EDGAR 10-K Filing

Company CIK: 1684144
Filing Year: 2024
Filename: 1684144_10-K_2024_0001558370-24-004517.json

---

ITEM 1. BUSINESS
Item 1.
Business

---

ITEM 1A. RISK FACTORS
Item 1A.
Risk Factors

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.
Unresolved Staff Comments

---

ITEM 2. PROPERTIES
Item 2. Properties
Our corporate headquarters and research and development laboratory are in Ann Arbor, Michigan where we lease and occupy approximately 18,966 square feet pursuant to leases that expire January 31, 2025. With our recent acquisition of R&D and manufacturing facilities in Plymouth, Minnesota, we have closed the R&D portion of the Ann Arbor facility and are seeking to sublease that portion of the space.
Our primary manufacturing and distribution center is in Roswell, Georgia where we lease and occupy 18,400 square feet of 61,500 square feet building pursuant to a lease that expires on April 30, 2027.
Following the acquisition of Qorvo Biotech LLC, n/k/a Zomedica Biotech LLC, we assumed three leases for space in Plymouth, Minnesota totaling 36,103 square feet. The two primary spaces, totaling 29,938 square feet are leased through February 9, 2028, and we plan to continue occupying these two suites. The third suite, totaling 6,165 square feet, has a lease expiring January 31, 2024, which we will not be renewing.
Revo Squared operations and administrative activities were in Marietta, Georgia where we leased 4,626 square feet pursuant to a lease that expired on December 31, 2023. As we have relocated Revo Squared operations to our Roswell facility, we did not renew the lease.
Assisi product distribution and certain operations were in Carlstadt, New Jersey where we sub-lease 5,185 square feet pursuant to a license agreement that expires on November 30, 2026. As we have transitioned distribution from this location to Roswell, Georgia, we are seeking to sublet this space.

---

ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
None.

---

ITEM 4. MINE SAFETY DISCLOSURE
Item 4. Mine Safety Disclosures
Not applicable.
PART II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common shares commenced trading on the NYSE American on November 21, 2017 under the symbol “ZOM.”
Common Stock Information
As of April 1, 2024, there were 979,949,668 common shares outstanding held of record by approximately 150 holders.

---

ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the year ended December 31, 2023. In addition to historical information, this Annual Report on Form 10-K 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 law requirements (collectively, “forward-looking statements”) which are intended to be covered by the safe harbors created thereby. See “Cautionary Note Regarding Forward-Looking Statements” in this Annual Report on Form 10-K. Our actual results and the timing of events could differ materially from those discussed in our forward-looking statements as a result of many factors, including those set forth under the “Part I - Item 1A Risk Factors” section and elsewhere in this Annual Report on Form 10-K, as well as, in other reports and documents we file with the Securities and Exchange Commission from time to time. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this Annual Report on Form 10-K.
(All amounts are expressed in thousands unless otherwise indicated)
Overview
We are a veterinary health company creating and marketing products for companion animals by focusing on the unmet needs of clinical veterinarians. Our mission is to enrich the lives of the animals we love and the people that care for them by providing products and technologies that improve patient care and enhance the economic health of veterinary practices. Our product portfolio includes innovative diagnostics and therapeutic medical devices that emphasize patient health and enhancing practice economics.
We currently have five discrete platforms in our product portfolio:
Diagnostic Products
- our TRUFORMA® platform, comprising point-of-care diagnostic products for disease states in dogs, cats and horses, providing assays for use at the point-of-care that provide reference lab accuracy, thereby enabling practitioners to diagnose and treat diseases sooner;
- our TRUVIEW™ platform which consists of the TRUVIEW digital cystoscopy instrument providing microscopic images and related pathology services which enable practitioners to receive a Pathologist interpretation of the images;
- our VetGuardian® platform, which provides continuous wireless monitoring of pets’ vital signs and provides them remotely to veterinarian practice staff, along with alert messaging should the vital signs rise or fall out of range, to assist in rapidly diagnosing issues;
Therapeutic Device Products
- our world leading PulseVet® platform, which provides for non-invasive electro-hydraulic shock wave treatment for a wide variety of conditions in horses and small animals, including osteoarthritis, tendon and ligament healing, bone healing, chronic pain relief and wound healing, to promote healing and reduce the need for surgery and/or medication; and
- our Assisi Loop® platform including a series of products that use targeted Pulsed Electromagnetic Field (tPEMF) therapy to decrease pain and inflammation and accelerate healing or reduce anxiety.
We have focused our development and commercialization efforts on our TRUFORMA, TRUVIEW, VetGuardian, PulseVet, and Assisi Loop platforms. We believe this narrowed focus will enable us to capitalize on our core strengths and to accelerate the commercialization of these existing platforms.
For the foreseeable future, we expect to continue to incur losses, which we expect will begin to decrease from historical levels as we continue to rapidly grow our Therapeutic Device segment, continue the commercialization of our Diagnostic products, and expand our product development and sales and marketing activities.
For further information on the regulatory, business and product pipeline, please see the “Business” section of this Annual Report on Form 10-K. For further information on the risk factors, please see the “Risk Factors” section of this Annual Report on Form 10-K.
Revenue
Our revenue consisted of consumables sold in the U.S. and internationally associated with our Assisi® products; capital and consumables sold in the U.S and internationally associated with our PulseVet® platform; consumables sold in the U.S associated with our TRUFORMA® platform; subscriptions and services sold in the U.S. associated with our TRUVIEW™ products; and capital and service agreements sold in the U.S. associated with our VetGuardian® products.
Cost of Revenue
Cost of revenue consisted primarily of the cost of raw materials used in the assembly of: PulseVet capital and consumables: TRUFORMA capital and consumables; Assisi consumables; TRUVIEW capital and consumables; and VetGuardian capital and services. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue.
Operating Expenses
Our current operating expenses consist of three components - general and administrative expenses, research and development expenses, and selling and marketing expenses.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, wages, and overhead costs incurred to support our business as a publicly traded company. The functions involved include Accounting, Business Development, Finance, HR, Information Technology, Investor Relations, Legal, and portions of other functional areas. Included within these support costs are significant public company expenses such as stock exchange fees, annual meeting expenses, and audit, tax, Sarbanes-Oxley and other compliance costs.
Research and Development Expenses
Research and development expenses consist of salaries and related expenses for R&D personnel, fees paid to consultants and outside service providers, travel costs, and materials used in clinical trials and general research and development. These costs are primarily focused on leveraging our recent acquisition of Qorvo into new assay development for our TRUFORMA platform, expanding capabilities and usability within existing products, and exploring new market opportunities.
Selling and Marketing Expenses
Selling and marketing expenses consist of personnel costs (including salaries, related benefits, and stock-based compensation) and costs associated with sales and marketing activities (including conference and tradeshow attendance, sponsorships, and general advertising and promotional activities).
U.S. Taxes
As of December 31, 2023, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $10,993 and non-capital loss carryforwards for Canada of $9,581, 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. In 2021, we concluded that, due to the limitations under Section 382, our U.S. federal and state income tax net operating loss carryforwards, as well as R&D credit carryforwards, for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $3,814 of this asset, reducing the carryforward of these amounts to $7,179.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.
The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes
of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax, such as repurchases under $1 million.
Any redemption or other repurchase that occurs after December 31, 2023, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise; (ii) the structure of a business combination; (iii) the nature and amount of any equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination); and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury.
The IR Act also included a new 15% Corporate Alternative Minimum Tax (“CAMT”) that acts as a new book minimum tax of at least 15% of consolidated U.S. GAAP pre-tax income for corporations with average book income in excess of $1 billion. Any increase in our effective tax rate will depend on a number of factors, including any offsets for general business credits or changes in book income following business combinations. The CAMT is effective for tax years beginning on or after January 1, 2023. Lastly, the IR Act also creates several potentially beneficial tax credits to incentivize investments in certain technologies and industries.
We are in the process of evaluating the potential impacts of the IR Act. While we do not believe the IR Act will have a material negative impact on our business or our financial performance, the effects of the measures are unknown at this time. Our analysis is ongoing and incomplete, and it is possible that the IR Act could ultimately have a material adverse effect on our tax liability. We continue to monitor the IR Act and related regulatory developments to evaluate their potential impact on our business, tax rate and financial results.
Canadian Taxes
In Canada, due to the uncertainty of realizing any tax benefits as of December 31, 2023, we continue to record a full valuation allowance against 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 (earnings per share), is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain
circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
Comprehensive Loss
We follow FASB ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 included within this Annual Report on Form 10-K, management has identified the following as “Critical Accounting Policies and Estimates”: Intangible Assets and Business Combinations; Impairment Testing; Valuation and Payback of Property and Equipment; 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 fair values for recent business combinations, we utilize various forms of the income, cost, and market approaches depending on the asset or liability being valued.
We use a discounted cash flow model to measure the customer relationship, developed technology, license, trademark, and tradename assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and 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.
Impairment Testing
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.
We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies.
Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We do not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty.
The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value.
We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year 2023. As of October 1, 2023, our analysis of the PulseVet and Revo Squared reporting units indicated that their fair values exceeded their carrying amounts, including goodwill, by 6% and 26%, respectively. Our analysis of the Assisi reporting unit indicated that its respective fair value was below its carrying amount, including goodwill, by 54%. This was driven by slowed future sales growth projections and an increase in allocated operating expenses. As a result, a goodwill impairment charge of $12,195 was recorded as part of the Company’s 2023 annual goodwill impairment test.
The carrying values of goodwill for the PulseVet, Assisi, and Revo Squared reporting units at December 31, 2023 were $43.4 million, $2.3 million, and $6.1 million, respectively.
The implied fair value for each reporting unit was calculated on a standalone basis using a weighted combination of the income approach and market approach. The implied fair values of each reporting unit were added together along with our unallocated assets to get an indicated value of total equity. This indicated value was compared to the total market capitalization as of October 1, 2023. This implied a control premium of 47.1%. This control premium is in line with the control premiums observed in the last five years in the Medical, Dental, and Hospital Equipment and Supplies industry which have historically been significantly higher than the aggregate control premiums across all other industries. As a result, the market capitalization reconciliation analysis provided support for the reasonableness of the fair values estimated for each individual reporting unit.
Although the Company believes its estimates of fair value are reasonable, actual financial results could differ from those estimates due to the inherent uncertainty involved in making such estimates. Changes in assumptions concerning future financial results, an increase in the discount rate, or other underlying assumptions could have a significant impact on the fair value of the reporting units, and we could be required to record an impairment charge. Additionally, future declines in the overall market value of the Company’s equity may also result in a conclusion that the fair value of one or more reporting units has declined below its carrying value.
Valuation and Payback of Property and Equipment
Diagnostic based TRUFORMA® capital is placed in fixed assets once purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase consumables or services which are utilized within. Each instance of this placed capital represents an asset that we own. An estimate is made of the anticipated future revenue over its respective life which is ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the assets have been properly recorded, and no write-down is necessary. We rely on various data points and assumptions, including, but not limited to, the expected volume of consumables which will be sold, anticipated growth rates, and anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
The customer is obligated to purchase consumables during the placement period. However, since the customer is not obligated to purchase the capital, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the capital and discontinues consumable or related service purchases.
On December 31, 2023, the carrying value of our Diagnostic instruments was $10,214. Significant assumptions included in the realization model are the rate of placement and expected utilization over the life of the instrument.
The effect of a 25% reduction in the estimated revenues associated with annual placements of instruments would increase the payback period on December 31, 2023 from 3.04 years to 3.88 years.
Revenue Recognition and Liabilities Due to Customers
The nature of our Therapeutic Device business segment gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. 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, enabling the customer to always have a trode on 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 December 31, 2023, the estimated value of our Therapeutic Device customer contract liability was $528. If the expected return rate was increased by 2%, the effect on current year reduction in sales and customer liability would have been approximately $55.
Results of Consolidated Operations
Our results of operations for the years ended December 31, 2023 and 2022 are as follows:
Revenue
Revenue for the year ended December 31, 2023 was $25,186, compared to $18,930 for the year ended December 31, 2022, an increase of $6,256 or 33%.
The increase in sales was primarily due to growth of our existing PulseVet®, TRUFORMA®, and Assisi® products, an expanded menu of TRUFORMA assays, and the launch of our VetGuardian® and TRUVIEW™ products which were not part of our consolidated figures as of the year ended December 31, 2022. In general, we expect revenue to increase in subsequent periods as we increase our sales, marketing, and commercialization efforts.
Cost of Revenue
Cost of revenue for the year ended December 31, 2023 was $7,868, compared to $5,462 for the year ended December 31, 2022, an increase of $2,406 or 44%.
The increase in cost of revenue was primarily driven by increased manufacturing expense as a result of increased unit sales and rising input costs. We anticipate that costs of revenue will increase in subsequent periods in accordance with increased unit sales as described above.
Gross Profit
Gross profit margin for the year ended December 31, 2023 was 69%, compared to 71% for the year ended December 31, 2022.
The decrease in gross profit margin percentage was primarily due to the integration and launch of several new products, product mix impacts associated with sales of these new offerings, and price increases of certain component parts.
General and Administrative
General and administrative expense for the year ended December 31, 2023 was $29,029, compared to $22,934 for the year ended December 31, 2022, an increase of $6,095 or 27%.
The increase in general and administrative expenses was primarily driven by salaries and non-cash stock option expense, non-cash amortization related to our acquisitions, and recruiting and other related fees associated with creation of new departments and executive transitions. While we expect future general and administrative expense to increase, we expect it to decrease proportionally with sales and related product expansion.
Research and Development
Research and development expense for the year ended December 31, 2023 was $5,744, compared to $2,578 for the year ended December 31, 2022, an increase of $3,166 or 123%.
The increase in research and development expenses was primarily driven by the continued buildup of internal capabilities to develop, test, and manufacture our next generation of diagnostic products. We anticipate that R&D costs will increase as we maintain and enhance our current product lines and continue to develop new products.
Selling and Marketing
Selling and marketing expense for the year ended December 31, 2023 was $14,137, compared to $9,879 for the year ended December 31, 2022, an increase of $4,258 or 43%.
The increase in selling and marketing expenses was primarily driven by salaries, commissions, and non-cash stock option expense associated with increased hiring campaigns and increased marketing campaigns / attendance at tradeshows to build brand awareness and recognition of our expanding suite of products. We expect future selling and marketing expense to increase in line with product expansion and growth in our commercialization efforts.
Net Loss
Net loss for the year ended December 31, 2023 was $34,529, compared to a loss of $17,015 for the year ended December 31, 2022, an increase of $17,514 or 103%.
The increase in net loss was attributed to the matters described and the impact of impairment as described within. 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
The following table shows a summary of our cash flows for the periods set forth below:
For the Year Ended December 31,
Change
Cash used in operating activities
$
(15,975)
$
(11,670)
$
(4,305)
37%
Cash provided by (used in) investing activities
1,577
(155,880)
157,457
(101)%
Cash provided by financing activities
-
(8)
(100)%
(Decrease) increase in cash and cash equivalents
(14,398)
(167,542)
153,144
(91)%
Effect of exchange rate changes on cash
(49)
(11)
(38)
345%
Cash and cash equivalents, beginning of period
27,399
194,952
(167,553)
(86)%
Cash and cash equivalents, end of period
$
12,952
$
27,399
$
(14,447)
(53)%
Net cash used in operating activities for the year ended December 31, 2023 was $15,975, compared to $11,670 for the year ended December 31, 2022, an increase in cash used of $4,305 or 37%. The increase in cash used in operating activities primarily resulted from the losses noted above, the timing of payments made to vendors, non-cash impacts of accretion on currently held available-for-sale securities, and non-cash decreases in stock compensation, offset by the impact of impairment loss, payment and settlement of prepaids and deposits, and non-cash impacts of increases in depreciation and amortization as well as adjustments to deferred tax benefits.
Net cash provided by investing activities for the year ended December 31, 2023 was $1,577, compared to cash used of $155,880 for the year ended December 31, 2022, a decrease in cash used of $157,457. The decrease in cash used in investing activities primarily resulted from a significant reduction in spend on available for sale securities as compared to 2022 offset by the acquisition related buildup of construction in progress and intangibles.
There was no cash provided by financing activities for the year ended December 31, 2023 as compared to $8 for the year ended December 31, 2022
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our inception in May 2015. As of December 31, 2023, we had an accumulated deficit of $170,933. 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 December 31, 2023, the Company had working capital (defined as current assets minus current liabilities) of $90,850.
Short-Term Cash Requirements
We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have 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 we expect that we have sufficient cash to cover these requirements. We do not expect that our 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 for the foreseeable future. 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 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 April 1, 2024:
● 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 93,349,943 common shares;
● There are common share purchase warrants issued in February of 2020 that are outstanding and permit the holders to acquire an aggregate of 197,917 common shares at an exercise price of $0.1500 per share;
● There are common share purchase warrants issued in July of 2022 that are outstanding and permit the holders to acquire an aggregate of 363,501 common shares at an exercise price of $0.1500 per share;
● There are common share purchase warrants issued in July of 2022 that are outstanding and permit the holders to acquire an aggregate of 10,000,000 common shares at an exercise price of $0.2201 per share; and
● There are common share purchase warrants issued in July of 2022 that are outstanding and permit the holders to acquire an aggregate of 22,000,000 common shares at an exercise price of $0.2520 per share.
All currently outstanding warrants have a “cashless exercise” feature which is applicable in certain circumstances. The cashless exercise feature could result in the potential issuance of common shares based upon the “in-the-money” value of the applicable warrants at the time of exercise. The number of the common shares that may be issued is not determinable. However, the number of common shares that are issuable is based upon a formula that divides the “in-the-money” value by the then current market price and multiplying this result by the number of common shares that are issuable under the applicable warrants pursuant to cash exercise.
Recently Adopted Accounting Pronouncements
From time to time, the FASB or other standard setting bodies issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of an 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.
Climate Change
Increased public awareness and concern about climate change will likely continue to (1) generate more regional and/or national requirements to reduce greenhouse gas emissions; (2) increase energy efficiency and reduce carbon pollution; and (3) cause a shift to cleaner and more sustainable sources of energy which may be more expensive than using fossil fuels as an energy source.
The potential impact of climate change on our operations and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns, more intense storms and changing temperature levels. These changes could be severe and vary by geographic location. Climate change may also affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable.
The effects of climate change also may impact our decisions to construct new buildings or maintain existing facilities in any areas that are or become prone to physical risks, which could similarly increase our operating costs. We could also face indirect financial risks passed through the supply chain that could result in higher prices for resources, such as energy. Additionally, climate change may adversely impact the demand, price and availability of property and casualty insurance that insures our physical assets. Due to significant economic variability associated with future changing climate conditions, we are unable to predict the impact climate change will have on us in the future.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. Financial Statements and Supplementary Data
See pages through following the Exhibit Index of this Annual Report on Form 10-K.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None

---

ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of disclosure controls and procedures
We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Annual Report was made under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer.
Based upon this evaluation, our principal executive officer and principal financial and accounting officer have concluded that, as of December 31, 2023, our disclosure controls and procedures were not effective as of such date due to a material weakness in internal control over financial reporting, as described below.
Management's report on internal control over financial reporting
Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, misstatements due to error or fraud may not be prevented or detected on a timely basis.
Our management performed an assessment of the effectiveness of our internal control over financial reporting as of December 31, 2023, utilizing the criteria discussed in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective as of December 31, 2023. Based on management's assessment, we have concluded that our internal control over financial reporting was ineffective as of December 31, 2023, due to the material weakness described below.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As of December 31, 2023, there was a material weakness relating to the timeliness and precision of management's review controls around financial projections relevant to the evaluation of goodwill impairment relating to our Assisi product line.
Plan for remediation of the material weakness
The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management, with oversight from the Audit Committee of the Board of Directors, has begun developing a comprehensive plan to remediate the material weakness. Remediation efforts are focused on more rigorous policies and procedures and sufficiency of reviews of the projections included in the discounted cash flow model used in the Company’s evaluation of goodwill for impairment. These efforts will include development of a continuous process for monitoring, assessment and communication, as well as involvement of additional key stakeholders in reviews.
We will not be able to conclude whether these efforts will fully remediate the material weakness until the updated controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively.
Changes in internal control over financial reporting
Except as discussed above, there were no changes in internal control over financial reporting during the quarter ended December 31, 2023, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
With the acquisition of QBT, and as of December 31, 2023, the Company has retained approximately 40 employees who hold roles and responsibilities consistent with those of the employees within the Georgia manufacturing and distribution facility. The Company has integrated the QBT operations into its current ERP system, along with corresponding workflows, for internal control actions.

---

ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
Not applicable.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. Directors, Executive Officers and Corporate Governance
The information called for by this item will be set forth in our Proxy Statement for the 2024 Annual Meeting of Shareholders, (“Proxy Statement”), to be filed with the SEC within 120 days of the fiscal year ended December 31, 2023 and is incorporated herein by reference.

---

ITEM 11. EXECUTIVE COMPENSATION
Item 11. Executive Compensation
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. Principal Accounting Fees and Services
The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference.
PART IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. Exhibits, Financial Statement Schedules.
(a) The following documents are included in this Annual Report on Form 10-K
(1)-(2) Financial Statements
Index to Consolidated Financial Statements
Report of the Independent Registered Public Accounting Firm (Grant Thornton, PCAOB ID number 248)
Consolidated Balance Sheets as of December 31, 2023 and 2022
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2023 and 2022
Consolidated Statements of Cash Flows for the Years Ended December 31, 2023 and 2022
Notes to the Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
Zomedica Corp.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Zomedica Corp. (an Alberta, Canada corporation) (and subsidiaries) (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations and comprehensive loss, shareholders’ equity, and cash flows for each of the two years in the period ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit mattes or on the accounts or disclosures to which they relate.
Valuation of developed technology
As described further in Note 7 to the financial statements, on September 4, 2023, the Company acquired 100% of the capital stock of Structured Monitoring Products (SMP), Inc for $12.9 million in cash. As part of the acquisition, the Company acquired $9.4 million of developed technology. The Company used the Multi-Period Excess Earnings Method (“MPEEM”) to measure the developed technology. We identified the valuation of developed technology as a critical audit matter.
The principal consideration for our determination that the valuation of the developed technology is a critical audit matter is the high degree of auditor judgment necessary in evaluating certain inputs and assumptions made by management in the valuation model used to determine fair value. Those key assumptions include revenue growth rates, obsolescence factor and discount rates.
Our audit procedures related to the valuation of developed technology included the following, among others.
● We obtained an understanding of the design of relevant controls within the Company’s process to value acquired developed technology assets, including the Company’s control over the selection and review of the reasonableness of assumptions used in determining fair value.
● We evaluated the reasonableness of the Company’s forecasted revenue growth rates used to value developed technology by (1) comparing forecasted revenue growth rates to historical growth rates of the acquired entity and (2) comparing forecasted revenue growth rates to available industry and market data.
● We involved our valuation professionals with specialized skills and knowledge, to evaluate key inputs and assumptions used to determine fair value. Our valuation professionals compared the discount rate used to value the developed technology to independently developed discount rates derived from publicly available data for comparable companies and compared the obsolescence factor used to value the developed technology to obsolescence factors derived from publicly available data for comparable companies.
Goodwill impairment analysis
As described further in Note 4 to the financial statements, goodwill is evaluated for impairment at least annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. The Company performs a quantitative test to measure the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. The fair values are estimated using a discounted cash flow method, which includes significant assumptions such as financial projections of free cash flow, revenue trends, operating productivity, income taxes and capital levels. We identified goodwill impairment analysis as a critical audit matter.
The principal consideration for our determination that the goodwill impairment analysis is a critical audit matter is the high degree of auditor judgment necessary in evaluating certain inputs and assumptions made by management in the valuation models used to determine the fair value of the reporting units. Those key assumptions include forecasted revenue growth, operating income, and discount rates.
Our audit procedures related to the goodwill impairment analysis included the following, among others.
● We obtained an understanding of the design of relevant controls within the Company’s process to perform the goodwill impairment analysis, including the Company’s control over the selection and review of the reasonableness of assumptions used in determining fair value.
● We evaluated the reasonableness of the Company’s forecasted revenue growth, operating income and discount rates used by comparing these assumptions to historical operating results for the reporting units and relevant available industry and market data.
● We involved our valuation professionals with specialized skills and knowledge, to evaluate key inputs and assumptions used in the discounted cash flow models to determine fair value. Our valuation professionals compared the discount rates used to value the reporting units to independently developed discount rates derived from publicly available data and re-performed the discounted cash flow calculations.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2021.
Southfield, Michigan
April 1, 2024
Zomedica Corp.
Consolidated Balance Sheets
(United States Dollars in Thousands)
As of
December 31,
December 31,
Assets
Current assets
Cash and cash equivalents
$
12,952
$
27,399
Available-for-sale securities
77,545
87,693
Trade receivables, net
1,197
Inventory, net
5,123
2,746
Prepaid expenses and deposits
2,064
3,799
Other receivables
1,001
1,268
Total current assets
99,882
123,501
Prepaid expenses and deposits
Property and equipment, net
10,347
6,809
Construction in progress
12,481
Right-of-use asset
2,466
1,665
Goodwill
61,580
63,979
Intangible assets, net
55,364
41,799
Non current available-for-sale securities
10,005
40,712
Other assets
Total assets
$
253,197
$
279,610
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
$
7,668
$
6,698
Accrued income taxes
Current portion of lease obligations
Customer contract liabilities
Other current liabilities
Total current liabilities
9,032
7,811
Lease obligations
1,814
1,097
Deferred tax liabilities
1,138
1,245
Customer contract liabilities
Other liabilities
1,883
Total liabilities
$
13,180
$
12,218
Commitments and contingencies (Note 16)
Shareholders’ equity
Unlimited common shares, no par value; 979,949,668 issued and outstanding at December 31, 2023 and December 31, 2022
$
380,973
$
380,973
Additional paid-in capital
29,929
23,666
Accumulated deficit
(170,933)
(136,404)
Accumulated comprehensive income (loss)
(843)
Total shareholders' equity
240,017
267,392
Total liabilities and shareholders’ equity
$
253,197
$
279,610
The accompanying notes are an integral part of these consolidated financial statements.
Zomedica Corp.
Consolidated Statements of Operations and Comprehensive Loss
(United States Dollars in Thousands, Except for Per Share Data)
For the Year Ended December 31,
Net revenue
$
25,186
$
18,930
Cost of revenue
7,868
5,462
Gross profit
17,318
13,468
Expenses
General and administrative
29,029
22,934
Research and development
5,744
2,578
Selling and marketing
14,137
9,879
Loss from operations
(31,592)
(21,923)
Interest income
5,458
2,701
Interest expense
(175)
(1)
Gain on disposal of assets
Other income (loss)
2,080
(7)
Impairment expense
(11,683)
-
Foreign exchange gain (loss)
(152)
Loss before income taxes
(35,860)
(19,381)
Income tax benefit
(1,331)
(2,366)
Net loss
(34,529)
(17,015)
Unrealized gain (loss), change in fair value of available-for-sale securities, net of tax
(869)
Change in foreign currency translation
(45)
Net loss and comprehensive loss
$
(33,638)
$
(17,860)
Weighted average number of common shares - basic and diluted
979,949,668
979,949,668
Loss per share - basic and diluted (Note 18)
(0.035)
(0.017)
The accompanying notes are an integral part of these consolidated financial statements.
Zomedica Corp.
Consolidated Statements of Shareholders’ Equity
(United States Dollars in Thousands)
For the Year Ended December 31, 2023
Common
Additional
Accumulated
Common Stock
Stock
Paid-In
Accumulated
Comprehensive
Shares
Amount
Subscribed
Capital
Deficit
Income (Loss)
Total
Balance at December 31, 2021
979,899,668
$
380,962
$
-
$
9,313
$
(119,389)
$
$
270,888
Stock-based compensation
-
-
-
7,891
-
-
7,891
Stock issuance from warrant exercises
50,000
-
(3)
-
-
Warrants issued
-
-
-
6,465
-
-
6,465
Net loss
-
-
-
-
(17,015)
-
(17,015)
Other comprehensive loss
-
-
-
-
-
(845)
(845)
Balance at December 31, 2022
979,949,668
$
380,973
$
-
$
23,666
$
(136,404)
$
(843)
$
267,392
Stock-based compensation
-
-
-
6,263
-
-
6,263
Net loss
-
-
-
-
(34,529)
-
(34,529)
Other comprehensive income
-
-
-
-
-
Balance at December 31, 2023
979,949,668
$
380,973
$
-
$
29,929
$
(170,933)
$
$
240,017
The accompanying notes are an integral part of these consolidated financial statements.
Zomedica Corp.
Consolidated Statements of Cash Flows
(United States Dollars in Thousands)
For the Year Ended December 31,
Cash flows from operating activities:
Net loss
$
(34,529)
$
(17,015)
Adjustments for:
Depreciation
Amortization - intangible assets
5,468
3,616
Impairment loss
11,683
-
Loss (gain) on disposal of property and equipment
(24)
(1)
Gain on conversion of notes receivable
(2,174)
-
Stock-based compensation
6,263
7,891
Non cash portion of rent benefit
Accretion/amortization of available-for-sale securities
(2,209)
(900)
Deferred tax expense
(1,489)
(2,540)
Change in assets and liabilities, net of acquisitions:
Purchased inventory
(1,059)
(4,008)
Prepaid expenses and deposits
1,499
(1,465)
Trade receivables
(617)
(283)
Other receivables
(334)
Accounts payable and accrued liabilities
3,454
Accrued income tax
(125)
(53)
Deferred tax benefits
Other current liabilities
(184)
Customer contract liabilities
Other liabilities
(761)
(525)
Net cash used in operating activities
$
(15,975)
$
(11,670)
Cash flows from investing activities:
Proceeds on sale of (investment in) available-for-sale securities
$
42,775
$
(127,786)
Investment in debt security (at fair value)
(1,750)
(1,000)
Investment in property and equipment
(496)
(787)
Acquisition of intangibles
(4,150)
(239)
Investment in construction in progress
(10,843)
(1,764)
Investment in acquisitions, net of cash acquired (Assisi, Revo Squared, and SMP)
(23,959)
(24,304)
Net cash provided by (used in) investing activities
$
1,577
$
(155,880)
Cash flows from financing activities:
Cash received from warrant exercises
$
-
$
Net cash provided by financing activities
$
-
$
Decrease in cash and cash equivalents
$
(14,398)
$
(167,542)
Effect of exchange rate changes on cash
(49)
(11)
Cash and cash equivalents, beginning of year
27,399
194,952
Cash and cash equivalents, end of period
$
12,952
$
27,399
Noncash activities:
Change in fair value of available-for-sale securities, net of tax
$
$
(869)
Transfer of construction in progress into property and equipment and intangibles
$
3,494
$
1,955
Transfer of inventory into property and equipment
$
$
4,331
Supplemental cash flow information:
Interest received on available-for-sale securities
$
3,317
$
1,588
The accompanying notes are an integral part of these consolidated financial statements.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
1. Nature of Operations
Zomedica is a veterinary health company creating products for companion animals by focusing on the unmet needs of clinical veterinarians. The Company consists of the parent company, Zomedica Corp., its wholly owned U.S subsidiary, Zomedica Inc., and the wholly owned subsidiaries of Zomedica Inc. See Exhibit 21.1 for a listing of all subsidiaries.
2. Basis of Preparation
Principles of Consolidation
The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. Intercompany transactions and balances between consolidated businesses have been eliminated.
The accounting policies set out below have been applied consistently in the consolidated financial statements. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
3. Significant Accounting Policies
Basis of Measurement
The consolidated financial statements have been prepared on the historical cost basis except as otherwise noted.
Business Combinations
We account for business combinations in accordance with ASC 805, Business Combinations, if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired net assets and processes have the ability to create outputs in the form of revenue. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable net assets as goodwill.
Estimates and 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.
Functional and Reporting Currencies
The functional currency for Canada and our subsidiaries in the United States and Switzerland is U.S. dollars, which is also our reporting currency.
The functional currency, as determined by management, for our Japanese subsidiary is Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.
In respect of transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are remeasured at the period end rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Comparative Figures
A portion of depreciation expense for the year ended December 31, 2023 has been stated as part of cost of revenue for $498. The consolidated statements of income and comprehensive loss for the year ended December 31, 2022 have been adjusted for $184 for depreciation that was included in selling, general, and administrative expense. This amount has been reclassified to cost of revenue to conform to the current year presentation. The change in presentation had no effect on the reported results of operations and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
To better align with the way in which we measure and track our business, we have changed the categorization of products within our segmentation of revenue. A portion of the products in our Therapeutic Device segment were previously designated as instruments and trodes in our form 10K for the year ending December 31, 2022. These products have since been renamed to be capital and consumables to better align with our other platforms and to provide a more consistent baseline for comparison of the product lines within. Capital refers to the devices we sell within our PulseVet®, Revo Squared®, TRUVIEW™ and VetGuardian® product lines. Consumables continues to include our TRUFORMA® cartridges as it did last year and now includes our PulseVet trodes as well as our Assisi® products. There have been no changes to the overall sales numbers for our Diagnostics and Therapeutic Device segments, only the product names making up the total.
To provide further clarity on the way in which we present our operating expenses, we have broken up our SG&A spend into distinct and separate General and Administrative and Selling and Marketing line items on the consolidated statements of income and comprehensive loss for the year ended December 31, 2023. The consolidated statements of income and comprehensive loss for the year ended December 31, 2022 have been adjusted to conform to the current year presentation of operating expenses. The change in presentation had no effect on the reported results of operations and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
Recently Adopted Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments include: (a) introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker (“CODM”), (b) extend  certain annual disclosures to interim periods, (c) clarify single reportable segment entities must apply ASC 280 in its entirety, (d) permit more than one measure of segment profit or loss to be reported under certain conditions, and (e) require disclosure of the title and position of the CODM. This ASU is effective for public entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. This ASU standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This ASU is effective for public entities with fiscal years beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.
Segment Reporting
The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s reportable segments consist of Diagnostics and Therapeutic Devices.
Cash and Cash Equivalents
The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. As of December 31, 2023 and 2022, the Company's balances exceeded federally insured limits by approximately $1,308 and $6,345.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Investment Securities
Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC 320”). The Company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next twelve months, as available for sale. We classify these securities as both current and non-current depending on their time to maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of comprehensive loss.
Accounts Receivable and Allowance for Credit Losses
Accounts receivables are recorded net of an allowance for credit losses and have payment terms of 30 days. Our policy for determining the allowance is based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries, and credit losses; (b) the credit quality of our customers; and (c) projected economic and market conditions. For the years ended December 31, 2023 and 2022, our allowances were $103 and $71, respectively, and were recorded net in trade receivables. While we believe that our allowance for credit losses is adequate and represents our best estimate as of December 31, 2023, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to these estimates.
Inventories
Inventories are stated at the lower of cost or net realizable value. The Company utilizes the specific identification and First in, First out ("FIFO") method to track inventory costs. The Company records reserves, when necessary, to reduce the carrying value of inventory to its net realizable value. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.
Property and Equipment
Property and equipment are carried at historical cost less accumulated depreciation and any accumulated impairment losses. Property and equipment acquired in a business combination are recorded at fair value as of the date of acquisition. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred.
Depreciation is recognized so as to write off the cost less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.
An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.
Estimated useful lives for the principal asset categories are as follows:
Office equipment
3 years
Furniture and equipment
5-7 years
Laboratory equipment
5-7 years
Machinery and equipment
5-10 years
Leasehold improvements
Over shorter of estimated useful life and lease term
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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Costs related to acquired customer relationships, developed technology, licenses, trademarks, and tradenames have been capitalized and amortized over the estimated useful life. Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives and amortization methods are reviewed at the end of each year, with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.
E-commerce technology
years
Computer software and website
years
Non-compete agreements
years
Tradename
5-19
years
Developed technology
10-15
years
Customer relationships
11-19
years
Trademarks
years
Impairment of Long-Lived Assets
Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the sum of estimated undiscounted future cash flows associated with the asset or group of assets is less than its carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.
Revenue Recognition
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 Company also enters into contracts with customers where it receives payment for the consumable products and does not receive additional or separate consideration for the use of the point of care instrument furnished by the Company for the clinical veterinarian’s use. For these contracts, the Company considers the guidance under ASC 842 in order to determine if the furnishing of the point of care instrument to the customer during the period of use creates an embedded lease. If the point of care instrument is identified as a lease, it is classified as an operating lease as it does not meet any of the finance lease criteria per ASC 842. In these arrangements, the consumable products are classified as non-lease components. The Company allocates revenue to these lease and non-lease components based on standalone selling prices or, if not available, a cost-plus approach. Revenue related to the lease component is recognized ratably over the term of the contract. Revenue related to the non-lease components is recognized when control of the product has been transferred to the customer.
The nature of the Company’s PulseVet® business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue. Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends. These estimated credits are nonrefundable and may only be used towards the purchase of future trode refurbishments. This practice encourages refurbishment purchase prior to complete utilization of the previous trode, so the customer will always have a trode on hand with ample capacity to perform treatments.
At times, the Company receives consideration prior to when the performance obligation is completed, giving rise to a contract liability. Sales are recorded net of sales tax. Sales tax is charged on sales to end users and remitted to the appropriate state authority.
Disaggregated revenue for the years ended December 31, 2023 and 2022 is as follows:
For the Year Ended December 31,
Diagnostics
Therapeutic
Devices
Consolidated
Capital
$
$
-
$
8,179
$
7,338
$
8,788
$
7,338
Consumables
15,545
11,065
16,313
11,456
Other
-
-
Total revenue
$
1,377
$
$
23,809
$
18,539
$
25,186
$
18,930
Cost of Revenue
Cost of goods sold consists of overhead, materials, labor, shipping costs, and a portion of depreciation incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of revenue.
Research and Development
Research and development costs related to continued research and development programs are expensed as incurred.
Stock-based Compensation
The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.
The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, on a tax jurisdictional basis. The Company files income tax returns in Canada and the province of Alberta and its subsidiaries file income tax returns in Switzerland, Japan, the United States and various states within, including in Michigan where the Company’s headquarters are located.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The Company assesses the likelihood of the financial statement effect of an uncertain tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in the United States, Canada, Japan, and Switzerland. The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense.
Comprehensive Loss
The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive loss and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity. The Company has recorded a currency translation adjustment associated with the translation of its Japanese subsidiary to the reporting currency.
Loss Per Share
Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised, if the revision affects only that period, or in the period of the revision and further periods if the revision affects both current and future periods.
Critical areas of estimation and judgements in applying accounting policies include the following:
Intangible Assets and Business Combinations
Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair values. In determining these fair values, we utilize various forms of the income, cost, and market approaches depending on the asset or liability being valued.
We use a discounted cash flow model to measure the customer relationship, developed technology, license, trademark, and tradename assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and are supplemented by current and anticipated market conditions.
Impairment Testing
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.
We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies.
Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We do not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty.
The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value.
Valuation and Payback of Property and Equipment
Diagnostic based TRUFORMA® capital is placed in fixed assets once purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase consumables or services which are utilized within. Each instance of this placed capital represents an asset that we own. An estimate is made of the anticipated future revenue over its respective life which is ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the assets have been properly recorded, and no write-down is necessary. We rely on third-party data that considers various data points and assumptions, including, but not limited to, the expected volume of consumables which will be sold, anticipated growth rates, and anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
Revenue Recognition and Liabilities Due to Customers
The nature of the Company’s business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue. Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are estimated based upon historical experience and known trends. These estimated credits are 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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
5. Investment Securities
The following represents the Company’s investment securities for the years ended December 31, 2023 and 2022:
Balance at December 31, 2023
Acquisition
Cost
Accretion /
(Amortization)
Unrealized
Gain / (Loss)
Estimated
Fair Value
Commercial paper
$
15,681
$
$
$
15,986
Corporate notes / bonds
45,954
(75)
46,493
Money market funds
5,374
-
-
5,374
U.S. govt. agencies
18,076
(33)
18,165
U.S. treasuries
10,282
(36)
10,402
Total investment securities
$
95,367
$
1,177
$
(124)
$
96,420
Balance at December 31, 2022
Acquisition
Cost
Accretion /
(Amortization)
Unrealized
Gain / (Loss)
Estimated
Fair Value
Commercial paper
$
30,634
$
$
(139)
$
30,966
Corporate notes / bonds
44,115
(547)
43,760
Debt security
1,000
-
-
1,000
Money market funds
10,196
-
-
10,196
U.S. govt. agencies
46,223
(230)
46,078
U.S. treasuries
15,629
(145)
15,583
Total investment securities
$
147,797
$
$
(1,061)
$
147,583
Accretion / (amortization) refers to the discounts and premiums incurred on bonds and notes purchased and are included within interest income on our consolidated income statement.
Accrued interest receivable, related to the above investment securities, amounted to $586 and $677 for the years ended December 31, 2023 and 2022 and are included within Other Receivables on our consolidated balance sheets.
Contractual maturities of investment securities as of December 31, 2023 are as follows:
Acquisition
Cost
Estimated
Fair Value
Original maturities of 90 days or less
$
8,869
$
8,870
Original maturities of 91-365 days
76,567
77,545
Original maturities of 366+ days
9,931
10,005
Total investment securities
$
95,367
$
96,420
6. Fair Value Measurements
In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The Company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting.
ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:
Level 1:
Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Level 2:
Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.
Level 3:
Unobservable data points for the assets or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgement and the reporting entity’s own assumptions about market participants and pricing.
Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount of these assets approximate fair value due to the short maturity of these instruments. Cash and cash equivalents include marketable securities with an original maturity within 90 days.
Available-for-sale securities: The Company classifies marketable securities and other highly liquid investments, with a maturity of greater than three months and that can be readily purchased or sold using established markets, as available-for-sale. These investments are reported at fair value on the Company’s consolidated balance sheets and unrealized gains and losses are reported as a component of shareholders’ equity.
Earnout liability: The Company has reported the fair value of the earnout liability within other liabilities on the consolidated balance sheet. See footnote 7 for additional details.
In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of December 31, 2023 and December 31, 2022:
Balance at December 31, 2023
Level 1
Level 2
Level 3
Estimated
Fair Value
Commercial paper
$
-
$
15,986
$
-
$
15,986
Corporate notes / bonds
-
46,493
-
46,493
Money market funds
5,374
-
-
5,374
U.S. govt. agencies
18,165
-
-
18,165
U.S. treasuries
10,402
-
-
10,402
Total investment securities
$
33,941
$
62,479
$
-
$
96,420
Balance at December 31, 2022
Level 1
Level 2
Level 3
Estimated
Fair Value
Commercial paper
$
-
$
30,966
$
-
$
30,966
Corporate notes / bonds
-
43,760
-
43,760
Debt security
-
-
1,000
1,000
Money market funds
10,196
-
-
10,196
U.S. govt. agencies
46,078
-
-
46,078
U.S. treasuries
15,583
-
-
15,583
Total investment securities
$
71,857
$
74,726
$
1,000
$
147,583
The following table shows these same investments and their respective balance sheet classifications:
Balance at December 31, 2023
Cash &
Cash Equiv.
Available-
For-Sale
(Current)
Available-
For-Sale
(Non-Current)
Estimated
Fair Value
Commercial paper
$
-
$
15,986
$
-
$
15,986
Corporate notes / bonds
-
36,973
9,520
46,493
Money market funds
5,374
-
-
5,374
U.S. govt. agencies
-
17,680
18,165
U.S. treasuries
3,496
6,906
-
10,402
Total investment securities
$
8,870
$
77,545
$
10,005
$
96,420
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Balance at December 31, 2022
Cash &
Cash Equiv.
Available-
For-Sale
(Current)
Available-
For-Sale
(Non-Current)
Estimated
Fair Value
Commercial paper
$
-
$
30,966
$
-
$
30,966
Corporate notes / bonds
-
24,272
19,488
43,760
Debt security
-
-
1,000
1,000
Money market funds
10,196
-
-
10,196
U.S. govt. agencies
8,982
23,597
13,499
46,078
U.S. treasuries
-
8,858
6,725
15,583
Total investment securities
$
19,178
$
87,693
$
40,712
$
147,583
The credit ratings associated with our debt securities are mostly unchanged, are highly rated, and the debtors continue to make timely principal and interest payments. As a result, there were no credit or non-credit impairment charges recorded through December 31, 2023.
7. Business Combinations
All of the Company’s acquisitions of businesses have been accounted for under ASC 805, Business Combinations. Accordingly, the assets of the acquired companies reflect the fair values and have been included in the Company’s Condensed Financial Statements from their respective dates of acquisition. The results of operations of Revo Squared LLC, Assisi Animal Health, LLC, Structured Monitoring Products, Inc, and Qorvo Biotechnologies, LLC have been included in the Company’s Condensed Financial Statements since the dates of acquisition on June 14, 2022, July 15, 2022, September 4, 2023, and October 4, 2023 respectively.
2022 Acquisitions
Asset Purchase Agreement with Revo Squared LLC
On June 14, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Revo Squared LLC (“Revo Squared”) and its majority member pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Revo Squared. Revo Squared, based in Marietta, Georgia, was in the business of developing, manufacturing, marketing, distributing, and selling diagnostic imaging products and services for use in animal health, including its SuperView™, Sonoview™ Color ultrasound, Sonoview Mini/Mini Plus ultrasound, and Microview™ product offerings.
On July 1, 2022, the parties consummated the acquisition. At the closing, Zomedica Inc. paid Revo Squared a base purchase price of $6,011 in cash, which was subject to adjustments based on the amount of Revo Squared’s working capital at the closing. On this date, $500 of the purchase price was deposited into a third-party escrow account for a period of fifteen months to support Revo Squared’s indemnification obligation under the Purchase Agreement. No indemnification claims were made during this period resulting in the $500 being released from the escrow to the seller. The Company also issued to Revo Squared a ten-year warrant to purchase an aggregate of 10,000,000 of the Company’s common shares at a per share exercise price equal to $0.2201. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
In addition, Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments ranging from $0 to $4,000 based on the achievement of milestones related to future net sales from Revo Squared Products. One-time earn-out payments of $2,000 each will be payable upon net sales from Revo Squared Products exceeding $5,000 and $10,000 during any calendar year ending on or prior to December 31, 2027. The fair value of the earnout liability was adjusted from $2,000 to $572 at December 31, 2023. Fair value of the earnout was determined using Level 3 inputs.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $6,528 was recorded in connection with this acquisition, which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.
The Company finalized the allocation of the purchase price for Revo Squared as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The final allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:
Initial
Measurement
Allocation of
Period
Updated
Consideration
Adjustments
Allocation
Trade receivables, net
$
$
-
$
Prepaid expenses and deposits
-
Intangible Assets (estimated useful life)
Trade name (5 years)
-
Developed technology (10 years)
2,300
-
2,300
Customer relationships (16 years)
1,200
-
1,200
Total assets acquired
3,718
-
3,718
Earnout liabilities
2,458
(458)
2,000
Total liabilities assumed
2,458
(458)
2,000
Net assets acquired, excluding goodwill
1,260
1,718
Goodwill
6,528
(458)
6,070
Net assets acquired
$
7,788
$
-
$
7,788
Purchase price consideration was made up of the following:
Cash
$
6,011
Fair value of warrants
1,777
Total
$
7,788
Asset Purchase Agreement with Assisi Animal Health LLC
On July 15, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Assisi Animal Health LLC (“Assisi”), its wholly owned subsidiary, AAH Holdings LLC, and certain of Assisi’s members (collectively the “Seller”) pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets related to the Assisi® product lines. The Sellers were in the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines.
Zomedica Inc. paid Assisi a purchase price of $18,293 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. A portion of the purchase price ($1,400) was deposited into a third-party escrow account to support AAH Holdings LLC and certain of Assisi’s members’ indemnification obligation under the Purchase Agreement, of which $500 was released and $900 will be distributed to Assisi on the 18-month anniversary of the Closing Date, respectively, less the amount of prior or pending indemnification claims. The Company also issued to Assisi a ten-year warrant to purchase an aggregate of 22,000,000 of the Company’s common shares at a per share exercise price equal to $0.252. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $14,329 was recorded in connection with this acquisition, which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.
The Company finalized the allocation of the purchase price for Assisi as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The final allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows:
Initial
Measurement
Allocation of
Period
Updated
Consideration
Adjustments
Allocation
Inventory, net
$
$
-
$
Prepaid expenses and deposits
-
Other receivables
(206)
Right of use asset
-
Intangible Assets (estimated useful life)
E-commerce technology (2 years)
-
Trade name (5 years)
-
Developed technology (10 years)
4,500
-
4,500
Customer relationships (19 years)
2,800
-
2,800
Total assets acquired
8,697
8,751
Current portion of lease obligations
-
Non current portion of lease obligations
-
Other non current liabilities
-
Total liabilities assumed
Net assets acquired, excluding goodwill
8,652
(206)
8,446
Goodwill
14,329
14,535
Net assets acquired
$
22,981
$
-
$
22,981
Purchase price consideration was made up of the following:
Cash
$
18,293
Fair value of warrants
4,688
Total
$
22,981
2023 Acquisitions
Stock Purchase Agreement with Structured Monitoring Products, Inc.
On September 4, 2023, Zomedica Inc., a wholly owned subsidiary of Zomedica Corp. (the “Company”), entered into a Stock Purchase Agreement with Structured Monitoring Products, Inc. pursuant to which Zomedica Inc. acquired 100% of the capital stock of Structured Monitoring Products, Inc., a Florida corporation (“SMP”). SMP is the maker of VetGuardian®, a zero-touch vital signs remote monitoring system that improves the quality of care for pets during recovery from surgery and for those staying in clinic overnight. The system provides real-time remote monitoring of the pet’s vital signs with the ability to alert staff if the vital signs fall outside preset ranges (the “Acquisition”). The Acquisition was consummated on September 5, 2023.
In connection with the Acquisition, the Company converted $2,750 in convertible debt and accrued interest of $171 owed by SMP to the Company into equity totaling 28.7% outstanding equity of SMP, which has an implied value of $5,095 based upon the SMP’s enterprise value of $18,000. Zomedica paid a purchase price of $12,952 for the balance of 71.3% equity of SMP. The cash purchase price was funded through a $250 deposit previously paid to SMP and $12,702 of cash on hand. At closing, Zomedica deposited $1,295 into escrow, which will be released to the parties following the closing, based on any adjustments to the purchase price for net working capital, cash, indebtedness and transaction expenses of SMP.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $9,796 was recorded in connection with the Acquisition, none of which will be deductible for U.S tax purposes. The goodwill is mainly attributable
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
to skills and technical talent of SMP’s work force and the synergies expected to be achieved from integrating SMP into the Company’s existing business.
The previously held equity interests were remeasured to its fair value as of the acquisition date. The Company computed the fair value based upon the SMP’s enterprise value of $18,000 and the fair value of previously held 28.7% equity interests were determined to be $5,095. The Company recognized an amount of $2,174 as a gain on the fair valuation of Company’s previously held equity interest in SMP and is included in other income (loss) in the accompanying consolidated statements of operations and comprehensive loss for the period ended December 31, 2023.
The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:
Initial
Allocation of
Consideration
Cash and cash equivalents
$
Trade receivables, net(1)
Inventory, net
Other receivables
Intangible assets (estimated useful life)
Developed technology (10 years)
9,400
Non-competition agreement (3 years)
Total assets acquired
9,970
Accounts payable
Deferred tax liabilities
1,713
Total liabilities assumed
1,719
Net assets acquired, excluding goodwill
8,251
Goodwill
9,796
Net assets acquired
$
18,047
(1) The “trade receivables, net” comprise gross contractual amounts due of $11, of which no amounts were expected to be uncollectable at the date of acquisition.
The Company evaluated the disclosure requirements under ASC 805 and determined SMP was not considered a material business combination for purposes of disclosing the earnings of SMP since the date of acquisition and supplemental pro forma information.
Cash
$
12,702
Fair value of previously held interest
5,095
Prepaid deposits
Net assets acquired
$
18,047
Cash
$
12,702
Less: cash acquired
(42)
Investment in acquisitions, net of cash acquired
$
12,660
The determination of the final purchase price allocation to specific assets, primarily intangibles, is incomplete and may change in future periods.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
LLC Membership Interest Purchase Agreement for the Acquisition of Qorvo Biotechnologies, LLC
On October 4, 2023, Zomedica Inc., a wholly owned subsidiary of Zomedica Corp. (the “Company”), entered into an LLC Membership Interest Purchase Agreement with Qorvo US, Inc. (“Qorvo”) pursuant to which Zomedica Inc. acquired 100% of the membership interests of Qorvo Biotechnologies, LLC, a Delaware limited liability company (“QBT”) from Qorvo. QBT develops the TRUFORMA® Platform that utilizes innovative Bulk Acoustic Wave sensor technology to provide a non-optical and fluorescence free system for the detection of disease at the point of care (the “Acquisition”). The Acquisition was consummated on October 4, 2023.
Zomedica paid Qorvo a purchase price of $7,646, which comprised of cash of $11,300 and settlement of pre-existing relationship of $3,654. The cash purchase price was funded through the cash on hand.
The following table summarizes the fair value amounts of identifiable assets acquired and liabilities assumed at the acquisition date:
Initial
Allocation of
Consideration
Inventory, net
$
1,674
Other receivables
Property and equipment, net
6,495
Right-of-use asset
1,202
Other assets
Total assets acquired
9,442
Accounts payable and accrued liabilities
Current portion of lease obligations
Lease obligations
Total liabilities assumed
1,796
Net assets acquired, excluding goodwill
7,646
Net assets acquired
$
7,646
The Company incurred $499 thousand in acquisition costs that were expensed in the period incurred and are included in general and administrative expense in the accompanying consolidated statements of operations and comprehensive loss.
The Company evaluated the disclosure requirements under ASC 805 and determined QBT was not considered a material business combination for purposes of disclosing the earnings of QBT since the date of acquisition and supplemental pro forma information.
Purchase price consideration was made up of the following:
Cash
$
11,300
Settlement of pre-existing relationship(1)
(3,654)
Total
$
7,646
(1) The Company had entered into a Development and Manufacturing License Agreement with QBT on January 17, 2023 and the Company had an intangible asset and liability balance of $6,945 and $3,654, respectively as of the acquisition date related to this agreement. The effect of the pre-existing liability (i.e., $3,654) is included in the consideration transferred.
The determination of the final purchase price allocation to specific assets, primarily fixed assets, is incomplete and may change in future periods in the event that the intended uses of the assets change as we continue to deploy and integrate operations.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
8. Inventory
December 31, 2023
December 31, 2022
Diagnostics
Therapeutic
Devices
Consolidated
Diagnostics
Therapeutic
Devices
Consolidated
Raw materials
$
1,801
$
2,026
$
3,827
$
-
$
1,685
$
1,685
Finished goods
-
Purchased inventory
Total
2,273
2,899
5,172
2,647
2,786
Reserves
(49)
-
(49)
(18)
(22)
(40)
Net inventory
$
2,224
$
2,899
$
5,123
$
$
2,625
$
2,746
9. Prepaid Expenses and Deposits
December 31,
December 31,
Deposits
$
$
1,886
Prepaid marketing
Prepaid insurance
Prepaid taxes
-
Other
Total prepaid expenses and deposits
$
2,314
$
3,987
10. Property and Equipment
December 31,
December 31,
Machinery and office equipment
$
9,142
$
6,487
Furniture and equipment
Laboratory equipment
1,073
Leasehold improvements
1,953
1,239
12,392
8,086
Accumulated depreciation and amortization
2,045
1,277
Net property and equipment
$
10,347
$
6,809
Depreciation expense for the year ended December 31, 2023 and 2022 was $830 and $426, respectively.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
11. Goodwill and Intangible Assets
The following table provides a roll-forward of the carrying amount of goodwill by segment:
Diagnostics
Therapeutic
Devices
Total
Goodwill - December 31, 2021
$
-
$
43,288
$
43,288
Acquisitions
6,528
14,329
20,857
Adjustment to Purchase Price Allocations
(458)
(166)
Goodwill - December 31, 2022
$
6,070
$
57,909
$
63,979
Acquisitions
9,796
-
9,796
Impairment
-
(12,195)
(12,195)
Goodwill - December 31, 2023
$
15,866
$
45,714
$
61,580
The following table summarizes our intangible assets, net of accumulated amortization:
December 31,
December 31,
Computer software
$
1,741
$
Customer relationships
26,850
26,651
Licenses
8,042
-
Technology
25,050
15,650
Trademarks
Tradename
2,850
2,850
Website
65,511
46,479
Accumulated amortization
10,147
4,680
Net intangibles
$
55,364
$
41,799
Included within intangibles are $563 in licenses associated with future exclusivity to sell products should we determine that they have both market viability and are a complementary fit within our suite of offerings. As these relationships are still in the exploratory phase with no revenue stream to match expenses against nor a guarantee that this exclusivity will ever be used, we are considering these to be indefinite lived as of December 31, 2023. This accounts for the difference between the net intangibles as found within our consolidated balance sheets and the amortization table below. We will continue to assess the commercialization status and relationship with these companies on a quarterly basis and will adjust our amortization schedules accordingly.
The estimated future amortization of intangible assets is as follows:
$
6,265
6,100
5,635
5,408
2028 and beyond
31,393
Total
$
54,801
Amortization expense for the year ended December 31, 2023 and 2022 was $5,468 and $3,616, respectively.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
12. Leases
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 sixty-one months beginning on April 1, 2022, with a monthly rent payment of $9 for the first twelve months and escalating to $11 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $546 using an incremental borrowing rate of 3.95%. This lease is classified as an operating lease.
On July 1, 2022, as part of the Revo Squared Purchase, the Company assumed an agreement with Lebow 1031 Legacy, LLC to lease 4,626 square feet of office space. The remaining lease period assumed at the time of the agreement was for eighteen months beginning on July 1, 2022 and lasting through December of 2023. This lease, which was not extended, had a monthly rent payment of $4 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $67 using an incremental borrowing rate of 7.00%. This lease is classified as an operating lease.
On July 15, 2022, as part of the Assisi asset purchase agreement, the Company assumed a license agreement pursuant to a lease agreement between The Wheelership LLC and The Realty Associates Fund XII portfolio, L.P., whereby Assisi sublet 5,185 square feet of warehousing space. The remaining lease period assumed at the time of the agreement is for fifty-two months beginning on August 16, 2022 and lasts through November of 2026. The lease has a rent payment of $4 for the first month and escalates to $6 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $260 using an incremental borrowing rate of 7.00%. This lease is classified as an operating lease.
On May 10, 2023, the Company amended the lease agreement with ULF Northfield Business Center LLC to expand the lease by 6,000 square feet, to a total of 18,400 square feet, and extend the lease term from the date ending April 30, 2027 to sixty months after the earlier of the date on which the landlord delivers the expanded premises to the Company or December 1, 2023. The expanded premises were delivered to the Company on September 1, 2023, causing the rent to increase to $16 for the first month and escalating to $22 over the lease period. This lease is classified as an operating lease.
On October 4, 2023, Zomedica assumed the lease obligations of Qorvo Biotechnologies, LLC when it acquired the company from Qorvo US, Inc. These leases include 36,103 square feet in Plymouth, MN and 1,500 square feet in Waseca, MN. The remaining lease periods assumed at the time of the agreement ranges from one to fifty-three months beginning on November 1, 2023 and lasting through February of 2028. The leases have a monthly rent payment of $30 for the first month, dropping to $27 by the end of the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $1,223 using an incremental borrowing rate of 7.00%. This lease is classified as an operating lease.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
December 31,
December 31,
Right-of-use asset
Cost
Aggregate lease commitments
$
4,668
$
2,759
Less: impact of present value
(566)
(262)
Balance
$
4,102
$
2,497
Reduction in right-of-use asset
Straight line amortization
1,825
Interest
(189)
(114)
Balance
$
1,636
$
Net book value as at:
Balance
$
2,466
$
1,665
Lease liabilities
Additions
$
4,143
$
2,520
Payments
(1,602)
(896)
Interest
Total lease liabilities
$
2,730
$
1,738
Current portion of lease liabilities
Long term portion of lease liabilities
1,814
1,097
Total lease liabilities
$
2,730
$
1,738
Total remaining undiscounted liabilities related to the above leases are as follows:
$
1,069
Total lease payments
$
3,107
Less imputed interest
Total
$
2,730
Our weighted-average remaining lease terms and discount rates for the years ended December 31, 2023 and 2022 were as follows:
Year ended December 31,
Weighted-average remaining lease term
3.6 years
2.9 years
Weighted-average discount rate
6.4%
4.5%
Rent expense for the year ended December 31, 2023 and 2022 was $1,203 and $745, respectively.
13. Stock-Based Compensation
During the year ended December 31, 2023, the Company issued 14,655,000 stock options, each option entitling the holder to purchase one common share of the Company. The options vest over a period of four years and have an expiration period of ten years.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The continuity of stock options for the years ended December 31,2023 and 2022 are as follows:
Number of
Weighted Avg
Options
Exercise Price
Balance at December 31, 2022
84,112,443
$
0.3602
Stock options granted
14,655,000
0.2185
Stock options forfeited
4,352,500
0.3230
Vested stock options expired
1,065,000
0.8744
Balance at December 31, 2023
93,349,943
$
0.3338
Vested at December 31, 2023
40,508,274
$
0.3577
Number of
Weighted Avg
Options
Exercise Price
Balance at December 31, 2021
50,717,724
$
0.4466
Stock options granted
47,292,219
0.2692
Stock options forfeited
4,300,000
0.6108
Vested stock options expired
9,597,500
0.2601
Balance at December 31, 2022
84,112,443
$
0.3602
Vested at December 31, 2022
23,850,099
$
0.3698
As of December 31, 2023, details of the issued and outstanding stock options are as follows:
Grant Year
Weighted Avg.
Exercise Price
Number of Options
Issued
and Outstanding
Number of
Vested Options
Outstanding
Number of
Unvested Options
Outstanding
Weighted Avg.
Remaining Life
Outstanding
(Years)
0.22
17,047,724
16,522,724
525,000
6.47
0.65
19,850,000
10,950,000
8,900,000
7.62
0.27
42,617,219
13,035,550
29,581,669
8.57
0.22
13,835,000
-
13,835,000
9.52
Balance at December 31, 2023
93,349,943
40,508,274
52,841,669
The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
The fair value of options granted during the year ended December 31, 2023 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
Grant Year
Weighted Avg.
Volatility
Weighted Avg.
Risk-Free Int. Rate
Weighted Avg.
Expected Life
(In Years)
Weighted Avg.
Common Share Price
Weighted Avg.
Exercise Price
%
0.47
%
9.53
$
0.21
$
0.22
1.09
6.19
0.65
0.65
3.09
5.90
0.26
0.27
3.96
6.25
0.21
0.22
For the years ended December 31, 2023 and 2022, the Company recorded $6,263 and $7,891 of stock-based expense.
14. Warrants
The Company values warrants issued in equity placements using the Black Scholes model to allocate the fair value of the proceeds from equity financings using a relative fair value approach. Like other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes option pricing model including the expected life, and underlying share price volatility. Changes in these
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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 July 1, 2022 asset acquisition of Revo Squared, the Company issued a ten-year warrant to purchase 10,000,000 common shares at a per share exercise price equal to $0.2201. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder. As of December 31, 2023, no warrants have been exercised.
In connection with the July 15, 2022 asset acquisition of Assisi, the Company issued a ten-year warrant to purchase 22,000,000 common shares at a per share exercise price equal to $0.2520. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder. As of December 31, 2023, no warrants have been exercised.
As of December 31, 2023, details of the outstanding warrants were as follows:
Weighted
Average
Exercise
Warrants
Remaining
Original Issue date
Price
Outstanding
Life
February 14, 2020 (Series A)
0.1500
197,917
1.12
April 9, 2020 (Series B)
0.1500
363,501
1.27
May 29, 2020 (Series C)
0.1500
-
-
July 7, 2020 (Series D)
0.1600
-
-
July 1, 2022 (Revo Squared)
0.2201
10,000,000
8.51
July 15, 2022 (Assisi)
0.2520
22,000,000
8.55
Balance at December 31, 2023
32,561,418
Cumulative warrants exercised and expired as of December 31, 2023 were as follows:
Warrants
Warrants
Warrant Series
Exercised
Amount
Expired
Amount
February 14, 2020 (Series A)
21,677,084
$
4,293
-
$
-
April 9, 2020 (Series B)
17,969,833
2,695
-
-
May 29, 2020 (Series C)
133,213,333
19,982
120,000
July 7, 2020 (Series D)
187,269,000
29,963
231,000
July 1, 2022 (Revo Squared)
-
-
-
-
July 15, 2022 (Assisi)
-
-
-
-
Total
360,129,250
$
56,933
351,000
$
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
15. Income Taxes
A summary of the components of the provision for income taxes is as follows:
Year Ended December 31,
Current income tax expense:
Federal
$
-
$
-
State
-
-
Foreign
Total current expense
$
$
Deferred income tax expense (benefit):
Federal
$
(1,547)
(2,306)
State
(234)
Foreign
-
-
Total deferred expense
$
(1,489)
$
(2,540)
Total income tax expense
$
(1,331)
$
(2,366)
Income (loss) before income taxes:
United States
$
(36,954)
$
(7,435)
Foreign
1,094
(11,946)
Total income (loss) before income taxes
$
(35,860)
$
(19,381)
The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 23% to the effective tax rate is as follows:
Year Ended December 31,
Loss before income taxes
$
(35,860)
$
(19,381)
Expected income tax expense (recovery)
(8,248)
(4,458)
Difference in foreign tax rates
State taxes and other adjustments
(5)
Changes in stock based compensation
-
(1,177)
Foreign accrual property income
1,505
Stock based compensation and non-deductible expenses
1,183
Prior period adjustment
(255)
-
Change in valuation allowance
3,752
2,789
Total deferred income tax benefit
$
(1,331)
$
(2,366)
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The following table summarizes the components of deferred tax:
Year Ended December 31,
Deferred tax assets
Intangible assets - licenses
$
4,236
$
4,236
Share issuance costs
1,548
2,482
Reserves
1,050
Non-capital loss carried forward - Canada
9,581
10,668
Net operating losses carried forward - US
8,260
2,885
Investment tax credits
Lease liabilities
Stock-based compensation
3,246
3,067
Other
1,737
Total deferred tax assets
$
30,430
$
24,583
Deferred tax liabilities
Property and equipment
(1,878)
(491)
ROU assets
(558)
(80)
Intangibles
(5,702)
(6,272)
Other
(11)
-
Total deferred tax liabilities
$
(8,149)
$
(6,843)
Valuation allowance
23,419
18,985
Net deferred tax liability
$
(1,138)
$
(1,245)
No deferred tax asset has been recognized for Canada, as it is not more likely than not to be realized. Consequently, a valuation allowance has been applied against the net deferred tax asset. The Canadian non-capital loss carry forwards expire as noted in the table below.
$
1,246
1,558
1,706
2,215
1,579
Total
$
9,581
The Company’s US federal net-operating income tax losses expire as follows:
$
Indefinitely (subject to 80% limitation)
9,678
Derecognized under Section 382
(3,814)
Total
$
7,179
As of December 31, 2023, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $10,993 and noncapital loss carryforwards for Canada of $9,581, 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 noncapital loss carryforwards. In 2021, we concluded that, due to the limitations under Section 382, our U.S. federal and state income tax net operating loss carryforwards, as well as R&D credit carryforwards, for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $3,814 of this asset, reducing the carryforward of these amounts to $7,179.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
In prior years, there were no uncertain tax positions. In connection with the acquisition of PulseVet, as part of the BPA transaction completed in 2021, it was assessed that an uncertain tax position exists related to withholding taxes on royalties for approximately $265. An uncertain tax liability and an indemnification asset were recorded. It is the Company's policy to record interest within interest expense and penalties in non-operating income. Tax years subject to examination for US federal and state jurisdictions are generally years from 2020 and forward. Tax years subject to examination in Canada are from years 2019 and forward.
The Company is in an overall domestic net deferred tax liability position for the year ended December 31, 2023. Management has assessed that the future taxable income resulting from the deferred tax liability position will result in partial utilization of the Company's US federal and state net operating loss carryforwards and has therefore concluded a valuation allowance of $9,347 is currently necessary. Due to the uncertainty of realizing any tax benefits as of December 31, 2023 due to historical losses, a full valuation allowance remains necessary to fully offset our Canadian deferred tax assets.
16. Commitments and Contingencies
From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As of December 31, 2023, and continuing as of April 1, 2024, the Company is not aware of any pending or threatened material litigation claims against the Company.
On May 10, 2018, the Company entered into a Development, Commercialization and Exclusive Distribution Agreement. As part of the agreement, the Company is required to make the following future milestone payments:
● $3,500 in cash payments upon the achievement of future development milestones
● $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 each milestone event.
As of December 31, 2023, none of the future development milestones related to the above agreement have been met. The Company has assessed the probability of meeting the above milestones and has determined that an accrual is not necessary as of December 31, 2023 and December 31, 2022.
On January 17, 2023, the Company entered into a series of agreements with Qorvo Biotechnologies, LLC. Other than the obligation to purchase a minimum quantity of BAW sensors during the term of the BAW Sensor Supply Agreement, the obligations under these agreements were terminated upon the acquisition of Qorvo Biotechnologies, LLC on October 4, 2023.
17. Segmented Information
The Company’s operations are comprised of two reportable segments:
● Diagnostics, which consists of TRUFORMA®, VetGuardian®, and TRUVIEW™ products; and
● Therapeutic Devices, which consists of Assisi® and PulseVet® products.
The Company’s Chief Operating Decision Maker (CODM) is its Chief Executive Officer who has ultimate responsibility for enterprise decisions.
Although our reportable segments provide similar products, each one is managed separately to better align with the Company’s customers and distribution / development partners. The CODM determines resource allocation for, and monitors performance of, the consolidated enterprise, the Diagnostics segment, and the Therapeutic Devices segment together. The CODM relies on internal segment reporting that analyzes results on certain key performance indicators, namely, revenues and gross profit. Costs below gross profit are not allocated to the segments nor are asset groupings except for the purpose of periodic impairment analysis.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The following is a reconciliation of consolidated revenue, cost of revenue, and gross profit amongst our reportable segments as of December 31, 2023:
Diagnostics
Therapeutic
Devices
Consolidated
Net revenue
$
1,377
$
$
23,809
$
18,539
$
25,186
$
18,930
Cost of revenue
2,042
5,826
5,013
7,868
5,462
Gross (loss) profit
$
(665)
$
(58)
$
17,983
$
13,526
$
17,318
$
13,468
18. Loss Per Share
December 31,
December 31,
Numerator
Net loss for the period
$
(34,529)
$
(17,015)
Denominator
Weighted average shares - basic
979,949,668
979,949,668
Loss per share - basic and diluted
$
(0.035)
$
(0.017)
As of December 31, 2023, and 2022, the Company had stock options outstanding of 93,349,943 and 84,112,443 and warrants outstanding of 32,561,418 and 32,561,418. These securities could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would be anti-dilutive.
19. Subsequent Events
We have evaluated events and transactions occurring subsequent to the consolidated balance sheet date of December 31, 2023 for items that could potentially be recognized or disclosed in these financial statements. We did not identify any items which would require disclosure in or adjustment to the consolidated financial statements.
Exhibit
Number
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))
2.3
Asset Purchase Agreement, dated July 15, 2022, by and between Zomedica Inc. and Assisi Animal Health 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 July 20, 2022 (File No. 001-38298))
2.4
Stock Purchase Agreement dated September 4, 2023 by and between Zomedica Inc., the sellers party thereto, and SMP VG Holdco Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the Commission on September 6, 2023 (File No. 001-38298))
2.5
LLC Membership Interest Purchase Agreement dated October 4, 2023 by and between Zomedica Inc. and Qorvo US, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2023 (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 (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 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))
4.1
Description of Securities (incorporated by reference to Exhibit 4.1 to the Company’s Form 10-K filed with the Commission on February 26, 2020 (File No. 001-38298))
4.2
Form of Common Shares Purchase Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 13, 2020 (File No. 001-38298))
4.3
Form of Placement Agent Warrant issued in connection with February 2020 offering (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Commission on February 13, 2020 (File No. 001-38298))
4.4
Form of Series B Warrant (incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 8, 2020(File No. 001-38298))
4.5
Form of Placement Agent Warrant issued in connection with April 2020 offering (incorporated by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K filed with the Commission on April 8, 2020 (File No. 001-38298))
10.1+
Executive Employment Agreement, dated October 1, 2021, among Zomedica Inc., Zomedica Corp. and Larry Heaton (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on October 4, 2021 (File No. 001-38298))
10.2
Second Lease Amendment, effective September 15, 2021, by and between Zomedica Inc. and Wickfield Phoenix LLC (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on November 12, 2021 (File No. 001-38298))
10.3+
Amended and Restated Stock Option Plan (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on June 17, 2020 (File No. 001-38298))
10.4#
Development, Commercialization and Exclusive Distribution Agreement, dated May 10, 2018, by and between Seraph Biosciences, Inc. and Zomedica Corp. (incorporated by reference to Exhibit 10.24 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on August 19, 2018 (File No. 001-38298))
10.5***
Amended and Restated Exclusive License and Supply Agreement, dated January 17, 2020, by and between Celsee, Inc. and Zomedica Corp. (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K filed with the Commission on February 26, 2020 (File No. 001-38298))
10.6
Letter Agreement, dated March 31, 2020, by and between Zomedica Pharmaceuticals Corp. and Celsee, Inc. (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 31, 2020)
10.7
Consulting Agreement, effective June 17, 2022, by and between Zomedica Corp. and Dr. Stephanie Morley (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the commission on August 15, 2022 (File No. 001-38298))
10.8
Lease Agreement, effective April 1, 2022, by and between Zomedica Inc. and ULF Northfield Business Center (incorporated by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q filed with the commission on August 15, 2022 (File No. 001-38298))
10.9+
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))
10.10
Lease Agreement, effective July 1, 2022, by and between Zomedica Inc. and Lebow 1031 Legacy, LLC (incorporated by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q filed with the commission on November 14, 2022 (File No. 001-38298))
10.11
License Agreement, effective November 1, 2021, by and between The Wheelership LLC and Assisi Animal Health, as assumed by Zomedica Inc. effective July 15, 2022
Exhibit
Number
Description
10.12
Form of Indemnity
10.13**
Structured Monitoring Products, Inc. Distribution Agreement dated January 13, 2023 by and between Zomedica Inc. and Structured Monitoring Products, Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 20, 2023)
10.14***
BAW Sensor Supply Agreement by and among Qorvo Biotechnologies, LLC, Zomedica Inc. and Zomedica Corp. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on January 24, 2023 (File No. 001-38298))
10.15
First Amendment to Multi-Tenant Industrial Triple Net Lease entered into as of May 10, 2023 by and between ULF Northfield Business Center LLC and Zomedica Inc. (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on May 11, 2023 (File No. 001-38298))
10.16
First Amendment to BAW Supply Agreement dated October 4, 2023 by and among Qorvo Biotechnologies, LLC, Qorvo US, Inc., Zomedica Inc. and Zomedica Corp. (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on October 10, 2023 (File No. 001-38298))
10.17
Separation Agreement, dated March 16, 2023, among Zomedica Inc., Zomedica Corp., and Ann Cotter (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 17, 2023 (File No. 001-38298)
10.18+
Offer letter, dated March 14, 2023, among Zomedica Inc., Zomedica Corp., and Peter Donato (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on March 17, 2023 (File No. 001-38298)
10.19+**
Amendment to Executive Employment Agreement of Larry C. Heaton dated April 1, 2024
10.20+**
Amendment to Offer letter of Peter Donato dated April 1, 2024
21.1**
List of Subsidiaries
23.2**
Consent of Grant Thornton LLP
31.1*
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*
Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
97.1
Zomedica Inc. Clawback Policy
101.INS
Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.)
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1)
#
The registrant has received confidential treatment for certain portions of this exhibit.
+
Indicates management contract or compensatory plan.
*
Furnished herewith.
**
Filed herewith.
***
Certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed.