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Zomedica Corp. - Quarter Report: 2022 June (Form 10-Q)

Table of Contents

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, 2022.

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
Ann Arbor, Michigan

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, 979,949,668 shares of the registrant’s common shares, without par value, were issued and outstanding.

Table of Contents

ZOMEDICA CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

JUNE 30, 2022

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

3

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 4.

Controls and Procedures

31

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

31

Item 1A.

Risk Factors

31

Item 6.

Exhibits

33

2

Table of Contents

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Zomedica Corp.

Consolidated balance sheets

(Unaudited) (United States dollars in 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

 

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, no 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

Table of Contents

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

Table of Contents

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

    

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 June 30, 2021

Common

Additional

Accumulated

Common stock

stock

paid-in

Accumulated  

comprehensive  

 

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

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

Table of Contents

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

 

 

5

(Gain) loss on right-of-use assets

 

 

(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)

 

Deferred tax liabilities

 

(661)

 

Other current liabilities

 

4

 

Customer contract liabilities

 

(25)

 

Other liabilities

 

30

 

Net cash used in operating activities

 

(6,517)

 

(4,376)

Cash flows from investing activities:

 

  

 

  

Investment in debt security (at fair value)

 

(1,000)

 

Investment in property and equipment

 

(151)

 

(43)

Investment in intangibles

 

 

(99)

Investment in assets in process

(492)

Net cash used in investing activities

 

(1,643)

 

(142)

Cash flows from financing activities:

 

  

 

  

Cash proceeds from issuance of common shares and warrants

 

 

199,525

Cash received from warrant exercises

 

 

32,112

Cash paid for shares and warrant issuance costs

 

 

(14,269)

Cash received from stock option exercises

 

 

1,368

Net cash provided by financing activities

 

 

218,736

(Decrease) increase in cash and cash equivalents

 

(8,160)

 

214,218

Effect of exchange rate changes on cash

(29)

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

$

Supplemental cash flow information:

 

  

 

  

Interest received

$

(384)

$

(112)

The accompanying notes are an integral part of these condensed consolidated financial statements.

6

Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

1. Nature of operations

The Company is a veterinary health company creating point-of-care diagnostics and therapeutics products for dogs and cats, that focuses on the needs of the veterinarians themselves. The Company consists of the parent company, Zomedica Corp, its wholly-owned U.S subsidiary, Zomedica Inc., and Pulse Veterinary Technologies LLC, along with its international subsidiaries.

The impact of the novel strain of coronavirus (“COVID-19”)

There remains a significant amount of stress and uncertainty across national and global economies due to the pandemic of coronavirus disease 2019 (“COVID-19”) caused by severe acute respiratory syndrome coronavirus 2 (the “COVID-19 pandemic”). 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 sell to customers, declines in customer demand, 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.

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 development of new assays, both for equine indications of our current and planned assays, and for various additional disease states affecting canine, feline, and equine patients in the future.  

2. Basis of preparation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with 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 Sheet as of December 31, 2021 was derived from audited financial statements.

3. Significant accounting policies

Estimates and assumptions

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

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Table of Contents

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.

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”) methods 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.

Intangible assets

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 have been capitalized and amortized over the estimated useful life.

Revenue recognition and liabilities due to customers

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 business gives rise to variable consideration, including discounts and applicator (“trode”) returns. 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 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 at 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.

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.

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Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

The diagnostic segment reported $92 in revenue from consumables for the three months ended June 30, 2022, compared to $16 for the three months ended June 30, 2021, an increase of $76 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.

Comparative figures  

Assets in process are separately stated in the current period balance sheet for $523.  The consolidated balance sheets for the year ended December 31, 2021 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 to the current year presentation. The change in presentation had no effect 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 Stock Purchase Agreement with Branford PVT Mid-Hold, LLC pursuant to which Zomedica Inc. acquired 100% 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 devices to the veterinary industry (the “Acquisition”). The purchase price for the Acquisition was $71,929 in cash.

As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $43,288 was recorded in connection with this acquisition, none of which will be deductible for U.S tax purposes. The goodwill largely results from our ability to market and sell the PulseVet Technology through our established customer base.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

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

Cash and cash equivalents

$

526

$

3

$

529

Inventory

 

840

 

31

 

871

Prepaid expenses and deposits

 

365

 

 

365

Trade receivables

 

269

 

 

269

Other receivables

 

 

150

 

150

Property and equipment

 

125

 

 

125

Intangible Assets (estimated useful life)

 

 

 

Developed technology (15 years)

 

8,650

 

 

8,650

Trade name (19 years)

 

2,350

 

 

2,350

Customer relationships (11 years)

 

22,650

 

 

22,650

Other Assets

 

69

 

265

 

334

Total assets acquired

 

35,844

 

449

 

36,293

Accounts payable and accrued liabilities

 

1,112

 

(543)

 

569

Income tax payable

 

44

 

 

44

Deferred revenue

 

61

 

 

61

Liability for contracts with customers

 

332

 

 

332

Deferred tax liabilities

 

7,138

 

(900)

 

6,238

Other non current liabilities

 

143

 

265

 

408

Total liabilities assumed

 

8,830

 

(1,178)

 

7,652

Net assets acquired, excluding goodwill

 

27,014

 

1,627

 

28,641

Goodwill

 

44,915

 

(1,627)

 

43,288

Net assets acquired

$

71,929

$

$

71,929

During the period subsequent to the acquisition of PulseVet, we made certain preliminary measurement period adjustments to the acquired assets and liabilities assumed. 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 and liabilities are adjusted.  

5. Inventory

Inventory details are as follows:

June 30, 2022

December 31, 2021

Diagnostics

    

Therapeutics

    

Consolidated

    

Diagnostics

    

Therapeutics

    

Consolidated

Raw Materials

$

$

1,300

$

1,300

$

$

890

$

890

Finished Goods

 

 

323

 

323

 

 

140

 

140

Purchased Inventory

 

3,234

 

 

3,234

 

1,848

 

 

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

6. Prepaid expenses, deposits and deferred financing costs

10

Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated 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

Table of Contents

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 no unrealized gains or losses recorded and no other than temporary impairments recognized as of June 30, 2022.

12

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

10. 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 48 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 41 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 61 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's incremental borrowing rate of 3.95%.

During the three and six months ended June 30, 2022, the Company recognized $179 and $331 in rent expense inclusive of common area maintenance (CAM) charges, insurance, and tax with $18 and $34 recorded in research and development expenses and $161 and $297 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.

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

Table of Contents

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

2024

 

609

2025

 

165

2026

129

2027

44

Total

$

1,824

11. Stock-based compensation

During the three and six months ended June 30, 2022, the Company issued 6,575,000 and 21,000,000 stock options to purchase an aggregate of 6,575,000 and 21,000,000 common shares. The options vest over a period of four years and have an expiration period of ten years.  During the three and six months ended June 30, 2021, the Company issued 7,800,000 and 9,200,000 stock options to purchase an aggregate of 7,800,000 and 9,200,000 common shares, respectively. The options 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

Options

Exercise Price

Balance at December 31, 2021

    

50,717,724

    

$

0.45

    

Stock options granted

 

21,000,000

0.32

Stock options exercised

 

Stock options forfeited

 

1,250,000

0.67

Vested stock options expired

 

8,960,000

0.22

Balance at June 30, 2022

 

61,507,724

$

0.43

Vested at June 30, 2022

 

15,596,349

$

0.36

14

Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

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

Table of Contents

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

Table of Contents

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

Table of Contents

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. 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, the Company issued 20,833,334 five and one half-year Series A warrants 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 16,666,667 common shares at an exercise price of $0.15. 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 $0.0001 on a cashless exercise basis. As of December 31, 2020, all of the Series C Pre-Funded warrants had been exercised.

In connection with the July 7, 2020 public offering, the Company issued 187,500,000 two-year Series D Warrants to purchase 187,500,000 common shares at an exercise price of $0.16. The Company also issued 25,000,000 Series D Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001 on a cashless exercise basis. As of December 31, 2020, all of the Series D Pre-Funded Warrants had been exercised.

18

Table of Contents

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, details of the outstanding warrants were as follows:

    

    

    

Weighted 

Average

Exercise

Warrants 

 Remaining 

Original Issue date

 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

 

  

13. Income taxes

The Company is in an overall net deferred tax liability position as of June 30, 2022.  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. Commitments and contingencies

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, 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, 2022 and December 31, 2021.

From time to time, the Company may be exposed to claims and legal actions in the normal course of business. The Company is not aware of any pending or threatened material litigation claims against the Company.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

15. Segment information

The Company’s operations are comprised of two reportable segments. Although the 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 of the Company’s long-lived assets are in the United States of America (“US”).

    

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

16. Loss per share

For the Three Months Ended June 30, 

For the Six Months Ended June 30, 

    

2022

    

2021

    

2022

    

2021

Numerator

  

  

  

  

Net loss for the period

$

(5,273)

$

(4,711)

$

(9,210)

$

(8,748)

Charge to retained earnings for preferred share exchange

 

-

 

-

 

-

 

(32,039)

Loss attributable to common shareholders

(5,273)

(4,711)

(9,210)

(40,787)

Denominator

 

 

Weighted average shares - basic

 

979,899,668

973,656,518

979,899,668

932,959,287

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)

For the above-mentioned periods, the Company had 61,507,724 stock options and 792,418 warrants outstanding which 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 been anti-dilutive.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United Stated dollars in thousands, except for per share data)

17. Related party 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.

18. Subsequent events

On July 1, 2022, Zomedica Inc., the 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 Agreement with Assisi Animal Health LLC, its wholly-owned subsidiary, AAH Holdings LLC, and certain of Assisi’s members pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of the Sellers. The Sellers are 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. 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.

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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 and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and the related notes and the other financial information included elsewhere in this Report. This discussion 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, and 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 to applicable Canadian securities legislation that are based on management’s beliefs and assumptions and on information currently available to management. Some of the 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 of words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.

There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:

our ability to successfully maintain and grow our TRUFORMA® and PulseVet products;
our ability to maintain our sales team to market and sell TRUFORMA® and PulseVet, any other products we develop or acquire and the related cost and timing thereof;
our ability to successfully integrate our recent acquisition of PulseVet (as defined below) and the timing and costs to achieve that integration;
the ability of our contract partners and contractors to appropriately conduct our product development, validation studies, verification studies, and beta testing, and certain other development activities;
the ability of our contract manufacturing organizations to manufacture and supply our products;
our ability to develop and commercialize our future products;
the expected impact of the novel coronavirus pandemic on our operations;
our ability to develop and commercialize products that can compete effectively;
the size and growth of the veterinary diagnostics and medical device markets;
our ability to obtain and maintain intellectual property protection for our planned and future products candidates;
regulatory developments in the United States;
the loss of key personnel;

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the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;
the impact of the novel coronavirus pandemic on our operations, including the development, manufacturing and selling of our TRUFORMA® platform and related assays and our PulseVet platform;
our ability to maintain the listing of our common shares on the NYSE American exchange
our status as a “passive foreign investment company” for U.S. federal income tax purposes
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; and
Changes in consumer confidence and spending 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.

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” in our most recent Annual Report on Form 10-K for additional risks which could adversely impact our business and financial performance.

All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Report 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, except as required by 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 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. Our product portfolio includes innovative diagnostics and therapeutic medical devices that emphasize patient health and enhancing practice economics.

We currently have two discrete platforms - 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.

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.

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.

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As a result of an internal strategic view, we have focused our development and commercialization efforts on our TRUFORMA® platform and our PulseVet technology. 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:

Diagnostics, which consists of our parent company and its U.S subsidiary and includes the TRUFORMA® products, and
Therapeutics, which consists of PulseVet operations and its two international subsidiaries, HMT High Medical Technologies (Japan) Co. Ltd. ("HMT") and NeoPulse, GmbH ("NeoPulse"), and includes the ProPulse products and services.

Revenue

Our revenue consisted of instruments, cartridges, extended warranty services and miscellaneous activities sold in the U.S associated with our TRUFORMA® platform, as well as instruments, trodes and warranty services sold in the U.S and internationally associated with our PulseVet products.

Cost of Revenue

Cost of revenue consisted primarily of the cost of raw materials used in the assembly of PulseVet instruments and trodes, the cost of TRUFORMA® instruments purchased, and consumables and the related warranties purchased. 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, professional fees, and corporate administrative and overhead costs, including rent and other facilities costs, amortization, and depreciation.

Income Taxes

As of December 31, 2021, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $28,178 and non-capital loss carryforwards for Canada of approximately $37,280, 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, our U.S. federal and state net operating loss carryfowards for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $20,976 of our U.S deferred tax assets, resulting in a remaining carryforward balance of $7,202.

In Canada, due to the uncertainty of realizing any tax benefits as of December 31, 2021, and June 30, 2022 we continue to fully value 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 currency

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.

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 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 3 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, and Revenue Recognition and Liabilities due 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, we utilized various forms of the income, cost and market approaches depending on the asset or liability being valued.

We used a discounted cash flow model to measure the trade names, customer relationship, and technology assets. The estimation of fair value required significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs were 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.

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 will 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

Our Diagnostics segment purchases instruments and places them in inventory. Instruments are removed from inventory and recorded as fixed assets when they are placed with our customers under the agreement that they will repeatedly purchase assays (tests) which are utilized in the instrument. Each instrument placed in the portfolio represents an asset that we own. An estimate is made of the anticipated future revenue over the 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 has 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 assays which will be sold, anticipated growth rates and placements of instruments. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.

The customer is obligated to purchase assays during the placement period. However, since the customer is not obligated to purchase the instrument, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the instrument and discontinues assay purchases.

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On June 30, 2022, the carrying value of our Diagnostic inventory was $3,218. A significant assumption included in the realization model is a placement rate of two instruments per month, per account manager.

The effect of a 50% reduction in the estimated annual placements of instruments would increase the payback period on June 30, 2022, by 0.43 years.

Changes to placement rates are not expected to decrease, nor do we expect that any decrease would be permanent.

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. 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, so the customer will always have a trode at 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, the estimated value of our Therapeutics customer contract liability was $313. 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.

Results of Consolidated Operations

Revenue

Revenue for the three months ended June 30, 2022 was $4,246, compared to $16 for the three months ended June 30, 2021, an increase of $4,230 or 26,438%. The increase was primarily due to the inclusion of our PulseVet platform which had revenues of $4,154 consisting of instruments, trodes, 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 inclusion of our PulseVet platform which had revenues 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%.

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 increase our sales and marketing of the PulseVet platform and as additional assays are added to our TRUFORMA® platform.

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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 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, 2022 was $319, compared to $271 for the three months ended June 30, 2021, an increase of $48 or 18%. The increase was primarily driven by an increase in contracted expenses for research fees and trials as we continue to develop and test our next generation of TRUFORMA® assays.

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 continue development of our additional assays.

Selling, General and Administrative

Selling, general, and administrative expense for the three months ended June 30, 2022 was $8,597, compared to $5,038 for the three months ended June 30, 2021, an increase of $3,559 or 71%. The increase was primarily driven by salaries and stock option expense associated with increased hiring campaigns and the inclusion of PulseVet headcount, PulseVet acquisition related intangible amortization, and an increase in consultant fees for market development, research, specific accounting, and internal control work.

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 salaries and stock option expense associated with increased hiring campaigns and the inclusion of PulseVet headcount, PulseVet acquisition related intangible amortization, increases 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.

Net Loss

Our net loss for the three months ended June 30, 2022 was $5,273 compared to a loss of $4,711 for the three months ended June 30, 2021, an increase of $562 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%.

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

    

June 30, 2022

    

June 30, 2021

    

Change

Cash used in operating activities

$

(6,517)

$

(4,376)

$

(2,141)

    

49%

Cash used in investing activities

 

(1,643)

 

(142)

$

(1,501)

 

1057%

Cash provided by financing activities

 

 

218,736

$

(218,736)

 

(100)%

Increase in cash and cash equivalents

 

(8,160)

 

214,218

$

(222,378)

 

(104)%

Effect of exchange rate changes on cash

 

(29)

 

$

(29)

 

NA

Cash and cash equivalents, beginning of period

 

194,952

 

61,992

$

132,960

 

214%

Cash and cash equivalents, end of period

$

186,763

$

276,210

$

(89,447)

 

(32)%

Operating Activities

Net cash used in operating activities for the six months ended June 30, 2022, was $6,517, compared to $4,376 for the six months ended June 30, 2021, an increase in cash used of $2,141, or 49%. 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 expenses and inventory purchases, offset in part by an increase in non-cash expenses including stock-based compensation expense and depreciation and amortization.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2022, was $1,643, compared to $142 for the six months ended June 30, 2021, an increase of $1,501, or 1,057%. Cash used in investing activities during the six months ended June 30, 2022 included an investment in a debt security (at fair value) of $1,000 and expenditures to improve our ecommerce, internal sales, and accounting programs as well as for leasehold improvements.

Financing Activities

Net cash provided by financing activities for the six 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 offering of our common shares, partially offset by stock issuance costs.

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, we had an accumulated deficit of $128,601.  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, the Company had cash and cash equivalents of $186,763 and working capital (defined as current assets minus current liabilities) of $190,152.

Short Term Cash Requirements

We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have 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 expect that we have sufficient cash to cover these requirements. We do not expect that PulseVet’s operations will require significant increases in our short-term cash needs.

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Long Term Cash Requirements

We believe that our existing cash resources will be sufficient to fund our expected operational requirements through at least December 2024. 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; 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.

Outstanding Share Data

The only class of outstanding voting equity securities of the Company are the common shares. As of August 15, 2022:

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 61,507,724 common shares
there are common share purchase warrants outstanding to acquire an aggregate of 197,917 common shares at an exercise price of $0.15 per share issued in February 2020.
there are common share purchase warrants outstanding to acquire an aggregate of 363,501 common shares at an exercise price of $0.15 per share issued in April 2020.
All of the currently outstanding warrants also 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 of the applicable warrants. 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 contained in the applicable warrants, which determines the number of common shares issuable by dividing the “in-the-money” value (based upon the then current market price, as provided in the applicable warrants) 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.

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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, 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 LLC

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 
No.

   

Description

2.1

Stock Purchase Agreement, dated October 1, 2021, by and between Zomedica Inc. and Branford PVT Mid-Hold, LLC (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 1, 2021 (File No. 001-38298))

2.2

Asset Purchase Agreement, dated June 14, 2022, by and between Zomedica Inc. Revo Squared LLC, the Principal Member (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 21, 2022 (File No. 001-38298))

3.1

Articles of Amalgamation of Zomedica Corp. and all amendments thereto, as well as all Certificates issued in respect thereto as well as all Certificates issued in respect thereto (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 12, 2021 (File No. 001-38298))

3.2

Amended and Restated By-Law No. 1 (2nd Version) of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on August 7, 2020 (File No. 001-38298))

10.1+

Consulting Agreement, effective March 1, 2022, by and between Zomedica Inc. and Johnny D. Powers (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed with the commission on May 10, 2022 (File No. 001-38298))

10.2

Consulting Agreement, effective June 17, 2022, by and between Zomedica Corp. and Dr. Stephanie Morley

10.3

Lease Agreement, effective April 1, 2022, by and between Zomedica Inc. and ULF Northfield Business Center

10.4

Note receivable agreement, effective May 16, 2022, by and between Zomedica, Inc. and Structured Monitoring Products, Inc.

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*

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.

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)

(1)These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.

* 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.

Zomedica Corp.

August 15, 2022

By:

/s/ Larry Heaton

Name:

Larry Heaton

Title:

Chief Executive Officer

August 15, 2022

By:

/s/ Ann Marie Cotter

Name:

Ann Marie Cotter

Title:

Chief Financial Officer

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