UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2022March 31, 2023.
OR
☐ 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: 001-38298
Zomedica Corp.
(Exact name of registrant as specified in its charter)
| | |
Alberta, Canada | | N/A |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification Number) |
| | |
100 Phoenix Drive, Suite 125 | | 48108 |
(Address of principal executive offices) | | (Zip code) |
(734) 369-2555
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | |
Large accelerated filer | ☐ | Accelerated filer | ☐ |
Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
|
| Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Securities registered pursuant to Section 12(b) of the Act:
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Shares, without par value | ZOM | NYSE American |
As of August 15, 2022,May 11, 2023, 979,949,668 shares of the registrant’s common shares, without par value, were issued and outstanding.
ZOMEDICA CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2022March 31, 2023
TABLE OF CONTENTS
2
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Zomedica Corp.
Condensed Consolidated balance sheetsBalance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022
(Unaudited) (United(United States dollarsDollars in thousands)Thousands)
| | | | | | |
| | As of | ||||
|
| June 30, |
| December 31, | ||
|
| 2022 |
| 2021 | ||
Assets |
| |
|
| |
|
| | | | | | |
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 186,763 | | $ | 194,952 |
Inventory, net | |
| 4,819 | |
| 2,848 |
Prepaid expenses and deposits | |
| 2,315 | |
| 1,842 |
Trade receivables, net | |
| 414 | |
| 315 |
Other receivables | |
| 315 | |
| 450 |
Total current assets | |
| 194,626 | |
| 200,407 |
| | | | | | |
Prepaid expenses and deposits | |
| 331 | |
| 394 |
Property and equipment, net | |
| 1,710 | |
| 1,130 |
Assets in process | | | 523 | | | 420 |
Right-of-use asset | |
| 1,638 | |
| 1,320 |
Goodwill | |
| 43,288 | |
| 43,288 |
Intangible assets, net | |
| 32,097 | |
| 33,176 |
Debt security (at fair value) | |
| 1,000 | |
| 0 |
Other assets | |
| 265 | |
| 265 |
Total assets | | $ | 275,478 | | $ | 280,400 |
| | | | | | |
Liabilities and shareholders’ equity | |
|
| |
| |
| | | | | | |
Current liabilities | |
|
| |
| |
Accounts payable and accrued liabilities | | $ | 3,491 | | $ | 3,225 |
Accrued income taxes | |
| 41 | |
| 240 |
Current portion of lease obligations | |
| 523 | |
| 415 |
Customer contract liabilities | |
| 153 | |
| 198 |
Other current liabilities | |
| 266 | |
| 262 |
Total current liabilities | |
| 4,474 | |
| 4,340 |
| | | | | | |
Lease obligations | |
| 1,184 | |
| 964 |
Deferred tax liabilities | |
| 3,048 | |
| 3,709 |
Customer contract liabilities | |
| 161 | |
| 140 |
Other liabilities | |
| 391 | |
| 361 |
Total liabilities | | $ | 9,258 | | $ | 9,514 |
| | | | | | |
Commitments and contingencies (Note 14) | |
|
| |
|
|
| | | | | | |
Shareholders’ equity | |
|
| |
|
|
Unlimited common shares, 0 par value; 979,899,668 issued and outstanding at June 30, 2022 and December 31, 2021 | | $ | 380,962 | | $ | 380,962 |
Additional paid-in capital | |
| 13,846 | |
| 9,313 |
Accumulated deficit | |
| (128,601) | |
| (119,391) |
Accumulated comprehensive income | |
| 13 | |
| 2 |
Total shareholders' equity | |
| 266,220 | |
| 270,886 |
| | | | | | |
Total liabilities and shareholders’ equity | | $ | 275,478 | | $ | 280,400 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Zomedica Corp.
Consolidated statements of loss and comprehensive loss
(Unaudited) (United States dollars in thousands, except per share data)
| | | | | | | | | | | | |
|
| For the Three Months Ended June 30, | | For the Six Months Ended June 30, | ||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 | ||||
| | | | | | | | | | | | |
Net revenue | | $ | 4,246 | | $ | 16 | | $ | 7,997 | | $ | 30 |
Cost of revenue | |
| 1,210 | |
| 36 | |
| 2,199 | |
| 42 |
Gross profit (loss) | |
| 3,036 | |
| (20) | |
| 5,798 | |
| (12) |
| | | | | | | | | | | | |
Expenses | |
| | |
| | |
|
| |
|
|
Research and development | |
| 319 | |
| 271 | |
| 670 | |
| 684 |
Selling, general and administrative | |
| 8,597 | |
| 5,038 | |
| 15,321 | |
| 8,505 |
Loss from operations | |
| (5,880) | |
| (5,329) | |
| (10,193) | |
| (9,201) |
Interest income | |
| (277) | |
| (112) | |
| (384) | |
| (167) |
Loss on disposal of assets | | | 1 | | | — | | | 1 | | | 243 |
Other (income) loss | |
| (1) | |
| (505) | |
| 4 | |
| (529) |
Foreign exchange loss (gain) | |
| 52 | |
| (1) | |
| 56 | |
| — |
Loss before income taxes | |
| (5,655) | |
| (4,711) | |
| (9,870) | |
| (8,748) |
Income tax benefit | |
| (382) | |
| — | |
| (660) | |
| — |
Net loss | |
| (5,273) | |
| (4,711) | |
| (9,210) | |
| (8,748) |
Change in foreign currency translation | |
| (40) | |
| — | |
| 11 | |
| — |
Net loss and comprehensive loss | | $ | (5,313) | | $ | (4,711) | | $ | (9,199) | | $ | (8,748) |
| | | | | | | | | | | | |
Weighted average number of common shares - basic and diluted | |
| 979,899,668 | |
| 973,656,518 | |
| 979,899,668 | |
| 932,959,287 |
| | | | | | | | | | | | |
Loss per share - basic and diluted (Note 16) | | $ | (0.005) | | $ | (0.005) | | $ | (0.009) | | $ | (0.044) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Zomedica Corp.
Consolidated statements of shareholders’ equity
(Unaudited) (United States dollars in thousands)
| | | | | | | | | | | | | | | | | | | | |
|
| For the six months ended June 30, 2022 | ||||||||||||||||||
| | | | | | | Common | | Additional | | | | | Accumulated | | | | |||
| | Common stock | | stock | | paid-in | | Accumulated | | comprehensive | |
| | |||||||
| | Shares |
| Amount |
| subscribed | | capital |
| deficit |
| income |
| Total | ||||||
Balance at December 31, 2021 | | 979,899,668 | | $ | 380,962 | | $ | - |
| $ | 9,313 | | $ | (119,391) | | $ | 2 | | $ | 270,886 |
Stock-based compensation |
| - |
| | - |
| | - |
| | 4,533 |
| | - |
| | - |
| | 4,533 |
Net loss |
| - |
| | - |
| | - |
| | - |
| | (9,210) |
| | - |
| | (9,210) |
Other comprehensive income |
| - |
| | - |
| | - |
| | - |
| | - |
| | 11 |
| | 11 |
Balance at June 30, 2022 |
| 979,899,668 | | $ | 380,962 | | $ | - | | $ | 13,846 | | $ | (128,601) |
| $ | 13 | | $ | 266,220 |
| | | | | | | | | | | | | | | | | | | | |
|
| For the three months ended June 30, 2022 | ||||||||||||||||||
| | | | | | | Common | | Additional | | | | | Accumulated | | | | |||
| | Common stock | | stock | | paid-in | | Accumulated | | comprehensive | |
| | |||||||
| | Shares |
| Amount |
| subscribed | | capital |
| deficit |
| income |
| Total | ||||||
Balance at March 31, 2022 | | 979,899,668 | | $ | 380,962 | | $ | — |
| $ | 11,354 | | $ | (123,328) | | $ | 53 | | $ | 269,041 |
Stock-based compensation |
| — |
| | — |
| | — |
| | 2,492 |
| | — |
| | — |
| | 2,492 |
Net loss |
| — |
| | — |
| | — |
| | — |
| | (5,273) |
| | — |
| | (5,273) |
Other comprehensive income |
| — |
| | — |
| | — |
| | — |
| | — |
| | (40) |
| | (40) |
Balance at June 30, 2022 |
| 979,899,668 | | $ | 380,962 | | $ | — | | $ | 13,846 | | $ | (128,601) |
| $ | 13 | | $ | 266,220 |
| | | | | | |
| | As of | ||||
|
| March 31, |
| December 31, | ||
|
| 2023 |
| 2022 | ||
Assets |
| |
|
| |
|
| | | | | | |
Current assets |
| |
|
| |
|
Cash and cash equivalents | | $ | 8,353 | | $ | 27,399 |
Available-for-sale securities | |
| 112,698 | |
| 87,693 |
Trade receivables, net | |
| 428 | |
| 596 |
Inventory, net | |
| 2,743 | |
| 2,746 |
Prepaid expenses and deposits | |
| 4,856 | |
| 3,799 |
Other receivables | |
| 1,085 | |
| 1,268 |
Total current assets | |
| 130,163 | |
| 123,501 |
| | | | | | |
Prepaid expenses and deposits | |
| 153 | |
| 188 |
Property and equipment, net | |
| 6,799 | |
| 6,809 |
Construction in progress | | | 1,886 | | | 692 |
Right-of-use asset | |
| 1,511 | |
| 1,665 |
Goodwill | |
| 63,979 | |
| 63,979 |
Intangible assets, net | |
| 48,433 | |
| 41,799 |
Non current available-for-sale securities | |
| 26,409 | |
| 40,712 |
Other assets | |
| 265 | |
| 265 |
Total assets | | $ | 279,598 | | $ | 279,610 |
| | | | | | |
Liabilities and shareholders’ equity | |
|
| |
| |
| | | | | | |
Current liabilities | |
|
| |
| |
Accounts payable and accrued liabilities | | $ | 7,419 | | $ | 6,698 |
Accrued income taxes | |
| 233 | |
| 187 |
Current portion of lease obligations | |
| 641 | |
| 641 |
Customer contract liabilities | |
| 242 | |
| 207 |
Other current liabilities | |
| 62 | |
| 78 |
Total current liabilities | |
| 8,597 | |
| 7,811 |
| | | | | | |
Lease obligations | |
| 941 | |
| 1,097 |
Deferred tax liabilities | |
| 1,245 | |
| 1,245 |
Customer contract liabilities | |
| 263 | |
| 182 |
Liability due to Qorvo | |
| 3,529 | |
| — |
Other liabilities | |
| 1,965 | |
| 1,883 |
Total liabilities | | $ | 16,540 | | $ | 12,218 |
| | | | | | |
Commitments and contingencies (Note 16) | |
|
| |
|
|
| | | | | | |
Shareholders’ equity | |
|
| |
|
|
Unlimited common shares, no par value; 979,949,668 issued and outstanding at March 31, 2023 and December 31, 2022 | | $ | 380,973 | | $ | 380,973 |
Additional paid-in capital | |
| 25,431 | |
| 23,666 |
Accumulated deficit | |
| (142,789) | |
| (136,404) |
Accumulated comprehensive loss | |
| (557) | |
| (843) |
Total shareholders' equity | |
| 263,058 | |
| 267,392 |
| | | | | | |
Total liabilities and shareholders’ equity | | $ | 279,598 | | $ | 279,610 |
The accompanying notes are an integral part of these condensed consolidated financial statements
3
Zomedica Corp.
Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022
(Unaudited) (United States Dollars in Thousands, Except for Per Share Data)
| | | | | | | | | | | | | | | | | | | | |
|
| For the six months ended June 30, 2021 | ||||||||||||||||||
| | | | | | | Common | | Additional | | | | | Accumulated | | | | |||
| | Common stock | | stock | | paid-in | | Accumulated | | comprehensive | |
| | |||||||
| | Shares |
| Amount |
| subscribed | | capital |
| deficit |
| income |
| Total | ||||||
Balance at December 31, 2020 | | 642,036,228 | | $ | 104,784 | | $ | 460 |
| $ | 14,792 | | $ | (68,969) | | $ | - | | $ | 51,067 |
Stock issuance for financing |
| 105,013,158 |
| | 199,525 |
| | - |
| | - |
| | - |
| | - |
| | 199,525 |
Stock issuance costs |
| — |
| | (14,281) |
| | - |
| | - |
| | - |
| | - |
| | (14,281) |
Stock-based compensation |
| — |
| | - |
| | - |
| | 3,065 |
| | - |
| | - |
| | 3,065 |
Stock issuance from warrant exercises |
| 200,951,905 |
| | 44,082 |
| | (460) |
| | (11,511) |
| | - |
| | - |
| | 32,111 |
Stock issuance from exercise of stock options |
| 5,230,601 |
| | 2,112 |
| | - |
| | (744) |
| | - |
| | - |
| | 1,368 |
Stock redemption |
| 24,719,101 |
| | 44,000 |
| | - |
| | - |
| | (32,039) |
| | - |
| | 11,961 |
Net loss |
| — |
| | - |
| | - |
| | - |
| | (8,748) |
| | - |
| | (8,748) |
Balance at June 30, 2021 |
| 977,950,993 | | $ | 380,222 | | $ | - | | $ | 5,602 | | $ | (109,756) |
| $ | - | | $ | 276,068 |
| | | | | | | |
|
| For the Three Months Ended March 31, | | ||||
|
| 2023 |
| 2022 |
| ||
| | | | | | | |
Net revenue | | $ | 5,482 | | $ | 3,751 | |
Cost of revenue | |
| 1,647 | |
| 1,011 | |
Gross profit | |
| 3,835 | |
| 2,740 | |
| | | | | | | |
Expenses | |
| | |
| | |
Research and development | |
| 918 | |
| 351 | |
Selling, general and administrative | |
| 10,429 | |
| 6,703 | |
Loss from operations | |
| (7,512) | |
| (4,314) | |
Interest income | |
| 1,412 | |
| 107 | |
Interest expense | |
| (50) | |
| — | |
Other loss | |
| (1) | |
| (1) | |
Foreign exchange loss | |
| (26) | |
| (7) | |
Loss before income taxes | |
| (6,177) | |
| (4,215) | |
Income tax expense (benefit) | |
| 208 | |
| (278) | |
Net loss | |
| (6,385) | |
| (3,937) | |
Unrealized gains, change in fair value of available-for-sale securities, net of tax | |
| 283 | |
| — | |
Change in foreign currency translation | |
| 3 | |
| 51 | |
Net loss and comprehensive loss | | $ | (6,099) | | $ | (3,886) | |
| | | | | | | |
Weighted average number of common shares - basic and diluted | |
| 979,949,668 | |
| 979,899,668 | |
| | | | | | | |
Loss per share - basic and diluted (Note 18) | | $ | (0.007) | | $ | (0.004) | |
The accompanying notes are an integral part of these condensed consolidated financial statements
4
Zomedica Corp.
Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2023 and 2022
(Unaudited) (United States Dollars in Thousands)
| | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended March 31, 2023 | |||||||||||||||
| | | | | | | Additional | | | | | Accumulated | | | | ||
| | Common Stock | | Paid-In | | Accumulated | | Comprehensive | |
| | ||||||
| | Shares |
| Amount |
| Capital |
| Deficit |
| (Loss) |
| Total | |||||
Balance at December 31, 2022 | | 979,949,668 | | $ | 380,973 | | $ | 23,666 | | $ | (136,404) | | $ | (843) | | $ | 267,392 |
Stock-based compensation |
| — |
| | — |
| | 1,765 |
| | — |
| | — |
| | 1,765 |
Net loss | | — | | | — | | | — | | | (6,385) | | | — | | | (6,385) |
Other Comprehensive Income |
| — |
| | — |
| | — |
| | — |
| | 286 |
| | 286 |
Balance at March 31, 2023 |
| 979,949,668 | | $ | 380,973 | | $ | 25,431 | | $ | (142,789) |
| $ | (557) | | $ | 263,058 |
| | | | | | | | | | | | | | | | | |
|
| For the Three Months Ended March 31, 2022 | |||||||||||||||
| | | | | | | Additional | | | | | Accumulated | | | | ||
| | Common Stock | | Paid-In | | Accumulated | | Comprehensive | |
| | ||||||
| | Shares |
| Amount |
| Capital |
| Deficit |
| (Loss) |
| Total | |||||
Balance at December 31, 2021 | | 979,899,668 | | $ | 380,962 | | $ | 9,313 | | $ | (119,391) | | $ | 2 | | $ | 270,886 |
Stock-based compensation |
| — |
| | — |
| | 2,041 |
| | — |
| | — |
| | 2,041 |
Net loss |
| — |
| | — |
| | — |
| | (3,937) |
| | — |
| | (3,937) |
Other Comprehensive Income |
| — |
| | — |
| | — |
| | — |
| | 51 |
| | 51 |
Balance at March 31, 2022 |
| 979,899,668 | | $ | 380,962 | | $ | 11,354 | | $ | (123,328) |
| $ | 53 | | $ | 269,041 |
The accompanying notes are an integral part of these condensed consolidated financial statements
5
Zomedica Corp.
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022
(Unaudited) (United States Dollars in Thousands)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
|
| For the three months ended June 30, 2021 |
| For the Three Months Ended March 31, | ||||||||||||||||||||||
| | | | | | | Common | | Additional | | | | | Accumulated | | | |
| 2023 |
| 2022 | |||||
Cash flows from operating activities: |
| |
|
| |
| ||||||||||||||||||||
Net loss | | $ | (6,385) | | $ | (3,937) | ||||||||||||||||||||
Adjustments for: | |
|
| |
|
| ||||||||||||||||||||
Depreciation | |
| 164 | |
| 82 | ||||||||||||||||||||
Amortization - intangible assets | |
| 1,199 | |
| 737 | ||||||||||||||||||||
Stock-based compensation | |
| 1,765 | |
| 2,041 | ||||||||||||||||||||
Non cash portion of rent expense | |
| (1) | |
| — | ||||||||||||||||||||
Accretion/amortization of available-for-sale securities | |
| (654) | |
| — | ||||||||||||||||||||
Change in assets and liabilities, net of acquisitions: | |
| | |
| | ||||||||||||||||||||
Purchased inventory | |
| (731) | |
| (1,005) | ||||||||||||||||||||
Prepaid expenses and deposits | |
| (1,022) | |
| 128 | ||||||||||||||||||||
Trade receivables | |
| 144 | |
| (27) | ||||||||||||||||||||
Other receivables | |
| 263 | |
| (25) | ||||||||||||||||||||
Accounts payable and accrued liabilities | |
| 721 | |
| (118) | ||||||||||||||||||||
Accrued income tax | |
| 46 | |
| (23) | ||||||||||||||||||||
Deferred tax liabilities | |
| — | |
| (279) | ||||||||||||||||||||
Other current liabilities | |
| (16) | |
| (40) | ||||||||||||||||||||
Customer contract liabilities | |
| 116 | |
| (35) | ||||||||||||||||||||
Other liabilities | |
| 134 | |
| 30 | ||||||||||||||||||||
Net cash used in operating activities | |
| (4,257) | |
| (2,471) | ||||||||||||||||||||
| | Common stock | | stock | | paid-in | | Accumulated | | comprehensive | |
| | | | | | | | |||||||
Cash flows from investing activities: | |
|
| |
|
| ||||||||||||||||||||
Investment in available-for-sale securities | |
| (8,072) | |
| — | ||||||||||||||||||||
Investment in debt security (at fair value) | |
| (1,750) | |
| — | ||||||||||||||||||||
Investment in property and equipment | |
| (113) | |
| (83) | ||||||||||||||||||||
Acquisition of intangibles | |
| (4,000) | |
| — | ||||||||||||||||||||
Investment in construction in progress | | | (857) | | | (123) | ||||||||||||||||||||
Net cash used in investing activities | |
| (14,792) | |
| (206) | ||||||||||||||||||||
| | Shares |
| Amount |
| subscribed | | capital |
| deficit |
| income |
| Total | | | | | | | ||||||
Balance at March 31, 2021 | | 972,092,308 | | $ | 377,971 | | $ | — |
| $ | 4,602 | | $ | (105,045) | | $ | — | | $ | 277,528 | ||||||
Stock issuance costs |
| — |
| | 0 |
| | — |
| | — |
| | — |
| | — |
| | 0 | ||||||
Stock-based compensation |
| — |
| | — |
| | — |
| | 1,782 |
| | — |
| | — |
| | 1,782 | ||||||
Stock issuance from warrant exercises |
| 628,084 |
| | 139 |
| | — |
| | (38) |
| | — |
| | — |
| | 101 | ||||||
Stock issuance from exercise of stock options |
| 5,230,601 |
| | 2,112 |
| | — |
| | (744) |
| | — |
| | — |
| | 1,368 | ||||||
Net loss |
| — |
| | — |
| | — |
| | — |
| | (4,711) |
| | — |
| | (4,711) | ||||||
Balance at June 30, 2021 |
| 977,950,993 | | $ | 380,222 | | $ | - | | $ | 5,602 | | $ | (109,756) |
| $ | - | | $ | 276,068 | ||||||
(Decrease) increase in cash and cash equivalents | |
| (19,049) | |
| (2,677) | ||||||||||||||||||||
Effect of exchange rate changes on cash | | | 3 | | | 62 | ||||||||||||||||||||
Cash and cash equivalents, beginning of year | |
| 27,399 | |
| 194,952 | ||||||||||||||||||||
Cash and cash equivalents, end of period | | $ | 8,353 | | $ | 192,337 | ||||||||||||||||||||
| | | | | | | ||||||||||||||||||||
Noncash activities: | |
|
| |
|
| ||||||||||||||||||||
Change in fair value of available-for-sale securities, net of tax | | $ | 283 | | $ | — | ||||||||||||||||||||
Transfer of construction in progress into property and equipment and intangibles | | $ | 401 | | $ | — | ||||||||||||||||||||
Transfer of inventory into property and equipment | | $ | 738 | | $ | 246 | ||||||||||||||||||||
| | | | | | | ||||||||||||||||||||
Supplemental cash flow information: | |
| | |
|
| ||||||||||||||||||||
Interest received | | $ | 783 | | $ | 90 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
statements
5
Zomedica Corp.
Condensed consolidated statements of cash flows
(Unaudited) (United States dollars in thousands)
| | | | | | |
|
| For the Six Months Ended June 30, | ||||
|
| 2022 |
| 2021 | ||
Cash flows from operating activities: |
| |
|
| |
|
Net loss | | $ | (9,210) | | $ | (8,748) |
Adjustments for | |
|
| |
|
|
Depreciation | |
| 161 | |
| 115 |
Amortization - intangible assets | |
| 1,495 | |
| 89 |
Loss on disposal of property and equipment | |
| 1 | |
| 243 |
Loss on other assets | |
| 0 | |
| 5 |
(Gain) loss on right-of-use assets | |
| 0 | |
| (533) |
Stock-based compensation | |
| 4,533 | |
| 3,065 |
Non cash portion of rent expense | |
| 9 | |
| 35 |
Change in non-cash operating working capital | |
| | |
| |
Purchased inventory | |
| (2,572) | |
| (794) |
Prepaid expenses and deposits | |
| (410) | |
| 437 |
Trade receivables | |
| (96) | |
| (4) |
Other receivables | |
| 131 | |
| (133) |
Accounts payable and accrued liabilities | |
| 292 | |
| 1,847 |
Accrued income tax | |
| (199) | |
| 0 |
Deferred tax liabilities | |
| (661) | |
| 0 |
Other current liabilities | |
| 4 | |
| 0 |
Customer contract liabilities | |
| (25) | |
| 0 |
Other liabilities | |
| 30 | |
| 0 |
Net cash used in operating activities | |
| (6,517) | |
| (4,376) |
| | | | | | |
Cash flows from investing activities: | |
|
| |
|
|
Investment in debt security (at fair value) | |
| (1,000) | |
| 0 |
Investment in property and equipment | |
| (151) | |
| (43) |
Investment in intangibles | |
| 0 | |
| (99) |
Investment in assets in process | | | (492) | | | 0 |
Net cash used in investing activities | |
| (1,643) | |
| (142) |
| | | | | | |
Cash flows from financing activities: | |
|
| |
|
|
Cash proceeds from issuance of common shares and warrants | |
| 0 | |
| 199,525 |
Cash received from warrant exercises | |
| 0 | |
| 32,112 |
Cash paid for shares and warrant issuance costs | |
| 0 | |
| (14,269) |
Cash received from stock option exercises | |
| 0 | |
| 1,368 |
Net cash provided by financing activities | |
| 0 | |
| 218,736 |
| | | | | | |
(Decrease) increase in cash and cash equivalents | |
| (8,160) | |
| 214,218 |
Effect of exchange rate changes on cash | | | (29) | | | 0 |
Cash and cash equivalents, beginning of year | |
| 194,952 | |
| 61,992 |
| | | | | | |
Cash and cash equivalents, end of year | | $ | 186,763 | | $ | 276,210 |
| | | | | | |
Noncash investing and financing activities | |
|
| |
|
|
Transfer of inventory into property and equipment | | $ | 557 | | $ | 0 |
| | | | | | |
Supplemental cash flow information: | |
|
| |
|
|
Interest received | | $ | (384) | | $ | (112) |
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
Zomedica Corp.
Notes to the condensed consolidated financial statementsConsolidated Financial Statements
(Unaudited) (United Stated dollars(United States Dollars in thousands, except for per share data)Thousands)
1. Nature of operationsOperations
The CompanyZomedica is a veterinary health company creating point-of-care diagnostics and therapeutics products for dogs and cats, that focusescompanion animals by focusing on the unmet needs of the veterinarians themselves.clinical veterinarians. The Company consists of the parent company, Zomedica Corp,Corp. and its wholly-owned U.S subsidiary, Zomedica Inc., and Pulse Veterinary Technologies LLC, along with its international subsidiaries.
The impact of the novel strainstrains of coronavirus (“COVID-19”)
There remainsSince the first quarter of 2020, the world has been impacted by the spread of a significant amount of stress and uncertainty across national and global economies due to the pandemicnovel strain of coronavirus, its variants, and the disease 2019 (“COVID-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “COVID-19 pandemic”).that they cause known as COVID-19. The continued presence of COVID-19 has resulted in changes in the macro-economic environment including disruptions in supply chain, labor disruptions, an inability to manufacture, an inability to sellchallenges in manufacturing, challenges selling to customers, declines in customer demand, inflationary pressures, and an impaired ability to access credit and capital markets, among other things.
The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA® platform and the initial five assays. In response to the pandemic, our development partner had reduced the number of employees working in its facilities for a period of time which has delayed the completion of the verification of the five initial TRUFORMA® assays and the manufacturing of commercial quantities of the TRUFORMA® platform and the related assays. Veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA® assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have mitigated to a certain extent with our recent ability to successfully complete remote installations. Potential customers have at times restricted access to their facilities which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.
TheTo-date, the emergence of new variants has not caused significant modification to business operations. We continue to install remotely, if potential customers restrict access to their facilities. We intend to continue our research, development, of new assays, bothand production related activities for equine indications of our current and planned assays, and for various additional disease states affecting canine, feline, and equine patients in the foreseeable future.
2. Basis of preparationPreparation
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. Intercompany transactions and balances between consolidated businesses have been eliminated.
The accompanying unauditedaccounting policies set out below have been applied consistently in the consolidated financial statements. The consolidated financial statements have been prepared in accordanceconformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for the presentation.
3. Significant Accounting Policies
Basis of interimMeasurement
The condensed consolidated financial statements and withhave been prepared on the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The Consolidated Balance Sheethistorical cost basis except as of December 31, 2021 was derived from audited financial statements.otherwise noted.
Business Combinations
3. Significant accounting policiesWe account for business combinations in accordance with ASC 805, Business Combinations, if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired net assets and processes have the ability to create outputs in the form of revenue. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable net assets as goodwill.
Estimates and assumptionsAssumptions
In preparing these financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur, and additional information is
7
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.
7
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Functional and Reporting Currencies
The functional currency, as determined by management, for Canada and our subsidiaries in the United States and Switzerland is U.S. dollars, which is also our reporting currency.
The functional currency, as determined by management, for our Japanese subsidiary is Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.
In respect of transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are remeasured at the period end rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations and comprehensive loss.
Comparative Figures
A portion of depreciation expense has been stated as part of cost of revenue for $54. The consolidated statements of income and comprehensive income for the period ended March 31, 2022 have been adjusted for $21 of depreciation that was included in sales, general, and administrative expense. This amount has been reclassified to cost of revenue to conform to the current year presentation. The change in presentation had no effect on the reported results of operations and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
To better align with the way in which we measure and track our business, we have changed the categorization of products within our segmentation of revenue. A portion of the products in our Therapeutics segment were previously designated as instruments and trodes in our form 10Q for the period ending March 31, 2022. These products have since been renamed to be capital and consumables to better align with our other platforms and to provide a more consistent baseline for comparison of the product lines within. Capital refers to the devices we sell within our PulseVet®, Revo Squared®, and VetGuardian® product lines. Consumables continues to include our TRUFORMA® cartridges as it did last year and now includes our PulseVet trodes as well as our Assisi® products. There have been no changes to the overall sales numbers for our Diagnostics and Therapeutics segments, only the product names making up the total.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets held. The Company adopted ASU 2016-13 as of January 1, 2022 and there was no significant impact on its consolidated condensed financial statements and related disclosures as a result. The Company considered, among other things, historical trends and projected economic / market conditions and determined that the estimate of credit losses was not significantly impacted.
Segment Reporting
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s reportable segments consist of Diagnostics and Therapeutics.
Cash and Cash Equivalents
The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents.
Investment Securities
Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, “Investments – Debt and Equity Securities” (“ASC 320”). The company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next twelve months, as available for sale. We classify these securities as both current and non-current depending on their time to maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of shareholders’ equity.
8
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Accounts Receivable and Allowance for Credit Losses
Accounts receivable are recorded net of an allowance for credit losses and have payment terms of 30 days. Our policy for determining the allowance is based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries, and credit losses; (b) the credit quality of our customers; and (c) projected economic and market conditions. As of March 31, 2023, our allowance was $47 and was recorded net in trade receivables. While we believe that our allowance for credit losses is adequate and represents our best estimate as of March 31, 2023, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to these estimates.
Inventories
Inventories are stated at the lower of cost or net realizable value. The Company utilizes the specific identification and First in, First out (“FIFO”("FIFO") methodsmethod to track inventory costs. The Company records reserves, when necessary, to reduce the carrying value of inventory to its net realizable value. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Property and Equipment
Property and equipment are carried at historical cost less accumulated depreciation and any accumulated impairment losses. Property and equipment acquired in a business combination are recorded at fair value as of the date of acquisition. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred.
Depreciation is recognized so as to write off the cost less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Intangible assetsAssets
Expenditures related to the planning and operation of the Company’s website are expensed as incurred. Expenditures related to the website application and infrastructure development are capitalized and amortized over the website’s estimated useful life.
Costs related to acquired trademarks, tradename, customer relationships, and developed technology, licenses, trademarks, and tradenames have been capitalized and amortized over the estimated useful life.
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives and amortization methods are reviewed at the end of each year, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the sum of estimated undiscounted future cash flows associated with the asset or group of assets is less than its carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value. No triggering events were present as of March 31, 2023.
9
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Revenue recognition and liabilities due to customersRecognition
The Company enters into agreements which may contain multiple promises where customers purchase products, services, or a combination thereof. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires judgment. We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services.
The Company allocates revenue to each performance obligation in proportion to the relative standalone selling prices and recognizes revenue when control of the related goods or services is transferred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately.
The Company's contracts with customers are generally comprised of purchase orders for the sale of the point of care instrument, consumable products, and extended warranties, or some variation thereof. The instrument and consumables each represent a single performance obligation when sold separately, that is satisfied at a point in time upon transfer of control of the product to the customer which is typically upon receipt of the goods by the customer. The extended warranties are also a separate performance obligation, whereby revenue is recognized over time.
The nature of the Company’s PulseVet®business gives rise to variable consideration, including discounts and applicator (“trode”) returns.returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue. Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends. These estimated credits are nonrefundable and may only be used towards the purchase of future trode refurbishments. This practice encourages refurbishment purchase prior to complete utilization of the previous trode, so the customer will always have a trode on hand with ample capacity to perform treatments.
At times the Company receives consideration prior to when the performance obligation is completed, giving rise to a contract liability. Sales are recorded net of sales tax. Sales tax is charged on sales to end users and remitted to the appropriate state authority.
Disaggregated revenue for the three months ended March 31, 2023 and 2022 is as follows:
| | | | | | | | | | | | | | | | | | |
| | | For the Three Months Ended March 31, | |||||||||||||||
| | | | | | | | | | | | | | | | | | |
| | | Diagnostics | | | Therapeutics | | | Consolidated | |||||||||
| | | 2023 | | | 2022 | | | 2023 | | | 2022 | | | 2023 | | | 2022 |
Capital | | $ | 217 | | $ | - | | $ | 1,493 | | $ | 1,590 | | $ | 1,710 | | $ | 1,590 |
Consumables | | | 182 | | | 57 | | | 3,567 | | | 1,952 | | | 3,749 | | | 2,009 |
Other (e.g., warranty and repairs) | | | - | | | - | | | 23 | | | 152 | | | 23 | | | 152 |
Total revenue | | $ | 399 | | $ | 57 | | $ | 5,083 | | $ | 3,694 | | $ | 5,482 | | $ | 3,751 |
Cost of Revenue
Cost of goods sold consists of overhead, materials, labor, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of revenue.
Research and Development
Research and development costs related to continued research and development programs are expensed as incurred.
10
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Stock-based Compensation
The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.
The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, on a tax jurisdictional basis. The Company files income tax returns in Canada and the province of Alberta and its subsidiaries file income tax returns in the United States and various states, including in Michigan where the Company’s headquarters are located.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.
The Company assesses the likelihood of the financial statement effect of an uncertain tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in the United States, Canada, Japan, and Switzerland. The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense.
Comprehensive Loss
The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity. The Company has recorded a currency translation adjustment associated with its Japanese subsidiary.
Loss Per Share
Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
11
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Critical areas of estimation and judgements in applying accounting policies include the following:
Intangible Assets and Business Combinations
Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair values. In determining these fair values, we utilize various forms of the income, cost, and market approaches depending on the asset or liability being valued.
We use a discounted cash flow model to measure the customer relationship, developed technology, license, trademark, and tradename assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and are supplemented by current and anticipated market conditions.
Impairment Testing
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.
We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies.
Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We do not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty.
The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value.
Valuation and Payback of Property and Equipment
Diagnostic based TRUFORMA® capital is placed in fixed assets once purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase consumables or services which are utilized within. Each instance of this placed capital represents an asset that we own. An estimate is made of the anticipated future revenue over its respective life which is ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the assets have been properly recorded, and no write-down is necessary. We rely on third-party data that considers various data points and assumptions, including, but not limited to, the expected volume of consumables which will be sold, anticipated growth rates, and anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
12
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Revenue Recognition and Liabilities Due to Customers
The nature of the Company’s business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue. Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon historical experience and known trends. These estimated credits are nonrefundablenon-refundable and may only be used towards the purchase of future trode refurbishments. This practice encourages refurbishment purchase prior to complete utilization of the previous trode, so the customer will always have a trode at hand with ample capacity to perform treatments.
At times
5. Investment Securities
The following represents the Company’s investment securities as of March 31, 2023 (in thousands):
| | | | | | | | | | | | |
| | | Acquisition | | | Accretion / | | | Unrealized | | | Estimated |
Commercial paper | | $ | 29,490 | | $ | 583 | | $ | (71) | | $ | 30,002 |
Corporate notes / bonds | | | 43,163 | | | 303 | | | (425) | | | 43,041 |
Debt security | | | 2,750 | | | - | | | - | | | 2,750 |
U.S. treasuries | | | 16,815 | | | 146 | | | (90) | | | 16,871 |
U.S. govt. agencies | | | 46,484 | | | 151 | | | (192) | | | 46,443 |
Money market funds | | | 4,907 | | | - | | | - | | | 4,907 |
Total investment securities | | $ | 143,609 | | $ | 1,183 | | $ | (778) | | $ | 144,014 |
Accretion / (amortization) refers to the discounts and premiums incurred on bonds and notes purchased and are included within interest income on our consolidated income statement.
Accrued interest receivable related to the above investment securities amounted to $690 and is included within Other Receivables on our consolidated balance sheet.
Contractual maturities of investment securities as of March 31, 2023 are as follows (in thousands):
| | | | | | |
| | | Acquisition | | | Estimated |
Original maturities of 90 days or less | | $ | 4,907 | | $ | 4,907 |
Original maturities of 91-365 days | | | 112,175 | | | 112,698 |
Original maturities of 366+ days | | | 26,527 | | | 26,409 |
Total investment securities | | $ | 143,609 | | $ | 144,014 |
6. Fair Value Measurements
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), the Company receives consideration priormeasures its cash and cash equivalents and investments at fair value on a recurring basis. The company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting.
ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to when the performance obligationsell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is completed, giving rise to a contractmarket-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
Sales are recorded net of sales tax. Sales tax is charged on sales to end users and remitted to the appropriate state authority.
Accounts receivable are recorded at net realizable value and have payment terms of 30 days. The Company recorded an allowance for doubtful accounts of $36 and $34, as of June 30, 2022 and December 31, 2021, respectively, which is recorded net in trade receivables.
813
Zomedica Corp.
Notes to the condensedConsolidated Financial Statements
(United States Dollars in Thousands)
As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1: | Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities. |
Level 2: | Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities. |
Level 3: | Unobservable data points for the assets or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgement and the reporting entity’s own assumptions about market participants and pricing. |
Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount of these assets approximate fair value due to the short maturity of these instruments. Cash and cash equivalents include marketable securities with an original maturity within 90 days.
Available-for-sale securities: The Company classifies marketable securities and other highly liquid investments, with a maturity of greater than three months and that can be readily purchased or sold using established markets, as available-for-sale. These investments are reported at fair value on the Company’s consolidated financial statementsbalance sheets and unrealized gains and losses are reported as a component of shareholders’ equity.
(Unaudited) (United Stated dollarsEarnout liability: The Company has reported the fair value of the earnout liability within other liabilities on the consolidated balance sheet. See footnote 7 for additional details.
Included within these available-for-sale securities are $2,750 in thousands, except for per share data)convertible notes associated with Structured Monitoring Products, Inc.’s (“SMP”) VetGuardian® line. There were no unrealized gains or losses recorded and no impairments recognized as of March 31, 2023.
In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of March 31, 2023:
| | | | | | | | | | | | |
| | | Level 1 | | | Level 2 | | | Level 3 | | | Estimated |
Commercial paper | | $ | - | | $ | 30,002 | | $ | - | | $ | 30,002 |
Corporate notes / bonds | | | - | | | 43,041 | | | - | | | 43,041 |
Debt security | | | - | | | - | | | 2,750 | | | 2,750 |
U.S. treasuries | | | 16,871 | | | - | | | - | | | 16,871 |
U.S. govt. agencies | | | 46,443 | | | - | | | - | | | 46,443 |
Money market funds | | | 4,907 | | | - | | | - | | | 4,907 |
Total investment securities | | $ | 68,221 | | $ | 73,043 | | $ | 2,750 | | $ | 144,014 |
The following table shows these same investments and their respective balance sheet classifications:
| | | | | | | | | | | | |
| | | Cash & | | | Available- | | | Available- | | | Estimated |
Commercial paper | | $ | - | | $ | 30,002 | | $ | - | | $ | 30,002 |
Corporate notes / bonds | | | - | | | 32,794 | | | 10,247 | | | 43,041 |
Debt security | | | - | | | - | | | 2,750 | | | 2,750 |
U.S. treasuries | | | - | | | 12,056 | | | 4,815 | | | 16,871 |
U.S. govt. agencies | | | - | | | 37,846 | | | 8,597 | | | 46,443 |
Money market funds | | | 4,907 | | | - | | | - | | | 4,907 |
Total investment securities | | $ | 4,907 | | $ | 112,698 | | $ | 26,409 | | $ | 144,014 |
Unrealized gains on our investments have not been recorded into income as we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that have resulted in higher credit spreads. The
The diagnostic segment reported $9214
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in revenue from consumables forThousands)
credit ratings associated with our debt securities are mostly unchanged, are highly rated, and the three months ended June 30, 2022, compareddebtors continue to $16 for the three months ended June 30, 2021, an increase of $76make timely principal and interest payments. As a result, there were no credit or 475%. The therapeutics segment reported $4,154 in total revenue for the three months ended June 30, 2022, compared to $0 for the three months ended June 30, 2021. Therapeutics revenue for the three months ended June 30, 2002 was comprised of $2,308 in revenue from trodes, $1,543 in revenue from instruments, and $303 in other revenues which includes warranty and repair work.
The diagnostic segment reported $148 in revenue from consumables for the six months ended June 30, 2022, compared to $30 for the six months ended June 30, 2021, an increase of $118 or 393%. The therapeutics segment reported $7,849 in total revenue for the six months ended June 30, 2022, compared to $0 for the six months ended June 30, 2021. Therapeutics revenue for the six months ended June 30, 2002 was comprised of $4,226 in revenue from trodes, $3,102 in revenue from instruments, and $520 in other revenues which includes warranty and repair work.
Cost of revenue
Cost of revenue consists of materials, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of revenue.non-credit impairment charges recorded through March 31, 2023.
Comparative figures 7. Business Combinations
Assets in process are separately statedAll of the Company’s acquisitions of businesses have been accounted for under ASC 805, Business Combinations. Accordingly, the assets of the acquired companies reflect the fair values and have been included in the current period balance sheet for $523. Company’s Condensed Financial Statements from their respective dates of acquisition.
The consolidated balance sheets for the year ended December 31, 2021results of operations of Pulse Veterinary Technologies, LLC, Revo Squared LLC, and Assisi Animal Health, LLC have been adjusted for $420 of assets in process that were included in intangible assets and property and equipment. This amount has been reclassified to a separate line in the balance sheet to conform toCompany’s Condensed Financial Statements since the current year presentation. The change in presentation had no effectdates of acquisition on the reported results of operations. These changes in classification do not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
4. Business Combinations
Acquisition of PulseVet
On October 1, 2021, Zomedica Inc., a wholly-owned subsidiary of Zomedica Corp. (the “Company”), entered into a StockJune 14, 2022, and July 15, 2022, respectively.
2022 Acquisitions
Asset Purchase Agreement with Branford PVT Mid-Hold,Assisi Animal Health LLC
On July 15, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Assisi Animal Health LLC (“Assisi”), its wholly owned subsidiary, AAH Holdings LLC, and certain of Assisi’s members (collectively the “Seller”) pursuant to which Zomedica Inc. acquired 100%agreed to acquire substantially all of the capital stock of Branford PVT Acquiror, Inc., a Delaware corporation (“BPA”). BPA is a holding company whose direct and indirect wholly-owned subsidiaries include Pulse Veterinary Technologies, LLC (“PulseVet”), which, together with its consolidated subsidiaries, is a leading provider of non-invasive shock wave therapy treatment devicesassets related to the veterinary industry (the “Acquisition”).Assisi® product lines. The Sellers were in the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines.
Zomedica Inc. paid Assisi a purchase price forof $18,293 in cash, which was subject to adjustments based on, among other things, the Acquisitionvalue of Assisi’s inventory and prepaid expenses at the closing of the acquisition. A portion of the purchase price ($1,400) was $71,929 in cash.deposited into a third-party escrow account to support AAH Holdings LLC and certain of Assisi’s members’ indemnification obligation under the Purchase Agreement, of which $500 was released and $900 will be distributed to Assisi on the 18-month anniversary of the Closing Date, respectively, less the amount of prior or pending indemnification claims. The Company also issued to Assisi a ten-year warrant to purchase an aggregate of 22,000,000 of the Company’s common shares at a per share exercise price equal to $0.252. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $43,288$14,329 was recorded in connection with this acquisition, none of which will be deductible for U.SUS tax purposes. The goodwill largely results from our ability to market and sell the PulseVet Technologytheir respective products and services through our established customer base.
The Company made a preliminary allocation of the purchase price for Assisi’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.
915
Zomedica Corp.
Notes to the condensed consolidated financial statementsConsolidated Financial Statements
(Unaudited) (United Stated dollars(United States Dollars in thousands, except for per share data)Thousands)
The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:
| | | | | | | | | | | | | | | | | | |
|
| Initial |
| Measurement |
| | |
| Initial |
| Measurement |
| | | ||||
| | allocation of | | period | | Updated | | Allocation of | | Period | | Updated | ||||||
|
| consideration |
| adjustments |
| allocation |
| Consideration |
| Adjustments |
| Allocation | ||||||
| | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 526 | | $ | 3 | | $ | 529 | |||||||||
Inventory | |
| 840 | |
| 31 | |
| 871 | |||||||||
Inventory, net | | $ | 220 | | $ | — | | $ | 220 | |||||||||
Prepaid expenses and deposits | |
| 365 | |
| 0 | |
| 365 | |
| 271 | |
| — | |
| 271 |
Trade receivables | |
| 269 | |
| 0 | |
| 269 | |||||||||
Other receivables | |
| 0 | |
| 150 | |
| 150 | | | 406 | | | (206) | | | 200 |
Property and equipment | |
| 125 | |
| 0 | |
| 125 | |||||||||
Right of use asset | | | — | | | 260 | | | 260 | |||||||||
Intangible Assets (estimated useful life) | |
| — | |
| — | |
| — | |
| | | | | | | |
Developed technology (15 years) | |
| 8,650 | |
| 0 | |
| 8,650 | |||||||||
Trade name (19 years) | |
| 2,350 | |
| 0 | |
| 2,350 | |||||||||
Customer relationships (11 years) | |
| 22,650 | |
| 0 | |
| 22,650 | |||||||||
Other Assets | |
| 69 | |
| 265 | |
| 334 | |||||||||
E-commerce technology (2 years) | |
| 200 | |
| — | |
| 200 | |||||||||
Trade name (5 years) | |
| 300 | |
| — | |
| 300 | |||||||||
Developed technology (10 years) | |
| 4,500 | |
| — | |
| 4,500 | |||||||||
Customer relationships (19 years) | |
| 2,800 | |
| — | |
| 2,800 | |||||||||
Total assets acquired | |
| 35,844 | |
| 449 | |
| 36,293 | |
| 8,697 | |
| 54 | |
| 8,751 |
| | | | | | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | |
| 1,112 | |
| (543) | |
| 569 | |||||||||
Income tax payable | |
| 44 | |
| 0 | |
| 44 | |||||||||
Deferred revenue | |
| 61 | |
| 0 | |
| 61 | |||||||||
Liability for contracts with customers | |
| 332 | |
| 0 | |
| 332 | |||||||||
Deferred tax liabilities | |
| 7,138 | |
| (900) | |
| 6,238 | |||||||||
Current portion of lease obligations | | | — | |
| 49 | |
| 49 | |||||||||
Non current portion of lease obligations | | | — | |
| 211 | |
| 211 | |||||||||
Other non current liabilities | |
| 143 | |
| 265 | |
| 408 | | | 45 | |
| — | |
| 45 |
Total liabilities assumed | |
| 8,830 | |
| (1,178) | |
| 7,652 | |
| 45 | |
| 260 | |
| 305 |
| | | | | | | | | | | | | | | | | | |
Net assets acquired, excluding goodwill | |
| 27,014 | |
| 1,627 | |
| 28,641 | |
| 8,652 | |
| (206) | |
| 8,446 |
Goodwill | |
| 44,915 | |
| (1,627) | |
| 43,288 | |
| 14,329 | |
| 206 | |
| 14,535 |
| | | | | | | | | | | | | | | | | | |
Net assets acquired | | $ | 71,929 | | $ | 0 | | $ | 71,929 | | $ | 22,981 | | $ | — | | $ | 22,981 |
DuringPurchase price consideration was made up of the period subsequent to the acquisition of PulseVet, we made certain preliminary measurement period adjustments to the acquired assets and liabilities assumed. following:
| | | |
Cash | | $ | 18,293 |
Fair value of warrants | | $ | 4,688 |
Total | | $ | 22,981 |
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the deferred tax assets (including intangibles) and liabilities are adjusted.
5. Inventory
Inventory detailsThe following table provides unaudited proforma financial information, prepared in accordance with Topic 805, for the three months ended March 31, 2023 and 2022, as if Assisi had been acquired as of January 1, 2022. Proforma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are as follows:not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.
| | | | | | | | | | | | | | | | | | |
| | June 30, 2022 | | December 31, 2021 | ||||||||||||||
| | Diagnostics |
| Therapeutics |
| Consolidated |
| Diagnostics |
| Therapeutics |
| Consolidated | ||||||
Raw Materials | | $ | — | | $ | 1,300 | | $ | 1,300 | | $ | 0 | | $ | 890 | | $ | 890 |
Finished Goods | |
| — | |
| 323 | |
| 323 | |
| 0 | |
| 140 | |
| 140 |
Purchased Inventory | |
| 3,234 | |
| — | |
| 3,234 | |
| 1,848 | |
| 0 | |
| 1,848 |
Total | |
| 3,234 | |
| 1,623 | |
| 4,857 | |
| 1,848 | |
| 1,030 | |
| 2,878 |
| |
| | | | | | | | |
| | | | | | | |
Reserves | |
| (16) | |
| (22) | |
| (38) | |
| (9) | |
| (21) | |
| (30) |
Inventory, Net | | $ | 3,218 | | $ | 1,601 | | $ | 4,819 | | $ | 1,839 | | $ | 1,009 | | $ | 2,848 |
| | | | | |
| For the Three Months Ended March 31, | ||||
| | 2023 | | | 2022 |
Net Revenue | $ | 5,482 | | $ | 5,054 |
Net Losses | $ | (6,385) | | $ | (4,519) |
The proforma amounts have been calculated by including the results of Assisi, and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on January 1, 2022, together with the consequential tax effects thereon:
6. Prepaid expenses, deposits and deferred financing costs
| | | | | |
| For the Three Months Ended March 31, | ||||
| | 2023 | | | 2022 |
Adjustments to net revenues | | | | | |
Assisi preacquisition revenues | $ | - | | $ | 1,303 |
Adjustments to net income | | | | | |
Assisi preacquisition net losses | $ | - | | $ | (582) |
1016
Zomedica Corp.
Notes to the condensed consolidated financial statementsConsolidated Financial Statements
(Unaudited) (United Stated dollars(United States Dollars in thousands, except for per share data)
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
Deposits | | $ | 1,966 | | $ | 1,340 |
Prepaid marketing | |
| 144 | |
| 83 |
Prepaid insurance | |
| 272 | |
| 599 |
Other | |
| 264 | |
| 214 |
Total | | $ | 2,646 | | $ | 2,236 |
7. Property and equipment
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
| | | | | | |
Machinery and office equipment | | $ | 2,098 | | $ | 1,392 |
Furniture and equipment | |
| 106 | |
| 110 |
Laboratory equipment | |
| 230 | |
| 225 |
Leasehold improvements | |
| 287 | |
| 287 |
| |
| 2,721 | |
| 2,014 |
| | | | | | |
Accumulated depreciation and amortization | |
| 1,011 | |
| 884 |
Net property and equipment | | $ | 1,710 | | $ | 1,130 |
Depreciation expense for the three months ended June 30, 2022 and June 30, 2021 was $71 and $55, respectively and for the six months ended June 30, 2022 and June 30, 2021 was $161 and $115, respectively.
11
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
8. Intangible assets
| | | | | | |
|
| June 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
| | | | | | |
Computer software | | $ | 28 | | $ | 28 |
Trademarks | |
| 16 | |
| 16 |
Website | |
| 962 | |
| 546 |
Tradename | |
| 2,350 | |
| 2,350 |
Customer relationships | |
| 22,650 | |
| 22,650 |
Technology | |
| 8,650 | |
| 8,650 |
| |
| 34,656 | |
| 34,240 |
| | | | | | |
Accumulated amortization | |
| 2,559 | |
| 1,064 |
Net intangibles | | $ | 32,097 | | $ | 33,176 |
The estimated future amortization of intangible assets is as follows:
| | | |
2022 Remainder |
| $ | 1,542 |
2023 | |
| 2,912 |
2024 | |
| 2,906 |
2025 | |
| 2,809 |
2026 and beyond | |
| 21,928 |
Total | | $ | 32,097 |
Amortization expense for the three months ended June 30, 2022 and June 30, 2021 was $759 and $45, respectively and for the six months ended June 30, 2022 and 2021 was $1,495 and $89, respectively.
9. Debt security (at fair value)
On May 16, 2022, Zomedica Inc. purchased a $1.0 million convertible note from Structured Monitoring Products, Inc. (“SMP”), and in connection with the note has acquired the option to act as a sales agent for SMP's platform. The note, which provides for 8% interest and is due to be repaid in May of 2024, is convertible into equity securities of the Company upon the occurrence of certain events. Under the terms of the agreement, Zomedica Inc. will also have the option to acquire SMP’s VetGuardian product line for use in animal health. Exercise of both options is subject to certain conditions, including negotiation and execution of mutually acceptable agreements.
As of June 30, 2022, the fair value of our debt security investment was as follows:
| | | | |
| | June 30, 2022 | | |
| | | | |
Debt security (at fair value) | | $ | 1,000,000 | |
Interest receivable | |
| 9,863 | |
| |
| 1,009,863 | |
Allowance for doubtful accounts | |
| - | |
Debt security (at fair value), net | | $ | 1,009,863 | |
The investment in the convertible note was recorded at its fair value of $1,000,000 as of June 30, 2022 (with an amortized cost basis of $1,000,000). There were 0 unrealized gains or losses recorded and no other than temporary impairments recognized as of June 30, 2022.
12
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)Thousands)
Asset Purchase Agreement with Revo Squared LLC
On June 14, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Revo Squared LLC (“Revo Squared”) and its majority member pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Revo Squared. Revo Squared, based in Marietta, Georgia, was in the business of developing, manufacturing, marketing, distributing, and selling diagnostic imaging products and services for use in animal health, including its SuperView™, Sonoview™ Color ultrasound, Sonoview Mini/Mini Plus ultrasound, and Microview™ product offerings.
On July 1, 2022, the parties consummated the acquisition. At the closing, Zomedica Inc. paid Revo Squared a base purchase price of $6,011 in cash, which was subject to adjustments based on the amount of Revo Squared’s working capital at the closing. On this date, $500 of the purchase price was deposited into a third-party escrow account for a period of fifteen months to support Revo Squared’s indemnification obligation under the Purchase Agreement. The Company also issued to Revo Squared a ten-year warrant to purchase an aggregate of 10,000,000 of the Company’s common shares at a per share exercise price equal to $0.2201. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
In addition, Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments of up to $4,000 based on the achievement of milestones related to future net sales from Revo Squared Products. One-time earn-out payments of $2,000 each will be payable upon net sales from Revo Squared Products exceeding $5,000 and $10,000 during any calendar year ending on or prior to December 31, 2027. The fair value of the earnout liability was adjusted from $2,000 to $1,500 at December 31, 2022. Fair value of the earnout was determined using Level 3 inputs.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $6,528 was recorded in connection with this acquisition, which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.
The Company made a preliminary allocation of the purchase price for Revo Squared’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.
The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:
| | | | | | | | | |
|
| Initial |
| Measurement |
| | | ||
| | Allocation of | | Period | | Updated | |||
|
| Consideration |
| Adjustments |
| Allocation | |||
| | | | | | | | | |
Trade receivables, net | | $ | 8 | | $ | — | | $ | 8 |
Prepaid expenses and deposits | |
| 10 | |
| — | |
| 10 |
Intangible Assets (estimated useful life) | |
| | | | | | | |
Trade name (5 years) | |
| 200 | |
| — | |
| 200 |
Developed technology (10 years) | |
| 2,300 | |
| — | |
| 2,300 |
Customer relationships (16 years) | |
| 1,200 | |
| — | |
| 1,200 |
Total assets acquired | |
| 3,718 | |
| — | |
| 3,718 |
| | | | | | | | | |
Earnout liabilities | |
| 2,458 | |
| (458) | |
| 2,000 |
Total liabilities assumed | |
| 2,458 | |
| (458) | |
| 2,000 |
| | | | | | | | | |
Net assets acquired, excluding goodwill | |
| 1,260 | |
| 458 | |
| 1,718 |
Goodwill | |
| 6,528 | |
| (458) | |
| 6,070 |
| | | | | | | | | |
Net assets acquired | | $ | 7,788 | | $ | — | | $ | 7,788 |
17
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Purchase price consideration was made up of the following:
| | | |
Cash | | $ | 6,011 |
Fair value of warrants | | $ | 1,777 |
Total | | $ | 7,788 |
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.
| | | | | | | | | |
8. Inventory
Inventory details are as follows:
| | | | | | | | | | | | | | | | | | |
| | March 31, 2023 | | December 31, 2022 | ||||||||||||||
| | Diagnostics |
| Therapeutics |
| Consolidated |
| Diagnostics |
| Therapeutics |
| Consolidated | ||||||
Raw Materials | | $ | 265 | | $ | 1,469 | | $ | 1,734 | | $ | — | | $ | 1,685 | | $ | 1,685 |
Finished Goods | |
| 93 | |
| 352 | |
| 445 | |
| — | |
| 182 | |
| 182 |
Purchased Inventory | |
| 94 | |
| 494 | |
| 588 | |
| 139 | |
| 780 | |
| 919 |
Total | |
| 452 | |
| 2,315 | |
| 2,767 | |
| 139 | |
| 2,647 | |
| 2,786 |
| |
| | | | | | | | |
| | | | | | | |
Reserves | |
| (2) | |
| (22) | |
| (24) | |
| (18) | |
| (22) | |
| (40) |
Net inventory | | $ | 450 | | $ | 2,293 | | $ | 2,743 | | $ | 121 | | $ | 2,625 | | $ | 2,746 |
9. Prepaid Expenses and Deposits
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2023 | | 2022 | ||
Deposits | | $ | 2,274 | | $ | 1,886 |
Prepaid marketing | |
| 72 | |
| 114 |
Prepaid insurance | |
| 570 | |
| 614 |
Prepaid taxes | |
| 1,733 | |
| 753 |
Other | |
| 360 | |
| 620 |
Total prepaid expenses and deposits | | $ | 5,009 | | $ | 3,987 |
10. Property and Equipment
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2023 | | 2022 | ||
| | | | | | |
Machinery and office equipment | | $ | 6,544 | | $ | 6,487 |
Furniture and equipment | |
| 120 | |
| 111 |
Laboratory equipment | |
| 337 | |
| 249 |
Leasehold improvements | |
| 1,239 | |
| 1,239 |
| |
| 8,240 | |
| 8,086 |
| | | | | | |
Accumulated depreciation and amortization | |
| 1,441 | |
| 1,277 |
Net property and equipment | | $ | 6,799 | | $ | 6,809 |
Depreciation expense for the three months ended March 31, 2023 and 2022 was $164 and $82, respectively.
18
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
11. Intangible Assets
| | | | | | |
|
| March 31, |
| December 31, | ||
| | 2023 | | 2022 | ||
| | | | | | |
Computer software | | $ | 704 | | $ | 350 |
Customer relationships | |
| 26,651 | |
| 26,651 |
Licenses | |
| 7,479 | |
| - |
Technology | |
| 15,650 | |
| 15,650 |
Trademarks | |
| 16 | |
| 16 |
Tradename | |
| 2,850 | |
| 2,850 |
Website | |
| 962 | |
| 962 |
| |
| 54,312 | |
| 46,479 |
| | | | | | |
Accumulated amortization | |
| 5,879 | |
| 4,680 |
Net intangibles | | $ | 48,433 | | $ | 41,799 |
Included within intangibles are Qorvo related licenses of $7,479 comprised of a one-time license fee of $4,000 that was paid on the effective date of the agreement and the discounted value of an obligation to make a second $4,000 payment upon completion of the installation qualification process for a cartridge production line. The liability associated with the second payment is being recorded in the “Liability Due to Qorvo” line in our Condensed Consolidated Balance Sheets.
The estimated future amortization of intangible assets is as follows:
| | | |
2023 |
| $ | 3,731 |
2024 | |
| 4,933 |
2025 | |
| 4,769 |
2026 | |
| 4,536 |
2027 and beyond | |
| 30,464 |
Total | | $ | 48,433 |
Amortization expense for the three months ended March 31, 2023 and 2022 was $1,199 and $737, respectively.
12. Leases
On February 1, 2021 the Company downsized its office space and modified its existing lease with Wickfield Phoenix LLC. The new lease period was for 48forty-eight months, commencing on February 1, 2021 and ending on January 31, 2025 with a monthly rent payment of $12 for the first two months and escalating to $31 over the lease period. The carrying value of the right of use asset was $1,258 upon modification using the Company's incremental borrowing rate of 3.95%. During the period ending March 31, 2021 the Company recorded a gain on right-of-use asset of $24 in the consolidated statements of comprehensive loss.
On September 15, 2021, the Company entered into an additional lease with Wickfield Phoenix LLC for warehousing space. The new lease period is for 41forty-one months, commencing on September 15, 2021, and ending on January 31, 2025, with a monthly rent payment of $5 for the first month and escalating to $10 over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $366 using the Company's incremental borrowing rate of 3.95%.
On April 1, 2022, the Company entered into an agreement with ULF Northfield Business Center LLC to lease 12,400 square feet of office and warehouse space. The lease period is for 61sixty-one months beginning on April 1, 2022, with a monthly rent payment of $9 for the first twelve months and escalating to $11 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $546 using the Company'san incremental borrowing rate of 3.95%.
DuringOn July 1, 2022, as part of the Revo Squared Purchase, the Company assumed an agreement with Lebow 1031 Legacy, LLC to lease 4,626 square feet of office space. The remaining lease period assumed at the time of the agreement is for eighteen months beginning on July 1, 2022 and lasting through December of 2023. The lease has a monthly rent payment of $4 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $67 using an incremental borrowing rate of 7.00%.
19
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
On July 15, 2022, as part of the Assisi asset purchase agreement, the Company assumed a license agreement pursuant to a lease agreement between The Wheelership LLC and The Realty Associates Fund XII portfolio, L.P., whereby Assisi sublet 5,185 square feet of warehousing space. The remaining lease period assumed at the time of the agreement is for fifty-two months beginning on August 16, 2022 and lasts through November of 2026. The lease has a rent payment of $4 for the first month and escalates to $6 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $260 using an incremental borrowing rate of 7.00%.
For the three and six months ended June 30,March 31, 2023 and 2022, the Company recognized $179$199 and $331$152 in rent expense inclusive of common area maintenance (CAM) charges, insurance, and tax with $18 and $34$0 recorded into cost of revenue, $40 and $16 recorded in research and development expenses, and $161$141 and $297$136 recorded in general and administrative expense in the consolidated statements of comprehensive loss.
During the three and six months ended June 30, 2021, the Company recognized $85 and $176 in rent expense inclusive of common area maintenance (CAM) charges, insurance, and tax with $17 and $38 recorded in research and development expenses and $68 and $138 recorded in general and administrative expense in the consolidated statements of comprehensive loss.
| | | | | | |
| | March 31, | | December 31, | ||
|
| 2023 | | 2022 | ||
Right-of-use asset |
|
|
| |
|
|
Cost |
| |
| |
|
|
Aggregate lease commitments | | $ | 2,759 | | $ | 2,759 |
Less: impact of present value | |
| (262) | | | (262) |
Balance | | $ | 2,497 | | $ | 2,497 |
| | | | | | |
Reduction in right-of-use asset | |
|
| | |
|
Straight line amortization | |
| 1,119 | | | 946 |
Interest | |
| (133) | | | (114) |
Balance | | $ | 986 | | $ | 832 |
| | | | | | |
Net book value as at: | | | | | | |
Balance | | $ | 1,511 | | $ | 1,665 |
| | | | | | |
Lease liabilities | | | | | | |
| | | | | | |
Additions | | $ | 2,520 | | $ | 2,520 |
Payments | |
| (1,071) | | | (896) |
Interest | |
| 133 | | | 114 |
Total lease liabilities | | $ | 1,582 | | $ | 1,738 |
| | | | | | |
Current portion of lease liabilities | |
| 641 | | | 641 |
Long term portion of lease liabilities | |
| 941 | | | 1,097 |
Total lease liabilities | | $ | 1,582 | | $ | 1,738 |
| | | | | | |
| | June 30, | | December 31, | ||
|
| 2022 | | 2021 | ||
Right-of-use asset |
|
|
| |
|
|
Cost |
| |
| |
|
|
Aggregate lease commitments | | $ | 2,385 | | $ | 1,779 |
Less: impact of present value | |
| (215) | | | (155) |
Balance | | $ | 2,170 | | $ | 1,624 |
| | | | | | |
Reduction in right-of-use asset | |
|
| | |
|
Straight line amortization | |
| 605 | | | 346 |
Interest | |
| (73) | | | (42) |
Balance | | $ | 532 | | $ | 304 |
| | | | | | |
Net book value as at: | | | | | | |
Balance | | $ | 1,638 | | $ | 1,320 |
| | | | | | |
Lease liabilities | | | | | | |
| | | | | | |
Additions | | $ | 2,193 | | $ | 1,647 |
Payments | |
| (559) | | | (310) |
Interest | |
| 73 | | | 42 |
Total lease liabilities | | $ | 1,707 | | $ | 1,379 |
| | | | | | |
Current portion of lease liabilities | |
| 523 | | | 415 |
Long term portion of lease liabilities | |
| 1,184 | | | 964 |
Total lease liabilities | | $ | 1,707 | | $ | 1,379 |
13
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
Total remaining undiscounted lease liabilities related to the above lease are as follows:
| | | | | | |
|
| | |
| | |
2022 Remainder | | $ | 287 | |||
2023 | | | 590 | | | 531 |
2024 | |
| 609 | |
| 679 |
2025 | |
| 165 | |
| 237 |
2026 | | | 129 | | | 197 |
2027 | | | 44 | | | 44 |
Total lease payments | | $ | 1,688 | |||
Less imputed interest | | | 106 | |||
Total | | $ | 1,824 | | $ | 1,582 |
20
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Our weighted-average remaining lease term and discount rate are as follows:
| | |
| | Three Months Ended |
Weighted-average remaining lease term | | 2.7 years |
Weighted-average discount rate | | 4.5% |
11. Stock-based compensation13. Stock-Based Compensation
During the three and six months ended June 30, 2022,March 31, 2023, the Company issued 6,575,000 and 21,000,0006,710,000 stock options to purchase an aggregate of 6,575,000 and 21,000,0006,710,000 common shares. TheThese options also vest over a period of four years and have an expiration period of ten10 years.
During the three and six months ended June 30, 2021,March 31, 2022, the Company issued 7,800,000 and 9,200,00014,425,000 stock options to purchase an aggregate of 7,800,000 and 9,200,00014,425,000 common shares, respectively. Theshares. These options also vest over a period of four years and have an expiration period of 10 years.
The continuity of stock options are as follows:
| | | | | | | | | | | | |
| | Number of | | Weighted Avg | | | Number of | | Weighted Avg | | ||
| | Options | | Exercise Price | | | Options | | Exercise Price | | ||
Balance at December 31, 2021 |
| 50,717,724 |
| $ | 0.45 |
| ||||||
Balance at December 31, 2022 |
| 84,112,443 |
| $ | 0.3602 |
| ||||||
Stock options granted |
| 21,000,000 | | | 0.32 | |
| 6,710,000 | | | 0.2431 | |
Stock options exercised |
| — | | | — | | ||||||
Stock options forfeited |
| 1,250,000 | | | 0.67 | |
| 705,000 | | | 0.4063 | |
Vested stock options expired |
| 8,960,000 | | | 0.22 | |
| 462,500 | | | 1.5459 | |
Balance at June 30, 2022 |
| 61,507,724 | | $ | 0.43 | | ||||||
Vested at June 30, 2022 |
| 15,596,349 | | $ | 0.36 | | ||||||
Balance at March 31, 2023 |
| 89,654,943 | | $ | 0.3449 | | ||||||
Vested at March 31, 2023 |
| 27,066,474 | | $ | 0.3484 | |
As of March 31, 2023, details of the issued and outstanding stock options are as follows:
| | | | | | | | | | |
Grant Year | | Weighted Avg. | | Number of Options | | Number of | | Number of | | Weighted Avg. |
2020 | | 0.22 | | 17,252,724 | | 14,478,974 | | 2,773,750 | | 2.69 |
2021 |
| 0.65 |
| 20,300,000 |
| 6,150,000 |
| 14,150,000 |
| 3.37 |
2022 |
| 0.27 |
| 45,392,219 |
| 6,437,500 |
| 38,954,719 |
| 4.32 |
2023 |
| 0.24 |
| 6,710,000 |
| — |
| 6,710,000 |
| 4.93 |
Balance at March 31, 2023 |
| |
| 89,654,943 |
| 27,066,474 |
| 62,588,469 |
|
|
The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
The fair value of options granted during the three months ended March 31, 2023 and the twelve months ended December 31, 2022 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
| | | | | | | | | | | | | | |
Grant Year |
| Weighted Avg. | |
| Weighted Avg. | |
| Weighted Avg. | | | Weighted Avg. | | | Weighted Avg. |
2020 | | 96 | % | | 0.47 | % | | 9.53 | | $ | 0.21 | | $ | 0.22 |
2021 | | 117 | | | 1.08 | | | 6.20 | | | 0.65 | | | 0.65 |
2022 | | 112 | | | 3.09 | | | 5.92 | | | 0.27 | | | 0.27 |
2023 | | 110 | | | 3.67 | | | 6.25 | | | 0.24 | | | 0.24 |
For the three months ended March 31, 2023 and 2022, the Company recorded $1,765 and $2,041 of stock-based expense.
1421
Zomedica Corp.
Notes to the condensed consolidated financial statementsConsolidated Financial Statements
(Unaudited) (United Stated dollars(United States Dollars in thousands, except for per share data)Thousands)
As of June 30, 2022, details of the issued and outstanding stock options were as follows:
| | | | | | | | | | |
|
| |
| |
| |
| Number of |
| Weighted avg |
| | | | Number of options | | Number of | | unvested | | remaining life |
| | | | issued | | vested options | | options | | outstanding |
Grant date | | Exercise price | | and outstanding | | outstanding | | outstanding | | (years) |
| | | | | | | | | | |
March 14, 2020 |
| 0.19 |
| 1,283,557 |
| 949,682 |
| 333,875 |
| 2.71 |
July 9, 2020 |
| 0.18 |
| 175,000 |
| 87,500 |
| 87,500 |
| 3.03 |
August 25, 2020 |
| 0.13 |
| 20,000 |
| — |
| 20,000 |
| 3.16 |
October 1, 2020 |
| 0.11 |
| 266,667 |
| 116,667 |
| 150,000 |
| 3.26 |
October 20, 2020 |
| 0.09 |
| 20,000 |
| 10,000 |
| 10,000 |
| 3.31 |
December 31, 2020 |
| 0.23 |
| 16,442,500 |
| 8,807,500 |
| 7,635,000 |
| 3.51 |
February 26, 2021 |
| 1.87 |
| 500,000 |
| 300,000 |
| 200,000 |
| 3.66 |
March 1, 2021 |
| 2.06 |
| 200,000 |
| 100,000 |
| 100,000 |
| 3.67 |
March 8, 2021 |
| 1.88 |
| 200,000 |
| 100,000 |
| 100,000 |
| 3.69 |
March 15, 2021 |
| 2.49 |
| 200,000 |
| 100,000 |
| 100,000 |
| 3.71 |
May 12, 2021 |
| 0.78 |
| 3,450,000 |
| 900,000 |
| 2,550,000 |
| 3.87 |
May 14, 2021 |
| 0.75 |
| 3,200,000 |
| 850,000 |
| 2,350,000 |
| 3.87 |
August 11, 2021 |
| 0.57 |
| 1,100,000 |
| 175,000 |
| 925,000 |
| 4.12 |
August 18, 2021 |
| 0.50 |
| 200,000 |
| — |
| 200,000 |
| 4.14 |
August 23, 2021 |
| 0.50 |
| 100,000 |
| — |
| 100,000 |
| 4.15 |
September 13, 2021 |
| 0.57 |
| 800,000 |
| — |
| 800,000 |
| 4.21 |
October 1, 2021 |
| 0.58 |
| 12,650,000 |
| — |
| 12,650,000 |
| 4.26 |
January 3, 2022 | | 0.36 |
| 100,000 |
| — |
| 100,000 |
| 4.52 |
January 4, 2022 | | 0.35 |
| 200,000 |
| — |
| 200,000 |
| 4.52 |
January 14, 2022 | | 0.35 |
| 200,000 |
| — |
| 200,000 |
| 4.55 |
January 16, 2022 | | 0.35 |
| 325,000 |
| — |
| 325,000 |
| 4.55 |
January 18, 2022 | | 0.35 |
| 100,000 |
| — |
| 100,000 |
| 4.56 |
February 14, 2022 | | 0.30 |
| 400,000 |
| — |
| 400,000 |
| 4.63 |
February 21, 2022 | | 0.37 |
| 200,000 |
| — |
| 200,000 |
| 4.65 |
February 25, 2022 | | 0.35 |
| 12,400,000 |
| — |
| 12,400,000 |
| 4.66 |
March 30, 2022 | | 0.35 |
| 200,000 |
| — |
| 200,000 |
| 4.75 |
April 1, 2022 | | 0.34 |
| 200,000 |
| — |
| 200,000 |
| 4.76 |
April 6, 2022 | | 0.32 |
| 100,000 |
| — |
| 100,000 |
| 4.77 |
April 7, 2022 | | 0.31 |
| 200,000 |
| — |
| 200,000 |
| 4.77 |
April 11, 2022 | | 0.31 |
| 75,000 |
| — |
| 75,000 |
| 4.78 |
May 2, 2022 | | 0.25 |
| 300,000 |
| — |
| 300,000 |
| 4.84 |
May 9, 2022 | | 0.21 |
| 700,000 |
| — |
| 700,000 |
| 4.86 |
May 11, 2022 | | 0.20 |
| 400,000 |
| — |
| 400,000 |
| 4.87 |
May 16, 2022 | | 0.23 |
| 100,000 |
| — |
| 100,000 |
| 4.88 |
May 31, 2022 | | 0.24 |
| 500,000 |
| — |
| 500,000 |
| 4.92 |
June 1, 2022 | | 0.25 |
| 500,000 |
| — |
| 500,000 |
| 4.92 |
June 6, 2022 | | 0.26 |
| 200,000 |
| — |
| 200,000 |
| 4.94 |
June 13, 2022 | | 0.24 |
| 200,000 |
| — |
| 200,000 |
| 4.96 |
June 17, 2022 | | 0.24 |
| 3,100,000 |
| 3,100,000 |
| — |
| 4.97 |
Balance at June 30, 2022 |
| |
| 61,507,724 |
| 15,596,349 |
| 45,911,375 |
|
|
The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
15
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
The fair value of options granted during the six months ended June 30, 2022 and the twelve months ended December 31, 2021 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
| | | | | | | | | | |
|
| February 26, |
| March 1, |
| March 8, |
| |||
| | 2021 | | 2021 | | 2021 |
| |||
Volatility |
| | 117 | % | | 117 | % | | 117 | % |
Risk-free interest rate |
| | 0.95 | % | | 0.92 | % | | 1.07 | % |
Expected life (in years) |
| | 10 |
| | 10 |
| | 10 | |
Dividend yield |
| | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 1.87 | | $ | 2.06 | | $ | 1.88 | |
Strike price | | $ | 1.87 | | $ | 2.06 | | $ | 1.88 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| May 12, |
| August 11, |
| August 23, |
| |||
| | 2021 | | 2021 | | 2021 |
| |||
Volatility |
| | 118 | % | | 116 | % | | 116 | % |
Risk-free interest rate |
| | 1.11 | % | | 0.96 | % | | 0.92 | % |
Expected life (in years) |
| | 6.21-6.22 |
| | 6.18-6.25 |
| | 6.25 | |
Dividend yield |
| | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.78 | | $ | 0.56 | | $ | 0.50 | |
Strike price | | $ | 0.78 | | $ | 0.57 | | $ | 0.50 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | |
|
| September 27, |
| October 1, |
| ||
| | 2021 | | 2021 | | ||
Volatility |
| | 116 | % | | 116 | % |
Risk-free interest rate |
| | 1.14 | % | | 1.10 | % |
Expected life (in years) |
| | 6.25 |
| | 6.25 |
|
Dividend yield |
| | 0 | % | | 0 | % |
Common share price | | $ | 0.54 | | $ | 0.57 | |
Strike price | | $ | 0.54 | | $ | 0.58 | |
Forfeiture rate | |
| 0 | % | | 0 | % |
16
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
| | | | | | | | | | |
|
| January 3, |
| January 4, |
| January 14, | | |||
| | 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 114 | % | | 114 | % | | 114 | % |
Risk-free interest rate |
| | 1.50 | % | | 1.47 | % | | 1.64 | % |
Expected life (in years) |
| | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield |
| | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.36 | | $ | 0.35 | | $ | 0.35 | |
Strike price | | $ | 0.36 | | $ | 0.35 | | $ | 0.35 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
| | January 16, |
| January 18, |
| February 14, |
| |||
| | 2022 | | 2022 | | 2022 | | |||
Volatility | | | 114 | % | | 114 | % | | 113 | % |
Risk-free interest rate | | | 1.73 | % | | 1.74 | % | | 1.94 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.35 | | $ | 0.35 | | $ | 0.29 | |
Strike price | | $ | 0.35 | | $ | 0.35 | | $ | 0.30 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| February 21, |
| February 25, |
| March 30, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 113 | % | | 113 | % | | 114 | % |
Risk-free interest rate |
| | 1.89 | % | | 1.91 | % | | 2.43 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.37 | | $ | 0.35 | | $ | 0.35 | |
Strike price | | $ | 0.37 | | $ | 0.35 | | $ | 0.35 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| April 1, |
| April 6, |
| April 7, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 114 | % | | 114 | % | | 114 | % |
Risk-free interest rate |
| | 2.53 | % | | 2.70 | % | | 2.72 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.33 | | $ | 0.32 | | $ | 0.31 | |
Strike price | | $ | 0.34 | | $ | 0.32 | | $ | 0.31 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| April 11, |
| May 2, |
| May 9, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 114 | % | | 113 | % | | 113 | % |
Risk-free interest rate |
| | 2.82 | % | | 3.03 | % | | 3.00 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.30 | | $ | 0.25 | | $ | 0.21 | |
Strike price | | $ | 0.31 | | $ | 0.25 | | $ | 0.21 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| May 11, |
| May 16, |
| May 31, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 113 | % | | 113 | % | | 113 | % |
Risk-free interest rate |
| | 2.92 | % | | 2.86 | % | | 2.84 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.20 | | $ | 0.22 | | $ | 0.23 | |
Strike price | | $ | 0.20 | | $ | 0.23 | | $ | 0.24 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
17
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
|
| June 1, |
| June 6, |
| June 13, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 113 | % | | 113 | % | | 112 | % |
Risk-free interest rate |
| | 2.96 | % | | 3.05 | % | | 3.55 | % |
Expected life (in years) | | | 6.25 |
| | 6.25 |
| | 6.25 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.25 | | $ | 0.26 | | $ | 0.24 | |
Strike price | | $ | 0.25 | | $ | 0.26 | | $ | 0.24 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
| | | | | | | | | | |
|
| June 17, |
| June 17, |
| June 17, |
| |||
|
| 2022 | | 2022 | | 2022 | | |||
Volatility |
| | 112 | % | | 112 | % | | 112 | % |
Risk-free interest rate |
| | 3.02 | % | | 3.02 | % | | 3.35 | % |
Expected life (in years) | | | 1.37 |
| | 1.64 |
| | 4.27 |
|
Dividend yield | | | 0 | % | | 0 | % | | 0 | % |
Common share price | | $ | 0.24 | | $ | 0.24 | | $ | 0.24 | |
Strike price | | $ | 0.24 | | $ | 0.24 | | $ | 0.24 | |
Forfeiture rate | |
| 0 | % | | 0 | % | | 0 | % |
The Company recorded $2,492 and $4,533 of stock-based compensation for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2021, the Company recorded $1,782 and $3,065, respectively.
12.14. Warrants
The Company values warrants issued in equity placements using the Black Scholes model to allocate the fair value of the proceeds from equity financings using a relative fair value approach. Like other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes option pricing model including the expected life, and underlying share price volatility. Changes in these assumptions will impact the calculation of fair value and the value attributed to the warrants. The Company calculates volatility of warrants based on the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
In connection with the February 14, 2020 registered direct offering,July 1, 2022 asset acquisition of Revo Squared, the Company issued 20,833,334 five and one half-year Series A warrantsa ten-year warrant to purchase 20,833,334 shares of common stock at an exercise price of $0.20. The Company also issued 1,041,667 warrants to purchase 1,041,667 shares of common stock at an exercise price of $0.15 per share to the placement agents.
In connection with the April 9, 2020 CMPO, the Company issued 16,666,667 five-year Series B Warrants to purchase 16,666,66710,000,000 common shares at ana per share exercise price of $0.15.equal to $0.2201. The Company also issued 1,666,667 Placement Agent Warrants to purchase 1,666,667 common shares at an exercise price of $0.15 per share.
In connection with the May 29, 2020 public offering, the Company issued 133,333,333 two-year Series C Warrants to purchase 133,333,333 common shares at an exercise price of $0.15. The Company also issued 12,170,000 Series C Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001warrants may be exercised on a cash or cashless exercise basis.basis, at the election of the warrant holder. As of DecemberMarch 31, 2020, all of the Series C Pre-Funded2023, no warrants hadhave been exercised.
In connection with the July 7, 2020 public offering,15, 2022 asset acquisition of Assisi, the Company issued 187,500,000 two-year Series D Warrantsa ten-year warrant to purchase 187,500,00022,000,000 common shares at ana per share exercise price of $0.16.equal to $0.2520. The Company also issued 25,000,000 Series D Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001warrants may be exercised on a cash or cashless exercise basis.basis, at the election of the warrant holder. As of DecemberMarch 31, 2020, all of the Series D Pre-Funded Warrants had2023, no warrants have been exercised.
18
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
As at June 30, 2022,March 31, 2023, details of the outstanding warrants were as follows:
| | | | | | | | | | | | |
|
| |
| |
| Weighted |
| |
| |
| Weighted |
| | | | | | Average | | | | | | Average |
| | Exercise | | Warrants | | Remaining | | Exercise | | Warrants | | Remaining |
Original Issue date | | Price | | Outstanding | | Life | | Price | | Outstanding | | Life |
February 14, 2020 | | 0.15 | | 197,917 | | 2.62 | ||||||
April 9, 2020 | | 0.15 | | 363,501 | | 2.78 | ||||||
May 29, 2020 |
| 0.15 |
| - |
| - | ||||||
July 7, 2020 |
| 0.16 |
| 231,000 |
| 0.02 | ||||||
Balance at June 30, 2022 |
|
|
| 792,418 |
|
| ||||||
February 14, 2020 (Series A) | | 0.1500 | | 197,917 | | 1.87 | ||||||
April 9, 2020 (Series B) | | 0.1500 | | 363,501 | | 2.03 | ||||||
May 29, 2020 (Series C) | | 0.1500 | | - | | - | ||||||
July 7, 2020 (Series D) | | 0.1600 | | - | | - | ||||||
July 1, 2022 (Revo Squared) | | 0.2201 | | 10,000,000 | | 9.26 | ||||||
July 15, 2022 (Assisi) | | 0.2520 | | 22,000,000 | | 9.30 | ||||||
Balance at March 31, 2023 |
|
|
| 32,561,418 |
|
|
Cumulative warrants exercised and expired as of March 31, 2023 were as follows:
| | | | | | | | | | |
|
| Warrants |
|
| |
| Warrants |
|
| |
Warrant Series | | Exercised | | | Amount | | Expired | | | Amount |
| | | | | | | | | | |
February 14, 2020 (Series A) |
| 21,677,084 | | $ | 4,293 |
| — | | $ | — |
April 9, 2020 (Series B) |
| 17,969,833 | |
| 2,695 |
| — | |
| — |
May 29, 2020 (Series C) |
| 133,213,333 | |
| 19,982 |
| 120,000 | |
| 18 |
July 7, 2020 (Series D) |
| 187,269,000 | |
| 29,963 |
| 231,000 | |
| 37 |
July 1, 2022 (Revo Squared) |
| — | |
| — |
| — | |
| — |
July 15, 2022 (Assisi) |
| — | |
| — |
| — | |
| — |
Total |
| 360,129,250 | | $ | 56,933 |
| 351,000 | | $ | 55 |
13.15. Income taxesTaxes
The Company is in an overall net deferred tax liability position as of June 30, 2022.March 31, 2023. Management has assessed that the future taxable income resulting from the deferred tax liability position will result in utilization of the Company’s US federal and state net operating loss carryforwards in future tax periods. The Company is in a net deferred tax asset position in Canada and a full valuation allowance against the Canada deferred tax assets remains necessary as a result of the historical losses and the uncertainty of realizing any future tax benefits related to the Canadian deferred tax assets.
14.22
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
16. Commitments and contingenciesContingencies
From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As of March 31, 2023, and continuing as of May 11, 2023, the Company is not aware of any pending or threatened material litigation claims against the Company.
On May 10, 2018, the Company entered into a Development, Commercialization and Exclusive Distribution Agreement. As part of the agreement, the Company is required to make the following future milestone payments:
● | 1st payment: $3,500 in cash payment upon the achievement of future development milestones |
● | 2nd payment: $3,500 in equity, determined by dividing the amount due by the volume-weighted average price of the Company’s common stock on the NYSE American exchange over the 10 trading days prior to the achievement of the milestone event. |
As of June 30, 2022,March 31, 2023, none of the future development milestones related to the above agreement have been met. The Company has assessed the probability of meeting the above milestones and has determined that an accrual is not necessary as of June 30, 2022March 31, 2023 and December 31, 2021.2022.
From time to time,On January 17, 2023, the Company may be exposed to claims and legal actions inentered into a series of agreements with Qorvo Biotechnologies, LLC. Under the normal courseterms of business. Thethese agreements, the Company is not aware of any pending or threatened material litigation claims againsthas the Company.obligation:
● | to purchase a minimum quantity of production and development cartridges for the period beginning on the date the parties entered into the agreements and ending on the earlier of the date Zomedica notifies Qorvo to stop production or December 31, 2024; |
● | to purchase a minimum quantity of BAW Sensors commencing on the Transition Date and continuing as long as Zomedica has a license from Qorvo to manufacture the cartridges, subject to each party’s rights to early termination including Zomedica’s right to terminate at any time with 90 days prior written notice; and |
19
● | to pay a royalty to Qorvo on the sale of cartridges after the Transition Date |
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
15.17. Segment informationInformation
The Company’s operations are comprised of 2two reportable segments. segments:
● | Diagnostics, which consists of TRUFORMA®, VetGuardian®, and imaging products; |
● | Therapeutics, which consists of Assisi® and PulseVet® products |
The Company’s Chief Operating Decision Maker (CODM) is its Chief Executive Officer who has ultimate responsibility for enterprise decisions.
Although theour reportable segments provide similar products, each one is managed separately to better align with the Company’s customers and distribution or/ development partners.
In addition, all The CODM determines resource allocation for, and monitors performance of, the Company’s long-lived assetsconsolidated enterprise, the Diagnostics segment, and the Therapeutics segment together. The CODM relies on internal segment reporting that analyzes results on certain key performance indicators, namely, revenues and gross profit. Costs below gross profit are innot allocated to the segments.
23
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The following is a reconciliation of America (“US”).consolidated revenue, cost of revenue, and gross profit amongst our reportable segments as of March 31, 2023:
| | | | | | | | | |
|
| Diagnostics |
| Therapeutics |
| Consolidated | |||
| | | | | | | | | |
Net Revenue | | $ | 148 | | $ | 7,849 | | $ | 7,997 |
Operating (loss) income | |
| (12,481) | |
| 2,288 | |
| (10,193) |
Interest income | |
| 384 | |
| - | |
| 384 |
(Loss) income before income taxes | | $ | (12,108) | | $ | 2,238 | | $ | (9,870) |
| | | | | | | | | |
Total assets | | $ | 195,130 | | $ | 80,348 | | $ | 275,478 |
Depreciation and amortization | |
| 241 | | | 1,415 | | | 1,656 |
Capital expenditures | | $ | 643 | | $ | - | | $ | 643 |
| | | | | | |
|
| | June 30, |
| | December 31, |
| | | 2022 | | | 2021 |
| | | | | | |
Non-US | | $ | 5,891 | | $ | 171,641 |
US | |
| 269,587 | |
| 108,759 |
Total assets | | $ | 275,478 | | $ | 280,400 |
| | | | | | |
Total US property and equipment | | $ | 2,233 | | $ | 1,550 |
Total US right-of-use asset | | $ | 1,638 | | $ | 1,320 |
| | | | | | | | | | |
|
| Diagnostics |
| Therapeutics |
| Consolidated |
| |||
| | | | | | | | | | |
Net revenue | | $ | 399 | | $ | 5,083 | | $ | 5,482 | |
Cost of revenue | |
| 338 | |
| 1,309 | |
| 1,647 | |
Gross profit | | $ | 61 | | $ | 3,774 | | $ | 3,835 | |
16.18. Loss per sharePer Share
| | | | | | | | | | | | | | | | | | |
| | For the Three Months Ended June 30, | | For the Six Months Ended June 30, | | For the Three Months Ended March 31, | ||||||||||||
|
| 2022 |
| 2021 |
| 2022 |
| 2021 |
| 2023 |
| 2022 | ||||||
Numerator | |
| | |
| | |
| | |
| | |
| | |
| |
Net loss for the period | | $ | (5,273) | | $ | (4,711) | | $ | (9,210) | | $ | (8,748) | | $ | (6,385) | | $ | (3,937) |
Charge to retained earnings for preferred share exchange | |
| - | |
| - | |
| - | |
| (32,039) | |
| - | |
| - |
Loss attributable to common shareholders | | | (5,273) | | | (4,711) | | | (9,210) | | | (40,787) | | | (6,385) | | | (3,937) |
| | | | | | | | | | | | | | | | | | |
Denominator | |
| | | | | |
| | | | | |
| | | | |
Weighted average shares - basic | |
| 979,899,668 | | | 973,656,518 | | | 979,899,668 | | | 932,959,287 | |
| 979,949,668 | | | 979,899,668 |
Stock options | |
| — | |
| — | |
| — | |
| — | ||||||
Warrants | |
| — | |
| — | |
| — | |
| — | ||||||
Denominator for diluted loss per share | |
| 979,899,668 | |
| 973,656,518 | |
| 979,899,668 | |
| 932,959,287 | ||||||
| | | | | | | | | | | | | | | | | | |
Loss per share - basic and diluted | | $ | (0.005) | | $ | (0.005) | | $ | (0.009) | | $ | (0.044) | | $ | (0.007) | | $ | (0.004) |
For the above-mentioned periods,As of March 31, 2023, and 2022, the Company had 61,507,724 stock options outstanding of 89,654,943 and 792,41857,632,724 and warrants outstanding whichof 32,561,418 and 912,418. These securities could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have beenbe anti-dilutive.
20
Zomedica Corp.
Notes to the condensed consolidated financial statements
(Unaudited) (United Stated dollars in thousands, except for per share data)
17.19. Related party transactionParty Transaction
On March 1, 2022 we entered into a Consulting Agreement with Johnny Powers, a member of our Board. Pursuant to the Powers Agreement, Dr. Powers provides strategic consulting services to the Company. Dr. Powers is entitled to $10 per month as compensation and reimbursement for authorized expenses. The Powers Agreement expires November 30, 2022.May 31, 2023.
18.20. Subsequent eventsEvents
On May 5, 2023, Zomedica, Inc., a U.S. subsidiary of Zomedica Corp., provided Structured Monitoring Products, Inc., a Florida corporation (“SMP”), with written notice of its intention to exercise its irrevocable option to acquire SMP. Concurrently with its delivery of the exercise notice, Zomedica made a nonrefundable cash payment to SMP of $250, which will be credited toward the purchase price. Zomedica now intends to promptly commence conducting due diligence with respect to the acquisition.
On July 1, 2022,May 10, 2023, Zomedica, Inc., thea wholly-owned subsidiary of Zomedica Corp., purchased the assets of Revo Squared for a base purchase price of $6,000 in cash, which was subject to adjustments based on the amount of Revo Squared’s working capital at closing. $500 of the purchase price was deposited into a third-party escrow account for a period of 15 months to support Revo Squared’s indemnification obligation under the Asset Purchase Agreement and an additional $5 of the purchase price was deposited into the escrow account for a period of approximately 90 days to support payment of post-closing adjustments to the purchase price, if any. The Company also issued to Revo Squared a ten-year warrant to purchase an aggregate of 10,000,000 of the Company’s common shares at a per share exercise price equal to $0.2201. Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments of up to $4,000 based on the achievement of milestones related to future net sales from Revo Squared Products. One-time earn-out payments of $2,000 each will be payable upon net sales from Revo Squared Products exceeding $5,000 and $10,000 during any calendar year ending on or prior to December 31, 2027.
On July 15, 2022, Zomedica Corp. and its wholly-owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreementamendment to the Multi-Tenant Industrial Triple Net Lease with Assisi Animal Health LLC, its wholly-owned subsidiary, AAH Holdingsan effective date of March 18, 2022 by and between ULF Northfield Business Center LLC and certain of Assisi’s members pursuant to which Zomedica, Inc. agreedfor property located at 4000 Northfield Way, Roswell, GA 30076. The Amendment expands the Leased Premises by 6,000 rentable square feet (“Expansion Premises”) from 12,400 rentable square feet to acquire substantially all18,400 square feet and extends the lease term from the date ending April 30, 2027 to a date ending sixty months after the earlier of (i) the assets ofdate the Sellers. The Sellers are inLandlord delivers the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapyExpansion Premises to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines. The Acquisition was consummated on the Effective Date. At the closing, Zomedica, Inc. paid Assisi a purchase price of $18,000 in cash, which was subject to adjustments based on, among other things, the value of Assisi’s inventory and prepaid expenses at the closing of the Acquisition. $1,400 of the purchase price was deposited into a third-party escrow account to support the Selling Parties’ indemnification obligation under the Purchase Agreement, of which $500 and $900 will be distributed to Assisi on the one-year and 18-month anniversary of the Closing Date, respectively, less the amount of prior or pending indemnification claims. An additional $200 of the purchase price was deposited into the escrow account for a period of approximately 90 days to support payment of post-closing adjustments to the purchase price, if any. The Company also issued to Assisi a ten-year warrant to purchase an aggregate of 22,000,000 of the Company’s common shares at a per share exercise price equal to $0.252. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
(ii) December 1, 2023.
2124
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion(All amounts are expressed in thousands unless otherwise indicated)
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Management’s Discussion and analysisAnalysis of our financial conditionFinancial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read togetherin conjunction with our consolidated financial statements and notes thereto for the related notes and the other financial information included elsewhere in this Report.quarter ended March 31, 2023. This discussionreport contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, andor forward-looking information under applicable Canadian securities legislation (collectively, “forward-looking statements”) that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, and those set forth in our most recent Annual Report on Form 10-K particularly those under “Risk Factors” discussed below and in our most recent Annual Report on Form 10-K.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and pursuant toas well as the safe harbor provisions of applicable Canadian securities legislation, that are based on management’s beliefs and assumptions and involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on information currently availablecertain assumptions and include any statement that does not directly relate to management. Some of theany historical or current fact.
Forward-looking statements under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report contain forward-looking statements. In some cases, you can identify forward-looking statements through our use ofalso be identified by words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing”“future”, “anticipates”, “believes”, “projects”, “estimates”, “expects”, “intends”, “plans”, “predicts”, “will”, “should”, “would”, “could”, “can”, “may”, or similar terms. Forward-looking statements are not guarantees of future performance and Zomedica’s actual results may differ significantly from the negativeresults discussed in the forward-looking statements. Zomedica cautions that these statements are subject to numerous important risks, uncertainties, assumptions, and other factors, some of these terms or other comparable terminology, although not all forward-looking statements contain these words.
Therewhich are a number of important factors thatbeyond Zomedica’s control. These risks could cause theZomedica’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to adverse macroeconomic conditions; changes in any forward-looking statement made by us. These factors include, but are not limited to:
22
our common shares on the NYSE American exchange; the accuracy of our estimates regarding expenses, future revenues, and capital requirements; and the “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2022. The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Risk Factors”
Although we believe the expectations reflected in our most recent Annual Report on Form 10-K for additional risks which could adversely impact our business and financial performance.
Allthe forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned notreasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We undertake no duty to place undue reliance onupdate any of these forward-looking statements which speak only as ofafter the date of this ReportForm 10-Q to conform our prior statements to actual results or the date of the document incorporated by reference into this Report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise,revised expectations, except as required by applicable law. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
All amounts are in thousands of dollars, except earnings per share, unless otherwise stated.
Overview
We are a veterinary health company creating and marketing products for companion animals by focusing on the unmet needs of clinical veterinarians. Our mission is to enrich the lives of the animals we love and the people that care for them by providing products and technologies that improve patient care and enhance practice health.the economic health of veterinary practices. Our product portfolio includes innovative diagnostics and therapeutic medical devices that emphasize patient health and enhancing practice economics.
We currently have twofive discrete platforms -in our TRUFORMA® platform, comprising point-of-care diagnostic products for disease states in dogs and cats, and our PulseVet® platform, which provides for treatment of musculoskeletal issues in horses and small animals.product portfolio:
Dogs and cats commonly suffer from adrenal disorders and thyroid disease, including hypothyroidism and hyperthyroidism. We believe that diagnostic tests are vital for identifying these disorders in sick patients as well as for screening apparently healthy patients. In certain cases, multiple assays must be performed to reach a definitive diagnosis of a specific disease or condition. Clinical veterinarians often do not have access to the equipment and assays to perform this testing at the point-of- care. As a result, certain tests must be sent to a reference lab, resulting in delay in diagnosis and treatment, and depriving clinical veterinarians of potential testing revenue.
Through our TRUFORMA® platform, we are focused on the development and commercialization of diagnostic instruments and related assays for use at the point-of-care that provide reference lab accuracy, thereby enabling practitioners to diagnose and treat diseases sooner.Diagnostic Products
Through our PulseVet platform, we are the world leader in electro-hydraulic shockwave technology for the treatment of a wide variety of conditions in horses and small animals. Our technology is indicated for conditions including osteoarthritis, tendon and ligament healing, bone healing, chronic pain relief and wound healing.
- | our TRUFORMA® platform, comprising point-of-care diagnostic products for disease states in dogs and cats, providing assays for use at the point-of-care that provide reference lab accuracy, thereby enabling practitioners to diagnose and treat diseases sooner; |
- | our Revo Squared® imaging platform, comprising diagnostic imaging products and services for use in animal health, including the SONOVIEW™ ultrasound system; and |
2325
- | our VetGuardian® platform, which provides continuous wireless monitoring of pets’ vital signs and provides them remotely to veterinarian practice staff, along with alert messaging should the vital signs rise or fall out of range, to assist in rapidly diagnosing issues; |
Therapeutic Products
- | our world-leading PulseVet® platform, which provides for non-invasive electro-hydraulic shock wave treatment of a wide variety of conditions in horses and small animals, including osteoarthritis, tendon and ligament healing, bone healing, chronic pain relief and wound healing, to promote healing and reduce the need for surgery and/or medication; and |
- | our Assisi Loop® platform including a series of products that use targeted Pulsed Electromagnetic Field (tPEMF) therapy to decrease pain and inflammation and accelerate healing or reduce anxiety. |
As a result of an internal strategic view, we have focused our development and commercialization efforts on our TRUFORMA® platformTRUFORMA, Revo Squared, VetGuardian, PulseVet, and our PulseVet technology.Assisi Loopplatforms. We believe this narrowed focus will enable us to capitalize on our core strengths and to accelerate the commercialization of these existing platforms.
Reportable Segments
Our reportable segments are:
For the foreseeable future, we expect to continue to incur losses, which we expect will begin to decrease from historical levels as we continue the commercialization of our TRUFORMA® platform and recognize additional profits from the expansion of the Revo Squared, VetGuardian, PulseVet, and Assisi Loop products, our product development activities, and our sales and marketing activities.
Revenue
Our revenue consisted of instruments, cartridges, extended warranty services and miscellaneous activitiesconsumables sold in the U.S associated with our TRUFORMA® platform, as well as instruments, trodesTRUFORMA platform; capital and warranty servicesconsumables sold in the U.S and internationally associated with our PulseVet platform; consumables sold in the U.S. and internationally associated with our Assisi products, capital associated with our Revo Squared products, and capital associated with our VetGuardian products.
Cost of Revenue
Cost of revenue consisted primarily of the cost of raw materials used in the assembly of PulseVet instrumentscapital and trodes,consumables, the cost of TRUFORMA® instrumentsTRUFORMA consumables purchased, and consumablesthe cost of Assisi parts purchased and the related warranties purchased.sub-components. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue.
Operating Expenses
The majority of our operating expenses have been for the selling, general and administrative activities related to general business activities, capital market activities, stock-based compensation, developing a commercial team and research and development activities related to our product development.
Research and Development Expense
All costs of research and development are expensed in the period in which they are incurred. Research and development costs primarily consist of salaries and related expenses for personnel, fees paid to consultants, outside service providers, professional services, travel costs and materials used in clinical trials and research and development.
Selling, General, and Administrative Expense
Selling, general, and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. These expenses also include costs associated with sales and marketing activity,activities, professional fees, and corporate administrative and overhead costs, including rent and other facilities costs, amortization, and depreciation.
Income26
U.S. Taxes
As of December 31, 2021,2022, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $28,178$32,456 and non-capital loss carryforwards for Canada of approximately $37,280,$46,384, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards. We concluded that, due to the limitations under Section 382 of the Code, our U.S. federal and state net operating loss carryfowardscarryforwards for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $20,976$21,013 of our U.SU.S. deferred tax assets, resulting in a remaining carryforward balance of $7,202.$11,443.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.
The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax, such as repurchases under $1 million.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise; (ii) the structure of a business combination; (iii) the nature and amount of any equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination); and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury.
The IR Act also included a new 15% Corporate Alternative Minimum Tax (“CAMT”) that acts as a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. Any increase in our effective tax rate will depend on a number of factors, including any offsets for general business credits or changes in book income following business combinations. The CAMT is effective for tax years beginning on or after January 1, 2023. Lastly, the IR Act also creates several potentially beneficial tax credits to incentivize investments in certain technologies and industries.
We are in the process of evaluating the potential impacts of the IR Act. While we do not believe the IR Act will have a material negative impact on our business or our financial performance, the effects of the measures are unknown at this time. Our analysis is ongoing and incomplete, and it is possible that the IR Act could ultimately have a material adverse effect on our tax liability. We continue to monitor the IR Act and related regulatory developments to evaluate their potential impact on our business, tax rate and financial results.
Canadian Taxes
In Canada, due to the uncertainty of realizing any tax benefits as of DecemberMarch 31, 2021, and June 30, 20222023, we continue to fully valuerecord a full valuation allowance against our Canadian deferred tax assets.
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Translation of Foreign Currencies
The functional currency, as determined by management, for our subsidiaries in the United States, Switzerland, and Canada is the U.S. dollar, which is also our reporting currencycurrency.
The functional currency, as determined by management, for our Japanese subsidiary is the Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.
Stock-Based Compensation
We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted.
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We calculate stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options. The risk-free rate assumed in valuing the options is based on the Canadian treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is zero as we are not expected to pay dividends in the foreseeable future.
Loss Per Share
Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
Comprehensive Loss
We follow FASB ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenue, costs and expenses, and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 34 of the notes to our consolidated financial statements, appearing elsewhere in this document, management has identified the following as “Critical Accounting Policies and Estimates”: Intangible Assets and Business Combinations, Inventory Reserves,Combinations; Impairment Testing; Valuation and Payback of Property and Equipment; and Revenue Recognition and Liabilities dueDue to Customers. We believe that the estimates and assumptions involved in these accounting policies may have the greatest potential impact on our financial statements.
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Intangible Assets and Business Combinations
Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair values. In determining these fair values for recent business combinations, we utilizedutilize various forms of the income, cost, and market approaches depending on the asset or liability being valued.
We useduse a discounted cash flow model to measure the trade names, customer relationship, developed technology, license, trademark, and technologytradename assets. The estimation of fair value requiredrequires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs wereare generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and were supplemented by current and anticipated market conditions.
Variances in future cash flows, anticipated growth rates, and revenue could significantly impact the value assigned to intangible assets. Any variance could cause impairment charges upon testing.
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Impairment Testing
We will evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we will perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.
We will estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies.
Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We willdo not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty.
The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we will perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value.
Inventory Reserves
Valuation and Payback of Property and Equipment
Our Diagnostics segment purchases instruments and places themDiagnostic based TRUFORMA® capital is placed in inventory. Instruments are removed from inventory and recorded as fixed assets whenonce purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase assays (tests)consumables or services which are utilized in the instrument.within. Each instrumentinstance of this placed in the portfoliocapital represents an asset that we own. An estimate is made of the anticipated future revenue over theits respective life of the instrument, based on the sale of assays, which is typically ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the inventory hasassets have been properly recorded, and no write-down is necessary. We rely on third-party data that considers various data points and assumptions, including, but not limited to, the expected volume of assaysconsumables which will be sold, anticipated growth rates, and placements of instruments.anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
The customer is obligated to purchase assaysconsumables during the placement period. However, since the customer is not obligated to purchase the instrument,capital, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the instrumentcapital and discontinues assayconsumable purchases.
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On June 30, 2022,March 31, 2023, the carrying value of our Diagnostic inventoryinstruments was $3,218.$5,211. A significant assumption included in the realization model is a placement rate of twofour instruments per month,quarter, per account manager.manager or inside sales representative.
The effect of a 50%25% reduction in the estimated revenues associated with annual placements of instruments would increase the payback period on June 30, 2022, by 0.43March 31, 2023 from 4.86 years to 6.85 years.
Changes to placement rates are not expected to decrease, nor do we expect that any decrease would be permanent.
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Revenue Recognition and Liabilities Due to Customers
The nature of our Therapeutics business segment gives rise to variable consideration, including discounts and applicator (“trode”) returns.returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. When revenue is recognized, a simultaneous adjustment for returns is estimated, reducing revenue. Estimated return credits are presented as a reduction to gross sales with the corresponding reserve presented as customer contract liabilities.
Variable consideration related to unused shock credits is calculated using the expected value method, which estimates the amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. Estimates of variable consideration are based upon historical experience and known trends. These estimated credits are non-refundable and may only be used towards the purchase of future trode refurbishments. This practice encourages refurbishment purchase prior to complete utilization of the previous trode, soenabling the customer willto always have a trode aton hand with ample capacity to perform treatments.
The number of trodes returned by year is tracked against the number of trodes sold in that same year, creating a current experience rate. It is assumed that the ultimate return rate for the trodes is 98%. For annual calculations, it is assumed that the expected returns in the current year for each layer increase to the experience rate of the year immediately preceding it. Once the 98% is reached the layer is removed from the calculation. The annual incremental change in expected returns is multiplied by an average return credit amount, generating the current liability due to customers.
The average return credit is calculated by dividing the actual shock credits issued by the actual number of trodes returned. A variance in the assumed return rate compared to the actual rate would impact the estimate and potentially understate net sales (overestimated rate) or overstate net sales (underestimated rate) in any given year and create a corresponding misstatement of the liability due to customers.
On June 30, 2022,March 31, 2023, the estimated value of our Therapeutics customer contract liability was $313.$505. If the expected return rate was increased by 2%, the effect on current year reduction in sales and increase in customer liability would have been approximately $20.$36.
Results of Consolidated Operations
Our results of operations for the three months ended March 31, 2023 and 2022 are as follows:
Revenue
Revenue for the three months ended June 30, 2022March 31, 2023 was $4,246,$5,482, compared to $16$3,751 for the three months ended June 30, 2021,March 31, 2022, an increase of $4,230$1,731 or 26,438%46%. The increase was primarily due to the inclusion of our PulseVet platformAssisi®, Revo Squared®, and VetGuardian® products which had revenues of $4,154 consisting of instruments, trodes,totaled $1,322 and warranty services sold worldwide. Revenues from sales of cartridges from our TRUFORMA® platform were $92 compared to $16, an increase of $76 or 475%.
Revenue for the six months ended June 30, 2022 was $7,997, compared to $30 for the six months ended June 30, 2021, an increase of $7,967 or 26,557%. The increase was primarily due to the inclusionnot part of our PulseVet platform which had revenuesconsolidated figures as of $7,849 consisting of instruments, trodes, and warranty services sold worldwide. Revenues from sales of cartridges from our TRUFORMA® platform were $148 compared to $30, an increase of $118 or 393%.March 31, 2022.
We launched our TRUFORMA® platform in March 2021 and acquired PulseVet in October 2021. In general, we expect revenue to increase in subsequent periods as we benefit from a full year’s worth of sales from our recent acquisitions and increase our related sales, marketing, and marketingcommercialization efforts.
Cost of Revenue
Cost of revenue for the three months ended March 31, 2023 was $1,647, compared to $1,011 for the three months ended March 31, 2022, an increase of $636 or 63%. The increase in cost was primarily driven by increased sales of our PulseVet® platform and Assisi products which totaled $1,309.
We anticipate that costs of revenue will increase in subsequent periods in accordance with the increased revenue as additional assays are addeddescribed above.
Gross Profit
Gross profit margin for the three months ended March 31, 2023 was $3,835 or 70%, compared to $2,740 or 73% for the three months ended March 31, 2022, an increase of $1,095. The decrease in gross profit margin % was primarily the result of product mix impacts associated with sales of our TRUFORMA® platform.new offerings.
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Cost of Revenue
Cost of revenue for the three months ended June 30, 2022 was $1,210, compared to $36 for the three months ended June 30, 2021, an increase of $1,174 or 3,261%. Cost of revenue primarily resulted from costs associated with sales of our PulseVet platform which totaled $1,135, as well as $75 from costs associated with sales of our TRUFORMA® platform.
Cost of revenue for the six months ended June 30, 2022 was $2,199, compared to $42 for the six months ended June 30, 2021, an increase of $2,157 or 5,136%. Cost of revenue primarily resulted from costs associated with sales of our PulseVet platform which totaled $2,079, as well as $120 from costs associated with sales of our TRUFORMA® platform.
We anticipate that costs of revenue will increase in 2022 in accordance with the increased revenue as described above.
Gross Profit Margin
Gross profit margin for the three months ended June 30, 2022 was $3,036 or 72%, compared to a loss of $20 for the three months ended June 30, 2021, an increase of $3,056.
Gross profit margin for the six months ended June 30, 2022 was $5,798 or 73%, compared to a loss of $12 for the six months ended June 30, 2021, an increase of $5,810.
The increase in gross profit for both the three and six months ended June 30, 2022 resulted primarily from the inclusion of our PulseVet platform in the first quarter of 2022. In general, we believe gross margins will remain relatively unchanged in percentage terms due to a variety of factors, including the ability to effectively stimulate demand for certain of our products; management of the cost of components and outside manufacturing services; our ability to manage warranty costs effectively; shifts in the mix of products and services, or in the geographic, currency or channel mix; and fluctuations in exchange rates.
Research and Development
Research and development expense for the three months ended June 30, 2022March 31, 2023 was $319,$918, compared to $271$351 for the three months ended June 30, 2021,March 31, 2022, an increase of $48$567 or 18%162%. The increase was primarily driven by an increase in contracted expenses for research fees and trials as we continueour continued buildup of internal capabilities to develop, test, and testmanufacture our next generation of TRUFORMA® assays.Diagnostic products.
Research and development expense for the six months ended June 30, 2022 was $670, compared to $684 for the six months ended June 30, 2021, a decrease of $14 or 2%. The decrease was the result of a reduction in research and development activity associated with TRUFORMA® as we completed development of the instrument and three of the first five assays and began commercialization in March of 2021.
We anticipate that R&D costs will increase as we maintain and enhance our current product lines and continue development of our additional assays.to develop new products.
Selling, General, and Administrative
Selling, general, and administrative expense for the three months ended June 30, 2022March 31, 2023 was $8,597,$10,429, compared to $5,038$6,703 for the three months ended June 30, 2021,March 31, 2022, an increase of $3,559$3,726 or 71%56%. The increase was primarily driven by salaries and (noncash) stock option expense associated with increased hiring campaigns, recruiting and the inclusionother related fees associated with our transition to a new Chief Financial Officer, Qorvo related transition payments, and increased marketing campaigns/attendance at tradeshows to build brand awareness and recognition of PulseVet headcount, PulseVet acquisition related intangible amortization, and an increase in consultant fees for market development, research, specific accounting, and internal control work.our expanding suite of products.
Selling,We expect future selling, general and administrative expense for the six months ended June 30, 2022 was $15,321, compared to $8,505 for the six months ended June 30, 2021, an increase of $6,816 or 80%. The increase was primarily driven by salariesin line with product expansion and stock option expense associated with increased hiring campaigns and the inclusion of PulseVet headcount, PulseVet acquisition related intangible amortization, increasesgrowth in office expense, travel and tradeshow attendance/sponsorships associated with a lifting of COVID restrictions, our TRUFORMA® launch, and marketing of our new line of PulseVet products.commercialization efforts.
Net Loss
Our net loss for the three months ended June 30, 2022March 31, 2023 was $5,273$6,385, compared to a loss of $4,711$3,937 for the three months ended June 30, 2021,March 31, 2022, an increase of $562$2,448 or 12%.
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Our net loss for the six months ended June 30, 2022 was $9,210 compared to a loss of $8,748 for the six months ended June 30, 2021, an increase of $462 or 5%62%.
The net loss in each period was attributed to the matters described above. We expect to continue to record net losses in future periods until such time as we have sufficient revenue from product sales to offset our operating expenses.
Cash Flows
Six months ended June 30, 2022 compared to six months ended June 30, 2021
The following table shows a summary of our cash flows for the periods set forth below:
| | | | | | | | | | | | | | | | | | | | | | |
|
| Six months ended | | Six months ended | | | | | |
| Three Months Ended March 31, | | | | | | ||||||
|
| June 30, 2022 |
| June 30, 2021 |
| Change |
| 2023 |
| 2022 |
| Change | ||||||||||
Cash used in operating activities | | $ | (6,517) | | $ | (4,376) | | $ | (2,141) |
| 49% | | $ | (4,257) | | $ | (2,471) | | $ | (1,786) |
| 72% |
Cash used in investing activities |
| | (1,643) |
| | (142) | | $ | (1,501) |
| 1057% |
| | (14,792) |
| | (206) | | $ | (14,586) |
| 7081% |
Cash provided by financing activities |
| | — |
| | 218,736 | | $ | (218,736) |
| (100)% |
| | — |
| | — | | $ | — |
| 0% |
Increase in cash and cash equivalents |
| | (8,160) |
| | 214,218 | | $ | (222,378) |
| (104)% | |||||||||||
(Decrease) increase in cash and cash equivalents |
| | (19,049) |
| | (2,677) | | $ | (16,372) |
| 612% | |||||||||||
Effect of exchange rate changes on cash |
| | (29) |
| | — | | $ | (29) |
| NA |
| | 3 |
| | 62 | | $ | (59) |
| (95)% |
Cash and cash equivalents, beginning of period |
| | 194,952 |
| | 61,992 | | $ | 132,960 |
| 214% |
| | 27,399 |
| | 194,952 | | $ | (167,553) |
| (86)% |
Cash and cash equivalents, end of period | | $ | 186,763 | | $ | 276,210 | | $ | (89,447) |
| (32)% | | $ | 8,353 | | $ | 192,337 | | $ | (183,984) |
| (96)% |
Operating Activities
Net cash used in operating activities for the sixthree months ended June 30, 2022,March 31, 2023 was $6,517,$4,257, compared to $4,376$2,471 for the sixthree months ended June 30, 2021,March 31, 2022, an increase in cash used of $2,141,$1,786 or 49%72%. The increase in cash used in operations primarily resulted from the increase in our operating loss. In addition, cash used in operations during the six months ended June 30, 2022 included increased salary expenseslosses noted above and inventory purchases,non-cash accretion on currently held available-for-sale securities, partially offset in part by an increaseincreases in non-cash expenses including stock-based compensation expenseamortization and depreciation and amortization.
Investing Activitiesstock compensation.
Net cash used in investing activities for the sixthree months ended June 30, 2022,March 31, 2023 was $1,643,$14,792, compared to $142$206 for the sixthree months ended June 30, 2021,March 31, 2022, an increase of $1,501,$14,586 or 1,057%7,081%. CashThe increase in cash used in investing activities during the six months ended June 30, 2022 included anprimarily resulted from investment in a debt security (at fair value) of $1,000available for sale securities and expenditures to improve our ecommerce, internal sales, and accounting programs as well as for leasehold improvements.Qorvo license related intangibles.
Financing Activities
NetThere was no cash provided by financing activities for the sixthree months ended June 30, 2022, was $0, compared to $218,736 for the six months ended June 30, 2021, a 100% decrease. Cash provided by financing activities in 2021 primarily resulted from proceeds from the February 2021 public offeringMarch 31, 2023 or 2022.
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Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our inception in May 2015. As of June 30, 2022,March 31, 2023, we had an accumulated deficit of $128,601.$142,789. We have funded our working capital requirements primarily through the sale of our equity and equity-related securities and the exercise of stock options and warrants.
As of June 30, 2022,March 31, 2023, the Company had cash and cash equivalents of $186,763 and working capital (defined as current assets minus current liabilities) of $190,152.$121,566.
Short TermShort-Term Cash Requirements
We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have cash fixed cash obligations in association with our building leases and quarterly inventory orders. We also have payment obligations associated with our on-going clinical studies, and we expect that we have sufficient cash to cover these requirements. We do not expect that PulseVet’sour operations will require significant increases in our short-term cash needs.
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Long TermLong-Term Cash Requirements
We believe that our existing cash resources will be sufficient to fund our expected operational requirements through at least December 2024.2025. We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. Ongoing business development activity may also require us to use some of our liquidity for an acquisition, and use of additional capital to fund newly acquired operations. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution;dilution, and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations.
Our future capital requirements depend on many factors, including, but not limited to:
● | the costs and timing of our development and commercialization activities; |
● | the cost of manufacturing our existing and future products; |
● | the cost of marketing and selling our existing and future products including marketing, sales, service, customer support and distribution costs; |
● | the expenses needed to attract and retain skilled personnel; |
● | the costs associated with being a public company; |
● | the costs associated with additional business development or mergers and acquisitions activity, including acquisition-related costs, earn-outs or other contingent payments and costs of developing and commercializing any technologies to which we obtain rights; |
● | third-party costs associated with the development and commercialization of our existing and future products and the ability of our development partners to satisfy our requirements on a timely basis; |
● | the scope and terms of our business plans from time to time, and our ability to realize upon our business plans; and |
● | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. |
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Outstanding Share Data
The only class of outstanding voting equity securities of the Company are the common shares. As of August 15, 2022:May 11, 2023:
● | there are 979,949,668 common shares issued and outstanding; |
● | there are stock options outstanding under our Stock Option Plan to acquire an aggregate of |
● | there are common share purchase warrants outstanding to acquire an aggregate of 197,917 common shares at an exercise price of |
● | there are common share purchase warrants outstanding to acquire an aggregate of 363,501 common shares at an exercise price of |
● |
● | there are common share purchase warrants |
All currently outstanding warrants have a “cashless exercise” feature which is applicable in certain circumstances. The cashless exercise feature could result in the potential issuance of common shares based upon the “in-the-money” value of the applicable warrants at the time of exercise. The number of the common shares that may be issued is not determinable. However, the number of common shares that are issuable is based upon a formula that divides the “in-the-money” value by the then current market price and multiplying this result by the number of common shares that are issuable under the applicable warrants pursuant to cash exercise.
Climate Change
There is general consensus in the scientific community that greenhouse gas emissions are linked to climate change, and that these emissions must be reduced dramatically to avert its worst effects. As a result, increased public awareness and concern about climate change will likely continue to (1) generate more regional and/or national requirements to reduce greenhouse gas emissions; (2) increase energy efficiency and reduce carbon pollution; and (3) cause a shift to cleaner and more sustainable sources of energy which may be more expensive than using fossil fuels as an energy source.
The potential impact of climate change on our operations and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns, more intense storms and changing temperature levels. These changes could be severe and vary by geographic location. Climate change may also affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable.
The effects of climate change also may impact our decisions to construct new buildings or maintain existing facilities in any areas that are or become prone to physical risks, which could similarly increase our operating costs. We could also face indirect financial risks passed through the supply chain that could result in higher prices for resources, such as energy. Additionally, climate change may adversely impact the demand, price and availability of property and casualty insurance that insures our physical assets. Due to significant economic variability associated with future changing climate conditions, we are unable to predict the impact climate change will have on us in the future.
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Recently Adopted Accounting Pronouncements
From time to time, the Financial Accounting Standards Board ("FASB") or other standard setting bodies issue new accounting pronouncements. Updates to the FASB Accounting Standards Codification ("ASC") are communicated through issuance of an Accounting Standards Update ("ASU"). Unless otherwise discussed, we believe that recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Evaluation of Our Disclosure Controls
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of June 30, 2022,March 31, 2023, our disclosure controls and procedures were effective.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
Item 1A. Risk Factors.
Risks Related to Our Recently Completed Acquisition of Revo Squared LLCThere have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K for the year ended December 31, 2022.
We have incurred and will continue to incur transaction and integration costs in connection with the acquisition of Revo Squared. These expenses could materially and adversely affect our results of operations.
We have incurred significant costs associated with the negotiation and consummation of the Revo Squared acquisition and expect to incur additional costs in connection with the integration of its operations. The substantial majority of these costs will be non-recurring expenses and will consist of transaction costs (e.g., legal, accounting), facilities and systems consolidation costs and employment-related costs. Additional unanticipated costs may be incurred in the integration of our businesses. These expenses could materially and adversely affect our results of operations.
The failure to integrate Revo Squared successfully into our business could have a material adverse effect on our results of operations and financial condition.
In order to realize the expected benefits of the Revo Squared acquisition, we must successfully integrate the operations or Revo Squared with our existing operations. The integration of Revo Squared will be a time-consuming and expensive process and could significantly disrupt our business. The anticipated benefits of the transaction, including the realization of revenue, tax benefits, financial benefits or returns and expense and other synergies, may not be fully realized, or may take longer to realize than expected, and the integration may be more expensive or require more senior management involvement than expected or be more disruptive to our existing operations than anticipated. In addition, the COVID-19 pandemic-related risks may result in unanticipated regulatory, planning and/or operational delays that may adversely impact the anticipated timeline and achievement of our ongoing integration goals. The integration process may result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies. Our failure to successfully integrate the operations of Revo Squared or to otherwise realize any of the anticipated benefits of the acquisition could have a material adverse effect on our results or operations.
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The failure to realize the anticipated growth opportunities from our acquisition of Revo Squared could have a material adverse effect on our results of operations and financial condition.
We may not realize the expected growth opportunities from our acquisition of Revo Squared even if we are able to integrate Revo Squared’s business successfully. We may incur unanticipated costs related to the operation of Revo Squared and we may not achieve the growth potential for the Revo Squared business that we expected at the time of acquisition or on our expected time schedule as a result of a number of factors, including our inability to successfully cross-market our or Revo Squared’s products. Accordingly, the benefits from the proposed acquisition may be offset by costs incurred or delays in integrating the companies, which could cause our operational and growth assumptions to be inaccurate. Our failure to realize the anticipated growth opportunities from our acquisition of Revo Squared could have a material adverse effect on our results of operations and financial condition.
Risks Related to Our Recently Completed Acquisition of Assisi Animal Health LLC
We have incurred and will continue to incur transaction and integration costs in connection with the acquisition of Assisi. These expenses could materially and adversely affect our results of operations.
We have incurred significant costs associated with the negotiation and consummation of the Assisi acquisition and expect to incur additional costs in connection with the integration of its operations. The substantial majority of these costs will be non-recurring expenses and will consist of transaction costs (e.g., legal, accounting), facilities and systems consolidation costs and employment-related costs. Additional unanticipated costs may be incurred in the integration of our businesses. These expenses could materially and adversely affect our results of operations.
The failure to integrate Assisi successfully into our business could have a material adverse effect on our results of operations and financial condition.
In order to realize the expected benefits of the Assisi acquisition, we must successfully integrate the operations or Assisi with our existing operations. The integration of Assisi will be a time-consuming and expensive process and could significantly disrupt our business. The anticipated benefits of the transaction, including the realization of revenue, tax benefits, financial benefits or returns and expense and other synergies, may not be fully realized, or may take longer to realize than expected, and the integration may be more expensive or require more senior management involvement than expected or be more disruptive to our existing operations than anticipated. In addition, the COVID-19 pandemic-related risks may result in unanticipated regulatory, planning and/or operational delays that may adversely impact the anticipated timeline and achievement of our ongoing integration goals. The integration process may result in the loss of key employees, the disruption of ongoing business or inconsistencies in standards, controls, procedures and policies. Our failure to successfully integrate the operations of Assisi or to otherwise realize any of the anticipated benefits of the acquisition could have a material adverse effect on our results or operations.
The failure to realize the anticipated growth opportunities from our acquisition of Assisi could have a material adverse effect on our results of operations and financial condition.
We may not realize the expected growth opportunities from our acquisition of Assisi even if we are able to integrate Assisi’s business successfully. We may incur unanticipated costs related to the operation of Assisi and we may not achieve the growth potential for the Assisi business that we expected at the time of acquisition or on our expected time schedule as a result of a number of factors, including our inability to successfully cross-market our or Assisi’s products. Accordingly, the benefits from the proposed acquisition may be offset by costs incurred or delays in integrating the companies, which could cause our operational and growth assumptions to be inaccurate. Our failure to realize the anticipated growth opportunities from our acquisition of Assisi could have a material adverse effect on our results of operations and financial condition.
The Company’s operations and performance depend on global and regional economic conditions and adverse economic conditions can adversely affect the Company’s business, results of operations and financial condition.
Adverse macroeconomic conditions, including inflation, slower growth or recession, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can materially adversely affect demand for the Company’s products and services. In addition, consumer confidence and spending can be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors.
In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on the Company’s suppliers, logistics providers, distributors, and other channel partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.
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Item 6. Exhibits.
The exhibits listed on the accompanying index to exhibits immediately preceding the exhibits are filed as part of, or hereby incorporated by reference into, this Quarterly Report.
EXHIBIT INDEX
Exhibit |
| Description |
---|---|---|
| | |
|
| |
| | |
2.3 | | |
3.1 | | |
3.2 | | |
| | |
| | |
| | |
| | |
10.4 | | |
10.5+ | | |
31.1 | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1* | | |
101.INS | | Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL (1). |
101.SCH | | Inline XBRL Taxonomy Extension Schema Document (1). |
101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (1). |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (1). |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (1). |
101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (1). |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |
* |
|
* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
+ | Indicates management contract or compensatory plan. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.authorized, on May 11, 2023.
| | |
| Zomedica Corp. | |
| | |
| By: | /s/ Larry Heaton |
| Name: | Larry Heaton |
| Title: | Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
|
|
|
| By: | /s/ |
| Name: |
|
| Title: | Executive Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
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