The acquisition was accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, which requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. As such, the total purchase consideration was allocated to the assets acquired and liabilities assumed based on a preliminary estimate of their fair values as of April 1, 2020. The total purchase consideration is subject to customary working capital adjustments.

In the third quarter of 2020, the estimated purchase consideration decreased to approximately $109.8 million as a result of post-closing adjustments to the settlement exchange rate, the net working capital and other adjustments. The resulting goodwill represents the excess of the purchase price over the fair value of the net assets acquired and is primarily attributable to the synergies expected from the expanded market opportunities with our offerings and the experienced workforce acquired. Of the $45.8 million of goodwill acquired, $37.3 million is allocated to our International segment and $8.5 million is allocated to our North America segment. All of the goodwill is tax deductible for U.S. federal income tax purposes which may result in a decrease to the Company's future U.S. federal tax liability.


	April 1, 2020
Total purchase consideration	$	109,753

Cash and cash equivalents	5,889
Accounts receivable	10,707
Inventories	11,349
Net investment in leases, current	311
Prepaid expenses	1,404
Other current assets	405
Property and equipment, net	19,320
Operating lease right-of-use assets	877
Other intangible assets, net	44,517
Net investment in leases, non-current	1,027
Investments in unconsolidated affiliates	55
Other non-current assets	291
Total assets acquired	96,152
Accounts payable	8,221
Accrued liabilities	6,355
Operating lease liabilities, current	356
Deferred revenue, current, and other	3,220
Deferred revenue, non-current	94
Operating lease liabilities, non-current	529
Deferred tax liability	13,147
Other liabilities	276
Net assets acquired	63,954
Goodwill	45,799
Total fair value of consideration transferred	$	109,753

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information currently available, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the acquisition. Among items still being evaluated is an existing uncertain tax position of approximately $1.0 million that scil had prior to acquisition. The uncertain tax position may or may not change based on the results of the evaluation. A decrease in the fair value of assets acquired or an increase in the fair value of liabilities assumed in the acquisition from those valuations would result in a corresponding change in the amount of goodwill from the acquisition. During the third quarter of 2020, the Company reclassified certain assets and liabilities to align with the presentation of our Condensed Consolidated Balance Sheet. There were no significant measurement period adjustments to the fair value of assets acquired and liabilities assumed.

Useful Life

Amortization
Method

Fair Value

Customer relationships

10 years

Straight-line

36,272

Internally developed software

7 years

Straight-line

353

Backlog

0.2 years

Straight-line

210

Non-compete agreements

2 years

Straight-line

Trade name subject to amortization

0.8 years

Straight-line

Trademarks and trade names not subject to amortization

n/a

Indefinite

7,556

Total intangible assets acquired

44,517

The Company incurred acquisition related costs of approximately $0.7 million and $5.7 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	49,346	$	144,372
Net (loss) income before equity in losses of unconsolidated affiliates	$	(451)	$	(1,407)
Net (loss) income attributable to Heska Corporation	$	(557)	$	(1,730)

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of scil and further reflects the effect of purchase accounting adjustments, including: (i) amortization of acquired intangible assets, (ii) the impact of certain fair value adjustments such as depreciation on the acquired property, plant and equipment, and (iii) historical intercompany sales between the Company and scil. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

On December 5, 2019, Heska entered into a definitive agreement to purchase 100% of the outstanding shares of CVM Diagnostico Veternario S.L. and CVM Ecografia S.L. (collectively, “CVM”), primarily to expand international operations in Europe. CVM is headquartered in Tudela, outside of Madrid, Spain. CVM mainly operates in Spain. The terms of the agreement transferred control of CVM upon signing, and the transfer of the purchase price of approximately $14.4 million and shares occurred in January 2020. The purchase price exceeded the fair value of the identifiable net assets and, accordingly, $9.0 million was allocated to goodwill within the International segment based on the preliminary purchase price allocation, all of which is tax deductible for U.S. federal income tax purposes.


	December 5, 2019
Consideration paid to former owners	$	14,420

Cash and cash equivalents	1,226
Accounts receivable	583
Inventories	1,621
Other current assets	1,186
Property and equipment	345
Other intangible assets	2,608
Other non-current assets	460
Total assets acquired	8,029
Accounts payable	(94)
Accrued liabilities	(471)
Current portion of deferred revenue, and other	(54)
Deferred tax liability	(683)
Other long-term borrowings	(1,109)
Other liabilities	(157)
Net assets acquired	5,461
Goodwill	8,959
Total fair value of consideration transferred	$	14,420

The Company's preliminary estimates of fair values of the assets acquired and the liabilities assumed are based on the information that was available at the date of the acquisition, and the Company is continuing to evaluate the underlying inputs and assumptions used in its valuations. Accordingly, these preliminary estimates are subject to change during the measurement period, which is up to one year from the date of the

acquisition. During the nine months ended September 30, 2020, the Company made certain valuation adjustments to provisional amounts previously recognized. These adjustments resulted in a net $110 thousand increase of goodwill, primarily due to fair value adjustments resulting in a decrease in net identifiable assets acquired.

CVM generated net revenue of $0.8 million and net income of $0.1 million, for the period from December 6, 2019 to December 31, 2019. CVM generated net revenue of $2.2 million and $5.2 million and net income of $0.3 million and $0.4 million for the three and nine months ended September 30, 2020, respectively.

The Company incurred acquisition related costs of approximately $44 thousand and $0.3 million for the three and nine months ended September 30, 2020, respectively, which are included within general and administrative expenses on our Condensed Consolidated Statements of (Loss) Income.


	Three Months Ended September 30, 2019		Nine Months Ended September 30, 2019
Revenue, net	$	32,910	$	94,462
Net (loss) income before equity in losses of unconsolidated affiliates	$	164	$	789
Net (loss) income attributable to Heska Corporation	$	58	$	466

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of CVM and further reflects the effect of purchase accounting adjustments. The unaudited pro forma results are presented for informational purposes only and are not necessarily indicative of what actual results of operations would have been if the acquisition had occurred as the beginning of the period presented, nor are they indicative of future results of operations.

CVM management conducts related party activities with Practice Clinicas Veterinarias Moviles, S.L. ("CVM Practice"), which is owned by CVM's management. CVM leases two warehouses from CVM Practice and is the debtor of two loans with CVM Practice. CVM Practice charged CVM $23 thousand and $0 during the nine months ended September 30, 2020 and 2019, respectively, all of which is related to lease payments. The right-of-use asset and lease liability amounts related to the warehouse leases were approximately $169 thousand and $0 as of September 30, 2020 and December 31, 2019, respectively. All accrued interest is due upon termination of the loans with CVM Practice and as such, the amount due includes principal and interest. The Company had payables to CVM Practice of approximately $1.2 million and $0 as of September 30, 2020 and December 31, 2019, respectively, which is included in "Related party loan" on the Company's Condensed Consolidated Balance Sheet. The change from December 31, 2019 to September 30, 2020 is due

Cuattro, LLC ("Cuattro"), which is owned by Kevin S. Wilson, the CEO and President of the Company, in addition to Mrs. Wilson and trusts for the benefit of Mr. and Mrs. Wilson's children and family, charged Heska Imaging $0 and $6 thousand during the nine months ended September 30, 2020 and 2019, respectively. The 2019 charges primarily related to digital imaging products, pursuant to an underlying supply contract that contains minimum purchase obligations, software and services as well as other operating expenses. Pursuant to the December 21, 2018 transaction in which the Company acquired certain assets from Cuattro, Cuattro was obligated, without further compensation, to assist the Company with the implementation of a third-party image hosting platform and necessary data migration. The implementation and migration were completed, on schedule, as of September 30, 2020 and as such there will be no further related party activities with Cuattro.