number of shares of Stock calculated in accordance with this Subsection (d), unless the Participant has previously elected to withdraw from the Plan in accordance with Section 5(a).  The amount then in the Participant’s Contribution Account shall be divided by the Purchase Price, and the number of shares that results shall be purchased from the Company with the funds in the Participant’s Plan Account.  The foregoing notwithstanding, no Participant shall purchase more than 200 shares of Stock with respect to any Accumulation Period nor more than the amounts of Stock set forth in Sections 8(b) and 12(a).  Any fractional share, as calculated under this Subsection (c), shall be rounded down to the next lower whole share.

(e)         Available Shares Insufficient.  In the event that the aggregate number of shares that all Participants elect to purchase at any time, such as the close of an Accumulation Period, exceeds the maximum number of shares remaining available for issuance under Section 12(a), then the number of shares to which each Participant is entitled shall be determined by multiplying the number of shares available for issuance by a fraction, the numerator of which is the number of shares that such Participant has elected to purchase and the denominator of which is the number of shares that all Participants have elected to purchase.

9

(f)         Issuance of Stock.  The Committee may determine that shares of Stock purchased by a Participant under the Plan shall be held for each Participant’s benefit by a broker designated by the Committee, unless the Participant has elected that certificates be issued to him or her.  Such shares, whether to be held for a given Participant’s benefit by a broker or issued as certificates for a given Participant, shall be issued as soon as reasonably administratively practicable after shares of Stock are purchased.  Shares may be registered in the name of the Participant or jointly in the name of the Participant and his or her spouse as joint tenants with right of survivorship or as community property.

(g)         Contribution Account Unused Cash Balances.  An amount remaining in the Participant’s Contribution Account that represents the Purchase Price for any fractional share shall be carried over in the Participant’s Contribution Account to the next Accumulation Period.  Any amount remaining in the Participant’s Contribution Account that represents the Purchase Price for whole shares that could not be purchased by reason of Subsection (d) above shall be refunded to the Participant in cash, without interest.

SECTION 8.                         LIMITATIONS ON STOCK OWNERSHIP.

(a)         Five Percent Limit.  Any other provision of the Plan notwithstanding, no Participant shall be granted a right to purchase Stock under the Plan if such Participant, immediately after his or her election to purchase such Stock, would own stock possessing 5% or more of the total combined voting power or value of all classes of stock of the Company or any parent or Subsidiary of the Company.  For purposes of this Subsection (a), the following rules shall apply:

(i)       Ownership of stock shall be determined after applying the attribution rules of section 424(d) of the Code;

(ii)       Each Participant shall be deemed to own any stock that he or she has a right or option to purchase under this or any other plan; and

(iii)       Each Participant shall be deemed to have the right to purchase 1,800 shares of Stock under this Plan with respect to each Offering Period.

(b)         $25,000 Limit.  Any other provision of the Plan notwithstanding, no Participant shall purchase Stock with a Fair Market Value (determined at the time such purchase right option is granted) in excess of $25,000 during any calendar year under this Plan and all other employee stock purchase plans of the Company or any parent or Subsidiary of the Company.  For purposes of this Subsection (b), employee stock purchase plans not described in section 423 of the Code shall be disregarded.  If a Participant is precluded by this Subsection (b) from purchasing additional Stock under the Plan, then his or her employee contributions shall automatically be discontinued and shall resume automatically at the beginning of the first Accumulation Period ending in the next calendar year or, if later, the first Accumulation Period during which the Participant is enrolled in an Offering Period other than a Notification Offering Period attributable to the Participant.  

10

SECTION 9.                                 RIGHTS NOT TRANSFERABLE.

The rights of any Participant under the Plan, or any Participant’s interest in any Stock or moneys to which he or she may be entitled under the Plan, shall not be transferable by voluntary or involuntary assignment or by operation of law, or in any other manner other than by beneficiary designation or the laws of descent and distribution.  If a Participant in any manner attempts to transfer, assign or otherwise encumber his or her rights or interest under the Plan, other than by beneficiary designation or the laws of descent and distribution, then such act shall be treated as an election by the Participant to withdraw from the Plan under Section 5(a).

SECTION 10.                                NO RIGHTS AS AN EMPLOYEE.

Nothing in the Plan or in any right granted under the Plan shall confer upon the Participant any right to continue in the employ of a Participating Company for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Participating Companies or of the Participant, which rights are hereby expressly reserved by each, to terminate his or her employment at any time and for any reason, with or without cause.

SECTION 11.                                NO RIGHTS AS A STOCKHOLDER.

A Participant shall have no rights as a stockholder with respect to any shares of Stock that he or she may have a right to purchase under the Plan until such shares have been purchased under the Plan.

SECTION 12.                                STOCK OFFERED UNDER THE PLAN.

(a)         Authorized Shares.  The aggregate number of shares of Stock available for purchase under the Plan shall be 375,000, subject to adjustment pursuant to this Section 12.

(b)         Anti-Dilution Adjustments.  The aggregate number of shares of Stock offered under the Plan, the 200 share limit described in Section 7(d), the 1,800 share right to purchase calculation described in Section 8(a)(iii), the 1,800 share starting point and any pre-dilution purchases described in Section 14(x) and the price of shares that any Participant has elected to purchase shall be adjusted proportionately as directed by the Committee for any increase or decrease in the number of outstanding shares of Stock resulting from a subdivision or consolidation of shares or the payment of a stock dividend, any other increase or decrease in such shares effected without receipt or payment of consideration by the Company, the distribution of the shares of a Subsidiary to the Company’s stockholders or a similar event.

(c)         Reorganizations.  Any other provision of the Plan notwithstanding, immediately prior to the effective time of a Change in Control, the Offering Period and Accumulation Period then in progress shall terminate, shares shall be purchased pursuant to Section 7 and any remaining unused balance in a given Participant’s Contribution Account and Purchase Account shall be returned to such Participant.  In the event of a merger or consolidation to which the Company is a constituent corporation and which does not constitute a Change in Control, the Plan shall continue unless the plan of merger or consolidation provides otherwise.  The Plan shall in no

11

event be construed to restrict in any way the Company’s right to undertake a dissolution, liquidation, merger, consolidation or other reorganization.

SECTION 13.                                AMENDMENT OR DISCONTINUANCE.

The Board shall have the right to amend, suspend or terminate the Plan at any time and without notice.  Except as provided in Section 12, any increase in the aggregate number of shares of Stock to be issued under the Plan shall be subject to approval by a vote of the stockholders of the Company.  In addition, any other amendment of the Plan shall be subject to approval by a vote of the stockholders of the Company to the extent required by an applicable law or regulation.

SECTION 14.                                DEFINITIONS.

(a)         "Accumulation Period" means a three-month period during which contributions may be made toward the purchase of Stock under the Plan, as determined pursuant to Section 3(b).

(b)         "Board" means the Board of Directors of the Company, as constituted from time to time.

(c)         "Change in Control" means:

(i)       The consummation of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, if more than 50% of the combined voting power of the continuing or surviving entity’s securities outstanding immediately after such merger, consolidation or other reorganization is owned by persons who were not stockholders of the Company immediately prior to such merger, consolidation or other reorganization; or

(ii)       The sale, transfer or other disposition of all or substantially all of the Company’s assets or the complete liquidation or dissolution of the Company.

A transaction shall not constitute a Change in Control if its sole purpose is to change the state of the Company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the Company’s securities immediately before such transaction.

(d)         "Code" means the Internal Revenue Code of 1986, as amended.

(e)         "Committee" means a committee of the Board, as described in Section 2.

(f)         "Company" means Heska Corporation, a Delaware corporation.

(g)         "Compensation" means (i) the total compensation paid in cash to a Participant by a Participating Company, including salaries, wages, bonuses, incentive compensation, commissions and overtime pay, plus (ii) any pre-tax contributions made by the Participant under Section 401(k) or 125 of the Code.  Compensation shall exclude moving or relocation allowances, car allowances, imputed income attributable to cars or life insurance, fringe benefits,

12

contributions to employee benefit plans and similar items.  The Committee shall determine whether a particular item is included in Compensation.

(h)         "Contribution Account" means the account established for each Participant pursuant to Section 7(a).

(i)         "Eligible Employee" means any employee of a Participating Company whose customary employment is for more than five months per calendar year and for more than 20 hours per week.  The foregoing notwithstanding, an individual shall not be considered an Eligible Employee if his or her participation in the Plan is prohibited by the law of any country which has jurisdiction over him or her or if he or she is subject to a collective bargaining agreement that does not provide for participation in the Plan.

(j)         "Exchange Act" means the Securities Exchange Act of 1934, as amended.

(k)         "Fair Market Value" means the market price of Stock, determined by the Committee as follows:

(i)       If Stock is normally listed on the Nasdaq Stock Market, then the Fair Market Value shall be equal to the last transaction price reported by the Nasdaq Stock Market;

(ii)       If provision (i) above is not applicable and Stock is normally listed on a stock exchange, then the Fair Market Value shall be equal to the last transaction price reported by such stock exchange;

(iii)       If provisions (i) and (ii) above are not applicable and Stock was traded over-the-counter on the date in question, then the Fair Market Value shall be equal to the last transaction price reported by the principal automated inter-dealer quotation system on which Stock is quoted or, if the Stock is not quoted on any such system, by the "Pink Sheets" published by the National Quotation Bureau, Inc.; and

(iv)       If none of the foregoing provisions is applicable or may be implemented, then the Fair Market Value shall be determined by the Committee in good faith on such basis as it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall be based on the prices as reported directly to the Company by the Nasdaq Stock Market or a comparable exchange or as reported in The Wall Street Journal.  Such determination shall be conclusive and binding on all persons.

(l)         "Immediate Price" means 95% of the Fair Market Value of a share of Stock.

(m)         "Immediate Purchase Notification" means the election and related process set forth in Section 7(b).

(n)         "Lookback Price" means the lesser of:

(i)       85% of the Fair Market Value of a share of Stock; or

13

(ii)       95% of the Fair Market Value of a share of Stock at the commencement of the applicable Offering Period (as determined under Section 3(e)).

(o)         "New Offering Date" means, for a given individual, the later of (i) July 1, 2013 and (ii) the day following the last day of the most recent Notification Offering Period in which such individual filed an Immediate Purchase Notification, if applicable.  For example, if an individual is enrolled in an Offering Period beginning on January 1, 2016 and files an Immediate Purchase Notification on January 15, 2016, then this Offering Period is a Notification Offering Period for such individual, including if such individual withdraws from the Plan or terminates employment with the Company, and the related New Offering Date is April 1, 2018.

(p)         "Notification Offering Period" means, for a given individual, an Offering Period in which an Immediate Purchase Notification is to be effective.

(q)         "Notification Price" means the Immediate Price at the commencement of the applicable Offering Period if a given Participant gave an Immediate Purchase Notification to purchase Stock at the commencement of such Offering Period.  Otherwise, the Immediate Price at the time of purchase.

(r)         "Offering Period" means the 27-month period with respect to which the right to purchase Stock may be granted under the Plan and during which contributions may be made toward the purchase of Stock under the Plan, as determined pursuant to Section 3(a).

(s)         "Participant" means an Eligible Employee who elects to participate in the Plan, as provided in Section 3(c).

(t)         "Participating Company" means (i) the Company and (ii) each present or future Subsidiary designated by the Committee as a Participating Company.

(u)         "Plan" means this Heska Corporation 1997 Employee Stock Purchase Plan, as it may be amended from time to time.

(v)         "Purchase Account" means the account established for each Participant pursuant to Section 7(a).

(w)         "Purchase Price" means the price at which Participants may purchase Stock at the close of an Accumulation Period under the Plan, as determined pursuant to Section 7(c).

(x)         "Remaining Shares" means the number of shares of Stock equal to 1,800 less (i) cumulative shares of Stock purchased pursuant to Section 7(d) in a given Notification Offering Period prior to an Immediate Purchase Notification less (ii) cumulative shares of Stock purchased pursuant to Section 7(b) in a given Notification Offering Period following an Immediate Purchase Notification.

(y)         "Stock" means the Common Stock of the Company.

(z)         "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last

14

corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

SECTION 15.                                EXECUTION.

To record the most recent amendment of the Plan by the Board or its Committee on April 30, 2013, the Company has caused its authorized officer to execute the same.

HESKA CORPORATION
By:	/s/ Robert B. Grieve
	Robert B. Grieve
	Chairman and Chief Executive Officer

15

EX-10.3

Exhibit 10.3

Portions of this Exhibit have been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act.  Omitted information, marked “[***]” in this exhibit, has been filed with the Securities and Exchange Commission together with such request for confidential treatment.

SEVENTH AMENDMENT

TO

AMENDED AND RESTATED

BOVINE VACCINE DISTRIBUTION AGREEMENT

This Seventh Amendment ("Seventh Amendment") is entered into as of the 1st day of February 2013 ("Effective Date") by and between DIAMOND ANIMAL HEALTH, INC., d/b/a HESKA DES MOINES, an Iowa corporation with offices at 2538 Southeast 43rd Street, Des Moines, Iowa 50317 ("Diamond") and AGRI LABORATORIES, LTD., a Delaware corporation, with offices at 20927 State Route K, St. Joseph, Missouri 64505 ("Distributor") as an amendment to that certain Amended and Restated Bovine Vaccine Distribution Agreement dated as of September 30, 2002 between Diamond and Distributor (the "Original Agreement"), as amended by that certain First Amendment dated as of September 20, 2004 (the "First Amendment") that certain Second Amendment dated as of December 10, 2004 (the "Second Amendment")  that certain Third Amendment dated as of May 26, 2006 (the "Third Amendment") that certain Fourth Amendment dated as of November 16, 2007 (the "Fourth Amendment") that Fifth Amendment dated as of December 23, 2010 (the “Fifth Amendment”) and that Sixth Amendment dated as of July 25, 2011 (the Sixth Amendment”) (collectively, the "Agreement").

WHEREAS, Diamond and Distributor are parties to the Agreement providing for the distribution of certain bovine antigens; and

WHEREAS, Diamond and Distributor desire to amend the Agreement on the terms and conditions of this Seventh Amendment.

 Exhibit A of the Fifth Amendment and Exhibit A-1 of the Sixth Amendment, all attached hereto, are hereby amended to maintain all prices as stated on Exhibit A and Exhibit A-1 through December 31, 2013.

Notwithstanding any provision of the Agreement to the contrary, this Seventh Amendment shall be publicly available information for SEC filing, press release and other discussion purposes; provided, the parties shall agree to a draft of the Seventh Amendment (the “Redacted Version”) including highlighted items which shall be redacted from any initial SEC filing and shall be deemed Confidential Information under Section 13.05 of the Agreement.  If the parties do not mutually agree on the Redacted Version within thirty (30) days after the Effective Date, this Seventh Amendment shall be null and void.

 This Seventh Amendment is hereby incorporated by reference into the Agreement as if fully set forth therein, the Agreement as amended by this Seventh Amendment shall continue in full force and effect following execution and delivery hereof, and references to the term "Agreement" shall include this Seventh Amendment.  In the event of any conflict between the terms and conditions of the Original Agreement, First Amendment, Second Amendment, Third Amendment, Fourth Amendment, Fifth Amendment or Sixth Amendment and this Seventh Amendment, the terms and conditions of this Seventh Amendment shall control.

IN WITNESS WHEREOF, the parties have caused this Seventh Amendment be executed by their duly authorized representatives as of the date first written above.

DIAMOND ANIMAL HEALTH, INC.

d/b/a Heska Des Moines

By:  /s/  Michael J. McGinley

Its:        Vice President

AGRI LABORATORIES, LTD.

By:  /s/  Steve Schram

Its:         CEO/President

Portions of this Exhibit have been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act.  Omitted information, marked “[***]” in this exhibit, has been filed with the Securities and Exchange Commission together with such request for confidential treatment.

EXHIBIT A-1

From Amendment 6

[***]

Diamond Item Number	Product	Size	Min/Max Lot Size	Transfer Price
57666	TITANIUM 3	50ds	[***]	[***]
57667	TITANIUM 5	50ds	[***]	[***]
57668	TITANIUM IBR	50ds	[***]	[***]

Product to be shipped LABELED [***].

NOTE:  [***]

[***]

Diamond Item Number	Product	Size	Transfer Price
57467	Titanium 4 L5	50ds	[***]
57536	Titanium 5 L5	5ds	[***]
57472	Titanium 5 L5	10ds	[***]
57473	Titanium 5 L5	50ds	[***]
57569	Masterguard 10	10ds	[***]
57568	Masterguard 10	25ds	[***]

Note:  [***]

DIAMOND ANIMAL HEALTH, INC.	AGRI LABORATORIES, LTD.
BY:   /s/Michael J. McGinley	BY:  /s/   Steve Schram
NAME:  Michael J. McGinley	NAME:   Steve Schram
TITLE: Vice President DATE:  November 11, 2011	TITLE:   President/CEO DATE:   November 11, 2011

Portions of this Exhibit have been redacted pursuant to a request for confidential treatment under Rule 24b-2 of the General Rules and Regulations under the Securities Exchange Act.  Omitted information, marked “[***]” in this exhibit, has been filed with the Securities and Exchange Commission together with such request for confidential treatment.

Exhibit A

From Amendment 5

		2010-2012 PRICE LIST
HESKA - DIAMOND ANIMAL HEALTH 5 MONTH LEAD TIME	DAH Item Number
Product/Size
Titanium 3 (50ds)	[***]	[***]
Titanium 3 (10ds)	[***]	[***]
Titanium 5 (50ds)	[***]	[***]
Titanium 5 (10ds)	[***]	[***]
Titanium 5 L5 (5ds)	[***]	[***]
Titanium 5 L5 (10ds)	[***]	[***]
Titanium 5 L5 (50ds)	[***]	[***]
Titanium BRSV 3 (50ds)	[***]	[***]
Titanium IBR (50ds)	[***]	[***]
Titanium IBR (10ds)	[***]	[***]
Titanium 4 L5 (50 dose)	[***]	[***]
Titanium IBR LP (50ds)	[***]	[***]
Titanium 3 LP (50ds)	[***]	[***]
Master Guard 10 (10ds)	[***]	[***]
MasterGuard 10 (25ds)	[***]	[***]
MasterGuard 5 (25ds)	[***]	[***]
MasterGuard Preg 5 (25ds) [***]	[***]	[***]
[***]	[***]	[***]
[***]

Batch Size - Minimum Order Qty

Titanium:                                10 ds - [***]

Titanium:                                50 ds - [***]

Titanium IBR LP:                     50 ds - [***]

Titanium 3 LP:                         50ds -  [***]

MG 10:                                   10ds -  [***]

MG 5:                                     10ds -  [***]

MG Preg 5:                             25ds -  [***]

Set up charge to divide any Minimum Order Quantity order into more than one private label batch:  [***] for each batch after the first batch.

Minimum Quantity for less than Batch Size [***] units

NOTE:  DATING

[***]

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Robert B. Grieve, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heska Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:    May 15, 2013	/s/  Robert B. Grieve
	ROBERT B. GRIEVE
	Chairman of the Board and Chief Executive Officer
	(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jason A. Napolitano, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heska Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and

c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Dated:   May 15, 2013	/s/ Jason A. Napolitano
	JASON A. NAPOLITANO
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert B. Grieve, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended March 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heska Corporation.

Dated:             May 15, 2013	By:           /s/ Robert B. Grieve
	Name:    ROBERT B. GRIEVE
	Title:      Chairman of the Board and
	Chief Executive Officer

I, Jason A. Napolitano, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended March 31, 2013 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents in all material respects the financial condition and results of operations of Heska Corporation.

Dated:             May 15, 2013	By:           /s/ Jason A. Napolitano
	Name:      JASON A. NAPOLITANO
	Title:        Executive Vice President and
	Chief Financial Officer

A signed original of this written statement required by Section 906 has been provided to Heska Corporation and will be retained by Heska Corporation and furnished to the Securities and Exchange Commission or its staff upon request.

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Acquisition - Intangible asset amortization periods (Details) (USD $)	3 Months Ended
	Mar. 31, 2013
Fair Value	$ 688
Trade Name
Useful Life (in years)	2 years 9 months
Fair Value	$ 688

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ACQUISITION

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

Acquisition

3. ACQUISITION

Cuattro Veterinary USA, LLC

On February 24, 2013, the Company acquired a 54.6% interest in Cuattro Veterinary USA, LLC

("Cuattro Vet") for approximately $7.6 million in cash and stock, including more than $4 million in cash. Immediately following and as a result of the transaction, former Cuattro Vet unit holders owned approximately 7.2% of the Company's Public Common Stock. The remaining minority position (45.4%) in Cuattro Vet is subject to purchase by Heska under performance-based puts and calls following calendar year 2015, 2016 and 2017. Should Heska undergo a change in control, as defined, prior to the end of 2017, Cuattro Vet minority unit holders will be entitled to sell their Cuattro Vet units to Heska at the highest call value they could have otherwise obtained. The Company's position in Cuattro Vet is subject to premium repurchase or discounted sale under calls and puts expiring 18 months following the closing of the transaction.

Cuattro Vet was subsequently renamed Heska Imaging US, LLC ("Heska Imaging") and markets, sells and supports digital radiography and ultrasound products along with embedded software and support, data hosting and other services.

The Company accounted for the acquisition pursuant to ASC No. 805, "Business Combinations." Accordingly, it recorded assets acquired, liabilities assumed and non-controlling interests at their fair values. The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price:

Consideration
	Cash		$	4,073
	Stock			3,571
		Total	$	7,644

Inventories		$	1,466
Note from Cuattro Veterinary, LLC, due March 15, 2016			1,360
Other tangible assets			1,278
Intangible assets			688
Goodwill			19,994
Notes payable and other borrowings			(1,527	)
Accounts payable			(1,424	)
Other assumed liabilities			(2,399	)
		$	19,436
Non-controlling interest			(11,792	)
	Total	$	7,644

Intangible assets and their amortization periods are as follows:

	Useful Life (in years)		Fair Value
Trade name		2.75	$	688
			$	688

Cuattro contributed net revenue of $1.9 million and net income of $75 thousand to the Company for the period from February 24, 2013 to March 31, 2013. The following unaudited pro forma financial information presents the combined results of the Company and Cuattro Vet's as though they were consolidated beginning on January 1, 2012.

	Three Months Ended March 31,
		2012		2013
Revenue, net	$	20,828	$	19,879
Net income attributable to Heska Corporation		498		(420	)
Basic earnings (loss) per share attributable to Heska Corporation	$	0.09	$	(0.08	)
Diluted earnings (loss) per share attributable to Heska Corporation		0.09		(0.08	)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are the responsibility of the Company's management and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated balance sheet as of March 31, 2013, the condensed consolidated statements of operations for the three months ended March 31, 2012 and 2013, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2012 and 2013 and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2013 are unaudited, but include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K filed with the SEC on March 14, 2013.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reported period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess/obsolete inventory, in determining the period over which the Company's obligations are fulfilled under agreements to license product rights and/or technology rights, in determining the need for, and the amount of, a valuation allowance on certain deferred tax assets and in determining the need for, and the amount of, an accrued liability for future payments related to minimum purchase obligations the Company may make in order to maintain certain product rights.

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method. Inventory manufactured by the Company includes the cost of material, labor and overhead. If the cost of inventories exceeds estimated fair value, provisions are made to reduce the carrying value to estimated fair value.

Inventories, net consist of the following (in thousands):

	December 31, 2012			March 31, 2013
Raw materials	$	5,275		$	5,662
Work in process		3,342			2,986
Finished goods		4,671			7,652
Allowance for excess or obsolete inventory		(805	)		(1,218	)
	$	12,483		$	15,082

Basic and Diluted Net Income (Loss) Per Share

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the sum of the weighted average number of shares of common stock outstanding, and, if not anti-dilutive, the effect of outstanding common stock equivalents (such as stock options and warrants) determined using the treasury stock method. For the three months ended March 31, 2013, the Company reported net income and therefore, dilutive common stock equivalent securities, as computed using the treasury method, were added to basic weighted average shares outstanding for the period to derive the weighted average shares for diluted earnings per share calculation. For the three months ended March 31, 2013, the Company reported a net loss and therefore all common stock equivalent securities would be anti-dilutive and were not included in the diluted earnings per share calculation for the period. Common stock equivalent securities that were anti-dilutive for the three months ended March 31, 2012, and therefore excluded, were outstanding options to purchase 697,503 shares of common stock. These securities are anti-dilutive primarily due to exercise prices greater than the average trading price of the Company's common stock during the three months ended March 31, 2012.

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Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Current assets:
Cash and cash equivalents	$ 5,459	$ 5,784
Accounts receivable, net of allowance for doubtful accounts of $155 and $171, respectively	9,945	11,044
Inventories, net	15,082	12,483
Deferred tax asset, current	455	1,130
Other current assets	1,148	2,514
Total current assets	32,089	32,955
Property and equipment, net	6,543	6,005
Note receivable-related party	1,364	0
Goodwill	21,739	1,120
Deferred tax asset, net of current portion	27,757	26,746
Other long-term assets	72	0
Total assets	89,564	66,826
Current liabilities:
Accounts payable	7,590	5,298
Accrued liabilities	3,475	3,481
Accrued compensation	0	651
Current portion of deferred revenue	2,756	2,407
Line of credit	5,106	2,552
Other short-term borrowings, including current portion of LT debt	982	0
Total current liabilities	19,909	14,389
Long-term note payable, net of current portion	468	0
Deferred revenue, net of current portion, and other	5,233	3,575
Total liabilities	25,610	17,964
Non-Controlling Interest	12,003	0
Public Common Stock subject to redemption	3,894	0
Stockholders' equity:
Preferred stock, $.01 par value, 2,500,000 shares authorized; none issued or outstanding	0	0
Common stock, $.01 par value, 7,500,000 shares authorized; none issued and outstanding	0	0
Public common stock, $.01 par value, 7,500,000 shares authorized; 5,250,328 and 5,372,336 shares issued and outstanding, respectively	58	54
Additional paid-in capital	218,405	218,544
Accumulated other comprehensive income	189	296
Accumulated deficit	(170,595)	(170,032)
Total stockholders' equity	48,057	48,862
Total liabilities and stockholders' equity	$ 89,564	$ 66,826

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Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income (loss)	$ (352)	$ 584
Depreciation and amortization	474	413
Deferred tax expense (benefit)	(325)	308
Stock-based compensation	118	90
Unrealized (gain)/loss on foreign currency translation	(34)	36
Accounts receivable	1,613	(1,713)
Inventories	(1,293)	(711)
Other current assets	488	(170)
Accounts payable	868	1,163
Accrued liabilities	(874)	(127)
Deferred revenue and other liabilities	(173)	(128)
Net cash provided by (used in) operating activities	510	(255)
CASH FLOWS FROM PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Investment in subsidiary	(3,019)	0
Purchase of property and equipment	(317)	(271)
Net cash provided by (used in) investing activities	3,336	271
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from issuance of common stock	59	184
Proceeds from (repayments of) line of credit borrowings, net	2,553
Proceeds from (repayments of) debt, net	(77)
Net cash provided by (used in) financing activities	2,535	184
EFFECT OF EXCHANGE RATE CHANGES ON CASH	(34)	18
INCREASE IN CASH AND CASH EQUIVALENTS	(325)	(324)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD	5,784	6,332
CASH AND CASH EQUIVALENTS, END OF PERIOD	5,459
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Dividends payable	0	532
Cash paid for interest	14	46
Non-cash transfer of inventory to property and equipment	160	354
Accretion of non-controlling interest	$ 1,000	$ 0

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CAPITAL STOCK (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Notes to Financial Statements
Fair Value Of Stock Options Granted	$ 97	$ 13
Weighted Average Fair Value of Options	$ 3.13	$ 3.91
Intrinsic Value of Options Exercised	35	652
Cash Proceeds from Options Exercised	84	184
Fractional Shares of Outstanding Options	$ 105
Weighted Average Reamining Contractual Life	$ 1.63
Weighted Average Exercise Price	$ 13.71
Exercise Price Range Low	$ 4.40
Exercise Price Range High	$ 31.50
Unrecognized Compensation Costs of Options	646
Weighted Average Period of Recognized Costs	3.4	3.0
Option Compensation Costs to be Recognized this Year	236	0
Aggregate Intrinsic Value of Outstanding Options	1,500
Aggregate Intrinsic Value of Exercisable Options	$ 984

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Aggregate consideration paid, assets and liabilities acquired (Details) (Cuattro Veterinary USA, LLC, USD $) In Thousands, unless otherwise specified	Feb. 24, 2013
Cuattro Veterinary USA, LLC
Consideration
Cash	$ 4,073
Stock	3,571
Total	7,644
Acquired assets and liabilities
Inventories	1,466
Note from Cuattro Veterinary, LLC, due March 15, 2016	1,360
Other tangible assets	1,278
Intangible assets	688
Goodwill	19,994
Notes payable and other borrowings	(1,527)
Accounts payable	(1,424)
Other assumed liabilities	(2,399)
Total Assets and Liabilities Assumed	19,436
Non-controlling interest	(11,792)
Total	$ 7,644

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ORGANIZATION AND BUSINESS

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

ORGANIZATION AND BUSINESS

1. ORGANIZATION AND BUSINESS

Heska Corporation ("Heska" or the "Company") develops, manufactures, markets, sells and supports veterinary products. Heska's core focus is on the canine and feline companion animal health markets.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Accounts receivable, net of allowance for doubtful accounts	$ 171	$ 155
Preferred stock at par value	$ 0.01	$ 0.01
Preferred stock shares authorized	2,500	2,500
Common stock at par value	$ 0.01	$ 0.01
Common stock shares authorized	7,500	7,500
Public common stock at par value	$ 0.01	$ 0.01
Public common stock shares authorized	7,500	7,500
Public common stock shares issued	58	54
Public common stock shares outstanding	58	54

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Accounting Policies [Abstract]
Outstanding Options	$ 0	$ 697,503

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Document and Entity Information	3 Months Ended
	Mar. 31, 2013	May 14, 2013
Document And Entity Information
Entity Registrant Name	Heska Corp
Entity Central Index Key	0001038133
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		5,803,777
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

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INVENTORIES (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2013	Dec. 31, 2012
Inventories Details
Raw materials	$ 5,662	$ 5,275
Work in process	2,986	3,342
Finished goods	7,652	4,671
Allowance for excess or obsolete inventory	1,218	805
Total Inventories	$ 15,082	$ 12,483

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Condensed Consolidated Statements of Operations (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Revenue, net:
Core companion animal health	$ 15,649	$ 16,580
Other vaccines, pharmaceuticals and products	3,330	2,595
Total revenue, net	18,979	19,175
Cost of revenue	11,177	10,252
Gross profit	7,802	8,923
Operating expenses:
Selling and marketing	5,125	4,888
Research and development	390	334
General and administrative	2,969	2,619
Total operating expenses	8,484	7,841
Operating income (loss)	(682)	1,082
Interest and other expense, net	(11)	142
Income (loss) before income taxes	(671)	940
Current tax expense	6	48
Deferred tax expense (benefit)	(325)	308
Total income tax expense (benefit)	(319)	356
Net income (loss)	(352)	584
Net (income) loss attributable to non-controlling interest	34	0
Net income (loss) attributable to Heska Corporation	$ (386)	$ 584
Basic net income (loss) per share attributable to Heska Corporation	$ (0.07)	$ 0.11
Diluted net income (loss) per share attributable to Heska Corporation	$ (0.07)	$ 0.11
Weighted average outstanding shares used to compute basic net income (loss) per share attributable to Heska Corp.	5,547	5,264
Weighted average outstanding shares used to compute diluted net income (loss) per share attributable to Heska Corp	5,547	5,434

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Basis of Presentation

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements are the responsibility of the Company's management and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission (the "SEC"). The condensed consolidated balance sheet as of March 31, 2013, the condensed consolidated statements of income for the three months ended March 31, 2012 and 2013, the condensed consolidated statements of comprehensive income for the three months ended March 31, 2012 and 2013 and the condensed consolidated statements of cash flows for the three months ended March 31, 2012 and 2013 are unaudited, but include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC.

Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2012, included in the Company's Annual Report on Form 10-K filed with the SEC on March 14, 2013.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expense during the reported period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess/obsolete inventory, in determining the period over which the Company's obligations are fulfilled under agreements to license product rights and/or technology rights, in determining the need for, and the amount of, a valuation allowance on certain deferred tax assets and in determining the need for, and the amount of, an accrued liability for future payments related to minimum purchase obligations the Company may make in order to maintain certain product rights.

Inventories

Inventories

Inventories are stated at the lower of cost or market using the first-in, first-out method. Inventory manufactured by the Company includes the cost of material, labor and overhead. If the cost of inventories exceeds estimated fair value, provisions are made to reduce the carrying value to estimated fair value.

Inventories, net consist of the following (in thousands):

	December 31, 2012			March 31, 2013
Raw  materials	$	5,275		$	5,662
Work in process		3,342			2,986
Finished goods		4,671			7,652
Allowance for excess or obsolete inventory		(805	)		(1,218	)
	$	12,483		$	15,082

Basic and Diluted Net Income Per Share

Basic and Diluted Net Income Per Share

Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding during the period. Diluted net income (loss) per share is computed using the sum of the weighted average number of shares of common stock outstanding, and, if not anti-dilutive, the effect of outstanding common stock equivalents (such as stock options and warrants) determined using the treasury stock method. For the three months ended March 31, 2013, the Company reported net income and therefore, dilutive common stock equivalent securities, as computed using the treasury method, were added to basic weighted average shares outstanding for the period to derive the weighted average shares for diluted earnings per share calculation. For the three months ended March 31, 2013, the Company reported a net loss and therefore all common stock equivalent securities would be anti-dilutive and were not included in the diluted earnings per share calculation for the period. Common stock equivalent securities that were anti-dilutive for the three months ended March 31, 2012, and therefore excluded, were outstanding options to purchase 697,503 shares of common stock. These securities are anti-dilutive primarily due to exercise prices greater than the average trading price of the Company's common stock during the three months ended March 31, 2012.

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SEGMENT REPORTING

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

SEGMENT REPORTING

5. SEGMENT REPORTING

The Company is comprised of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The CCA segment includes diagnostic instruments and supplies, as well as single use diagnostic and other tests, pharmaceuticals and vaccines, primarily for canine and feline use. The CCA segment also includes digital radiography and ultrasound products along with embedded software and support, data hosting and other services from Heska Imaging after February 24, 2013. These products are sold directly by the Company as well as through other distribution relationships. CCA segment products manufactured at the Des Moines, Iowa production facility included in our OVP segment's assets are transferred at cost and are not recorded as revenue for our OVP segment. The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle, but also for other animals including small mammals and fish. All OVP products are sold by third parties under third-party labels.

Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):

	Core Companion Animal Health				Other Vaccines, Pharmaceuticals and Products	Total
Three Months Ended March 31, 2012:
Total  revenue	$	16,580		$	2,595	$	19,175
Operating income		545			537		1,082
Interest expense		24			6		30
Total assets		52,777			11,167		63,944
Net assets		41,044			7,894		48,938
Capital expenditures		182			89		271
Depreciation and amortization		189			224		413
Three Months Ended March 31, 2013:
Total  revenue	$	15,649		$	3,330	$	18,979
Operating income		(1,093	)		411		(682	)
Interest expense		51			6		57
Total assets		78,285			11,279		89,564
Net assets		41,034			7,023		48,057
Capital expenditures		309			8		317
Depreciation and amortization		279			195		474

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SEGMENT REPORTING (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Total revenue	$ 18,979	$ 19,175
Operating income	(682)	1,082
Interest expense	57	30
Total assets	89,564	63,944	66,826
Net assets	48,057	48,938
Capital expenditures	317	271
Depreciation and amortization	474	413
Core Companion Animal Health
Total revenue	15,649	16,580
Operating income	(1,093)	545
Interest expense	51	24
Total assets	78,285	52,777
Net assets	41,034	41,044
Capital expenditures	309	182
Depreciation and amortization	279	189
Other Vaccines, Pharmaceuticals and Products
Total revenue	3,330	2,595
Operating income	411	537
Interest expense	6	6
Total assets	11,279	11,167
Net assets	7,023	7,894
Capital expenditures	8	89
Depreciation and amortization	$ 195	$ 224

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FAIR VALUE OF EACH OPTION GRANT (Details)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Fair Value Of Each Option Grant Details
Risk-free interest rate	54.00%	56.00%
Expected lives, in years	3.4	3.0
Expected volatility	52.00%	60.00%
Expected dividend yield	0.00%	343.00%

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CAPITAL STOCK (Tables)

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Fair Value of each Option Grant

	Three Months Ended March 31,
	2012		2013
Risk-free interest rate		0.56%		0.54%
Expected lives		3.0 years		3.4 years
Expected volatility		60%		52%
Expected dividend yield		3.43%		0.00%

Summary of Company Stock Option Plans

		Year Ended December 31, 2012					Three Months Ended March 31, 2013
		Options		Weighted Average Exercise Price			Options	Weighted Average Exercise Price
Outstanding at beginning of period			1,448,675		$	10.425	1,245,161		$	11.054
	Granted at market		137,950		$	9.534	31,230		$	8.344
	Cancelled		(118,330	)	$	11.373	(13,758	)	$	5.101
	Exercised		(223,134	)	$	5.863	(17,752	)	$	6.430
Outstanding at end of period			1,245,161		$	11.054	1,244,881		$	11.118
Exercisable at end of period			971,0292		$	12.129	966,038		$	12.191

Stock Options Outstanding and Exercisable

	Options Outstanding						Options Exercisable
Exercise Prices	Number of Options Outstanding at March 31, 2013		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2013		Weighted Average Exercise Price
$  2.70 - $  6.67		258,803		5.76	$	5.229		189,533		$	5.131
$  6.77 - $  8.55		259,423		8.19	$	7.811		63,035		$	7.513
$  8.56 - $12.40		259,272		3.23	$	9.587		246,087		$	9.575
$12.41 - $16.50		237,811		2.08	$	14.051		237,811		$	14.051
$16.51 - $31.50		229,572		2.47	$	20.182		229,572		$	20.182
$  2.70 - $31.50		1,244,881		4.43	$	11.118		966,038		$	12.191

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Inventories

	December 31, 2012			March 31, 2013
Raw  materials	$	5,275		$	5,662
Work in process		3,342			2,986
Finished goods		4,671			7,652
Allowance for excess or obsolete inventory		(805	)		(1,218	)
	$	12,483		$	15,082

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ACQUISITION (Tables)

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

Aggregate consideration paid by the company

Consideration
	Cash		$	4,073
	Stock			3,571
		Total	$	7,644

Inventories		$	1,466
Note from Cuattro Veterinary, LLC, due March 15, 2016			1,360
Other tangible assets			1,278
Intangible assets			688
Goodwill			19,994
Notes payable and other borrowings			(1,527	)
Accounts payable			(1,424	)
Other assumed liabilities			(2,399	)
		$	19,436
Non-controlling interest			(11,792	)
	Total	$	7,644

Intangible asset amortization periods

	Useful Life (in years)		Fair Value
Trade name		2.75	$	688
			$	688

Pro forma financial information

	Three Months Ended March 31,
		2012		2013
Revenue, net	$	20,828	$	19,879
Net income attributable to Heska Corporation		498		(420	)
Basic earnings (loss) per share attributable to Heska Corporation	$	0.09	$	(0.08	)
Diluted earnings (loss) per share attributable to Heska Corporation		0.09		(0.08	)

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SEGMENT REPORTING (Tables)

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

Segment Reporting

5. SEGMENT REPORTING

The Company is comprised of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The CCA segment includes diagnostic instruments and supplies, as well as single use diagnostic and other tests, pharmaceuticals and vaccines, primarily for canine and feline use. The CCA segment also includes digital radiography and ultrasound products along with embedded software and support, data hosting and other services from Heska Imaging after February 24, 2013. These products are sold directly by the Company as well as through other distribution relationships. CCA segment products manufactured at the Des Moines, Iowa production facility included in our OVP segment's assets are transferred at cost and are not recorded as revenue for our OVP segment. The OVP segment includes private label vaccine and pharmaceutical production, primarily for cattle, but also for other animals including small mammals and fish. All OVP products are sold by third parties under third-party labels.

Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):

	Core Companion Animal Health				Other Vaccines, Pharmaceuticals and Products	Total
Three Months Ended March 31, 2012:
Total  revenue	$	16,580		$	2,595	$	19,175
Operating income		545			537		1,082
Interest expense		24			6		30
Total assets		52,777			11,167		63,944
Net assets		41,044			7,894		48,938
Capital expenditures		182			89		271
Depreciation and amortization		189			224		413
Three Months Ended March 31, 2013:
Total  revenue	$	15,649		$	3,330	$	18,979
Operating income		(1,093	)		411		(682	)
Interest expense		51			6		57
Total assets		78,285			11,279		89,564
Net assets		41,034			7,023		48,057
Capital expenditures		309			8		317
Depreciation and amortization		279			195		474

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STOCK OPTIONS OUTSTANDING (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2011
Stock options Outstanding		1,245,161	1,448,675
Weighted Average Exercise Price on Outstanding Options	$ 12.191	$ 12.129
Stock Options Exercisable		$ 11,054	$ 10.425
Weighted Average Exercise Price on Exercisable Options	$ 11.118	$ 11.054
$ 2.70 - $ 6.76
Stock options Outstanding	258,803
Average Remaining Contractual Life in Years	$ 5.76
Weighted Average Exercise Price on Outstanding Options	$ 5.229
Stock Options Exercisable	$ 189,533
Weighted Average Exercise Price on Exercisable Options	$ 5.131
$ 6.77 - $ 8.55
Stock options Outstanding	259,423
Average Remaining Contractual Life in Years	$ 8.19
Weighted Average Exercise Price on Outstanding Options	$ 7.811
Stock Options Exercisable	$ 63,035
Weighted Average Exercise Price on Exercisable Options	$ 7.513
$ 8.56 - $ 12.40
Stock options Outstanding	259,272
Average Remaining Contractual Life in Years	$ 3.23
Weighted Average Exercise Price on Outstanding Options	$ 9.587
Stock Options Exercisable	$ 246,087
Weighted Average Exercise Price on Exercisable Options	$ 9.575
$ 12.41 - $ 16.50
Stock options Outstanding	237,811
Average Remaining Contractual Life in Years	$ 2.08
Weighted Average Exercise Price on Outstanding Options	$ 14.051
Stock Options Exercisable	$ 237,811
Weighted Average Exercise Price on Exercisable Options	$ 14.051
$ 16.51 - $ 31.50
Stock options Outstanding	229,572
Average Remaining Contractual Life in Years	$ 2.47
Weighted Average Exercise Price on Outstanding Options	$ 20.182
Stock Options Exercisable	$ 229,572
Weighted Average Exercise Price on Exercisable Options	$ 20.182
$ 2.70 - $31.50
Stock options Outstanding	1,244,881
Average Remaining Contractual Life in Years	$ 4.43
Weighted Average Exercise Price on Outstanding Options	$ 11.118
Stock Options Exercisable	$ 966,038
Weighted Average Exercise Price on Exercisable Options	$ 12.191

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Acquisition - Pro forma financial information (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Business Combinations [Abstract]
Revenue, net	$ 19,879	$ 20,828
Net income attributable to Heska Corporation	$ (420)	$ 498
Basic earnings (loss) per share attributable to Heska Corporation	$ (0.08)	$ 0.09
Diluted earnings (loss) per share attributable to Heska Corporation	$ (0.08)	$ 0.09

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Condensed Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
Net Income	$ (352)	$ 584
Other comprehensive income:
Foreign currency translation	(107)	108
Minimum pension liability	0	0
Unrealized gain on available for sale investments	0	0
Comprehensive income	(459)	692
Comprehensive (income) loss attributable to Non-controlling interest	34	0
Comprehensive (income) loss attributable to Heska Corporation	$ (493)	$ 692

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CAPITAL STOCK

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

CAPITAL STOCK

4. CAPITAL STOCK

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions for options granted in the three months ended March 31, 2012 and 2013.

	Three Months Ended March 31,
	2012	2013
Risk-free interest rate	0.56%		0.54%
Expected lives	3.0 years		3.4 years
Expected volatility	60%		52%
Expected dividend yield	3.43%		0.00%

A summary of the Company's stock option plans, excluding options to purchase fractional shares resulting from the Company's December 2010 1-for-10 reverse stock split is as follows:

		Year Ended December 31, 2012					Three Months Ended March 31, 2013
		Options		Weighted Average Exercise Price			Options	Weighted Average Exercise Price
Outstanding at beginning of period			1,448,675		$	10.425	1,245,161		$	11.054
	Granted at market		137,950		$	9.534	31,230		$	8.344
	Cancelled		(118,330 )		$	11.373	(13,758)		$	5.101
	Exercised		(223,134 )		$	5.863	(17,752)		$	6.430
Outstanding at end of period			1,245,161		$	11.054	1,244,881		$	11.118
Exercisable at end of period			971,029		$	12.129	966,038		$	12.191

The estimated fair value of stock options granted during the three months ended March 31, 2013 and 2012 was computed to be approximately $97 thousand and $13thousand, respectively. The amount is amortized ratably over the vesting period of the options. The per share weighted average estimated fair value of options granted during the three months ended March 31, 2013 and 2012 was computed to be approximately $3.13 and $3.91, respectively. The total intrinsic value of options exercised during the three months ended March 31, 2013 and 2012 was approximately $35 thousand and $652thousand, respectively. The cash proceeds from options exercised during the three months ended March 31, 2013 and 2012 were approximately $84 thousand and $184 thousand, respectively.

The following table summarizes information about stock options outstanding and exercisable at March 31, 2013, excluding outstanding options to purchase an aggregate of 105.1 fractional shares resulting from the Company's December 2010 1-for-10 reverse stock split with a weighted average remaining contractual life of 1.63 years, a weighted average exercise price of $13.71and exercise prices ranging from $4.40 to $31.50. The Company intends to issue whole shares only from option exercises.

	Options Outstanding						Options Exercisable
Exercise Prices	Number of Options Outstanding at March 31, 2013		Weighted Average Remaining Contractual Life in Years		Weighted Average Exercise Price		Number of Options Exercisable at March 31, 2013		Weighted Average Exercise Price
$ 2.70 - $ 6.76		258,803		5.76	$	5.229		189,533		$	5.131
$ 6.77 - $ 8.55		259,423		8.19	$	7.811		63,035		$	7.513
$ 8.56 - $12.40		259,272		3.23	$	9.587		246,087		$	9.575
$12.41 - $16.50		237,811		2.08	$	14.051		237,811		$	14.051
$16.51 - $31.50		229,572		2.47	$	20.182		229,572		$	20.182
$ 2.70 - $31.50		1,244,881		4.43	$	11.118		966,038		$	12.191

As of March 31, 2013, there was approximately $646 thousand of total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted average period of 2.0 years, with approximately $236 thousand to be recognized in the nine months ending December 31, 2013 and all the cost to be recognized as of February 2017, assuming all options vest according to the vesting schedules in place at March 31, 2013. As of March 31, 2013, the aggregate intrinsic value of outstanding options was approximately $1.5 million and the aggregate intrinsic value of exercisable options was approximately $984 thousand.

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Acquisition (Details Narrative) (Cuattro Veterinary USA, LLC, USD $) In Thousands, unless otherwise specified	1 Months Ended
	Mar. 31, 2013	Feb. 24, 2013
Cuattro Veterinary USA, LLC
Interest acquired in combination		54.60%
Cost of business acquisition in cash and stock		$ 7,644
Minimum cash paid for acquisition		4,073
Following acquisition, former Cuattro Vet unit holders retained Public Common Stock		7.20%
Remaining minority position of Cuattro Vet subject to purchase		45.40%
Cuattro contributed net revenue over period	1,900
Cuattro contributed net income	$ 75

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SUMMARY OF COMPANY STOCK OPTION PLANS (Details) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2013	Dec. 31, 2012
Summary Of Company Stock Option Plans Details
Outstanding at beginning of period	1,245,161	1,448,675
Outstanding at begining of period, Weighted Average Exercise Price	$ 11,054	$ 10.425
Granted at market, options	31,230	137,950
Granted at market, Weighted Average Exercise Price	$ 8.344	$ 9.534
Cancelled, Options	(13,758)	(118,330)
Cancelled, Weighted Average Excercise Price	5.101	11.373
Exercised, Options	$ (17,752)	$ (223,134)
Exercised, Weighted Average Exercise Price	$ 6.430	$ 5.863
Outstanding at end of period, Options	$ 1,244,881	$ 1,245,161
Outstanding at end of period, Weighted Average Exercise Price	$ 11.118	$ 11.054
Exercisable at end of period, Options	966,038	971,029
Exercisable at end of period, Weighted Average Exercise Price	$ 12.191	$ 12.129