UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021.

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from________ to_________.

 

Commission File Number:  001-38298

 

Zomedica Corp.

(Exact name of registrant as specified in its charter)

 

Alberta, Canada

 

N/A

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer

Identification Number)

 

100 Phoenix Drive, Suite 125

Ann Arbor, Michigan

 

48108

(Address of principal executive offices)

 

(Zip code)

 

(734) 369-2555

 (Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large, accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No ☒

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

ZOM

NYSE American

 

As of November 12, 2021, 979,894,668 shares of the registrant’s common shares, without par value, were issued and outstanding.

 

 

 

Zomedica Corp.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

SEPTEMBER 30, 2021

 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

PART I

 

 

 

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Condensed Financial Statements

 

 3

 

Item 2.

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

 

 24

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

 

 34

 

Item 4.

Controls and Procedures

 

 34

 

 

 

 

 

 

 

PART II

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 35

 

Item 1A.

Risk Factors

 

 35

 

Item 6.

Exhibits

 

 37

 

 

2

Table of Contents

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

  

Zomedica Corp.

Condensed consolidated balance sheets

As of September 30, 2021, and December 31, 2020

(Unaudited) (Stated in United States dollars)

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$271,411,043

 

 

$61,991,703

 

Inventory

 

 

1,423,923

 

 

 

-

 

Prepaid expenses and deposits

 

 

1,633,846

 

 

 

1,727,814

 

Trade receivables

 

 

6,938

 

 

 

-

 

Other receivables

 

 

258,359

 

 

 

146,207

 

Total current assets

 

 

274,734,109

 

 

 

63,865,724

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and deposits

 

 

168,020

 

 

 

13,924

 

Property and equipment, net

 

 

706,266

 

 

 

583,007

 

Right-of-use asset

 

 

1,419,790

 

 

 

1,318,716

 

Intangible assets, net

 

 

473,966

 

 

 

362,663

 

Total assets

 

$277,502,151

 

 

$66,144,034

 

 

 

 

 

 

 

 

 

 

Liabilities, mezzanine and shareholders' equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$4,464,874

 

 

$1,248,628

 

Current portion of debt obligations

 

 

-

 

 

 

527,360

 

Current portion of lease obligations

 

 

407,278

 

 

 

252,788

 

Total current liabilities

 

 

4,872,152

 

 

 

2,028,776

 

 

 

 

 

 

 

 

 

 

Lease obligations

 

 

1,069,687

 

 

 

1,087,998

 

Total liabilities

 

 

5,941,839

 

 

 

3,116,774

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 13)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mezzanine equity:

 

 

 

 

 

 

 

 

Series 1 preferred shares, no par value;

 

 

 

 

 

 

 

 

20 shares authorized

 

 

 

 

 

 

 

 

0 and 12 Series 1 preferred shares issued and outstanding

 

 

-

 

 

 

11,961,397

 

at September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders' equity

 

 

 

 

 

 

 

 

Unlimited common shares, no par value;

 

 

 

 

 

 

 

 

979,738,168 and 642,036,228 issued and outstanding

 

 

380,928,831

 

 

 

104,783,612

 

at September 30, 2021 and December 31, 2020, respectively

 

 

 

 

 

 

 

 

Common shares subscribed

 

 

-

 

 

 

459,600

 

Additional paid-in capital

 

 

6,732,887

 

 

 

14,792,276

 

Accumulated deficit

 

 

(116,101,406)

 

 

(68,969,625)

Total shareholders' equity

 

 

271,560,312

 

 

 

51,065,863

 

 

 

 

 

 

 

 

 

 

Total liabilities, mezzanine equity and shareholders' equity

 

$277,502,151

 

 

$66,144,034

 

 

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

 

3

Table of Contents

 

Zomedica Corp.

Condensed consolidated statements of loss and comprehensive loss

For the three and nine months ended September 30, 2021, and 2020

(Unaudited) (Stated in United States dollars)

   

 

 

Three months ended September 30,

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net revenue

 

$22,514

 

 

$-

 

 

$52,331

 

 

$-

 

Cost of revenue

 

 

17,899

 

 

 

-

 

 

 

59,433

 

 

 

-

 

Gross profit

 

 

4,615

 

 

 

-

 

 

 

(7,102)

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

288,453

 

 

 

2,702,103

 

 

 

1,008,083

 

 

 

7,205,674

 

Selling, general and administrative

 

 

6,124,382

 

 

 

2,298,330

 

 

 

14,593,952

 

 

 

5,430,812

 

Loss from operations

 

 

(6,408,220)

 

 

(5,000,433)

 

 

(15,609,137)

 

 

(12,636,486)

Interest income

 

 

(94,302)

 

 

(21,238)

 

 

(261,556)

 

 

(21,566)

Interest expense

 

 

-

 

 

 

-

 

 

 

6,054

 

 

 

732

 

Loss on disposal of assets

 

 

26,760

 

 

-

 

 

 

269,707

 

 

 

128,931

 

Gain on extinguishment of debt

 

 

-

 

 

 

-

 

 

 

(533,414

) 

 

 

-

 

Other gains

 

 

(600)

 

 

(1,963)

 

 

(2,481)

 

 

(7,463)

Foreign exchange loss

 

 

5,609

 

 

 

2,743

 

 

 

5,731

 

 

 

1,462

 

Loss before income taxes

 

 

(6,345,687)

 

 

(4,979,975)

 

 

(15,093,178)

 

 

(12,738,582)

Income tax expense

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Net loss and comprehensive loss

 

$(6,345,687)

 

$(4,979,975)

 

$(15,093,178)

 

$(12,738,582)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares - basic and diluted

 

 

978,494,076

 

 

 

550,541,878

 

 

 

948,664,410

 

 

 

291,314,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share - basic and diluted (Note 16)

 

$(0.01)

 

$(0.01)

 

$(0.05)

 

$(0.04)

   

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

 

4

Table of Contents

 

Zomedica Corp.

Condensed consolidated statements of shareholders’ equity

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars) 

 

 

 

Series 1 preferred shares

 

 

Common shares

 

 

 Common

stock

 

 

Additional

paid-

 

 

Accumulated

 

 

 

For the nine months ending September 30, 2021

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

subscribed

 

 

in capital

 

 

deficit

 

 

Total

 

Balance at December 31, 2020

 

 

-

 

 

 

-

 

 

 

642,036,228

 

 

$104,783,612

 

 

$459,600

 

 

$14,792,276

 

 

$(68,969,625)

 

$51,065,863

 

Stock issuance for financing

 

 

-

 

 

 

-

 

 

 

105,013,158

 

 

 

199,525,000

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

199,525,000

 

Stock issuance costs

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,280,914)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(14,280,914)

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,502,597

 

 

 

-

 

 

 

4,502,597

 

Stock issued from warrant exercises

 

 

-

 

 

 

-

 

 

 

200,951,905

 

 

 

44,082,183

 

 

 

(459,600)

 

 

(11,511,046)

 

 

-

 

 

 

32,111,537

 

Stock issued from stock option exercises

 

 

-

 

 

 

-

 

 

 

7,017,776

 

 

 

2,818,950

 

 

 

-

 

 

 

(1,050,940)

 

 

-

 

 

 

1,768,010

 

Preferred share exchange

 

 

-

 

 

 

-

 

 

 

24,719,101

 

 

 

44,000,000

 

 

 

-

 

 

 

-

 

 

 

(32,038,603)

 

 

11,961,397

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(15,093,178)

 

 

(15,093,178)

Balance at September 30, 2021

 

 

-

 

 

 

-

 

 

 

979,738,168

 

 

$380,928,831

 

 

$-

 

 

$6,732,887

 

 

$(116,101,406)

 

$271,560,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series 1 preferred shares

 

 

Common shares

 

 

Common

stock

 

 

Additional

paid-

 

 

 

Accumulated

 

 

 

 

For the three months ending September 30, 2021

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

subscribed

 

 

in capital

 

 

deficit

 

 

Total

 

Balance at June 30, 2021

 

 

-

 

 

 

-

 

 

 

977,950,993

 

 

$380,222,091

 

 

$-

 

 

$5,601,641

 

 

$(109,755,719)

 

$276,068,013

 

Stock-based compensation

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

1,437,778

 

 

 

-

 

 

 

1,437,778

 

Stock issued from stock option exercises

 

 

-

 

 

 

-

 

 

 

1,787,175

 

 

 

706,740

 

 

 

-

 

 

 

(306,532)

 

 

-

 

 

 

400,208

 

Net loss

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,345,687)

 

 

(6,345,687)

Balance at September 30, 2021

 

 

-

 

 

 

-

 

 

 

979,738,168

 

 

$380,928,831

 

 

$-

 

 

$6,732,887

 

 

$(116,101,406)

 

$271,560,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series 1 preferred shares

 

 

Common shares

 

 

Common

stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

 

 

For the nine months ending September 30, 2020

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

subscribed

 

 

capital

 

 

deficit

 

 

Total

 

Balance at December 31, 2019

 

 

12

 

 

$11,961,397

 

 

 

108,038,398

 

 

$38,566,820

 

 

$-

 

 

$3,625,083

 

 

$(52,057,841)

 

$2,095,459

 

Stock, warrants and pre-funded warrants issuance for financing

 

 

 

 

 

 

 

 

 

 

337,830,001

 

 

 

32,275,266

 

 

 

-

 

 

 

24,221,017

 

 

 

-

 

 

 

56,496,283

 

Stock issuance costs

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(2,979,594)

 

 

-

 

 

 

(2,128,021)

 

 

-

 

 

 

(5,107,615)

Placement agent warrants

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(154,767)

 

 

-

 

 

 

154,767

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

478,835

 

 

 

-

 

 

 

478,835

 

Stock issued from exercise of warrants and prefunded warrants

 

 

 

 

 

 

 

 

 

 

118,183,039

 

 

 

20,250,412

 

 

 

-

 

 

 

(8,095,003)

 

 

-

 

 

 

12,155,409

 

Net loss

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(12,738,582)

 

 

(12,738,582)

Balance at September 30, 2020

 

 

12

 

 

$11,961,397

 

 

 

564,051,438

 

 

$87,958,137

 

 

$-

 

 

$18,256,678

 

 

$(64,796,423)

 

$53,379,789

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series 1  preferred shares

 

 

Common shares

 

 

Common

stock

 

 

Additional

paid-in

 

 

Accumulated

 

 

 

 

For the three months ending September 30, 2020

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

subscribed

 

 

capital

 

 

deficit

 

 

Total

 

Balance at June 30, 2020

 

 

12

 

 

$11,961,397

 

 

 

361,039,946

 

 

$67,328,922

 

 

$1,465,500

 

 

$8,639,590

 

 

$(59,816,448)

 

 

29,578,961

 

Stock, warrants and pre-funded warrants issuance for financing

 

 

 

 

 

 

 

 

 

 

162,500,000

 

 

 

16,290,941

 

 

 

(1,465,500 )

 

 

13,706,559

 

 

 

-

 

 

 

28,532,000

 

Stock issuance costs

 

 

 

 

 

 

 

 

 

 

-

 

 

 

(1,224,218)

 

 

-

 

 

 

(1,043,997)

 

 

-

 

 

 

(2,268,215)

Placement agent warrants

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

187,969

 

 

 

-

 

 

 

187,969

 

Stock issued from exercise of warrants and prefunded warrants

 

 

 

 

 

 

 

 

 

 

40,511,492

 

 

 

5,562,492

 

 

 

-

 

 

 

(3,233,443)

 

 

-

 

 

 

2,329,049

 

Net loss

 

 

 

 

 

 

 

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(4,979,975)

 

 

(4,979,975)

Balance at September 30, 2020

 

 

12

 

 

$11,961,397

 

 

 

564,051,438

 

 

$87,958,137

 

 

$-

 

 

$18,256,678

 

 

$(64,796,423)

 

$53,379,789

 

  

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

 

5

Table of Contents

   

Zomedica Corp.

Condensed consolidated statements of cash flows

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

 

 

Nine months ended September 30,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$(15,093,178)

 

$(12,738,582)

Adjustments for

 

 

 

 

 

 

 

 

Depreciation

 

 

175,168

 

 

 

232,475

 

Amortization - intangible assets

 

 

136,200

 

 

 

177,873

 

Loss on disposal of property and equipment

 

 

247,753

 

 

 

69,834

 

Loss on other assets

 

 

5,323

 

 

59,097

 

Gain on extinguishment of debt

 

 

(533,414

)

 

 

-

 

Stock-based compensation

 

 

4,502,597

 

 

 

478,835

 

Non-cash portion of rent expense

 

 

35,838

 

 

 

16,051

 

Change in non-cash operating working capital

 

 

 

 

 

 

 

 

Purchased inventory

 

 

(1,875,423)

 

 

-

 

Prepaid expenses and deposits

 

 

(61,004)

 

 

(1,003,091)

Trade receivable

 

 

(6,938)

 

 

-

 

Other receivables

 

 

(122,972)

 

 

(61,651)

Accounts payable and accrued liabilities

 

 

3,216,246

 

 

 

(787,124)
Net cash used in operating activities

 

 

(9,373,804)

 

 

(13,556,283)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Cash from sale of property and equipment

 

 

225

 

 

 

5,400

 

Investment in intangibles

 

 

(245,560)

 

 

-

 

Investment in property and equipment

 

 

(96,964)

 

 

(613)
Cash from lease cancellation or modification

 

 

-

 

 

 

1,002,113

 

Net cash (used in) provided by investing activities

 

 

(342,299)

 

 

1,006,900

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common shares, warrants and pre-funded warrants

 

 

199,525,000

 

 

 

56,496,283

 

Cash received from warrant exercises

 

 

32,111,537

 

 

 

12,155,409

 

Cash received from stock option exercises

 

 

1,768,010

 

 

 

-

 

Cash received from shares to be issued

 

 

-

 

 

 

-

 

Cash paid on stock issuance costs

 

 

(14,269,104)

 

 

(5,107,615)

Cash received for government loan

 

 

-

 

 

 

527,360

 

Net cash provided by financing activities

 

 

219,135,443

 

 

 

64,071,437

 

 

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

 

209,419,340

 

 

 

51,522,054

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, beginning of period

 

 

61,991,703

 

 

 

510,586

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$271,411,043

 

 

$52,032,640

 

 

 

 

 

 

 

 

 

 

Noncash investing and financing activities

 

 

 

 

 

 

 

 

Transfer of inventory into property and equipment

 

$

451,500

 

 

$

-

 

Deferred financing fees charged to stock issuance costs

 

$

11,810

 

 

$

-

 

Account receivable recorded in intercompany account

 

$

(990

) 

 

-

 

Net equity effect of preferred share exchange

 

$

 (11,961,397

) 

 

$

-

 

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest paid

 

$-

 

 

$651

 

Interest received

 

$228,881

 

 

$14,347

 

 

 

 

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

 

6

Table of Contents

  

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

1. Nature of operations

 

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 nine months ended September 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.

 

7

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

3. Significant accounting policies

 

Estimates and assumptions

 

In preparing these financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur, and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.

 

Inventories

 

Inventories are stated at the lower of cost or net realizable value. The Company utilizes 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.

 

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.

    

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 diagnostic instrument, consumable products, and 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 warranties are also a separate performance obligation, whereby revenue is recognized over time.

 

Sales are recorded net of sales tax. Sales tax is charged on sales to end users and remitted to the appropriate state authority.

 

Accounts receivable are recorded at net realizable value and have payment terms of 30 days.

 

8

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

  

3. Significant accounting policies (continued)

 

Cost of revenue

 

Cost of goods sold consists of materials, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of goods sold.

 

Comparative figures

 

Certain prior year amounts have been reclassified to conform to the current year presentation. The change in presentation had no effect on the reported results of operations. Adjustments have been made to the consolidated balance sheets and consolidated statements of loss and comprehensive loss for three and six months ended September 30, 2020. These changes in classification do not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.

 

4. Prepaid expenses, deposits, and deferred financing costs

 

 

 

 September 30,

 

 

     December 31,

 

 

 

2021

 

 

2020

 

Deposits (i)

 

$1,256,094

 

 

$1,469,043

 

Prepaid marketing

 

 

64,300

 

 

 

26,330

 

Prepaid insurance

 

 

380,254

 

 

 

184,154

 

Other (ii)

 

 

101,218

 

 

 

62,211

 

Total

 

$1,801,866

 

 

$1,741,738

 

   

(i)

Deposits include payments made to vendors in advance and are primarily associated with inventory, warranties, and research activity. As of September 30, 2021, and December 31, 2020, the Company classified $168,020 and $13,924 as a non-current asset, with the remainder classified as a current asset in the consolidated balance sheets.

(ii)

Other is comprised of deferred financing costs, subscription payments, utilities, travel costs, and software licensing. As of September 30, 2021, and December 31, 2020, the Company classified all amounts as a current asset in the consolidated balance sheets.

 

9

Table of Contents

  

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

5. Property and equipment

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Computer equipment

 

$901,379

 

 

$364,165

 

Furniture and equipment

 

 

110,244

 

 

 

121,281

 

Laboratory equipment

 

 

225,330

 

 

 

234,087

 

Leasehold improvements

 

 

275,149

 

 

 

571,460

 

 

 

 

1,512,102

 

 

 

1,290,993

 

 

 

 

 

 

 

 

 

 

Accumulated depreciation and amortization

 

 

805,836

 

 

 

707,986

 

Net property and equipment

 

$706,266

 

 

$583,007

 

 

Depreciation expense for the three months ended September 30, 2021 and 2020 was $60,445 and $78,200, respectively and for the nine months ended September 30, 2021 and 2020 was $175,168 and $232,475, respectively.

.

6. Intangible assets

 

 

 

September 30,

 

 

December 31,

 

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

Computer software

 

 

28,097

 

 

$22,882

 

Trademarks

 

 

16,236

 

 

 

16,236

 

Website

 

 

755,968

 

 

 

513,680

 

 

 

 

800,301

 

 

 

552,798

 

 

 

 

 

 

 

 

 

 

Accumulated amortization

 

 

326,335

 

 

 

190,135

 

Net intangibles

 

$473,966

 

 

$362,663

 

 

Amortization expense for the three months ended September 30, 2021 and 2020 was $46,732 and $45,399, respectively and for the nine months ended September 30, 2021 and 2020 was $136,200 and $135,425, respectively.

 

10

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 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 60 months, commencing on February 1, 2020, and ending on January 31, 2025, with a monthly rent payment of $32,452 escalating to $36,525 over the lease period. Upon cancellation of the previous existing lease, the Company received a refund of prepaid rent in the amount of $1,002,113. The carrying value of the right of use asset was $1,061,210 upon cancellation. The Company recorded a loss on right-of-use asset of $59,097 during the three months ended March 31, 2020 in the consolidated statements of comprehensive loss.

 

On February 1, 2020, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $1,553,611 using the Company’s incremental borrowing rate of 12%.

 

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 $12,039 for the first two months and escalating to $30,911 over the lease period. The carrying value of the right of use asset was $1,258,263 upon modification. The Company recorded a gain on right-of-use asset of $731 during the three months ended March 31, 2021 in the consolidated statements of comprehensive loss.

 

On February 1, 2021, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $1,281,609 using the Company’s incremental borrowing rate of 3.95%.

 

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 recorded a right-of-use asset and a corresponding lease liability in the amount of $4,580 for the first month and escalating to $10,009 over the lease period. The Company recorded a right-of-use asset and corresponding lease liability for $365,840 using the Company’s incremental borrowing rate of 3.95%.

 

During the three and nine months ended September 30, 2021, the Company recognized $93,980 and $270,554 in rent expense, $3,882 of the expense was for common area maintenance charges, with $31,605 and $69,403 recorded in research and development expenses, respectively and $62,375 and $201,151 recorded in general and administrative expense, respectively in the consolidated statements of comprehensive loss.

 

During the three and nine months ended September 30, 2020, the Company recognized $103,375 and $279,997 in rent expense with $17,229 and $56,221 recorded in research and development expenses and $86,146 and $223,776 recorded in general and administrative expense, respectively in the consolidated statements of comprehensive loss.

 

11

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

7. Leases (continued)

   

 

 

September 30,

2021

 

 

December 31,

2020

 

Right-of-use asset

 

 

 

 

 

 

Cost

 

 

 

 

 

 

Aggregate lease commitments

 

$1,778,798

 

 

$2,067,505

 

Less: impact of present value and lease modification

 

 

(154,695)

 

 

(513,894)

Balance

 

 

1,624,103

 

 

 

1,553,611

 

 

 

 

 

 

 

 

 

 

Reduction in right-of-use asset

 

 

 

 

 

 

 

 

Straight line amortization

 

 

232,214

 

 

 

379,043

 

Interest

 

 

(27,901)

 

 

(144,148)

Balance

 

 

204,313

 

 

 

234,895

 

 

 

 

 

 

 

 

 

 

Net book value

 

$1,419,790

 

 

$1,318,716

 

 

 

 

 

 

 

 

 

 

Lease liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additions

 

$1,647,449

 

 

$1,553,611

 

Payments

 

 

(198,385)

 

 

(356,972)

Interest

 

 

27,901

 

 

 

144,147

 

Total lease liabilities

 

$1,476,965

 

 

$1,340,786

 

 

 

 

 

 

 

 

 

 

Current portion of lease liabilities

 

 

407,278

 

 

 

252,788

 

Long term portion of lease liabilities

 

 

1,069,687

 

 

 

1,087,998

 

Total lease liabilities

 

$1,476,965

 

 

$1,340,786

 

  

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

 

2021 - remainder balance

 

$112,342

 

 

$400,133

 

2022

 

 

461,727

 

 

 

412,137

 

2023

 

 

475,579

 

 

 

424,501

 

2024

 

 

489,845

 

 

 

437,236

 

2025

 

 

40,920

 

 

 

36,526

 

Total

 

$1,580,413

 

 

$1,710,533

 

 

12

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

8. Loan arrangements

 

On October 18, 2017, the Company entered into a loan arrangement with a shareholder of the Company, pursuant to which such shareholder has agreed to provide a loan facility to the Company, whereby the Company may borrow up to $5,000,000, with the proceeds to be used for working capital and general corporate purposes. The term of the loan facility is five (5) years, with principal and interest payments being due only at the time of maturity. Under the loan agreement, the Company may borrow in one or more advances, provided however that a minimum amount of $250,000 must be borrowed at any one time and not more than two advances may occur per month. Interest shall accrue at a rate of fourteen percent (14%) per annum, payable upon maturity. As of September 30, 2021, no amounts have been borrowed.

 

The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5x the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.

 

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 $527,360 under the program. The receipt was reported as a current liability and accounted for as a loan. The Company was granted forgiveness on June 13, 2021 and recorded a gain on the extinguishment of debt for $533,414, inclusive of $6,054 in accrued interest.

 

9. Preferred shares

 

The Company is authorized to issue up to 20 shares of its Series 1 Preferred Shares, all without par value, and each having a stated value of $1,000,000. The Series 1 Preferred Shares do not have voting rights except to the extent required by applicable law and are not convertible into the Company’s common shares. Holders of the Series 1 Preferred Shares will not be entitled to dividends but, in lieu thereof, will receive Net Sales Returns (“Net Sales Returns” is defined as annual payments equal to 9 percent of net sales) until such time as the holders have received total Net Sales Returns equal to 9 times the aggregate stated value of the outstanding Series 1 Preferred Shares. The Company will have the right to redeem the outstanding Series 1 Preferred Shares at any time at a redemption price equal to 9 times the aggregate stated value of the Series 1 Preferred Shares outstanding less the aggregate amount of the Net Sales Returns paid (the “Redemption Amount”).

 

Upon any dissolution, liquidation or winding up, whether voluntary or involuntary, holders of Series 1 Preferred Shares will be entitled to a liquidation preference equal to the stated value of the Series 1 Preferred Shares less the Net Sales Returns paid on the Series 1 Preferred Shares.

 

13

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

9. Preferred shares (continued)

 

In the event of a fundamental transaction (defined to include an amalgamation, merger or other business combination transaction involving our company in which the shareholders do not have the right to cast more than 50% of the votes that may be cast for the election of directors, or a sale, lease or other disposition of the properties and/or assets of our company as an entirety or substantially as an entirety to a third party), the holders of the Series 1 Preferred Shares will be entitled to receive consideration for their Series 1 Preferred Shares equal to a multiple of the stated value of the Series 1 Preferred Shares ranging from 5.0 to 9.0 depending on the timing of the fundamental transaction, subject to a cap equal to the redemption amount.

 

Issued and outstanding preferred stock:

 

 

 

Number of

 

 

Preferred

 

 

 

 preferred

stock

 

 

stock

amount

 

Balance at December 31, 2019

 

 

12

 

 

$11,961,397

 

Balance at December 31, 2020

 

 

12

 

 

 

11,961,397

 

Stock exchanged

 

 

(12)

 

 

(11,961,397)

Balance at September 30, 2021

 

 

-

 

 

$-

 

 

The Company exchanged the issued and outstanding shares of its Series 1 Preferred Shares on March 7, 2021, for 24,719,101 of common shares valued at $44,000,000. The difference between the carrying value of the preferred shares and the fair value of the common shares exchanged of $32,038,603 was charged to accumulated deficit.

 

10. Common shares

 

(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 one common share and a Series A Warrant to purchase one common share, resulting in the sale of 20,833,334 common shares and Series A Warrants to purchase 20,833,334 common shares at a combined offering price of $0.12 per share and related Series A Warrant. Each Series A Warrant has an exercise price of $0.20 per share, is exercisable six months after issuance and has a term of 5.5 years. The Company also issued warrants to the placement agents to purchase 1,041,667 common shares at an exercise price of $0.15 per share (“Placement Agent Warrants”), which were exercisable immediately upon issuance and have a term of 5 years. In aggregate, the Company issued 20,833,334 common shares, 20,833,334 Series A Warrants, and an additional 1,041,667 Series A Placement Agent Warrants.

 

 

 

The Company raised $2,500,000 in gross proceeds as part of the RDO. The Company recorded $1,705,655 as the value of common shares under common shares and $794,345 as the value of Series A Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

The direct cash costs related to the issuance of the common shares and warrants issued in February 2020 were $348,220. These direct costs were recorded as an offset against the statement of shareholders’ equity with $238,217 being recorded under common shares and $110,003 being recorded under additional paid-in-capital. The Company also recorded the value of the Series A Placement Agent Warrants in the amount of $52,496 as an offset against the statement of shareholders’ equity with $35,816 being recorded under common shares and $16,680 being recorded under additional paid-in-capital.

 

14

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

10. Common shares (continued)

 

(ii)

On April 9, 2020, the Company completed a confidentially marketed public offering (“CMPO”) of its common shares and warrants (“Series B Warrants”) of 33,333,334 common shares and warrants to purchase up to 16,666,667 common shares. The securities were sold in a fixed combination of one common share and 0.5 of a Series B Warrant at a combined offering price of $0.12 per share and accompanying warrant. Each whole warrant is exercisable immediately for one common share after issuance, at an exercise price of $0.15 per share and has a term of 5 years. The Company also issued warrants to the placement agents to purchase 1,666,667 common shares at an exercise price of $0.15 per share (“Series B Placement Agent Warrants”), which were exercisable immediately upon issuance and have a term of 5 years. In aggregate, the Company issued 33,333,334 common shares,16,666,667 Series B Warrants in addition to 1,666,667 Series B Placement Agent Warrants.

 

 

 

The Company raised $4,000,000 in gross proceeds in the CMPO. The Company recorded $2,942,248 as the value of common shares under common stock and $1,057,752 as the value of Series B Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

The direct cash costs related to the issuance of the common shares and warrants issued in April were $582,977. These direct costs were recorded as an offset against the statement of shareholders’ equity with $428,283 being recorded under capital stock and $154,694 being recorded under additional paid-in-capital. The Company also recorded the value of the Series B Placement Agent Warrants in the amount of $161,714 as an offset against the statement of shareholders’ equity with $118,951 being recorded under capital stock and $42,763 being recorded under additional paid-in-capital. 

 

 

(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 one common share or Series C pre-funded warrant, and a Series C Warrant to purchase one common share, resulting in the sale of 121,163,333 common shares, 12,170,000 pre-funded warrants, and Series C Warrants to purchase 133,333,333 common shares at a combined offering price of $0.15 per share for the common shares and related Series C Warrant, or a combined offering price of $0.1499 per pre-funded warrant and related Series C warrant. Each Series C pre-funded warrant has an exercise price of $0.0001 per share, is exercisable immediately after issuance, is exercisable only on a cashless exercise basis, and will not expire prior to exercise. Each Series C Warrant has an exercise price of $0.15 per share, is exercisable immediately after issuance and has a term of 2 years.

 

 

 

The Company raised $19,998,783 in gross proceeds as part of the public offering. The Company recorded $11,336,422 as the value of common shares under common stock, $1,080,289 as the value of the pre-funded warrants and $7,582,072 as the value of Series C Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

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 $1,908,202. These direct costs were recorded as an offset against the statement of shareholders’ equity with $1,088,876 being recorded under capital stock and $819,327 being recorded under additional paid-in-capital. 

  

15

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

10. Common shares (continued)

 

(iv)

On July 7, 2020 the Company completed a public offering of its common shares or common share equivalents (“Series D Pre-Funded Warrants”), and warrants (“Series D Warrants”) in a fixed combination of one common share or Series D Pre-Funded warrant, and a Series D Warrant to purchase one common share, resulting in the sale of 162,500,000 common shares, 25,000,000 Series D Pre-Funded Warrants, and Series D Warrants to purchase 187,500,000 common shares at a combined offering price of $0.16 per share for the common shares and related Series D Warrant, or a combined offering price of $0.1599 per Series D Pre-Funded warrant and related Series D Warrant. Each Series D Pre-Funded warrant has an exercise price of $0.0001 per share, is exercisable immediately after issuance, is exercisable only on a cashless exercise basis, and will not expire prior to exercise. Each Series D Warrant has an exercise price of $0.16 per share, is exercisable immediately after issuance, and has a term of 2 years.

 

 

 

The Company raised $29,997,500 in gross proceeds as part of the public offering. The Company recorded $16,290,941 as the value of common shares under common stock, $2,329,983 as the value of the Series D Pre-Funded Warrants and $11,376,575 as the value of the Series D Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.

 

 

 

The direct cash costs related to the issuance of the common shares, Series D Pre-Funded Warrants and Series D Warrants issued in July 2020 were $2,268,215. These direct costs were recorded as an offset against the statement of shareholders’ equity with $1,224,218 being recorded under capital stock and $1,043,997 being recorded under additional paid-in-capital.

 

 

(v)

All Series C pre-funded warrants were exercised in June 2020. Upon exercise the value of the warrant exercise was based on the one-day VWAP of the Company stock the day before the exercise request date. The cashless exercise option resulted in the issuance of 12,162,492 shares.

 

 

(vi)

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 $199,525,000 in gross proceeds as part of the offering. The Company recorded $199,525,000 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 $14,2980,914. These direct costs were recorded as an offset against the statement of shareholders’ equity with the entirety recorded under common shares.

  

16

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

11. Stock-based compensation

 

During the three and nine months ended September 30, 2021, the Company issued stock options to purchase an aggregate of 2,900,000 and 12,100,000 common shares. The options vest over a period of four years and have an expiration period of ten years. During the three and nine months ended September 30, 2021, 1,787,175, and 7,017,776 options were exercised, and the Company received $400,208 and $1,768,011 in cash receipts and reclassified $306,532 and $1,050,940 of additional paid in capital to common stock due to the exercise of stock options.

 

During the three and nine months ended September 30, 2020, the Company issued stock options to purchase an aggregate of 515,000 and 7,571,000 common shares. The options vest over a period of four years and have an expiration period of five years. During the three and nine months ended September 30, 2020, no stock options were exercised.

 

The Company recorded $1,437,778 and $4,502,597 of stock-based compensation for the three and nine months ended September 30, 2021. The Company recorded $187,969 and $478,835 of stock-based compensation for the three and nine months ended September 30, 2020.

 

The continuity of stock options are as follows:

 

 

 

 Number of

Options

 

 

 Weighted Avg

Exercise Price

 

Balance at December 31, 2020

 

 

39,604,515

 

 

$0.36

 

Stock options granted

 

 

12,100,000

 

 

$0.86

 

Stock options exercised

 

 

7,017,776

 

 

$0.25

 

Unvested stock options forfeited

 

 

1,670,000

 

 

$0.64

 

Vested stock options exprired

 

 

4,034,015

 

 

$1.52

 

Balance at September 30, 2021

 

 

38,982,724

 

 

$0.40

 

Vested at September 30, 2021

 

 

9,152,474

 

 

$0.28

 

 

17

Table of Contents

   

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

11. Stock-based compensation (continued)

 

As of September 30, 2021, details of the issued and outstanding stock options were as follows:

 

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

 

 

0.19

 

 

 

3,028,557

 

 

 

1,675,807

 

 

 

1,352,750

 

 

 

3.45

 

July 9, 2020

 

 

0.18

 

 

 

175,000

 

 

 

87,500

 

 

 

87,500

 

 

 

3.78

 

August 25, 2020

 

 

0.13

 

 

 

20,000

 

 

 

-

 

 

 

20,000

 

 

 

3.90

 

September 29, 2020

 

 

0.11

 

 

 

225,000

 

 

 

225,000

 

 

 

-

 

 

 

4.00

 

October 1, 2020

 

 

0.11

 

 

 

266,667

 

 

 

41,667

 

 

 

225,000

 

 

 

4.01

 

October 20, 2020

 

 

0.09

 

 

 

25,000

 

 

 

10,000

 

 

 

15,000

 

 

 

4.06

 

December 31, 2020

 

 

0.23

 

 

 

24,142,500

 

 

 

6,762,500

 

 

 

17,380,000

 

 

 

4.25

 

February 26, 2021

 

 

1.87

 

 

 

600,000

 

 

 

150,000

 

 

 

450,000

 

 

 

4.41

 

March 1, 2021

 

 

2.06

 

 

 

200,000

 

 

 

50,000

 

 

 

150,000

 

 

 

4.42

 

March 8, 2021

 

 

1.88

 

 

 

200,000

 

 

 

50,000

 

 

 

150,000

 

 

 

4.44

 

March 15, 2021

 

 

2.49

 

 

 

200,000

 

 

 

50,000

 

 

 

150,000

 

 

 

4.46

 

May 12, 2021

 

 

0.78

 

 

 

3,800,000

 

 

 

-

 

 

 

3,800,000

 

 

 

4.62

 

May 14, 2021

 

 

0.75

 

 

 

3,200,000

 

 

 

50,000

 

 

 

3,150,000

 

 

 

4.62

 

August 11, 2021

 

 

0.57

 

 

 

1,300,000

 

 

 

-

 

 

 

1,300,000

 

 

 

4.87

 

August 18, 2021

 

 

0.50

 

 

 

200,000

 

 

 

-

 

 

 

200,000

 

 

 

4.88

 

August 23, 2021

 

 

0.50

 

 

 

100,000

 

 

 

-

 

 

 

100,000

 

 

 

4.90

 

September 13,2021

 

 

0.57

 

 

 

800,000

 

 

 

-

 

 

 

800,000

 

 

 

4.96

 

September 27,2021

 

 

0.54

 

 

 

500,000

 

 

 

-

 

 

 

500,000

 

 

 

4.99

 

Balance at September 30, 2021

 

 

 

 

 

 

38,982,724

 

 

 

9,152,474

 

 

 

29,830,250

 

 

 

 

 

 

The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.

 

The fair value of options granted during the three and nine months ended September 30, 2021 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:

 

18

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

   

 

 

February 26,

2021

 

 

March 1,

2021

 

 

March 8,

2021

 

 

March 15,

2021

 

Volatility

 

 

117%

 

 

117%

 

 

117%

 

 

117%

Risk-free interest rate

 

 

0.95%

 

 

0.92%

 

 

1.07%

 

 

1.06%

Expected life

 

10 years

 

 

10 years

 

 

10 years

 

 

10 years

 

Dividend yield

 

 

0%

 

 

0%

 

 

0%

 

 

0%

Common share price

 

$1.87

 

 

$2.06

 

 

$1.88

 

 

$2.49

 

Strike price

 

$1.87

 

 

$2.06

 

 

$1.88

 

 

$2.49

 

Forfeiture rate

 

 zero

 

 

 zero

 

 

 zero

 

 

zero

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

May 12,

2021

 

 

August 11,

2021

 

 

August 23,

 2021

 

 

September 13,

2021

 

Volatility

 

 

118%

 

 

116%

 

 

116%

 

 

116%

Risk-free interest rate

 

 

1.11%

 

 

0.96%

 

 

0.92%

 

 

0.96%

Expected life

 

6.21 - 6.22 Years

 

 

6.18 - 6.25

 

 

 

6.25

 

 

 

6.25

 

Dividend yield

 

 

0%

 

 

0%

 

 

0%

 

 

0%

Common share price

 

$0.78

 

 

$0.56

 

 

$0.50

 

 

$0.57

 

Strike price

 

$0.78

 

 

$0.57

 

 

$0.50

 

 

$0.57

 

Forfeiture rate

 

zero

 

 

zero

 

 

zero

 

 

zero

 

 

 

 

September 27,

2021

 

Volatility

 

 

116%

Risk-free interest rate

 

 

1.14%

Expected life

 

 

6.25

 

Dividend yield

 

 

0%

Common share price

 

$0.54

 

Strike price

 

$0.54

 

Forfeiture rate

 

zero

 

 

12. Warrants

   

In connection with the February 14, 2020 registered direct offering, the Company issued 20,833,334 five and one half-year Series A warrants to purchase one share of common stock at an exercise price of $.20. The Company also issued 1,041,667 warrants to purchase a share of common stock at an exercise price of $0.15 per share to the placement agents.

 

In connection with the April 9, 2020 CMPO, the Company issued 16,666,667 five-year Series B Warrants to purchase one common share at an exercise price of $0.15. The Company also issued 1,666,667 Placement Agent Warrants to purchase one common share at an exercise price of $0.15 per share.

 

In connection with the May 29, 2020 public offering, the Company issued 133,333,333 two-year Series C Warrants to purchase one common share at an exercise price of $0.15. The Company also issued 12,170,000 Series C Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001 on a cashless exercise basis. As of December 31, 2020, all of the Series C Pre-Funded Warrants have been exercised.

 

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

 

19

Table of Contents

  

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

(Unaudited) (Stated in United States dollars)

 

12. Warrants (continued)

 

As of September 30, 2021, details of the outstanding warrants were as follows:

 

Original Issue date

 

Exercise

Price

 

 

 Warrants

Outstanding

 

 

Weighted Average Remaining Life

 

 

 

 

 

 

 

 

 

 

 

February 14, 2020

 

 

0.20

 

 

 

-

 

 

 

-

 

February 14, 2020

 

 

0.15

 

 

 

197,917

 

 

 

3.37

 

April 9, 2020

 

 

0.15

 

 

 

363,501

 

 

 

3.52

 

May 29, 2020

 

 

0.15

 

 

 

276,500

 

 

 

0.66

 

July 7, 2020

 

 

0.16

 

 

 

231,000

 

 

 

0.77

 

Balance at September 30, 2021

 

 

 

 

 

 

1,068,918

 

 

 

 

 

 

Cumulative warrant exercises as of the nine months ended September 30, 2021 were as follows:

 

Warrant series

 

Warrants

exercised

 

 

Amount

 

 

 

 

 

 

 

 

Series A

 

 

21,677,084

 

 

$4,293,229

 

Series B

 

 

17,969,833

 

 

 

2,695,475

 

Series C

 

 

133,056,833

 

 

 

19,958,525

 

Series D

 

 

187,269,000

 

 

 

29,963,040

 

Subtotal

 

 

359,972,750

 

 

 

56,910,269

 

Common stock subscribed

 

 

-

 

 

 

(459,600)

Total

 

 

359,972,750

 

 

$56,450,669

 

 

13. Commitments and contingencies

 

On May 10, 2018, the Company entered into a Development, Commercialization and Exclusive Distribution Agreement. As part of the agreement, the Company is required to make the following future milestone payments:

 

 

1st payment: $3,500,000 in cash payment upon the achievement of future development milestones

 

 

 

 

2nd payment: $3,500,000 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 September 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 September 30, 2021, and December 31, 2020.

 

From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As of September 30, 2021, and continuing as of November 12, 2021, the Company is not aware of any pending or threatened material litigation claims against the Company.

 

20

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

Unaudited) (Stated in United States dollars)

 

13. Commitments and contingencies (continued)

 

On September 20, 2021, Heska Corporation (“Heska”), Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and our company (collectively with Qorvo, the “Defendants”) entered into a settlement agreement pursuant to which the litigation previously commenced by Heska against the Defendants in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, was dismissed with prejudice. Pursuant to the settlement agreement, the parties also provided mutual releases of any and all claims related to the subject matter of the litigation. We were not required to make any payment or agree to any covenants restricting the conduct of our business in connection with the settlement.

 

21

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

Unaudited) (Stated in United States dollars)

 

14. Financial instruments

 

 

(a)

Fair values

 

The Company follows ASC topic 820, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC topic 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:

 

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.

 

Level 3 inputs are unobservable inputs for asset or liabilities.

 

The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

 

The carrying values of cash, trade and other receivable, accounts payable and accrued liabilities and shareholder loans payable approximates their fair values because of the short-term nature of these instruments.

 

The following are the contractual maturities of the undiscounted cash flows of financial liabilities as of September 30, 2021 and December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        September 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

 

$4,464,874

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$4,464,874

 

Lease obligations

 

 

112,343

 

 

 

114,589

 

 

 

115,713

 

 

 

115,713

 

 

 

1,018,607

 

 

 

1,476,965

 

 

 

$4,577,217

 

 

$114,589

 

 

$115,713

 

 

$115,713

 

 

$1,018,607

 

 

$5,941,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

        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

 

$1,248,628

 

 

$-

 

 

$-

 

 

$-

 

 

$-

 

 

$1,248,628

 

Debt obligations

 

 

527,360

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

527,360

 

Lease obligations

 

 

59,662

 

 

 

62,463

 

 

 

64,356

 

 

 

66,307

 

 

 

1,087,998

 

 

 

1,340,786

 

 

 

$1,835,650

 

 

$62,463

 

 

$64,356

 

 

$66,307

 

 

$1,087,998

 

 

$3,116,774

 

 

15. Segment information

 

The Company’s operations comprise a single reportable segment engaged in the research, development targeting health and wellness solutions for the companion animal. As the operations comprise a single reportable segment, amounts disclosed in the financial statements for loss for the period, depreciation and total assets also represent segmented amounts. In addition, all the Company’s long-lived assets are in the United States of America (“US”).

 

 

 

September 30,

 

 

 December 31,

 

 

 

2021

 

 

2020

 

Canada

 

$172,945,051

 

 

$53,160,701

 

US

 

 

104,557,100

 

 

 

12,983,333

 

Total assest

 

$277,502,151

 

 

$66,144,034

 

 

 

 

 

 

 

 

 

 

Total US property and equipment

 

$706,266

 

 

$583,007

 

Total US right-of-use asset

 

 

1,419,790

 

 

 

1,318,716

 

 

 

$2,126,056

 

 

$1,901,723

 

  

22

Table of Contents

 

Zomedica Corp.

Notes to the condensed consolidated financial statements

For the three and nine months ended September 30, 2021 and 2020

Unaudited) (Stated in United States dollars)

 

16. Loss per share

 

 

 

For the three months ended September 30

 

 

For the nine months ended September 30 

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the period

 

$(6,345,687)

 

$(4,979,975)

 

$(15,093,178)

 

$(12,738,582)

Charge to retained earnings for preferred share exchange

 

 

-

 

 

 

 

 

 

 

(32,038,603)

 

 

-

 

Loss attributable to common shareholders

 

 

(6,345,687)

 

 

(4,979,975)

 

 

(47,131,781)

 

 

(12,738,582)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average shares - basic

 

 

978,494,076

 

 

 

550,541,878

 

 

 

948,664,410

 

 

 

291,314,002

 

Stock options

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Warrants

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Denominator for diluted loss per share

 

 

978,494,076

 

 

 

550,541,878

 

 

 

948,664,410

 

 

 

291,314,002

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss per share - basic and diluted

 

$(0.01)

 

$(0.01)

 

$(0.05)

 

$(0.04)

   

For the above‑mentioned periods, the Company had stock options and warrants outstanding which could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have been anti‑dilutive.

 

17. Subsequent Events

 

On October 1, 2021, Zomedica Inc., the wholly-owned subsidiary of Zomedica Corp. entered into a Stock Purchase Agreement with Branford PVT Mid-Hold, LLC pursuant to which Zomedica Inc. acquired 100% of the capital stock of Branford PVT Acquiror, Inc., a Delaware corporation “BPA”). BPA is a holding company whose direct and indirect wholly-owned subsidiaries include Georgia, United States-based Pulse Veterinary Technologies, LLC, which, together with its consolidated subsidiaries, is a leading provider of non-invasive shock wave therapy treatment devices to the veterinary industry. The purchase price for the Acquisition was $71.9 million in cash, which was subject to adjustments based on the amount of the Target’s cash and net working capital at the closing of the acquisition.

 

23

Table of Contents

 

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-Kand 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 integrate our recent acquisition of PulseVet (as defined below) and the timing and costs to achieve that integration;

 

 

 

 

·

our ability to successfully market and sell TRUFORMA®, and the PulseVet veterinary products and services and any other products we develop or acquire and the related cost and timing thereof;

 

 

 

 

·

the ability of our contract partners and contractors to conduct our product development, validation studies, verification studies, and beta testing, and certain other development activities appropriately and on a timely basis;

 

 

 

 

·

the ability of our contract manufacturing organizations to manufacture and supply our products to satisfy our requirements on a timely basis;

 

 

 

 

·

our plans to develop and commercialize our planned and future products;

 

 

 

 

·

our ability to obtain funding for our operations;

 

 

 

 

·

our ability to develop and commercialize products that can compete effectively;

 

 

 

 

·

the size and growth of the veterinary diagnostics and medical device markets;

 

 

 

 

·

our ability to obtain and maintain intellectual property protection for our planned and future products candidates;

 

 

 

 

·

regulatory developments in the United States and other important geographical markets;

 

 

 

 

·

the loss of key personnel;

 

 

 

 

·

the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing;

 

 

 

 

·

the impact of the novel coronavirus pandemic on our operations, including the development, manufacturing, and selling of our TRUFORMA® platform and related assays.

 

 

 

 

·

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.

  

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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 employ fifteen 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 as we focus our efforts on growth of TRUFORMA® in the market.

 

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 are continuing to develop the fT4 and ACTH assays with our development partner. 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.

 

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On October 1, 2021 we acquired Pulse Veterinary Technologies, LLC, (“PulseVet”) a leading provider of non-invasive shock wave therapy treatment devices to the veterinary industry (the “Acquisition”). The purchase price for the Acquisition was approximately $71.9 million in cash, subject to certain adjustments. The operations of PulseVet will be included in our consolidated financial statements commencing with the 4thquarter of the fiscal year ended December 31,2021. PulseVet has its own sales representatives, professional services veterinarians and support staff and is capable of operating independently. Our management will assess the optimal manner of operation of the combined businesses going forward, which is expected to involve integration of PulseVet operations with existing operations.

 

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 $6.3 million and $15.1 million for the three and nine months ended September 30, 2021 and approximately $5.0 million and $12.7 million for the three and nine months ended September 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 September 30, 2021, we had an accumulated deficit of approximately $116.1 million and cash and cash equivalents of approximately $271.4 million, prior to giving effect to the PulseVet acquisition.

 

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, support the marketing and sales of PulseVet’s products and services 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 factorswe 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. Through September 30, 2021, our revenue consisted of instruments, cartridges, and warranty services sold in the U.S.

 

Cost of Revenue

 

Cost of revenue through September 30, 2021 consisted primarily of the cost of purchasing instruments and cartridges and the related warranties purchased. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue.

 

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Operating Expenses

 

The majority of our operating expenses through September 30, 2021 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 nine months ended September 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 on June 30, 2021, we will no longer be an "emerging growth company" as of December 31, 2021.

 

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Use of Estimates

 

The preparation of our Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States and the rules and regulations of the U.S. Securities & Exchange Commission requires the use of estimates and assumptions. A listing of the Company’s significant accounting policies is detailed in Note 3 “Significant Accounting Policies.” A subsection of these accounting policies has been identified by management as “Critical Accounting Policies and Estimates.” Critical accounting policies and estimates are those which require management to make estimates using assumptions that were uncertain at the time the estimates were made and for which the use of different assumptions, which reasonably could have been used, could have a material impact on the financial condition or results of operations.  Management has identified Inventories as a “Critical Accounting Policies and Estimates”

 

Inventories are stated at the lower of cost or net realizable value determined by the specific identification method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts. While estimated sales forecasts are subjective in nature, the projections allow management to reasonably predict the net realizable value of current inventory based on expected demand. A decrease in the estimated sales forecasts would indicate the need to write-down excess and obsolete inventory. Management continuously monitors the market activity and assesses inventory levels.

 

Research and Development

 

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.