UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 |
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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 |
Large accelerated filer o | Accelerated filer x |
Non-accelerated filer o (Do not check if a small reporting company) | Smaller Reporting Company ¨ |
Page | |||
PART I - FINANCIAL INFORMATION | |||
Item 1. | Unaudited Condensed Consolidated Financial Statements: | ||
Item 2. | |||
Item 3. | |||
Item 4. | |||
PART II - OTHER INFORMATION | |||
Item 1. | |||
Item 1A. | |||
Item 2. | |||
Item 3. | |||
Item 4. | |||
Item 5. | |||
Item 6. | |||
December 31, | (unaudited) June 30, | |||||||
2015 | 2016 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 6,890 | $ | 6,669 | ||||
Accounts receivable, net of allowance for doubtful accounts of $189 and $199, respectively | 16,136 | 14,596 | ||||||
Due from – related parties | 308 | 1,979 | ||||||
Inventories, net | 16,101 | 18,076 | ||||||
Other current assets | 1,827 | 1,367 | ||||||
Total current assets | 41,262 | 42,687 | ||||||
Property and equipment, net | 17,020 | 17,652 | ||||||
Note receivable – related party | 1,516 | — | ||||||
Goodwill and other intangibles | 20,966 | 29,248 | ||||||
Deferred tax asset | 25,883 | 24,664 | ||||||
Other long-term assets | 3,072 | 5,374 | ||||||
Total assets | $ | 109,719 | $ | 119,625 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 7,624 | $ | 6,011 | ||||
Accrued liabilities | 5,416 | 5,227 | ||||||
Current portion of deferred revenue | 5,461 | 3,926 | ||||||
Line of credit | 143 | — | ||||||
Other short-term borrowings, including current portion of long-term note payable | 159 | 412 | ||||||
Total current liabilities | 18,803 | 15,576 | ||||||
Long-term note payable, net of current portion | 69 | 229 | ||||||
Deferred tax liability | — | 905 | ||||||
Deferred revenue, net of current portion, and other | 11,572 | 11,391 | ||||||
Total liabilities | 30,444 | 28,101 | ||||||
Commitments and contingencies (Note 11) | ||||||||
Non-controlling interest | 15,747 | 15,866 | ||||||
Stockholders' equity: | ||||||||
Preferred stock, $.01 par value, 2,500,000 shares authorized, none issued or outstanding | — | — | ||||||
Traditional common stock, $.01 par value, 9,000,000 shares authorized, none issued or outstanding | — | — | ||||||
Public common stock, $.01 par value, 9,000,000 shares authorized, 6,625,287 and 6,873,389 shares issued and outstanding, respectively | 66 | 69 | ||||||
Additional paid-in capital | 227,267 | 235,255 | ||||||
Accumulated other comprehensive income | 187 | 139 | ||||||
Accumulated deficit | (163,992 | ) | (159,805 | ) | ||||
Total stockholders' equity | 63,528 | 75,658 | ||||||
Total liabilities and stockholders' equity | $ | 109,719 | $ | 119,625 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Revenue: | ||||||||||||||||
Core companion animal health | $ | 20,757 | $ | 24,464 | $ | 40,329 | $ | 47,898 | ||||||||
Other vaccines, pharmaceuticals and products | 3,153 | 5,501 | 6,475 | 9,213 | ||||||||||||
Total revenue, net | 23,910 | 29,965 | 46,804 | 57,111 | ||||||||||||
Cost of revenue | 13,613 | 17,283 | 26,423 | 32,987 | ||||||||||||
Gross profit | 10,297 | 12,682 | 20,381 | 24,124 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling and marketing | 5,239 | 5,386 | 10,699 | 11,005 | ||||||||||||
Research and development | 392 | 523 | 811 | 1,098 | ||||||||||||
General and administrative | 2,837 | 3,217 | 6,021 | 6,495 | ||||||||||||
Total operating expenses | 8,468 | 9,126 | 17,531 | 18,598 | ||||||||||||
Operating income | 1,829 | 3,556 | 2,850 | 5,526 | ||||||||||||
Interest and other expense (income), net | 37 | 34 | 174 | (99 | ) | |||||||||||
Income before income taxes | 1,792 | 3,522 | 2,676 | 5,625 | ||||||||||||
Income tax expense: | ||||||||||||||||
Current income tax expense | 82 | 87 | 126 | 161 | ||||||||||||
Deferred income tax expense | 532 | 693 | 789 | 1,275 | ||||||||||||
Total income tax expense | 614 | 780 | 915 | 1,436 | ||||||||||||
Net income | 1,178 | 2,742 | 1,761 | 4,189 | ||||||||||||
Net income (loss) attributable to non-controlling interest | (19 | ) | 220 | (34 | ) | 482 | ||||||||||
Net income attributable to Heska Corporation | $ | 1,197 | $ | 2,522 | $ | 1,795 | $ | 3,707 | ||||||||
Basic earnings per share attributable to Heska Corporation | $ | 0.19 | $ | 0.38 | $ | 0.29 | $ | 0.56 | ||||||||
Diluted earnings per share attributable to Heska Corporation | $ | 0.17 | $ | 0.35 | $ | 0.26 | $ | 0.51 | ||||||||
Weighted average outstanding shares used to compute basic earnings per share attributable to Heska Corporation | 6,283 | 6,695 | 6,232 | 6,641 | ||||||||||||
Weighted average outstanding shares used to compute diluted earnings per share attributable to Heska Corporation | 7,075 | 7,249 | 6,980 | 7,206 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Net income | $ | 1,178 | $ | 2,742 | $ | 1,761 | $ | 4,189 | ||||||||
Other comprehensive income (expense): | ||||||||||||||||
Sale of equity investment | — | — | — | (90 | ) | |||||||||||
Unrealized gain on available for sale investments | 6 | — | 6 | — | ||||||||||||
Foreign currency translation | 87 | (47 | ) | 163 | 42 | |||||||||||
Comprehensive income | 1,271 | 2,695 | 1,930 | 4,141 | ||||||||||||
Comprehensive income (loss) attributable to non-controlling interest | (19 | ) | 220 | (34 | ) | 482 | ||||||||||
Comprehensive income attributable to Heska Corporation | $ | 1,290 | $ | 2,475 | $ | 1,964 | $ | 3,659 |
Six Months Ended June 30, | ||||||||
2015 | 2016 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net income | $ | 1,761 | $ | 4,189 | ||||
Adjustments to reconcile net income to cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 2,074 | 2,211 | ||||||
Deferred tax expense | 789 | 1,275 | ||||||
Stock based compensation | 879 | 1,112 | ||||||
Unrealized (gain) loss on foreign currency translation | 44 | (2 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 552 | 1,764 | ||||||
Inventories | (6,670 | ) | (3,691 | ) | ||||
Other current assets | (70 | ) | 363 | |||||
Accounts payable | 1,696 | (1,725 | ) | |||||
Accrued liabilities and other | 458 | (367 | ) | |||||
Other non-current assets | (562 | ) | (2,889 | ) | ||||
Deferred revenue and other | (1,233 | ) | (1,962 | ) | ||||
Net cash provided by (used in) operating activities | (282 | ) | 278 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Proceeds from sale of equity investment | — | 115 | ||||||
Purchases of property and equipment | (936 | ) | (1,368 | ) | ||||
Proceeds from disposition of property and equipment | — | 405 | ||||||
Net cash used in investing activities | (936 | ) | (848 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Proceeds from issuance of common stock, net of distributions | 680 | 649 | ||||||
Proceeds from (repayments of) line of credit borrowings, net | 1,325 | (142 | ) | |||||
Repayments of other debt | (69 | ) | (180 | ) | ||||
Net cash provided by financing activities | 1,936 | 327 | ||||||
EFFECT OF EXCHANGE RATE CHANGES ON CASH | 74 | 22 | ||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 792 | (221 | ) | |||||
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 5,855 | 6,890 | ||||||
CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 6,647 | $ | 6,669 |
Common stock issued - 175,000 shares | $ | 6,347 | |
Debt assumed | 1,535 | ||
Total fair value of consideration transferred | $ | 7,882 | |
Accounts receivable | $ | 222 | |
Inventories | 39 | ||
Due from Cuattro, LLC | 963 | ||
Property and equipment | 80 | ||
Other tangible assets | 164 | ||
Deferred tax asset | 56 | ||
Intangible assets | 2,521 | ||
Goodwill | 5,783 | ||
Accounts payable | (112 | ) | |
Deferred tax liability | (905 | ) | |
Other assumed liabilities | (929 | ) | |
Total fair value of consideration transferred | $ | 7,882 |
Useful Life | Amortization Method | Fair Value | |||
Customer relationships | 6.67 | Straight-line | $2,521 |
Beginning December 31, 2015 | $ | 15,747 | |
Accretion of Put Value | 119 | ||
Balance June 30, 2016 | $ | 15,866 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2015 | 2016 | 2015 | 2016 | |||||||||||||
Income before income taxes | $ | 1,792 | $ | 3,522 | $ | 2,676 | $ | 5,625 | ||||||||
Total income tax expense | 614 | 780 | 915 | 1,436 | ||||||||||||
Effective tax rate | 34.3 | % | 22.1 | % | 34.2 | % | 25.5 | % |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||||||
Net income attributable to Heska Corporation | $ | 1,197 | $ | 2,522 | $ | 1,795 | $ | 3,707 | |||||||
Basic weighted-average common shares outstanding | 6,283 | 6,695 | 6,232 | 6,641 | |||||||||||
Assumed exercise of dilutive stock options and restricted stock units | 792 | 554 | 748 | 565 | |||||||||||
Diluted weighted-average common shares outstanding | 7,075 | 7,249 | 6,980 | 7,206 | |||||||||||
Basic earnings per share attributable to Heska Corporation | $ | 0.19 | $ | 0.38 | $ | 0.29 | $ | 0.56 | |||||||
Diluted earnings per share attributable to Heska Corporation | $ | 0.17 | $ | 0.35 | $ | 0.26 | $ | 0.51 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||
Stock options | 27 | 138 | 28 | 138 |
June 30, | |||
2016 | |||
Carrying amount, beginning of period | $ | 20,910 | |
Additions and adjustments | 5,798 | ||
Carrying amount, end of period | $ | 26,708 |
December 31, | June 30, | ||||||
2015 | 2016 | ||||||
Gross carrying amount | $ | 788 | $ | 3,309 | |||
Accumulated amortization | (732 | ) | (769 | ) | |||
Net carrying amount | $ | 56 | $ | 2,540 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||||||
Amortization expense | $ | 65 | $ | 34 | $ | 130 | $ | 37 |
Year Ending December 31, | |||
2016 (remaining) | $ | 194 | |
2017 | 388 | ||
2018 | 388 | ||
2019 | 388 | ||
2020 | 356 | ||
Thereafter | 826 | ||
$ | 2,540 |
December 31, | June 30, | ||||||
2015 | 2016 | ||||||
Land | $ | 377 | $ | 377 | |||
Building | 2,868 | 2,868 | |||||
Machinery and equipment | 35,284 | 37,348 | |||||
Leasehold and building improvements | 6,673 | 6,733 | |||||
Construction in progress | 1,496 | 1,851 | |||||
46,698 | 49,177 | ||||||
Less accumulated depreciation and amortization | (29,678 | ) | (31,525 | ) | |||
Total property and equipment, net | $ | 17,020 | $ | 17,652 |
December 31, | June 30, | |||||||
2015 | 2016 | |||||||
Raw materials | $ | 8,531 | $ | 10,097 | ||||
Work in process | 2,839 | 4,089 | ||||||
Finished goods | 6,122 | 5,194 | ||||||
Allowance for excess or obsolete inventory | (1,391 | ) | (1,304 | ) | ||||
Total inventory | $ | 16,101 | $ | 18,076 |
December 31, 2015 | June 30, 2016 | ||||||
Accrued payroll and employee benefits | $ | 860 | $ | 1,168 | |||
Accrued property taxes | 721 | 506 | |||||
Accrued purchases | 300 | — | |||||
Other | 3,535 | 3,553 | |||||
Total accrued liabilities | $ | 5,416 | $ | 5,227 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2015 | 2016 | 2015 | 2016 | ||||
Risk-free interest rate | 1.17% | 1.17% | 1.16% | 1.19% | |||
Expected lives | 3.4 years | 4.5 years | 3.4 years | 4.5 years | |||
Expected volatility | 43% | 41% | 43% | 41% | |||
Expected dividend yield | 0% | 0% | 0% | 0% |
Year Ended December 31, | Six Months Ended June 30, | ||||||||||||
2015 | 2016 | ||||||||||||
Options | Weighted Average Exercise Price | Options | Weighted Average Exercise Price | ||||||||||
Outstanding at beginning of period | 1,074,251 | $ | 10.110 | 940,610 | $ | 14.163 | |||||||
Granted at Market | 146,446 | $ | 36.904 | 19,355 | $ | 39.074 | |||||||
Canceled | (28,440 | ) | $ | 10.080 | (463 | ) | $ | 14.881 | |||||
Exercised | (251,647 | ) | $ | 10.559 | (70,507 | ) | $ | 11.793 | |||||
Outstanding at end of period | 940,610 | $ | 14.163 | 888,995 | $ | 14.893 | |||||||
Exercisable at end of period | 621,559 | $ | 10.269 | 633,469 | $ | 11.489 |
Options Outstanding | Options Exercisable | |||||||||||||||
Exercise Prices | Number of Options Outstanding at June 30, 2016 | Weighted Average Remaining Contractual Life in Years | Weighted Average Exercise Price | Number of Options Exercisable at June 30, 2016 | Weighted Average Exercise Price | |||||||||||
$ 4.40 - $ 6.90 | 216,365 | 4.38 | $ | 5.598 | 214,484 | $ | 5.592 | |||||||||
$ 6.91 - $ 8.26 | 186,964 | 7.37 | $ | 7.385 | 119,329 | $ | 7.385 | |||||||||
$ 8.27 - $17.17 | 171,853 | 5.58 | $ | 10.342 | 152,355 | $ | 10.446 | |||||||||
$17.18 - $28.39 | 152,558 | 5.79 | $ | 18.465 | 91,647 | $ | 18.475 | |||||||||
$28.40 - $39.76 | 161,255 | 9.43 | $ | 37.543 | 55,654 | $ | 34.361 | |||||||||
$ 4.40 - $39.76 | 888,995 | 6.40 | $ | 14.893 | 633,469 | $ | 11.489 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||
2015 | 2016 | 2015 | 2016 | ||||
Risk-free interest rate | 0.24% | 0.55% | 0.24% | 0.53% | |||
Expected lives | 1.2 years | 1.2 years | 1.2 years | 1.2 years | |||
Expected volatility | 36% | 43% | 35% | 42% | |||
Expected dividend yield | 0% | 0% | 0% | 0% |
Minimum pension liability | Foreign currency translation | Sale of Equity Investment | Total accumulated other comprehensive income | ||||||||||||
Balances at December 31, 2015 | $ | (576 | ) | $ | 673 | $ | 90 | $ | 187 | ||||||
Current period other comprehensive income (loss) | — | 42 | (90 | ) | (48 | ) | |||||||||
Balances at June 30, 2016 | $ | (576 | ) | $ | 715 | $ | — | $ | 139 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||||||
Interest income | $ | (41 | ) | $ | (30 | ) | $ | (99 | ) | $ | (63 | ) | |||
Interest expense | 50 | 38 | 103 | 76 | |||||||||||
Other, net | 28 | 26 | 170 | (112 | ) | ||||||||||
Total | $ | 37 | $ | 34 | $ | 174 | $ | (99 | ) |
Three Months Ended June 30, 2015 | Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | |||||||||
Total revenue | $ | 20,757 | $ | 3,153 | $ | 23,910 | ||||||
Operating Income | 1,536 | 293 | 1,829 | |||||||||
Income before income taxes | 1,511 | 281 | 1,792 | |||||||||
Capital expenditures | 142 | 189 | 331 | |||||||||
Depreciation and amortization | 894 | 174 | 1,068 |
Three Months Ended June 30, 2016 | Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | |||||||||
Total revenue | $ | 24,464 | $ | 5,501 | $ | 29,965 | ||||||
Operating Income | 2,746 | 810 | 3,556 | |||||||||
Income before income taxes | 2,724 | 798 | 3,522 | |||||||||
Capital expenditures | 82 | 381 | 463 | |||||||||
Depreciation and amortization | 915 | 200 | 1,115 |
Six Months Ended June 30, 2015 | Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | |||||||||
Total revenue | $ | 40,329 | $ | 6,475 | $ | 46,804 | ||||||
Operating Income | 2,071 | 779 | 2,850 | |||||||||
Income before income taxes | 1,921 | 755 | 2,676 | |||||||||
Capital expenditures | 449 | 487 | 936 | |||||||||
Depreciation and amortization | 1,724 | 350 | 2,074 |
Six Months Ended June 30, 2016 | Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | |||||||||
Total revenue | $ | 47,898 | $ | 9,213 | $ | 57,111 | ||||||
Operating Income | 4,504 | 1,022 | 5,526 | |||||||||
Income before income taxes | 4,532 | 1,093 | 5,625 | |||||||||
Capital expenditures | 479 | 889 | 1,368 | |||||||||
Depreciation and amortization | 1,812 | 399 | 2,211 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||||||
United States | $ | 22,926 | $ | 28,908 | $ | 44,339 | $ | 54,729 | |||||||
Europe | 515 | 567 | 1,046 | 1,120 | |||||||||||
Other International | 469 | 490 | 1,419 | 1,262 | |||||||||||
Total | $ | 23,910 | $ | 29,965 | $ | 46,804 | $ | 57,111 |
Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | ||||||||||
Total assets | $ | 92,567 | $ | 17,152 | $ | 109,719 | ||||||
Net assets | 48,175 | 15,353 | 63,528 |
Core Companion Animal Health | Other Vaccines, Pharmaceuticals and Products | Total | ||||||||||
Total assets | $ | 95,829 | $ | 23,796 | $ | 119,625 | ||||||
Net assets | 59,303 | 16,355 | 75,658 |
December 31, | June 30, | ||||||
2015 | 2016 | ||||||
United States | $ | 106,780 | $ | 116,552 | |||
Europe | 2,939 | 3,073 | |||||
Total | $ | 109,719 | $ | 119,625 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||||||
Revenue | $ | 23,910 | $ | 29,965 | $ | 46,804 | $ | 57,111 | |||||||
Gross Profit | 10,297 | 12,682 | 20,381 | 24,124 | |||||||||||
Operating expenses | 8,468 | 9,126 | 17,531 | 18,598 | |||||||||||
Operating income | 1,829 | 3,556 | 2,850 | 5,526 | |||||||||||
Interest and other expense (income), net | 37 | 34 | 174 | (99 | ) | ||||||||||
Income before income taxes | 1,792 | 3,522 | 2,676 | 5,625 | |||||||||||
Provision for income taxes | 614 | 780 | 915 | 1,436 | |||||||||||
Net income | 1,178 | 2,742 | 1,761 | 4,189 | |||||||||||
Net income (loss) attributable to non-controlling interest | (19 | ) | 220 | (34 | ) | 482 | |||||||||
Net income attributable to Heska Corporation | $ | 1,197 | $ | 2,522 | $ | 1,795 | $ | 3,707 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||
2015 | 2016 | 2015 | 2016 | ||||||||
Revenue | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||
Gross Profit | 43.1 | % | 42.3 | % | 43.5 | % | 42.2 | % | |||
Operating expenses | 35.4 | % | 30.5 | % | 37.5 | % | 32.6 | % | |||
Operating income | 7.6 | % | 11.9 | % | 6.1 | % | 9.7 | % | |||
Interest and other expense (income), net | 0.2 | % | 0.1 | % | 0.4 | % | (0.2 | )% | |||
Income before income taxes | 7.5 | % | 11.8 | % | 5.7 | % | 9.8 | % | |||
Provision for income taxes | 2.6 | % | 2.6 | % | 2.0 | % | 2.5 | % | |||
Net income | 4.9 | % | 9.2 | % | 3.8 | % | 7.3 | % | |||
Net income (loss) attributable to non-controlling interest | (0.1 | )% | 0.7 | % | (0.1 | )% | 0.8 | % | |||
Net income attributable to Heska Corporation | 5.0 | % | 8.4 | % | 3.8 | % | 6.5 | % |
Six Months Ended June 30, | |||||||
2015 | 2016 | ||||||
Net cash provided by (used in) operating activities | $ | (282 | ) | $ | 278 | ||
Net cash used in investing activities | (936 | ) | (848 | ) | |||
Net cash provided by financing activities | 1,936 | 327 | |||||
Effect of currency translation on cash | 74 | 22 | |||||
Increase (decrease) in cash and cash equivalents | 792 | (221 | ) | ||||
Cash and cash equivalents, beginning of the period | 5,855 | 6,890 | |||||
Cash and cash equivalents, end of the period | $ | 6,647 | $ | 6,669 |
Item 1 | Legal Proceedings. |
Item 1A. | Risk Factors |
• | Regulatory risk. Our manufacturing facility and those of some of our third-party suppliers are subject to ongoing periodic unannounced inspection by regulatory authorities, including the FDA, USDA and other federal, state and foreign agencies for compliance with strictly enforced Good Manufacturing Practices, regulations and similar foreign standards. We do not have control over our suppliers' compliance with these regulations and standards. Regulatory violations could potentially lead to interruptions in supply that could cause us to lose sales to readily available competitive products. If one of our suppliers is unable to provide a raw material or finished product due to regulatory issues, it could have a material adverse financial impact on our business and could expose us to legal action if we are unable to perform on contracts to our customers involving related products. |
• | 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 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. |
• | 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 may require terms that are less advantageous if available at all. |
• | Developmental delays. We may experience delays in the scale-up quantities needed for product development that could delay regulatory submissions and commercialization of our products in development, causing us to miss key opportunities. |
• | Limited geographic rights. We typically do not have global geographic rights to products supplied by third parties. If we were to determine a market opportunity in a geography where we did not have distribution rights and were unable to obtain such rights from the supplier, it might hamper our ability to succeed in such geography and our sales and profits would be lower than they otherwise would have been. |
• | Limited intellectual property rights. We typically do not have intellectual property rights, or may have to share intellectual property rights, to the products supplied by third parties and any improvements to the manufacturing processes or new manufacturing processes for these products. |
• | 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. |
• | supply of products from third-party suppliers or termination, cancellation or expiration of such relationships; |
• | competition and pricing pressures from competitive products; |
• | the introduction of new products or services by our competitors or by us; |
• | large customers failing to purchase at historical levels; |
• | fundamental shifts in market demand; |
• | manufacturing delays; |
• | shipment problems; |
• | information technology problems, which may prevent us from conducting our business effectively, or at all, and may also raise our costs; |
• | regulatory and other delays in product development; |
• | product recalls or other issues which may raise our costs; |
• | changes in our reputation and/or market acceptance of our current or new products; and |
• | changes in the mix of products sold. |
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share (1) | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
April 1 - April 30, 2016 | 2,525 | $ | 30.60 | — | — | ||||||||
May 1 - May 31, 2016 | — | — | — | — | |||||||||
June 1 - June 30, 2016 | — | — | — | — | |||||||||
Total | 2,525 | $ | 30.60 | — | — |
Item 6. | Exhibits. |
Exhibit Number | Notes | Description of Document | |||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||||
32.1** | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||
10.1+ | Assignment and Assumption Agreement (Supply Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016. | ||||
10.2+ | Assignment and Assumption Agreement (License Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016. | ||||
101.INS | XBRL Instance Document. | ||||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
Notes | |
+ | Portions of the exhibit have been omitted pursuant to a request for confidential treatment. |
** | Furnished with this report. |
HESKA CORPORATION | |
By: /s/ KEVIN S. WILSON Kevin S. Wilson Chief Executive Officer and President (Principal Executive Officer) | |
By: /s/ JASON A. NAPOLITANO Jason A. Napolitano Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary (Principal Financial Officer) | |
By: /s/ JOHN MCMAHON John McMahon Vice President, Financial Operations and Controller (Principal Accounting Officer) |
Exhibit Number | Notes | Description of Document | |||
31.1 | Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||||
31.2 | Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended. | ||||
32.1** | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||||
10.1+ | Assignment and Assumption Agreement (Supply Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016. | ||||
10.2+ | Assignment and Assumption Agreement (License Agreement) between Heska Imaging US, LLC, Heska Imaging Global, LLC, Cuattro, LLC, and Heska Imaging International, LLC, dated as of March 14, 2016. | ||||
101.INS | XBRL Instance Document. | ||||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. |
Notes | |
+ | Portions of the exhibit have been omitted pursuant to a request for confidential treatment. |
** | Furnished with this report. |
"IMAGING US" | "IMAGING GLOBAL" | |||
Heska Imaging US, LLC | Heska Imaging Global, LLC | |||
By: | /s/ Jason Napolitano | By: | /s/ Jason Napolitano | |
Jason Napolitano, Chief Financial Officer | Jason Napolitano, Chief Operating Officer |
"CUATTRO" | "IMAGING INTERNATIONAL" | |||
Cuattro, LLC | Heska Imaging International, LLC | |||
By: | /s/ Kevin S. Wilson | By: | /s/ Jason Napolitano | |
Kevin S. Wilson, Manager | Jason Napolitano, Chief Executive Officer |
Very truly yours, | |||
HESKA IMAGING US, LLC | |||
By: | /s/ Jason Napolitano | ||
Its: | Chief Financial Officer |
ACCEPTED AND AGREED: | |||
CUATTRO, LLC | |||
By: | /s/ Kevin Wilson | ||
Its: | Member, Officer |
CUATTRO, LLC | HESKA IMAGING US, LLC | |||
By: | /s/ Kevin Wilson | By: | /s/ Jason Napolitano | |
Its: | Member, Officer | Its: | Chief Financial Officer | |
Date: | 2/24/2013 | Date: | February 24, 2013 |
2013: | [***] per Software License in each Product |
2014: | [***] per Software License in each Product |
2015: | [***] per Software License in each Product |
2016: | [***] per Software License in each Product |
2017: | [***] per Software License in each Product |
2018: | [***] per Software License in each Product |
2019: | [***] per Software License in each Product |
2020: | [***] per Software License in each Product |
2021: | [***] per Software License in each Product |
2022: | [***] per Software License in each Product |
• | Heska Corporation |
• | Diamond Animal Health, Inc. |
• | Heska Imaging US, LLC |
• | Heska Imaging International, LLC (formerly Cuattro Veterinary, LLC) |
• | Heska AG" |
"IMAGING US" | "IMAGING GLOBAL" | |||
Heska Imaging US, LLC | Heska Imaging Global, LLC | |||
By: | /s/ Jason Napolitano | By: | /s/ Jason Napolitano | |
Jason Napolitano, Chief Financial Officer | Jason Napolitano, Chief Operating Officer |
"CUATTRO" | "IMAGING INTERNATIONAL" | |||
Cuattro, LLC | Heska Imaging International, LLC | |||
By: | /s/ Kevin S. Wilson | By: | /s/ Jason Napolitano | |
Kevin S. Wilson, Manager | Jason Napolitano, Chief Executive Officer |
1. | DEFINITIONS. |
2. | GRANT. |
3. | SUPPORT, MAINTENANCE, PAYMENTS. |
2013: | [***] per Software License in each Product |
2014: | [***] per Software License in each Product |
2015: | [***] per Software License in each Product |
2016: | [***] per Software License in each Product |
2017: | [***] per Software License in each Product |
2018: | [***] per Software License in each Product |
2019: | [***] per Software License in each Product |
2020: | [***] per Software License in each Product |
2021: | [***] per Software License in each Product |
2022: | [***]per Software License in each Product |
2023+: | [***] per Software License in each Product |
4. | TERM AND TERMINATION. |
5. | OWNERSHIP. |
6. | CONFIDENTIALITY. |
7. | REPRESENTATIONS AND WARRANTIES. |
8. | INDEMNITY. |
9. | LIMITATION OF LIABILITY. |
10. | MISCELLANEOUS. |
Cuattro, LLC | Heska Imaging US, LLC | |
/s/ Kevin S. Wilson | /s/ Jason Napolitano | |
Authorized Signature | Authorized Signature | |
Kevin S. Wilson Officer, Units Holder, and Manager | Jason Napolitano Manager/Chief Financial Officer | |
February 22, 2013 | February 22, 2013 | |
Date | Date | |
Address for Notice: 63 Avondale Lane Villa Montane, #C2 Beaver Creek, CO 81620 Attn : Kevin S. Wilson | Address for Notice: 3760 Rocky Mountain Avenue Loveland, CO 80538 Attn: Jason Napolitano |
• | DICOM Database for Doctor and Patient Demographics and Exam/Image metadata |
• | Acquire Digital Radiograph images and data from detector devices |
• | User Interface for Veterinary specific use |
• | Transfer data to DICOM image formats via DICOM network or other media |
• | Enhance using ContextVision GOP and ADi licensed technologies (extra costs apply) |
• | Control of UnoTM brand of hardware of Licensor |
• | Control of CloudDRTM brand of hardware of Licensor |
• | DICOM interface and Store to CloudBankTM brand |
• | DICOM archival |
• | CopilotTM support functionality and connections |
LICENSEE | LICENSOR | ||||
Heska Imaging US, LLC | Cuattro, LLC | ||||
By: | /s/ Jason Napolitano | By: | /s/ Kevin Wilson | ||
Name: | Jason Napolitano | Name: | Kevin Wilson | ||
Title: | Manager/Chief Financial Officer | Title: | Member | ||
• | Heska Corporation |
• | Diamond Animal Health, Inc. |
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: August 8, 2016 | /s/ Kevin S. Wilson |
KEVIN S. WILSON | |
Chief Executive Officer and President | |
(Principal Executive Officer) |
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: August 8, 2016 | /s/ Jason A. Napolitano |
JASON A. NAPOLITANO | |
Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary | |
(Principal Financial Officer) |
Dated: August 8, 2016 | By: | /s/ Kevin S. Wilson |
Name: | KEVIN S. WILSON | |
Title: | Chief Executive Officer and President |
Dated: August 8, 2016 | By: | /s/ Jason A. Napolitano |
Name: | JASON A. NAPOLITANO | |
Title: | Chief Operating Officer, Chief Financial Officer, | |
Executive Vice President and Secretary |
Document and Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Aug. 05, 2016 |
|
Document And Entity Information | ||
Entity Registrant Name | Heska Corp | |
Entity Central Index Key | 0001038133 | |
Document Type | 10-Q | |
Document Period End Date | Jun. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Well-known Seasoned Issuer | No | |
Entity Voluntary Filers | No | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Document Fiscal Period Focus | Q2 | |
Document Fiscal Year Focus | 2016 | |
Entity Common Stock, Shares Outstanding | 6,875,256 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Allowance for doubtful accounts | $ 199 | $ 189 |
Preferred stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Preferred stock, shares authorized | 2,500,000 | 2,500,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common Stock | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 9,000,000 | 7,500,000 |
Common stock, shares issued | 0 | 0 |
Common stock, shares outstanding | 0 | 0 |
Public Common Stock | ||
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 9,000,000 | 7,500,000 |
Common stock, shares issued | 6,873,389 | 6,625,287 |
Common stock, shares outstanding | 6,873,389 | 6,625,287 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Comprehensive Income (Loss), Net of Tax, Attributable to Parent [Abstract] | ||||
Net income | $ 2,742 | $ 1,178 | $ 4,189 | $ 1,761 |
Other comprehensive income (expense): | ||||
Sale of equity investment | 0 | 0 | (90) | 0 |
Unrealized gain on available for sale investments | 0 | 6 | 0 | 6 |
Foreign currency translation | (47) | 87 | 42 | 163 |
Comprehensive income | 2,695 | 1,271 | 4,141 | 1,930 |
Comprehensive income (loss) attributable to non-controlling interest | 220 | (19) | 482 | (34) |
Comprehensive income attributable to Heska Corporation | $ 2,475 | $ 1,290 | $ 3,659 | $ 1,964 |
BASIS OF PRESENTATION |
6 Months Ended |
---|---|
Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
BASIS OF PRESENTATION | BASIS OF PRESENTATION Heska Corporation and its wholly-owned and majority-owned subsidiaries ("Heska", the "Company", "we" or "our") sell advanced veterinary diagnostic and specialty products. Heska's state-of-the-art offerings include blood testing instruments and supplies, digital imaging products, software and services, and single-use products and data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. The Company's core focus is on the canine and feline markets. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company at June 30, 2016, the results of our operations for the three and six months ended June 30, 2016 and 2015 and cash flows for the six months ended June 30, 2016 and 2015. The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and other financial information filed with the SEC. Use of Estimates The preparation of financial statements in conformity with U.S. GAAP 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess or obsolete inventory, in determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights, evaluating long-lived and intangible assets for impairment, determining the allocation of purchase price under purchase accounting, estimating the expense associated with the granting of stock options, determining the value of our non-controlling interest and in determining the need for, and the amount of, a valuation allowance on deferred tax assets. Critical Accounting Policies Our accounting policies are described in our audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015. Recent Accounting Pronouncements In March 2016, the FASB issued guidance codified in Accounting Standards Codification (“ASC”) Topic 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adopted the standard during the second quarter of 2016 and are therefore required to report the impacts as though the standard had been adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits as an increase to earnings of $0.5 million ($0.07 per diluted share) in the three and six months ended June 30, 2016. The new accounting standard did not impact any periods prior to January 1, 2016, as we applied the changes to the standard on a prospective basis. In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC 840, Leases, and creates a new topic, ASC 842, Leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Upon the effective date, the ASU replaces almost all existing revenue recognition guidance, including industry specific guidance, in generally accepted accounting principles. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and are now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period. We are currently assessing the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures upon implementation. |
ACQUISITION AND RELATED PARTY ITEMS |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations and Related Party Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
ACQUISITION AND RELATED PARTY ITEMS | ACQUISITIONS AND RELATED PARTY ITEMS On May 31, 2016, the Company closed a transaction (the "Merger") to acquire Cuattro Veterinary, LLC ("Cuattro International") from Kevin S. Wilson, and all of the members of Cuattro International (the "Members"). Pursuant to the Merger, the Company issued 175,000 shares of the Company’s common stock, $.01 par value per share (the "Common Stock"), to the Members on the Closing Date, at an aggregate value equal to approximately $6.3 million based on the adjusted closing price per share of the Common Stock as reported on the Nasdaq Stock Market on the Merger closing date. These shares were issued to the Members in a private placement in reliance upon an exemption from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof and the safe harbor provided by Rule 506 of Regulation D promulgated thereunder. Effective on the Merger closing date, each of the Members executed lock-up agreements with the Company that restrict their ability to sell any of the shares of Common Stock received in the Merger until 180 days after the Merger closing date. In addition, the Company assumed approximately $1.5 million in debt as part of the transaction. Mr. Wilson is a founder of Cuattro International, Cuattro, LLC, Cuattro Software, LLC and Cuattro Medical, LLC. Mr. Wilson, Mrs. Wilson and trusts for the benefit of Mr. and Mrs. Wilson’s children and family own a 100% interest in Cuattro, LLC and a majority interest in Cuattro Medical, LLC. Cuattro, LLC owns a 100% interest in Cuattro Software, LLC and, prior to the Merger, owned a majority interest in Cuattro International. The Company recorded assets acquired and assets assumed at their estimated fair values. Intangible assets were valued based on a report from an independent third party. The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price (in thousands):
Intangible assets acquired, amortization method and estimated useful lives as of May 31, 2016 was as follows (dollars in thousands):
Cuattro International is a provider to international markets of digital radiography technologies for veterinarians. As a leading provider of advanced veterinary diagnostic and specialty products, we made the acquisition in an effort to combine Cuattro International's international reach with our domestic success in the imaging and blood testing markets in the United States. International markets represent a significant portion of worldwide veterinary revenues for which we intend to compete. As of the closing date of the Merger, Cuattro International was renamed Heska Imaging International, LLC, and the Company's interest in both Heska Imaging International, LLC ("International Imaging") and Heska Imaging US, LLC ("US Imaging") was transferred to the Company's wholly-owned subsidiary, Heska Imaging Global, LLC ("Global Imaging"). On February 24, 2013, the Company acquired a 54.6% interest in Cuattro Veterinary USA, LLC which was subsequently renamed Heska Imaging US, LLC. The remaining minority position (45.4%) in US Imaging is subject to purchase by Heska under performance-based puts and calls following calendar year 2016 and 2017. Should Heska undergo a change in control, as defined, prior to the end of 2017, US Imaging minority unit holders will be entitled to sell their US Imaging units to Heska. US Imaging markets, sells and supports digital radiography and ultrasound products along with embedded software and support, data hosting and other services. Shawna M. Wilson, Clint Roth, DVM, Steven M. Asakowicz, Rodney A. Lippincott, Kevin S. Wilson and Cuattro, LLC own approximately 29.75%, 8.39%, 4.09%, 3.07%, 0.05% and 0.05% of US Imaging, respectively. Kevin S. Wilson is the Chief Executive Officer and President of the Company and the spouse of Shawna M. Wilson. Steven M. Asakowicz serves as Executive Vice President, Companion Animal Health Sales for the Company. Rodney A. Lippincott serves as Executive Vice President, Companion Animal Health Sales for the Company. Cuattro, LLC has charged US Imaging $3.6 million from January 1, 2016 to May 31, 2016 and has charged Global Imaging $0.9 million since June 1, 2016, primarily related to digital imaging products, for which there is an underlying supply contract with minimum purchase obligations, software and services as well as other operating expenses; Heska Corporation has charged US Imaging $2.4 million during the six months ended June 30, 2016, primarily related to sales expenses; and Heska Corporation has charged Cuattro, LLC $130 thousand during the six months ended June 30, 2016, primarily related to facility usage and other services. At June 30, 2016, US Imaging had a $1.5 million note receivable, including accrued interest, from International Imaging, which is due on June 15, 2019 and which eliminated in consolidation of the Company's financial statements. This note was previously listed as "Note receivable – related party" on the Company's consolidated balance sheets and, as discussed above, the note receivable was assumed as part of the Company's acquisition of Cuattro International. At June 30, 2016, Heska Corporation had net accounts receivable from Cuattro, LLC of $25 thousand which is included in "Due from – related parties" on the Company's consolidated balance sheets; International Imaging had a net receivable due from Cuattro, LLC of $546 thousand, which is included in "Due from – related parties" on the Company's consolidated balance sheets; Global Imaging had net prepaid receivables from Cuattro, LLC of $1.4 million which is included in "Due from – related parties" on the Company's consolidated balance sheets; Heska Corporation had accounts receivable from US Imaging of $5.0 million, including accrued interest, which eliminated in consolidation of the Company's financial statements; all monies owed accrue interest at the same interest rate Heska Corporation pays under its credit and security agreement with Wells Fargo Bank, National Association ("Wells Fargo") once past due with the exception of the note receivable, which accrues at this rate to its maturity date. The aggregate position in US Imaging of the unit holders who hold the 45.4% of US Imaging that Heska Corporation does not own (the "Put Value") is being accreted to its estimated redemption value in accordance with US Imaging's Operating Agreement (the "Operating Agreement"). Since the Operating Agreement contains certain put rights that are out of the control of the Company, authoritative guidance requires the non-controlling interest, which includes the estimated value of such put rights, to be displayed outside of the equity section of the consolidated balance sheets. The adjustment to increase or decrease the Put Value to its expected redemption value and to estimate any distributions required under the Operating Agreement to the unit holders who hold the 45.4% of US Imaging that Heska Corporation does not own (the "Imaging Minority") each reporting period is recorded to stockholders' equity in accordance with U.S. GAAP. The following is a reconciliation of the non-controlling interest balance (in thousands):
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INCOME TAXES |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INCOME TAXES | INCOME TAXES Our total income tax expense and the effective tax rate for our income before income taxes are as follows (in thousands):
We are subject to income taxes in the U.S. federal jurisdiction, and various foreign, state and local jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. The rates in the three and six months ended June 30, 2016 benefited from additional tax benefits related to employee share-based payment awards which are now recorded as income tax benefit or expense in earnings effective with the adoption of an accounting standard update during the quarter ended June 30, 2016. We early adopted the accounting standard update during the second quarter of 2016 and are therefore required to report the impacts as though the accounting standard update had been adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits of $0.5 million during the three and six months ended June 30, 2016. Cash paid for income taxes for each of the three months ended June 30, 2015 and 2016 was $15 thousand and $57 thousand, respectively. Cash paid for income taxes for the six months ended June 30, 2015 and 2016 was $20 thousand and $62 thousand, respectively. |
EARNINGS PER SHARE |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
EARNINGS PER SHARE | EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net income attributable to Heska Corporation by the weighted-average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the numerator is increased to exclude charges that would not have been incurred, and the denominator is increased to include the number of additional common shares that would have been outstanding (using the if-converted and treasury stock methods), if securities containing potentially dilutive common shares (stock options and restricted stock units but excluding options to purchase fractional shares resulting from the Company's December 2010 1-for-10 reverse stock split) had been converted to common shares, and if such assumed conversion is dilutive. The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2016 (in thousands, except per share data):
The following stock options and restricted units were excluded from the computation of diluted earnings per share because they would have been anti-dilutive (in thousands):
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GOODWILL AND OTHER INTANGIBLES |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
GOOWILL AND OTHER INTANGIBLES | GOODWILL AND OTHER INTANGIBLES The following summarizes the changes in goodwill during the six months ended June 30, 2016 (in thousands):
Other intangibles consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):
Amortization expense relating to other intangibles is as follows (in thousands):
Estimated amortization expense related to intangibles for each of the five years from 2016 (remaining) through 2020 and thereafter is as follows (in thousands):
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PROPERTY AND EQUIPMENT |
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Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
PROPERTY AND EQUIPMENT | PROPERTY AND EQUIPMENT Detail of property and equipment is as follows (in thousands):
The Company has utilized marketing programs whereby its instruments in inventory may be placed in a customer's location on a rental basis. The cost of these instruments is transferred to machinery and equipment and depreciated, typically over a five to seven year period depending on the circumstance under which the instrument is placed with the customer. Total costs transferred from inventory were approximately $2.5 million and $1.7 million for the six month periods ended June 30, 2015 and 2016, respectively. The Company has sold certain customer rental contracts and underlying assets to a third party under the agreement that once the customer has met its obligations under the contract, ownership of the assets underlying the contract would be returned to the Company. The Company enters a debit to cash and a corresponding credit to deferred revenue at the time of these sales. These sales, all related to the Company's 54.6%-owned subsidiary, US Imaging, provided $59 thousand of cash which was reported in the "deferred revenue and other" line item of the Company's consolidated statements of cash flows for the six months ended June 30, 2015. There were no such sales during the six months ended June 30, 2016. As the Company anticipates it will regain ownership of the assets underlying these sales, it reports these assets as part of property and equipment and depreciates these assets in accordance with its depreciation policies. The Company had $2.2 million and $1.5 million of net property and equipment related to these transactions as of December 31, 2015 and June 30, 2016, respectively, all related to the Company's 54.6%-owned subsidiary, US Imaging. Depreciation and amortization expense for property and equipment was $1.1 million in each of the three months ended June 30, 2015 and 2016. Depreciation and amortization expense for property and equipment was $2.1 million and $2.2 million for the six months ended June 30, 2015 and 2016, respectively. The Company capitalizes third-party software costs, where appropriate, and reports such costs, net of accumulated amortization, on the "property and equipment, net" line of its consolidated balance sheets. We had $0.4 million and $0.3 million of such capitalized costs, net of accumulated amortization, on the "property and equipment, net" line of our consolidated balance sheets as of December 31, 2015 and June 30, 2016, respectively. Capitalized software costs in a given year are reported on the "purchases of property and equipment" line item of the Company's consolidated statements of cash flows. We had $44 thousand of capitalized software costs reported on the "purchases of property and equipment" line item of our consolidated statements of cash flows for the six months ended June 30, 2015. There were no capitalized software costs incurred in the six months ended June 30, 2016. |
INVENTORIES |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INVENTORIES | INVENTORIES Inventories are stated at the lower of cost or net realizable value using the first-in, first-out method. Inventory we manufacture includes the cost of material, labor and overhead. If the cost of inventories exceeds estimated net realizable value, provisions are made to reduce the carrying value to estimated net realizable value. Inventories, net consist of the following (in thousands):
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ACCRUED LIABILITIES |
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ACCRUED LIABILITIES | ACCRUED LIABILITIES Accrued liabilities consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):
Other accrued liabilities consists of items that are individually less than 5% of total current liabilities. |
CAPITAL STOCK |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
CAPITAL STOCK | CAPITAL STOCK Stock Option Plans 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 and six months ended June 30, 2015 and 2016.
A summary of our stock option plans, excluding options to purchase fractional shares resulting from our December 2010 1-for-10 reverse stock split, is as follows:
The total estimated fair value of stock options granted during the six months ended June 30, 2015 and 2016 were computed to be approximately $258 thousand and $267 thousand, respectively. The amounts are amortized ratably over the vesting periods of the options. The weighted average estimated fair value of options granted during the six months ended June 30, 2015 and 2016 was computed to be approximately $8.88 and $13.83, respectively. The total intrinsic value of options exercised during the six months ended June 30, 2015 and 2016 was $1.9 million and $1.6 million, respectively. The cash proceeds from options exercised during the six months ended June 30, 2015 and 2016 was $715 thousand and $660 thousand, respectively. The following table summarizes information about stock options outstanding and exercisable at June 30, 2016, excluding outstanding options to purchase an aggregate of 4.2 fractional shares resulting from our December 2010 1-for-10 reverse stock split with a weighted average remaining contractual life of 0.5 years, a weighted average exercise price of $18.69 and exercise prices ranging from $17.17-$22.50. We intend to issue whole shares only from option exercises.
As of June 30, 2016, there was approximately $2.0 million in total unrecognized compensation cost related to outstanding stock options. That cost is expected to be recognized over a weighted average period of 1.60 years, with approximately $485 thousand to be recognized in the six months ending December 31, 2016 and all cost to be recognized as of March 2020, assuming all options vest according to the vesting schedules in place at June 30, 2016. As of June 30, 2016, the aggregate intrinsic value of outstanding options was approximately $20.1 million and the aggregate intrinsic value of exercisable options was approximately $16.3 million. Employee Stock Purchase Plan (the "ESPP") For the six months ended June 30, 2015 and 2016, we issued 6,043 and 4,497 shares under the ESPP, respectively. For the three and six months ended June 30, 2015 and 2016, we estimated the fair values of stock purchase rights granted under the ESPP using the Black-Scholes pricing model. The weighted average assumptions used for the periods presented were as follows:
For the six months ended June 30, 2015 and 2016, the weighted-average fair value of the purchase rights granted was $5.67 and $6.87 per share, respectively. For the three months ended June 30, 2015 and 2016, the weighted-average fair value of the purchase rights granted was $5.75 and $7.64 per share, respectively. Restricted Stock Issuance On March 17, 2015, the Company issued unvested shares to certain Executive Officers related to performance-based restricted stock grants (the "Performance Grants") and performance-based restricted stock grants related to the Company's 2015 Management Incentive Plan (the "2015 MIP Grants"). The Company issued 52,956 shares under the Performance Grants and 24,649 shares under 2015 MIP Grants. The Performance Grants have met the underlying performance condition based on the Company's 2015 financial performance and are to cliff vest on March 17, 2018, subject to other vesting provisions in the underlying restricted stock grant agreement. The 2015 MIP Grants were subject to the Company’s achievement of certain financial goals and other vesting provisions in the underlying restricted stock grant agreement. On March 2, 2016, the Company vested 14,364 shares related to the 2015 MIP Grant based on the respective performance criteria, including 4,788 shares withheld for tax, and canceled the remaining 10,285 shares. On March 2, 2016, the Company issued 15,000 unvested shares to certain Executive Officers related to performance-based restricted stock grants as part of the Company’s 2016 Management Incentive Plan (the "2016 MIP Grants"). The 2016 MIP Grants are to vest on the date MIP Payouts are to be made under the 2016 Management Incentive Plan and are subject to the Company’s achievement of certain financial goals and other vesting provisions in the underlying restricted stock grant agreement. On March 26, 2016, 27,500 shares originally issued to Mr. Wilson on March 26, 2014 pursuant to an employment agreement between Mr. Wilson and the Company effective as of March 26, 2014 (the "Wilson Employment Agreement") vested pursuant to the Wilson Employment Agreement. Restrictions on the transfer of Company stock The Company's Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), places restrictions (the "Transfer Restrictions") on the transfer of the Company's stock that could adversely affect the Company's ability to utilize its domestic Federal Net Operating Loss Position. In particular, the Transfer Restrictions prevent the transfer of shares without the approval of the Company's Board of Directors if, as a consequence of such transfer, 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 the Company's Board of Directors. Any transfer of shares in violation of the Transfer Restrictions (a "Transfer Violation") shall be void ab initio under the Certificate of Incorporation, and the Company's Board of Directors has procedures under the Certificate of Incorporation to remedy a Transfer Violation including requiring the shares causing such Transfer Violation to be sold and any profit resulting from such sale to be transferred to a charitable entity chosen by the Company's Board of Directors in specified circumstances. |
ACCUMULATED OTHER COMPREHENSIVE INCOME |
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ACCUMULATED OTHER COMPREHENSIVE INCOME | ACCUMULATED OTHER COMPREHENSIVE INCOME Accumulated other comprehensive income consisted of the following (in thousands):
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COMMITMENTS AND CONTINGENCIES |
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Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | COMMITMENTS AND CONTINGENCIES The Company holds certain rights to market and manufacture all products developed or created under certain research, development and licensing agreements with various entities. In connection with such agreements, the Company has agreed to pay the entities royalties on net product sales. In each of the three months ended June 30, 2015 and 2016, royalties of $0.1 million became payable under these agreements. In each of the six months ended June 30, 2015 and 2016, royalties of $0.2 million became payable under these agreements. The Company has contracts with suppliers for unconditional annual minimum inventory purchases and milestone obligations to third parties the Company believes are likely to be triggered currently totaling approximately $0.2 million for each of the fiscal years 2016 and 2017. From time to time, the Company may be involved in litigation relating to claims arising out of its operations. On March 12, 2015, a complaint was filed against us by Shaun Fauley in the United States District Court Northern District of Illinois alleging our transmittal of unauthorized faxes in violation of the federal Telephone Consumer Protection Act of 1991, as amended by the Junk Fax Prevention Act of 2005, as a class action seeking stated damages of the greater of actual monetary loss or five hundred dollars per violation. We intend to defend ourselves vigorously in this matter. As of June 30, 2016, the Company was not a party to any other legal proceedings that were expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results. The Company's current terms and conditions of sale include a limited warranty that its products and services will conform to published specifications at the time of shipment and a more extensive warranty related to certain of its products. The Company also sells a renewal warranty for certain of its products. The typical remedy for breach of warranty is to correct or replace any defective product, and if not possible or practical, the Company will accept the return of the defective product and refund the amount paid. Historically, the Company has incurred minimal warranty costs. The Company's warranty reserve at June 30, 2016 was $0.4 million. |
INTEREST AND OTHER EXPENSE (INCOME) |
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Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
INTEREST AND OTHER EXPENSE (INCOME) | INTEREST AND OTHER EXPENSE (INCOME) Interest and other expense (income) consisted of the following (in thousands):
Cash paid for interest for the three months ended June 30, 2015 and 2016 was $21 thousand and $19 thousand, respectively. Cash paid for interest for the six months ended June 30, 2015 and 2016 was $40 thousand and $37 thousand, respectively. |
CREDIT FACILITY |
6 Months Ended |
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Jun. 30, 2016 | |
Debt Disclosure [Abstract] | |
CREDIT FACILITY | CREDIT FACILITY At June 30, 2016, we had a $15.0 million asset-based revolving line of credit with Wells Fargo which has a maturity date of December 31, 2017 as part of our credit and security agreement with Wells Fargo. At June 30, 2016, we had no borrowings outstanding on this line of credit. Our ability to borrow under this line of credit varies based upon available cash, eligible accounts receivable and eligible inventory. Any interest on borrowings due is to be charged at a stated rate of three month LIBOR plus 2.25% and payable monthly. There is an annual minimum interest charge of $75 thousand under the agreement. 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. A key financial covenant is based on a fixed charge coverage ratio, as defined in our agreement with Wells Fargo. We were in compliance with all financial covenants as of June 30, 2016 and our available borrowing capacity based upon eligible accounts receivable and eligible inventory under our revolving line of credit was approximately $12.0 million. |
SEGMENT REPORTING |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
SEGMENT REPORTING | SEGMENT REPORTING The Company consists of two reportable segments, Core Companion Animal Health ("CCA") and Other Vaccines, Pharmaceuticals and Products ("OVP"). The Core Companion Animal Health 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. These products are sold directly by the Company as well as through independent third-party distributors and through other distribution relationships. CCA segment products manufactured at the Des Moines, Iowa production facility included in the OVP segment's assets are transferred at cost and are not recorded as revenue for the OVP segment. The Other Vaccines, Pharmaceuticals and Products segment includes private label vaccine and pharmaceutical production, primarily for cattle, but also for other animals including small mammals. 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):
Revenue is attributed to individual countries based on customer location. Total revenue by principal geographic area was as follows (in thousands):
Asset information by reportable segment as of December 31, 2015 is as follows (in thousands):
Asset information by reportable segment as of June 30, 2016 is as follows (in thousands):
Total assets by principal geographic areas were as follows (in thousands):
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BASIS OF PRESENTATION (Policies) |
6 Months Ended |
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Jun. 30, 2016 | |
Accounting Policies [Abstract] | |
Basis of Presentation | Heska Corporation and its wholly-owned and majority-owned subsidiaries ("Heska", the "Company", "we" or "our") sell advanced veterinary diagnostic and specialty products. Heska's state-of-the-art offerings include blood testing instruments and supplies, digital imaging products, software and services, and single-use products and data services, allergy testing and immunotherapy, and single-use offerings such as in-clinic diagnostic tests and heartworm preventive products. The Company's core focus is on the canine and feline markets. In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements contain all adjustments, consisting of normal, recurring adjustments, necessary to present fairly the financial position of the Company at June 30, 2016, the results of our operations for the three and six months ended June 30, 2016 and 2015 and cash flows for the six months ended June 30, 2016 and 2015. The unaudited Condensed Consolidated Financial Statements included herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. These unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 and other financial information filed with the SEC. |
Use of Estimates | The preparation of financial statements in conformity with U.S. GAAP 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 amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates are required when establishing the allowance for doubtful accounts and the provision for excess or obsolete inventory, in determining the period over which our obligations are fulfilled under agreements to license product rights and/or technology rights, evaluating long-lived and intangible assets for impairment, determining the allocation of purchase price under purchase accounting, estimating the expense associated with the granting of stock options, determining the value of our non-controlling interest and in determining the need for, and the amount of, a valuation allowance on deferred tax assets. |
Recent Accounting Pronouncements | In March 2016, the FASB issued guidance codified in Accounting Standards Codification (“ASC”) Topic 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard simplifies several aspects related to the accounting for share-based payment transactions, including the accounting for income taxes, statutory tax withholding requirements and classification on the statement of cash flows. The new standard is effective for annual reporting periods beginning after December 15, 2016, with early adoption permitted. We early adopted the standard during the second quarter of 2016 and are therefore required to report the impacts as though the standard had been adopted on January 1, 2016. Accordingly, we recognized additional income tax benefits as an increase to earnings of $0.5 million ($0.07 per diluted share) in the three and six months ended June 30, 2016. The new accounting standard did not impact any periods prior to January 1, 2016, as we applied the changes to the standard on a prospective basis. In February 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC 840, Leases, and creates a new topic, ASC 842, Leases. This update requires lessees to recognize a lease liability and a lease asset for all leases, including operating leases, with a term greater than 12 months on its balance sheet. The update also expands the required quantitative and qualitative disclosures surrounding leases. This update is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years, with earlier application permitted. This update will be applied using a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. We are currently evaluating the effect of this update on our consolidated financial statements. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). Upon the effective date, the ASU replaces almost all existing revenue recognition guidance, including industry specific guidance, in generally accepted accounting principles. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. The amendments in this update deferred the effective date for implementation of ASU 2014-09 by one year and are now effective for annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual reporting periods beginning after December 15, 2016 including interim reporting periods within that period. We are currently assessing the impact that the adoption of this standard will have on our consolidated financial statements and related disclosures upon implementation. |
ACQUISITION AND RELATED PARTY ITEMS (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations and Related Party Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Business Acquisitions, by Acquisition [Table Text Block] | The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price (in thousands):
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Schedule of Finite-Lived Intangible Assets Acquired as Part of Business Combination [Table Text Block] | Intangible assets acquired, amortization method and estimated useful lives as of May 31, 2016 was as follows (dollars in thousands):
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Reconciliation of non-controlling interest balance | The following is a reconciliation of the non-controlling interest balance (in thousands):
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INCOME TAXES (Tables) |
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Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of components of income tax expense | Our total income tax expense and the effective tax rate for our income before income taxes are as follows (in thousands):
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EARNINGS PER SHARE (Tables) |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of basic and diluted earnings per share | The following is a reconciliation of the weighted-average shares outstanding used in the calculation of basic and diluted earnings per share for the three and six months ended June 30, 2015 and 2016 (in thousands, except per share data):
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Schedule of antidilutive securities excluded from computation of earnings per share | The following stock options and restricted units were excluded from the computation of diluted earnings per share because they would have been anti-dilutive (in thousands):
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GOODWILL AND OTHER INTANGIBLES (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of changes in goodwill | The following summarizes the changes in goodwill during the six months ended June 30, 2016 (in thousands):
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Schedule of other intangible assets | Other intangibles consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):
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Schedule of amortization expense on intangible assets | Amortization expense relating to other intangibles is as follows (in thousands):
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Schedule of estimated future amortization expense | Estimated amortization expense related to intangibles for each of the five years from 2016 (remaining) through 2020 and thereafter is as follows (in thousands):
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PROPERTY AND EQUIPMENT (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Property, Plant and Equipment [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment | Detail of property and equipment is as follows (in thousands):
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INVENTORIES (Tables) |
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Jun. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory | Inventories, net consist of the following (in thousands):
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ACCRUED LIABILITIES (Tables) |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accrued liabilities | Accrued liabilities consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):
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CAPITAL STOCK (Tables) |
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Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of weighted average valuation assumptions | 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 and six months ended June 30, 2015 and 2016.
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Schedule of stock options plans | A summary of our stock option plans, excluding options to purchase fractional shares resulting from our December 2010 1-for-10 reverse stock split, is as follows:
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Schedule of shares authorized under stock options plans by exercise price | The following table summarizes information about stock options outstanding and exercisable at June 30, 2016, excluding outstanding options to purchase an aggregate of 4.2 fractional shares resulting from our December 2010 1-for-10 reverse stock split with a weighted average remaining contractual life of 0.5 years, a weighted average exercise price of $18.69 and exercise prices ranging from $17.17-$22.50. We intend to issue whole shares only from option exercises.
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Schedule of pricing models | The weighted average assumptions used for the periods presented were as follows:
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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of accumulated other comprehensive income (loss) | Accumulated other comprehensive income consisted of the following (in thousands):
|
INTEREST AND OTHER EXPENSE (INCOME) (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Income and Expenses [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of interest expense (income) and other income, net | Interest and other expense (income) consisted of the following (in thousands):
|
SEGMENT REPORTING (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of other significant reconciling items from segments to consolidated | Summarized financial information concerning the Company's reportable segments is shown in the following table (in thousands):
|
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Schedule of revenue from external customers and long-lived assets, by geographical areas | Revenue is attributed to individual countries based on customer location. Total revenue by principal geographic area was as follows (in thousands):
Asset information by reportable segment as of December 31, 2015 is as follows (in thousands):
Asset information by reportable segment as of June 30, 2016 is as follows (in thousands):
Total assets by principal geographic areas were as follows (in thousands):
|
INCOME TAXES (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Mar. 31, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Income Tax Disclosure [Abstract] | |||||
Income before income taxes | $ 3,522 | $ 1,792 | $ 5,625 | $ 2,676 | |
Total income tax expense | $ 780 | $ 614 | $ 1,436 | $ 915 | |
Effective tax rate | 22.10% | 34.30% | 25.50% | 34.20% | |
Cash paid for income taxes | $ 57 | $ 5 | $ 15 | $ 62 | $ 20 |
GOODWILL AND OTHER INTANGIBLES (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | |||
---|---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
Dec. 31, 2015 |
|
Goodwill [Roll Forward] | |||||
Carrying amount, beginning of period | $ 20,910 | ||||
Additions and adjustments | 5,798 | ||||
Carrying amount, end of period | $ 26,708 | 26,708 | |||
Finite-Lived Intangible Assets, Net [Abstract] | |||||
Gross carrying amount | 3,309 | 3,309 | $ 788 | ||
Accumulated amortization | (769) | (769) | (732) | ||
Net carrying amount | 2,540 | 2,540 | 56 | ||
Amortization expense | 34 | $ 65 | 37 | $ 130 | |
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract] | |||||
2016 (remaining) | 194 | 194 | |||
2017 | 388 | 388 | |||
2018 | 388 | 388 | |||
2019 | 388 | 388 | |||
2020 | 356 | 356 | |||
Thereafter | 826 | 826 | |||
Net carrying amount | $ 2,540 | $ 2,540 | $ 56 |
INVENTORIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 10,097 | $ 8,531 |
Work in process | 4,089 | 2,839 |
Finished goods | 5,194 | 6,122 |
Allowance for excess or obsolete inventory | (1,304) | (1,391) |
Inventory, net | $ 18,076 | $ 16,101 |
ACCRUED LIABILITIES (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accrued payroll and employee benefits | $ 1,168 | $ 860 |
Accrued property taxes | 506 | 721 |
Accrued purchases | 0 | 300 |
Other | 3,553 | 3,535 |
Total accrued liabilities | $ 5,227 | $ 5,416 |
COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Commitments and Contingencies Disclosure [Abstract] | ||||
Increase in royalties payable | $ 0.1 | $ 0.1 | $ 0.2 | $ 0.2 |
Recorded Unconditional Purchase Obligation [Line Items] | ||||
Warranty reserve | 0.4 | 0.4 | ||
Inventories | ||||
Recorded Unconditional Purchase Obligation [Line Items] | ||||
Minimum inventory purchases in fiscal 2016 | 0.2 | 0.2 | ||
Minimum inventory purchases in fiscal 2017 | $ 0.2 | $ 0.2 |
INTEREST AND OTHER EXPENSE (INCOME) (Details) - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Other Income and Expenses [Abstract] | ||||
Interest income | $ (30) | $ (41) | $ (63) | $ (99) |
Interest expense | 38 | 50 | 76 | 103 |
Other, net | 26 | 28 | (112) | 170 |
Interest and other expense (income), net | (34) | (37) | 99 | (174) |
Interest Paid | $ 19 | $ 21 | $ 37 | $ 40 |
CREDIT FACILITY (Details) - Line of Credit - Revolving Credit Facility |
6 Months Ended |
---|---|
Jun. 30, 2016
USD ($)
| |
Debt Instrument [Line Items] | |
Maximum borrowing capacity | $ 15,000,000 |
Long-term line of credit | 0 |
Minimum annual interest charge | 75,000 |
Remaining borrowing capacity | $ 12,000,000 |
London Interbank Offered Rate (LIBOR) | |
Debt Instrument [Line Items] | |
Basis spread on variable rate | 2.25% |
SEGMENT REPORTING - NARRATIVE (Details) |
6 Months Ended |
---|---|
Jun. 30, 2016
segment
| |
Segment Reporting [Abstract] | |
Number of reportable segments | 2 |
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