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

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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 March 31, 2022.

☐ 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 May 10, 2022, 979,899,668 shares of the registrant’s common shares, without par value, were issued and outstanding.

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ZOMEDICA CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 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	20
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	29
Item 4.	Controls and Procedures	29

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 6.	Exhibits	31

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PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Zomedica Corp.

Consolidated balance sheets

(Unaudited) (United States dollars in thousands)


	As of
	March 31,		December 31,
	2022		2021
Assets

Current assets
Cash and cash equivalents	$	192,337	$	194,952
Inventory, net		3,606		2,848
Prepaid expenses and deposits		1,696		1,842
Trade receivables, net		341		315
Other receivables		470		450
Total current assets		198,450		200,407

Prepaid expenses and deposits		410		394
Property and equipment, net		1,373		1,130
Assets in process		547		420
Right-of-use asset		1,218		1,320
Goodwill		43,288		43,288
Intangible assets, net		32,439		33,176
Other assets		265		265
Total assets	$	277,990		280,400

Liabilities and shareholders’ equity

Current liabilities
Accounts payable and accrued liabilities	$	3,109	$	3,225
Accrued income taxes		217		240
Current portion of lease obligations		422		415
Customer contract liabilities		148		198
Other current liabilities		222		262
Total current liabilities		4,118		4,340

Lease obligations		855		964
Deferred tax liabilities		3,430		3,709
Customer contract liabilities		155		140
Other liabilities		391		361
Total liabilities		8,949		9,514

Commitments and contingencies (Note 13)

Shareholders’ equity
Unlimited common shares, no par value; 979,899,668 issued and outstanding at March 31, 2022 and December 31, 2021		380,962	$	380,962
Additional paid-in capital		11,354		9,313
Accumulated deficit		(123,328)		(119,391)
Accumulated comprehensive income		53		2
Total shareholders' equity		269,041		270,886

Total liabilities and shareholders’ equity	$	277,990		280,400

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

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Zomedica Corp.

Consolidated statements of loss and comprehensive loss

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


	For the Three Months Ended March 31,
	2022		2021

Net revenue	$	3,751	$	14
Cost of revenue		990		6
Gross profit		2,761		8

Expenses
Research and development		351		412
Selling, general and administrative		6,724		3,468
Loss from operations		(4,314)		(3,872)
Interest income		(107)		(55)
Loss on disposal of assets		—		219
Other expense		1		—
Foreign exchange loss		7		1
Loss before income taxes		(4,215)		(4,037)
Income tax benefit		(278)		—
Net loss		(3,937)		(4,037)
Change in foreign currency translation		51		—
Net loss and comprehensive loss	$	(3,886)	$	(4,037)

Weighted average number of common shares - basic and diluted		979,899,668		890,245,654

Loss per share - basic and diluted (Note 15)		(0.004)	$	(0.04)

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

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Zomedica Corp.

Consolidated statements of shareholders’ equity

(Unaudited) (United States dollars in thousands)


	For the three months ended March 31, 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	—		—		—		2,041		—		—		2,041
Net loss	—		—		—		—		(3,937)		—		(3,937)
Other comprehensive income	—		—		—		—		—		51		51
Balance at March 31, 2022	979,899,668	$	380,962	$	—	$	11,354	$	(123,328)	$	53	$	269,041


	For the three months ended March 31, 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	$	104,783	$	460	$	14,792	$	(68,970)	$	—	$	51,065
Stock issuance for financing	105,013,158		199,525		—		—		—		—		199,525
Stock issuance costs	—		(14,281)		—		—		—		—		(14,281)
Stock-based compensation	—		—		—		1,283		—		—		1,283
Stock issuance from warrant exercises	200,323,821		43,944		(460)		(11,473)		—		—		32,011
Stock redemption	24,719,101		44,000		—		—		(32,039)		—		11,961
Net loss	—		—		—		—		(4,037)		—		(4,037)
Balance at March 31, 2021	972,092,308	$	377,971	$	—	$	4,602	$	(105,046)	$	—	$	277,527

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

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Zomedica Corp.

Condensed consolidated statements of cash flows

(Unaudited) (United States dollars in thousands)


	For the Three Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net loss	$	(3,937)	$	(4,037)
Adjustments for
Depreciation		82		59
Amortization - intangible assets		737		44
Loss on sale of property and equipment		—		243
(Gain) loss on right-of-use assets		—		(24)
Stock-based compensation		2,041		1,283
Non cash portion of rent expense		—		24
Change in non-cash operating working capital
Purchased inventory		(1,005)		(309)
Prepaid expenses and deposits		128		309
Trade receivables		(27)		(8)
Other receivables		(25)		(102)
Accounts payable and accrued liabilities		(118)		(120)
Accrued income tax		(23)		—
Deferred tax liabilities		(279)		—
Other current liabilities		(40)		—
Customer contract liabilities		(35)		—
Other liabilities		30		—
Net cash used in operating activities		(2,471)		(2,638)

Cash flows from investing activities:
Investment in property and equipment		(83)		(15)
Investment in intangibles		—		(3)
Investment in assets in process		(123)		—
Net cash used in investing activities		(206)		(18)

Cash flows from financing activities:
Cash proceeds from issuance of common shares and warrants		—		199,525
Cash received from warrant exercises		—		32,011
Cash paid for shares and warrant issuance costs		—		(14,270)
Net cash provided by financing activities		—		217,266

(Decrease) increase in cash and cash equivalents		(2,677)		214,610
Effect of exchange rate changes on cash		62		—
Cash and cash equivalents, beginning of year		194,952		61,992

Cash and cash equivalents, end of year	$	192,337	$	276,602

Noncash investing and financing activities
Transfer of inventory into property and equipment	$	246	$	—

Supplemental cash flow information:
Interest received	$	(90)	$	(24)

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

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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 has two reportable segments, consisting ofDiagnostics, which comprises the parent company and its U.S subsidiary and includes the TRUFORMA® products, and Therapeutics, which comprises 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.

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

The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in the World Health Organization declaring this virus a global pandemic in March 2020. Governments around the world have enacted emergency measures to combat the spread of the virus. These measures include the implementation of travel bans, self-imposed quarantine periods and social distancing. The closure of businesses has caused material disruption to businesses resulting in an economic slowdown. Governments and central banks have responded with significant monetary and fiscal interventions designed to stabilize the financial markets.

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 months ended March 31, 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

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

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 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

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

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 for $36 and $34, as of March 31, 2022 and December 31, 2021, respectively, which is recorded net in trade receivables.

For the period ending March 31, 2022, the Diagnostics segment reported $57 in revenue from consumables. The Therapeutics segment reported $1,590 in revenue from instruments, $1,952 from trodes, $73 from extended warranties and services, and $79 from other revenues.

For the period ending March 31, 2021, the Diagnostics segment report $14 in revenue from consumables.

Cost of revenue

Cost of goods sold 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 goods sold.

Comparative figures

Assets in process are separately stated in the current period balance sheet for $547. 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

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

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.

The Company’s 2021 consolidated operating results included revenues of $4,008 and net income of $454 since the date of acquisition.

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.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

5. Inventory

The detail of inventory is a follows:


	Diagnostics		Therapeutics		Consolidated

Raw Materials	$	—	$	888	$	888
Finished Goods		—		106		106
Purchased Inventory		2,640		—		2,640
Total		2,640		994		3,634

Reserves		(6)		(22)		(28)
Inventory, Net	$	2,634	$	972	$	3,606

6. Prepaid expenses, deposits and deferred financing costs


	March 31,		December 31,
	2022		2021
Deposits	$	1,582	$	1,340
Prepaid rent		9
Prepaid marketing		71		83
Prepaid insurance		296		599
Other		148		214
Total	$	2,106	$	2,236

7. Property and equipment


	March 31,		December 31,
	2022		2021

Machinery and office equipment	$	1,697	$	1,392
Furniture and equipment		110		110
Laboratory equipment		230		225
Leasehold improvements		287		287
		2,324		2,014

Accumulated depreciation and amortization		951		884
Net property and equipment	$	1,373	$	1,130

Depreciation expense for the three months ended March 31, 2022 and March 31, 2021 was $82 and $59, respectively.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

8. Intangible assets


	March 31,		December 31,
	2022		2021

Computer software	$	28	$	28
Trademarks		16		16
Website		546		546
Tradename		2,350		2,350
Customer relationships		22,650		22,650
Technology		8,650		8,650
		34,240		34,240

Accumulated amortization		1,801		1,064
Net intangibles	$	32,439	$	33,176

The estimated future amortization of intangible assets is as follows:


2022 Remainder	$	2,210
2023		2,773
2024		2,768
2025		2,761
2026 and beyond		21,927
Total	$	32,439

Amortization expense for the three months ended March 31, 2022 and March 31, 2021 was $737 and $44, respectively.

9. 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%.

During the three months ended March 31, 2022, the Company recognized $152 in rent expense with $16 recorded in research and development expenses and $136 recorded in general and administrative expense in the consolidated statements of comprehensive loss.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

During the three months ended March 31, 2021, the Company recognized $81 in rent expense with $19 recorded in research and development expenses and $62 recorded in general and administrative expense in the consolidated statements of comprehensive loss.


	March 31,		December 31,
	2022		2021
Right-of-use asset
Cost
Aggregate lease commitments	$	1,779	$	1,779
Less: impact of present value		(155)		(155)
Balance		1,624		1,624

Reduction in right-of-use asset
Straight line amortization		461		346
Interest		(55)		(42)
Balance		406		304

Net book value as at:
Balance	$	1,218	$	1,320

Lease liabilities

Additions	$	1,647	$	1,647
Payments		(425)		(310)
Interest		55		42
Total lease liabilities	$	1,277	$	1,379

Current portion of lease liabilities		422		415
Long term portion of lease liabilities		855		964
Total lease liabilities	$	1,277	$	1,379

Total remaining undiscounted lease liabilities related to the above lease are as follows:



2022 Remainder	$	347
2023		359
2024		490
2025		41
Total	$	1,237

10. Stock-based compensation

During the three months ended March 31, 2022, the Company issued 14,425,000 stock options to purchase an aggregate of 14,425,000 common shares. The options vest over a period of four years and have an expiration period of ten years. During the three months ended March 31, 2021, the Company issued 1,400,000 stock options to purchase an aggregate of 1,400,000 common shares. The options vest over a period of four years and have an expiration period of 10 years.

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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 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	14,425,000	$	0.35
Stock options exercised	—	$	—
Stock options forfeited	700,000	$	0.55
Vested stock options expired	6,810,000	$	0.22
Balance at March 31, 2022	57,632,724	$	0.45
Vested at March 31, 2022	13,621,349	$	0.34

As at March 31, 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	1,933,557	1,599,682	333,875	2.96
July 9, 2020	0.18	175,000	87,500	87,500	3.28
August 25, 2020	0.13	20,000	—	20,000	3.41
October 1, 2020	0.11	266,667	116,667	150,000	3.51
October 20, 2020	0.09	20,000	10,000	10,000	3.56
December 31, 2020	0.23	17,942,500	10,307,500	7,635,000	8.76
February 26, 2021	1.87	600,000	300,000	300,000	8.91
March 1, 2021	2.06	200,000	100,000	100,000	8.92
March 8, 2021	1.88	200,000	100,000	100,000	8.94
March 15, 2021	2.49	200,000	100,000	100,000	8.96
May 12, 2021	0.78	3,600,000	850,000	2,750,000	9.12
May 14, 2021	0.75	3,200,000	50,000	3,150,000	9.12
August 11, 2021	0.57	1,100,000	—	1,100,000	9.37
August 18, 2021	0.50	200,000	—	200,000	9.39
August 23, 2021	0.50	100,000	—	100,000	9.40
September 13, 2021	0.57	1,000,000	—	1,000,000	9.46
October 1, 2021	0.58	12,650,000	—	12,650,000	9.51
January 3, 2022	0.36	100,000	—	100,000	9.76
January 4, 2022	0.35	200,000	—	200,000	9.77
January 14, 2022	0.35	200,000	—	200,000	9.79
January 16, 2022	0.35	325,000	—	325,000	9.80
January 18, 2022	0.35	100,000	—	100,000	9.81
February 14, 2022	0.30	400,000	—	400,000	9.88
February 21, 2022	0.37	200,000	—	200,000	9.90
February 25, 2022	0.35	12,500,000	—	12,500,000	9.91
March 30, 2022	0.35	200,000	—	200,000	10.00
Balance at March 31, 2022		57,632,724	13,621,349	44,011,375

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.

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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 fair value of options granted during the three months ended March 31, 2022 and March 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	%

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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	%


Volatility	February 21,			February 25, 2021			March 30,
Risk-free interest rate	2022			2022			2022
Expected life (in years)		113	%		113	%		114	%
Dividend yield		1.89	%		1.91	%		2.43	%
Common share price		6.25			6.25			6.25
Strike price		0	%		0	%		0	%
Forfeiture rate	$	0.37		$	0.35		$	0.35
	$	0.37		$	0.35		$	0.35
		0	%		0	%		0	%

The Company recorded $2,041 and $1,283 of stock-based compensation for the three months ended March 31, 2022 and 2021, respectively. For the three months ended March 31, 2022 and 2021 there were no stock options exercised.

11. 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.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

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 have 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 have been exercised.

As at March 31, 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	2.87
April 9, 2020	0.15	363,501	3.02
May 29, 2020	0.15	120,000	0.16
July 7, 2020	0.16	231,000	0.27
Balance at March 31, 2022		912,418

12. Income taxes

The Company is an overall net deferred tax liability position as of March 31, 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.

13. 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 March 31, 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 March 31, 2022 and 2021.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

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

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.

14. 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	$	57	$	3,694	$	3,751
Operating (loss) income		(5,287)		974		(4,314)
Net interest income		107		-		107
(Loss) income before income taxes	$	(5,177)	$	962	$	(4,215)

Total assets	$	195,915	$	82,075	$	277,990
Depreciation and amortization		110	$	709	$	819
Capital expenditures	$	206	$	-	$	206


		March 31,		December 31,
		2022		2021

Canada	$	163,913	$	170,601
US		114,077		109,799
Total assets	$	277,990	$	280,400

Total US property and equipment	$	1,920	$	1,550
Total US right-of-use asset	$	1,218	$	1,320

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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. Loss per share


	For the Three Months Ended March 31,
	2022		2021
Numerator
Net loss for the period	$	(3,937)	$	(4,037)
Charge to retained earnings for preferred share exchange		-		(32,039)
Loss attributable to common shareholders		(3,937)		(36,076)

Denominator
Weighted average shares - basic		979,899,668		890,245,654
Stock options		—		—
Warrants		—		—
Denominator for diluted loss per share		979,899,668		890,245,654

Loss per share - basic and diluted	$	(0.004)	$	(0.04)

For the above-mentioned periods, the Company had 57,632,724 stock options and 912,418 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.

16. 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.

17. Subsequent events

On April 1, 2022, the Company entered into an agreement with ULF Northfield Business Center LLC to lease 61,500 square feet of office and warehouse space. The lease period is for 61 months beginning on April 30, 2022, with a monthly rent payment of $9 for the first twelve months and escalating to $11 per month over the lease period.

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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;

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●

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;

●

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; and

●

our status as a “passive foreign investment company” for U.S. federal income tax purposes.

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.

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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.

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.

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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 March 31, 2022 we continue to fully value our Canadian deferred tax assets.

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.

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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.

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

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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.

On March 31, 2022, the carrying value of our Diagnostic inventory was $2,634. A significant assumption included in the realization model is a placement rate of two instruments per month, per account manager.

The effect of a 10% reduction in the estimated annual placements of instrument would increase the payback period on March 31, 2022, by 0.12 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.

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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 March 31, 2022, the estimated value of our Therapeutics customer contract liability was $303. 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 $21.

Results of Consolidated Operations

Revenue

Revenue for the three months ended March 31, 2022, was $3,751 compared to $14 for the three months ended March 31, 2021, an increase of $3,737. Revenue in the current period primarily resulted from the inclusion of our PulseVet platform, which had revenues of $3,694, consisting of instruments, trodes and warranty services sold worldwide. Revenues from sales of cartridges from our TRUFORMA® platform were $57 for the three months ended March 31, 2022, compared to $14 for the three months ended March 31, 2021, an increase of $43, or 307%. We launched our TRUFORMA® platform in March 2021. In general, we expect revenue to increase in subsequent periods as we increase our sales and marketing of the PulseVet platform which we acquired on October 1, 2021, and as additional assays are added to our TRUFORMA® platform.

Cost of Revenue

Cost of revenue for the three months ended March 31, 2022, was $990 compared to $6 for the three months ended March 31, 2021, an increase of $984. Cost of revenue primarily resulted from costs associated with sales of our PulseVet platform which totaled $944, as well as $46 from costs associated with sales of our TRUFORMA® platform. We anticipate that costs of revenue will increase in 2022 as we increase revenue as described above.

Gross Profit

Gross profit for the three months ended March 31, 2022, was $2,761 compared to $8 for the three months ended March 31, 2021, an increase of $2,753. Gross profit margin for the quarter ended March 31, 2022, was approximately 74%, compared to 60% for the quarter ended March 31, 2021, an increase of 14%. The increase in gross profit 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; potential increases in 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 March 31, 2022 was $351 compared to $413 for the three months ended March 31, 2021, a decrease of $62, or 15%. 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.

Selling, General and Administrative

Selling, general and administrative expense for the three months ended March 31, 2022 was $6,722, compared to $3,468 for the three months ended March 31, 2021, an increase of $3,254, or 91%. The increase primarily was due to an increase in share-based compensation expense which was $2,041 for the three months ended March 31, 2022 compared to $1,283 for the comparable period in 2021 as a result of stock option grants made during the first quarter of 2022, as well as an increase in compensation expense of $1,373 due to additions to our sales force and management team and from the

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acquisition of PulseVet and amortization and depreciation of $693 associated with intangibles acquired as part of our acquisition of PulseVet.

Net Loss

Our net loss for the three months ended March 31, 2022 was $3,937 compared to a net loss of $4,037, for the three months ended March 31, 2021, a decrease of $100. 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

Three months ended March 31, 2022 compared to three months ended March 31, 2021

The following table shows a summary of our cash flows for the periods set forth below:


	Three months ended		Three months ended
	March 31, 2022		March 31, 2021		Change
Cash used in operating activities	$	(2,470)	$	(2,638)	$	168	(6.4)	%
Cash used in investing activities		(206)		(18)	$	(188)	1,043.7	%
Cash provided by financing activities		—		217,267	$	(217,267)	(100.0)	%
Increase in cash and cash equivalents		(2,676)		214,610	$	(217,286)	(101.2)	%
Effect of exchange rate changes on cash		62		—	$	62	NA
Cash and cash equivalents, beginning of period		194,952		61,992	$	132,961	214.5	%
Cash and cash equivalents, end of period	$	192,337	$	276,602	$	(84,265)	(30.5)	%

Operating Activities

Net cash used in operating activities for the three months ended March 31, 2022, was $2,471, compared to $2,638 for the three months ended March 31, 2021, a decrease in cash used of $168, or 6.4%. The decrease in cash used in operations primarily resulted from the decrease in our operating loss. Cash used in operations during the three months ended March 31, 2022 included inventory purchases of $2,003, and increases in working capital items of $388, offset in part by an increase in non-cash expenses including stock-based compensation of $2,041, and an increase in in other non-cash items.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2022 was $206, compared to cash used in investing activities of $18 for the three months ended March 31, 2021, an increase of $188, or 1,043.7%. The increase primarily resulted from the improvement of our ecommerce platform in the first quarter of 2022.

Financing Activities

Net cash from financing activities for the three months ended March 31, 2022, was zero, compared to $217,267 for the three months ended March 31, 2021, a decrease of $217,267, or 100%. Cash from financing activities in the first quarter of 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 March 31, 2022, we had an accumulated deficit of $123,328. 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.

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As of March 31, 2022, the Company had cash and cash equivalents of $192,337 and working capital (defined as current assets minus current liabilities) of $194,332.

Short Term Cash Requirements

We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have cash fixed 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.

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;

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the cost of marketing and selling our existing and future products including marketing, sales, service, customer support and distribution costs;

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the expenses needed to attract and retain skilled personnel;

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the costs associated with being a public company;

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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;

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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;

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the scope and terms of our business plans from time to time, and our ability to realize upon our business plans; and

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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 May 10, 2022:

●

there are 979,899,668 common shares issued and outstanding;

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●

there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 58,507,724 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.

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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.

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there are common share purchase warrants outstanding to acquire an aggregate of 120,000 common shares at an exercise price of $0.15 per share issued in May 2020.

●

there are common share purchase warrants outstanding to acquire an aggregate of 231,000 common shares at an exercise price of $0.16 per share issued in July 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.

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.

To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note 3 - Significant Accounting Policies to the consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

As a result of our international operations, we are exposed to foreign currency risks that arise from our normal business operations, including in connection with our transactions that are denominated in foreign currencies. In addition, we translate sales and financial results denominated in foreign currencies into U.S. dollars for purposes of our consolidated financial statements. As a result, appreciation of the U.S. dollar against these foreign currencies generally will have a negative impact on our reported revenue and operating income while depreciation of the U.S. dollar against these foreign currencies will generally have a positive effect on reported revenue and operating income.

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,

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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 March 31, 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.

There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.

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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))
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
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.

* Filed herewith.

** 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.

May 10, 2022	By:	/s/ Larry Heaton
	Name:	Larry Heaton
	Title:	Chief Executive Officer


May 10, 2022	By:	/s/ Ann Marie Cotter
	Name:	Ann Marie Cotter
	Title:	Chief Financial Officer