EDGAR 10-K Filing

Company CIK: 1684144
Filing Year: 2023
Filename: 1684144_10-K_2023_0001558370-23-003899.json

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ITEM 1. BUSINESS
Item 1.
Business

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

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

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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 feet pursuant to a lease that expires January 31, 2025.
Our global manufacturing and distribution center is located in Roswell, Georgia where we lease and occupy 61,500 square feet pursuant to a lease that expires on April 30, 2027.
Revo Squared operations and administrative activities were located in Marietta, Georgia where we lease and occupy 4,626 square feet pursuant to a lease that expires on December 31, 2023. As we have now relocated Revo Squared operations to our Roswell facility, we will be seeking to sublet this space.
Assisi product distribution and certain operations are located 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 transition distribution from this location to Roswell, Georgia, we will be seeking to sublet this space.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. Legal Proceedings
None

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

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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 March 15, 2023, there were 979,949,668 common shares outstanding held of record by approximately 150 holders.

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

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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, 2022. 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 and cats, providing assays for use at the point-of-care that provide reference lab accuracy, thereby enabling practitioners to diagnose and treat diseases sooner;
- our Revo Squared imaging platform, comprising diagnostic imaging products and services for use in animal health, including the TRUVIEW™ digital microscopy platform and the TRUSOUND™ ultrasound system; and
- the 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.
Therapeutic Products
- our world-leading PulseVet® platform, which provides for non-invasive electro-hydraulic shock wave treatment of a wide variety of conditions in horses and small animals, including osteoarthritis, tendon and ligament healing, bone healing, chronic pain relief and wound healing, to promote healing and reduce the need for surgery and/or medication; and
- our Assisi Loop® platform including a series of products that use targeted Pulsed Electromagnetic Field (tPEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety.
As a result of an internal strategic view, we have focused our development and commercialization efforts on our TRUFORMA, Revo Squared, 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 the commercialization of our TRUFORMA platform and recognize additional profits from the expansion of the Revo Squared, VetGuardian, PulseVet, and Assisi Loop products, our product development activities, and our sales and marketing activities.
Our results for the year ended December 31, 2022 include sales of Assisi® products from and after the asset acquisition in July of 2022. Consequently, results for the year ended December 31, 2022 are not necessarily comparable to the results expected in future periods.
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 instruments, cartridges, extended warranty services and miscellaneous activities sold in the U.S associated with our TRUFORMA platform; instruments, trodes and warranty services sold in the U.S and internationally associated with our PulseVet platform; and consumables sold in the U.S. and internationally associated with our Assisi products.
Cost of Revenue
Cost of revenue consisted primarily of the cost of raw materials used in the assembly of PulseVet instruments and trodes, the cost of TRUFORMA instruments purchased, the cost of Assisi parts purchased and related sub-components, and consumables and the related warranties purchased. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue.
Operating Expenses
The majority of our operating expenses have been for the selling, general and administrative activities related to general business activities, capital market activities, stock-based compensation, developing a commercial team and research and development activities related to our product development.
Research and Development Expense
All costs of research and development are expensed in the period in which they are incurred. Research and development costs primarily consist of salaries and related expenses for personnel, fees paid to consultants, outside service providers, professional services, travel costs and materials used in clinical trials and research and development.
Selling, General, and Administrative Expense
Selling, general, and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. These expenses also include costs associated with sales and marketing activities, professional fees, and corporate administrative and overhead costs, including rent and other facilities costs, amortization, and depreciation.
U.S. Taxes
As of December 31, 2022, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $32,456 and non-capital loss carryforwards for Canada of $46,384, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards. We concluded that, due to the limitations under Section 382 of the Code, our U.S. federal and state net operating loss carryforwards for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $21,013 of our U.S. deferred tax assets, resulting in a remaining carryforward balance of $11,443.
Inflation Reduction Act
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023.
The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax, such as repurchases under $1 million.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise; (ii) the structure of a business combination; (iii) the nature and amount of any equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination); and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury.
The IR Act also included a new 15% Corporate Alternative Minimum Tax (“CAMT”) that acts as a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. Any increase in our effective tax rate will depend on a number of factors, including any offsets for general business credits or changes in book income following business combinations. The CAMT is effective for tax years beginning on or after January 1, 2023. Lastly, the IR Act also creates several potentially beneficial tax credits to incentivize investments in certain technologies and industries.
We are in the process of evaluating the potential impacts of the IR Act. While we do not believe the IR Act will have a material negative impact on our business or our financial performance, the effects of the measures are unknown at this time. Our analysis is ongoing and incomplete, and it is possible that the IR Act could ultimately have a material adverse effect on our tax liability. We continue to monitor the IR Act and related regulatory developments to evaluate their potential impact on our business, tax rate and financial results.
Canadian Taxes
In Canada, due to the uncertainty of realizing any tax benefits as of December 31, 2022 we continue to fully value our Canadian deferred tax assets.
Translation of Foreign Currencies
The functional currency, as determined by management, for our subsidiaries in the United States, Switzerland, and Canada is the U.S. dollar, which is also our reporting currency.
The functional currency, as determined by management, for our Japanese subsidiary is the Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.
Stock-Based Compensation
We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted.
We calculate stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options. The risk-free rate assumed in valuing the options is based on the Canadian treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is zero as we are not expected to pay dividends in the foreseeable future.
Loss Per Share
Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
Comprehensive Loss
We follow 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 4 of the notes to our consolidated financial statements appearing elsewhere in 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 trade names, customer relationships, and technology 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 2022. As of October 1, 2022, our PulseVet, Assisi, and Revo Squared reporting units indicated that the fair value of each reporting unit exceeded its carrying amount, including goodwill, by 25%, 7%, and 51%, respectively. Accordingly, there were no goodwill impairment charges recorded as part of the Company’s 2022 annual goodwill impairment test.
The carrying value of goodwill for the PulseVet, Assisi, and Revo Squared reporting units at December 31, 2022 were $43.4 million, $14.3 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 3, 2022. This implied a control premium of 40.9%. 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. For example, assuming all other factors remain constant, a 100-basis point increase in the discount rate would have resulted in each reporting unit fair value exceeding its carrying value except for Assisi. 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
Our Diagnostics segment purchases instruments and places them in fixed assets, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase assays (tests) which are utilized in the instrument. Each instrument placed in the portfolio represents an asset that we own. An estimate is made of the anticipated future revenue over the life of the instrument, based on the sale of assays, which is typically ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the 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 assays which will be sold, anticipated growth rates and placements of instruments. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
The customer is obligated to purchase assays during the placement period. However, since the customer is not obligated to purchase the instrument, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the instrument and discontinues assay purchases.
On December 31, 2022, the carrying value of our Diagnostic instruments was $901. A significant assumption included in the realization model is a placement rate of four instruments per quarter, per account manager or inside sales representative.
The effect of a 25% reduction in the estimated revenues associated with annual placements of instruments would increase the payback period on December 31, 2022 from 4.40 years to 6.25 years.
Changes to placement rates are not expected to decrease, nor do we expect that any decrease would be permanent.
Revenue Recognition and Liabilities Due to Customers
The nature of our Therapeutics business segment gives rise to variable consideration, including discounts and applicator (“trode”) returns 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, 2022, the estimated value of our Therapeutics customer contract liability was $389. If the expected return rate was increased by 2%, the effect on current year reduction in sales and customer liability would have been approximately $22.
Results of Consolidated Operations
Our results of operations for the years ended December 31, 2022 and December 31, 2021 are as follows:
Revenue
Revenue for the year ended December 31, 2022 was $18,930, compared to $4,133 for the year ended December 31, 2021, an increase of $14,797 or 358%. The increase was primarily due to the inclusion of a full year of our PulseVet platform and our recently acquired Assisi products which had combined revenues of $18,539 consisting of consumables, instruments, trodes, and warranty services sold worldwide. Revenues from sales of cartridges from our TRUFORMA® platform were $391 compared to $125, an increase of $266 or 213%.
We launched our TRUFORMA platform in March of 2021, acquired Pulse Veterinary Technologies in October of 2021, acquired the assets of Revo Squared in June of 2022, and acquired the assets of Assisi Animal Health in July of 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, 2022 was $5,278, compared to $1,079 for the year ended December 31, 2021, an increase of $4,199 or 389%. Cost of revenue primarily resulted from costs associated with sales of our PulseVet platform and Assisi products which totaled $5,013, as well as $265 from costs associated with sales of our TRUFORMA® platform.
We anticipate that costs of revenue will increase in 2022 in accordance with the increased revenue as described above.
Gross Profit
Gross profit margin for the year ended December 31, 2022 was $13,652 or 72%, compared to $3,054 or 74% for the year ended December 31, 2021, an increase of $10,598.
The increase in gross profit resulted primarily from the inclusion of our PulseVet® and Assisi Loop® platforms. In general, we believe gross margins will remain relatively unchanged in percentage terms due to a variety of factors, including the ability to effectively stimulate demand for certain of our products; management of the cost of components and outside manufacturing services; our ability to manage warranty costs effectively; shifts in the mix of products and services, or in the geographic, currency or channel mix; and fluctuations in exchange rates.
Research and Development
Research and development expense for the year ended December 31, 2022 was $2,578, compared to $1,673 for the year ended December 31, 2021, an increase of $905 or 54%. The increase was primarily driven by an increase in contracted expenses for research fees and trials as we continue to develop and test our next generation of TRUFORMA assays.
We anticipate that R&D costs will increase as we maintain and enhance our current product lines and continue to develop new products.
Selling, General, and Administrative
Selling, general, and administrative expense for the year ended December 31, 2022 was $32,997, compared to $22,755 for the year ended December 31, 2021, an increase of $10,242 or 45%. The increase was primarily driven by salaries and (noncash) stock option expense associated with increased hiring campaigns, the inclusion of PulseVet, Revo Squared and Assisi headcount, acquisition-related intangible amortization, increases in office expense, travel and tradeshow attendance/sponsorships associated with a lifting of COVID restrictions, our introduction of new TRUFORMA® assays, and marketing of our new product lines.
We expect future selling, general and administrative expense to increase in line with product expansion and growth in our commercialization efforts.
Net Loss
Our net loss for the year ended December 31, 2022 was $17,015, compared to a loss of $18,384 for the year ended December 31, 2021, a decrease of $1,369 or 7%.
The net loss in each period was attributed to the matters described above. We expect to continue to record net losses in future periods until such time as we have sufficient revenue from product sales to offset our operating expenses.
Cash Flows
The following table shows a summary of our cash flows for the periods set forth below:
Year Ended
Year Ended
December 31, 2022
December 31, 2021
Change
Cash used in operating activities
$
(11,670)
$
(14,276)
$
2,606
(18)%
Cash used in investing activities
(155,880)
(71,925)
$
(83,955)
117%
Cash provided by financing activities
219,159
$
(219,151)
(100)%
(Decrease) increase in cash and cash equivalents
(167,542)
132,958
$
(300,500)
(226)%
Effect of exchange rate changes on cash
(11)
$
(13)
(650)%
Cash and cash equivalents, beginning of period
194,952
61,992
$
132,960
(215)%
Cash and cash equivalents, end of period
$
27,399
$
194,952
$
(167,553)
(86)%
Net cash used in operating activities for the year ended December 31, 2022 was $11,670, compared to $14,276 for the year ended December 31, 2021, a decrease in cash used of $2,606 or 18%. The decrease in cash used in operations primarily resulted from an increase in non-cash expenses including stock-based compensation expense, depreciation and amortization, and volume/headcount related accruals for unbilled inventory, salaries and wages, and sales and use tax.
Net cash used in investing activities for the year ended December 31, 2022 was $155,880, compared to $71,925 for the year ended December 31, 2021, an increase of $83,955 or 117%. The increase in cash used in investing activities primarily resulted from significant investments in available for sale securities, our acquisitions of Assisi and Revo Squared, leasehold improvements, and expenditures to improve our ecommerce, internal sales, and accounting programs.
Net cash provided by financing activities for the year ended December 31, 2022 was $8, compared to $219,159 for the year ended December 31, 2021, a decrease of $219,151 or approximately 100%. Cash provided by financing activities in 2021 primarily resulted from proceeds from the February 2021 public offering of our common shares, partially offset by stock issuance costs.
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our inception in May 2015. As of December 31, 2022, we had an accumulated deficit of $136,404. 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, 2022, the Company had working capital (defined as current assets minus current liabilities) of $115,690.
Short-Term Cash Requirements
We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have cash fixed obligations in association with our building leases and quarterly inventory orders. We also have payment obligations associated with our on-going clinical studies, and 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 through at least December 2025. We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. Ongoing business development activity may also require us to use some of our liquidity for an acquisition, and use of additional capital to fund newly acquired operations. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution, 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 March 15, 2023:
● there are 979,949,668 common shares issued and outstanding:
● there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 84,112,443 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
There is general consensus in the scientific community that greenhouse gas emissions are linked to climate change, and that these emissions must be reduced dramatically to avert its worst effects. As a result, increased public awareness and concern about climate change will likely continue to (1) generate more regional and/or national requirements to reduce greenhouse gas emissions; (2) increase energy efficiency and reduce carbon pollution; and (3) cause a shift to cleaner and more sustainable sources of energy which may be more expensive than using fossil fuels as an energy source.
The potential impact of climate change on our operations and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns, more intense storms and changing temperature levels. These changes could be severe and vary by geographic location. Climate change may also affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable.
The effects of climate change also may impact our decisions to construct new buildings or maintain existing facilities in any areas that are or become prone to physical risks, which could similarly increase our operating costs. We could also face indirect financial risks passed through the supply chain that could result in higher prices for resources, such as energy. Additionally, climate change may adversely impact the demand, price and availability of property and casualty insurance that insures our physical assets. Due to significant economic variability associated with future changing climate conditions, we are unable to predict the impact climate change will have on us in the future.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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.

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

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. Controls and Procedures
Evaluation of Our Disclosure Controls
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of December 31, 2022, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in “Internal Control - Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this Annual Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. Other Information
None

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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 2023 Annual Meeting of Shareholders, (“Proxy Statement”), to be filed with the SEC within 120 days of the fiscal year ended December 31, 2022 and is incorporated herein by reference.

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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.

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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.

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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.

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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

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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, 2022 and 2021
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021
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, 2022 and 2021, 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, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, 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 matters or on the accounts or disclosures to which they relate.
Valuation of developed technology, customer relationship intangible assets and earnout liability
As described further in Note 7 to the financial statements, on July 1, 2022, the Company acquired 100% of the assets of Revo Squared, LLC for $7.8 million in cash and equity. On July 15, 2022, the Company acquired 100% of the assets of Assisi Animal Health LLC for $23.0 million in cash and equity. As part of the acquisitions, the Company acquired $3.7 million and $7.8 million, respectively of intangible assets, including developed technologies, trade names, an e-commerce platform and customer relationships. The Company also entered into an earnout agreement associated with the Revo Squared acquisition initially valued at $2.5 million. The Company used a discounted cash flow model to measure the customer relationship intangible assets and earnout liability and a relief from royalty model to measure the technology, e-commerce platform and trade name acquired. We identified the valuation of developed technology, customer relationship intangible assets and earnout liability as a critical audit matter.
The principal consideration for our determination that the valuation of developed technology, customer relationship intangible assets and earnout liability 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 fair value. Those key assumptions include revenue growth rates, royalty rates, customer attrition rates, operating leverage, volatility and discount rates.
Our audit procedures related to the valuation of developed technology, customer relationship intangible assets and earnout liability included the following, among others.
● We obtained an understanding of the design of relevant controls within the Company’s process to value acquired intangible 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, customer relationship intangible assets and earnout liability by (1) comparing forecasted revenue growth rates to historical growth rates of the acquired entities 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 estimated annual customer attrition rate used to value the customer relationship intangible asset to historical customer retention data of the acquired company, compared the discount rate used to value the developed technology and customer relationship intangible assets to independently developed discount rates derived from publicly available data for comparable companies and compared the royalty rates used to value the developed technology to royalty rates derived from publicly available data for comparable companies and compared the volatility and operating leverage used to value the earnout liability to 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.
Cincinnati, Ohio
March 15, 2023
Zomedica Corp.
Consolidated Balance Sheets
(United States Dollars in Thousands)
As of
December 31,
December 31,
Assets
Current assets
Cash and cash equivalents
$
27,399
$
194,952
Available-for-sale securities
87,693
-
Trade receivables, net
Inventory, net
2,746
2,848
Prepaid expenses and deposits
3,799
1,842
Other receivables
1,268
Total current assets
123,501
200,407
Prepaid expenses and deposits
Property and equipment, net
6,809
1,130
Construction in progress
Right-of-use asset
1,665
1,320
Goodwill
63,979
43,288
Intangible assets, net
41,799
33,176
Non current available-for-sale securities
40,712
-
Other assets
Total assets
$
279,610
$
280,400
Liabilities and shareholders’ equity
Current liabilities
Accounts payable and accrued liabilities
$
6,698
$
3,225
Accrued income taxes
Current portion of lease obligations
Customer contract liabilities
Other current liabilities
Total current liabilities
7,811
4,340
Lease obligations
1,097
Deferred tax liabilities
1,245
3,709
Customer contract liabilities
Other liabilities
1,883
Total liabilities
$
12,218
$
9,512
Commitments and contingencies (Note 17)
Shareholders’ equity
Unlimited common shares, no par value; 979,949,668 and 979,899,668 issued and outstanding at December 31, 2022 and December 31, 2021
$
380,973
$
380,962
Additional paid-in capital
23,666
9,313
Accumulated deficit
(136,404)
(119,389)
Accumulated comprehensive income (loss)
(843)
Total shareholders' equity
267,392
270,888
Total liabilities and shareholders’ equity
$
279,610
$
280,400
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)
December 31,
December 31,
Net revenue
$
18,930
$
4,133
Cost of revenue
5,278
1,079
Gross profit
13,652
3,054
Expenses
Research and development
2,578
1,673
Selling, general and administrative
32,997
22,755
Loss from operations
(21,923)
(21,374)
Interest income
2,701
Interest expense
(1)
(6)
Gain (loss) on disposal of assets
(249)
Gain on extinguishment of debt
-
Other (loss) income
(7)
Foreign exchange loss
(152)
(30)
Loss before income taxes
(19,381)
(20,717)
Income tax benefit
2,366
2,333
Net loss
(17,015)
(18,384)
Unrealized losses, change in fair value of available-for-sale securities, net of tax
(869)
-
Change in foreign currency translation
Net loss and comprehensive loss
$
(17,860)
$
(18,382)
Weighted average number of common shares - basic and diluted
979,924,052
956,533,761
Loss per share - basic and diluted (Note 19)
(0.02)
(0.05)
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, 2022
Common
Additional
Accumulated
Common Stock
Stock
Paid-In
Accumulated
Comprehensive
Shares
Amount
Subscribed
Capital
Deficit
(Loss)
Total
Balance at December 31, 2020
642,036,228
$
104,784
$
$
14,792
$
(68,965)
$
-
$
51,071
Stock-based compensation
-
-
-
7,092
-
-
7,092
Stock issuance from warrant exercises
201,108,405
44,115
-
(11,520)
-
-
32,595
Stock issuance costs
-
(14,281)
-
-
-
-
(14,281)
Stock issuance for financing
105,013,158
199,525
-
-
-
-
199,525
Stock issuance from exercise of stock options
7,022,776
2,820
-
(1,051)
-
-
1,769
Stock redemption
24,719,101
43,999
-
-
(32,040)
-
11,959
Common stock subscribed
-
-
(460)
-
-
-
(460)
Net (loss)
-
-
-
-
(18,384)
-
(18,384)
Other comprehensive income (loss)
-
-
-
-
-
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 income (loss)
-
-
-
-
-
(845)
(845)
Balance at December 31, 2022
979,949,668
$
380,973
$
-
$
23,666
$
(136,404)
$
(843)
$
267,392
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
$
(17,015)
$
(18,384)
Adjustments for:
Depreciation
Amortization - intangible assets
3,616
(Gain) loss on disposal of property and equipment
(1)
Gain on other assets
-
(1)
Gain on extinguishment of debt
-
(533)
Stock-based compensation
7,891
7,092
Non cash portion of rent expense
Accretion/amortization of available-for-sale securities
(900)
-
Change in assets and liabilities, net of acquisitions:
Purchased inventory
(4,008)
(2,774)
Prepaid expenses and deposits
(1,465)
(130)
Trade receivables
(283)
(47)
Other receivables
(334)
(165)
Accounts payable and accrued liabilities
3,454
1,412
Accrued income tax
(53)
Deferred tax liabilities
(2,356)
(2,528)
Other current liabilities
(184)
Customer contract liabilities
Other liabilities
(525)
(47)
Net cash used in operating activities
(11,670)
(14,276)
Cash flows from investing activities:
Investment in available-for-sale securities
(127,786)
-
Investment in debt security (at fair value)
(1,000)
-
Investment in property and equipment
(787)
(147)
Acquisition of intangibles
(239)
(379)
Investment in construction in progress
(1,764)
-
Investment in acquisitions, net of cash acquired (Assisi, PulseVet, and Revo Squared)
(24,304)
(71,399)
Net cash used in investing activities
(155,880)
(71,925)
Cash flows from financing activities:
Cash proceeds from issuance of common shares and warrants
-
199,525
Cash received from warrant exercises
32,135
Cash paid for shares and warrant issuance costs
-
(14,270)
Cash received from stock option exercises
-
1,769
Net cash provided by financing activities
219,159
(Decrease) increase in cash and cash equivalents
(167,542)
132,958
Effect of exchange rate changes on cash
(11)
Cash and cash equivalents, beginning of year
194,952
61,992
Cash and cash equivalents, end of year
$
27,399
$
194,952
Noncash activities:
Change in fair value of available-for-sale securities, net of tax
$
(869)
$
-
Deferred financing fees charged to stock issuance costs
$
-
$
Net equity effect of preferred share exchange
$
-
$
(11,961)
Transfer of construction in progress into property and equipment and intangibles
$
1,955
$
-
Transfer of inventory into property and equipment
$
4,331
$
Supplemental cash flow information:
Interest received
$
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 and its wholly-owned U.S subsidiary, Zomedica Inc. and its international subsidiaries.
The impact of the novel strain of coronavirus (“COVID-19”)
Since the first quarter of 2020, the world has been impacted by the spread of a novel strain of coronavirus, its variants, and the disease that they cause known as COVID-19. The continued presence of COVID-19 has resulted in changes in the macro-economic environment including disruptions in supply chain, labor disruptions, challenges in manufacturing, challenges selling to customers, declines in customer demand, inflationary pressures, and an impaired ability to access credit and capital markets, among other things.
The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA platform and the initial five assays. In response to the pandemic, our development partner reduced the number of employees working in its facilities for a period of time which delayed the completion and verification of the five initial TRUFORMA assays and the manufacturing of commercial quantities of the TRUFORMA platform. Veterinary hospitals and clinics that agreed to participate in the validation of our initial TRUFORMA assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have mitigated to a certain extent with our recent ability to successfully complete remote installations. Potential customers, at times, restricted access to their facilities which affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities.
The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.
To-date, the emergence of new variants has not caused significant modification to business operations. We continue to install remotely if potential customers restrict access to their facilities. We intend to continue development of new assays, both for equine indications of our current and planned assays, and for various additional disease states affecting canine, feline, and equine patients in the future.
2. Basis of Preparation
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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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, as determined by management, for our subsidiaries in the United States, Switzerland, and Canada is U.S. dollars, which is also our reporting currency.
The functional currency, as determined by management, for our Japanese subsidiary is Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.
In respect of transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are remeasured at the period end rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations and comprehensive loss.
Comparative Figures
Construction in progress is separately stated in the current period balance sheet for $692. The consolidated balance sheets for the year ended December 31, 2021 have been adjusted for $420 of construction in progress that was included in intangible assets and property and equipment. This amount has been reclassified to a separate line in the balance sheet to conform to the current year presentation. The change in presentation had no effect on the reported results of operations. These changes in classification do not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
Recently Adopted Accounting Pronouncements
In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets held. The Company adopted ASU 2016-13 as of January 1, 2022 and there was no significant impact on its consolidated condensed financial statements and related disclosures as a result. The Company considered, among other things, historical trends and projected economic / market conditions and determined that the estimate of credit losses was not significantly impacted.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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, reporting of which began in 2021, consist of Diagnostics and Therapeutics.
Cash and Cash Equivalents
The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents.
Investment Securities
Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, “Investments - Debt and Equity Securities” (“ASC 320”). The company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next 12 months, as available for sale. We classify these securities as both current and non-current depending on their time to maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of shareholders’ equity.
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. As of December 31, 2022, our allowance was $71 and was recorded net in trade receivables. While we believe that our allowance for credit losses is adequate and represents our best estimate as of December 31, 2022, 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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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.
During the quarter ended September 30, 2022, the company changed its policy of recognizing TRUFORMA® instruments as inventory and reclassified $3,364 to property and equipment, depreciable over 10 years, where they are to remain undepreciated until they are placed with customers. As of the year ended December 31, 2022, the balance related to these undepreciated instruments in property and equipment is $3,487.
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.
Costs related to acquired trademarks, tradename, customer relationships and developed technology 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
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.
Share Issue Costs
Share issue costs are recorded as a reduction of the proceeds from the issuance of capital stock.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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 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. 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, 2022 and 2021 is as follows:
For the Year Ended December 31,
Diagnostics
Therapeutics
Consumables
$
$
$
2,072
$
-
Instruments
-
-
7,269
1,793
Trodes
-
-
8,681
2,073
Other (e.g., Warranty and Repairs)
-
-
Total revenue
$
$
$
18,539
$
4,008
Cost of Revenue
Cost of goods sold consists of materials, labor, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of revenue.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Research and Development
Research and development costs related to continued research and development programs are expensed as incurred.
Stock-based Compensation
The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by the Company cannot be reliably estimated.
The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.
The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Income Taxes, on a tax jurisdictional basis. The Company files income tax returns in Canada and the province of Alberta and its subsidiaries file income tax returns in the United States and various states, including in Michigan where the Company’s headquarters are located.
Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.
The Company assesses the likelihood of the financial statement effect of an uncertain tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in jurisdictions such as the United States and Canada. The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense.
Comprehensive Loss
The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity. The Company has recorded a currency translation adjustment associated with its Japanese subsidiary.
Loss Per Share
Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The dilutive effect of stock options is determined using the treasury stock method. Stock options to purchase common shares of the Company during fiscal 2022 and 2021 were not included in the computation of diluted EPS because the Company has incurred a loss for the years ended December 31, 2022 and 2021 and the effect would be anti-dilutive.
4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty
The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
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 trade names, customer relationship, and technology assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and are supplemented by current and anticipated market conditions.
Impairment Testing
We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.
We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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
Our Diagnostics segment purchases instruments and places them in fixed assets, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase assays (tests) which are utilized in the instrument. Each instrument placed in the portfolio represents an asset that we own. An estimate is made of the anticipated future revenue over the life of the instrument, based on the sale of assays, which is typically ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the 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 assays which will be sold, anticipated growth rates and placements of instruments. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.
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 as of December 31, 2022 (in thousands):
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 $677 and is included within Other Receivables on our consolidated balance sheet.
Contractual maturities of investment securities as of December 31, 2022 are as follows (in thousands):
Acquisition
Cost
Estimated
Fair Value
Original maturities of 90 days or less
$
19,127
$
19,178
Original maturities of 91-365 days
87,528
87,693
Original maturities of 366+ days
41,142
40,712
Total investment securities
$
147,797
$
147,583
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.
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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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.
Included within these available-for-sale securities is a $1M convertible note associated with Structured Monitoring Products, Inc.’s (“SMP”) VetGuardian™ line. There were no unrealized gains or losses recorded and no other than temporary impairments recognized as of December 31, 2022.
In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of 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:
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
Unrealized losses on our investments have not been recorded into income as we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that have resulted in higher credit spreads. The 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, 2022
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
7. Business Combinations
All of the Company’s acquisitions of business 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 Pulse Veterinary Technologies, LLC, Revo Squared LLC, and Assisi Animal Health, LLC have been included in the Company’s Condensed Financial Statements since the dates of acquisition on October 1, 2021, June 14, 2022, and July 15, 2022, respectively.
2022 Acquisitions
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 pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Assisi. The Sellers are in the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines.
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 made a preliminary allocation of the purchase price for Assisi Animal Health LLC’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:
Initial
Measurement
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
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.
The following table provides unaudited proforma financial information, prepared in accordance with Topic 805, for the years ended December 31, 2022 and 2021, as if Assisi had been acquired as of January 1, 2021. Proforma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.
For the Year Ended December 31,
Net Revenue
$
21,838
$
8,841
Net Losses
$
(18,038)
$
(18,822)
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The proforma amounts have been calculated by including the results of Assisi, and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on January 1, 2021, together with the consequential tax effects thereon:
For the Year Ended December 31,
Adjustments to net revenues
Assisi preacquisition revenues
$
2,908
$
4,708
Adjustments to net income
Assisi preacquisition net losses
$
(639)
$
(438)
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 15 months to support Revo Squared’s indemnification obligation under the Purchase Agreement. The Company also issued to Revo Squared a ten-year warrant to purchase an aggregate of 10,000,000 of the Company’s common shares at a per share exercise price equal to $0.2201. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.
In addition, Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments of up to $4,000 based on the achievement of milestones related to future net sales from Revo Squared Products. One-time earn-out payments of $2,000 each will be payable upon net sales from Revo Squared Products exceeding $5,000 and $10,000 during any calendar year ending on or prior to December 31, 2027. The fair value of the earnout liability was adjusted from $2,000 to $1,500 at December 31, 2022. Fair value of the earnout was determined using Level 3 inputs.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $6,528 was recorded in connection with this acquisition, which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.
The Company made a preliminary allocation of the purchase price for Revo Squared’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:
Initial
Measurement
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
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.
2021 Acquisitions
Acquisition of PulseVet
On October 1, 2021, Zomedica Inc., a wholly owned subsidiary of Zomedica Corp. (the “Company”), entered into a Stock Purchase Agreement with Branford PVT Mid-Hold, LLC pursuant to which Zomedica Inc. acquired 100% of the capital stock of Branford PVT Acquiror, Inc., a Delaware corporation (“BPA”). BPA was a holding company whose direct and indirect wholly owned subsidiaries included Pulse Veterinary Technologies, LLC (“PulseVet”), which, together with its consolidated subsidiaries, was a leading provider of noninvasive shock wave therapy treatment devices to the veterinary industry (the “Acquisition”). BPA and PulseVet were merged into Zomedica Inc. on July 1, 2022. The purchase price for the acquisition was $71,929 in cash.
As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $44,915 was recorded in connection with this acquisition, none of which will be deductible for U.S tax purposes. The goodwill largely results from our ability to market and sell the PulseVet Technology through our established customer base.
The Company finalized the allocation of the purchase price for PulseVet 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
Cash and cash equivalents
$
$
$
Trade receivables
-
Inventory
Prepaid expenses and deposits
-
Other receivables
-
Property and equipment
-
Intangible Assets (estimated useful life)
Customer relationships (11 years)
22,650
-
22,650
Developed technology (15 years)
8,650
-
8,650
Trade name (19 years)
2,350
-
2,350
Other Assets
Total assets acquired
35,844
36,293
Accounts payable and accrued liabilities
1,112
(543)
Income tax payable
-
Deferred revenue
-
Liability for contracts with customers
-
Deferred tax liabilities
7,138
(814)
6,324
Other non current liabilities
Total liabilities assumed
8,830
(1,092)
7,738
Net assets acquired, excluding goodwill
27,014
1,541
28,555
Goodwill
44,915
(1,541)
43,374
Net assets acquired
$
71,929
$
-
$
71,929
8. Inventory
Inventory details are as follows:
December 31, 2022
December 31, 2021
Diagnostics
Therapeutics
Consolidated
Diagnostics
Therapeutics
Consolidated
Raw Materials
$
-
$
1,685
$
1,685
$
-
$
$
Finished Goods
-
-
Purchased Inventory
-
1,848
-
1,848
Total
1,867
2,786
1,848
1,030
2,878
Reserves
(18)
(22)
(40)
(9)
(21)
(30)
Net inventory
$
$
1,845
$
2,746
$
1,839
$
1,009
$
2,848
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
9. Prepaid Expenses and Deposits
December 31,
December 31,
Deposits
$
1,886
$
1,340
Prepaid marketing
Prepaid insurance
Prepaid taxes
-
Other
Total prepaid expenses and deposits
$
3,987
$
2,236
10. Property and Equipment
December 31,
December 31,
Machinery and office equipment
$
6,487
$
1,392
Furniture and equipment
Laboratory equipment
Leasehold improvements
1,239
8,086
2,014
Accumulated depreciation and amortization
1,277
Net property and equipment
$
6,809
$
1,130
Depreciation expense for the year ended December 31, 2022 and 2021 was $426 and $265, respectively.
11. Intangible Assets
December 31,
December 31,
Computer software
$
$
Customer relationships
26,651
22,650
Technology
15,650
8,650
Trademarks
Tradename
2,850
2,350
Website
46,479
34,240
Accumulated amortization
4,680
1,064
Net intangibles
$
41,799
$
33,176
The estimated future amortization of intangible assets is as follows:
$
4,098
4,067
3,903
3,781
2027 and beyond
25,950
Total
$
41,799
Amortization expense for the year ended December 31, 2022 and 2021 was $3,616 and $874, respectively.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
12. Leases
On February 1, 2021 the Company downsized its office space and modified its existing lease with Wickfield Phoenix LLC. The new lease period was for 48 months, commencing on February 1, 2021 and ending on January 31, 2025 with a monthly rent payment of $12 for the first two months and escalating to $31 over the lease period. The carrying value of the right of use asset was $1,258 upon modification using the Company's incremental borrowing rate of 3.95%. During the period ending March 31, 2021 the Company recorded a gain on right-of-use asset of $24 in the consolidated statements of comprehensive loss.
On September 15, 2021, the Company entered into an additional lease with Wickfield Phoenix LLC for warehousing space. The new lease period is for 41 months, commencing on September 15, 2021, and ending on January 31, 2025, with a monthly rent payment of $5 for the first month and escalating to $10 over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $366 using the Company's incremental borrowing rate of 3.95%.
On April 1, 2022, the Company entered into an agreement with ULF Northfield Business Center LLC to lease 12,400 square feet of office and warehouse space. The lease period is for 61 months beginning on April 1, 2022, with a monthly rent payment of $9 for the first twelve months and escalating to $11 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $546 using an incremental borrowing rate of 3.95%.
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 is for 18 months beginning on July 1, 2022 and lasting through December of 2023. The lease has a monthly rent payment of $4 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $67 using an incremental borrowing rate of 7.00%.
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 52 months beginning on August 16, 2022 and lasts through November of 2026. The lease has a rent payment of $4 for the first month and escalates to $6 per month over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $260 using an incremental borrowing rate of 7.00%.
For the years ended December 31, 2021 and December 31, 2022, the Company recognized $411 and $661 in rent expense inclusive of common area maintenance (CAM) charges, insurance, and tax with $95 and $62 recorded in research and development expenses and $316 and $599 recorded in general and administrative expense in the consolidated statements of comprehensive loss.
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
$
2,759
$
1,779
Less: impact of present value
(262)
(155)
Balance
$
2,497
$
1,624
Reduction in right-of-use asset
Straight line amortization
Interest
(114)
(42)
Balance
$
$
Net book value as at:
Balance
$
1,665
$
1,320
Lease liabilities
Additions
$
2,520
$
1,647
Payments
(896)
(310)
Interest
Total lease liabilities
$
1,738
$
1,379
Current portion of lease liabilities
Long term portion of lease liabilities
1,097
Total lease liabilities
$
1,738
$
1,379
Total remaining undiscounted lease liabilities related to the above lease are as follows:
Total lease payments
$
1,863
Less imputed interest
Total
$
1,738
Our weighted-average remaining lease term and discount rate are as follows:
Year Ended
December 31, 2022
Weighted-average remaining lease term
2.9 years
Weighted-average discount rate
4.5%
13. Common Stock
On February 8, 2021, the Company completed a sale of 91,315,790 common shares at an offering price of $1.90 per share. The Company also granted the underwriter a 30-day option to purchase up to 13,697,368 additional common shares at the public offering price.
The Company raised $199,525 in gross proceeds as part of the offering. The Company recorded $199,525 as the value of common shares under common shares. The direct cash costs related to the issuance of the common shares and warrants issued in February 2021 were $14,281. These direct costs were recorded as an offset against the statement of shareholders’ equity with the entirety recorded under common shares.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
14. Stock-Based Compensation
During the year ended December 31, 2022, the Company issued 47,292,219 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.
During the year ended December 31, 2021, the Company issued 35,471,000 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 five years.
During the year ended December 31, 2021, 7,022,776 options were exercised, and the Company received $1,769 in cash receipts and reclassified $1,051 of additional paid in capital to common stock due to the exercise of stock options. No options were exercised in 2022.
The continuity of stock options are as follows:
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, 2022, details of the issued and outstanding stock options are as follows:
Number of
Weighted Avg
Number of Options
Number of
Unvested
Remaining Life
Issued
Vested Options
Options
Outstanding
Grant Date
Exercise Price
and Outstanding
Outstanding
Outstanding
(Years)
March 14, 2020
0.19
1,133,557
837,182
296,375
2.20
July 9, 2020
0.18
175,000
131,250
43,750
2.52
August 25, 2020
0.13
20,000
10,000
10,000
2.65
October 1, 2020
0.11
266,667
191,667
75,000
2.75
October 20, 2020
0.09
20,000
15,000
5,000
2.81
December 31, 2020
0.23
15,742,500
13,002,500
2,740,000
3.00
February 26, 2021
1.87
100,000
100,000
-
3.16
March 1, 2021
2.06
200,000
100,000
100,000
3.17
March 8, 2021
1.88
100,000
100,000
-
3.19
March 15, 2021
2.49
100,000
100,000
-
3.21
May 12, 2021
0.78
3,400,000
1,700,000
1,700,000
3.36
May 14, 2021
0.75
3,200,000
850,000
2,350,000
3.37
August 11, 2021
0.57
525,000
225,000
300,000
3.61
August 18, 2023
0.50
200,000
50,000
150,000
3.63
August 23, 2021
0.50
25,000
25,000
-
3.65
September 13, 2021
0.57
800,000
200,000
600,000
3.70
October 1, 2021
0.58
12,412,500
3,112,500
9,300,000
3.75
January 3, 2022
0.36
100,000
-
100,000
4.01
January 4, 2022
0.35
200,000
-
200,000
4.01
January 14, 2022
0.35
200,000
-
200,000
4.04
January 16, 2022
0.35
50,000
-
50,000
4.05
January 18, 2022
0.35
100,000
-
100,000
4.05
February 14, 2022
0.30
200,000
-
200,000
4.13
February 21, 2022
0.37
200,000
-
200,000
4.15
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Number of
Weighted Avg
Number of Options
Number of
Unvested
Remaining Life
Issued
Vested Options
Options
Outstanding
Grant Date
Exercise Price
and Outstanding
Outstanding
Outstanding
(Years)
February 25, 2022
0.35
12,100,000
-
12,100,000
4.16
March 30, 2022
0.35
200,000
-
200,000
4.25
April 1, 2022
0.34
200,000
-
200,000
4.25
April 6, 2022
0.32
100,000
-
100,000
4.27
April 11, 2022
0.31
75,000
-
75,000
4.28
May 2, 2022
0.25
300,000
-
300,000
4.34
May 9, 2022
0.21
700,000
-
700,000
4.36
May 11, 2022
0.20
400,000
-
400,000
4.36
May 16, 2022
0.23
100,000
-
100,000
4.38
May 31, 2022
0.24
500,000
-
500,000
4.42
June 1, 2022
0.25
500,000
-
500,000
4.42
June 6, 2022
0.26
200,000
-
200,000
4.43
June 13, 2022
0.24
200,000
-
200,000
4.45
June 17, 2022
0.24
3,100,000
3,100,000
-
4.46
July 1, 2022
0.21
350,000
-
350,000
4.50
July 5, 2022
0.22
200,000
-
200,000
4.51
July 6, 2022
0.26
100,000
-
100,000
4.52
July 25, 2022
0.25
200,000
-
200,000
4.57
August 1, 2022
0.28
100,000
-
100,000
4.59
August 5, 2022
0.34
2,850,000
-
2,850,000
4.60
August 8, 2022
0.39
100,000
-
100,000
4.61
August 17, 2022
0.31
200,000
-
200,000
4.63
August 19, 2022
0.27
200,000
-
200,000
4.64
August 22, 2022
0.27
400,000
-
400,000
4.64
August 29, 2022
0.27
400,000
-
400,000
4.66
August 31, 2022
0.25
800,000
-
800,000
4.67
September 21, 2022
0.23
200,000
-
200,000
4.73
September 23, 2022
0.21
400,000
-
400,000
4.73
September 26, 2022
0.22
300,000
-
300,000
4.74
October 4, 2022
0.22
4,000,000
-
4,000,000
4.76
November 3, 2022
0.23
200,000
-
200,000
4.84
November 7, 2022
0.24
500,000
-
500,000
4.85
November 8, 2022
0.24
4,950,000
-
4,950,000
4.86
November 9, 2022
0.23
300,000
-
300,000
4.86
November 14, 2022
0.24
350,000
-
350,000
4.87
November 21, 2022
0.21
50,000
-
50,000
4.89
December 1, 2022
0.21
100,000
-
100,000
4.92
December 9, 2022
0.19
8,717,219
-
8,717,219
4.94
Balance at December 31, 2022
84,112,443
23,850,099
60,262,344
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.
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
The fair value of options granted during the year ended December 31, 2022 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
Grant Date
Volatility
Risk-Free
Interest Rate
Expected Life
(In Years)
Dividend
Yield
Common
Share Price
Strike
Price
Forfeiture
Rate
February 26, 2021
%
0.95
%
%
$
1.87
$
1.87
%
March 1, 2021
0.92
2.06
2.06
March 8, 2021
1.07
1.88
1.88
March 15,2021
1.06
5.75
2.49
2.49
May 12, 2021
1.11
6.21-6.22
0.78
0.78
May 14, 2021
1.06
5.75
0.76
0.75
May 14, 2021
1.06
6.25
0.75
0.75
August 11, 2021
0.96
6.18-6.25
0.56
0.57
August 18,2021
0.93
6.25
0.50
0.50
August 23, 2021
0.92
6.25
0.50
0.50
October 1, 2021
1.10
6.25
0.57
0.58
January 3, 2022
1.50
6.25
0.36
0.36
January 4, 2022
1.47
6.25
0.35
0.35
January 14, 2022
1.64
6.25
0.35
0.35
January 16, 2022
1.73
6.25
0.35
0.35
January 18, 2022
1.74
6.25
0.35
0.35
February 14, 2022
1.94
6.25
0.29
0.30
February 21, 2022
1.89
6.25
0.37
0.37
February 25, 2022
1.91
6.25
0.35
0.35
March 30, 2022
2.43
6.25
0.35
0.35
April 1, 2022
2.53
6.25
0.33
0.34
April 6, 2022
2.70
6.25
0.32
0.32
April 11, 2022
2.82
6.25
0.30
0.31
May 2, 2022
3.03
6.25
0.25
0.25
May 9, 2022
3.00
6.25
0.21
0.21
May 11, 2022
2.92
6.25
0.20
0.20
May 16, 2022
2.86
6.25
0.22
0.23
May 31, 2022
2.84
6.25
0.23
0.24
June 1, 2022
2.96
6.25
0.25
0.25
June 6, 2022
3.05
6.25
0.26
0.26
June 13, 2022
3.55
6.25
0.24
0.24
June 17, 2022
3.02
1.37
0.24
0.24
June 17, 2022
3.02
1.64
0.24
0.24
June 17, 2022
3.35
4.27
0.24
0.24
July 1, 2022
2.90
6.25
0.21
0.21
July 1, 2022
2.90
6.25
0.21
0.21
July 1, 2022
2.90
6.25
0.21
0.21
July 5, 2022
2.85
6.25
0.22
0.22
July 6, 2022
2.98
6.25
0.25
0.26
July 25, 2022
2.94
6.25
0.25
0.25
August 1, 2022
2.65
6.25
0.28
0.28
August 1, 2022
2.65
6.25
0.28
0.28
August 5, 2022
2.94
6.25
0.34
0.34
August 5, 2022
2.94
6.25
0.34
0.34
August 5, 2022
2.94
6.25
0.34
0.34
August 5, 2022
2.94
6.25
0.34
0.34
August 8, 2022
2.88
6.25
0.38
0.39
August 17, 2022
3.02
6.25
0.30
0.31
August 19, 2022
3.09
6.25
0.27
0.27
August 22, 2022
3.15
6.25
0.27
0.27
August 22, 2022
3.15
6.25
0.27
0.27
August 29, 2022
3.24
6.25
0.26
0.27
August 29, 2022
3.24
6.25
0.26
0.27
August 31, 2022
3.28
6.25
0.24
0.25
September 21, 2022
3.70
6.25
0.23
0.23
September 23, 2022
3.91
6.25
0.21
0.21
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Grant Date
Volatility
Risk-Free
Interest Rate
Expected Life
(In Years)
Dividend
Yield
Common
Share Price
Strike
Price
Forfeiture
Rate
September 23, 2022
3.91
6.25
0.21
0.21
September 26, 2022
4.11
6.25
0.22
0.22
September 26, 2022
4.11
6.25
0.22
0.22
October 4, 2022
3.96
6.25
0.21
0.22
November 3, 2022
4.31
6.25
0.23
0.23
November 7, 2022
4.35
6.25
0.23
0.24
November 8, 2022
4.27
6.25
0.24
0.24
November 9, 2022
4.24
6.25
0.23
0.23
November 14, 2022
3.98
6.25
0.25
0.24
November 21, 2022
3.96
6.25
0.21
0.21
December 1, 2022
3.65
6.25
0.20
0.21
December 9, 2022
3.72
6.25
0.19
0.19
For the years ended December 31, 2022 and 2021, the Company recorded $7,891 and $7,092 of stock-based expense.
15. Warrants
The Company values warrants issued in equity placements using the Black Scholes model to allocate the fair value of the proceeds from equity financings using a relative fair value approach. Like other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes option pricing model including the expected life, and underlying share price volatility. Changes in these assumptions will impact the calculation of fair value and the value attributed to the warrants. The Company calculates volatility of warrants based on the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
In connection with the 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, 2022, 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, 2022, no warrants have been exercised.
As of December 31, 2022, 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
2.12
April 9, 2020 (Series B)
0.1500
363,501
2.27
May 29, 2020 (Series C)
0.1500
-
-
July 7, 2020 (Series D)
0.1600
-
-
July 1, 2022 (Revo Squared)
0.2201
10,000,000
9.51
July 15, 2022 (Assisi)
0.2520
22,000,000
9.55
Balance at December 31, 2022
32,561,418
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
Cumulative warrants exercised and expired as of December 31, 2022 were as follows:
Warrants
Warrants
Warrant Series
Exercised
Amount
Expired
Amount
Series A
21,677,084
$
4,293
-
$
-
Series B
17,969,833
2,695
-
-
Series C
133,213,333
19,982
120,000
Series D
187,269,000
29,963
231,000
Total
360,129,250
$
56,933
351,000
$
16. Income Taxes
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
$
(19,381)
$
(20,717)
Expected income tax expense (benefit)
(4,458)
(4,765)
Difference in foreign tax rates
Tax rate changes and other adjustments
(5)
Changes in stock based compensation
(1,177)
-
Foreign accrual property income
Stock based compensation and nondeductible expenses
1,394
Prior period adjustment
-
Share issuance costs recorded in equity
-
(3,285)
Section 382 derecognition
-
4,344
Change in valuation allowance
2,789
(428)
Total deferred income tax benefit
$
(2,366)
$
(2,333)
The following table summarizes the components of deferred tax:
Deferred tax assets
Intangible assets - licenses
$
4,236
$
4,236
Share issuance costs
2,482
3,425
Reserves
Non-capital loss carried forward - Canada
10,668
8,387
Net operating losses carried forward - US
2,885
2,592
Investment tax credits
Operating leases
Stock-based compensation
3,067
-
Other
-
Total deferred tax assets
$
24,504
$
18,855
Deferred tax liabilities
Property and equipment
(491)
(139)
Intangibles
(6,271)
(6,079)
Other
-
(148)
Total deferred tax liabilities
$
(6,762)
$
(6,366)
Valuation allowance
18,987
16,198
Net deferred tax liability
$
(1,245)
$
(3,709)
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
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.
$
3,763
4,279
5,417
6,774
7,418
9,629
9,104
Total
$
46,384
The Company’s US federal net-operating income tax losses expire as follows:
$
1,485
3,832
Indefinitely (subject to 80% limitation)
26,283
Derecognized under Section 382
(21,013)
Total
$
11,443
As of December 31, 2022, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $32,456 and noncapital loss carryforwards for Canada of $46,384, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and 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 $21,013 of this asset, reducing the carryforward of these amounts to $11,443.
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 2019 and forward. Tax years subject to examination in Canada are from years 2018 and forward.
The Company is in an overall net deferred tax liability position for the year ended December 31, 2022. 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 $1,600 is currently necessary. Due to the uncertainty of realizing any tax benefits as of December 31, 2022 due to historical losses, a full valuation allowance remains necessary to fully offset our Canadian deferred tax assets.
17. Commitments and Contingencies
On May 10, 2018, the Company entered into a Development, Commercialization and Exclusive Distribution Agreement. As part of the agreement, the Company is required to make the following future milestone payments:
● 1st payment: $3,500 in cash payment upon the achievement of future development milestones
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
● 2nd payment: $3,500 in equity, determined by dividing the amount due by the volume-weighted average price of the Company’s common stock on the NYSE American exchange over the 10 trading days prior to the achievement of the milestone event.
As of December 31, 2022, none of the future development milestones related to the above agreement have been met. The Company has assessed the probability of meeting the above milestones and has determined that an accrual is not necessary as of December 31, 2022, and December 31, 2021.
From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As of December 31, 2022, and continuing as of March 15, 2023, the Company is not aware of any pending or threatened material litigation claims against the Company.
18. Segmented Information
The Company’s operations are comprised of two reportable segments:
● Diagnostics, which consists of TRUFORMA® products, and
● Therapeutics, which consists of PulseVet® and Assisi® 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 Therapeutics segment together. The CODM relies on internal segment reporting that analyzes results on certain key performance indicators, namely, revenues and gross profit. Costs below gross profit are not allocated to the segments.
The following is a reconciliation of consolidated revenue, cost of revenue, and gross profit amongst our reportable segments:
Diagnostics
Therapeutics
Consolidated
Net revenue
$
$
18,539
$
18,930
Cost of revenue
5,013
5,278
Gross profit
$
$
13,526
$
13,652
19. Loss Per Share
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
December 31,
December 31,
Numerator
Net loss for the period
$
(17,015)
$
(18,384)
Charge to retained earnings for preferred share exchange
-
(32,039)
Loss attributable to common shareholders
(17,015)
(50,423)
Denominator
Weighted average shares - basic
979,924,052
956,533,761
Stock options
-
-
Warrants
-
-
Denominator for diluted loss per share
979,924,052
956,533,761
Loss per share - basic and diluted
$
(0.02)
$
(0.05)
As of December 31, 2022, and 2021, the Company had stock options outstanding of 84,112,443 and 50,717,724 and warrants outstanding of 32,561,418 and 912,418. These securities could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would be anti-dilutive.
20. Subsequent Events
Agreement with Structured Medical Products to begin commercializing VetGuardianTM
On January 13, 2023, Zomedica Inc. entered into a Distribution Agreement with Structured Monitoring Products, Inc. (“SMP”) whereby the Company acquired non-exclusive rights to distribute the VetGuardian remote animal vital sign and surveillance monitoring device. The Distribution Agreement was entered into as a result of the Company exercising its right to commercialize the Product pursuant to a Note Purchase Agreement with an effective date of May 16, 2022 between the Company and SMP.
The Company will purchase the Products from SMP for resale and will share service fees with SMP. The Distribution Agreement is for a term of two years with automatic renewals of twelve months unless either party provides written notice of its intent not to renew. The Distribution Agreement contains customary representations, warranties and covenants of the parties. The Distribution Agreement also contains indemnification provisions pursuant to which SMP has agreed to indemnify the Company and its affiliate against certain losses, subject to the limitations set forth therein.
Agreement with Qorvo to take over new assay development and manufacturing of TRUFORMA product line through long-term agreement with Qorvo Biotechnologies, LLC
On January 17, 2023, Zomedica Corp., along with its U.S. subsidiary Zomedica Inc. ("ZomInc," and together with the Company, the "Zomedica Entities"), entered into three related agreements with Qorvo Biotechnologies, LLC ("Qorvo"). These agreements include a Transition and Support Agreement, a BAW Sensor Supply Agreement, and a Development and Manufacturing License Agreement.
The Qorvo Agreements represent a strategic restructuring of the Zomedica Entities' prior development and commercialization agreement with Qorvo for the Company's TRUFORMA® line of products. Under the Qorvo Agreements, ZomInc will take control of aspects of the TRUFORMA product line previously provided by Qorvo, including development of new assays and manufacturing both instruments and assay cartridges. This will position the Zomedica Entities to invest in accelerated development of new TRUFORMA assays and to begin manufacturing directly. ZomInc will provide up-front licensing and certain milestone payments, and an option payment if ZomInc exercises its option to extend exclusive rights for TRUFORMA in the veterinary health market in perpetuity. A related agreement
Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)
provides ZomInc the right to purchase Bulk Acoustic Wave sensors from Qorvo for inclusion in the TRUFORMA products.
While Qorvo will continue to work with ZomInc to develop the TRUFORMA assays currently planned, including the first assay for the equine market and several assays for non-infectious gastrointestinal disease, Qorvo has agreed to provide technology transfer assistance to ZomInc to undertake all future new assay development for the TRUFORMA product line. Qorvo has also agreed to assist ZomInc to install manufacturing capabilities at the Zomedica Entities' Global Manufacturing and Distribution Center in Roswell, Georgia. The Zomedica Entities will thereafter have control of development, manufacturing, and commercialization of the TRUFORMA product line. The Zomedica Entities expect the manufacturing transfer process to take up to 18 months as specialized manufacturing equipment is produced and installed at the Roswell facility.
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))
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
Form of Securities Purchase Agreement, dated February 12, 2020, among the Company and the investors named therein (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on February 13, 2020 (File No. 001-38298))
10.7
Placement Agency Agreement, dated April 7, 2020, by and between the Company and H.C. Wainwright & Co., LLC (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 8, 2020)
10.8
Securities Purchase Agreement, dated April 7, 2020, among the Company and the investors named therein (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed with the Commission on April 8, 2020)
10.9+**
Summary of Compensation Arrangements with Ann Marie Cotter (incorporated by reference to Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed with the commission on March 1, 2022 (File No. 001-38298))
10.10
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)
10.11***
Transition and Support Agreement by and among Qorvo Biotechnologies, LLC, Zomedica Inc. and Zomedica Corp (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Commission on January 24, 2023
10.12***
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
10.13***
Development and Manufacturing License Agreement by and among Qorvo Biotechnologies, LLC, Zomedica Inc. and Zomedica Corp (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed with the Commission on January 24, 2023
10.14
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))
Exhibit
Number
Description
10.15
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))
10.16
Note receivable agreement, effective May 16, 2022, by and between Zomedica, Inc. and Structured Monitoring Products, Inc. (incorporated by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q filed with the commission on August 15, 2022 (File No. 001-38298))
10.17+
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))
10.18
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))
10.19
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
10.20
Form of Indemnity
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
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.