HESKA CORP (Form: 10-Q, Received: 08/08/2016 17:33:29)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2016



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _______________________

Commission file number: 0-22427

HESKA CORPORATION

(Exact name of registrant as specified in its charter)



Delaware	77-0192527
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
3760 Rocky Mountain Avenue Loveland, Colorado	80538
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code: (970) 493-7272

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer o	Accelerated filer x
Non-accelerated filer o (Do not check if a small reporting company)	Smaller Reporting Company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No x

6,875,256 shares of the Registrant's Public Common Stock, $.01 par value, were outstanding at August 5, 2016.

TABLE OF CONTENTS



			Page
PART I - FINANCIAL INFORMATION
	Item 1.	Unaudited Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets	-2
		Condensed Consolidated Statements of Operations	-3
		Condensed Consolidated Statements of Comprehensive Income	-4
		Condensed Consolidated Statements of Cash Flows	-5
		Notes to Condensed Consolidated Financial Statements	-6
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations.	-20
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	-29
	Item 4.	Controls and Procedures	-30
PART II - OTHER INFORMATION
	Item 1.	Legal Proceedings	-30
	Item 1A.	Risk Factors	-30
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	-46
	Item 3.	Defaults Upon Senior Securities	-46
	Item 4.	Mine Safety Disclosures	-46
	Item 5.	Other Information	-46
	Item 6.	Exhibits	-47
	Signatures		-48
	Exhibit Index		-49

HESKA, ALLERCEPT, HEMATRUE, SOLO STEP, THYROMED, VET/OX and VITALPATH are registered trademarks of Heska Corporation. TRI-HEART is a registered trademark of Intervet Inc., d/b/a Merck Animal Health, formerly known as Schering-Plough Animal Health Corporation ("Merck Animal Health"), which is a unit of Merck & Co., Inc., in the United States and is a registered trademark of Heska Corporation in other countries. DRI-CHEM is a registered trademark of FUJIFILM Corporation. This quarterly report on Form 10-Q also refers to trademarks and trade names of other organizations.

- -1 -

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except shares and per share amounts)



	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

See accompanying notes to condensed consolidated financial statements.

- -2 -

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(unaudited)



	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

See accompanying notes to condensed consolidated financial statements.

- -3 -

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)



	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

See accompanying notes to condensed consolidated financial statements.

- -4 -

HESKA CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)



	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

See accompanying notes to condensed consolidated financial statements.

- -5 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. 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

- -6 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.

2. 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.

- -7 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

The following summarizes the aggregate consideration paid by the Company and the allocation of the purchase price (in thousands):



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

Intangible assets acquired, amortization method and estimated useful lives as of May 31, 2016 was as follows (dollars in thousands):



	Useful Life	Amortization Method	Fair Value
Customer relationships	6.67	Straight-line	$2,521

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,

- -8 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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):



Beginning December 31, 2015	$	15,747
Accretion of Put Value	119
Balance June 30, 2016	$	15,866

- -9 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

3. INCOME TAXES

Our total income tax expense and the effective tax rate for our income before income taxes are as follows (in thousands):



	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		%

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.

4. 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):

- -10 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



	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

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):



	Three Months Ended June 30,		Six Months Ended June 30,
	2015	2016	2015	2016
Stock options	27	138	28	138

5. GOODWILL AND OTHER INTANGIBLES

The following summarizes the changes in goodwill during the six months ended June 30, 2016 (in thousands):



	June 30,
	2016
Carrying amount, beginning of period	$	20,910
Additions and adjustments	5,798
Carrying amount, end of period	$	26,708

Other intangibles consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):



	December 31,			June 30,
	2015			2016
Gross carrying amount	$	788		$	3,309
Accumulated amortization	(732		)	(769		)
Net carrying amount	$	56		$	2,540

Amortization expense relating to other intangibles is as follows (in thousands):



	Three Months Ended June 30,				Six Months Ended June 30,
	2015		2016		2015		2016
Amortization expense	$	65	$	34	$	130	$	37

- -11 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Estimated amortization expense related to intangibles for each of the five years from 2016 (remaining) through 2020 and thereafter is as follows (in thousands):



Year Ending December 31,
2016 (remaining)	$	194
2017	388
2018	388
2019	388
2020	356
Thereafter	826
	$	2,540

6. PROPERTY AND EQUIPMENT

Detail of property and equipment is as follows (in thousands):



	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

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.

- -12 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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 .

7. 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):



	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

8. ACCRUED LIABILITIES

Accrued liabilities consisted of the following as of December 31, 2015 and June 30, 2016 (in thousands):



	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

Other accrued liabilities consists of items that are individually less than 5% of total current liabilities.

- -13 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

9. 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 .



	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%

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:



	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

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.

- -14 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



	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

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:



	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%

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

- -15 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

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.

10. ACCUMULATED OTHER COMPREHENSIVE INCOME

Accumulated other comprehensive income consisted of the following (in thousands):



	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

- -16 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

11. 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 .

12. INTEREST AND OTHER EXPENSE (INCOME)

Interest and other expense (income) consisted of the following (in thousands):



	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	)

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.

- -17 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

13. 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 .

14. 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):



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

- -18 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)



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

Revenue is attributed to individual countries based on customer location. Total revenue by principal geographic area was as follows (in thousands):



	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

Asset information by reportable segment as of December 31, 2015 is as follows (in thousands):



	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

Asset information by reportable segment as of June 30, 2016 is as follows (in thousands):



	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

- -19 -

HESKA CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Continued)

Total assets by principal geographic areas were as follows (in thousands):



	December 31,		June 30,
	2015		2016
United States	$	106,780	$	116,552
Europe	2,939		3,073
Total	$	109,719	$	119,625

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

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

This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, gross profit margins, selling and marketing expenses, research and development expenses, general and administrative expenses, capital resources, additional financings or borrowings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed below and elsewhere in this Form 10-Q, particularly in Part II, Item 1A "Risk Factors," that could cause actual results to differ materially from those projected. The forward-looking statements set forth in this Form 10-Q are as of the close of business on August 5, 2016 and we undertake no duty and do not intend to update this information, except as required by applicable laws.

Overview

We 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.

Our business consists of two reportable segments, Core Companion Animal Health ("CCA"), which represented 80% of our revenue for the twelve months ended June 30, 2016 (which we define as "LTM") and Other Vaccines, Pharmaceuticals and Products ("OVP"), which represented 20% of LTM revenue.

The CCA segment includes, primarily for canine and feline use, blood testing instruments and supplies, digital imaging products, software and services, and single use products and services such as heartworm diagnostic tests, heartworm preventive products, allergy immunotherapy products and allergy testing.

Blood testing and other non-imaging instruments and supplies represented approximately 37% of our LTM revenue. Many products in this area involve placing an instrument in the field and generating future revenue from consumables, including items such as supplies and service, as that instrument is used. Approximately 29% of our LTM revenue resulted from the sale of such consumables to an installed base of instruments and approximately 8% of our LTM revenue was from hardware revenue. 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 blood testing and other non-imaging instruments and supplies are supplied by third parties, who typically own the product rights and supply the product to us under marketing and/or distribution agreements. In many cases, we have collaborated with a third party to adapt a human instrument for

- -20 -

veterinary use. Major products in this area include our chemistry instruments, our hematology instruments, our blood gas instruments, our immunodiagnostic instruments and their affiliated operating consumables. Revenue from products in these three areas, including revenues from consumables, represented approximately 33% of our LTM revenue.

Imaging hardware, software and services represented approximately 19% of LTM revenue. Digital radiography is the largest product offering in this area, which also includes ultrasound instruments. Digital radiography solutions typically consist of a combination of hardware and software placed with a customer, often combined with an ongoing service and support contract. With our acquisition of Cuattro Veterinary, LLC, subsequently renamed Heska Imaging International, LLC, we now sell our imaging solutions both in the United States 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 blood testing category discussed above where ongoing consumable revenue is often a larger component of economic value as a given blood testing 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 approximately 24% of our LTM revenue. Since items in this area are often single use by their nature, our typical aim is to build customer satisfaction and loyalty for each product, generate repeat annual sales from existing customers and expand our customer base in the future. Products in this area are both supplied by third parties and provided by us. Major products and services in this area include our heartworm diagnostic tests, our heartworm preventives, our allergy test kits, our allergy immunotherapy and our allergy testing. Combined revenue from heartworm-related products and allergy-related products represented 23% of our LTM revenue.

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

All 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 critical to our success. CCA products are sold directly to end users by us as well as through distribution relationships, such as our corporate agreement with Merck Animal Health, the sale of kits to conduct blood testing to third-party veterinary diagnostic laboratories and independent third-party distributors. Revenue from direct sales and distribution relationships represented approximately 63% and 37%, respectively, of CCA LTM revenue.

The OVP segment includes our 168,000 square foot USDA- and FDA-licensed production facility in Des Moines, Iowa. We view this facility as an asset which could allow us to control our cost of goods on any 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 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. We view OVP reported revenue as revenue primarily to cover the overhead costs of the facility and to generate incremental cash flow to fund our CCA segment.

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

-21

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 Eli Lilly and Company ("Eli Lilly") and its affiliates operating through Elanco for the production of these vaccines. Our OVP segment also produces vaccines and pharmaceuticals for other third parties.

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 table sets forth, for the periods indicated, certain data derived from our unaudited condensed consolidated statements of operations (in thousands):



	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

The following table sets forth, for the periods indicated, the percentage of sales represented by certain items reflected in our unaudited condensed consolidated statements of operations:



	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	%

-22

Revenue

Total revenue increased 22% to $57.1 million in the six months ended June 30, 2016 compared to $46.8 million in the six months ended June 30, 2015 and increased 25% to $30.0 million in the three months ended June 30, 2016 compared to $23.9 million in the three months ended June 30, 2015 .

CCA segment revenue increased 19% to $47.9 million in the six months ended June 30, 2016 compared to $40.3 million in the six months ended June 30, 2015 . Greater revenue from our digital radiography products, our instrument consumables, our heartworm preventive and our hematology instruments were key factors in the increase. CCA segment revenue increased 18% to $24.5 million in the three months ended June 30, 2016 compared to $20.8 million in the three months ended June 30, 2015 . Greater revenue from our heartworm preventative products, our digital radiography products and our instrument consumables were key factors in the improvement.

OVP segment revenue increased 42% to $9.2 million in the six months ended June 30, 2016 compared to $6.5 million in the six months ended June 30, 2015 and increased 74% to $5.5 million in the three months ended June 30, 2016 compared to $3.2 million in the three months ended June 30, 2015 . Revenue from sales under our agreement with Elanco was a key factor in both cases.

Gross Profit

Gross profit increased 18% to $24.1 million in the six months ended June 30, 2016 compared to $20.4 million in the six months ended June 30, 2015 . Gross Margin, which is gross profit divided by total revenue, decreased to 42.2% in the six months ended June 30, 2016 compared to 43.5% in the six months ended June 30, 2015 . Gross profit increased 23% to 12.7 million in the three months ended June 30, 2016 compared to $10.3 million in the three months ended June 30, 2015 . Gross Margin decreased to 42.3% in the three months ended June 30, 2016 compared to 43.1% in the three months ended June 30, 2015 . Product mix in our OVP segment, as well as lower gross margin on our chemistry consumables, somewhat offset by higher gross margin on our imaging products, were factors in the decline in both cases.

Operating Expenses

Selling and marketing expenses increased 3% to $11.0 million in the six months ended June 30, 2016 compared to $10.7 million in the six months ended June 30, 2015 and increased 3% to $5.4 million in the three months ended June 30, 2016 compared to $5.2 million in the three months ended June 30, 2015 . Increased commissions due to higher revenue from our imaging products was a factor in the change in both cases.

Research and development expenses increased 35% to $1.1 million in the six months ended June 30, 2016 , compared to $0.8 million in the six months ended June 30, 2015 . Increased development project spending related to imaging products and single use diagnostic products were factors in the change. Research and development expenses increased 33% to $0.5 million in the three months ended June 30, 2016 , compared to $0.4 million in the three months ended June 30, 2015 . Increased development project spending related to single use diagnostic products was a factor in the change.

General and administrative expenses increased 8% to $6.5 million in the six months ended June 30, 2016 , compared to $6.0 million in the six months ended June 30, 2015 and increased 13% to $3.2 million in the three months ended June 30, 2016 , compared to $2.8 million in the three months ended June 30, 2015 . Expense related to the May 2016 acquisition of Cuattro International was a factor in the change in both cases.

- -23 -

Interest and Other Expense (Income), Net

Interest and other expense (income), net, was income of $99 thousand in the six months ended June 30, 2016 , as compared to an expense of $174 thousand in the six months ended June 30, 2015 . Interest and other expense (income), net, was an expense of $34 thousand in the three months ended June 30, 2016 , as compared to an expense of $37 thousand in the three months ended June 30, 2015 . This line item can be broken into the following components: net interest income or expense, net foreign currency gains and losses and other income. Net interest was an expense of $13 thousand in the six months ended June 30, 2016 , as compared to an expense of $4 thousand in the six months ended June 30, 2015 . Net interest was an expense of $8 thousand in the three months ended June 30, 2016 , as compared to an expense of $9 thousand in the three months ended June 30, 2015 . Net foreign currency gain was $20 thousand in the six months ended June 30, 2016 , as compared to a net foreign currency loss of $170 thousand in the six months ended June 30, 2015 . A key factor in the difference was the impact of exchange rates between the Euro and the Swiss Franc, which is the functional currency of our Swiss subsidiary. Net foreign currency loss was $26 thousand in the three months ended June 30, 2016 , as compared to a net foreign currency loss of $28 thousand in the three months ended June 30, 2015 . Other income was $92 thousand in the six months ended June 30, 2016 primarily related to the sale of an equity investment during the first quarter of 2016.

Income Tax Expense

In the six months ended June 30, 2016 , we had total income tax expense of $1.4 million , including $1.3 million in domestic deferred income tax expense, a non-cash item primarily related to our domestic NOL position, and $0.2 million in current income tax expense. In the six months ended June 30, 2015 , we had total income tax expense of $0.9 million , including $0.8 million in domestic deferred income tax expense, a non-cash item primarily related to our domestic NOL position, and $0.1 million in current income tax expense. In the three months ended June 30, 2016 , we had total income tax expense of $0.8 million , including $0.7 million in domestic deferred income tax expense, a non-cash item primarily related to our domestic NOL position, and $0.1 million in current income tax expense. In the three months ended June 30, 2015 , we had total income tax expense of $0.6 million , including $0.5 million in domestic deferred income tax expense, a non-cash item primarily related to our domestic NOL position, and $0.1 million in current income tax expense. Greater income before income taxes was a key factor in our higher income tax expense in the six and three month periods ended June 30, 2016 as compared to the corresponding periods in 2015. The impact of greater income before income taxes was somewhat offset by additional tax benefits of $0.5 million in the six and three months ended June 30, 2016 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.

Net Income

Net income was $4.2 million for the six months ended June 30, 2016 , as compared to net income of $1.8 million in the prior year period. Net income was $2.7 million for the three months ended June 30, 2016 , as compared to net income of $1.2 million in the prior year period. Increased revenue, somewhat offset by lower Gross Margin and higher operating expenses, was a factor in the improvement in both cases.

- -24 -

Net Income attributable to Heska Corporation

Net income attributable to Heska Corporation was $3.7 million for the six months ended June 30, 2016 , as compared to a net income attributable to Heska Corporation of $1.8 million in the prior year period. Net income attributable to Heska Corporation was $2.5 million for the three months ended June 30, 2016 , as compared to a net income attributable to Heska Corporation of $1.2 million in the prior year period. The difference between this line item and "Net Income" is the net income or loss attributable to our minority interest in US Imaging, which was net income of $482 thousand in the six months ended June 30, 2016 as compared to a loss of $34 thousand in the six months ended June 30, 2015 and net income of $220 thousand in the three months ended June 30, 2016 as compared to a loss of $19 thousand in the three months ended June 30, 2015 .

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 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. Our primary sources of liquidity are our available cash, cash generated from current operations and availability under our credit facilities noted below.

For the six months ended June 30, 2016 , we had net income of $4.2 million and net cash provided by operations of $0.3 million . At June 30, 2016 , we had $6.7 million of cash and cash equivalents and working capital of $27.1 million .

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. 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. Failure to comply with any of the covenants, representations or warranties could result in our being in default on the loan and could cause all outstanding amounts payable to Wells Fargo to become immediately due and payable or impact our ability to borrow under the agreement. We were in compliance with all financial covenants as of 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 .

- -25 -

A summary of our cash from operating, investing and financing activities is as follows (in thousands):



	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

Net cash provided by operating activities was $0.3 million in the six months ended June 30, 2016 , as compared to net cash used by operating activities of $0.3 million in the six months ended June 30, 2015 , a favorable increase of approximately $0.6 million . Key factors in the change were a $3.0 million decrease in cash used for inventory, a $2.9 million increase in net income and deferred tax expense, and a $1.7 million increase in cash provided by accounts receivable and other current assets, partially offset by a $4.2 million increase in cash used for accounts payable, accrued liabilities and other short term liabilities and a $3.1 million increase in cash used in deferred revenue and other non-current assets.

Net cash used in investing activities was $0.8 million in the six months ended June 30, 2016 as compared to net cash used in investing activities of $0.9 million in the six months ended June 30, 2015 , a favorable decrease of approximately $0.1 million . Proceeds from the disposition of property and equipment and the sale of an equity investment were factors in the change.

Net cash flows from financing activities provided cash of $0.3 million in the six months ended June 30, 2016 , as compared to $1.9 million in the six months ended June 30, 2015 , which represented a $1.6 million decrease in cash provided by financing activities. The largest factor in the change was net repayments of $1.5 million towards the balance of our revolving line of credit.

At June 30, 2016 , Heska Corporation had accounts receivable from US Imaging of $5.0 million , including accrued interest, which eliminates upon consolidation of our financial statements. These monies accrue at the same interest rate as Heska Corporation pays under its asset-based revolving line of credit with Wells Fargo once past due.

At June 30, 2016 , we, including the balance sheets of our consolidating subsidiaries, had net prepaid receivables from Cuattro, LLC of $2.0 million . All monies owed accrue interest at the same interest rate Heska Corporation pays under its credit and security agreement with Wells Fargo once past due. These items are listed on our consolidated balance sheets as "Due from – related parties" as Kevin S. Wilson, our Chief Executive Officer and President, Mrs. Wilson and trusts for their children and family hold a 100% interest in Cuattro, LLC.

-26

At June 30, 2016 , we had $487 thousand of borrowings on our consolidated balance sheet related to the borrowings of International Imaging. This debt bears an interest rate of 5.75% per annum and is due in equal monthly payments, including principal and interest, through June 27, 2018. At June 30, 2016 , we had other borrowings outstanding totaling $154 thousand , all of which were obligations of a US Imaging loan from De Lage Landen Financial Services, Inc. ("DLL"). The note bears an interest rate of 6% per annum and is due in equal monthly payments, including principal and interest, of $13 thousand through June 2017. The note may be prepaid prior to maturity, but is subject to a surcharge in such a circumstance. Principal associated with these borrowings of approximately $412 thousand is listed as "Other short term borrowings" on our consolidated balance sheets as it is due within a year.

At June 30, 2016 , our consolidated balance sheets included $15.9 million in non-controlling interest. This represents the value of the aggregate position in US Imaging of the Imaging Minority. At the time of the Acquisition, we estimated a weighted average valuation for this position and began accreting to this value over a three year period from the date of the Acquisition using a weighted average cost of capital of 18.65%. The cost of capital assumption was provided to us by a third party with expertise in estimating such items. We evaluate the value of this position every reporting period and in 2014 decided to adjust our accretion to a weighted average accretion based on various potential outcomes and our estimate of the likelihood of such outcomes, which had the effect of lowering the accretion from what it otherwise would have been. The accretion is to be recorded as a credit where this line item has increased compared to the prior reporting period, with the corresponding debit to directly reduce additional paid-in-capital as we have an accumulated deficit. If the value of non-controlling interest were to decrease compared to the prior reporting period, we anticipate non-controlling interest would be adjusted with a debit to non-controlling interest and a corresponding credit to additional paid-in-capital.

Our financial plan for 2016 indicates that our available cash and cash equivalents, together with cash from operations and borrowings expected to be available under our revolving line of credit, will be sufficient to fund our operations through 2016 and into 2017. However, our actual results may differ from this plan, and we may be required to consider alternative strategies. We may be required to raise additional capital in the future. If necessary, we expect to raise these additional funds through the issuance of new term debt secured by the same assets as the term loans which were fully repaid in 2010, the sale of equity securities or the increased sale of customer leases. There is no guarantee that additional capital will be available from these sources on acceptable terms, if at all, and certain of these sources may require approval by existing lenders. See "Risk Factors" in Item 1A of this Form 10-Q for a discussion of some of the factors that affect our capital raising alternatives.

Under the Operating Agreement, should US Imaging meet certain performance criteria, the Imaging Minority, which has been granted put options, may sell us some or all of the Imaging Minority's remaining 45.4% position in US Imaging following the audit of our 2016 and 2017 financial statements. US Imaging generated $10.8 million in revenue, $4.6 million in gross profit and $1.1 million in operating income in the six months ended June 30, 2016 and $8.6 million in revenue, $3.2 million in gross profit and $17 thousand in operating income in the six months ended June 30, 2015 . If US Imaging generates at least $20 million in revenue in either 2016 or 2017 and the Imaging Minority exercises its put right in full, we would be required to purchase the Imaging Minority's position for consideration valued at 9 times US Imaging's operating income, subject to a maximum valuation of $13.6 million – as well as 25% of US Imaging's cash. If US Imaging generates at least $30 million in revenue and $3.0 million in operating income in either 2016 or 2017 and the Imaging Minority exercises its put right in full, we would be required to purchase the Imaging Minority's position for consideration valued at $17.0 million – as well as 25% of US Imaging's cash. Furthermore, should US Imaging meet certain performance criteria, and the Imaging Minority fail to exercise an applicable put to sell us all of the Imaging Minority's position in US Imaging following the audit of our 2016 or 2017 financial statements, we would have a call option to purchase all, but not less than all, of the Imaging Minority's position in US Imaging. If US Imaging generates at least $30 million in revenue and $3.0

-27

million in operating income in either 2016 or 2017 and the Imaging Minority does not exercise its put rights at all, we would have the option to purchase the Imaging Minority's position for consideration valued at $19.6 million – as well as 25% of US Imaging's cash. We believe it is likely that we will have the contractual right to deliver up to 55% of the consideration for these puts and calls in shares of our Public Common Stock. While we intend to meet any related cash payment obligations with funds provided by our ongoing operations and assets, likely supplemented by debt financing and potentially with equity financing, there can be no assurance our results will unfold according to our expectations. These potential cash payment obligations are an important consideration for us in our cash management decisions.

We believe it is likely that US Imaging will meet the required performance criteria for the 2016 lowest strike put, but not the 2016 highest strike put, following the audit of our 2016 financial statements and that we will be able to deliver 55% of the consideration required by the put in our Public Common Stock. In this case, the Imaging Minority would be granted a put following our 2016 audit which could require us to deliver up to $13.6 million as well as 25% of US Imaging's cash, to purchase the 45.4% of US Imaging we do not own. In such a case, while we have the right to deliver up to 55% of the consideration in our Public Common Stock under certain conditions, such stock is to be valued based on 90% of market value (the "Delivery Stock Value") and is limited to approximately 650 thousand shares in any case. If the Delivery Stock Value per share is less than the market value per share of our Public Common Stock at the time of the Acquisition, we will not have the right to deliver any Public Common Stock as consideration. Assuming we deliver the full 55% of the consideration in our Public Common Stock, we could still have an obligation to pay as much as approximately $6.1 million in cash as well as 25% of US Imaging's cash to the Imaging Minority in this circumstance. We believe it is also possible that US Imaging will meet the required performance criteria for the 2016 highest strike put, in which case our cash obligation would be increased as compared to the 2016 lowest strike put as outlined above.

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

Effect of currency translation on cash

Net effect of foreign currency translations on cash changed $52 thousand to a $ 22 thousand positive impact in the six months ended June 30, 2016 as compared to a $ 74 thousand positive impact in the six months ended June 30, 2015 . These effects are related to changes in exchange rates between the United States dollar and the Swiss Franc, which is the functional currency of our Swiss subsidiary.

Off Balance Sheet Arrangements

We have no off balance sheet arrangements or variable interest entities.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with U.S. GAAP requires us to make judgments, assumptions and estimates that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015 describes the significant accounting policies and methods used in the preparation of these unaudited Condensed

-28

Consolidated Financial Statements. Our critical accounting estimates, discussed in the Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015, include estimates for revenue recognition, allowances for doubtful accounts, accounting for income taxes, the value of our non-controlling interest and assessing excess and obsolete inventories. Such accounting policies and estimates require significant judgments and assumptions to be used in the preparation of the unaudited Condensed Consolidated Financial Statements and actual results could differ materially from the amounts reported based on variability in factors affecting these estimates.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

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

Interest Rate Risk

At June 30, 2016 , there were no outstanding borrowings on our line of credit with Wells Fargo. We had approximately $6.7 million of cash and cash equivalents at June 30, 2016 , the majority of which was invested in liquid interest bearing accounts. We had no interest rate hedge transactions in place on June 30, 2016 . We completed an interest rate risk sensitivity analysis based on the above and an assumed one-percentage point decrease in interest rates would have an approximate $67 thousand negative impact on our pre-tax earnings based on our outstanding balances as of June 30, 2016 .

Foreign Currency Risk

Our investment in foreign assets consists primarily of our investment in our Swiss subsidiary. Foreign currency risk may impact our results of operations. In cases where we purchase inventory in one currency and sell corresponding products in another, our gross margin percentage is typically at risk based on foreign currency exchange rates. In addition, in cases where we may be generating operating income in foreign currencies, the magnitude of such operating income when translated into U.S. dollars will be at risk based on foreign currency exchange rates. Our agreements with suppliers and customers vary significantly in regard to the existence and extent of currency adjustment and other currency risk sharing provisions. We had no foreign currency hedge transactions in place on June 30, 2016 .

We have a wholly-owned subsidiary in Switzerland which uses the Swiss Franc as its functional currency. We purchase inventory in foreign currencies, primarily Euros, and sell corresponding products in U.S. dollars. We also sell products in foreign currencies, primarily Euros and Japanese Yen, where our inventory costs are largely in U.S. dollars. Based on our results of operations for the twelve months ending June 30, 2016 , currency holdings and currency-related prepaid accounts, accounts receivable and accounts payable (all of which, including currency holdings, we will refer to as "Currency Accounts") as of June 30, 2016 and the functional currency of the accounting entity where such Currency Accounts are held, the expected impact on our consolidated statements of operations, if foreign currency exchange rates were to strengthen/weaken by 25% against the Dollar, would be a resulting gain/loss in operating income of approximately $114 thousand and a currency loss/gain of $258 thousand , if all other currencies were to strengthen/weaken by 25% against the Swiss Franc, would be a resulting loss/gain in operating income of approximately $192 thousand and a currency gain/loss of $420 thousand , and if all other currencies were to strengthen/weaken by 25% against the Euro, would be a resulting loss/gain in operating income of approximately $280 thousand and a currency loss/gain of $671 thousand .

-29

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our disclosure controls and procedures, as defined by Rule 13a-15 of the Exchange Act, as of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and chief financial officer have concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1	Legal Proceedings.

From time to time, we may be involved in litigation related to claims arising out of our 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 damage of the greater of actually monetary loss or five hundred dollars per violation. We intend to defend the Company vigorously in this matter. As of June 30, 2016 , we were not a party to any other legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on our business, financial condition or operating results. Information regarding reportable legal proceedings is contained in Note 11, Commitments and Contingencies, of the unaudited condensed consolidated financial statements in this Quarterly Report on Form 10-Q.


Item 1A.	Risk Factors

Our future operating results may vary substantially from period to period due to a number of factors, many of which are beyond our control. The following discussion highlights some of these factors and the possible impact of these factors on future results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks or uncertainties not presently known to us or that we deem to be currently immaterial also may impair our business operations. If any of the following factors actually occur, our business, financial condition or results of operations could be harmed. In that case, the price of our Public Common Stock could decline and investors in our Public Common Stock could experience losses on their investment.

Our February 2013 acquisition of a 54.6% majority interest in Cuattro Veterinary USA, LLC, which has been renamed Heska Imaging US, LLC, could be detrimental to the interests of our shareholders due to related puts, calls or other provisions, or for other reasons including related to conflicts of interest, as could our May 2016 acquisition of Cuattro Veterinary, LLC, which has been renamed Heska Imaging International, LLC, or other acquisitions.

Under the Amended and Restated Operating Agreement of Heska Imaging (the "Operating Agreement"), should Heska Imaging ("US Imaging") meet certain performance criteria, the Imaging Minority

- -30 -

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

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

Under and as defined in and subject to the terms of the Operating Agreement, should we undergo a change in control, the Imaging Minority will be entitled to sell their US Imaging units to us for cash of up to $13.6 million based on US Imaging's prior year Operating Income (the "Change in Control Payment"). The Change in Control Payment may decrease the interest of third parties in acquiring the Company or a majority of the Company's shares, which could otherwise have occurred at a premium to the Company's then current market price for the benefit of some or all of our shareholders. This could make some investors less likely to buy and hold our stock.

Under the terms of the Operating Agreement, US Imaging is to be managed by a three-person board of managers, two of which are to be appointed by Heska Corporation and one of which is to be appointed by Kevin S. Wilson, a founder of Heska Imaging who has also been Heska Corporation's Chief Executive Officer and President since March 31, 2014. The current board of managers consists of Mr. Wilson, Jason A.

-31

Napolitano, Heska Corporation's Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary and Nancy Wisnewski, Ph.D., Heska Corporation's Executive Vice President, Product Development and Customer Support. Until the earlier of (1) our acquiring 100% of the units of US Imaging pursuant to the puts and/or calls discussed above or (2) the sixth anniversary of the Acquisition, US Imaging may only take the following actions, among others, by unanimous consent of the board of managers: (i) issue securities, (ii) incur, guarantee, prepay, refinance, renew, modify or extend debt, (iii) enter into material contracts, (iv) hire or terminate an officer or amend the terms of their employment, (v) make a distribution other than a tax or liquidation distribution, (vi) enter into a material acquisition or disposition arrangement or a merger, (vii) lease or acquire an interest in real property, (viii) convert or reorganize US Imaging, or (ix) amend its certificate of formation or the Heska Imaging Agreement. This unanimous consent provision may hinder our ability to optimize the value of our investment in US Imaging in certain circumstances.

While the terms of both the Amended and Restated Master License Agreement and the Supply Agreement between US Imaging and Cuattro, LLC were negotiated at arm's length as part of the Acquisition, Mr. Wilson has an interest in these agreements and any time and resources devoted to monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

Mr. Wilson's employment agreement with us acknowledges that Mr. Wilson has business interests in Cuattro, LLC, Cuattro Software, LLC and Cuattro Medical, LLC which may require a portion of his time, resources and attention in his working hours. If Mr. Wilson is distracted by these or other business interests, he may not contribute as much as he otherwise would have to enhancing our business, to the detriment of our shareholder value. Mr. Wilson is the spouse of Shawna M. Wilson ("Mrs. Wilson"). Mr. Wilson, Mrs. Wilson and trusts for their children and family own a majority interest in Cuattro Medical, LLC. In addition, including shares held by Mrs. Wilson and by trusts for the benefit of Mr. and Mrs. Wilson's children and family, Mr. Wilson also owns a 100% interest in Cuattro, LLC, the largest supplier to US Imaging. Cuattro, LLC owns a 100% interest in Cuattro Software, LLC.

Cuattro, LLC has charged US Imaging $3.6 million from January 1, 2016 through May 31, 2016 and has charged Global Imaging $0.9 million from June 1, 2016 through June 30, 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 and other administrative 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 May 31, 2016, US Imaging had a $1.5 million note receivable, including accrued interest, from Cuattro Veterinary, LLC, which was due on June 15, 2016 and previously listed as "Note receivable – related party" on the Company's consolidated balance sheets. The note receivable was assumed as part of the Company's acquisition of Cuattro Veterinary. At June 30, 2016 Heska Corporation had accounts receivable from US Imaging of $5.0 million , including accrued interest; Heska Corporation had net accounts receivable from Cuattro, LLC of $25 thousand ; Global Imaging had net prepaid receivables from Cuattro, LLC of $ 1.4 million ; and International Imaging had a net receivable due from Cuattro, LLC of $546 thousand . All monies owed accrue interest at the same interest rate Heska Corporation pays under its credit and security agreement with Wells Fargo once past due with the exception of the note receivable, which accrues at this rate to its maturity date.

Mrs. Wilson, Clint Roth, DVM, Mr. Asakowicz, Mr. Lippincott, Mr. Wilson and Cuattro, LLC own approximately 29.75%, 8.39%, 4.09%, 3.07%, 0.05% and 0.05% of US Imaging, respectively, each are a member of US Imaging, and each have an interest in the puts and calls discussed above. If Mr. Wilson, Mr. Asakowicz or Mr. Lippincott is distracted by these holdings or interests, they may not contribute as much

-32

as they otherwise would have to enhancing our business, to the detriment of our shareholder value. While the Operating Agreement was negotiated at arm's length as part of the Acquisition, and requires that none of the members shall cause US Imaging to operate its business in any manner other than the ordinary course of business, any time and resources devoted to monitoring and overseeing this relationship may prevent us from deploying such time and resources on more productive matters.

In addition, like any acquisition, if US Imaging significantly underperforms relative to our financial expectations, it may serve to diminish rather than enhance shareholder value. Heska US generated operating income of $0.8 million in 2015 and an operating loss of approximately $2.1 million in 2014.

On May 31, 2016, we acquired Cuattro Veterinary, LLC, which we subsequently renamed Heska Imaging International, LLC, and we may acquire other businesses in the future. The success of such transactions will depend on, among other things, our ability to integrate assets and personnel acquired in these transactions and to apply our internal controls process to these acquired businesses. The integration of acquisitions may require significant attention from our management, and the diversion of management's attention and resources could have a material adverse effect on our ability to manage our business. Further more, we may not realize the degree or timing of benefits we anticipated when we first entered into the acquisition transaction. If actual integration costs are higher than amounts originally anticipated, if we are unable to integrate the assets and personnel acquired in an acquisition as anticipated, or if we are unable to fully benefit from anticipated synergies our business, financial condition, results of operations, and cash flows could be materially adversely effected.

We may face costly legal disputes, including related to our intellectual property or technology or that of our suppliers or collaborators.

We may face legal disputes related to our business. For example, 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. Even if meritless, these disputes may require significant expenditures on our part and could entail a significant distraction to members of our management team or other key employees. Insurance coverage may not cover any costs required to litigate a legal dispute or an unfavorable ruling or settlement. A legal dispute leading to an unfavorable ruling or settlement, whether or not insurance coverage may be available for any portion thereof, could have significant material adverse consequences on our business. We may have to use legal means and incur affiliated costs to secure the benefits to which we are entitled, such as to collect payment for goods shipped to third parties, which would reduce our income as compared to what it otherwise would have been.

We may become subject to patent infringement claims and litigation in the United States or other countries or interference proceedings conducted in the United States Patent and Trademark Office, or USPTO, to determine the priority of inventions. The defense and prosecution of intellectual property suits, USPTO interference proceedings and related legal and administrative proceedings are likely to be costly, time-consuming and distracting. As is typical in our industry, from time to time we and our collaborators and suppliers have received, and may in the future receive, notices from third parties claiming infringement and invitations to take licenses under third-party patents. Any legal action against us or our collaborators or suppliers may require us or our collaborators or suppliers to obtain one or more licenses in order to market or manufacture effected products or services. However, we or our collaborators or suppliers may not be able to obtain licenses for technology patented by others on commercially reasonable terms, or at all, may not be able to develop alternative approaches if unable to obtain licenses or current and future licenses may not be adequate, any of which could substantially harm our business.

-33

We may also need to pursue litigation to enforce any patents issued to us or our collaborative partners, to protect trade secrets or know-how owned by us or our collaborative partners, or to determine the enforceability, scope and validity of the proprietary rights of others. Any litigation or interference proceedings will likely result in substantial expense to us and significant diversion of the efforts of our technical and management personnel. Any adverse determination in litigation or interference proceedings could subject us to significant liabilities to third parties. Further, as a result of litigation or other proceedings, we may be required to seek licenses from third parties which may not be available on commercially reasonable terms, if at all.

Obtaining and maintaining regulatory approvals in order to market our products may be costly and delay the marketing and sales of our products. Failure to meet all regulatory requirements could cause significant losses from affected inventory and the loss of market share.

Many of the products we develop, market or manufacture may subject us to extensive regulation by one or more of the USDA, the FDA, the EPA and foreign and other regulatory authorities. These regulations govern, among other things, the development, testing, manufacturing, labeling, storage, pre-market approval, advertising, promotion and sale of some of our products. Satisfaction of these requirements can take several years and time needed to satisfy them may vary substantially, based on the type, complexity and novelty of the product. The decision by a regulatory authority to regulate a currently non-regulated product or product area could significantly impact our revenue and have a corresponding adverse impact on our financial performance and position while we attempt to comply with the new regulation, if such compliance is possible at all.

The effect of government regulation may be to delay or to prevent marketing of our products for a considerable period of time and to impose costly procedures upon our activities. We may not be able to estimate the time to obtain required regulatory approvals accurately and such approvals may require significantly more time than we anticipate. We have experienced in the past, and may experience in the future, difficulties that could delay or prevent us from obtaining the regulatory approval or license necessary to introduce or market our products. Such delays in approval may cause us to forego a significant portion of a new product's sales in its first year due to seasonality and advanced booking periods associated with certain products. Regulatory approval of our products may also impose limitations on the indicated or intended uses for which our products may be marketed.

Difficulties in making established products to all regulatory specifications may lead to significant losses related to affected inventory as well as market share. Among the conditions for certain regulatory approvals is the requirement that our facilities and/or the facilities of our third-party manufacturers conform to current Good Manufacturing Practices and other requirements. If any regulatory authority determines that our manufacturing facilities or those of our third-party manufacturers do not conform to appropriate manufacturing requirements, we or the manufacturers of our products may be subject to sanctions, including, but not limited to, warning letters, manufacturing suspensions, product recalls or seizures, injunctions, refusal to permit products to be imported into or exported out of the United States, refusals of regulatory authorities to grant approval or to allow us to enter into government supply contracts, withdrawals of previously approved marketing applications, civil fines and criminal prosecutions. Furthermore, third parties may perceive procedures required to obtain regulatory approval objectionable and may attempt to disrupt or otherwise damage our business as a result. In addition, certain of our agreements may require us to pay penalties if we are unable to supply products, including for failure to maintain regulatory approvals.

Any of these events, alone or in unison, could damage our business.

-34

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

We are party to an agreement with Merck Animal Health, which grants Merck Animal Health exclusive distribution and marketing rights for our canine heartworm preventive product, TRI-HEART Plus Chewable Tablets, ultimately sold to or through veterinarians in the United States and Canada. 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 a supply agreement with Eli Lilly and its Affiliates operating through Elanco for the production of these vaccines. Either of these marketing partners may not devote sufficient resources to marketing our products and our sales and financial position could suffer significantly as a result. Revenue from Merck & Co., Inc. ("Merck") entities, including Merck Animal Health, represented 11% of our LTM revenue. Revenue from Eli Lilly entities, including Elanco, represented 13% of our LTM revenue. If Merck Animal Health personnel fail to market, sell and support our heartworm preventive sufficiently or if Elanco personnel fail to market, sell and support the bovine vaccines we produce and sell to Elanco sufficiently, our sales could decline significantly. Furthermore, there may be nothing to prevent these partners from pursuing alternative technologies, products or supply arrangements, including as part of mergers, acquisitions or divestitures. For example, we believe a unit of Merck has obtained FDA approval for a canine heartworm preventive product with additional claims compared with our TRI-HEART Plus Chewable Tablets, but which we believe is not currently being marketed actively. Should Merck decide to emphasize sales and marketing efforts of this product rather than our TRI-HEART Plus Chewable Tablets or cancel our agreement regarding canine heartworm preventive distribution and marketing, our sales could decline significantly. In another example, if Elanco were to emphasize sales and marketing efforts for bovine vaccines other than those we produce or cancel our supply agreement and produce the vaccines we supply to them by themselves, our sales could decline significantly. Third-party marketing assistance may not be available in the future on reasonable terms, if at all. If the third parties with marketing rights for our products were to merge or go out of business, the sale and promotion of our products could be diminished.

We rely substantially on third-party suppliers. The loss of products or delays in product availability from one or more third-party suppliers could substantially harm our business.

To be successful, we must contract for the supply of, or manufacture ourselves, current and future products of appropriate quantity, quality and cost. Such products must be available on a timely basis and be in compliance with any regulatory requirements. Similarly, we must provide ourselves, or contract for the supply of certain services. Such services must be provided in a timely and appropriate manner. Failure to do any of the above could substantially harm our business.

We rely on third-party suppliers to manufacture those products we do not manufacture ourselves and to provide services we do not provide ourselves. Proprietary products provided by these suppliers represent a majority of our revenue. We currently rely on these suppliers for our blood testing instruments and consumable supplies for these instruments, for our imaging products and related software and services, for key components of our point-of-care diagnostic tests as well as for the manufacture of other products.

The loss of access to products from one or more suppliers could have a significant, negative impact on our business. Major suppliers who sell us proprietary products who are responsible for more than 5% of our LTM revenue are FUJIFILM Corporation and Cuattro, LLC. None of these suppliers sold us products which were responsible for more than 25% of our LTM revenue, although products purchased from one of these suppliers was responsible for more than 20% of our LTM revenue and products purchased from another was responsible for more than 10% of our LTM revenue. We often purchase products from our suppliers under agreements that are of limited duration or potentially can be terminated on an annual basis. In the case

-35

of our blood testing instruments and our digital radiography solutions, post-termination, we are typically entitled to non-exclusive access to consumable supplies, or ongoing non-exclusive access to products and services to meet the needs of an existing customer base, respectively, for a defined period upon expiration of exclusive rights, which could subject us to competitive pressures in the period of non-exclusive access. Although we believe we will be able to maintain a supply of our major product and service offerings in the near future, there can be no assurance that our suppliers will meet their obligations under any agreements we may have in place with them or that we will be able to compel them to do so. Risks of relying on suppliers include:

•

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.

-36

•

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.

Potential problems with suppliers such as those discussed above could substantially decrease sales, lead to higher costs and/or damage our reputation with our customers due to factors such as poor quality goods or delays in order fulfillment, resulting in our being unable to sell our products effectively and substantially harming our business.

-37

We operate in a highly competitive industry, which could render our products obsolete or substantially limit the volume of products that we sell. This would limit our ability to compete and maintain sustained profitability.

The market in which we compete is intensely competitive. Our competitors include independent animal health companies and major pharmaceutical companies that have animal health divisions. We also compete with independent, third-party distributors, including distributors who sell products under their own private labels. In the point-of-care diagnostic testing market, our major competitors include IDEXX Laboratories, Inc. ("IDEXX"), Abaxis Inc. ("Abaxis"), and Zoetis Inc. ("Zoetis"). The products manufactured by our OVP segment for sale by third parties compete with similar products offered by a number of other companies, some of which have substantially greater financial, technical, research and other resources than us and may have more established marketing, sales, distribution and service organizations than those of our OVP segment's customers. Competitors may have facilities with similar capabilities to our OVP segment, which they may operate and sell at a lower unit price to customers than our OVP segment does, which could cause us to lose customers. Companies with a significant presence in the companion animal health market, such as Bayer AG, CEVA Santé Animale, Eli Lilly, Merck, Sanofi, Vétoquinol S.A. and Virbac S.A. may be marketing or developing products that compete with our products or would compete with them if developed. These and other competitors and potential competitors may have substantially greater financial, technical, research and other resources and larger, more established marketing, sales and service organizations than we do. For example, if Zoetis devotes its significant commercial and financial resources to growing its market share in the veterinary allergy market, our allergy-related sales could suffer significantly. Our competitors may offer broader product lines and have greater name recognition than we do. Our competitors may also develop or market technologies or products that are more effective or commercially attractive than our current or future products or that would render our technologies and products obsolete. Further, additional competition could come from new entrants to the animal health care market. Moreover, we may not have the financial resources, technical expertise or marketing, sales or support capabilities to compete successfully. One of our competitors, Abaxis, recently announced agreements with units of VCA Inc. ("VCA") for the long-term supply of blood chemistry testing products to VCA-owned veterinary clinics and for the co-marketing of Abaxis' blood chemistry testing products with VCA's veterinary diagnostic laboratory offering, which may serve to intensify competition and lower our margins as well as limit our prospects to sell blood chemistry testing products to VCA-owned veterinary clinics.

If we fail to compete successfully, our ability to achieve sustained profitability will be limited and sustained profitability, or profitability at all, may not be possible .

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

Revenue from Butler Animal Health Supply, LLC d/b/a Henry Schein Animal Health ("Henry Schein") represented approximately 13% and 12% of our consolidated revenue for the six and three months ended June 30, 2016 as well as 11% of our consolidated revenue for the three months ended June 30, 2015. Revenue from Merck entities, including Merck Animal Health, represented approximately 11% and 14% of our consolidated revenue for the six and three months ended June 30, 2016, respectively, as well as 11% and 10% for the six and three months ended June 30, 2015, respectively. Revenue from Eli Lilly entities, including Elanco, represented approximately 11% and 14% of our consolidated revenue for the six and three months ended June 30, 2016, respectively. No other single customer accounted for more than 10% of our consolidated revenue for the six and three months ended June 30, 2016 or 2015.

-38

Merck entities accounted for approximately 21% of our consolidated accounts receivable, Eli Lilly entities accounted for approximately 13% of our consolidated accounts receivable and Henry Schein accounted for approximately 12% of our consolidated accounts receivable at June 30, 2016. No other single customer accounted for more than 10% of our consolidated accounts receivable at June 30, 2016.

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

We depend on key personnel for our future success. If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve our goals.

Our future success is substantially dependent on the efforts of our senior management and other key personnel, including our Chief Executive Officer and President, Kevin Wilson. The loss of the services of members of our senior management or other key personnel may significantly delay or prevent the achievement of our business objectives. Although we have employment agreements with many of these individuals, all are at-will employees, which means that either the employee or Heska may terminate employment at any time without prior notice. If we lose the services of, or fail to recruit, key personnel, the growth of our business could be substantially impaired. We do not maintain key person life insurance for any of our senior management or key personnel.

We may be unable to market and sell our products successfully.

We may not develop and maintain marketing and/or sales capabilities successfully, and we may not be able to make arrangements with third parties to perform these activities on satisfactory terms. If our marketing and sales strategy is unsuccessful, our ability to sell our products will be negatively impacted and our revenues will decrease. This could result in the loss of distribution rights for products or failure to gain access to new products and could cause damage to our reputation and adversely affect our business and future prospects.

The market for companion animal healthcare products is highly fragmented. Because our CCA proprietary products are generally available only to veterinarians or by prescription and our medical instruments require technical training to operate, we ultimately sell all our CCA products primarily to or through veterinarians. The acceptance of our products by veterinarians is critical to our success. Changes in our ability to obtain or maintain such acceptance or changes in veterinary medical practice could significantly decrease our anticipated sales. As the vast majority of cash flow to veterinarians ultimately is funded by pet owners without private insurance or government support, our business may be more susceptible to severe economic downturns than other health care businesses which rely less on individual consumers.

We recently have entered into agreements with independent third party distributors, including Henry Schein, which we expect to market and sell our products to a greater degree than in the recent past. Our agreement with Henry Schein prohibits us from selling our chemistry blood testing products and our hematology blood testing products to an independent third party distributor other than Henry Schein. Independent third-party distributors may be effective in increasing sales of our products to veterinarians, although we would expect a corresponding lower gross margin as such distributors typically buy products from us at a discount to end user prices. It is possible new or existing independent third-party distributors could cannibalize our direct sales efforts and lower our total gross margin. For us to be effective when working with an independent third-party distributor, the distributor must agree to market and/or sell our products and we must provide proper economic incentives to the distributor as well as contend effectively for the time, energy and focus of the employees of such distributor given other products the distributor may be

-39

carrying, potentially including those of our competitors. If we fail to be effective with new or existing independent third-party distributors, our financial performance may suffer.

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

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

Our future revenues depend on successful product development, commercialization and/or market acceptance, any of which can be slower than we expect or may not occur.

The product development and regulatory approval process for many of our potential products is extensive and may take substantially longer than we anticipate. Research projects may fail. New products that we may be developing for the veterinary marketplace may not perform consistently within our expectations. Because we have limited resources to devote to product development and commercialization, any delay in the development of one product or reallocation of resources to product development efforts that prove unsuccessful may delay or jeopardize the development of other product candidates. If we fail to successfully develop new products and bring them to market in a timely manner, our ability to generate additional revenue will decrease.

Even if we are successful in the development of a product or obtain rights to a product from a third-party supplier, we may experience delays or shortfalls in commercialization and/or market acceptance of the product. For example, veterinarians may be slow to adopt a product, a product may not achieve the anticipated technical performance in field use or there may be delays in producing large volumes of a product. The former is particularly likely where there is no comparable product available or historical precedent for such a product. The ultimate adoption of a new product by veterinarians, the rate of such adoption and the extent veterinarians choose to integrate such a product into their practice are all important factors in the economic success of one of our new products and are factors that we do not control to a large extent. If our products do not achieve a significant level of market acceptance, demand for our products will not develop as expected and our revenues will be lower than we anticipate. For example, our VitalPath Blood Gas and Electrolyte Analyzer, supplied under an agreement, the ("Roche Agreement"), with R oche Diagnostics Corporation ("Roche"), generated significantly less revenue than we anticipated following its launch in May 2010 as placements of this product with customers did not occur as we expected.

-40

Our stock price has historically experienced high volatility, and could do so in the future, including experiencing a material price decline resulting from a large sale in a short period of time. In addition, our Public Common Stock has certain transfer restrictions which could reduce trading liquidity from what it otherwise would have been and have other undesired effects.

Should a relatively large shareholder decide to sell a large number of shares in a short period of time, it could lead to an excess supply of our shares available for sale and correspondingly result in a significant decline in our stock price.

The securities markets have experienced significant price and volume fluctuations and the market prices of securities of many microcap and small cap companies have in the past been, and can in the future be expected to be, especially volatile. During the twelve months ended June 30, 2016, the closing stock price of our Public Common Stock has ranged from a low of $26.26 to a high of $40.73. Fluctuations in the trading price or liquidity of our Public Common Stock may adversely affect our ability to raise capital through future equity financings. Factors that may have a significant impact on the market price and marketability of our Public Common Stock include:


•	stock sales by large stockholders or by insiders;


•	changes in the outlook for our business;


•	our quarterly operating results, including as compared to expected revenue or earnings and in comparison to historical results;


•	termination, cancellation or expiration of our third-party supplier relationships;


•	announcements of technological innovations or new products by our competitors or by us;


•	litigation;


•	regulatory developments, including delays in product introductions;


•	developments or disputes concerning patents or proprietary rights;


•	availability of our revolving line of credit and compliance with debt covenants;


•	releases of reports by securities analysts;


•	economic and other external factors; and


•	general market conditions.

In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been instituted. If a securities class action suit is filed against us, it is likely we would incur substantial legal fees and our management's attention and resources would be diverted from operating our business in order to respond to the litigation.

On May 4, 2010, our shareholders approved an amendment (the "Amendment") to our Restated Certificate of Incorporation. The Amendment places restrictions on the transfer of our stock that could adversely affect our ability to use our domestic Federal Net Operating Loss carryforward ("NOL"). In particular, the Amendment prevents the transfer of shares without the approval of our Board of Directors if, as a consequence, an individual, entity or groups of individuals or entities would become a 5-percent holder under Section 382 of the Internal Revenue Code of 1986, as amended, and the related Treasury regulations, and also prevents any existing 5-percent holder from increasing his or her ownership position in the Company without the approval of our Board of Directors. Any transfer of shares in violation of the Amendment (a "Transfer Violation") shall be void ab initio under the our Restated Certificate of Incorporation, as amended (our "Certificate of Incorporation") and our Board of Directors has procedures under our 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. The Amendment could have an adverse impact on the value and trading liquidity of our stock if certain buyers who would otherwise have bid on or purchased our stock, including buyers who may not be comfortable owning stock with transfer restrictions, do not bid on or purchase our stock as a result of the Amendment. In addition, because some corporate takeovers occur

-41

through the acquirer's purchase, in the public market or otherwise, of sufficient shares to give it control of a company, any provision that restricts the transfer of shares can have the effect of preventing a takeover. The Amendment could discourage or otherwise prevent accumulations of substantial blocks of shares in which our stockholders might receive a substantial premium above market value and might tend to insulate management and the Board of Directors against the possibility of removal to a greater degree than had the Amendment not passed.

Interpretation of existing legislation, regulations and rules, including financial accounting standards, or implementation of future legislation, regulations and rules could cause our costs to increase or could harm us in other ways.

We prepare our financial statements in conformance with United States generally accepted accounting principles, or U.S. GAAP. These accounting principles are established by and are subject to interpretation by the SEC, the Financial Accounting Standards Board ("FASB") and others who interpret and create accounting policies. A change in those policies can have a significant effect on our reported results and may affect our reporting of transactions completed before a change is made effective. Such changes may adversely affect our reported financial results, the way we conduct our business or have a negative impact on us if we fail to track such changes.

If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we could experience unanticipated changes in our reported financial statements, including but not limited to restatements, which could adversely affect our business due to litigation and investor confidence in our financial statements. In addition, changes in the underlying circumstances to which we apply given accounting standards and principles may affect our results of operations and have a negative impact on us. For example, we review goodwill recognized on our consolidated balance sheets at least annually and if we were to conclude there was an impairment of goodwill, we would reduce the corresponding goodwill to its estimated fair value and recognize a corresponding expense in our statement of operations. This impairment and corresponding expense could be as large as the total amount of goodwill recognized on our consolidated balance sheets, which was $26.7 million at June 30, 2016. There can be no assurance that future goodwill impairments will not occur if projected financial results are not met, or otherwise.

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") has increased our required administrative actions and expenses as a public company since its enactment. The general and administrative costs of complying with Sarbanes-Oxley will depend on how it is interpreted over time. Of particular concern are the level of standards for internal control evaluation and reporting adopted under Section 404 of Sarbanes-Oxley. If our regulators and/or auditors adopt or interpret more stringent standards than we anticipate, we and/or our auditors may be unable to conclude that our internal controls over financial reporting are designed and operating effectively, which could adversely affect investor confidence in our financial statements and cause our stock price to decline. Even if we and our auditors are able to conclude that our internal control over financial reporting is designed and operating effectively in such a circumstance, our general and administrative costs are likely to increase. For example, in 2015, we were required to have our independent registered public accountant conduct an audit of our internal control over financial reporting because as of June 30, 2015 our stock market value was above a certain level prescribed by regulation. This increased our general and administrative costs from what they otherwise would have been.

Similarly, we are required to comply with the SEC's mandate to provide interactive data using the eXtensible Business Reporting Language as an exhibit to certain SEC filings. Compliance with this mandate has required a significant time investment, which has and may in the future preclude some of our employees from spending time on more productive matters. In addition, actions by other entities, such as enhanced rules to maintain our listing on the Nasdaq Capital Market, could also increase our general and administrative costs

-42

or have other adverse effects on us, as could further legislative, regulatory or rule-making action or more stringent interpretations of existing legislation, regulations and rules.

We often depend on third parties for products we intend to introduce in the future. If our current relationships and collaborations are not successful, we may not be able to introduce the products we intend to introduce in the future.

We are often dependent on third parties and collaborative partners to successfully and timely perform research and development activities to successfully develop new products. For example, we jointly developed point-of-care diagnostic products with Quidel Corporation. In other cases, we have discussed Heska marketing in the veterinary market an instrument being developed by a third party for use in the human health care market. In the future, one or more of these third parties or collaborative partners may not complete research and development activities in a timely fashion, or at all. Even if these third parties are successful in their research and development activities, we may not be able to come to an economic agreement with them. If these third parties or collaborative partners fail to complete research and development activities, fail to complete them in a timely fashion, or if we are unable to negotiate economic agreements with such third parties or collaborative partners, our ability to introduce new products will be impacted negatively and our revenues may decline. For example, we have experienced significant delays compared to our expectations in our development of products in collaboration with Rapid Diagnostek, Inc.

Our Public Common Stock is listed on the Nasdaq Capital Market and we may not be able to maintain that listing, which may make it more difficult for you to sell your shares. In addition, we have less than 300 holders of record, which would allow us to terminate voluntarily the registration of our common stock with the SEC and after which we would no longer be eligible to maintain the listing of our Public Common Stock on the Nasdaq Capital Market.

Our Public Common Stock is listed on the Nasdaq Capital Market. The Nasdaq has several quantitative and qualitative requirements companies must comply with to maintain this listing. While we believe we are currently in compliance with all Nasdaq requirements, there can be no assurance we will continue to meet Nasdaq listing requirements, that Nasdaq will interpret these requirements in the same manner we do if we believe we meet the requirements, or that Nasdaq will not change such requirements or add new requirements to include requirements we do not meet in the future. If we are delisted from the Nasdaq Capital Market, our Public Common Stock may be considered a penny stock under the regulations of the SEC and would therefore be subject to rules that impose additional sales practice requirements on broker-dealers who sell our securities. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our Public Common Stock, which could severely limit market liquidity of the Public Common Stock and any stockholder's ability to sell our securities in the secondary market. This lack of liquidity would also likely make it more difficult for us to raise capital in the future.

We have less than 300 holders of record as of our latest information, a fact which would make us eligible to terminate voluntarily the registration of our common stock with the SEC and therefore suspend our reporting obligations with the SEC under the Exchange Act and become a non-reporting company. If we were to cease reporting with the SEC, we would no longer be eligible to maintain the listing of our common stock on the Nasdaq Capital Market, which we would expect to materially adversely affect the liquidity and market price for our common stock.

-43

We may not be able to continue to achieve sustained profitability or increase profitability on a quarterly or annual basis.

Prior to 2005, we incurred net losses on an annual basis since our inception in 1988 and, as of June 30, 2016, we had an accumulated deficit of $159.8 million . Relatively small differences in our performance metrics may cause us to generate an operating or net loss in future periods. Our ability to continue to be profitable in future periods will depend, in part, on our ability to increase sales in our CCA segment, including maintaining and growing our installed base of instruments and related consumables, to maintain or increase gross margins and to limit the increase in our operating expenses to a reasonable level as well as avoid or effectively manage any unanticipated issues. We may not be able to generate, sustain or increase profitability on a quarterly or annual basis. If we cannot achieve or sustain profitability for an extended period, we may not be able to fund our expected cash needs, including the repayment of debt as it comes due, or continue our operations.

Many of our expenses are fixed and if factors beyond our control cause our revenue to fluctuate, this fluctuation could cause greater than expected losses, cash flow and liquidity shortfalls.

We believe that our future operating results will fluctuate on a quarterly basis due to a variety of factors which are generally beyond our control, including:


•	supply of products from third-party suppliers or termination, 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.

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

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

Under our credit and security agreement with Wells Fargo, we are required to comply with various covenants, both financial and non-financial, in order to borrow under the agreement. The availability of borrowings under this agreement is expected to be important to continue to fund our operations. A key financial covenant is based on a fixed charge coverage ratio, as defined in the credit and security agreement with Wells Fargo. Although we believe we will be able to maintain compliance with all these covenants and any covenants we may negotiate in the future, there can be no assurance thereof. We have not always been able to maintain compliance with all covenants under our credit and security agreement with Wells Fargo. Although Wells Fargo has granted us a waiver of non-compliance in each case, there can be no assurance we will be able to obtain similar waivers or other modifications if needed in the future on economic terms, if at all. Failure to comply with any of the covenants, representations or warranties, or failure to modify them to

-44

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

We may face product returns and product liability litigation in excess of, or not covered by, our insurance coverage or indemnities and/or warranties from our suppliers. If we become subject to product liability claims resulting from defects in our products, we may fail to achieve market acceptance of our products and our sales could substantially decline.

The testing, manufacturing and marketing of our current products as well as those currently under development entail an inherent risk of product liability claims and associated adverse publicity. Following the introduction of a product, adverse side effects may be discovered. Adverse publicity regarding such effects could affect sales of our other products for an indeterminate time period. To date, we have not experienced any material product liability claims, but any claim arising in the future could substantially harm our business. Potential product liability claims may exceed the amount of our insurance coverage or may be excluded from coverage under the terms of the policy. We may not be able to continue to obtain adequate insurance at a reasonable cost, if at all. In the event that we are held liable for a claim against which we are not indemnified or for damages exceeding the $10 million limit of our insurance coverage or which results in significant adverse publicity against us, we may lose revenue, be required to make substantial payments which could exceed our financial capacity and/or lose or fail to achieve market acceptance.

We may be held liable for the release of hazardous materials, which could result in extensive remediation costs or otherwise harm our business.

Certain of our products and development programs produced at our Des Moines, Iowa facility involve the controlled use of hazardous and bio hazardous materials, including chemicals and infectious disease agents. Although we believe that our safety procedures for handling and disposing of such materials comply with the standards prescribed by applicable local, state and federal regulations, we cannot eliminate the risk of accidental contamination or injury from these materials. In the event of such an accident, we could be held liable for any fines, penalties, remediation costs or other damages that result. Our liability for the release of hazardous materials could exceed our resources, which could lead to a shutdown of our operations, significant remediation costs and potential legal liability. In addition, we may incur substantial costs to comply with environmental regulations if we choose to expand our manufacturing capacity.

-45

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

The following table sets forth information about our purchases of our outstanding Public Common Stock during the quarter ended June 30, 2016 :



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	—	—

(1) Shares of Public Common Stock we purchased between April 1, 2016 and June 30, 2016 were solely for the cancellation of shares of restricted stock to pay withholding taxes.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information.

None.

-46


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.

- -47 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on August 8, 2016.



	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)

-48

Exhibit Index



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.

-49

Exhibit 10.1

Execution Version

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

ASSIGNMENT AND ASSUMPTION AGREEMENT

(Supply Agreement)

THIS ASSIGNMENT AND ASSUMPTION AGREEMENT (this " Agreement ") is made and entered as of the Closing (defined below) (the " Effective Date "), by and among Heska Imaging US, LLC , a Delaware limited liability company formerly known as Cuattro Veterinary U.S.A., LLC (" Imaging US "), Heska Imaging Global, LLC , a Delaware limited liability company (" Imaging Global "), Cuattro, LLC , a Colorado limited liability company (" Cuattro ") and Heska Imaging International, LLC , a Delaware limited liability company formerly known as Cuattro Veterinary, LLC (" Imaging International ").

WHEREAS, Imaging US and Cuattro are parties to that certain Supply Agreement dated as of February 24, 2013, and all amendments thereto (the " Supply Agreement ");

WHEREAS, Cuattro is a party to that certain Agreement and Plan of Merger among Heska Corporation (" Heska "), its wholly-owned subsidiary Cuattro International Merger Subsidiary, Inc., a Delaware corporation (" Merger Sub ") , Imaging International, Kevin S. Wilson and all members of Imaging International, including Cuattro, dated as of March 14, 2016 (the " Merger Agreement "), pursuant to which Merger Sub will merge with and into Imaging International with Imaging International surviving such merger as a wholly-owned subsidiary of Heska (the " Merger "), which following the Closing under the Merger Agreement (the " Closing ") will be called Heska Imaging International, LLC;

WHEREAS, it is a condition of the obligations of the parties to the Merger Agreement to consummate the Merger and the other transactions contemplated by the Merger Agreement that the Supply Agreement be assigned to Global Imaging and amended as set forth herein;

WHEREAS, to facilitate the transactions between its affiliate, Heska, and Cuattro, as contemplated by the Merger Agreement, which are of potential benefit to Imaging US, Imaging US is willing to enter into this Agreement to assign the Supply Agreement to Imaging Global and to amend the Supply Agreement on the terms and conditions of this Agreement;

WHEREAS, Section 18.7 of the Supply Agreement requires Cuattro's prior written consent before Imaging US may assign its rights under the Supply Agreement, and, to induce Heska to enter into the Merger Agreement, which Heska would not do unless Cuattro enters into this Agreement, Cuattro is willing to enter into this Agreement to consent to Imaging US's assignment of the Supply Agreement to Imaging Global and to amend the Supply Agreement on the terms and conditions of this Agreement; and

NOW, THEREFORE, for and in consideration of the Closing, the premises and the mutual covenants contained herein, and for other good and valuable consideration, the receipt, adequacy and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

1. Assignment and Assumption . Effective as of the Closing, Imaging US hereby assigns, sells, transfers and sets over to Imaging Global all of Imaging US's right, title, benefit, privileges and interest in and to the Supply Agreement, and all of Imaging US's burdens and obligations in connection with the Supply Agreement (collectively, the " Assignment "). Imaging Global hereby accepts the Assignment and assumes and agrees for the benefit of Imaging US and Cuattro to be bound by, observe, perform, pay and discharge all of Imaging US's duties, liabilities, obligations, terms, provisions and covenants solely to the extent they are to be observed, performed, paid or discharged on and after the Effective Date, in connection with the Supply Agreement (collectively, the " Assumption ").

2 . Consent and Agreement of Cuattro . In accordance with Section 18.7 of the Supply Agreement, Cuattro hereby consents to the Assignment and Assumption. Cuattro further acknowledges and agrees that all of Cuattro's burdens and obligations under the Supply Agreement shall survive the assignment and assumption of the Supply Agreement in accordance with the terms and conditions thereof. The Assignment and Assumption shall not relieve Imaging US of responsibility for the performance of any accrued obligation which it has as of the Effective Date.

3 . Amendments to Supply Agreement . In accordance with Section 18.6 of the Supply Agreement:

3.1 Amendment to Territory . Effective as of the Closing, the definition of "Territory" in Exhibit B to the Supply Agreement is hereby amended to read as follows: ""Territory" shall be defined as the Market throughout the world."

3.2 Amendment to Allow Subdistributors . Effective as of the Closing, the following sentence is hereby added as the final sentence of Section 1.1 of the Supply Agreement: "Notwithstanding any provision of this Agreement to the contrary, Heska Imaging Global, LLC (" Imaging Global "), as successor in interest to Vet USA, may appoint its Affiliate, Heska Imaging US, LLC (" Imaging US "), as a subdistributor to exercise all the rights, and fulfill all of the obligations, under this Agreement in the portion of the Territory comprising the United States, and may appoint its affiliate, Heska Imaging International, LLC (" Imaging International ") as a subdistributor to exercise all of the rights, and fulfill all of the obligations, under this Agreement in the portion of the Territory outside the United States, and, upon such appointments, all references to "Vet USA" in this Agreement shall be deemed to refer to Imaging US with respect to the portion of the Territory comprising the United States and Imaging International with respect to the portion of the Territory outside the United States."

4. Appointment of Subdistributors .

4.1 Appointment of Imaging US . Effective as of the Closing, in accordance with Section 1.1 of the Supply Agreement and as authorized herein, Imaging Global hereby appoints Imaging US as its subdistributor under the Supply Agreement with respect to the portion of the Territory comprising the United States (the " US Territory ") to hold and exercise all of Imaging Global's rights under the Supply Agreement with respect to the US Territory, and

Imaging US hereby accepts such appointment and agrees, for the benefit of Cuattro, to perform all of Imaging Global's obligations under the Supply Agreement with respect to the US Territory.

4.2 Appointment of Imaging International . Effective as of the Closing, in accordance with Section 1.1 of the Supply Agreement and as authorized herein, Imaging Global hereby appoints Imaging International as its subdistributor under the Supply Agreement with respect to the portion of the Territory outside the United States (the " International Territory ") to hold and exercise all of Imaging Global's rights under the Supply Agreement with respect to the International Territory, and Imaging International hereby accepts such appointment and agrees, for the benefit of Cuattro, to perform all of Imaging Global's obligations under the Supply Agreement with respect to the International Territory.

5. No Other Consideration . The assignments and rights granted by Imaging US to Imaging Global in this Agreement are to facilitate, and in consideration of, the transactions contemplated by the Merger Agreement, and no other consideration shall be given by Imaging Global or received by Imaging US in connection with this Agreement or the transactions contemplated by the Merger Agreement.

6. Remaining Terms . All parties acknowledge that a true, correct and complete copy of the Supply Agreement, together with all amendments thereto, is attached hereto as Exhibit A . Except as specifically modified pursuant to this Agreement, all terms and provisions of the Supply Agreement shall remain in full force and effect as set forth therein. Nothing in this Agreement shall constitute or be construed to be a termination of the Supply Agreement.

7. Further Actions . Each of the parties hereto covenants and agrees, at its own expense, to execute and deliver, at the request of the other parties hereto, such further instruments of transfer and assignment and to take such other action as such other parties may reasonably request to more effectively consummate the Assignment and Assumption contemplated by this Agreement.

8. Amendment and Waiver . No provision of this Agreement may be amended, modified, supplemented or waived except by an instrument in writing executed by all of the parties hereto or, in the case of an asserted waiver, executed by the party against which enforcement of the waiver is sought. The rights and remedies of the parties to this Agreement are cumulative and not alternative.

9. Assignment . Neither this Agreement nor any right created hereby is assignable by any of the parties hereto without the prior written consent of the other parties; provided , that the Supply Agreement, as amended hereby, shall continue to be assignable on the terms and conditions set forth in Section 18.7 thereof.

10. Governing Law . This Agreement will be governed by, and construed in accordance with, the laws of the State of Colorado without reference or regard to the conflicts of law rules thereof.

11. Counterparts . This Agreement may be executed in any number of counterparts and by facsimile, each of which will be deemed an original, and all of which together will constitute one and the same instrument.

12. Integration . This Agreement, together with the Supply Agreement, constitutes the sole and entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter, including without limitation (i) that certain Management Agreement, dated November 1, 2012, by and between Cuattro and Imaging International, as amended by that certain Amendment to Management Agreement, dated December 31, 2012; and (ii) that certain License Agreement, dated December 31, 2009, by and between Cuattro and Imaging International.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.



"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

[Signature Page to Assignment and Assumption Agreement (Supply Agreement)]

EXHIBIT A

Supply Agreement

[Attached]

Ex. A

March 4, 2013

Cuattro, LLC

PO Box 4605

Edwards, CO 81632

Attention: Kevin Wilson - Member, Officer

Re: Supply Agreement by and between Heska Imaging US, LLC (" Heska Imaging ") and Cuattro, LLC ("Cuattro")

Dear Mr. Wilson:

It has come to my attention that the Supply Agreement dated February 22, 2013 which was executed between Cuattro and Heska Imaging via electronic signatures on February 24, 2013 (the "Incomplete Agreement") did not include the Master Warranty and Support Terms and Conditions ("MWSTC") we had previously agreed to in Exhibit C. I apologize for the oversight in closing documents. To remedy this situation, we subsequently executed the attached Supply Agreement dated February 24, 2013 with the MWSTC we had previously agreed to in Exhibit C properly included, with typographical errors related to Cuattro's legal name and address corrected on page 18 and with both of our signatures on the same page executing the document as authorized signatories on behalf of each of Cuattro and Heska Imaging, as applicable (the "Complete Agreement").

This letter will constitute our understanding that the Incomplete Agreement will have no further force or effect and that the Complete Agreement shall supersede in its entirety the Incomplete Agreement, with the Complete Agreement from and after its date of execution to be deemed for all purposes to be the duly authorized, executed and delivered, and legally binding and enforceable, agreement between Heska Imaging and Cuattro with respect to the subject matter covered by the Complete Agreement.



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

SUPPLY AGREEMENT

This Supply Agreement (the " Agreement ") is made and entered into as of February 24, 2013 (the " Effective Date ") by and among Cuattro, LLC , a Colorado limited liability company (" LLC "), and Heska Imaging US, LLC , a Delaware limited liability company formerly known as Cuattro Veterinary U.S.A., LLC (" Vet USA "). In this Agreement LLC and Vet USA may be individually referred to as a "Party" and collectively as the "Parties."

RECITALS:

A. Vet USA has entered into that certain Amended and Restated Master License Agreement with LLC dated as of February 22, 2013 (" License Agreement ") whereby Vet USA has the right to sublicense the software described in the License Agreement (the " Software ").

B. LLC designs, develops and procures software and hardware components. LLC may sell the software and components individually or it may assemble, inspect, test and then deliver as "ready for shipment" digital imaging products.

C. Vet USA wishes to use the Software in connection with its sale or lease of the products which it purchases from LLC.

D. Vet USA wishes to minimize its costs by using LLC's existing and future technologies, maintenance, research, development, and deployment infrastructure and expertise.

E. Vet USA is also interested in reducing its costs by ordering all of its major components from LLC. The Parties believe this will enable LLC to obtain volume discounts and reduced pricing, for the benefit of Vet USA and LLC.

F. Vet USA wishes LLC to provide it with its digital imaging products and technical help. After a product or Software is delivered and accepted by Vet USA, Vet USA wishes LLC to provide warranty and support to Vet USA in support of those products.

G. Vet USA and LLC previously entered into that certain Management Agreement dated as of November 1, 2012 (the " Management Agreement "), which Management Agreement is superseded in its entirety by this Agreement.

AGREEMENT:

NOW, THEREFORE, in consideration of the foregoing recitals and the covenants and conditions set forth in this Agreement, the Parties to this Agreement agree as follows:

1. Appointments .

1.1 LLC hereby appoints Vet USA to be the exclusive distributor either for itself or through authorized third party or affiliated distributors, representatives or resellers (" Distributors ") of the Products to Customers, in the Territory, as those terms are defined in Exhibit A "Products" and Exhibit B "Market, Territory, Customers"; with exclusive rights to sell, rent, license or otherwise provide Products (including the third party equipment sold to Vet USA by LLC (the "Equipment") included in, and services related to, the Products) to such Customers.

(a) Vet USA accepts such appointment and Vet USA agrees to use reasonable commercial efforts to actively market and sell the Products to Customers.

(b) Vet USA agrees to use reasonable commercial efforts to ensure that Distributors adhere to the terms of this Agreement and the License Agreement.

1.2 Vet USA hereby agrees that LLC shall be its exclusive provider of Services (as defined in Section 3 of this Agreement) and Software licensed under the License Agreement.

2. Termination; Post-Termination Supply .

2.1 Term . The initial term of this Agreement shall commence as of the Effective Date and continue through December 31, 2022 (" Initial Term "). Commencing on January 1, 2023, this Agreement shall continue on a year-to-year basis unless on or before September 30 of any calendar year (i) Vet USA notifies LLC in writing that it wishes to terminate the Agreement, provided, that such termination shall be effective as of December 31 ^st of the third calendar year following the year in which such notification is given (such period, a " Vet USA Cancellation Term "), or (ii) LLC notifies Vet USA in writing that it wishes to terminate the Agreement, provided, that such termination shall be effective as of December 31 ^st of the fifth calendar year following the year in which such notification is given (such period, an " LLC Cancellation Term "). During a Vet USA Cancellation Term or LLC Cancellation Term, Vet USA shall be free to develop, but not commercialize or sell, Competitive Products (as defined in Section 10.5 below); provided, however, that in no case shall those Competitive Products developed during such period be based upon Confidential Information of LLC, the Intellectual Property of LLC, the Products, or benchmarks or derivatives of the Products.

2.2 Termination for Cause . Notwithstanding Section 2.1, this Agreement may be terminated before the expiration of the Initial Term and/or any renewal term as follows (each of the following a termination for " Cause "):

(a) Either Party may terminate this Agreement by delivering written notice to the other Party upon the occurrence of any of the following events: (i) a receiver is appointed for the other Party or its property; (ii) if the other Party makes a general assignment for the benefit of its creditors; (iii) if the other Party commences, or has commenced against it, proceedings under any bankruptcy, insolvency or debtor's relief law, which proceedings are not dismissed within ninety (90) days; (iv) if the other Party is liquidated or dissolved, (v) if the other Party becomes unable to make payment of amounts due to creditors in a timely and dependable fashion;

(b) Either Party may terminate this Agreement effective upon written notice to the other if the other Party violates any covenant, agreement, representation or warranty contained herein in any material respect or defaults or fails to perform any of its obligations or agreements hereunder in any material respect, or fails to make any payment when due, which violation, default or failure is not cured within ninety (90) days after notice thereof from the non-defaulting Party stating its intention to terminate this Agreement by reason thereof; or

(c) Either Party may terminate this Agreement effective upon written notice to the other if the License Agreement is terminated or voided for any reason; provided, however, that termination of this Agreement pursuant to this Section 2.2(c) will only be deemed for Cause if the License Agreement was terminated for Cause in accordance with its terms.

2.3 Failure to Meet Minimum Annual Volume . If, during calendar year 2013 or 2014 Vet USA does not purchase the Minimum Annual Volume (as defined in Section 9.3 below) for such calendar year, Vet USA will pay to LLC the amount due for such shortfall pursuant to the pricing terms and conditions set forth in this Agreement (the " Take or Pay Payment "). LLC shall invoice Vet USA for the amount of such Take or Pay Payment within thirty (30) days following the end of each calendar year in which such Take or Pay Payment has accrued, and Vet USA shall pay the Take or Pay Payment amount within thirty (30) days after receipt of such invoice. Beginning in calendar year 2015 and thereafter, in the event Vet USA does not purchase the Minimum Annual Volume in any calendar year, (i) LLC shall have the right, but not the obligation, to terminate this Agreement upon ninety (90) days written notice to Vet USA on or before April 30 ^th of the following calendar year, and (ii) LLC shall be free of exclusivity obligations hereunder and may sell all Products to Customers or any third party thereafter.

2.4 Post Termination Supply Period . For five (5) years from the date of termination of the Agreement, LLC shall make available the Products, Support, and Services (“Post Termination Supply Period”). During the Post Termination Supply Period both LLC and Vet USA shall be free of exclusivity and commercialization obligations hereunder. If the Agreement is terminated by LLC for Cause, there will be no obligation of LLC under Post Termination Supply Period. During Post Termination Supply Period, Vet USA shall have the right to sell off or otherwise distribute any Products that Vet USA held in inventory as of termination of this Agreement to any existing or future Customer; provided, however, any Products purchased by Vet USA from LLC during the Post Termination Supply Period may only be sold or otherwise distributed to existing Customers to repair or replace Products owned by such Customers prior to termination of this Agreement.

(a) In the event that the Agreement is terminated by LLC pursuant to Section 2.3 above, then, during the Post Termination Supply Period, Vet USA shall (i) have the right (but not the obligation) to purchase Products, Support and Services, without the obligations under Section 1.1(a), under pricing terms for Products, Support and Services that shall be set under the rate provided for in this Agreement, multiplied by 1.65, rather than as set forth in Section 6 below.

(b) In the event that the Agreement is terminated (i) by Vet USA for Cause, or (ii) pursuant to a Vet USA Cancellation Term or LLC Cancellation Term, then at Vet USA's option in its sole discretion Vet USA's rights and benefits (but not its obligations under the second sentence of Section 1.1) to purchase Products, Support, and Services hereunder, and LLC's obligation to provide such Products, Support and Services, shall continue for the Post Termination Supply Period, at the prices and costs set forth in Section 6 below.

2.5 Payment Obligations . All monies owed to LLC for purchases of Products prior to termination shall become immediately due and payable and no cancellation or termination of this Agreement shall serve to release Vet USA or its successors or assigns from any payment obligations under this Agreement. Failure by LLC at any time to require payment from Vet USA under this Agreement shall not affect LLC's right to require payment at a later date. All orders received by LLC prior to termination shall be filled in accordance with, and subject to the terms and conditions hereof, and Vet USA shall make all payments with respect thereto as provided herein.

2.6 Survival of Obligations . The provisions of Sections 2.4, 2.5, 3.4, 3.5, 6, 7, 8.5, 8.6, 9, 10.7, 11, 12, 13, 14, 16, 17, and 18 and such other provisions that by their nature survive termination, shall survive during the Post Termination Supply Period. The provisions that by their

nature survive termination, shall survive the expiration or termination of this Agreement and the Post Termination Supply Period and continue to be enforceable in accordance with their respective terms and conditions set forth in this Agreement.

3. Services . In making the Services available during this Agreement, LLC shall use substantially the same degree of care as it employs in making the same Services available for its own operations to its other customers. During the Initial Term of this Agreement and any renewal term (and with respect to Sections 3.4 and 3.5, also during the Post Termination Supply Period), LLC shall provide Vet USA with the following with respect to the Products (collectively, the " Services "):

3.1 Product Development . LLC will source, test, develop, and perform product research and development, including without limitation, that specified in Section 8, development of specifications and pricing targets.

3.2 Training . LLC will provide Vet USA with a reasonable amount of training (not to exceed five (5) days per calendar year) in the proper use and day to day routine support of the Products, as may be reasonably requested by Vet USA, in order for Vet USA to be able to exercise its rights herein. Training will be scheduled by mutual agreement as to frequency, date, and location. Costs for round trips, meals, lodging, and other expenses of the dispatched personnel of LLC for training shall be borne by Vet USA.

3.3 Support Materials . As they are available for general release, LLC will make available to Vet USA, for download in electronic format, LLC's customer service materials, training materials, troubleshooting materials, and marketing materials, for use by Vet USA in developing its own materials. LLC agrees to cooperate with Vet USA by providing documents and information necessary for regulatory filings.

3.4 PACS and Data Hosting . LLC shall provide to Vet USA, to the extent reasonably requested and paid for pursuant to this Agreement and the License Agreement, the services to be provided by Vet USA to a Customer as listed under Exhibit C "Master Warranty and Support Terms and Conditions" (" MWSTC ") that is in force and enforceable with that Customer, or otherwise reasonably necessary from time to time to distribute and support Products in accordance with this Agreement, including but not limited to, the services set forth under the PACS and Data Hosting portion of Exhibit A.

3.5 Logistics and Management . LLC shall provide to Vet USA, to the extent reasonably requested and paid for pursuant to this Agreement and the License Agreement the logistics and management services set forth on Exhibit D; provided, however, that if after one year from the commencement of this Agreement, or earlier by mutual written agreement, Vet USA requests in writing to remove a specific service set forth on Exhibit D, following ninety (90) days notice, LLC shall cease to provide such service and shall not be obligated to provide such service thereafter.

4. [Intentionally omitted] .

5. Software Products . LLC will provide Vet USA the licenses to Software, for Customers in the Territory, subject to payment of all amounts when due, in accordance with the terms and conditions of the License Agreement and MWSTC. Software excludes the operating system of the computer CPU.

5.1 Updates and Fixes . LLC will correct or cause to be corrected any failure of Software to perform substantially in accordance with LLC's documentation, including corrections for programming errors, bug fixes and error corrections, either by updating or replacing the Software or by taking appropriate corrective action.

5.2 Compatibility Updates . LLC will provide or cause to be provided such updates to the Software as are necessary to make the Software compatible with new releases of the Equipment and operating systems approved by LLC on which the Software is licensed to run; provided, however, that LLC shall ensure that the Software is compatible with at least one version of the Equipment and operating systems that are then currently supported by their manufacturers. Updates shall be provided to Vet USA via Internet upload and will include necessary documentation.

5.3 Software Support . During the term of this Agreement and during the Post Termination Supply Period, LLC agrees to use commercially reasonable efforts to provide to Vet USA the support offered to Customers in the Software Support Agreement of MWSTC (" Support ") during the Initial Support Term and any Renewal Support Option (as defined in the MWSTC) for which Vet USA has paid pursuant to Section 6.3 hereof. Notwithstanding anything in this Section 5.3, Support shall end on the final day of the Post Termination Supply Period, unless otherwise agreed to in writing, in advance, by and between LLC and Vet USA or LLC and Customer(s).

6. Compensation . In consideration of LLC's performance pursuant to this Agreement, Vet USA agrees to pay LLC as follows:

6.1 Subject to Section 2.4 above, LLC agrees to the provide Vet USA the following services on an ongoing basis. The services in (a), (b), (c) and (f) shall be at the lower of the prices set forth below or the prices, terms and discounts offered to other resellers or distributors of LLC, excepting only those human medical distributors or resellers located, and for distribution, in China (the "MFN Pricing"):

(a) A fee of [***] for each Study under Data Hosting (as defined and limited by MWSTC);

(b) A fee of [***] for each Data Migration (as defined and limited by MWSTC). Such Data Migration shall only occur upon LLC's receipt of a purchase order from Vet USA;

(c) A fee of [***] for adding each DICOM Node (as defined and limited by MWSTC). Such DICOM Node addition shall only occur upon LLC's receipt of a purchase order from Vet USA;

(d) An annual fee, payable on March 1 of each calendar year, of [***] for Data Hosting usage and availability, including any upgrades, updates, fixes, or enhancements, if any, of Data Hosting;

(e) Timely payment of License Agreement fees;

(f) A fee of [***], plus reimbursable, actual, documented travel expenses and incidentals submitted on an expense form, for performance of an on-

site installation, service call, warranty call, demonstration, or education of a Vet USA customer by an LLC employee; and

6.2 The price for those portions of the Products not otherwise set forth in Section 6.1 above, at LLC's cost (see Section 11 "Prices");

6.3 A monthly fee for the Support services set forth in Section 5.3. The monthly fee shall be at LLC's cost for services provided. LLC’s cost shall be allocated pro rata on the basis of total gross revenues amongst Vet USA and all affiliates of LLC being provided such Support; provided, however, LLC may make a one time election upon written notice to Vet USA to change such allocation to the basis of total time spent providing Support among Vet USA and all affiliates of LLC being provided such services from time to time. The monthly fee for Support will be invoiced monthly and payable net 30 days from the date of Vet USA's receipt of each such invoice. Such fees shall be payable by Vet USA only for so long as such services are being provided to Vet USA.

6.4 A monthly logistics and management fee for the services set forth on Exhibit D to this Agreement. The monthly fee shall be at LLC's cost for services provided. For any specific LLC cost that is solely for the benefit of Vet USA, 100% of that cost will be allocated to Vet USA. For any specific LLC cost that is for the benefit of Vet USA and another affiliate of LLC, such cost shall be allocated pro rata on the basis of total gross revenues among Vet USA and all affiliates of LLC being provided such services from time to time, to be invoiced monthly and payable net 30 days from the date of Vet USA's receipt each such invoice. Such fees shall be payable by Vet USA only for so long as such services are being provided to Vet USA.

7. Disclaimer, Limited Liability . EXCEPT FOR BREACH OF CONFIDENTIALITY OBLIGATIONS SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY'S LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED FOUR MILLION DOLLARS. EXCEPT FOR BREACH OF CONFIDENTIALITY OBLIGATIONS SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY ARISING OUT OF, OR OTHERWISE RELATING TO, THIS AGREEMENT, FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL, COLLATERAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES SUFFERED BY THE OTHER PARTY OR ANY THIRD PARTY INCLUDING, WITHOUT LIMITATION, LOSS OF GOODWILL, LOSS OF PROFITS OR REVENUES, LOSS OF SAVINGS, LOSS OF USE, INTERRUPTION OF BUSINESS, INJURY OR DEATH TO PERSONS OR DAMAGE TO PROPERTY, WHETHER BASED ON BREACH OF CONTRACT, TORT OR ARISING IN EQUITY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

8. Research and Development Obligations of LLC . During the term of this Agreement, LLC will continue to perform its usual and customary research and development activities in the ordinary course of business. When not limited or prohibited by contractual limitations, provided that LLC uses commercially reasonable efforts to avoid such limitations, any results of LLC's research and development efforts that can be commercialized in the Territory will be added to "Products" on Exhibit A of this Agreement, at Vet USA's option.

8.1 LLC Modification and Upgrades to Products . LLC will use commercially reasonable efforts to update the Products so that they will be competitive in the Territory. LLC

agrees to use commercially reasonable efforts to provide Vet USA with such new Equipment or Software modifications or upgrades, under terms that are reasonable and negotiated in good faith between the Parties. In the event that such upgrades or modifications include substantial development work, LLC will provide an estimate and a scope of work to Vet USA for the non-recurring engineering fee for such work (" New Development Cost "). Vet USA shall approve or disapprove of the New Development Costs. If Vet USA declines to approve New Development Costs, LLC shall be under no obligation to provide Vet USA the resulting Products, Software, features, modifications, benefits, or upgrades, arising from the New Development Costs, or future iterations arising therefrom.

8.2 Distribution of Modifications and Upgrades . Vet USA shall have the right to implement new versions of the Equipment and Software as they become available. Vet USA may upgrade any field inventory and implement the new versions subject to Vet USA's timetable for minimizing rework and obsolescence, provided however that Vet USA shall bear all costs for such work, rework, or upgrades to field Equipment or Software, whether owned by Vet USA or End User customers of Vet USA.

8.3 Vet USA Proposed Enhancements . Vet USA may, from time to time, request significant functionality enhancements to Software or Equipment. Vet USA shall communicate the proposed enhancement, with a written request. LLC will respond with a written estimate of the scope of work and the total fee, if any, for the proposed enhancement. If LLC, in its sole and absolute discretion, agrees to develop any such enhancements, the Parties may enter into a mutually agreeable written scope of work, setting forth the terms and conditions, price, and New Development Costs of the development of such enhancements, which may provide for additional payments by Vet USA to LLC. The fee for any such enhancements will be paid at a rate agreed upon by the parties. The Intellectual Property shall accrue solely to LLC, unless otherwise agreed to in writing, in advance, by the Parties.

8.4 Product Modifications . Effective nine (9) months after providing written notice to Vet USA, LLC may discontinue the manufacture of any specific Product, provided that LLC shall (i) maintain the capability to repair or replace, with new or used items, the discontinued Products as required by in force MWSTC for each Product sold (but not for Products for which warranty and support coverage pursuant to MWSTC has expired and in no case longer than five (5) years from the time the Product was delivered or sold to Vet USA), and (ii) maintain the capability to provide documentation and spare parts (at a price not to exceed (3) three times actual out of pocket cost) for discontinued Products for a minimum of five (5) years after the written notice of such removal. LLC may make changes to any manufacturing source, controlled process parameters or sources and materials used with respect to the production of any of the Products and to otherwise modify any of the Products; provided, however, that LLC will provide Vet USA with at least sixty (60) days written notice of any changes in the form, fit, performance, or function of any of the Products, along with details of such changes. In the event LLC replaces or updates a Product, Vet USA shall be entitled to acquire the updated or replaced version under the same terms as set forth in this Agreement. Pricing and relevant terms and conditions for new products and new product lines, intended for use by Customers in the Territory, shall be negotiated in good faith by the Parties and shall, unless otherwise negotiated in good faith and agreed to in writing by the Parties, be based upon the same pricing, Costs (as defined in Section 11.2 below), and logistics fee principles as set forth herein.

8.5 Original Manufacturer Disclosure . The Parties understand and agree that Products may be manufactured by suppliers of LLC (each an " Original Manufacturer "). Product from an Original Manufacturer will be subject to the terms and conditions negotiated between LLC and the Original Manufacturer, from time to time. During any negotiations with an Original Manufacturer, LLC shall use its most reasonable commercial efforts to maintain terms and conditions consistent with this Agreement. In the event of a materially adverse change, as it relates to this Agreement, in terms or conditions between LLC and an Original Manufacturer, LLC shall notify Vet USA of such materially adverse changes and the Parties shall use their most commercially reasonable efforts to mitigate the effect of the adverse changes and to modify this Agreement in light of such circumstances. In no event shall LLC be liable, under any theory, for damages, direct, indirect, or consequential, whether or not LLC has prior knowledge, arising from or relating to an adverse change in terms or conditions between LLC and an Original Manufacturer. LLC shall use its most reasonable commercial efforts to enforce its warranty and other rights against the Original Manufacturers. In the event that LLC is unable or unwilling to enforce such rights, LLC shall assign such rights to Vet USA for enforcement and LLC agrees to cooperate with Vet USA in such enforcement.

8.6 Vet USA Access to Locked Product Equipment . If any Product is delivered or is modified by LLC with a feature or configuration that is designed to or results in a "lock out" of a third party that prevents a third party software from operating the Equipment, while still allowing LLC Software to operate the Equipment, then LLC shall make available to Vet USA the "unlocking" feature and protocol, during the Agreement and for a period of five (5) years following termination of the Agreement (except for termination by LLC for Cause), so that Vet USA can operate the Equipment with third party software.

9. Orders and Shipment.

9.1 Order Placement . In placing purchase orders with LLC, Vet USA shall detail the quantity of each digital x-ray detector Equipment, Software Product, acquisition console Equipment and X-ray generator Equipment. Vet USA shall place all orders with a requested receipt date of sixty (60) days or later from the date of the transmission of its written purchase order to LLC (" Lead Time ").

9.2 Order Acceptance . The orders shall not be binding unless and until they are accepted by LLC in its sole discretion, which acceptance shall not be unreasonably withheld, and provided that acceptance shall be deemed to have occurred fifteen (15) days after receipt by LLC of each order. Once the order is accepted by LLC pursuant to this Section 9.2, it is binding and not cancellable by Vet USA.

9.3 Minimum Annual Volume . A "Unit" is defined as the combined purchase of at least one (1) digital x-ray detector equipment (of any type or brand) together with one (1) copy of Software purchased by Vet USA from LLC for use or sale together as a unit. Vet USA shall purchase an annual minimum quantity of Units in each calendar year that is equal to or greater than [***] (" Minimum Annual Volume "). Minimum Annual Volume shall rise three (3%) percent (rounded up to the nearest Unit) per calendar year for each year of the Agreement. For the purposes of this Section 9.3, Products shall be considered purchased when received and accepted by Vet USA and paid in full; provided, that if LLC is unable to timely supply Units that were ordered by Vet USA within the Lead Time to provide for delivery within the calendar year, such ordered Units shall be considered to have been purchased by Vet USA during such calendar year for purposes

of calculating Vet USA's purchasing of the Minimum Annual Volume in that year. For the avoidance of doubt, in 2013, the Minimum Annual Volume is [***]. In 2014, the Minimum Annual Volume is [***] Units, and so on. Vet USA must purchase the Minimum Annual Volume in 2013 and 2014 or pay the Take or Pay Payment. Thereafter, Vet USA's failure to purchase the Minimum Annual Volume shall have the effects set forth in Section 2.3 above.

10. Exclusivity . Subject to Sections 2.3 and 2.4 above, Vet USA is hereby granted exclusive rights during the term of this Agreement to purchase the Products for distribution in the Market, in the Territory, to Customers as set forth in Section 1.1.

10.1 LLC Efforts to Protect . Upon receipt of a violation of Territory notice from Vet USA, LLC shall use its most reasonable commercial efforts to protect the Territory, including (i) legally voiding warranty and software license renewal, (ii) refusing software activation or reactivation on Products illicitly sold and (iii) requesting from the party responsible for illicit sale of the Products in the territory the disgorgement and payment to Vet USA of profits from the sale of the Products in the Territory.

10.2 Exclusive Territory Protections by LLC . LLC shall not knowingly allow any party to sell, directly or indirectly, or export any Product into the exclusive Territory.

10.3 No Services to Competitors . During the term of this Agreement, LLC shall not perform Services in the Territory for any company that is in direct competition with the business from Customers for the Products of Vet USA, without prior written consent of Vet USA.

10.4 No Export or Gray Market by Vet USA . Vet USA undertakes not to sell, lease or lend, or knowingly participate in any way, directly or indirectly, through one or more relationships or contracts in the sale, lease, lending or other distribution of, the Products or any products or services that contain, in whole or in part, the Products, for use, demonstration, resale, or export outside of the Territory.

10.5 Exclusive Provider . Subject to Section 2.1 above, without the prior written consent of LLC, during the Initial Term or any renewal term of this Agreement, Vet USA shall not sell, lease, lend, purchase, develop or evaluate for sale, directly or indirectly, through one or more relationships or contracts, any products that, in the reasonable judgment of LLC, are, would, or contain technologies competitive with the Products or Services. This limitation shall include, but not be limited to digital radiography detection components devices or panels, digital radiography acquisition software, PACS, or Data Hosting from any other third party, company, or entity (" Competitive Products "). For purposes of this Agreement, panels shall include, but not be limited to digital radiography flat panel detectors, computed radiography, and CCD based technologies. Vet USA may take as a trade-in on and credit towards the sale of new Products used products owned by Customer(s), and Vet USA may sell up to a total of seventy-five (75) used and refurbished products per year, and such units shall not be deemed Competitive Products. Notwithstanding the foregoing, in the event that, during the Initial Term or any renewal term of this Agreement, LLC is unable to timely supply for a period of more than sixty (60) days Vet USA's orders of Competitive Products or other Products or Services limited by this Section 10.5, Vet USA may, for so long as such inability continues and a reasonable sell-off period thereafter, purchase and distribute any such Products, Services or Competitive Products from third parties without limitation.

10.6 Marketing and Tradeshow Freedom . Notwithstanding anything herein to the contrary, no limitation or prohibition shall be placed on Vet USA or LLC for marketing, clinical evaluation, luminary evaluation, tradeshow marketing, and other similar marketing efforts that reasonably may benefit the sale of the Products; (i) in the case of Vet USA, inside the Territory and (ii) in the case of LLC outside of the Territory.

10.7 EUSLA and MWSTC Requirement . Vet USA shall provide all Customers who purchase or use Products or products containing Software, the MWSTC, and the End User Sublicense Agreement (the " EUSLA ") included in MWSTC. Vet USA shall require that each Customer execute a MWSTC and EUSLA as a precondition to purchasing any Products containing Software, or which use Data Hosting or result in sending Data to LLC.

(a) Each executed MWSTC and EUSLA shall be provided to LLC upon written request. Failure to provide the executed MWSTC and EUSLA to LLC for any particular sale of Products is a material breach of this Agreement.

(b) LLC may modify or alter MWSTC or EUSLA for subsequent use, provided that LLC shall provide a written copy, in Microsoft® format, of each modification. Within ten (10) days of receipt of modified MWSTC or EUSLA, Vet USA will (i) accept the modifications (acceptance not unreasonably withheld) or (ii) object in writing with written proposed edits and the parties will, time of the essence, endeavor to quickly reach agreement and acceptance. Upon acceptance, Vet USA shall cease using former versions, and all transactions with Customers thereafter between Vet USA and Customers shall be by and under the latest version(s).

(c) Vet USA agrees to not modify MWSTC or EUSLA or the requirement in Products that EUSLA be accepted prior to the use of Software.

11. Price, Acceptance, Defective Product, and Payment .

11.1 Prices . The prices for the Products to be purchased by Vet USA during each calendar year shall be as set forth in writing from time to time, subject to Section 2.4 and 6. Amounts due hereunder shall payable Net 15 Days in 2013 and Net 30 Days thereafter.

11.2 All prices for the Products are "net amounts" in US Dollars, and are exclusive of all (i) freight and shipping, (ii) state and local taxes, (iii) levies, duties, customs, VAT, and assessments, (iv) out-of-warranty costs and expenses not covered or reimbursed under Section 13 "Product Warranty" of this Agreement (" Costs ").

(a) Vet USA shall be responsible for the payment of all Costs imposed on the Products, Support, and Services supplied to Vet USA hereunder, excluding taxes based upon on LLC's net income from the transactions.

(b) Any Costs to be borne by Vet USA but which are paid by LLC and not invoiced at the time of delivery of Products or Services shall be invoiced to Vet USA by LLC, and Vet USA agrees to pay LLC, without delay for any reason, including claim of error or dispute of amounts due.

(c) Any disputes for Costs shall be pursued between Vet USA and the authority imposing the Costs, or in the case of allocation Costs from LLC, between Vet USA and

LLC, using all reasonable efforts, without undue delay, to amicably resolve any dispute. LLC shall reasonably cooperate with Vet USA to resolve any disputes by providing documentation and other supporting evidence in existence to support the Costs charged.

11.3 Acceptance and Defective Products . All claims for error, damages, defects, shortages and non-conformities in any shipment discovered by reasonable inspection shall be made in writing to LLC (together with detailed descriptions and evidence thereof) within ten (10) days after receipt of the Products at Vet USA's receiving dock (" Defective Product "). Failure to make such claim within such period shall constitute acceptance of the shipment (" Acceptance ").

(a) The extent of LLC's liability for Defective Product under this warranty shall be limited to replacement of any Defective Products, freight prepaid to Vet USA's receiving dock. Recovery of Defective Product(s), shall be at LLC's sole expense, provided however that Vet USA agrees to use its most commercially reasonable efforts, at LLC's cost, to repackage and make Defective Product(s) prepared and available for shipment in its original packaging. In no event shall LLC be liable for consequential or indirect damages regarding the Products.

(b) There shall be no claims based on defects in cases of damage arising after the transfer of risk at LLC's delivery dock, from Vet USA's faulty or negligent handling, or Vet USA's excessive strain on the Products. Claims based on defects resulting from improper modifications or repair work carried out by Vet USA or third parties and the consequences thereof shall be excluded.

11.4 Payment Instructions . The full payment is due net 15 days in 2013 and net 30 days thereafter and must be settled by wire transfer of immediately available funds, issued by a first class, international bank, satisfactory to LLC at the following bank (or as may be modified from time to time in writing by LLC):

Receiving Bank: [***]

[***]

Phone # [***]

Beneficiary: Cuattro LLC

Beneficiary's Address:1618 Valle Vista Blvd / Pekin, IL 61554

Beneficiary's Account Number: [***]

Beneficiary's Routing/ABA Number: [***]

12. Representations and Warranties .

12.1 Mutual Representations and Warranties . Each Party hereby represents and warrants as of the Effective Date and at all times throughout the term of this Agreement: (a) it has the full corporate right, power and authority to enter into this Agreement and to perform its obligations hereunder; (b) the execution of this Agreement by such Party and performance of its obligations thereunder comply with all applicable laws, rules, and regulations (including privacy, export control and obscenity laws); (c) when executed and delivered, this Agreement will constitute a legal, valid and binding obligation of such Party, enforceable against it in accordance with its terms; and (d) the execution, delivery and performance of this Agreement by such Party will not violate any agreement or instrument to which such Party is a party or is otherwise bound.

12.2 LLC Warranties . LLC represents and warrants that: (i) LLC has the requisite right and authority to provide the Products to Vet USA under this Agreement and there are no restrictions which could or would prevent Vet USA from exercising any rights granted hereunder; (ii) LLC shall perform all Services and Support requested by Vet USA under this Agreement on a professional reasonable efforts basis in accordance with the standards prevailing in the industry and in a diligent, workmanlike and expeditious manner; (iii) the Services and Support will be performed in accordance with, and/or the Products will conform to, all regulatory requirements and standards, if any. In the event of a breach of any of the foregoing warranties, Vet USA shall notify LLC of such breach after the Support or Services are rendered and/or the Products are delivered to Vet USA (as the case may be) and LLC shall re-perform the Support or Services or re-deliver the Products, as the case may be, so that they conform to the applicable warranty. In addition to the foregoing, LLC represents and warrants that it holds all permits, licenses and similar authority necessary for the performance of the Support and Services hereunder and shall deliver copies of such permits, licenses or authority to Vet USA upon request.

13. Product Warranty .

13.1 Limited Product Warranty . LLC warrants the Products (excluding Software, which is supported and not warrantied) will meet the Original Manufacturer's published specifications and shall be free from defect in material and workmanship for thirteen (13) months from the date of Vet USA's Acceptance of the Products (the " Warranty "). Except as expressly warranted under this Agreement, LLC hereby disclaims all warranties, express, statutory and implied, applicable to the Products, including, without limitation, any warranty of merchantability or fitness for a particular purpose. This warranty does not extend to any Products that have been, other than by LLC, (i) subject to misuse, neglect, accident or abuse or other use or condition prohibited by or that would void Warranty or Support under the MWSTC, (ii) improperly repaired, altered or modified in any way, (iii) used in violation of instructions furnished by LLC or (iv) in contravention of generally accepted usage standards in the veterinary digital radiography industry for similar Products. Vet USA shall solely bear all costs to retrieve all Product(s) requiring warranty service and LLC shall solely bear all costs to return to Vet USA all Product(s) received for warranty service. Vet USA shall reimburse LLC for shipping and handling charges incurred by LLC for inspection and testing of Products found to not be defective by LLC.

13.2 Repair-Replace Warranty . LLC warrants its repair work and replacement parts for the greater of (i) a period of 45 days from receipt by Vet USA of the repaired or replaced Product or for the balance of the warranty period as set forth in Section 13 "Product Warranty." Any claim arising under this Section shall be settled by amicable cooperation between LLC and Vet USA, to minimize or avoid unnecessary expense and time. LLC may repair, replace, with new or refurbished parts, materials or Products in fulfillment of this Warranty.

13.3 Manufacturer Warranty . LLC will use its most commercially reasonable efforts to obtain and assign to Vet USA Original Manufacturer's warranty, service, maintenance and parts in support of the Products under the Warranty.

(a) LLC will provide international logistics, import-export-tariff logistics, Return Material Authorization coordination, and other functions in support of obtaining Warranty from an international Original Manufacturer of the Product or major components thereof.

(b) LLC will use its most commercially reasonable efforts to cause to be corrected any failure of Equipment to perform substantially in accordance with the term of the Original Manufacturer's warranty.

13.4 Extended Maintenance Offer . LLC shall offer extended Equipment warranty for an additional twelve (12) months following the expiration of the Warranty. Up to thirty (30) days prior to the expiration of the Warranty period then in effect, Vet USA shall have the option, but not the obligation, to purchase such extended warranty for each Product. Pricing for such extended warranty shall be at a cost to Vet USA of fifteen (15%) percent of the Quantity multiplied by the price actually paid for the Product when such Product was originally purchased by Vet USA. If not purchased on time, the offer to extend Equipment warranty service is void, unless expressly accepted by LLC in writing, on a case-by-case basis. Extended warranty is by and between LLC and Vet USA, for the benefit of Vet USA, not Vet USA's Customer.

14. Technical and Sales Assistance .

14.1 Vet USA Support of Customers . Technical assistance is by and between LLC and Vet USA and is for the benefit of Vet USA, not Vet USA's Customers. Vet USA agrees to provide, timely and knowledgeable maintenance and support service to Customers and to utilize LLC as a resource, but not the primary or sole contact point for Customer Support, unless otherwise agreed in writing between the Parties.

14.2 Support Times . LLC will provide or cause to be provided direct technical support (the " Technical Support ") to Vet USA from 9:00 a.m. through 6:00 p.m. Central Standard Time (CST).

14.3 Service Level for Technical Support . LLC will work with Vet USA to determine the severity level for each individual situation, based upon the definition of "Level 1", "Level 2" and "Level 3" in MWSTC. LLC will use commercially reasonable efforts to provide Technical Support in order to resolve identified problems according to the following severity levels.

(a) Equipment Severity Level 1: within fourteen (14) working days

(b) Equipment Severity Level 2: within twenty-one (21) working days

(d) Software Severity Level 1: within seven (7) working day

(e) Software Severity Level 2: within fourteen (14) working day

(f) Software Severity Level 3: within twenty one (21) working days

14.4 Upon Vet USA's written request, LLC shall use commercially reasonable efforts to support Vet USA's sales, marketing, and training demonstrations (the " Sales Support "). Such Sales Support shall be at times and places which are mutually agreeable to both Parties. Costs for round trips, meals, lodging, and other expenses of the dispatched personnel of LLC for training shall be borne by Vet USA.

14.5 For purposes of this Agreement, Technical Support and Sales Support shall be referred to collectively as the "Support".

15. Vet USA's Additional Responsibility .

15.1 Vet USA shall maintain adequate stocks of the Products to meet its Customer's demands, including those for advanced replacement loaners in furtherance of Warranty, on a timely basis.

15.2 Vet USA shall use reasonable commercial efforts to undertake for its own account advertisement and sales promotions of the Products.

15.3 Vet USA shall use reasonable commercial efforts to provide all warranty, installation, technical support, shipping and communications to and between Customers and Vet USA.

15.4 Vet USA shall make timely payment of all amounts due hereunder.

15.5 Vet USA shall provide for, by separate agreement(s) and arrangement(s), any or all commercial and logistics work for products not specifically provided for in this Agreement, such as ultrasound.

16. Proprietary Rights .

16.1 Intellectual Property . "Intellectual Property" shall mean all drawings, designs, models, specifications, documentation, software, firmware, user interfaces, inventions, designs, techniques, processes, business methods, customer information, marketing programs, Distributor information, know-how, mask-works, copyrights, copyrightable materials, patents, trade secrets, software code, software schema and any other information or materials protected under any intellectual property laws in effect anywhere in the world, and any applications, registrations or filings relating thereto. Each Party retains all rights to its pre-existing Intellectual Property. Except as provided for expressly in this Agreement, no license, right or ownership is granted, by implication or otherwise, to a Party's Intellectual Property. As of the date of this Agreement, neither Party claims any rights to, nor ownership in, the other Party's Intellectual Property, and neither Party claims the existence of any jointly owned Intellectual Property between the Parties.

16.2 No Modification . Except as may be required to integrate the LLC's Intellectual Property into Vet USA's products, Vet USA shall not: (i) modify LLC's Intellectual Property or (ii) authorize Vet USA's end users or third parties to do the same. Neither Party shall evaluate or attempt to authorize, assist, perform, or support the reverse engineering of the other Party's Intellectual Property, and shall promptly notify the other Party immediately upon obtaining knowledge of such activities.

16.3 No Right . Except as expressly set forth herein, neither Party is granted any right to the other Party's software or Intellectual Property, even if the software or Intellectual Property is incorporated into any Products or Software. Nothing herein, or in any way related to this Agreement or interaction or non-action or delay between the Parties or their assigns, shall grant, transfer, or cause to be shared, with the other Party, any rights in and to either Party's software, in any form, firmware, designs, component sources and specifications, documentation, or Intellectual

Property. This Section 16.3 shall apply, whether or not either Party or any third party products are incorporated in, embedded in, merged with, or otherwise associated with a Party's products.

16.4 Survival of Proprietary Rights. Sections 16.1, 16.2, and 16.3 shall not expire, and shall survive the termination of this Agreement.

16.5 Software License . Certain rights to license the Software in the Products are granted to Vet USA by the License Agreement (the " Software "). The Software is licensed, not sold. Vet USA agrees that any Software, regardless of format, provided by LLC to Vet USA, will only be used with the Products, in the Territory, and will not be used in conjunction with any products from any third party that manufactures, develops, buys, leases, or sells or resells, including Competitive Products, except as may be provided for in Section 2.3 of the License Agreement. Vet USA shall not provide, disclose or distribute Software or any portion thereof to any third party outside of the Territory without the prior written approval from LLC. Software is protected by copyright, trademark, and trade secrets laws, international treaty provisions and various other intellectual property laws. Vet USA may not copy, modify, reverse engineer, decompile, or disassemble any Software. The Software's component parts may not be separated for any use. Vet USA may not remove, modify or alter any copyright or trademark notice from any part of Software, including but not limited to any such notices contained in the physical and/or electronic media or documentation, in the set-up dialogue, EUSLA, 'about' boxes, or internet or applet notices. Vet USA's license is not assignable by Vet USA except upon prior written consent of LLC. Vet USA may not directly or indirectly use the Software or Product to benchmark against a Competitive Product.

16.6 Right to Sublicense . In the Territory, subject to ordering, payment, and the terms and conditions set forth in the MWSTC, EUSLA, the License Agreement, and this Agreement, Vet USA may sublicense to Customers the nonexclusive and personal right to use, in object code format only, the Software for the life of the Product associated with such Software, in the Territory. Software will, from time to time, require re-activation and/or re-registration by the end user, to ensure that, at regular intervals (generally Calendar Year), the Software is documented and authorized to be in use by an authorized Customer, in good standing, in the Territory. In the event a Customer is not authorized or is in violation of the MWSTC or EUSLA or has been shown to export outside of the Territory any Product that includes Software, LLC reserves the sole and exclusive right, without any penalty payment, cost, or refund to Vet USA or Vet USA's Customer, to decline to renew, re-activate, or re-register the Software for use by the Customer or any other party.

16.7 Trademark Ownership; Rights . Vet USA is hereby granted the right to use LLC's trademarks and trade names, in the Territory. Vet USA agrees, without condition, that by executing this Agreement, LLC is the sole owner and beneficiary of the trademarks, copyrights, and trade names "CloudDR™", "Cloudbank™", "ViewCloud™", "SupportCloud™", "Uno™", "Slate™", and "Copilot™", for use in the Territory. Except as specifically granted in this Agreement, neither Party shall acquire any right, title or interest in any of the other Party's trademarks, copyrights, trade names, nor other intellectual property and proprietary information. Vet USA agrees that it will not remove, alter, obfuscate or otherwise modify, in any way, any copyrighted logos, brands, or any copyright or trademark notices or other proprietary rights notice placed in or on the Products or Software. No rights are granted to Vet USA under this Agreement to make or cause to be made any of the Products or Software, or otherwise use the Products or Software, for any use other than in connection with the resale, installation and support of such Products and Software. No express or implied licenses with respect to Software are granted to Vet USA, except as otherwise expressly set forth herein or in the License Agreement between the Parties.

17. Confidential Information .

17.1 Confidentiality . "Confidential Information" means any proprietary or confidential information of a Party which may be disclosed to the other Party under this Agreement, including without limitation all prices, discounts or product specifications, designs, software, software code, drawings, reports, interpretations, forecasts, plans, records, technical or other financial or business information of any kind of a disclosing Party regarding the subject matter of this Agreement, together with any notes or other documents prepared by a receiving Party or others which reflect such information. No Confidential Information disclosed by either Party to the other in connection with this Agreement shall be disclosed to any person or entity other than the receiving Party's employees and contractors directly involved with the receiving Party's use of such information. Such information shall be used only for the purposes contemplated by this Agreement, and such information shall otherwise be protected by the receiving Party from disclosure to others with the same degree of care accorded to its own proprietary information, but not less than a reasonable degree of care in accordance with the normal practice of the medical device manufacturing industry. To be subject to this provision, information must be delivered in writing and designated as "proprietary" or "confidential" or, if initially disclosed orally or visually, must be confirmed in writing as "proprietary" or "confidential" within thirty (30) days after the disclosure. Notwithstanding the preceding sentence, each party's Confidential Information shall include all customer lists and other materials and technology owned or otherwise controlled by it whether or not so designated; provided, however, any customer lists of LLC resulting from customers of Vet USA during the term of this Agreement or during the Post Termination Supply Period (as a result of End Users being parties to the EUSLA of the MWSTC pursuant to the purchase, the provision of support services by LLC to such End Users, or otherwise) is deemed Confidential Information of Vet USA and not of LLC. Information will not be subject to this provision if it (i) is or becomes a matter of public knowledge without the fault of the receiving Party, (ii) was known to the receiving Party before the disclosure to it by the other Party, as evidenced by written records of the receiving Party, or (iii) was received by the receiving Party from a third person under circumstances permitting its unrestricted disclosure by the receiving Party. If the receiving Party is required by law, or requested by a court or administrative body, to disclose any Confidential Information of the disclosing Party, the receiving Party shall give the disclosing Party prior written notice of such requirement or request prior to disclosing such Confidential Information so that the disclosing Party may seek a protective order or other appropriate relief. Unless explicitly provided herein, nothing in this Agreement is intended to grant any rights to either Party under any patent, copyright, trade secret or other intellectual property right nor shall this agreement grant either Party any rights in or to the other Party's Confidential Information.

17.2 Confidentiality Release. The Parties shall be released from any confidentiality obligations under this Section 17 after a period of five (5) years after the termination or expiration of this Agreement.

18. General Provisions .

1. Force Majeure . Neither Party shall be liable for, or be deemed to be in default for, delay of or failure in delivery or performance of any other act under this Agreement due, directly, to any of the following causes; acts of God or the public enemies, civil war, insurrection or riot, fires, floods, explosions, earth quakes or serious accident, epidemics or quarantine restrictions, any act of government or any other civil or military authority, freight carrier failure or delay, strikes causing cessation, slowdown or interruption of work. Promptly upon the occurrence of any event

hereunder which may result in all delay in the delivery of the Products, LLC shall give notice thereof to Vet USA, which notice shall identify such occurrence and specify the period of delay which may reasonably be expected to result therefrom.

18.2 Severability . If any provision of this Agreement is held by a court of competent jurisdiction to be unenforceable because it is invalid or in conflict with any law of any relevant jurisdiction, the validity of the remaining provisions shall not be affected.

18.3 Compliance with Laws . Each Party to this Agreement shall comply with all applicable laws and regulations relating to the Products and their respective performance under this Agreement.

18.4 Choice of Law; Jurisdiction . This Agreement shall be governed by, and enforced in accordance with, the laws of the State of Colorado (excluding the choice of law principles thereof). The Parties to this Agreement hereby agree to submit to the non-exclusive jurisdiction of the federal and state courts located in the State of Colorado in any action or proceeding arising out of or relating to this Agreement. This Agreement shall inure to the benefit of, and be binding upon the parties and their respective successors and assigns.

18.5 No Partnership or Agency . Nothing in this Agreement shall be construed as creating a partnership, agency, employment relationship, franchise relationship or taxable entity between the Parties, and no Party shall have the right, power or authority to create any obligation or duty, express or implied, on behalf of the other Party, it being understood that the Parties are independent contractors vis-à-vis one another.

18.6 No Waiver; No Amendment . No amendment or waiver of any provision of this Agreement, or consent to any departure by either Party from any such provision, shall be effective unless the same shall be in writing and signed by the Parties to this Agreement, and, in any case, such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. The waiver or delay in enforcement or notice by any Party of any breach of this Agreement shall not operate as or be construed to be a waiver by such Party of that breach or any subsequent breach.

18.7 Assignment . This Agreement and the rights of the Parties hereunder may not be assigned without the prior written consent of the Parties hereto. Notwithstanding anything to the contrary, however, it is contemplated that LLC may assign or transfer its duties or interests hereunder to a LLC affiliate, and Vet USA shall not unreasonably object to or prohibit such assignment. Assignment shall not be unreasonably withheld by either Party.

18.8 Notices . Any and all notices hereunder shall, in the absence of receipted hand delivery, be deemed duly given when mailed, if the same shall be sent by registered or certified mail, return receipt requested, and the mailing date shall be deemed the date from which all time periods pertaining to a date of notice shall run. Notices shall be addressed to the Parties at the following addresses:

If to LLC: Kevin S. Wilson

Cuattro, LLC

Physical Address :

63 Avondale Lane

Villa Montane #C2

Beaver Creek, CO 81620

Postal Address :

PO Box 4605

Edwards, CO 81632

Phone: [***]

Copy to: R.C. Shepard, Esq.

Stradling Yocca Carlson and Rauth

660 Newport Center Drive, Suite 1600

Newport Beach, CA 92660-6422

Fax: (949) 725-4000

Phone: (949) 725-4105

If to Vet USA: Jason Napolitano

Heska Imaging US, LLC

3760 Rocky Mountain Avenue

Loveland, CO 80538

Fax: (970) 619-3003

Phone: (970) 619-3021

18.9 Execution Counterparts . This Agreement may be executed in two or more counterparts, and by different Parties on separate counterparts. Each set of counterparts showing execution by all Parties shall be deemed an original, and shall constitute one and the same instrument.

18.10 Entire Agreement . This Agreement and the License Agreement shall constitute the entire agreement between the Parties with respect to the subject matter hereof, and shall supersede all previous oral and written (and all contemporaneous oral) negotiations, commitments, agreements and understandings relating hereto, including, without limitation, the Management Agreement.

18.11 Management Agreement . As of the Effective Date, all provisions the Management Agreement are hereby superseded in their entirety and shall have no further force or effect.

18.12 Audit Right . LLC shall maintain adequate Records (as defined below), with supporting documentation, to justify all charges, expenses, and costs invoiced to Vet USA pursuant to this Agreement for a period of not less than eighteen (18) months after payment of such invoice. Not more frequently than once per calendar quarter during the Initial Term of this Agreement and during any renewal term, during reasonable business hours and upon reasonable notice, Vet USA or its designated agent shall have the right to examine, duplicate, and audit LLC's operations and Records as they relate to the charges, expenses and costs invoiced to Vet USA pursuant to this Agreement, and, as mutually agreed with LLC, interview third parties, at an adequate location for

such effort. The term "Records" shall include all documents created or kept within the scope of this Agreement, in any form of media, with respect to any and all matters relating to this Agreement.

IN WITNESS WHEREOF , the Parties have caused this Agreement to be executed and delivered by their duly authorized officers or agents as set forth below.



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

Exhibit 10.2

Execution Version

ASSIGNMENT AND ASSUMPTION AGREEMENT

(License Agreement)

WHEREAS, Imaging US and Cuattro are parties to that certain Amended and Restated Master License Agreement dated as of February 22, 2013, and all amendments thereto (the " License Agreement ");

WHEREAS, it is a condition of the obligations of the parties to the Merger Agreement to consummate the Merger and the other transactions contemplated by the Merger Agreement that the License Agreement be assigned to Global Imaging and amended as set forth herein;

WHEREAS, to facilitate the transactions between its affiliate, Heska, and Cuattro, as contemplated by the Merger Agreement, which are of potential benefit to Imaging US, Imaging US is willing to enter into this Agreement to assign the License Agreement to Imaging Global and to amend the License Agreement on the terms and conditions of this Agreement;

WHEREAS, Section 10.8 of the License Agreement requires Cuattro's prior written consent before Imaging US may assign its rights under the License Agreement, and, to induce Heska to enter into the Merger Agreement, which Heska would not do unless Cuattro enters into this Agreement, Cuattro is willing to enter into this Agreement to consent to Imaging US's assignment of the License Agreement to Imaging Global and to amend the License Agreement on the terms and conditions of this Agreement; and

1. Assignment and Assumption . Effective as of the Closing, Imaging US hereby assigns, sells, transfers and sets over to Imaging Global all of Imaging US's right, title, benefit, privileges and interest in and to the License Agreement, and all of Imaging US's burdens and obligations in connection with the License Agreement (collectively, the " Assignment "). Imaging Global hereby accepts the Assignment and assumes and agrees for the benefit of Imaging US and Cuattro to be bound by, observe, perform, pay and discharge all of Imaging US's duties, liabilities, obligations, terms, provisions and covenants solely to the extent they are to be observed, performed, paid or discharged on and after the Effective Date, in connection with the License Agreement (collectively, the " Assumption ").

2. Consent and Agreement of Cuattro . In accordance with Section 10.8 of the License Agreement, Cuattro hereby consents to the Assignment and Assumption. Cuattro further acknowledges and agrees that all of Cuattro's burdens and obligations under the License Agreement shall survive the assignment and assumption of the License Agreement in accordance with the terms and conditions thereof. The Assignment and Assumption shall not relieve Imaging US of responsibility for the performance of any accrued obligation which it has as of the Effective Date.

3. Amendments to License Agreement . In accordance with Section 10.9 of the License Agreement:

3.1 Amendment to Territory . Effective as of the Closing, the definition of "Territory" in Section 1.13 of the License Agreement is hereby amended to read as follows: ""Territory" shall be defined as the Market throughout the world."

3.2 Amendment to Per Copy Software License Payment Schedule . Effective as of the Closing, the table of prices in Section 3.3 of the License Agreement is hereby amended to read in its entirety as follows:


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

3.3 Amendment to Covered Affiliates . Effective as of the Closing, Exhibit A2 to the License Agreement is hereby amended to read in its entirety as follows:

"EXHIBIT A2

COVERED AFFILIATES


•	Heska Corporation


•	Diamond Animal Health, Inc.


•	Heska Imaging US, LLC


•	Heska Imaging International, LLC (formerly Cuattro Veterinary, LLC)


•	Heska AG"

4. Appointment of Sublicensees .

4.1 Appointment of Imaging US . Effective as of the Closing, in accordance with Section 2.1 of the License Agreement and as authorized herein, Imaging Global hereby appoints Imaging US as its sublicensee under the License Agreement with respect to the portion of the Territory comprising the United States (the " US Territory ") to hold and exercise all of Imaging Global's rights under the License Agreement with respect to the US Territory, and Imaging US hereby accepts such appointment and agrees, for the benefit of Cuattro, to perform all of Imaging Global's obligations under the License Agreement with respect to the US Territory.

4.2 Appointment of Imaging International . Effective as of the Closing, in accordance with Section 2.1 of the License Agreement and as authorized herein, Imaging Global hereby appoints Imaging International as its sublicensee under the License Agreement with respect to the portion of the Territory outside the United States (the " International Territory ") to hold and exercise all of Imaging Global's rights under the License Agreement with respect to the International Territory, and Imaging International hereby accepts such appointment and agrees, for the benefit of Cuattro, to perform all of Imaging Global's obligations under the License Agreement with respect to the International Territory.

6. Remaining Terms . All parties acknowledge that a true, correct and complete copy of the License Agreement, together with all amendments thereto, is attached hereto as Exhibit A . Except as specifically modified pursuant to this Agreement all terms and provisions of the License Agreement shall remain in full force and effect as set forth therein. Nothing in this Agreement shall constitute or be construed to be a termination of the License Agreement.

9. Assignment . Neither this Agreement nor any right created hereby is assignable by any of the parties hereto without the prior written consent of the other parties; provided , that the License Agreement, as amended hereby, shall continue to be assignable on the terms and conditions set forth in Section 10.8 thereof.

10. Governing Law . This Agreement will be governed by, and construed in accordance with, the laws of the State of Colorado without reference or regard to the conflicts of law rules thereof.

12. Integration. This Agreement, together with the License Agreement, constitutes the sole and entire agreement of the parties with respect to the subject matter of this Agreement and supersedes all prior and contemporaneous understandings, agreements, representations and warranties, both written and oral, with respect to such subject matter, including without limitation (i) that certain Management Agreement, dated November 1, 2012, by and between Cuattro and Imaging International, as amended by that certain Amendment to Management Agreement, dated December 31, 2012; and (ii) that certain License Agreement, dated December 31, 2009, by and between Cuattro and Imaging International.

[Signature Page Follows]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.



"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

[Signature Page to Assignment and Assumption Agreement (License Agreement)]

EXHIBIT A

Amended and Restated Master License Agreement

[Attached]

Ex. A

AMENDED AND RESTATED MASTER LICENSE AGREEMENT

This AMENDED AND RESTATED MASTER LICENSE AGREEMENT (the " Agreement ") is made and entered into as of February 22, 2013, and amends and restates in its entirety that certain Master License Agreement dated as of the 5 ^th day of April, 2011 at 11:59:59 PM, (the " Effective Date ") by and between Heska Imaging US, LLC, a Delaware limited liability company, with offices at 3760 Rocky Mountain Ave., Loveland CO 80538, formerly known as Cuattro Veterinary USA, LLC, with offices at 1618 Valle Vista Blvd., Pekin, IL, 61554 (" Licensee "), and Cuattro, LLC, a Colorado limited liability company, with offices at 63 Avondale Lane, Villa Montane #C2, Beaver Creek, CO 81620 (" Licensor ") (each a " Party " and collectively the " Parties ")

RECITALS

A. Licensor has developed and is the owner of, or otherwise has the authority to, license certain digital radiography acquisition software and PACS software as described on Exhibit A1 attached hereto and incorporated herein by reference (" Licensor Software ").

B. Licensee has entered into that certain Supply Agreement with Licensor dated as of February 22, 2013 (" Supply Agreement ") whereby Licensee shall acquire certain products from Licensor (the " Licensor Products ").

C. Licensee desires to obtain from Licensor the use, reproduction and distribution rights to load and distribute Licensor Software solely in conjunction with Products which are acquired from Licensor. Licensor has agreed to grant the requisite rights to Licensee, and provide certain services in relation thereto on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein, the Parties agree as follows:


1.	DEFINITIONS .

1.1 " Affiliate " shall mean, with respect to any Party, any person or entity which, directly or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Party. A person or entity shall be deemed to control a corporation (or other entity) if such person or entity possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of such corporation (or other entity) whether through the ownership of voting securities, by contract or otherwise. Licensor and Licensee may fulfill all or any portion of their respective obligations hereunder through their respective Affiliate(s).

1.2 " Documentation " means all documentation and information in connection with the installation, use, operation, modification, support and maintenance of Software made available by Licensor to Licensee including, without limitation, any on-line help files, written instruction manuals or written correspondence, but excludes software code.

1.3 " End Users " shall mean users who have purchased a Product for their internal use only and not for the purpose of further resale, development or modification, subject to the limitations of the End User Software License Agreement that comes with each executable copy of each Software, in the Market and the Territory.

1.4 " Innovations " means any invention, improvements, works of authorship, innovation or other developments that may be conceived, authored, created or otherwise developed by Licensor during the term of this Agreement, whether or not forming part of Software, arising from Software, Services, Specifications, existing Intellectual Property of Licensor, performance hereunder, non-performance hereunder, or arising from Licensee's specifications, discovery, or provision of feedback, and including, but not limited to, designs, formulae, processes, methods and methodologies, ideas, algorithms, libraries, databases, software, software tools, programs and their documentation, articles, writings and compositions.

1.5 " Intellectual Property Rights " means any and all now known and hereafter existing (a) copyrights, and copyrightable works of authorship, exploitation rights, moral rights and mask work rights, (b) trademark, trade name and service mark rights, (c) trade secret rights, including, without limitation, all rights in Confidential Information and proprietary rights whether arising by law or contract, (d) patent rights, patentable inventions and processes, designs, algorithms, software, code, schema, artwork, user interface design, firmware, and other industrial property rights, and (e) other intellectual and industrial property and proprietary rights of every kind and nature throughout the world, whether arising by operation of law, by contract, by license or otherwise.

1.6 " Market " means the field of veterinary medicine, limiting use of any Products containing Software to the practice of medicine on or for non-human species, by currently licensed veterinary medical doctors in good standing with state, federal and professional authorities, and by entities in which a licensed veterinary medical doctor oversees the activities performed on or for non-human species.

1.7 " Open Source Software " means any software that is derived in any manner (in whole or in part) from any software that is distributed under the following conditions: (i) licensees of such software are authorized to access, modify and make derivative works of the source code for the software; (ii) licensees of source code of such software are not obligated to maintain the confidentiality of such source code; and (iii) at least some licensees of such software are required, if they desire to distribute derivative works of such software, to license the source code for such derivative works to their sublicensees under the conditions of (i), (ii) or (iii) hereof.

1.8 " Product " shall mean a Licensee product containing the Software, provided that, in each case, Product must also contain (i) at least one (1) digital radiographic detector or one (1) radiographic generator purchased from Licensor or (ii) third-party hardware to the extent permitted by Section 2.3 hereof.

1.9 " Services " means the professional services to be provided by Licensor or its authorized representatives, in relation to Licensor Software for, without limitation, customizations, enhancements and improvements of the Software, in accordance with the applicable Statement of Work.

1.10 " Software " means the object code version of Licensor Software including any changes, modifications, updates, enhancements, deletions, additions or derivatives to Licensor Software. Software also includes any materials that are provided for use in connection with Software, including, but not limited to, Documentation designed to be used in conjunction with Software.

1.11 " Specifications " means the technical and other specifications and quality standards for Software as set forth on Exhibit A1 attached hereto and those set forth in a Statement of Work having been executed by the Parties.

1.12 " Statement of Work " or " SOW " means each statement of work executed by the Parties (together with all schedules, attachments, product schedules, and other materials that are appended to, or referenced into the Statement of Work), that specifically refers to this Agreement and specifies, in detail, the Services, the Specifications, the delivery schedule, the Service Fees and payment schedule and Review Period for such Services and Software.

1.13 " Territory " means the Market solely in the United States of America.

1.14 " Third Party Materials " means proprietary information, data, technology, methods and methodologies, software, hardware, documentation, tools, software and interfaces, trade secrets, works of authorship, trademarks and other proprietary materials of a party including Open Source Software other than Licensor or Licensee.


2.	GRANT .

2.1 Acquisition Software License . Subject to the terms and conditions of this Agreement, strictly limited to the Territory, in consideration of payments per Article 3 of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts, for the term of this Agreement, an exclusive right and license, and sub-licensable only to its Affiliates set forth in Exhibit A2 (" Covered Affiliates "), to (i) reproduce and install Software, in the object code form, on Products in the Territory, (ii) market, distribute and sell the Software loaded on Products either itself or through authorized third party or affiliated distributors, representatives and resellers (" Distributors ") in the Territory, provided that Distributors are bound to and observe the limitations, terms, scope, and conditions set forth herein, and (iii) reproduce, use and distribute the Documentation in connection with aforesaid use of Software. Licensee shall be fully responsible and liable towards Licensor for the use of Software by the Covered Affiliates and any of its Distributors. For the avoidance of doubt, once a copy of the Software is distributed to an End User as part of a Product in

compliance with this Agreement, the foregoing license extends to any repaired or replaced Product for that End User.

2.2 Trademark License . Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee, and Licensee hereby accepts, for the term of this Agreement, limited to the Territory, a non-exclusive right and license, sub-licensable only to its Covered Affiliates, to use trademarks CloudDR, Cloudbank, ViewCloud, Uno and any other trademarks owned and used by Licensor in connection with Licensor Software in the Territory (collectively, the " Marks ") solely in connection with Licensee's (and its Affiliates' and Distributors') marketing and distribution of the Products. Use of the Marks shall be in accordance with Licensor's reasonable policies in effect from time to time and subject to reasonable review and approval by Licensor. Licensee has paid no consideration for the use of the Marks and nothing herein shall give Licensee any right, title or interest in the Marks except the limited license granted in this Section 2.2. Licensee agrees that it will not, at any time during or after the Agreement, assert or claim any interest in, or do anything which may adversely affect the validity, enforceability or value of, the Marks. Except as specifically provided in Section 4.3 of this Agreement, upon termination or cancellation of this Agreement, Licensee shall cease all display, advertising or other use of the Marks and shall not thereafter use, advertise or display any name, mark, logo or other designation which is, or any part of which is, similar to or confusing with the Marks. Any and all uses by Licensee of Marks shall inure solely to the benefit of Licensor.

2.3 Restrictions . Licensee agrees that, except as expressly permitted under this Agreement, it will not itself, or through any Affiliate, Distributor, agent or other third party, entity or other business structure (i) decompile, disassemble, re-program, reverse engineer or otherwise attempt to derive or modify Software (including the Documentation) in whole or in part, (ii) write or develop any derivative software or any other software program based on Software, Documentation, or related information provided by Licensor, (iii) remove, alter, cover or obfuscate any copyright notices or other proprietary rights notices of Licensor, or (iv) sell or cause to be sold or marketed any product containing the Software or derivatives thereof that in the reasonable determination of Licensor is competitive to the Software or the hardware offered for sale by Licensor in any other Territory, without the prior written consent of Licensor. For the avoidance of doubt, Licensee agrees to not use or install the Software on any product that does not contain at least one (1) digital radiographic detector or one (1) radiographic generator purchased from Licensor, and, agrees to not use or install the Software for use with any product that is competitive with Licensor's digital radiographic detector(s) or radiographic generator(s), without prior written permission from Licensor. Notwithstanding the foregoing, in the event that, during the Initial Term or any renewal term of this Agreement, if Licensor is unable to timely supply under the Supply Agreement for a period of more than sixty (60) days, and for so long as such inability continues, upon request from Licensee, Licensor shall sell licenses of the Software for use with Competitive Products (as defined in the Supply Agreement), provided however that Licensor shall provide licenses for use with Competitive Products without warranty or representation as to performance or fitness for use with Competitive Products.

2.4 End User Software License Agreement . Licensee shall electronically include the End User Software License Agreement (" EUSLA ") that is delivered by Licensor

with each copy of Software, separately, or as distributed in Products. Licensor may modify or alter the EUSLA for subsequent use, provided that Licensor shall provide a written copy, in Microsoft® format, of each modification. Within ten (10) days of receipt of the modified EUSLA, Licensee will (i) accept the modifications (acceptance not unreasonably withheld) or (ii) only if the modifications adversely affect the use thereof by End Users, object in writing with written proposed edits and the parties will, time of the essence, endeavor to quickly reach agreement and acceptance. Upon acceptance, Licensee shall cease using former versions, and all transactions thereafter shall be by and under the latest version(s).

2.5 Licensor Obligations . In connection with the delivery of the Software (and any future releases or future versions of the Software), Licensor will provide, at no charge to Licensee, a fully functional, executable and compiled (non human readable) version of the Software in electronically downloadable form for use by Licensee or its permitted sub-licensees in installing the Software pursuant to this Agreement.

2.6 Third Party Materials . To the extent that Software contains Third Party Materials, it is Licensor's sole responsibility to obtain any licenses required for Licensee to use such Third Party Materials. Licensor shall pay any additional consideration for actual costs of such licenses for Third Party Materials contained in the Software.


3.	SUPPORT, MAINTENANCE, PAYMENTS .

3.1 Reports . Licensee shall, upon request, no more often than once per calendar quarter, provide to Licensor reports in connection with the sales of the Products (or any product) containing Software, not later than thirty (30) days following the end of the calendar quarter just ended (" Quarterly Reports "). The Quarterly Reports shall state the quantity of such Products sold by Licensee from the Effective Date through the end of the calendar quarter just ended, the location, end user customer contact information, and date of first clinical use of the Software and of the Product delivered to each End User and Distributor. The Quarterly Reports shall be treated as Licensee's Confidential Information.

3.2 License Payment Schedule . Intentionally Omitted.

3.3 Per Copy Software License Payment Schedule . For each Product containing Licensor Software, Licensee shall pay Licensor under the following calendar year schedule; provided, that, taking into account scope of work, schedule, volume, features, exclusivity, liability, indemnification, market access, regulatory assistance, bundling with hardware, and other commercial and service terms, the prices, terms and conditions of such payments shall be no less favorable than the most favorable prices, terms and conditions extended to other Licensor customers in the Market (" MFN Pricing ").


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

3.4 Expenses . Each Party shall be responsible for, and bear, its own costs and expenses unless otherwise agreed in writing by the Parties prior to any cost or expense being incurred by either Party.

3.5 Taxes . Each party is responsible for paying all local, state, federal or foreign taxes, levies or duties of any nature applicable to it (" Taxes "). If either party has the legal obligation to pay or collect Taxes for which the other party is responsible, the appropriate amount shall be invoiced to and paid by the responsible party, or withheld by the paying or collecting party unless the responsible party provides a valid tax exemption certificate authorized by the appropriate applicable taxing authority.

3.6 Records . For the entire term of this Agreement, Licensee shall keep and maintain appropriate books and records of account, in accordance with Generally Accepted Accounting Principles of the United States, sufficient to enable accurate calculations of any amounts due to Licensor and to audit the Quarterly Reports.

3.7 Audit . During the entire term of this Agreement and for a period of two (2) years thereafter Licensor shall have the right to audit, not more than once in any twelve (12) month period, Licensee's relevant records and books for the previous two (2) years (" Audit Years "). For that purpose, Licensor may itself or, at its own expense, engage an independent accountant to inspect the records of Licensee on reasonable notice and during regular business hours, provided however, that such independent accountant and Licensor shall sign an appropriate confidentiality agreement. In the event it is found as a result of such audit that a payment in excess of five percent (5%) of the original payment made by Licensee is due to Licensor, then Licensee will reimburse Licensor for one hundred percent (100%) of the reasonable auditing expenses incurred by Licensor.

3.8 Services . Licensor shall use its best commercial efforts to perform all Services reasonably requested by Licensee during the term of this Agreement on prices, terms and conditions no less favorable than the most favorable prices, terms and conditions extended to other customers of Licensor for similar services taking into account scope of work, schedule, volume, features, exclusivity, liability and indemnification, other commercial license and service terms, and staffing.


4.	TERM AND TERMINATION .

4.1 Term of Agreement . The initial term of this Agreement shall commence as of February 15, 2013 and continue through December 31, 2022 (" Initial

Term "). Commencing after January 1, 2023, this Agreement shall continue on a year-to-year basis unless on or before September 30 of any calendar year (i) Licensee notifies Licensor in writing that it wishes to terminate the Agreement, provided, that such termination shall be effective as of December 31 ^st of the third calendar year following the year in which such notification is given (such period, a " Heska Imaging Cancellation Term "), or (ii) Licensor notifies Licensee in writing that it wishes to terminate the Agreement, provided, that such termination shall be effective as of December 31 ^st of the fifth calendar year following the year in which such notification is given (such period, an " LLC Cancellation Term "). No such termination shall relieve either Party from any obligations or debts incurred hereunder prior to the effective date of termination.

4.2 Termination for Cause . Notwithstanding Section 4.1, this Agreement may be terminated before the expiration of the Initial Term and/or any renewal term as follows (each of the following a termination for " Cause "):

(a) Insolvency Event . Either Party may terminate this Agreement by delivering written notice to the other Party upon the occurrence of any of the following events: (i) a receiver is appointed for the other Party or its property; (ii) if the other Party makes a general assignment for the benefit of its creditors; (iii) if the other Party commences, or has commenced against it, proceedings under any bankruptcy, insolvency or debtor's relief law, which proceedings are not dismissed within sixty (60) days; (iv) if the other Party is liquidated or dissolved, (v) if the other Party becomes unable to make payment of amounts due to creditors in a timely and dependable fashion.

(b) Default . Either Party may terminate this Agreement effective upon written notice to the other if the other Party violates any covenant, agreement, representation or warranty contained herein in any material respect or defaults or fails to perform any of its obligations or agreements hereunder in any material respect, or fails to make any payment when due, which violation, default or failure is not cured within sixty (60) days after notice thereof from the non-defaulting Party stating its intention to terminate this Agreement by reason thereof.

(c) Supply Agreement Termination . Either Party may terminate this Agreement effective upon written notice to the other if the Supply Agreement is terminated or voided, for any reason.

4.3 Post-Termination Licenses . Upon termination of this Agreement for any reason, all rights and licenses granted to either Party hereunder shall immediately terminate and, without derogating from the generality of the foregoing, (a) Licensee shall immediately cease and shall no longer be entitled to continue selling, offering to sell, or otherwise disposing of any Products, (b) Licensee shall immediately cease licensing, distributing, showing, using, marketing, renting, or commercializing in any way the Software and Marks, and (c) all licenses to Software, Marks, Intellectual Property of Licensor, with respect to rights or benefits granted hereunder shall immediately terminate; provided , that in the event that this Agreement is terminated (i) by Licensee for Cause, or (ii) upon the expiration of a Heska Imaging Cancellation Term or LLC Cancellation Term, then at Licensee's option in its sole discretion (y) Licensee has the right to sell off or otherwise distribute any copies of Software that (i) Licensee has paid for and then holds

inventory as of termination of this, and (ii) in conjunction with Products supplied under the in force and paid up Supply Agreement, to any existing or future End User for a reasonable sell-off period, but not more than six (6) months (the " Sell-Off Period "), and (z) Licensee's right and license to use, advertise and display the Marks hereunder, and Licensor's grant of such license to use, advertise and display the Marks, shall continue during the Sell-Off Period. Upon termination for any reason, Licensee shall delete all copies of the Software and Documentation and provide written certification to Licensor that such deletion of all copies has been completed, within three (3) business days after the later of such termination or expiration of the Sell-Off Period.

4.4 Survival . Sections that by their nature should survive termination shall do so. Sections that by their nature are not explicitly intended to survive termination shall terminate immediately upon termination of this Agreement.


5.	OWNERSHIP .

5.1 Retained Ownership Rights. Except as explicitly set forth herein or in a Statement of Work, neither this Agreement, nor the provision of Services hereunder, will give either Party any ownership interest in or rights to the Intellectual Property Rights of the other Party. All Intellectual Property Rights that are owned or controlled by a Party at the commencement of this Agreement will remain under the ownership or control of such Party throughout the term of this Agreement and thereafter. Unless explicitly, incontrovertibly granted in this Agreement and paid for in full by Licensee to Licensor, no work, work product, Statement of Work, or Services, whether by performance or non-performance, shall cause Licensee to acquire any ownership or rights to Licensor's Software, Intellectual Property Rights, or other property, in whole or in part or any derivative of Licensor property. In case of conflict or ambiguity in interpretation of any agreement between the Parties with respect to this subject matter, this Section 5.1 shall govern and be taken as the basis for any interpretations or conflict resolutions and in the absence of incontrovertible evidence to the contrary, Licensor shall retain sole rights or, as the case may be, acquire sole rights in and to any pre-existing, existing, and arising intellectual property arising from this Agreement, including performance and non-performance hereunder, and Licensee shall cooperate in perfecting Licensor's sole and unencumbered ownership thereof.

5.2 Innovations . Except as explicitly set forth herein or in a Statement of Work, Licensor shall have all right, title and interest in and to any and all Innovations, and Intellectual Property Rights arising therefrom that are made by Licensor in providing the Services. Licensor shall solely own all derivative works of Software and Innovations. Licensor owns and shall retain all right, title and interest in and to the Software and Documentation, including, without limitation, all Intellectual Property Rights embodied therein, and Licensee shall have no rights with respect thereto other than the rights expressly granted in this Agreement. All rights not expressly granted to Licensee in this Agreement are retained by Licensor.


6.	CONFIDENTIALITY .

6.1 Confidential Information . Each Party (the " Disclosing Party ") may from time to time during the term of this Agreement disclose to the other Party (the " Receiving Party ") certain information regarding the Disclosing Party's business, including, without limitation, technical, marketing, financial, employee, planning and other confidential or proprietary information, which information is either marked as confidential or proprietary (or bears a similar legend) or which a reasonable person would understand to be confidential given the circumstance and nature of the disclosure (" Confidential Information "), and whether disclosed orally or in writing. Without limiting the foregoing, each Party’s Confidential Information shall include all customer lists and other materials and technology owned or otherwise controlled by it; provided, however, any customer lists of Licensor resulting from customers of Licensee during the term of this Agreement (as a result of End Users being parties to the MWSTC as defined in the Supply Agreement ) is deemed Confidential Information of Licensee and not of Licensor. Confidential Information does not include information that: (i) is in the Receiving Party's possession at the time of disclosure as shown by credible evidence; (ii) before or after it has been disclosed to the Receiving Party, enters the public domain, not as a result of any action or inaction of the Receiving Party; (iii) is approved for release by written authorization of the Disclosing Party; (iv) is disclosed to the Receiving Party by a third party not in violation of any obligation of confidentiality; or (v) is independently developed by the Receiving Party without reference to Confidential Information of the Disclosing Party, as evidenced by such Party's written records.

6.2 Protection of Confidential Information . The Receiving Party will not use any Confidential Information of the Disclosing Party for any purpose other than performing its obligations or exercising its rights under this Agreement, and will disclose the Confidential Information of the Disclosing Party only to Receiving Party's employees, agents, directors, officers, auditors, regulators and contractors on a "need to know" basis, provided such persons are under a contractual obligation with Receiving Party to maintain the confidentiality of such Confidential Information, which obligation is consistent with, and no less protective of Confidential Information, than the terms of this Section 6.2. The Receiving Party will protect the Disclosing Party's Confidential Information from unauthorized use, access, or disclosure in the same manner as the Receiving Party protects its own confidential or proprietary information of a similar nature and with no less than reasonable care. Notwithstanding the foregoing, Confidential Information may be disclosed as required by law or by order of a court of competent jurisdiction. In such event and if reasonably possible under the circumstances of disclosure, the Receiving Party will provide the Disclosing Party with prompt prior notice of such obligation in order to permit the Disclosing Party an opportunity to take legal action to prevent or limit the scope of such disclosure. Unauthorized disclosure or use of the Disclosing Party's Confidential Information may cause irreparable harm to the Disclosing Party for which recovery of money damages would be inadequate; consequently, the Disclosing Party shall be entitled to timely injunctive relief to protect its rights under this Section 6.2, in addition to any and all remedies available at law or in equity.

6.3 Confidentiality of Agreement . Other than as permitted in this Agreement, neither Party will disclose any terms of this Agreement to anyone other than its

attorneys, accountants, and other professional advisors under a duty of confidentiality except: (a) as required by law; or (b) pursuant to a mutually agreeable press release; or (c) in connection with a proposed merger (of any kind), any debt or equity financing, in connection with a public offering of shares or sale of such Party's business.

6.4 Return of Confidential Information . Within thirty (30) days of the termination of the Agreement, for any reason, each Receiving Party shall return to Disclosing Party all Confidential Information, including any copies thereof which were, at any time, in the possession of receiving Party, and all materials (in any medium whatsoever), which contain or embody Confidential Information, and shall cease to make any further use of Confidential Information.


7.	REPRESENTATIONS AND WARRANTIES .

7.1 Mutual Representations and Warranties . Each Party hereby represents and warrants as of the Effective Date and at all times throughout the term of this Agreement: (a) it has the full corporate right, power and authority to enter into this Agreement and to perform its obligations hereunder; (b) the execution of this Agreement by such Party and performance of its obligations thereunder comply with all applicable laws, rules, and regulations (including privacy, export control and obscenity laws); (c) when executed and delivered, this Agreement will constitute a legal, valid and binding obligation of such Party, enforceable against it in accordance with its terms; and (d) the execution, delivery and performance of this Agreement by such Party will not violate any agreement or instrument to which such Party is a party or is otherwise bound.

7.2 Licensor Warranties . Licensor represents and warrants that: (i) Licensor has the requisite right and authority to grant to Licensee the rights and licenses granted under this Agreement, including but not limited to the necessary Intellectual Property Rights and there are no restrictions which could or would prevent Licensee from exercising any rights granted hereunder; (ii) Licensor shall perform all Services requested by Licensee under this Agreement or a Statement of Work on a professional reasonable effort basis in accordance to the standards prevailing in the industry and in a diligent, workmanlike and expeditious manner; (iii) to Licensor's knowledge, no Software, or any part thereof, delivered to Licensee hereunder shall infringe on any third party patent, copyright, trade secret or other Intellectual Property Right; (iv) neither the Software nor any portion thereof contains or is included in, is derived from, was developed using or with reference to, or is distributed with any Open Source Software unless disclosed by Licensor in writing or in notices within the Software; and (v) the Services, in all material respects, will be performed in accordance with, and the Software, in all material respects, will conform to, all regulatory requirements and standards, if any. In the event of a breach of any of the foregoing warranties, Licensee shall notify Licensor of such breach after the Services are rendered and/or the Software is delivered to Licensee (as the case may be) and Licensor shall re-perform the Services or re-deliver the Software, as the case may be, so that they conform to the applicable warranty. In addition to the foregoing, Licensor represents and warrants that it holds all permits, licenses and similar authority necessary for the performance of its obligations hereunder.

7.3 Software Support . Software is supported, not warrantied. Licensor agrees to use commercially reasonable efforts to ensure, for one (1) year, commencing upon delivery of the Software to each End User hereunder (" Support Period "), that the Software shall operate in substantial conformity to the Specifications and Documentation (" Support "). To the extent Software fails to conform to the Specifications, Licensor shall, at its sole discretion, either: (a) remedy the purported non-conformity within a reasonable time; or (b) replace the Software within a reasonable time with Software having substantially similar functionality, provided, that Licensee notifies Licensor in writing of any defect or nonconformity covered by this Support within a reasonable time of discovering the defect or non-conformity.

7.4 Due Diligence . Licensor warrants that it has made due inquiry regarding, and performed a due diligence review with respect to, the Intellectual Property Rights and nothing has come to the attention of Licensor in the scope of its due diligence review that gave it reason to believe that such warranties are or may be untrue in any respect. Licensee warrants that it has made due inquiry regarding the Licensor Software and that this is an arms-length transaction entered into freely by Licensee based on Licensee's best interest and diligence as to the cost versus the benefits of this Agreement. Licensee further represents that Licensor, a recent Affiliate, has not unduly influenced Licensee to enter into this Agreement, and that Licensee enters into the Agreement, with all of the benefits, conditions, and limitations therein, freely and in pursuit of Licensee's own best interests, independent of Licensor's influence or best interests.

7.5 No Implied Warranties . THE EXPRESS WARRANTIES AND SUPPORT IN THIS AGREEMENT ARE IN LIEU OF AND TO THE EXCLUSION OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. SUBJECT TO THE EXPRESS WARRANTIES IN THIS AGREEMENT, LICENSOR DOES NOT WARRANT THAT THE OPERATION OF THE LICENSED PROGRAM WILL BE UNINTERRUPTED OR ERROR FREE. THE WARRANTY DOES NOT COVER ANY MEDIA OR DOCUMENTATION THAT HAS BEEN SUBJECT TO DAMAGE OR ABUSE. THE SOFTWARE WARRANTY COVERS ONLY THE UNMODIFIED PRODUCT DELIVERED BY LICENSOR AND DOES NOT COVER ANY PROBLEMS CAUSED BY ALTERATIONS OR CHANGES MADE BY ANYONE OTHER THAN LICENSOR. LICENSOR IS NOT RESPONSIBLE FOR PROBLEMS CAUSED BY CHANGES IN THE OPERATING CHARACTERISTICS OF COMPUTER HARDWARE OR COMPUTER OPERATING SYSTEMS MADE AFTER DELIVERY OF THE LICENSED PROGRAM, NOR FOR PROBLEMS IN THE INTERACTION OF THE SOFTWARE WITH NON-LICENSOR SOFTWARE EXCEPT AS SET FORTH OTHERWISE IN THE SPECIFICATIONS FOR THE SOFTWARE.


8.	INDEMNITY .

8.1 Indemnification by Licensor . Licensor shall defend, indemnify and hold harmless Licensee, its Distributors and their officers, directors, employees, shareholders, customers, agents, successors and assigns from and against any and all loss, damages, liabilities, settlement, costs and expenses (including legal expenses and the

expenses of other professionals) as incurred, resulting from or arising out of any third party claim which alleges that Software or any part thereof or the Licensee's use authorized under this Agreement infringes or misappropriates any Intellectual Property Right of a third party.

8.2 Licensor's Efforts . If the use of Software is enjoined or is found by a court of competent jurisdiction to be infringing the Intellectual Property Rights of a third party, without prejudice to the indemnification obligations set forth in Section 8.1 above, Licensor's sole liability and Licensee's sole remedy shall be to: (a) obtain a license from such third party for the benefit of Licensee; or (b) replace or modify the infringing Software, or any part thereof, so that it is no longer infringing and substantially complies with the Specifications.

8.3 Indemnification Procedures . If any Party entitled to indemnification under this article (an " Indemnified Party ") makes an indemnification request to the other, the Indemnified Party shall permit the other Party (the " Indemnifying Party ") to control the defense, disposition or settlement of the matter at its own expense; provided that the Indemnifying Party shall not, without the consent of the Indemnified Party, enter into any settlement or agree to any disposition that imposes any conditions or obligations on the Indemnified Party. The Indemnified Party shall notify the Indemnifying Party promptly of any claim for which the Indemnifying Party is responsible and shall reasonably cooperate with the Indemnifying Party to facilitate defense of any such claim. An Indemnified Party shall at all times have the option to participate in any matter or litigation, including but not limited to participation through counsel of its own selection, if desired, the hiring of such separate counsel being at Indemnified Party's own expense.

8.4 Limitation . Licensor shall have no obligation to defend the Indemnified Parties or to pay any costs, damages, or attorneys' fees for any claim to the extent based upon, (i) infringement would not be alleged if Software or IP License was not attached or embedded in a Product incorporating elements not sourced from Licensor or (ii) use of other than a current, unmodified release of the Software if such infringement would have been avoided by the use of a current, unaltered release of the Software.


9.	LIMITATION OF LIABILITY .

EXCEPT FOR INDEMNIFICATION OBLIGATIONS OR BREACH OF SECTION 2.3 OR CONFIDENTIALITY OBLIGATIONS SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY'S LIABILITY ARISING OUT OF THIS AGREEMENT EXCEED FOUR MILLION DOLLARS. EXCEPT FOR INDEMNIFICATION OBLIGATIONS OR BREACH OF SECTION 2.3 OR CONFIDENTIALITY OBLIGATIONS SET FORTH IN THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY ARISING OUT OF, OR OTHERWISE RELATING TO, THIS AGREEMENT, FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL, COLLATERAL, PUNITIVE, EXEMPLARY, OR INDIRECT DAMAGES SUFFERED BY THE OTHER PARTY OR ANY THIRD PARTY INCLUDING, WITHOUT LIMITATION, LOSS OF GOODWILL, LOSS OF PROFITS OR REVENUES, LOSS OF SAVINGS, LOSS OF USE, INTERRUPTION OF BUSINESS, INJURY OR DEATH TO PERSONS OR DAMAGE TO PROPERTY, WHETHER BASED

ON BREACH OF CONTRACT, TORT OR ARISING IN EQUITY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. THE PARTIES ACKNOWLEDGE THAT THE LIMITATIONS OF LIABILITY IN THIS SECTION 9 AND IN THE OTHER PROVISIONS OF THIS AGREEMENT AND THE ALLOCATION OF RISK HEREIN ARE AN ESSENTIAL ELEMENT OF THE BARGAIN BETWEEN THE PARTIES, WITHOUT WHICH LICENSEE WOULD NOT HAVE ENTERED INTO THIS AGREEMENT AND PRICING REFLECTS THIS ALLOCATION OF RISK AND THE LIMITATION OF LIABILITY SPECIFIED HEREIN. THIS LIMITATION ON LIABILITY SHALL NOT APPLY TO ANY UNDISPUTED PAYMENT AMOUNTS NOT YET PAID BUT DUE LICENSOR UNDER THIS AGREEMENT NOR TO LICENSOR'S INDEMNITY OBLIGATIONS FOR THIRD PARTY CLAIMS UNDER SECTION 8.


10.	MISCELLANEOUS .

10.1 Force Majeure . Except as specifically provided elsewhere in this Agreement, neither Party shall be liable to the other for delays in performing or for its failure to perform any obligation under this Agreement to the extent that such delays or failures result from or arise out of causes beyond such Party's control or reasonable expectation, including, by way of illustration but not limitation, fire, flood, war, weather of exceptional severity, civil disturbance, strikes or work stoppages, acts of God or of the public enemy, acts of any government, extended power failures, large increases in Internet activity in a short period of time (commonly known as usage spikes), attacks on the Party's computer network or server, viruses which are not preventable through generally available retail products, and catastrophic hardware and telecommunications failures.

10.2 Compliance with Laws . Each Party shall comply with all federal, state and local laws and regulations, as amended from time to time, applicable to the performance of its obligations hereunder. Licensor and Licensee understand and acknowledge that the Software may be subject to the export regulations of the United States Export Administration Act of 1979, as amended, or a successor act. Licensor and Licensee represent that they will not knowingly permit the exportation or transshipment of all or any part of the Software in violation of the above-referenced law and regulations. Each Party agrees to indemnify and hold the other Party harmless from any and all costs, damages, fines, and other expenses incurred by reason of its violations of these representations.

10.3 Relationship of Parties . The parties are independent contractors under this Agreement and no other relationship is intended, including a partnership, franchise, joint venture, agency, employer/employee, fiduciary, master/servant relationship, or other special relationship. Neither Party shall act in a manner which expresses or implies a relationship other than that of independent contractor, nor bind the other Party.

10.4 Equitable Relief . Each Party acknowledges that a breach by the other Party of any confidentiality or proprietary rights provision of this Agreement may cause the non-breaching Party irreparable damage, for which the award of damages would not be adequate compensation. Consequently, the non-breaching Party may institute an action to enjoin the breaching Party from any and all acts in violation of those provisions, which

remedy shall be cumulative and not exclusive, and a Party may seek the entry of an injunction enjoining any breach or threatened breach of those provisions, in addition to any other relief to which the non-breaching Party may be entitled at law or in equity.

10.5 Governing Law; Venue . This Agreement and any action related thereto shall be governed, controlled, interpreted and defined by and under the laws of the State of Colorado and the United States, without regard to the conflicts of laws provisions thereof. The parties specifically disclaim the UN Convention on Contracts for the International Sale of Goods. Any dispute or litigation based on, related to or arising out of this Agreement must be brought and maintained in Denver County, Colorado, before a court of competent jurisdiction. Each Party consents to the personal jurisdiction of the State of Colorado, acknowledges that venue is proper in any of its state or federal courts, and waives any objection it has or may have in the future with respect to any of the above.

10.6 Attorneys' Fees . In addition to any other relief awarded, the prevailing Party in any action arising out of this Agreement shall be entitled to its reasonable attorneys' fees and costs.

10.7 Notices . All notices, demands, and other communications given or delivered under this Agreement shall be in writing and shall be deemed to have been given, (a) when received if given in person, (b) on the date of electronic confirmation of receipt if sent by facsimile, other wire transmission, or by e-mail, (c) three days after being deposited in the U.S. mail, certified or registered mail, postage prepaid, or (d) one day after being deposited with a reputable overnight courier. Notices, demands, and communications to the parties shall, unless another address is specified in writing, be sent to the address, e-mail address or facsimile number indicated on the signature page.

10.8 Assignment . Licensee shall not transfer or assign any of its rights or delegate any of its obligations, in whole or in part, whether voluntarily or by operation of law, without the prior written consent of Licensor; provided, however, that either Party may, without securing such prior consent, assign this Agreement and its rights and obligations to any successor of such first Party by way of merger, consolidation, or the acquisition of substantially all of the assets of such first Party or of the assets of the business to which this Agreement relates by delivering a written undertaking from the assignee to be legally bound by the terms and conditions of this Agreement. Notwithstanding anything to the contrary, Licensor may perform its obligations, in whole or in part, in Licensor's sole discretion, through authorized third parties or Affiliates.

EXCEPT WITH RESPECT TO EXISTING INDEBTEDNESS IN FAVOR OF INSTITUTIONAL LENDERS OF LICENSEE OR ANY OF ITS AFFILIATES, OR ANY REFINANCINGS OR REPLACEMENTS THEREOF, LICENSEE SHALL NOT PLEDGE, USE, OR OFFER FOR COLLATERAL, OR IN ANY WAY ENCUMBER OR TREAT AS AN ASSET OR SECURITY, FOR THE PURPOSE OF OBTAINING CREDIT OR INVESTMENT, THIS AGREEMENT, LICENSE, THE SOFTWARE, OR ANY OF THE RIGHTS GRANTED HEREIN. LICENSOR DISCLAIMS AND REFUSES ANY ASSIGNMENT BY LICENSEE, FOR THE BENEFIT OF THIRD PARTY CREDITORS,

INVESTORS, OR ANY OTHER ENTITY, OF ANY RIGHT, TITLE OR CLAIM IN AND TO THE LICENSE, SOFTWARE, OR IN THIS AGREEMENT.

10.9 Waiver and Modification . Failure by either Party to enforce any provision of this Agreement will not be deemed a waiver of future enforcement of that or any other provision. Any waiver, amendment or other modification of any provision of this Agreement will be effective only if in writing and signed by the parties.

10.10 Severability . If for any reason a court of competent jurisdiction finds any provision of this Agreement to be unenforceable, that provision of the Agreement will be enforced to the maximum extent permissible so as to affect the intent of the parties, and the remainder of this Agreement will continue in full force and effect.

10.11 Headings . Headings used in this Agreement are for ease of reference only and shall not be used to interpret any aspect of this Agreement.

10.12 Entire Agreement . This Agreement, including all Exhibits which are incorporated herein by reference, and the Supply Agreement constitute the entire agreement between the parties with respect to the subject matter hereof, and supersede and replace all prior and contemporaneous understandings or agreements, written or oral, regarding such subject matter. To the extent any terms and conditions of this Agreement conflict with the terms and conditions of any Exhibit or Statement of Work entered into by the Parties hereunder, the terms and conditions of this Agreement shall govern and control.

10.13 Counterparts/Facsimiles . This Agreement may be executed in any number of counterparts, each of which when executed and delivered shall be deemed an original, and such counterparts together shall constitute one and the same instrument.

10.14 Purchase of Software . All references in this Agreement to the "purchase" or "sale" of Software shall mean the acquiring or granting, respectively, of a license to use the Software, and to exercise any other rights pertaining to such Software which are expressly set forth herein. The Software is licensed, not sold, and title does not transfer.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement by persons duly authorized as of the date and year first above written.



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

Execution Version

EXHIBIT A1

SOFTWARE:

Acquisition Software has the following features:


•	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 Uno ^TM brand of hardware of Licensor


•	Control of CloudDR ^TM brand of hardware of Licensor


•	DICOM interface and Store to CloudBank ^TM brand


•	DICOM archival


•	Copilot ^TM 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

EXHIBIT A2

COVERED AFFILIATES


•	Heska Corporation


•	Diamond Animal Health, Inc.

Exhibit 31.1

CERTIFICATION

I, Kevin S. Wilson, certify that:


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


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


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


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


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


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


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


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


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


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


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



Dated: August 8, 2016	/s/ Kevin S. Wilson
	KEVIN S. WILSON
	Chief Executive Officer and President
	(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Jason A. Napolitano, certify that:


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


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


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


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


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


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


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


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


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


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


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



Dated: August 8, 2016	/s/ Jason A. Napolitano
	JASON A. NAPOLITANO
	Chief Operating Officer, Chief Financial Officer, Executive Vice President and Secretary
	(Principal Financial Officer)

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Kevin S. Wilson, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended June 30, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Heska Corporation.



Dated: August 8, 2016	By:	/s/ Kevin S. Wilson
	Name:	KEVIN S. WILSON
	Title:	Chief Executive Officer and President

I, Jason A. Napolitano, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Heska Corporation on Form 10-Q for the quarter ended June 30, 2016 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-K fairly presents in all material respects the financial condition and results of operations of Heska Corporation.



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

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