HSKA » Topics » Factors That May Affect Results

This excerpt taken from the HSKA 10-Q filed Aug 15, 2005.

     Factors That May Affect Results

          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 these factors and the possible impact of these factors on future results of 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 common stock could decline and you could experience losses on your investment.


           Our common stock is listed on the Nasdaq SmallCap Market and we may not be able to maintain that listing, which may make it more difficult for you to sell your shares.

          Our common stock is listed on the Nasdaq SmallCap Market. We have received a communication from Nasdaq advising us that we have been afforded a “grace period” ending on November 1, 2005 to regain compliance with the $1.00 minimum bid requirement, which would require us to have a minimum bid price of $1.00 or more for at least 10 consecutive business days. We cannot assure you that we will be able to obtain the aforementioned minimum bid price requirement or maintain our listing on the Nasdaq stock market, which includes additional quantitative and qualitative requirements in addition to a $1.00 minimum bid price, such as market value of listed securities. On July 7, 2005, we received a communication from Nasdaq advising us that we failed to comply with the $35 million minimum market value of listed securities required for 10 consecutive trading days and that we had been afforded a 30 calendar day “grace period” in order to regain compliance. While we received a communication from Nasdaq on August 4, 2005 stating we have regained compliance and the matter is closed, there can be no assurance we will continue to meet the minimum market value of listed securities or other Nasdaq listing criteria in the future. In addition, the Nasdaq staff retains significant discretion in matters related to listing. If we are delisted from the Nasdaq SmallCap Market, our common stock will be considered a penny stock under the regulations of the Securities and Exchange Commission 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 common stock, which could severely limit market liquidity of the common stock and your ability to sell our securities in the secondary market. This lack of liquidity would also make it more difficult for us to raise capital in the future.

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

          If our actual performance deviates from our operating plan, which anticipates we will be profitable in both the third and fourth quarters of 2005 and for 2006 as a whole, we may be required to raise additional capital in the future. If necessary, we expect to raise these additional funds through one or more of the following: (1) sale of equity securities; (2) refinancing of real property assets; (3) licensing of technology; and (4) sale of assets, products or marketing rights. 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. 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. We may not find any third parties interested in licensing our intellectual property or purchasing any of our assets, products or marketing rights in a timely manner, or at all. If we relinquish rights to certain of our intellectual property, or sell certain of our assets, products or marketing rights it may limit our future prospects. Additionally, amounts 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. 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.

           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 as well as our stock price to decline.

          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 of such relationships;
  the introduction of new products by our competitors or by us;

  competition and pricing pressures from competitive products;
  our distribution strategy and our ability to maintain relationships with distributors;
  large customers failing to purchase at historical levels;
  fundamental shifts in market demand;
  manufacturing delays;
  shipment problems;
  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 for personnel, marketing and new product development. Many of these expenses are fixed in the short term. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed.

This excerpt taken from the HSKA 10-Q filed May 16, 2005.

     Factors That May Affect Results

          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 these factors and the possible impact of these factors on future results of 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 common stock could decline and you could experience losses on your investment.

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

           If Wells Fargo were to reset all our covenants based on our current financial projections for 2005 and future forecasts we believe our available cash and cash equivalents, together with cash from operations and borrowings expected to be available under our revolving line of credit should be sufficient to fund our operations through 2005 and into 2006, although the margin for variation from our current plan is significantly less than management is comfortable with. Accordingly, we have decided to raise additional capital. We have begun discussions with Wells Fargo and other financial institutions regarding an amended or new credit facility including an increase in term loans on assets with historical appraised values significantly in excess of current affiliated debt, which would provide us with additional liquidity if successful. However, these discussions may not be successful and our actual results may differ from our current financial plan for 2005, 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 one or more of the following: (1)  sale of equity or debt securities; (2)  sale of assets, products or marketing rights; and (3)  licensing of technology. 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. If we cannot raise the additional funds through these options on acceptable terms or


with the necessary timing, management could also reduce discretionary spending to decrease our cash burn rate through actions such as delaying or canceling research projects or marketing plans. These actions would likely extend the then available cash and cash equivalents, and then available borrowings for a limited time.

          Additional capital may not be available on acceptable terms, if 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. Furthermore, amounts 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. Furthermore, any additional 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. Alternatively, we may have to relinquish rights to certain of our intellectual property, products or marketing rights if we are required to obtain funds through collaborative agreements or otherwise. If adequate funds are not available, we may be required to curtail our operations significantly and reduce discretionary spending to extend the currently available cash resources, which would likely have a material adverse effect on our business, financial condition and our ability to continue as a going concern.

           We must maintain various financial and other covenants under our credit facility agreement in order to borrow and fund our operations.

          Under our credit facility agreement with Wells Fargo, we are required to comply with various financial and non-financial covenants in order to borrow under that agreement. The borrowings under this credit facility are essential to continue to fund our operations. Among the financial covenants is a requirement to maintain minimum liquidity (cash plus excess borrowing base) of $1.5 million in 2005. Additional requirements include covenants for minimum capital monthly and minimum net income quarterly. We do not believe we will be able to meet all of the current Wells Fargo covenants in the future. We have begun discussions with Wells Fargo regarding an amended credit facility agreement, which would include renegotiated covenants. Wells Fargo has granted us several historical waivers of non-compliance to these covenants, the most recent of which was on May 10, 2005. However, there can be no assurance we will be able to obtain similar waivers or other modifications if needed in the future.

          Failure to comply with any of the covenants, representations or warranties, or failure to modify them to allow future compliance, could result in our being in default under the loan and could cause all outstanding amounts, including amounts currently classified as long-term and loans with our other lenders, to become immediately due and payable or impact our ability to borrow under the agreement. We intend to rely on available borrowings under the credit agreement to fund our operations through May 2006. We have begun discussions with other financial institutions regarding a new credit facility to replace our agreement with Wells Fargo, if necessary, although there can be no assurance these discussions will be successful. If we are unable to borrow funds under our agreement with Wells Fargo or a new financial institution, we will need to raise additional capital from other sources to fund our cash needs and continue our operations, which capital may not be available on acceptable terms, or at all.

           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 as well as our stock price to decline.

          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 of such relationships;
  the introduction of new products by our competitors or by us;
  competition and pricing pressures from competitive products;
  our distribution strategy and our ability to maintain relationships with distributors;
  large customers failing to purchase at historical levels;

  fundamental shifts in market demand;
  manufacturing delays;
  shipment problems;
  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 for personnel, new product development and marketing. Many of these expenses are fixed in the short term. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed and our current financial plan for 2005 contains very little margin for error versus our current capital position.

           Our common stock is listed on the Nasdaq SmallCap Market and we may not be able to maintain that listing, which may make it more difficult for you to sell your shares.

          Our common stock is listed on the Nasdaq SmallCap Market. We have received a communication from Nasdaq advising us that we have been afforded a “grace period” ending on November 1, 2005 to regain compliance with the $1.00 minimum bid requirement which would require us to have a minimum bid price of $1.00 or more for 10 consecutive business days. We cannot assure you that we will be able to obtain the aforementioned minimum bid price requirement or maintain our listing on the Nasdaq stock market, which includes additional quantitative and qualitative requirements in addition to a $1.00 minimum bid price such as market value of listed securities. In addition, the Nasdaq staff retains significant discretion in matters related to listing. If we are delisted from the Nasdaq SmallCap Market, our common stock will be considered a penny stock under the regulations of the Securities and Exchange Commission 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 discourage broker-dealers from effecting transactions in our common stock, which could severely limit market liquidity of the common stock and your ability to sell our securities in the secondary market. This lack of liquidity would also make it more difficult for us to raise capital in the future.

This excerpt taken from the HSKA 10-K filed Mar 31, 2005.

Factors That May Affect Results

        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 these factors and the possible impact of these factors on future results of 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 common stock could decline and you could experience losses on your investment.

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

        Our financial plan for 2005 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 2005 and into 2006. Our financial plan for 2005 expects that we will have positive operating cash flow, primarily through increased revenue, improved gross margins and limiting any increase in operating expenses to a modest degree. 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 one or more of the following: (1) sale of equity or debt securities; (2) obtaining new loans; (3) sale of assets, products or marketing rights; and (4) licensing of technology. 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. If we cannot raise the additional funds through these options on acceptable terms or with the necessary timing, management could also reduce discretionary

26



spending to decrease our cash burn rate through actions such as delaying or canceling research projects or marketing plans. These actions would likely extend the then available cash and cash equivalents, and then available borrowings.

        Additional capital may not be available on acceptable terms, if 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. Furthermore, amounts 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. Furthermore, any additional 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. Alternatively, we may have to relinquish rights to certain of our intellectual property, products or marketing rights if we are required to obtain funds through collaborative agreements or otherwise. If adequate funds are not available, we may be required to curtail our operations significantly and reduce discretionary spending to extend the currently available cash resources, which would likely have a material adverse effect on our business, financial condition and our ability to continue as a going concern.

        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 as well as our stock price to decline.

        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 of such relationships;
    the introduction of new products by our competitors or by us;
    competition and pricing pressures from competitive products;
    our distribution strategy and our ability to maintain relationships with distributors;
    large customers failing to purchase at historical levels;
    fundamental shifts in market demand;
    manufacturing delays;
    shipment problems;
    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 for personnel, new product development and marketing. Many of these expenses are fixed in the short term. If any of the factors listed above cause our revenues to decline, our operating results could be substantially harmed.

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