| [ X ] |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
|
For the quarterly period ended March 31, 2005 |
OR | |
|
[ ] |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________________ to _______________________
Delaware |
77-0192527 |
|---|---|
| (State or other jurisdiction of | (I.R.S. Employer |
| incorporation or organization) | Identification Number) |
| 1613 Prospect Parkway | |
| Fort Collins, Colorado | 80525 |
| (Address of principal executive offices) | (Zip Code) |
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
Yes [ X ] No [
]
Indicate by check mark whether the registrant
is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [ X
]
The number of shares of the Registrant’s Common Stock, $.001 par value, outstanding at May 13, 2005 was 49,454,101
| Page | |||||
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| PART I. FINANCIAL INFORMATION | |||||
| Item 1. | Financial Statements: |
||||
Condensed Consolidated Balance Sheets (Unaudited) as of December 31, 2004 and March 31, 2005 |
2 | ||||
Condensed Consolidated Statements of Operations (Unaudited) for the three months ended March 31, 2004 and 2005 |
3 | ||||
Condensed Consolidated Statements of Cash Flows (Unaudited) for the three months ended March 31, 2004 and 2005 |
4 | ||||
Notes to Condensed Consolidated Financial Statements (Unaudited) |
5 | ||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
11 | |||
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
321 | |||
Item 4. |
Controls and Procedures |
33 | |||
PART II. OTHER INFORMATION |
|||||
Item 1. |
Legal Proceedings |
34 | |||
Item 2. |
Changes in Securities and Use of Proceeds |
34 | |||
Item 3. |
Defaults Upon Senior Securities |
34 | |||
Item 4. |
Submission of Matters to a Vote of Security Holders |
34 | |||
Item 5. |
Other Information |
34 | |||
Item 6. |
Exhibits |
34 | |||
Signatures |
35 | ||||
i-STAT is a registered trademark of i-STAT Corporation. SPOTCHEM is a trademark of Arkray, Inc. TRI-HEART is a registered trademark of Schering-Plough Animal Health Corporation in the United States. HESKA, ALLERCEPT, AVERT, E.R.D.-HEALTHSCREEN, E-SCREEN, IMMUCHECK, PERIOCEUTIC, SOLO STEP, VET/E-SIG AND VET/OX are registered trademarks and CBC-DIFF, ERD, FELINE ULTRANASAL, G2 DIGITAL, THYROMED and VET/IV are trademarks of Heska Corporation in the United States and/or other countries. This 10-Q also refers to trademarks and trade names of other organizations.
| ASSETS | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2004 |
March 31, 2005 |
|||||||||||||||||||||
| Current assets: | ||||||||||||||||||||||
| Cash and cash equivalents | $ | 4,982 | $ | 4,690 | ||||||||||||||||||
|
Accounts receivable, net of allowance for doubtful accounts of $95 and $106, respectively |
10,634 | 9,846 | ||||||||||||||||||||
| Inventories, net | 11,726 | 11,524 | ||||||||||||||||||||
| Other current assets | 1,100 | 917 | ||||||||||||||||||||
| Total current assets | 28,442 | 26,977 | ||||||||||||||||||||
| Property and equipment, net | 7,925 | 8,117 | ||||||||||||||||||||
| Intangible assets, net | 1,499 | 1,519 | ||||||||||||||||||||
| Goodwill | 643 | 643 | ||||||||||||||||||||
| Other assets | 215 | 216 | ||||||||||||||||||||
| Total assets | $ | 38,724 | $ | 37,472 | ||||||||||||||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current Liabilities: | ||||||||||||||||||||||
| Accounts payable | $ | 6,697 | $ | 7,384 | ||||||||||||||||||
| Accrued liabilities | 3,187 | 3,222 | ||||||||||||||||||||
| Current portion of deferred revenue | 2,708 | 2,309 | ||||||||||||||||||||
| Line of credit | 10,375 | 10,582 | ||||||||||||||||||||
| Current portion of long-term debt | 302 | 1,656 | ||||||||||||||||||||
| Total current liabilities | 23,269 | 25,153 | ||||||||||||||||||||
| Long-term debt, net of current portion | 1,466 | 25 | ||||||||||||||||||||
| Deferred revenue, net of current portion, and other | 11,410 | 10,975 | ||||||||||||||||||||
| Total liabilities | 36,145 | 36,153 | ||||||||||||||||||||
| Commitments and contingencies | ||||||||||||||||||||||
Stockholders’equity: |
||||||||||||||||||||||
| Preferred
stock, $.001 par value, 25,000,000 shares authorized; none issued or outstanding |
-- | -- | ||||||||||||||||||||
| Common stock,
$.001 par value, 75,000,000 shares authorized; 49,338,636 and 49,441,971 shares issued and outstanding, respectively |
49 | 49 | ||||||||||||||||||||
| Additional paid-in capital | 212,533 | 212,623 | ||||||||||||||||||||
| Deferred compensation | (67 | ) | (46 | ) | ||||||||||||||||||
| Accumulated other comprehensive income | 170 | 107 | ||||||||||||||||||||
| Accumulated deficit | (210,106 | ) | (211,414 | ) | ||||||||||||||||||
| Total stockholders’equity | 2,579 | 1,319 | ||||||||||||||||||||
| Total liabilities and stockholders’ equity | $ | 38,724 | $ | 37,472 | ||||||||||||||||||
See accompanying notes to condensed consolidated financial statements.
| Three Months
Ended March 31, | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2004 | 2005 | |||||||||||||
| Revenue, net: | ||||||||||||||
| Product revenue, net: | ||||||||||||||
| Core companion animal health | $ | 14,114 | $ | 12,856 | ||||||||||
| Other vaccines, pharmaceuticals and products | 2,305 | 3,980 | ||||||||||||
| Total product revenue, net | 16,419 | 16,836 | ||||||||||||
| Research, development and other | 322 | 318 | ||||||||||||
| Total revenue | 16,741 | 17,154 | ||||||||||||
Cost of revenue: |
||||||||||||||
| Cost of products sold | 10,461 | 11,057 | ||||||||||||
| Cost of research, development and other | 135 | 179 | ||||||||||||
| Total cost of revenue | 10,596 | 11,236 | ||||||||||||
| Gross profit | 6,145 | 5,918 | ||||||||||||
Operating expenses: |
||||||||||||||
| Selling and marketing | 4,448 | 3,799 | ||||||||||||
| Research and development | 1,713 | 1,227 | ||||||||||||
| General and administrative | 2,041 | 1,995 | ||||||||||||
| Total operating expenses | 8,202 | 7,021 | ||||||||||||
| Loss from operations | (2,057 | ) | (1,103 | ) | ||||||||||
| Interest and other (income) expense, net | (63 | ) | 205 | |||||||||||
| Net loss | $ | (1,994 | ) | $ | (1,308 | ) | ||||||||
Basic and diluted net loss per share |
$ | (0.04 | ) | $ | (0.03 | ) | ||||||||
Shares used to compute basic and diluted net loss per share |
48,905 | 49,375 | ||||||||||||
See accompanying notes to condensed consolidated financial statements.
| Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2004 | 2005 | |||||||
| CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (1,994 | ) | $ | (1,308 | ) | ||
Adjustments to reconcile net loss to cash provided by (used in) operating activities: |
||||||||
| Depreciation and amortization | 375 | 471 | ||||||
| Amortization of intangible assets | 32 | 40 | ||||||
| Stock based compensation | 25 | 21 | ||||||
| Provision for (recovery of) bad debt | (5 | ) | 12 | |||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | 557 | 790 | ||||||
| Inventories | (116 | ) | 216 | |||||
| Other current assets | (189 | ) | 183 | |||||
| Other long-term assets | 12 | -- | ||||||
| Accounts payable | (370 | ) | 696 | |||||
| Accrued liabilities | 290 | 35 | ||||||
| Deferred revenue and other long-term liabilities | (311 | ) | (834 | ) | ||||
| Other | (1 | ) | 2 | |||||
| Net cash (used in) provided by operating activities | (1,695 | ) | 324 | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Proceeds from licensing of technology and product rights | 400 | -- | ||||||
| Purchase of property and equipment | (442 | ) | (666 | ) | ||||
| Capitalized patent costs | (135 | ) | (60 | ) | ||||
| Net cash provided by (used in) investing activities | (177 | ) | (726 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from issuance of common stock | 129 | 90 | ||||||
| Proceeds from line of credit borrowings, net | 2,205 | 207 | ||||||
| Repayments of debt and capital lease obligations | (134 | ) | (87 | ) | ||||
| Net cash provided by financing activities | 2,200 | 210 | ||||||
| EFFECT OF EXCHANGE RATE CHANGES ON CASH | (47 | ) | (100 | ) | ||||
| INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 281 | (292 | ) | |||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD | 4,877 | 4,982 | ||||||
| CASH AND CASH EQUIVALENTS, END OF PERIOD | $ | 5,158 | $ | 4,690 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for interest | $ | 125 | $ | 212 | ||||
See accompanying notes to condensed consolidated financial statements.
Heska Corporation (“Heska” or the “Company”) discovers, develops, manufactures, markets, sells, distributes and supports veterinary products. Heska’s core focus is on the canine and feline companion animal health markets. The Company has devoted substantial resources to the research and development of innovative products in these areas, where it strives to provide high value products for unmet needs in veterinary medicine.
Heska is comprised of two reportable segments, Core Companion Animal Health and Other Vaccines, Pharmaceuticals and Products. The Core Companion Animal Health segment includes diagnostic and monitoring instruments and supplies as well as single use diagnostic and other tests, vaccines and pharmaceuticals, primarily for canine and feline use. These products are sold directly by the Company as well as through independent third party distributors and other distribution relationships. The Other Vaccines, Pharmaceuticals and Products segment (“OVP”), previously reported as the Diamond Animal Health segment, includes private label vaccine and pharmaceutical production, primarily for cattle but also for other animals including small mammals, horses and fish. All OVP products are currently sold by third parties under third party labels.
The Company has incurred annual net losses since its inception and anticipates that it will continue to incur net losses in the near term as it introduces new products, expands its sales and marketing capabilities and continues its research and development activities. Cumulative net losses from inception of the Company in 1988 through March 31, 2005, have totaled $211.4 million. During the three months ended March 31, 2005, the Company incurred a loss of approximately $1.3 million and operations provided cash of approximately $324,000.
The Company’s primary short-term needs for capital are based on its continuing research and development efforts, its sales, marketing and administrative activities, working capital associated with increased product sales and capital expenditures relating to maintaining and developing its manufacturing operations. The Company’s ability to achieve sustained profitable operations will depend primarily upon its ability to successfully market its products, commercialize products that are currently under development and develop new products. Many of the Company’s products are subject to long development and regulatory approval cycles and there can be no guarantee that the Company will successfully develop, manufacture or market these products. There also can be no guarantee that the Company will attain quarterly, annual, or sustained profitability in the future.
The Company has a credit facility agreement with Wells Fargo Business Credit, Inc. (“Wells Fargo”) which expires on May 31, 2006. Under this agreement, the Company is required to comply with various financial and non-financial covenants in order to borrow. On May 10, 2005 the Company signed an amended agreement under which Wells Fargo waived certain historical events of non-compliance, including with a covenant on March 31, 2005. If the Company fails to comply with the covenants, Wells Fargo may, at its discretion, make all amounts due to them, immediately due and payable. The Company’s latest projections indicate that it is not probable that it will remain in compliance with all of its debt covenants through the next 12 months. The Company has begun discussions with Wells Fargo, discussed below, including regarding modification of the covenants under this agreement. There can be no guarantee that Wells Fargo will, as it has historically, modify the Company’s covenants. As a result, all debt obligations, including those to Wells Fargo and others that are cross- collateralized with Wells Fargo, totaling approximately $1.7 million have been reflected as current portion on long-term debt in the March 31, 2005 balance sheet. The Company has begun discussions with Wells Fargo and other lenders regarding an amended or new credit facility agreement which would involve increased borrowings against certain of the Company’s assets.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are the responsibility of the Company’s management and have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and pursuant to the instructions to Form 10-Q and rules and regulations of the Securities and Exchange Commission (the “SEC”). The condensed consolidated balance sheet as of December 31, 2004 and March 31, 2005, and the condensed consolidated statements of operations and cash flows for the three months ended March 31, 2004 and 2005 are unaudited, but include, in the opinion of management, all adjustments (consisting of normal recurring adjustments) which the Company considers necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented. All material intercompany transactions and balances have been eliminated in consolidation. Although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading, certain information and footnote disclosures normally included in complete financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the SEC.
Results for any interim period are not necessarily indicative of results for any future interim period or for the entire year. The accompanying financial statements and related disclosures have bee