UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM
| | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________ to_________.
Commission File Number:
Zomedica Corp.
(Exact name of registrant as specified in its charter)
| | N/A |
| (State or other jurisdiction of | (I.R.S. Employer Identification Number) |
| | |
| (Address of principal executive offices) | (Zip code) |
(
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| | ☐ | Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| | | |
As of August 11, 2021,
ZOMEDICA CORP.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 2021
TABLE OF CONTENTS
| Page |
|
| 2 | |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
| Item 3. Quantitative and Qualitative Disclosures about Market Risk |
32 |
| 32 | |
| 32 | |
| 33 | |
| 33 | |
PART I — FINANCIAL INFORMATION
Zomedica Corp.
Condensed consolidated balance sheets
As of June 30, 2021, and December 31, 2020
(Unaudited) (Stated in United States dollars)
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Inventory | ||||||||
| Prepaid expenses and deposits | ||||||||
| Trade receivables | ||||||||
| Other receivables | ||||||||
| Total current assets | ||||||||
| Prepaid expenses and deposits | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use asset | ||||||||
| Intangible assets, net | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities, mezzanine and shareholders' equity | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Current portion of debt obligations | ||||||||
| Current portion of lease obligations | ||||||||
| Total current liabilities | ||||||||
| Lease obligations | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Mezzanine equity: | ||||||||
| Series 1 preferred shares, par value; shares authorized and Series 1 preferred shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Shareholders' equity | ||||||||
| common shares, par value; and issued and outstanding at June 30, 2021 and December 31, 2020, respectively | ||||||||
| Common shares subscribed | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total shareholders' equity | ||||||||
| Total liabilities, mezzanine equity and shareholders' equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Zomedica Corp.
Condensed consolidated statements of loss and comprehensive loss
For the three and six months ended June 30, 2021, and 2020
(Unaudited) (Stated in United States dollars)
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Net revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Gross profit | ( | ) | ( | ) | ||||||||||||
| Expenses | ||||||||||||||||
| Research and development | ||||||||||||||||
| Selling, general and administrative | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest expense | ||||||||||||||||
| (Gain) Loss on disposal of assets | ( | ) | ||||||||||||||
| Gain on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Other loss (income) | ( | ) | ( | ) | ||||||||||||
| Foreign exchange loss (gain) | ( | ) | ( | ) | ||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax expense | ||||||||||||||||
| Net loss and comprehensive loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of common shares - basic and diluted | ||||||||||||||||
| Loss per share - basic and diluted (Note 18) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Zomedica Corp.
Condensed consolidated statements of shareholders’ equity
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
| Series 1 preferred shares |
Common shares |
|||||||||||||||||||||||||||||||
| For the six months ending June 30, 2021 |
Shares |
Amount |
Shares |
Amount |
Common stock subscribed |
Additional paid-in capital |
Accumulated deficit |
Total |
||||||||||||||||||||||||
| Balance at December 31, 2020 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||
| Stock issuance for financing |
||||||||||||||||||||||||||||||||
| Stock issuance costs |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Stock-based compensation |
- | - | ||||||||||||||||||||||||||||||
| Stock issued from warrant exercises |
( |
) | ( |
) | ||||||||||||||||||||||||||||
| Stock issued from stock option exercises |
( |
) | ||||||||||||||||||||||||||||||
| Preferred share exchange |
( |
) | ||||||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||
| Series 1 preferred shares |
Common shares |
|||||||||||||||||||||||||||||||
| For the three months ending June 30, 2021 |
Shares |
Amount |
Shares |
Amount |
Common stock subscribed |
Additional paid-in capital |
Accumulated deficit |
Total |
||||||||||||||||||||||||
| Balance at March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||
| Stock issuance costs |
- | - | ||||||||||||||||||||||||||||||
| Stock-based compensation |
- | - | ||||||||||||||||||||||||||||||
| Stock issued from warrant exercises |
( |
) | ||||||||||||||||||||||||||||||
| Stock issued from stock option exercises |
( |
) | ||||||||||||||||||||||||||||||
| Net loss |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||||||||||
| Series 1 preferred shares |
Common shares |
|||||||||||||||||||||||||||||||
| For the six months ending June 30, 2020 |
Shares |
Amount |
Common stock subscribed |
Additional paid-in capital |
Accumulated deficit |
Total |
||||||||||||||||||||||||||
| Balance at December 31, 2019 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Stock, warrants and pre-funded warrants issuance for financing |
||||||||||||||||||||||||||||||||
| Stock issuance costs |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Placement agent warrants |
- | ( |
) | |||||||||||||||||||||||||||||
| Stock-based compensation |
- | |||||||||||||||||||||||||||||||
| Stock issued from exercise of warrants and prefunded warrants |
( |
) | ||||||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance at June 30, 2020 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Series 1 preferred shares |
Common shares |
|||||||||||||||||||||||||||||||
| For the three months ending June 30, 2020 |
Shares |
Amount |
Common stock subscribed |
Additional paid-in capital |
Accumulated deficit |
Total |
||||||||||||||||||||||||||
| Balance at March 31, 2020 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
| Stock, warrants and pre-funded warrants issuance for financing |
||||||||||||||||||||||||||||||||
| Stock issuance costs |
- | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||||||
| Placement agent warrants |
- | ( |
) | |||||||||||||||||||||||||||||
| Stock-based compensation |
- | |||||||||||||||||||||||||||||||
| Stock issued from exercise of warrants and prefunded warrants |
( |
) | ||||||||||||||||||||||||||||||
| Net loss |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance at June 30, 2021 |
$ | $ | $ | $ | $ | ( |
) | $ | ||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Zomedica Corp.
Condensed consolidated statements of cash flows
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
| Six months ended June 30, | ||||||||
| 2021 | 2020 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments for | ||||||||
| Depreciation | ||||||||
| Amortization - intangible assets | ||||||||
| Loss on disposal of property and equipment | ||||||||
| Loss on other assets | ||||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Stock-based compensation | ||||||||
| Non-cash portion of rent expense | ||||||||
| Change in non-cash operating working capital | ||||||||
| Purchased inventory | ( | ) | ||||||
| Prepaid expenses and deposits | ( | ) | ||||||
| Trade receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Cash from sale of property and equipment | ||||||||
| Investment in intangibles | ( | ) | ||||||
| Investment in property and equipment | ( | ) | ||||||
| Cash from lease cancellation or modification | ||||||||
| Net cash (used in) provided by investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of common shares, warrants and pre-funded warrants | ||||||||
| Cash received from warrant exercises | ||||||||
| Cash received from stock option exercises | ||||||||
| Cash received from shares to be issued | ||||||||
| Cash paid on stock issuance costs | ( | ) | ( | ) | ||||
| Cash received for government loan | ||||||||
| Net cash provided by financing activities | ||||||||
| Increase in cash and cash equivalents | ||||||||
| Cash and cash equivalents, beginning of period | ||||||||
| Cash and cash equivalents, end of period | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Interest paid | $ | $ | ||||||
| Interest received | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
The Company is a veterinary health company creating point-of-care diagnostics products for dogs and cats, that focuses on the needs of the veterinarians themselves.
The impact of the novel strain of coronavirus (“COVID-19”)
The outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in the World Health Organization declaring this virus a global pandemic in March 2020. Governments around the world have enacted emergency measures to combat the spread of the virus. These measures include the implementation of travel bans, self-imposed quarantine periods and social distancing. The closure of businesses has caused material disruption to businesses resulting in an economic slowdown. Governments and central banks have responded with significant monetary and fiscal interventions designed to stabilize the financial markets.
The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA® platform and the initial five assays. In response to the pandemic, our development partner had reduced the number of employees working in its facilities for a period of time which has delayed the completion of the verification of the five initial TRUFORMA® assays and the manufacturing of commercial quantities of the TRUFORMA® platform and the related assays. Veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA® assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have mitigated to a certain extent with our recent ability to successfully complete remote installations. Potential customers have at times restricted access to their facilities which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.
2. Basis of preparation
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three and six months ended June 30, 2021, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Consolidated Balance Sheet as of December 31, 2020, was derived from audited financial statements.
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
3. Significant accounting policies
Inventories are stated at the lower of cost or net realizable value. The Company utilizes specific identification 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.
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
3. Significant accounting policies (continued)
4. Prepaid expenses, deposits, and deferred financing costs
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Deposits (i) | $ | $ | ||||||
| Prepaid marketing | ||||||||
| Prepaid insurance | ||||||||
| Other (ii) | ||||||||
| Total | $ | $ | ||||||
| (i) | Deposits include payments made to vendors in advance and are primarily associated with inventory, warranties, and research activity. As of June 30, 2021, and December 31, 2020, the Company classified $ |
| (ii) | Other is comprised of deferred financing costs, subscription payments, utilities, travel costs, and software licensing. As of June 30, 2021, and December 31, 2020, the Company classified all amounts as a current asset in the consolidated balance sheets. |
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
5. Property and equipment
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer equipment | $ | $ | ||||||
| Furniture and equipment | ||||||||
| Laboratory equipment | ||||||||
| Leasehold improvements | ||||||||
| Accumulated depreciation and amortization | ||||||||
| Net property and equipment | $ | $ | ||||||
Depreciation expense for the three months ended June 30, 2021 and 2020 was $
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Computer software | $ | $ | ||||||
| Trademarks | ||||||||
| Website | ||||||||
| Accumulated amortization | ||||||||
| Net intangibles | $ | $ | ||||||
Amortization expense for the three months ended June 30, 2021 and 2020 was $
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
7. Leases
On February 1, 2020, the Company cancelled its existing lease with Wickfield Phoenix LLC. and entered a new lease. The new lease period was for
On February 1, 2020, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $
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
During the three and six months ended June 30, 2020, the Company recognized $
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
7. Leases (continued)
| June 30, 2021 | December 31, 2020 | |||||||
| Right-of-use asset | ||||||||
| Cost | ||||||||
| Aggregate lease commitments | $ | $ | ||||||
| Less: impact of present value and lease modification | ( | ) | ( | ) | ||||
| Balance | ||||||||
| Reduction in right-of-use asset | ||||||||
| Straight line amortization | ||||||||
| Interest | ( | ) | ( | ) | ||||
| Balance | ||||||||
| Net book value | $ | 1,132,548 | $ | 1,318,716 | ||||
| Lease liabilities | ||||||||
| Additions | $ | $ | ||||||
| Payments | ( | ) | ( | ) | ||||
| Interest | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Current portion of lease liabilities | ||||||||
| Long term portion of lease liabilities | ||||||||
| Total lease liabilities | $ | $ | ||||||
| Total remaining undiscounted lease liabilities related to the above lease are as follows: |
| 2021 - remainder balance | $ | $ | ||||||
| 2022 | ||||||||
| 2023 | ||||||||
| 2024 | ||||||||
| 2025 | ||||||||
| Total | $ | $ |
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
8. Loan arrangements
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during the 8-week period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable in 18 equal monthly installments commencing after the forgiveness period. The Program was subsequently amended to allow the borrower to use an extended forgiveness period of 24 weeks beginning on the date the proceeds were received on the loan and to extend the repayment period to 54 months commencing after the 24-week forgiveness period.
In April of 2020, the Company received $
9. Preferred shares
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
9. Preferred shares (continued)
| Number of | ||||||||
| preferred | Preferred | |||||||
| stock | stock amount | |||||||
| Balance at December 31, 2019 | $ | |||||||
| Balance at December 31, 2020 | ||||||||
| Stock redemption | ( | ) | ( | ) | ||||
| Balance at June 30, 2021 | $ | |||||||
The Company exchanged the issued and outstanding shares of its Series 1 Preferred Shares on March 7, 2021, for
10. Common shares
| Number of common stock | Common stock amount | |||||||
| Balance at December 31, 2019 | 108,038,398 | $ | 38,566,820 | |||||
| Stock issued from financing (i,ii,iii) | ||||||||
| Stock issued from the financing and exercise of prefunded warrants (iv) | ||||||||
| Stock issued from the exercise of warrants | ||||||||
| Balance at June 30, 2020 | ||||||||
| Balance at December 31, 2020 | $ | |||||||
| Stock issued from financing (v) | ||||||||
| Stock issued from exercises of warrants | ||||||||
| Stock issued from exercises of options (Note 11) | ||||||||
| Stock issued from preferred share redemption (Note 9) | ||||||||
| Balance at June 30, 2021 | $ | |||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
10. Common shares (continued)
| (i) | On February 14, 2020, the Company completed a registered direct offering (“RDO”) of its common shares and a simultaneous private placement of its warrants (“Series A Warrants”) in a fixed combination of |
| The Company raised $ |
| The direct cash costs related to the issuance of the common shares and warrants issued in February 2020 were $ |
| (ii) | On April 9, 2020, the Company completed a confidentially marketed public offering (“CMPO”) of its common shares and warrants (“Series B Warrants”) of |
| The Company raised $ |
| The direct cash costs related to the issuance of the common shares and warrants issued in April were $ |
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
| (iii)
| On May 29, 2020 the Company completed a public offering of its common shares or common share equivalents (“Series C pre-funded warrants”), and warrants (“Series C Warrants”) in a fixed combination of |
| The Company raised $ |
| The direct cash costs related to the issuance of the common shares, Series C pre-funded warrants and Series C Warrants issued in May were $ |
| (iv) | All Series C pre-funded warrants were exercised in June 2020. Upon exercise the value of the warrant exercise was based on the |
| (v) | On February 8, 2021, the Company completed a sale of |
| The Company raised $ |
| The direct cash costs related to the issuance of the common shares and warrants issued in February 2021 were $ |
| (vi) | Cumulative warrant exercises as of the six months ended June 30, 2021 were as follows: |
| Warrant series | Warrants exercised | Amount | ||||||
| Series A | $ | |||||||
| Series B | ||||||||
| Series C | ||||||||
| Series D | ||||||||
| Subtotal | ||||||||
| Common stock subscribed | - | ) | ||||||
| Total | $ | |||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
11. Stock-based compensation
During the three and six months ended June 30, 2021, the Company issued stock options to purchase an aggregate of
During the three and six months ended June 30, 2020, the Company issued stock options to purchase an aggregate of
| Number of Options | Weighted Avg Exercise Price | |||||||
| Balance at December 31, 2020 | $ | |||||||
| Stock options granted | $ | |||||||
| Stock options exercised | ( | ) | $ | |||||
| Stock options forfeited | ( | ) | $ | |||||
| Stock options cancelled | ( | ) | $ | |||||
| Balance at June 30, 2021 | $ | |||||||
| Vested at June 30, 2021 | $ | |||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
11. Stock-based compensation (continued)
| Grant date | Exercise price | Number of options issued and outstanding | Number of vested options outstanding | Number of unvested options outstanding | Weighted Avg Remaining Life outstanding (years) | |||||||||||||||
| March 14, 2020 | ||||||||||||||||||||
| July 9, 2020 | ||||||||||||||||||||
| August 25, 2020 | ||||||||||||||||||||
| September 29, 2020 | ||||||||||||||||||||
| October 1, 2020 | ||||||||||||||||||||
| October 20, 2020 | ||||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||
| February 26, 2021 | ||||||||||||||||||||
| March 1, 2021 | ||||||||||||||||||||
| March 8, 2021 | ||||||||||||||||||||
| March 15, 2021 | ||||||||||||||||||||
| May 12, 2021 | ||||||||||||||||||||
| May 14, 2021 | ||||||||||||||||||||
| Balance at June 30, 2021 | ||||||||||||||||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
The fair value of options granted during the three and six months ended June 30, 2021, and 2020 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions
| March 14, 2020 | February 26, 2021 | March 1, 2021 | March 8, 2021 | |||||||||||||
| Volatility | % | % | % | % | ||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Expected life (years) | ||||||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
| Common share price | $ | $ | $ | $ | ||||||||||||
| Strike price | $ | $ | $ | $ | ||||||||||||
| Forfeiture rate | ||||||||||||||||
| March 15, 2021 | May 12, 2021 | |||||||||
| Volatility | % | % | ||||||||
| Risk-free interest rate | % | % | ||||||||
| Expected life (years) | - | |||||||||
| Dividend yield | % | % | ||||||||
| Common share price | $ | $ | ||||||||
| Strike price | $ | $ | ||||||||
| Forfeiture rate | ||||||||||
The Company recorded $
For the three and six months ended June 30, 2021, the Company recorded cash receipts of $
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
12. Warrants
| Original Issue date | Exercise Price | Warrants Outstanding | Weighted Average Remaining Life | |||||||||
| February 14, 2020 | - | |||||||||||
| February 14, 2020 | ||||||||||||
| April 9, 2020 | ||||||||||||
| May 29, 2020 | ||||||||||||
| July 7, 2020 | ||||||||||||
| Balance at June 30, 2021 | ||||||||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
13. Commitments and contingencies
| ● | 1st payment: $ |
| ● | 2nd payment: $ |
As of June 30, 2021, none of the future development milestones related to the above agreement have been met. The Company has assessed the probability of meeting the above milestones and has determined that an accrual is not necessary as of June 30, 2021, and December 31, 2020.
On November 1, 2019, Heska Corporation (“Heska”) filed a complaint for damages and injunctive relief (the “Complaint”) in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, against Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and the Company (collectively with Qorvo, the “Defendants”) which was amended on November 22, 2019. The amended Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The amended Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing our TRUFORMA® diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. Heska subsequently moved to strike a portion of the Defendants’ response. On September 30, 2020, the court denied the Defendants’ motion to dismiss and granted Heska’s motion to strike. On October 14, 2020, the Defendants filed their answer to the amended Complaint. On May 10, 2021, the Defendants filed an updated answer and counterclaims to Heska’s amended complaint alleging unfair and deceptive trade practices claims against Heska. Discovery is ongoing. The Company believes that the allegations in the amended Complaint have no merit and will not have a material adverse effect on our business, results of operations or financial condition.
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
14. Financial instruments
| June 30, 2021 | ||||||||||||||||||||||||
| Less than | 3 to 6 | 6 to 9 | 9 months | Greater than | ||||||||||||||||||||
| 3 months | months | months | 1 year | 1 year | Total | |||||||||||||||||||
| Third parties | ||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Lease obligations | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
| December 31, 2020 | ||||||||||||||||||||||||
| Less than | 3 to 6 | 6 to 9 | 9 months | Greater than | ||||||||||||||||||||
| 3 months | months | months | 1 year | 1 year | Total | |||||||||||||||||||
| Third parties | ||||||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | $ | $ | $ | - | $ | $ | |||||||||||||||||
| Debt obligations | ||||||||||||||||||||||||
| Lease obligations | ||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | |||||||||||||||||||
Zomedica Corp.
Notes to the condensed consolidated financial statements
For the three and six months ended June 30, 2021 and 2020
(Unaudited) (Stated in United States dollars)
15. Segment information
| June 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Canada | $ | $ | ||||||
| US | ||||||||
| Total assets | $ | $ | ||||||
| Total US property and equipment | $ | $ | ||||||
| Total US right-of-use asset | ||||||||
| $ | $ | |||||||
16. Loss per share
| For the three months ended June 30 | For the six months ended June 30 | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Numerator | ||||||||||||||||
| Net loss for the period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Charge to retained earnings for preferred share exchange | ( | ) | ||||||||||||||
| Loss attributable to common shareholders | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Denominator | ||||||||||||||||
| Weighted average shares - basic | ||||||||||||||||
| Stock options | ||||||||||||||||
| Warrants | ||||||||||||||||
| Denominator for diluted loss per share | ||||||||||||||||
| Loss per share - basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Report. This discussion contains forward-looking statements as well as forward-looking information under applicable Canadian securities legislation (collectively, “forward-looking statements”) that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, and those set forth in our most recent Annual Report on Form 10-K particularly those under “Risk Factors” discussed below and in our most recent Annual Report on Form 10-K and in other reports we file under applicable securities laws.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and pursuant to applicable Canadian securities legislation that are based on management’s beliefs and assumptions and on information currently available to management. Some of the statements under “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Report contain forward-looking statements. In some cases, you can identify forward-looking statements through our use of words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
| ● |
our ability to successfully commercialize our lead product, TRUFORMA®; |
| ● |
our ability to successfully expand our internal sales team to market and sell TRUFORMA® and any other products we develop or acquire and the related cost and timing thereof; |
| ● |
our ability to obtain funding for our operations; |
| ● |
the ability of our contract partners and contractors to appropriately conduct our product development, validation studies, verification studies, and beta testing, and certain other development activities; |
| ● |
the ability of our contract manufacturing organizations to manufacture and supply our products; |
| ● |
our plans to develop and commercialize our planned and future products; |
| ● |
the impact of the novel coronavirus pandemic on our operations, including the development, manufacturing, and commercialization of our TRUFORMA® platform and the five initial assays; |
| ● |
our ability to develop and commercialize products that can compete effectively; |
| ● |
the size and growth of the veterinary diagnostics and medical device markets; |
| ● |
our ability to obtain and maintain intellectual property protection for our planned and future products candidates; |
| ● |
regulatory developments in the United States and other important geographical markets; |
| ● |
the loss of key personnel; |
| ● |
our expectations regarding the period during which we will be an “emerging growth company” under the JOBS Act; |
| ● |
the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; |
| ● |
our ability to maintain the listing of our common shares on the NYSE American exchange; and |
| ● |
our status as a “passive foreign investment company” for U.S. federal income tax purposes. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see “Risk Factors” below and in our most recent Annual Report on Form 10-K and in other reports we file under applicable securities laws for additional risks which could adversely impact our business and financial performance.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Report or the date of the document incorporated by reference into this Report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We are a veterinary health company creating products for companion animals by focusing on the unmet needs of clinical veterinarians. We expect that our product portfolio will include innovative diagnostics and medical devices that emphasize patient health and practice health. With a team that includes clinical veterinary professionals, our goal is to provide veterinarians the opportunity to increase productivity and grow revenue while better serving the animals in their care.
Our strategic focus has been on the commercialization of our TRUFORMA® diagnostic biosensor platform and the final development and commercialization of the first three assays for the detection of adrenal and thyroid disorders in cats and dogs. We also have continued our efforts on the development of the final two assays and will begin commercialization as soon as they are available. The TRUFORMA® platform uses Bulk Acoustic Wave (BAW) technology to provide a non-optical and fluorescence free detection system for use at the point-of-care. We believe that BAW technology will enable precise and repeatable test results at the point-of-care during a typical veterinary appointment.
We commenced marketing of TRUFORMA® with a distributor-based sales model and intended to transition to a direct sales organization as its market presence grew. However, due to developments involving our distributor that we believe impacted its ability to market our products effectively, we have accelerated that transition and have focused our efforts on building a direct sales organization.
We employ nine direct field commercialization personnel, supported by two regional directors, a Vice President of Sales, and a Chief Commercial Officer.
We believe that market acceptance of TRUFORMA® has been adversely impacted by delays in the development of our fT4 and ACTH assays by our development partner. Pending commercial availability of those assays, we have focused on encouraging veterinarians to install the TRUFORMA® instrument in order to test and utilize the TRUFORMA® platform. We expect this initiative to continue through the summer of 2021.
We are also continuing to recruit and hire level sales representatives, professional services veterinarians, and support staff in order both to further the execution of our instrument placement programs and to prepare for an acceleration of our sales efforts once the fT4 and ACTH assays are available for commercial release.
We expect that the fT4 assay will be available for commercial sale in the fall of 2021 and that the ACTH will be available for commercial sale by the end of 2021. We are also continuing development work on three assays to diagnose gastro-intestinal conditions (cPL, Cobalamin and Folate) and are in discussions with our development partner regarding the development order and timing of additional assays. We also expect to commence the marketing of TRUFORMA® in select markets outside the United States sometime during 2022.
We expect to continue the development of another point-of-care diagnostic platform, which is based on miniaturized laser-based Raman spectroscopy technology and is designed to detect pathogens in companion animals. We believe this platform will enable the identification of biological and biochemical signatures in complex biological samples and has the potential to achieve reference lab sensitivity/specificity to screen for a wide range of pathogens in companion animal feces, urine, respiratory, and dermatological samples in minutes without the need for extensive sample prep or the use of reagents. The diagnostic platform has automated analysis and does not require specialized staff training. We believe that this diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.
We have performed initial development work on a circulating tumor cell (CTC) “liquid biopsy” product for use in a reference lab setting as a canine cancer diagnostic. This product is intended for use to detect canine cancers faster, more affordably and less invasively compared to existing methods, which can be expensive and cost-prohibitive for pet owners. We have worked on the development of an assay that targets hard-to-diagnose canine cancers, such as hemangiosarcoma and osteosarcoma.
Consistent with our focus on the development of point-of-care diagnostic products, we intend to seek one or more partners for the further development and commercialization of the liquid biopsy product.
Through the year ended December 31, 2020, we were a development-stage company with no commercialized products, and we did not generate any revenue from product sales. We have incurred significant net losses since our inception. We incurred net losses of approximately $4.7 million and $8.7 million for the three and six months ended June 30, 2021 and approximately $5.3 million and $7.8 million for the three and six months ended June 30, 2020. These losses have resulted principally from costs incurred in connection with investigating and developing our product candidates, research and development activities, and general and administrative costs associated with our operations. As of June 30, 2021, we had an accumulated deficit of approximately $109.8 million and cash and cash equivalents of approximately $276.2 million.
For the foreseeable future, we expect to continue to incur losses, which will approximate historical levels as we continue the commercialization of our TRUFORMA® platform and expand our product development and sales and marketing activities.
For further information on the regulatory, business and product pipeline, please see the “Business” section of our Annual Report on Form 10-K. For further information on the risk factors we face, please see the “Risk Factors” section of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.
Revenue
We launched our TRUFORMA® platform and our first three assays during the first quarter of 2021. Our revenue consists of instruments, cartridges, and warranty services sold in the U.S.
Cost of Revenue
Cost of revenue consists primarily of costs related to the costs of purchasing instruments and cartridges and the related warranty purchases. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue.
Operating Expenses
The majority of our operating expenses to date have been for the general and administrative activities related to general business activities, capital market activities and stock-based compensation, developing a commercial team, and research and development activities related to our lead product candidates.
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 testing and research and development.
Selling General and Administrative Expense
Selling, general and administrative expense consists of personnel costs, including salaries, related benefits and stock-based compensation for administrative employees, consultants, and directors. These expenses also include costs associated with sales and marketing activity, professional fees, and corporate administrative and overhead costs, including rent and other facilities costs, amortization, and depreciation.
Income Taxes
As of December 31, 2020, we had net operating loss carryforwards for U.S. federal and state income tax purposes of approximately $19.6 million and non-capital loss carryforwards for Canada of approximately $27.8 million, 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 uncertainty of realizing any tax benefits as of December 31, 2020, a valuation allowance was necessary to fully offset our deferred tax assets. There has been no significant change in the first six months ended June 30, 2021.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenue, costs and expenses and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
JOBS Act
The Jumpstart Our Business Startups Act, or the JOBS Act, contains provisions that, among other things, reduce certain reporting requirements for an “emerging growth company.” We have irrevocably elected not to avail ourselves of the JOBS Act provision that an emerging growth company may delay adopting new or revised accounting standards until such times as those standards apply to private companies.
In addition, as an “emerging growth company” we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until December 31, 2022, or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.
Because our public float was in excess of $700 million at June 30, 2021, we will no longer be an "emerging growth company" as of December 31, 2021.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year. Actual results could differ from those estimates.
Areas where significant judgment is involved in making estimates are the determination of fair value of stock-based compensation, the useful lives of property and equipment, allocation of proceeds from financings to shares and warrants, and fair value of warrants and placement agent warrants.
Research and Development Costs
Research and development expenses comprise costs incurred in performing research and development activities, including salaries and benefits, safety and efficacy studies, contract manufacturing costs, contract research costs, patent procurement costs, materials and supplies and occupancy costs. Research and development activities include internal and external activities associated with research and development studies of current product candidates and advancing product candidates towards commercialization.
Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.
Translation of Foreign Currencies
The functional currency, as determined by management, is U.S. dollars, which is also our reporting currency. Transactions denominated in currencies other than U.S. dollars and the monetary value of assets and liabilities are translated at the period end exchange 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 other transactions are recognized in the consolidated statements of operations and comprehensive 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 if the fair value of the goods or services received by us cannot be reliably estimated.
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 U.S. 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.
The dilutive effect of stock options is determined using the treasury stock method. Stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted EPS, as the effect would be anti-dilutive.
Comprehensive Loss
We follow ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders' equity. We currently have no other comprehensive loss items.
Results of Operations
Revenue
Revenue for the three and six months ended June 30, 2021 was $15,693 and $29,817, respectively and resulted from the sale of our TRUFORMA® products and associated warranties. We commenced commercialization of TRUFORMA® on March 15, 2021 and accordingly had only limited sales activity in the first and second quarters of 2021.
As noted in the “Overview” section above, we believe that market acceptance of TRUFORMA® has been adversely impacted by delays in the development of our fT4 and ACTH assays by our development partner. We expect that market adoption of TRUFORMA® will be challenging until our fT4 and ACTH assays are available for commercial release. We expect that the fT4 assay will be available for commercial sale in the fall of 2021 and that the ACTH assay will be available for commercial sale by the end of 2021.
Cost of Revenue
Cost of revenue for the three and six months ended June 30, 2021 was $35,876 and $41,533, respectively. As noted above, commercialization of TRUFORMA® commenced on March 15, 2021. We expect that cost of revenue will increase as we sell additional products in subsequent periods.
Research and Development
Research and development expense for the three and six months ended June 30, 2021 was approximately $0.3 million and approximately $0.7 million, respectively, compared to approximately $3.9 million and $4.5 million for the three and six months ended June 30, 2020, respectively, representing a decrease of approximately $3.6 million, or 93%, over the prior three-month period and a decrease of approximately $3.1 million, or 85%, for the prior six-month period. The decrease in both periods was a result of an overall reduction in research and development activity as we curtailed our drug development activities, and a reduction in development costs related to TRUFORMA® as we completed development of the instrument and three of the first five assays and began transitioning to commercialization activities.
Selling, General and Administrative
Selling, general and administrative expense for the three months ended June 30, 2021 was approximately $5.0 million, compared to approximately $1.4 million for the three months ended June 30, 2020, an increase of approximately $3.6 million, or 261%. The increase primarily was due to an increase in share-based compensation expense which was approximately $1.7 million for the three months ended June 30, 2021, compared to approximately $0.1 million for the comparable period in 2020. Other significant increases include regulatory fees incurred for the annual shareholders meeting of approximately $0.9 million, salaries of approximately $0.6 million, professional fees approximately $0.3 million contracted expenditures of approximately $0.1 million, and marketing, travel and office expense of $.1 million.
Selling, general and administrative expense for the six months ended June 30, 2021 was approximately $8.5 million, compared to approximately $3.1 million for the six months ended June 30, 2020, an increase of approximately $5.4 million, or 172%. The increase primarily was due to an increase in share-based compensation expense which was approximately $3.0 million for the six months ended June 30, 2021, compared to approximately $0.3 million for the comparable period in 2020 as a result of stock option grants made during the first quarter of 2021. Other significant increases include professional fees of approximately $1 million, related primarily to the exchange of our Series 1 preferred stock and our SEC filings, regulatory fees incurred for the annual shareholders meeting of approximately $0.9 million, salaries of approximately $0.6 million, contracted expenditures of approximately $0.1 million, and marketing, travel and office expense of $.1 million.
Net Loss
Our net loss for the three and six months ended June 30, 2021 was approximately $4.7 million, or $.005 per share, and approximately $8.7 million, or $0.01 per share, respectively, compared to a net loss of approximately $5.3 million, or $0.02 per share, for the three months ended June 30, 2020, an increase in income of approximately $0.6 million, or 11% and a net loss of approximately $7.8 million, or $0.05 per share for the six months ended June 30, 2020, a decrease in income of approximately $0.9 million, or 13%. The net loss in each period was attributed to the matters described above. We expect to continue to record net losses in future periods until such time as we have sufficient revenue from product sales to offset our operating expenses.
Cash Flows
Six months ended June 30, 2021 compared to six months ended June 30, 2020
The following table shows a summary of our cash flows for the periods set forth below:
| Six months ended June 30, | ||||||||||||||||
| 2021 |
2020 |
Change |
||||||||||||||
| $ | % |
|||||||||||||||
| Cash flows used in operating activities |
$ | (4,375,842 | ) | $ | (7,893,652 | ) | 3,517,810 | -45 | % | |||||||
| Cash flows (used) provided by investing activities |
(141,278 | ) | 1,007,513 | (1,148,791 | ) | -114 | % | |||||||||
| Cash flow provided by financing activities |
218,735,233 | 35,478,602 | 183,256,631 | 517 | % | |||||||||||
| Increase in cash and cash equivalents |
214,218,113 | 28,592,463 | 185,625,650 | 649 | % | |||||||||||
| Cash and cash equivalents, beginning of period |
61,991,703 | 510,586 | 61,481,117 | 12041 | % | |||||||||||
| Cash and cash equivalents, end of period |
$ | 276,209,816 | $ | 29,103,049 | 247,106,767 | 849 | % | |||||||||
Operating Activities
Net cash used in operating activities for the six months ended June 30, 2021 was approximately $4.4 million, compared to approximately $7.9 million for the six months ended June 30, 2020, a decrease of approximately $3.5 million, or 45%. Approximately $3.0 million of current period expense is non-cash expense associated with stock compensation, recorded as a result of stock option grants in 2020, compared to the prior period of approximately $0.3 million, approximately $0.5 million in gains recognized on extinguishment of debt, and a loss on disposal of property of $0.2 million. Other non-cash activity included amortization and depreciation of approximately $0.2 million. Accounts payable increased by approximately $1.9 million, offset in part by an increase in inventory purchases of approximately $0.8 million.
Investing Activities
Net cash used in investing activities for the six months ended June 30, 2021 was approximately $0.1 million, compared to net cash provided of approximately $1.0 million for the six months ended June 30, 2020, an increase in net cash used of approximately $1.1 million, or 114%. The increase in net cash used in investing activities was due to the receipt of cash from the modification of our lease in the first half of 2020 compared to investments of intangible and other property and equipment in the current period.
Financing Activities
Net cash from financing activities for the six months ended June 30, 2021 was approximately $218.7 million, compared to approximately $35.5 million for the six months ended June 30, 2020, an increase of approximately $183.2 million, or 517%. The increase resulted primarily from the sale of our equity securities for total gross proceeds of approximately $199.5 million, cash received of approximately $32.1 million from warrant exercises, and cash received of approximately $1.4 million from stock option exercises, offset by stock issuance costs of approximately $14.3 million.
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our inception in May 2015. As of June 30, 2021, we had an accumulated deficit of approximately $109.8 million. 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.
At June 30, 2021, the Company had cash and cash equivalents of approximately $276.2 million, inventory of approximately $0.8 million, prepaid expenses and deposits of approximately $0.2 million, accounts receivable of $4,264 and other receivables of approximately $0.3 million. At June 30, 2021, current assets amounted to approximately $277.5 million and current liabilities were approximately $3.4 million, resulting in working capital (defined as current assets minus current liabilities) of approximately $274.1 million.
Subsequent to June 30, 2021, stock options to purchase 1,233,425 common shares were exercised, resulting in additional cash proceeds of approximately $0.3 million.
On October 17, 2017, we entered into a five-year $5,000,000 unsecured working capital facility with Equidebt LLC, one of our shareholders (the “Equidebt Facility”). Amounts borrowed under the Equidebt Facility bear interest at a rate of 14% per annum payable at maturity. All amounts borrowed under the Equidebt Facility become due and payable on October 17, 2022. We can make two borrowings per month under the Equidebt Facility, each of which must be for a minimum of $250,000. No amounts were outstanding under the Equidebt Facility at June 30, 2021.
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and cash equivalents, due to the short-term nature of these balances.
The Company has balances in Canadian dollars that give rise to exposure to foreign exchange (“FX”) risk relating to the impact of translating certain non-U.S. dollar balance sheet accounts as these statements are presented in U.S. dollars. A strengthening U.S. dollar will lead to a FX loss while a weakening U.S. dollar will lead to a FX gain. For each Canadian dollar balance of $1.0 million, a +/- 10% movement in the Canadian currency held by the Company versus the U.S. dollar would affect the Company’s loss and other comprehensive loss by $0.1 million.
Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.
We believe that our existing cash resources will be sufficient to fund our expected working capital needs through December 2023. 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. In the event that we are unable to obtain sufficient capital to meet our working capital requirements, we may be required to change or curtail current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated. In such an event, we may not be able to take advantage of business opportunities and may have to terminate or delay safety and efficacy studies, curtail our product development programs, or sell or assign rights to our product candidates, products and technologies.
Our future capital requirements depend on many factors, including, but not limited to:
| ● | the scope, progress, results and costs of researching and developing our current or future product candidates; |
| ● | the number and characteristics of the product candidates we pursue; |
| ● | the cost of manufacturing our current and future product candidates and any products we successfully commercialize; |
| ● | the cost of commercialization activities 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; |
| ● | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such agreements; |
| ● | the scope and terms of our business plans from time to time, and our ability to realize upon our business plans; |
| ● | the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation; and |
| ● | the costs associated with additional business development or mergers and acquisitions activity |
Off Balance Sheet Arrangements
Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities.
Outstanding Share Data
The only class of outstanding voting equity securities of the Company are the common shares. As of August 11, 2021,
| ● |
there are 979,728,168 common shares issued and outstanding. |
| ● |
there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 37,087,724 common shares. |
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there are common share purchase warrants outstanding to acquire an aggregate of 197,917 common shares at an exercise price of $0.15 per share issued in February 2020. |
| ● |
there are common share purchase warrants outstanding to acquire an aggregate of 366,585 common shares at an exercise price of $0.15 per share issued in April 2020. |
| ● |
there are common share purchase warrants outstanding to acquire an aggregate of 276,500 common shares at an exercise price of $0.15 per share issued in May 2020. |
| ● |
there are common share purchase warrants outstanding to acquire an aggregate of 231,000 common shares at an exercise price of $0.16 per share issued in July 2020. |
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All of the currently outstanding warrants also have a “cashless exercise” feature which is applicable in certain circumstances. The cashless exercise feature could result in the potential issuance of common shares based upon the “in-the-money” value of the applicable warrants at the time of exercise of the applicable warrants. The number of the common shares that may be issued is not determinable. However, the number of common shares that are issuable is based upon a formula contained in the applicable warrants, which determines the number of common shares issuable by dividing the “in-the-money” value (based upon the then current market price, as provided in the applicable warrants) by the then current market price and multiplying this result by the number of common shares that are issuable under the applicable warrants pursuant to cash exercise. |
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Evaluation of Our Disclosure Controls
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of June 30, 2021, our disclosure controls and procedures were effective.
Changes in Internal Controls
There has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
On November 1, 2019, Heska Corporation (“Heska”) filed a complaint for damages and injunctive relief (the “Complaint”) in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, against Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and us (collectively with Qorvo, the “Defendants”) which was amended on November 22, 2019. The amended Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The amended Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing our TRUFORMATM diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. Heska subsequently moved to strike a portion of the Defendants’ response. On September 30, 2020, the court denied the Defendants’ motion to dismiss and granted Heska’s motion to strike. On October 14, 2020 the Defendants filed their answer to the amended Complaint. On May 10, 2021, the Defendants filed an updated answer and counterclaims to Heska’s amended complaint alleging unfair and deceptive trade practices claims against Heska. Discovery is ongoing. We believe that the allegations in the amended Complaint have no merit and will not have a material adverse effect on our business, results of operations or financial condition.
Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (as amended, the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify us and certain related parties against claims alleging infringement or misappropriation of third-party intellectual property rights, subject to certain limitations and exceptions. Qorvo Biotech has notified us that Qorvo Biotech has assumed the defense of the amended Complaint and will indemnify us for losses arising from the amended Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised us that it intends to mount a vigorous defense to the claims in the amended Complaint, and that it believes the allegations contained in the amended Complaint are without merit.
RISK FACTORS
If we are unable to establish an effective direct sales capability, our ability to market and sell our existing and future products and our ability to generate product revenue will be materially and adversely affected.
As a result of our experience with the initial commercialization of TRUFORMA®, we have recently changed our sales strategy to focus on enhancing our internal capability to sell our existing and future products. As part of this strategic change, we are hiring additional sales personnel and sales support staff. We expect that expanding our internal sales capability will increase our compensation and other expenses. While members of our management team are experienced in the marketing, sale and distribution of animal diagnostic products, we as a company have not previously commercialized any products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively oversee a geographically dispersed sales team. If we are unable to build an effective sales organization, our ability to sell our existing and future products and our ability to generate product revenue will be materially and adversely affected.
We have used third parties to assist in the sales and distribution of our products. If these third parties are not successful in selling our products or do not adequately perform their obligations, our ability to market and sell our existing and future products and our ability to generate product revenue could be materially and adversely affected.
We have used third parties to assist in the sales and distribution of our TRUFORMA® instrument and related assays. We cannot assure you that these third parties will be successful in selling our products or that they will satisfy their obligations to us. If our sales and distribution partners are not successful in selling our products, or do not adequately perform their obligations, our ability to sell our existing and future products and our ability to generate product revenue could be materially and adversely affected.
The exhibits listed on the accompanying index to exhibits immediately preceding the exhibits are filed as part of, or hereby incorporated by reference into, this Quarterly Report.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Zomedica Corp. |
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| By: |
/s/ Robert Cohen |
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| Name: |
Robert Cohen |
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| Title: |
Chief Executive Officer |
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| By: |
/s/ Ann Marie Cotter |
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| Name: |
Ann Marie Cotter |
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| Title: |
Chief Financial Officer |
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EXHIBIT INDEX
| Exhibit No. |
Description |
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| 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)) |
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| Amended and Restated By-Law No. 1 (2nd Version) of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed with the Commission on August 7, 2020 (File No. 001-38298)) |
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| 10.1 | Separation Agreement between the Company and Stephanie Morley, dated May 14, 2021 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the Commission on May 17, 2021 (File No. 001-38298)) |
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| 10.2 | Consulting Agreement between the Company and Stephanie Morley, dated May 14, 2021 (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the Commission on May 17, 2021 (File No. 001-38298)) |
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| Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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| Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
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| 101.INS |
Inline XBRL Instance Document (the Instance Document does not appear in the Interactive Data File because its XBRL (1) |
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| 101.SCH |
Inline XBRL Taxonomy Extension Schema Document (1) |
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| 101.CAL |
Inline XBRL Taxonomy Extension Calculation Linkbase Document (1) |
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| 101.DEF |
Inline XBRL Taxonomy Extension Definition Linkbase Document (1) |
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| 101.LAB |
Inline XBRL Taxonomy Extension Label Linkbase Document (1) |
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| 101.PRE |
Inline XBRL Taxonomy Extension Presentation Linkbase Document (1) |
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| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) |
(1) These interactive date files shall not be deemed filed for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under those sections.
* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.