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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Heska Corporation    HSKA

HESKA CORPORATION

(HSKA)
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HESKA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

05/08/2020 | 12:26pm EST
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with the unaudited Condensed
Consolidated Financial Statements and related Notes included in Part I Item 1 of
this Form 10-Q.
This discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Rule 175 promulgated
thereunder, that involve risks and uncertainties, and can generally be
identified by our use of the words "scheduled," "anticipates," "expects,"
"intends," "plans," "believes," "seeks," "estimates," and variations of such
words and similar expressions. Such statements, which include statements
concerning future revenue sources and concentration, international market
expansion, gross profit margins, selling and marketing expenses, remaining
minimum performance obligations, research and development expenses, general and
administrative expenses, capital resources, financings or borrowings and
additional losses, are subject to risks and uncertainties, including, but not
limited to, those discussed under the caption "Risk Factors" contained in Part
II, Item 1A, of this Quarterly Report on Form 10-Q and in Part I, Item 1A of our
Annual Report on Form 10-K that could cause actual results to differ materially
from those projected. The Risk Factors and others described in the Company's
periodic and current reports filed with the SEC from time to time are not
necessarily all of the important factors that could cause the Company's actual
results to differ materially from those projected. The forward-looking
statements set forth in this Form 10-Q are as of the close of business on May 7,
2020 and we undertake no duty and do not intend to update this information,
except as required by applicable laws. If we updated one or more forward looking
statements, no inference should be drawn that we will make additional updates
with respect to those or other forward-looking statements. All forward-looking
statements attributable to us or persons acting on our behalf are expressly
qualified in their entirety by the cautionary statements set forth above.
Overview
We sell advanced veterinary diagnostic and specialty products. Our offerings
include Point of Care laboratory instruments and consumables, Point of Care
digital imaging diagnostic products; vaccines; local and cloud-based data
services; allergy testing and immunotherapy; and single-use offerings such as
in-clinic diagnostic tests and heartworm preventive products. Our core focus is
on supporting veterinarians in the canine and feline healthcare space.
Our business is composed of two reportable segments, Core companion animal
("CCA") and Other vaccines and pharmaceuticals ("OVP"). The CCA segment
includes, primarily for canine and feline use, Point of Care laboratory
instruments and consumables; digital imaging diagnostic instruments, software
and services; local and cloud-based data services; allergy testing and
immunotherapy; and single use offerings such as in-clinic diagnostic tests and
heartworm preventive products. The OVP segment includes private label vaccine
and pharmaceutical production, primarily for cattle but also for other species
including equine, porcine, avian, feline and canine. OVP products are sold by
third parties under third party labels. As a result of the acquisition of scil,
we  began the process of assessing and modifying our operating structure as we
previously operated predominantly in the U.S. The evaluation and transformation
is underway and we currently expect to conclude this asssement and potentially
revise our segments in 2020 as a result of the modified operating structure.
The CCA segment represented approximately 89.1% of our revenue for the three
months ended March 31, 2020, and the OVP segment represented approximately 10.9%
of our revenue for the three months ended March 31, 2020.

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CCA Segment
Revenue from Point of Care laboratory including instruments, consumables and
other revenue such as service represented 62.6% of CCA revenue for the three
months ended March 31, 2020. Revenue in this area primarily involves placing an
instrument under contract in the field and generating future revenue from
testing consumables, such as cartridges and reagents, as that instrument is
used. Approximately $14.2 million and $12.3 million of our revenue for the three
months ended March 31, 2020 and 2019, respectively, resulted from the sale of
such testing consumables to an installed base of instruments. Approximately $2.4
million and $3.3 million of our revenue for the three months ended March 31,
2020 and 2019, respectively, was from instrument sales, including revenue
recognized from sales-type lease treatment. Included in instrument sales are
sales of infusion pumps, which are sold outright through distribution. Sales of
infusion pumps were $0.6 million and $0.8 million for the three months ended
March 31, 2020 and 2019, respectively. Approximately $0.4 million and $0.4
million of our revenue for the three months ended March 31, 2020 and 2019,
respectively, was from other revenue sources, such as charges for repairs.
Instruments placed under subscription agreements are considered operating or
sales-type leases, depending on the duration and other factors of the underlying
agreement. A loss of, or disruption in, the supply of consumables we are selling
to an installed base of instruments could substantially harm our business. All
of our Point of Care laboratory and other non-imaging instruments and
consumables are supplied by third parties, who typically own the product rights
and supply the product to us under marketing and/or distribution agreements. In
many cases, we have collaborated with a third party to adapt a human instrument
for veterinary use. Major products in this area include our instruments for
chemistry, hematology, blood gas and immunodiagnostic testing and their
affiliated operating consumable.
Point of Care digital imaging hardware, software and services represented 17.8%
of CCA revenue for the three months ended March 31, 2020. Digital radiography is
the largest product offering in this area, which also includes ultrasound
instruments. Digital radiography solutions typically consist of a combination of
hardware and software placed with a customer, often combined with an ongoing
service and support contract. We sell our imaging solutions both in the U.S. and
internationally. Our experience has been that most of the revenue is generated
at the time of sale in this area, in contrast to the Point of Care diagnostic
laboratory placements discussed above where ongoing consumable revenue is often
a larger component of economic value as a given instrument is used.
Other CCA revenue, including single use diagnostic and other tests,
pharmaceuticals and biologicals as well as research and development, licensing
and royalty revenue, represented 19.6% of CCA revenue for the three months ended
March 31, 2020. Since items in this area are often single use by their nature,
our typical aim is to build customer satisfaction and loyalty for each product,
generate repeat annual sales from existing customers and expand our customer
base in the future. Products in this area are both supplied by third parties and
provided by us. Major products and services in this area include heartworm
diagnostic tests and preventives, and allergy test kits, allergy immunotherapy
and testing. Of our annual revenue, heartworm produced primarily for
private-label accounted for approximately $2.2 million for the three months
ended March 31, 2020. The increase in Other CCA revenue in 2020 was driven
primarily by a $1.9 million increase from contract manufactured heartworm
preventative, Tri-Heart, which had reduced customer demand in 2019.
We consider the CCA segment to be our core business and devote most of our
management time and other resources to improving the prospects for this segment.
Maintaining a continuing, reliable and economic supply of products we currently
obtain from third parties is critical to our success in this area. Virtually all
of our sales and marketing expenses occur in the CCA segment. The majority of
our research and development spending is dedicated to this segment as well.
All of our CCA products are ultimately sold primarily to or through
veterinarians. In many cases, veterinarians will mark up their costs to their
customer. The acceptance of our products by veterinarians is

                                      -33-

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critical to our success. CCA products are sold directly to end users by us as
well as through distribution relationships, such as the sale of kits to conduct
blood testing to third-party veterinary diagnostic laboratories and sales to
independent third-party distributors. Revenue from direct sales and distribution
relationships represented approximately 75% and 25%, respectively, of CCA
revenue for the three months ended March 31, 2020.
OVP Segment
The OVP segment includes our approximately 160,000 square foot USDA, FDA and EPA
licensed production facility in Des Moines, Iowa. We view this facility as an
asset which could allow us to control our cost of goods on any pharmaceuticals
and vaccines that we may commercialize in the future. We have increased
integration of this facility with our operations elsewhere. For example,
virtually all of our U.S. inventory, excluding our imaging products, is now
stored at this facility and related fulfillment logistics are managed there. CCA
segment products manufactured at this facility are transferred at cost and are
not recorded as revenue for our OVP segment.
Historically, a significant portion of our OVP segment's revenue has been
generated from the sale of certain bovine vaccines, which have been sold
primarily under the Titanium® and MasterGuard® brands. We have an agreement with
Elanco for the production of these vaccines (the "Elanco Agreement"). Our OVP
segment also produces vaccines and pharmaceuticals for other third parties.
Impact of COVID-19 Pandemic and Current Economic Environment

In the latter half of the quarter, we experienced modest impact on our business resulting from government restrictions on the movement of people, goods, and services in connection with the COVID-19 pandemic. Fortunately, those we serve, veterinarians and herd animal health experts, are deemed essential services in areas of government mandated restrictions. To service them safely and efficiently, Heska teams quickly adjusted to a targeted, remote workforce posture and put the care and health of people and our brand first. Heska has not laid off or furloughed employees nor reduced the salaries. Because of social distancing measures, on-site installations of POC Lab and Imaging equipment will experience intermittent delays. While not significant to the overall results of the first quarter, on-site installations of equipment were impacted in March. We anticipate the impact to on-site installations and capital equipment expenditures to continue for at least the remainder of 2020.

Our financial position remains strong. On April 1, 2020, we closed our acquisition of scil animal care company; the transaction was fully financed by a preferred stock offering. We have sufficient liquidity to sustain our operations and do not anticipate a need to access additional capital outside of the various programs available to our overseas subsidiaries.

While we have experienced some intermittent delays in receiving supply, our supply chain has not been significantly impacted and we do not expect that to materially change over the remaining months of 2020. Our major research and development projects are continuing to progress substantially as planned but we have experienced sporadic delays in receiving validation samples and device components as well as inefficiencies in remote collaboration and field-testing. We anticipate these delays to result in slippage of 90 to 120 days in our new products' commercial roll-out schedules.

We do not know how long COVID-19 related challenges will continue. The ultimate impact on our business will depend on many factors substantially beyond our control and difficult to predict. In the near-term and with asynchronous variation across geographies, we anticipate veterinary hospitals will temporarily: (1) realize lower average diagnostics use as a result of deferred and elective patient visits, and (2) delay capital equipment investments as a result of heightened conservatism and the effects of social distancing on in-clinic


                                      -34-

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demonstrations and installations. Despite these headwinds, we believe we are
well positioned because: (1) our customers and products are essential, (2) our
main Point of Care laboratory business continues to show healthy consumables use
and margin, (3) our subscriptions model metrics continue to show solid
performance, (4) our vaccines and pharmaceuticals business continues to perform
with minimal disruption, (5) our balance sheet is strong, and (6) our employees,
logistics, supply chain, and operations continue to operate well in the current
environment and they are fully prepared for both a phased return and an instant
return to full capacity.
Results of Operations
Our analysis presented below is organized to provide the information we believe
will facilitate an understanding of our historical performance and relevant
trends going forward.
The following tables set forth, for the periods indicated, certain data derived
from our unaudited Condensed Consolidated Statements of Income (in thousands):
                                                                 Three Months Ended March 31,
                                                                    2020               2019
Revenue                                                       $      30,654$      29,511
Gross profit                                                         13,448              12,543
Operating expenses                                                   18,066              12,618
Operating loss                                                       (4,618 )               (75 )
Interest and other expense (income), net                              2,199                 (16 )
Loss before income taxes and equity in losses of
unconsolidated affiliates                                            (6,817 )               (59 )
Income tax benefit                                                   (1,508 )            (1,010 )

Net (loss) income before equity in losses of unconsolidated affiliates

                                                           (5,309 )               951
Equity in losses of unconsolidated affiliates                          (130 )              (181 )

Net (loss) income after equity in losses of unconsolidated affiliates

                                                           (5,439 )               770
Net loss attributable to redeemable non-controlling interest           (151 )               (44 )
Net (loss) income attributable to Heska Corporation           $      (5,288 )     $         814












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The following tables set forth, for the periods indicated, segment data derived from our Consolidated Statements of Income (in thousands):

CCA Segment

                             Three Months Ended March 31,                  Change
                                2020               2019          Dollar Change     % Change
Point of Care laboratory: $      17,096$      15,961$       1,135         7.1  %
   Consumables                   14,248              12,317             1,931        15.7  %
   Instruments                    2,449               3,270              (821 )     (25.1 )%
   Other                            399                 374                25         6.7  %
Point of Care imaging             4,855               5,410              (555 )     (10.3 )%
Other CCA revenue                 5,355               3,345             2,010        60.1  %
Total CCA revenue         $      27,306$      24,716$       2,590        10.5  %
Percent of total revenue           89.1 %              83.8 %
Cost of revenue                  13,937              12,622             1,315        10.4  %
Gross profit                     13,369              12,094             1,275        10.5  %
Operating loss            $      (4,180 )     $         (51 )   $      (4,129 )   8,096.1  %



OVP Segment
                            Three Months Ended March 31,               Change
                                                                 Dollar         %
                               2020               2019           Change       Change
Revenue                  $       3,348$       4,795$ (1,447 )     (30.2 )%
Percent of total revenue          10.9 %              16.2 %
Cost of revenue                  3,269               4,346       (1,077 )     (24.8 )%
Gross profit                        79                 449         (370 )     (82.4 )%
Operating loss           $        (438 )     $         (24 )   $   (414 )   1,725.0  %


Revenue

Total revenue increased 3.9% to $30.7 million in the three months ended March 31, 2020, compared to $29.5 million in the three months ended March 31, 2019. CCA segment revenue increased 10.5% to $27.3 million in the three months ended March 31, 2020, compared to $24.7 million in the three months ended March 31, 2019. The $2.6 million increase was driven by a 15.7% increase in POC Lab Consumables and a $1.9 million increase in PVD related to the contract manufactured heartworm preventive, Tri-Heart®, which had reduced channel demand in 2019. These increases were partially offset by a 22.3% decrease in capital lease placements and outright sales of Point of Care Lab Instruments and a 10.3% decrease in from Point of Care Imaging. OVP segment revenue decreased 30.2% to $3.3 million in the three months ended March 31, 2020, compared to $4.8 million in the three months ended March 31, 2019. The decrease was driven primarily by reduced customer requirements in the comparable prior year period.


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Gross Profit
Gross profit increased 7.2% to $13.4 million in the three months ended March 31,
2020, compared to $12.5 million in the three months ended March 31, 2019. Gross
margin increased to 43.9% in the three months ended March 31, 2020 compared to
42.5% in the three months ended March 31, 2019. The increase in both gross
profit and gross margin percentage was driven primarily by favorable product mix
related to increased revenue from consumable sales.
Operating Expenses
Selling and marketing expenses increased 4.9% to $7.4 million in the three
months ended March 31, 2020, compared to $7.0 million in the three months ended
March 31, 2019. Beginning in 2019, we began to increase compensation, including
stock-based compensation, benefits, and commissions expense, mostly related to
our commercial team expansion both domestically and internationally. The
increase is in line with management expectations as we continue to invest in
future growth and expanding the footprint of the Company.
Research and development expenses increased 55.8% to $2.1 million in the three
months ended March 31, 2020, compared to $1.4 million in the three months ended
March 31, 2019. The increase was primarily driven by spending on product
development for urine and fecal diagnostic analyzer and enhanced
immunodiagnostic offerings. As we invest in future growth of the Company, the
increased research and development expense is consistent with the spending
initiatives of management.
General and administrative expenses increased 102.8% to $8.6 million in the
three months ended March 31, 2020, compared to $4.2 million in the three months
ended March 31, 2019. The increase was primarily driven by $2.7 million one-time
costs related to the acquisition of scil Animal Care Company and $1.2 million in
restructuring costs. The remaining variance is related to the impact of
international acquisitions compared to prior year.
Interest and Other Expense (Income), net
Interest and other expense (income), net, was $2.2 million in the three months
ended March 31, 2020, compared to $(16) thousand in the three months ended March
31, 2019. The increase in interest and other expense was primarily driven by
interest expense as a result of the Notes.
Income Tax (Benefit) Expense
In the three months ended March 31, 2020, we had a total income tax benefit of
$1.5 million, including $1.5 million of domestic deferred income tax benefit and
$25 thousand current income tax expense. In the three months ended March 31,
2019, we had a total income tax benefit of $1.0 million, including $1.1 million
of domestic deferred income tax benefit and $45 thousand of current income tax
expense. The increase in tax benefits is due to the higher financial loss. The
Company recognized $0.3 million in excess tax benefits related to employee
share-based compensation for the three months ended March 31, 2020 compared to
$1.1 million recognized for the three months ended March 31, 2019.

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Net (Loss) Income Attributable to Heska Corporation Net loss attributable to Heska was $5.3 million for the three months ended March 31, 2020, compared to net income attributable to Heska of $0.8 million in the prior year period. The difference between this line item and "Net income after equity in losses of unconsolidated affiliates" is the net income or loss attributable to our minority interest in our French subsidiary, which we purchased in February 2019. Net income is lower in the three months ended March 31, 2020 as compared to the three months ended March 31, 2019 due to increases in operating expenses, mostly associated to one-time acquisition and restructuring costs, as discussed above, as well as interest and amortization charges relating to the Notes.

Non-GAAP Financial Measures


In addition to financial measures presented on the basis of accounting
principles generally accepted in the U.S. ("U.S. GAAP"), we also present first
quarter 2020 net income attributable to Heska, earnings per diluted share,
Adjusted EBITDA, Adjusted EBITDA margin, and the effective tax rate, excluding
acquisition and other one-time charges, which are non-GAAP measures. We also
present first quarter 2019 net income attributable to Heska, earnings per
diluted share, Adjusted EBITDA, Adjusted EBITDA margin, and the effective tax
rate, which are non-GAAP measures.
These measures should be viewed as a supplement to (not substitute for) our
results of operations presented under U.S. GAAP. The non-GAAP financial measures
presented may not be comparable to similarly titled measures of other companies
because they may not calculate their measures in the same manner. Our management
has included these measures to assist in comparing performance from period to
period on a consistent basis.
The following tables reconcile our adjusted non-GAAP financial measures to our
most directly comparable as-reported financial measures calculated in accordance
with GAAP (in thousands, except per share amounts):
                                                       Three Months Ended
                                                           March 31,
                                                        2020         2019

Net (loss) income attributable to Heska Corporation$ (5,288 )$ 814 Income tax benefit

                                      (1,508 )    (1,010 )
Interest expense (income)                                2,113         (15 )
Depreciation and amortization                            1,374       1,265
EBITDA                                              $   (3,309 )$ 1,054
Acquisition-related and other one-time costs(1)          3,874           -
Stock-based compensation                                   353       1,186
Adjusted EBITDA                                     $      918$ 2,240
Adjusted EBITDA margin(2)                                  3.0 %       7.6 %


(1) To exclude the effect of one-time charges of $3.9 million in the first quarter 2020 incurred primarily as part of the acquisition of scil animal care company GmbH.

(2)Adjusted EBITDA margin is calculated as the ratio of adjusted EBITDA to revenue.



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                                                                  Three Months Ended
                                                                       March 31,
                                                                  2020           2019

GAAP net (loss) income attributable to Heska per diluted share

                                                         $    (0.70 )$    0.10
Acquisition-related and other one-time costs(1)                     0.51              -
Amortization of acquired intangibles(2)                             0.02              -
Amortization of debt discount and issuance costs                    0.20              -
Stock-based compensation                                            0.05           0.15
Gain (loss) on equity investee transactions                         0.02           0.02

Estimated income tax effect of above non-GAAP adjustments(3) (0.20 ) (0.04 ) Discrete tax benefits associated with stock-based compensation activity

                                              (0.04 )        (0.14 )
Non-GAAP net (loss) income per diluted share                  $    (0.14 )$    0.09

Shares used in diluted per share calculations                      7,568          7,965



(1) To exclude the effect of one-time charges of $3.9 million in the first quarter 2020 incurred primarily as part of the acquisition of scil animal care company GmbH.

(2) To exclude the effect of amortization of intangibles of $0.1 million in the first quarter 2020 incurred as part of the acquisitions of Optomed and CVM.


(3) Represents income tax expense utilizing an estimated effective tax rate that
adjusts for non-GAAP measures including: acquisition-related and other one-time
costs, restructuring costs, amortization of debt discount and issuance costs,
and stock-based compensation. Adjusted effective tax rates are 25% for the first
quarter 2020 and 24% for the first quarter 2019.
Impact of Inflation
In recent years, inflation has not had a significant impact on our operations.

Liquidity, Capital Resources and Financial Condition We believe that adequate liquidity and cash generation is important to the execution of our strategic initiatives. Our ability to fund our operations, acquisitions, capital expenditures, and product development efforts may depend on our ability to access other forms of capital as well as our ability to generate cash from operating activities, which is subject to future operating performance, as well as general economic, financial, competitive, legislative, regulatory, and other conditions, some of which may be beyond our control, including but not limited to effects of the COVID-19 pandemic. Our primary source of liquidity is our available cash, including $70.9 million remaining from the issuance and sale of the Notes, after deducting the initial purchasers' discounts, debt issuance costs paid or payable by us, and the repayment in full of our Credit Facility, as described in Note 16 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. Additionally, we announced our intention to acquire scil and finance the transaction through a private placement of convertible preferred equity for which we raised $122 million, while we transferred approximately $110 million in purchase price, netting a remaining $12 million of liquidity. Refer to Note 18. Subsequent Events.

For the three months ended March 31, 2020, we had net loss attributable to Heska Corporation of $5.3 million and net cash used by operations of $4.8 million. At March 31, 2020, we had $191.2 million of cash and cash equivalents ($80.2 million after the April 1, 2020 payment of consideration for the scil acquisition) and working capital of $223.8 million.


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A summary of our cash from operating, investing and financing activities is as
follows (in thousands):
                                              Three Months Ended
                                                  March 31,                     Change
                                                                         Dollar           %
                                              2020          2019         Change        Change
Net cash (used in) provided by operating
activities                                $   (4,761 )$     727$  (5,488 )     (754.9 )%

Net cash used in investing activities (14,630 ) (458 ) (14,172 ) 3,094.3 % Net cash provided by (used in) financing activities

                                   121,630        (4,556 )     126,186     (2,769.7 )%
Foreign exchange effect on cash, cash
equivalents and restricted cash                  (24 )          (1 )         (23 )    2,300.0  %
Increase (decrease) in cash, cash            102,215        (4,288 )     106,503     (2,483.7 )%
equivalents and restricted cash
Cash, cash equivalents and restricted         89,030        13,389        75,641        564.9  %
cash, beginning of the period
Cash, cash equivalents and restricted     $  191,245$   9,101$ 182,144      2,001.4  %
cash, end of the period


Net cash used in operating activities was $4.8 million in the three months ended
March 31, 2020, compared to net cash provided by operating activities of $0.7
million in the three months ended March 31, 2019, a decrease of approximately
$5.5 million. The decrease in cash from operating activities is primarily due to
the $6.2 million decrease in net income for the three months ended March 31,
2020 compared to the three months ended March 31, 2019. This was partially
offset by $0.4 million increase related to changes in operating assets and
liabilities due to the timing of collections and payments in the ordinary course
of business. Non-cash transactions impacting cash used by operating activities
included a $1.5 million increase related to amortization of debt discount;
partially offset by a $0.8 million decrease related to lower stock-based
compensation expense due to share forfeiture, and $0.5 million higher deferred
tax benefits in the current quarter.
Net cash used in investing activities was $14.6 million in the three months
ended March 31, 2020, compared to net cash used in investing activities of $0.5
million in the three months ended March 31, 2019, an increase of approximately
$14.2 million. The increase in cash used for investing activities was driven by
$14.4 million payment of consideration for the December 2019 acquisition of CVM.
Net cash provided by financing activities was $121.6 million in the three months
ended March 31, 2020, compared to net cash used in financing activities of $4.6
million in the three months ended March 31, 2019, an increase of approximately
$126.2 million. The change was driven primarily by an $122.0 million increase in
proceeds from preferred stock in anticipation of the acquisition of scil Animal
Care Company. In addition, there was approximately $2.9 million increase in cash
related to lower repurchases of common stock and $1.5 million in lower
repayments of other debt in the current period.
We believe that our cash, cash equivalents and marketable securities balances,
as well as the cash flows generated by our operations, will be sufficient to
satisfy our anticipated cash needs for working capital and capital expenditures,
including selling and marketing team expansion and product development
initiatives, for at least the next 12 months. Our belief may prove to be
incorrect, however, and we could utilize our available financial resources
sooner than we currently expect. For example, we are actively seeking
acquisitions that are consistent with our strategic direction, which may require
additional capital. Our future capital requirements and the adequacy of
available funds will depend on many factors, including those set forth in Part
II, Item 1A, "Risk Factors", of this Form 10-Q and in Part I, Item 1A, "Risk
Factors" in our Annual Report on Form 10-K for the year ended December 31, 2019.
We may be required to seek additional equity or debt financing in order to meet
these future capital requirements, even in the absence of any acquisitions. In
the event that additional financing is required from outside sources, we may not
be able to raise it on terms acceptable to us, or at all. If we are unable to
raise additional capital when desired, our business, results of operations and
financial condition would be adversely affected.

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Effect of currency translation on cash
Net effect of foreign currency translations on cash changed $23 thousand to a
$24 thousand negative impact in the three months ended March 31, 2020, compared
to a $1 thousand negative impact in the three months ended March 31, 2019. These
effects are related to changes in exchange rates between the U.S. Dollar and the
Swiss Franc, Euro, and Australian Dollar, which are the functional currencies of
our subsidiaries.
Off-Balance Sheet Arrangements and Contractual Obligations
We have no off balance sheet arrangements or variable interest entities.
Purchase Obligations
Purchase obligations represent contractual agreements to purchase goods or
services that are legally binding; specify a fixed, minimum or range of
quantities; specify a fixed, minimum, variable, or indexed price provision; and
specify approximate timing of the transaction. As of March 31, 2020, the Company
had purchase obligations for inventory of $12.2 million.
Critical Accounting Policies and Estimates
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, 2019 and other than the recently adopted accounting
pronouncements described in Note 1. Operations and Summary of Significant
Accounting Policies in our Condensed Consolidated Financial Statements included
in Item 1 of this Form 10­Q, have not changed significantly since such filing.

© Edgar Online, source Glimpses

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