UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 2019.2020.
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________ to _________.to_________.
Commission File Number: 001-38298
Zomedica Pharmaceuticals 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 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 [X] 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 [X] 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 | [X] | Smaller reporting company | [X] | |
Emerging growth company | [X] |
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. [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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, 2019, 108,038,398August 10, 2020, 564,051,438 shares of the registrant’s common shares, without par value, were issued and outstanding.
Zomedica Pharmaceuticals Corporation
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
SEPTEMBERJUNE 30, 20192020
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements.
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated financial statements
For the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019
(Expressed in United States Dollars, except as otherwise noted)
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated balance sheets
As at SeptemberJune 30, 20192020 and December 31, 20182019
(Stated in United States dollars)
September 30, | December 31, | June 30, | December 31, | ||||||||||||||||||||
Note | 2019 | 2018 | Note | 2020 | 2019 | ||||||||||||||||||
Assets | |||||||||||||||||||||||
Current assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 2,487,651 | $ | 1,940,265 | $ | 29,103,049 | $ | 510,586 | |||||||||||||||
Prepaid expenses and deposits | 5 | 1,497,425 | 1,867,034 | 5 | 782,647 | 1,228,585 | |||||||||||||||||
Trade and other receivable | 75,992 | 53,659 | |||||||||||||||||||||
Tax credits and other receivables | 182,496 | 67,618 | |||||||||||||||||||||
4,061,068 | 3,860,958 | 30,068,192 | 1,806,789 | ||||||||||||||||||||
Prepaid expenses and deposits | 5 | - | 1,442,415 | ||||||||||||||||||||
Property and equipment | 6 | 805,218 | 717,088 | 6 | 798,901 | 729,142 | |||||||||||||||||
Right-of-use asset | 8 | 1,231,003 | - | 8 | 1,441,124 | 1,103,658 | |||||||||||||||||
Intangible assets | 7 | 513,735 | 13,058 | 7 | 453,370 | 543,395 | |||||||||||||||||
$ | 6,611,024 | $ | 6,033,519 | ||||||||||||||||||||
$ | 32,761,587 | $ | 4,182,984 | ||||||||||||||||||||
Liabilities and shareholders' equity | |||||||||||||||||||||||
Current liabilities: | |||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 1,577,525 | $ | 2,376,519 | $ | 1,731,469 | $ | 2,087,525 | |||||||||||||||
Current portion of lease obligations | 8 | 232,496 | - | ||||||||||||||||||||
1,963,965 | 2,087,525 | ||||||||||||||||||||||
Lease obligations | 8 | 1,218,661 | - | ||||||||||||||||||||
1,577,525 | 2,376,519 | 3,182,626 | 2,087,525 | ||||||||||||||||||||
Shareholders' equity: | |||||||||||||||||||||||
Capital stock | |||||||||||||||||||||||
Series 1 preferred shares, without par value; 20 shares authorized (2018 - nil) Issued and outstanding 12 series 1 preferred shares (2018 - nil) | 10 | 11,961,397 | - | ||||||||||||||||||||
Unlimited common shares without par value; Issued and outstanding 108,038,398 common shares (2018 - 97,598,898) | 11 | 38,647,822 | 30,410,648 | ||||||||||||||||||||
Common stock subscribed | - | 4,280,000 | |||||||||||||||||||||
Series 1 preferred shares, without par value; | |||||||||||||||||||||||
20 shares authorized (2019 - 20) | |||||||||||||||||||||||
Issued and outstanding | |||||||||||||||||||||||
12 series 1 preferred shares (2019 - 12) | 10 | 11,961,397 | 11,961,397 | ||||||||||||||||||||
Unlimited common shares without par value; | |||||||||||||||||||||||
Issued and outstanding | |||||||||||||||||||||||
361,039,946 common shares (2019 - 108,038,398) | 11 | 67,328,922 | 38,566,820 | ||||||||||||||||||||
Shares to be issued | 12 | 1,465,500 | - | ||||||||||||||||||||
Additional paid-in capital | 12 | 3,625,083 | 1,240,139 | 13,14 | 8,639,590 | 3,625,083 | |||||||||||||||||
Accumulated deficit | (49,200,803 | ) | (32,273,787 | ) | (59,816,448 | ) | (52,057,841 | ) | |||||||||||||||
5,033,499 | 3,657,000 | 29,578,961 | 2,095,459 | ||||||||||||||||||||
$ | 6,611,024 | $ | 6,033,519 | $ | 32,761,587 | $ | 4,182,984 |
Nature of operations and going concern (Note 1)
Commitments and contingencies (Note 13)15)
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
2 |
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated statements of operations and comprehensive loss
For the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019
(Stated in United States dollars)
Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||||||||||
Note | 2019 | 2018 | 2019 | 2018 | Note | 2020 | 2019 | 2020 | 2019 | ||||||||||||||||||||||||||||
Expenses: | |||||||||||||||||||||||||||||||||||||
Research and development | 16 | $ | 962,463 | $ | 630,371 | $ | 9,555,345 | $ | 3,765,332 | 18 | $ | 3,908,171 | $ | 1,061,507 | $ | 4,503,570 | $ | 8,592,882 | |||||||||||||||||||
General and administrative | 16 | 1,404,952 | 834,570 | 5,557,661 | 3,243,232 | 18 | 988,734 | 901,319 | 2,272,261 | 4,113,677 | |||||||||||||||||||||||||||
Professional fees | 16 | 279,237 | 293,484 | 1,230,151 | 1,001,886 | 18 | 282,791 | 231,647 | 573,472 | 989,946 | |||||||||||||||||||||||||||
Amortization - right-of-use asset | 8 | 127,345 | - | 382,035 | - | 8 | - | 127,345 | 42,448 | 254,690 | |||||||||||||||||||||||||||
Amortization - intangible asset | 7 | 273 | 431 | 810 | 1,810 | ||||||||||||||||||||||||||||||||
Amortization - intangible assets | 7 | 44,990 | 270 | 90,025 | 537 | ||||||||||||||||||||||||||||||||
Depreciation | 6 | 70,096 | 86,162 | 201,075 | 150,320 | 6 | 77,859 | 68,925 | 154,275 | 130,979 | |||||||||||||||||||||||||||
Loss from operations | 2,844,366 | 1,845,018 | 16,927,077 | 8,162,580 | 5,302,545 | 2,391,013 | 7,636,051 | 14,082,711 | |||||||||||||||||||||||||||||
Loss on fixed assets | - | 69,382 | 1,308 | 69,382 | |||||||||||||||||||||||||||||||||
Interest income | (247 | ) | - | (328 | ) | - | |||||||||||||||||||||||||||||||
Interest expense | - | - | 18,338 | - | - | 12,164 | 732 | 18,338 | |||||||||||||||||||||||||||||
Loss on disposal of property and equipment | 6 | - | 1,308 | 69,834 | 1,308 | ||||||||||||||||||||||||||||||||
Loss on right-of-use-asset | 8 | - | - | 59,097 | - | ||||||||||||||||||||||||||||||||
Gain on settlement of liabilities | 11 | - | - | (19,737 | ) | - | - | - | - | (19,737 | ) | ||||||||||||||||||||||||||
Foreign exchange gain | 1,313 | (4,122 | ) | 30 | (5,957 | ) | |||||||||||||||||||||||||||||||
Other income | - | - | (5,500 | ) | - | ||||||||||||||||||||||||||||||||
Foreign exchange loss (gain) | 5,692 | (58 | ) | (1,279 | ) | (1,283 | ) | ||||||||||||||||||||||||||||||
Loss before income taxes | 2,845,679 | 1,910,278 | 16,927,016 | 8,226,005 | 5,307,990 | 2,404,427 | 7,758,607 | 14,081,337 | |||||||||||||||||||||||||||||
Income tax expense | - | - | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Net loss and comprehensive loss | $ | 2,845,679 | $ | 1,910,278 | $ | 16,927,016 | $ | 8,226,005 | $ | 5,307,990 | $ | 2,404,427 | $ | 7,758,607 | $ | 14,081,337 | |||||||||||||||||||||
Weighted average number of common shares - basic and diluted | 108,038,398 | 94,514,905 | 105,711,459 | 92,534,667 | 214,830,818 | 108,038,398 | 166,814,645 | 104,528,705 | |||||||||||||||||||||||||||||
Loss per share - basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.16 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.13 | ) |
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
3 |
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated statements of shareholders’ equity
For the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019
(Stated in United States dollars)
Series 1 preferred stock | Common stock | Series 1 preferred stock | Common stock | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Note | Shares | Amount | Shares | Amount | Common stock subscribed | Additional paid-in capital | Accumulated deficit | Total | Note | Shares | Amount | Shares | Amount | Common stock subscribed | Shares to be issued | Additional paid-in capital | Accumulated deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2017 | - | $ | - | 90,225,869 | $ | 18,244,659 | $ | - | $ | 1,768,526 | $ | (15,626,100 | ) | $ | 4,387,085 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance for services | - | - | 641,717 | 1,238,513 | - | - | - | 1,238,513 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance for financing, net of cost | - | - | 1,861,627 | 3,966,362 | - | - | - | 3,966,362 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 12 | - | - | - | - | - | 7,288 | - | 7,288 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance due to exercise of options | 11,12 | - | - | 1,866,996 | 1,923,922 | - | (386,898 | ) | - | 1,537,024 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (8,226,005 | ) | (8,226,005 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2018 | - | $ | - | 94,596,209 | $ | 25,373,456 | $ | - | $ | 1,388,916 | $ | (23,852,105 | ) | $ | 2,910,267 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | - | $ | - | 97,598,898 | $ | 30,410,648 | $ | 4,280,000 | $ | 1,240,139 | $ | (32,273,787 | ) | $ | 3,657,000 | - | $ | - | 97,598,898 | $ | 30,410,648 | $ | 4,280,000 | $ | - | $ | 1,240,139 | $ | (32,273,787 | ) | $ | 3,657,000 | |||||||||||||||||||||||||||||||||||||||
Stock issuance for services | 11 | - | - | 707,236 | 792,104 | - | - | - | 792,104 | 11 | - | - | 707,236 | 792,104 | - | - | - | - | 792,104 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 13 | - | - | - | - | - | - | 2,341,104 | - | 2,341,104 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance for financing, net of cost | 10,11 | 12 | 11,961,397 | 9,337,529 | 6,690,922 | (4,280,000 | ) | - | - | 14,372,319 | 10,11 | 12 | 11,962,811 | 9,337,529 | 6,690,922 | (4,280,000 | ) | - | - | - | 14,373,733 | ||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issued due to exercise of options | 11,13 | - | - | 394,735 | 754,148 | - | - | (154,148 | ) | - | 600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | - | (14,081,337 | ) | (14,081,337 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2019 | 12 | $ | 11,962,811 | 108,038,398 | $ | 38,647,822 | $ | - | $ | 3,427,095 | $ | (46,355,124 | ) | $ | 7,682,604 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | 11 | - | - | 175,330,001 | 15,984,325 | - | 1,465,500 | 10,514,458 | - | 27,964,283 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance costs | 11 | - | - | - | (1,755,376 | ) | - | - | (1,084,024 | ) | - | (2,839,400 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Placement agent warrants | 11 | - | - | - | (154,767 | ) | - | - | 154,767 | - | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 12 | - | - | - | - | - | 2,539,092 | - | 2,539,092 | 13 | - | - | - | - | - | - | 290,866 | - | 290,866 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance due to exercise of options | 11,12 | - | - | 394,735 | 754,148 | - | (154,148 | ) | - | 600,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issued due to exercise of warrants and pre-funded warrants | 11 | - | - | 77,671,547 | 14,687,920 | - | - | (4,861,560 | ) | - | 9,826,360 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (16,927,016 | ) | (16,927,016 | ) | - | - | - | - | - | - | - | (7,758,607 | ) | (7,758,607 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at September 30, 2019 | 12 | $ | 11,961,397 | 108,038,398 | $ | 38,647,822 | $ | - | $ | 3,625,083 | $ | (49,200,803 | ) | $ | 5,033,499 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 |
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
4 |
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated statements of cash flows
For the three and ninesix months ended SeptemberJune 30, 20192020 and 20182019
(Stated in United States dollars)
Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||
Note | 2019 | 2018 | 2019 | 2018 | Note | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||||
Cash flows used in operating activities: | ||||||||||||||||||||||||||||||||||||
Net loss for the period | $ | (2,845,679 | ) | $ | (1,910,278 | ) | $ | (16,927,016 | ) | $ | (8,226,005 | ) | $ | (5,307,990 | ) | $ | (2,404,427 | ) | $ | (7,758,607 | ) | $ | (14,081,337 | ) | ||||||||||||
Adjustments for | ||||||||||||||||||||||||||||||||||||
Depreciation | 6 | 70,096 | 86,162 | 201,075 | 150,320 | 6 | 77,859 | 68,925 | 154,275 | 130,979 | ||||||||||||||||||||||||||
Amortization - intangible assets | 7 | 273 | 431 | 810 | 1,810 | 7 | 44,990 | 270 | 90,025 | 537 | ||||||||||||||||||||||||||
Amortization - right-of-use-asset | 8 | 127,345 | - | 382,035 | - | 8 | - | 127,345 | 42,448 | 254,690 | ||||||||||||||||||||||||||
Loss on fixed assets | 6 | - | 69,382 | 1,308 | 69,382 | |||||||||||||||||||||||||||||||
Loss on disposal of property and equipment | 6 | - | 1,308 | 69,834 | 1,308 | |||||||||||||||||||||||||||||||
Loss on right-of-use asset | 8 | - | - | 59,097 | - | |||||||||||||||||||||||||||||||
Non-cash portion of rent expense | 8 | 6,019 | - | 10,032 | - | |||||||||||||||||||||||||||||||
Stock issued for services | 11 | - | - | 792,104 | 1,238,513 | 11 | - | - | - | 792,104 | ||||||||||||||||||||||||||
Stock-based compensation | 12 | 197,988 | - | 2,539,092 | 7,288 | 13 | 135,844 | - | 290,866 | 2,341,104 | ||||||||||||||||||||||||||
Change in non-cash operating working capital | ||||||||||||||||||||||||||||||||||||
Trade and other receivable | 19,558 | 11,885 | (22,333 | ) | (9,470 | ) | ||||||||||||||||||||||||||||||
Tax credits and other receivables | (40,032 | ) | (17,578 | ) | (114,878 | ) | (41,891 | ) | ||||||||||||||||||||||||||||
Prepaid expenses | (122,315 | ) | 56,399 | 140,695 | (191,365 | ) | 56,284 | 92,418 | 67,908 | 263,010 | ||||||||||||||||||||||||||
Deposits | 21,366 | (1,281,617 | ) | (76,709 | ) | (1,311,463 | ) | (318,643 | ) | (327,138 | ) | 78,762 | (98,075 | ) | ||||||||||||||||||||||
Accounts payable and accrued liabilities | (1,378,710 | ) | (403,423 | ) | (798,994 | ) | 451,643 | (374,859 | ) | (5,977,134 | ) | (883,414 | ) | (579,716 | ) | |||||||||||||||||||||
(3,910,078 | ) | (3,371,059 | ) | (13,767,933 | ) | (7,819,347 | ) | (5,720,528 | ) | (8,436,011 | ) | (7,893,652 | ) | (11,017,287 | ) | |||||||||||||||||||||
Cash flows (used) from financing activities: | ||||||||||||||||||||||||||||||||||||
Cash proceeds from financing of preferred shares | 10 | - | - | 12,000,000 | - | |||||||||||||||||||||||||||||||
Cash proceeds from financing of common shares | 11 | - | - | 3,000,000 | 4,002,496 | |||||||||||||||||||||||||||||||
Cash received from stock option exercises | 12 | - | 98,716 | 600,000 | 1,537,024 | |||||||||||||||||||||||||||||||
Cash flows from financing activities: | ||||||||||||||||||||||||||||||||||||
Proceeds from financing of preferred shares | 10 | - | 12,000,000 | - | 12,000,000 | |||||||||||||||||||||||||||||||
Proceeds from issuance of common shares, warrants and pre-funded warrants | 11,14 | 23,998,783 | - | 26,498,783 | 3,000,000 | |||||||||||||||||||||||||||||||
Cash received from warrant exercises | 13 | 9,826,359 | - | 9,826,359 | 600,000 | |||||||||||||||||||||||||||||||
Cash received from shares to be issued | 12 | 1,465,500 | - | 1,465,500 | - | |||||||||||||||||||||||||||||||
Cash paid on stock issuance costs | 10,11 | (1,414 | ) | (12,328 | ) | (627,681 | ) | (36,135 | ) | 11,14 | (2,491,177 | ) | (33,095 | ) | (2,839,400 | ) | (626,267 | ) | ||||||||||||||||||
Cash received for government loan | 9 | 527,360 | - | 527,360 | - | |||||||||||||||||||||||||||||||
(1,414 | ) | 86,388 | 14,972,319 | 5,503,385 | 33,326,825 | 11,966,905 | 35,478,602 | 14,973,733 | ||||||||||||||||||||||||||||
Cash flows used in investing activities: | ||||||||||||||||||||||||||||||||||||
Investment in intangibles | 6 | (501, 487 | ) | - | (501, 487 | ) | - | |||||||||||||||||||||||||||||
Cash flows (used in) from investing activities: | ||||||||||||||||||||||||||||||||||||
Cash from sale of property and equipment | 6 | - | - | 5,400 | - | |||||||||||||||||||||||||||||||
Investment in property and equipment | 6 | (80,950 | ) | (467,675 | ) | (155,513 | ) | (605,368 | ) | 6 | - | - | - | - | ||||||||||||||||||||||
Cash from lease repurchase | 8 | - | (5,477 | ) | 1,002,113 | (74,563 | ) | |||||||||||||||||||||||||||||
(582,437 | ) | (467,675 | ) | (657,000 | ) | (605,368 | ) | - | (5,477 | ) | 1,007,513 | (74,563 | ) | |||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents | (4,493,929 | ) | (3,752,346 | ) | 547,386 | (2,921,330 | ) | |||||||||||||||||||||||||||||
Increase in cash and cash equivalents | 27,606,297 | 3,525,417 | 28,592,463 | 3,881,883 | ||||||||||||||||||||||||||||||||
Cash and cash equivalents, beginning of period | 6,981,580 | 4,279,163 | 1,940,265 | 3,448,147 | 1,496,752 | 2,296,731 | 510,586 | 1,940,265 | ||||||||||||||||||||||||||||
Cash and cash equivalents, end of period | $ | 2,487,651 | $ | 526,817 | $ | 2,487,651 | $ | 526,817 | $ | 29,103,049 | $ | 5,822,148 | $ | 29,103,049 | $ | 5,822,148 | ||||||||||||||||||||
Supplemental cash flow information: | ||||||||||||||||||||||||||||||||||||
Interest paid | $ | 12,164 | $ | - | $ | 18,338 | $ | - | $ | - | $ | 12,164 | $ | 651 | $ | 18,338 |
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
5
5 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
1. Nature of operations and going concern |
Zomedica Pharmaceuticals Corp. ("Zomedica" or the “Company”) was incorporated on January 7, 2013 under the Business Corporations Act (Alberta) as Wise Oakwood Ventures Inc. (“WOW”) and was classified as a capital pool company, as defined in Policy 2.4 of the TSX Venture Exchange. ZoMedica Pharmaceuticals Inc. was incorporated on May 14, 2015 under the Canada Business Corporations Act.Act.
On April 21, 2016, the Company closed its qualifying transaction (“Transaction”), consisting of the acquisition of ZoMedica Pharmaceuticals Inc. (“ZoMedica”) pursuant to a three-cornered amalgamation, whereby ZoMedica was amalgamated with 9674128 Canada Inc. (which was wholly-owned by WOW) and common shares and options of the Company were issued to former holders of ZoMedica securities as consideration. The amalgamated company changed its name to Zomedica Pharmaceuticals Ltd. and WOW subsequently changed its name to Zomedica Pharmaceuticals Corp. Prior to completion of the Transaction, WOW consolidated its common shares on the basis of the one post-consolidation common share for every 2.5 pre-consolidation common shares. The Transaction constituted WOW’s qualifying transaction under TSX Venture Exchange Policy 2.4 – Capital Pool Companies. The shares of Zomedica Pharmaceuticals Corp. began trading on the TSX Venture Exchange under the new symbol “ZOM” on Monday, May 2, 2016. On June 21, 2016, the Company filed Articles of Amalgamation and vertically amalgamated with its wholly-owned subsidiary, Zomedica Pharmaceuticals Ltd. On February 10, 2020 the Company voluntarily delisted from the TSX-V.
Zomedica has one corporate subsidiary, Zomedica Pharmaceuticals, Inc., a Delaware company whose results and operations are included in these consolidated financial statements. The Company isWe are a biopharmaceuticaldevelopment stage veterinary health company targeting health and wellness solutionsfocused on creating point-of-care diagnostic platforms for theuse by veterinarians treating companion pet through a ground-breaking approach that focusesanimals by focusing on the unmet needs of the veterinarians themselves.clinical veterinarians. Zomedica's head office is located at 100 Phoenix Drive, Suite 190,180, Ann Arbor, MI 48108 and its registered office is located at Suite 1250, 639 – 5th Avenue S.W.,3400, 350-7th Ave SW, Calgary, AlbertaAB, T2P 0M9.
On November 20, 2017, Zomedica announced that its registration statement on Form S-1 was declared effective by the U.S. Securities and Exchange Commission and on November 21, 2017, the Company’s common shares began trading on the NYSE American under the symbol “ZOM”.
Going concern
The consolidated financial statements are prepared on a going concern basis, which assumes that the Company will be able to meet its obligations and continue its operations for the next twelve months. The Company has incurred losses from operations since inception and has an accumulated deficit of $49,200,803 as at September 30, 2019 (December 31, 2018 - $32,273,787). The Company has funded its research and development (“R&D”) activities principally through the issuance of securities and loans from related parties. There is no certainty that such funding will be available going forward. These conditions raise substantial doubt about its ability to continue as a going concern and realize its assets and pay its liabilities as they become due.
In order for the Company to continue as a going concern and fund any significant expansion of its operations or R&D activities, the Company will require significant additional capital. The Company’s ultimate success will depend on whether its future product candidates receive the necessary regulatory approval and it is able to successfully market approved products. The Company cannot be certain that it will be able to receive regulatory approval for any of its future product candidates, or that it will reach the level of sales and revenues necessary to achieve and sustain profitability.
The availability of equity or debt financing will be affected by, among other things, the results of the Company’s research and development, its ability to obtain regulatory approvals, the market acceptance of its products, the state of the capital markets generally, strategic alliance agreements, and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities,
6
Going concern (continued)
its then existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require the Company to agree to operating and financial covenants that would restrict its operations. Any failure on its part to raise additional funds on terms favorable to the Company or at all, may require the Company to significantly change or curtail its current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated, and could result in the Company not taking advantage of business opportunities.3N9.
2. | Basis of preparation |
The accounting policies set out below have been applied consistently in the condensed unaudited interim consolidated financial statements. The condensed unaudited interim consolidated financial statements do not include all of the information required for annual consolidated financial statements and should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2019. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for fair presentation have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
6 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
2. | Basis of preparation (continued) |
These condensed unaudited interim consolidated financial statements were prepared using the same basis of presentation, accounting policies and methods of computation as those of the audited consolidated financial statements for the year ended December 31, 2019.
Basis of consolidation
These condensed unaudited interim consolidated financial statements include the accounts of the Company and its wholly owned operating subsidiary, Zomedica Pharmaceuticals, Inc.
All inter-company accounts and transactions have been eliminated on consolidation.
3. | Significant accounting policies |
Use of estimates
The preparation of the condensed unaudited interim consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“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 condensed unaudited interim consolidated financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates.
Areas where significant judgment is involved in making estimates are: the fair values of financial assets and liabilities;are, the determination of fair value of stock-based compensation;compensation, the useful lives of property and equipment; deferred income taxesequipment, allocation of proceeds from financings to shares and warrants, fair value of placement agent warrants and forecasting future cash flows for assessing the going concern assumption.
Basis of measurement
The condensed unaudited interim consolidated financial statements have been prepared on the historical cost basis except as otherwise noted.
Functional and reporting currencies
The Company’s and subsidiary’s functional currency, as determined by management, is US dollars, which is also the Company’s reporting currency.
The accounting policies set out below have been applied consistently to all periods and companies presented in the condensed unaudited interim consolidated financial statements.
7
Research and development
Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.
Share issue costs
Share issue costs are recorded as a reduction of the proceeds from the issuance of capital stock.
7 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
3. | Significant accounting policies (continued) |
Translation of foreign currencies
In respect of other transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are translatedremeasured at the period end rates. Revenue and expenses are translatedmeasured 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 condensed unaudited interim consolidated statements of operations and comprehensive loss.
Stock-based compensation
The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by the Company cannot be reliably estimated.
The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option.option using the graded vesting method. The provisions of the Company's stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.
The Company estimates forfeitures at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Loss per share
Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options areis 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 to purchase common shares of the Company during the period were not included in the computation of diluted EPS because the Company has incurred a loss for the three and ninesix months ended SeptemberJune 30, 20192020 as the effect would be anti-dilutive.
8
Comprehensive loss
The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders' equity. The Company has no other comprehensive loss items.
Recently adopted accounting pronouncements
In February 2016, the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Additional qualitative and quantitative disclosures are also required by the new guidance. Topic 842 is effective for annual reporting periods (including interim reporting periods) beginning after December 15, 2018. Early adoption is permitted.
A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new standard with an initial application date of January 1, 2019 and used the effective date as its date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.
On August 29, 2018, the FASB issued ASU 2018-15, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. ASU 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019. Early adoption is permitted.
The Company has chosen to adopt this guidance during the three months ended September 30, 2019.
9
8 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
4. | Critical accounting judgments and key sources of estimation uncertainty |
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.
Critical areas of estimation and judgements in applying accounting policies include the following:
Going concern
These condensed unaudited interim consolidated financial statements have been prepared in accordance with U.S. GAAP on a going concern basis, which assumes the realization of assets and discharge of liabilities in the normal course of business within the foreseeable future. Management uses judgment in determining assumptions for cash flow projections, such as anticipated financing, anticipated sales and future commitments to assess the Company’s ability to continue as a going concern. A critical judgment is that the Company continues to raise funds going forward and satisfy their obligations as they become due.
Stock-based payments
The Company estimates the fair value of convertible securities such as options using the Black-Scholes option-pricing model which requires significant estimation around assumptions and inputs such as expected term to maturity, expected volatility and expected dividends.
Useful lives of property and equipment
The Company reviews the estimated useful lives of property and equipment with definite useful lives at the end of each year and assesses whether the useful lives of certain items should be shortened or extended, due to various factors including technology, competition and revised service offerings. During the three and ninesix months ended SeptemberJune 30, 2020 and 2019, the Company was not required to adjust the useful lives of any assets based on the factors described above. Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable.
Deferred income taxes
The calculation of deferred income taxes is based on assumptions which are subject to uncertainty as to timing and which tax rates are expected to apply when temporary differences reverse. Deferred tax recorded is also subject to uncertainty regarding the magnitude of non-capital losses available for carry forward andimpact of the balancesnovel strain of coronavirus (“COVID-19”)
Since December 31, 2019, the outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in various tax pools. By their nature, these estimates are subjectthe World Health Organization declaring this virus a global pandemic in March 2020. Governments around the world have enacted emergency measures to measurement uncertainty,combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing and closure of businesses have 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 effectfinancial markets. A critical estimate for the Company is to assess the impact of the pandemic on the financial statements from changesrecoverability of long-lived assets as well as the availability of future financing in such estimates in future period could be material. Deferred tax assets are recognized toassessing the extent that it is probable that they will be able to be utilized against future taxable income. Deferred tax assets are reviewed at each balance sheet date and adjusted to the extent that it is no longer probable that the related tax benefit will be realized.going concern assumption.
10
9 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
5. | Prepaid expenses and deposits |
September 30, | December 31, | |||||||
2019 | 2018 | |||||||
Prepaid rent (i) | $ | - | $ | 1,613,038 | ||||
Deposits (ii) | 1,202,814 | 1,596,104 | ||||||
Prepaid FDA fees | 31,497 | - | ||||||
Prepaid marketing (iii) | 36,596 | 37,465 | ||||||
Prepaid insurance (iii) | 156,044 | 33,372 | ||||||
Other (iv) | 70,474 | 29,470 | ||||||
Total | $ | 1,497,425 | $ | 3,309,449 |
June 30, | December 31, | |||||||
2020 | 2019 | |||||||
Deposits (i) | $ | 655,203 | $ | 1,033,231 | ||||
Prepaid marketing (ii) | 33,505 | 19,829 | ||||||
Prepaid insurance (ii) | 19,860 | 110,636 | ||||||
Other (iii) | 74,079 | 64,889 | ||||||
Total | $ | 782,647 | $ | 1,228,585 |
(i) |
Deposits include payments made to vendors in advance and are primarily associated with research activity, leasing deposits and costs for |
As of |
Other |
11
10 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
6. | Property and equipment |
Computer equipment | Furniture and equipment | Laboratory equipment | Leasehold improvements | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance at December 31, 2018 | $ | 170,002 | $ | 181,879 | $ | 352,637 | $ | 282,975 | $ | 987,493 | ||||||||||
Additions | 218,076 | 3,415 | 3,350 | 65,672 | 290,513 | |||||||||||||||
Disposals | (2,210 | ) | - | - | - | (2,210 | ) | |||||||||||||
Balance at December 31, 2019 | 385,868 | 185,294 | 355,987 | 348,647 | 1,275,796 | |||||||||||||||
Additions | - | - | - | 299,268 | 299,268 | |||||||||||||||
Disposals | (9,933 | ) | (64,018 | ) | (13,712 | ) | (76,455 | ) | (164,117 | ) | ||||||||||
Balance at June 30, 2020 | 375,935 | 121,276 | 342,275 | 571,460 | 1,410,947 | |||||||||||||||
Accumulated depreciation | ||||||||||||||||||||
Balance at December 31, 2018 | 104,918 | 29,585 | 99,696 | 36,206 | 270,405 | |||||||||||||||
Depreciation | 88,417 | 26,617 | 68,519 | 93,597 | 277,150 | |||||||||||||||
Disposals | (901 | ) | - | - | - | (901 | ) | |||||||||||||
Balance at December 31, 2019 | 192,434 | 56,202 | 168,215 | 129,803 | 546,654 | |||||||||||||||
Depreciation | 44,102 | 8,857 | 34,705 | 66,611 | 154,275 | |||||||||||||||
Disposals | (2,849 | ) | (28,505 | ) | (30,843 | ) | (26,686 | ) | (88,883 | ) | ||||||||||
Balance at June 30, 2020 | 233,687 | 36,554 | 172,077 | 169,728 | 612,046 | |||||||||||||||
Net book value as at: | ||||||||||||||||||||
December 31, 2019 | $ | 193,434 | $ | 129,092 | $ | 187,772 | $ | 218,844 | $ | 729,142 | ||||||||||
June 30, 2020 | $ | 142,248 | $ | 84,722 | $ | 170,198 | $ | 401,732 | $ | 798,901 |
Computer equipment | Furniture and equipment | Laboratory equipment | Leasehold improvements | Total | ||||||||||||||||
Cost | ||||||||||||||||||||
Balance at December 31, 2017 | $ | 151,155 | $ | 76,058 | $ | 245,729 | $ | 36,957 | $ | 509,899 | ||||||||||
Additions | 18,847 | 105,821 | 246,375 | 256,954 | 627,997 | |||||||||||||||
Disposals | - | - | (139,467 | ) | (10,936 | ) | (150,403 | ) | ||||||||||||
Balance at December 31, 2018 | 170,002 | 181,879 | 352,637 | 282,975 | 987,493 | |||||||||||||||
Additions | 218,076 | 3,414 | 3,350 | 65,673 | 290,513 | |||||||||||||||
Disposals | (2,210 | ) | - | - | - | (2,210 | ) | |||||||||||||
Balance at September 30, 2019 | 385,868 | 185,293 | 355,987 | 348,648 | 1,275,796 | |||||||||||||||
Accumulated depreciation | ||||||||||||||||||||
Balance at December 31, 2017 | 42,802 | 11,845 | 74,875 | 9,220 | 138,742 | |||||||||||||||
Depreciation | 62,116 | 17,740 | 86,368 | 37,460 | 203,684 | |||||||||||||||
Disposals | - | - | (61,547 | ) | (10,474 | ) | (72,021 | ) | ||||||||||||
Balance at December 31, 2018 | 104,918 | 29,585 | 99,696 | 36,206 | 270,405 | |||||||||||||||
Depreciation | 60,561 | 19,885 | 51,151 | 69,478 | 201,075 | |||||||||||||||
Disposals | (902 | ) | - | - | - | (902 | ) | |||||||||||||
Balance at September 30, 2019 | 164,577 | 49,470 | 150,847 | 105,684 | 470,578 | |||||||||||||||
Net book value as at: | ||||||||||||||||||||
December 31, 2018 | $ | 65,084 | $ | 152,294 | $ | 252,941 | $ | 246,769 | $ | 717,088 | ||||||||||
September 30, 2019 | $ | 221,291 | $ | 135,823 | $ | 205,140 | $ | 242,964 | $ | 805,218 |
In February 2020, the Company disposed of assets with a net book value of $75,234. The Company received proceeds of $5,400 and recorded a loss of $69,834 in the consolidated statement of loss and comprehensive loss for the three months ended March 31, 2020 and six months ended June 30, 2020.
In February 2019,2020, the Company reclassified $135,000 out$299,268 of prepaid assets intoexpenses to property and equipment.equipment for leasehold improvements that became ready for use in February 2020 but were paid for in 2019.
Computer software | Trademarks | Total intangible assets | ||||||||||
Cost | ||||||||||||
Balance at December 31, 2017 | $ | 5,143 | $ | 16,236 | $ | 21,379 | ||||||
Additions | - | - | - | |||||||||
Balance at December 31, 2018 | 5,143 | 16,236 | 21,379 | |||||||||
Additions | 501,487 | - | 501,487 | |||||||||
Balance at September 30, 2019 | 506,630 | 16,236 | 522,866 | |||||||||
Accumulated amortization | ||||||||||||
Balance at December 31, 2017 | 4,143 | 2,095 | 6,238 | |||||||||
Amortization | 1,000 | 1,083 | 2,083 | |||||||||
Balance at December 31, 2018 | 5,143 | 3,178 | 8,321 | |||||||||
Amortization | - | 810 | 810 | |||||||||
Balance at September 30, 2019 | 5,143 | 3,988 | 9,131 | |||||||||
Net book value as at: | ||||||||||||
December 31, 2018 | $ | - | $ | 13,058 | $ | 13,058 | ||||||
September 30, 2019 | $ | 501,487 | $ | 12,248 | $ | 513,735 |
12
11 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
7. | Intangible assets |
Computer software | Trademarks | Website | Total intangible assets | |||||||||||||
Cost | ||||||||||||||||
Balance at December 31, 2018 | $ | 5,143 | $ | 16,236 | $ | - | $ | 21,379 | ||||||||
Additions | - | - | 531,419 | 531,419 | ||||||||||||
Balance at December 31, 2019 | 5,143 | 16,236 | 531,419 | 552,798 | ||||||||||||
Additions | - | - | - | - | ||||||||||||
Balance at June 30, 2020 | 5,143 | 16,236 | 531,419 | 552,798 | ||||||||||||
Accumulated amortization | ||||||||||||||||
Balance at December 31, 2018 | 5,143 | 3,178 | 8,321 | |||||||||||||
Amortization | - | 1,082 | 1,082 | |||||||||||||
Balance at December 31, 2019 | 5,143 | 4,260 | 9,403 | |||||||||||||
Amortization | - | 544 | 89,481 | 90,025 | ||||||||||||
Balance at June 30, 2020 | 5,143 | 4,804 | 89,481 | 99,428 | ||||||||||||
Net book value as at: | ||||||||||||||||
December 31, 2019 | $ | - | $ | 11,976 | $ | 531,419 | $ | 543,395 | ||||||||
June 30, 2020 | $ | - | $ | 11,432 | $ | 441,938 | $ | 453,370 |
Total estimated future amortization of intangible assets for each fiscal year is as follows:
2020 | $ | 90,796 | ||||
2021 | 180,144 | |||||
2022 | 180,144 | |||||
2023 | 1,089 | |||||
2024 | 1,089 | |||||
2025 | 108 | |||||
Total | $ | 453,370 |
12 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
8. | Leases |
As discussed in Note 3, the
The Company adopted ASC 842 with an initial application date of January 1, 2019. The Company iswas party to two lease agreements under which it rentsrented office and laboratory space. The rent for both of these leases was prepaid upon inception and therefore at adoptionJanuary 1, 2019, the Company reclassified its prepaid lease balances of $1,613,038 to a right-of-use asset. The Company recorded nil and $42,448 of amortization on the right-of-use asset for the three and six months ended June 30, 2020 (June 30, 2019 - $254,690).
On February 1, 2020 the Company cancelled its existing lease with Wickfield Phoenix LLC and entered into a new lease. The new lease period is 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 existing lease, the Company amortizesreceived 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. In February 2020, the Company recorded a loss on right-of-use asset of $59,097 in the consolidated statements of operations and comprehensive loss.
On February 1, 2020, the Company recorded a straight-line basisright-of-use asset and recordsa corresponding lease liability in the amount of $1,553,611 using the Company’s incremental borrowing rate of 12%. During the three and six months ended June 30, 2020, the Company recognized $103,375 and $172,291 in rent expense with $21,763 and $38,992 recorded in research and development expenses and $81,612 and $137,630 recorded in general and administrative expense in the consolidated statementstatements of operations and comprehensive loss. During the three and ninesix months ended SeptemberJune 30, 2019, the Company recognized $127,345$5,940 and $382,035 (2018 – nil)$11,880 in amortizationrent expense with nil recorded in research and development expenses and $5,940 and $11,880 recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2020, the Company also recorded $4,331 in rent expense related to month to month leases with the entirety in general and administrative expense in the consolidated statements of operations and comprehensive loss.
13 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
8. | Leases (continued) |
Right-of-use asset | Premise lease | |||
Cost | ||||
Aggregate lease commitments | $ | 2,067,505 | ||
Less: impact of present value | (513,894 | ) | ||
Balance at June 30, 2020 | 1,553,611 | |||
Reduction in right-of-use asset | ||||
Straight line amortization | 172,292 | |||
Interest | (59,805 | ) | ||
Balance at June 30, 2020 | 112,487 | |||
Net book value as at: | ||||
June 30, 2020 | $ | 1,441,124 | ||
Lease liabilities | Premise lease | |||
Additions | $ | 1,553,612 | ||
Payments | (162,260 | ) | ||
Interest | 59,805 | |||
Total lease liabilities at June 30, 2020 | 1,451,157 | |||
Current portion of lease liabilities | 232,496 | |||
Long term portion of lease liabilities | 1,218,661 | |||
Total lease liabilities at June 30, 2020 | $ | 1,451,157 |
Total remaining undiscounted lease liabilities related to the above lease are as follows: | ||||
2020 | $ | 194,712 | ||
2021 | 400,133 | |||
2022 | 412,137 | |||
2023 | 424,501 | |||
2024 | 437,236 | |||
2025 | 36,326 | |||
Total | $ | 1,905,045 |
14 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
9. | Loan arrangements |
On October 17, 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 SeptemberJune 30, 2019,2020, no amounts have been borrowed.
In April of 2020, the Company received $527,360 from the SBA’s Paycheck Protection Program. The receipt is currently reported in accounts payable and accrued liabilities. If the loan is required to be repaid it will be granted a two-year term at 1% interest.
10. | Preferred stock |
The Company is authorized to issue up to 20 shares of our 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 Payments (“Net Sales Payments” is defined as annual payments equal to 9 percent of sales) until such time as the holders have received total Net Sales Payments 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 Payments 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 Payments paid on the Series 1 Preferred Shares.
In the event of a fundamental transaction (defined to include an amalgamation, merger or other business combination transaction involving our company in which our 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. The Company has assessed the likelihood of any Net Sales Payments to the Series 1 Preferred shareholders to be remote.
Issued and outstanding preferred stock:
Number of | ||||||||
preferred | Preferred | |||||||
stock | stock amount | |||||||
Balance at December 31, 2018 | - | $ | - | |||||
Stock issued from financing (i) | 12 | 11,961,397 | ||||||
Balance at December 31, 2019 | 12 | $ | 11,961,397 | |||||
Balance at June 30, 2020 | 12 | $ | 11,961,397 |
13
15 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
Issued and outstanding preferred stock:
Number of | ||||||||
preferred | Preferred | |||||||
stock | stock amount | |||||||
Balance at December 31, 2018 | - | $ | - | |||||
Stock issued from financing (i) | 12 | 11,961,397 | ||||||
Balance at September 30, 2019 | 12 | $ | 11,961,397 |
11. | Common stock |
The Company is authorized to issue an unlimited number of common shares, all without par value.
Issued and outstanding common stock:
Number of | ||||||||
common | Common | |||||||
stock | stock amount | |||||||
Balance at December 31, 2017 | 90,225,869 | $ | 18,244,659 | |||||
Stock issuance for services | 641,717 | 1,238,513 | ||||||
Stock issuance for financing, net of costs | 1,861,627 | 3,966,362 | ||||||
Stock issuance due to exercise of options | 1,866,996 | 1,923,922 | ||||||
Balance at September 30, 2018 | 94,596,209 | $ | 25,373,456 | |||||
Balance at December 31, 2018 | 97,598,898 | $ | 30,410,648 | |||||
Stock issuance for services (i and ii) | 707,236 | 792,104 | ||||||
Stock issuance from financing (iii and iv) | 9,337,529 | 6,690,922 | ||||||
Stock issuance due to exercise of options | 394,735 | 754,148 | ||||||
Balance at September 30, 2019 | 108,038,398 | $ | 38,647,822 |
Number of | ||||||||
common | Common | |||||||
stock | stock amount | |||||||
Balance at December 31, 2018 | 97,598,898 | $ | 30,410,648 | |||||
Stock issuance for services (i and ii) | 707,236 | 792,104 | ||||||
Stock issued from financing (iii and iv) | 9,337,529 | 6,690,922 | ||||||
Stock issued due to exercise of options | 394,735 | 754,148 | ||||||
Balance at June 30, 2019 | 108,038,398 | $ | 38,647,822 | |||||
Balance at December 31, 2019 | 108,038,398 | $ | 38,566,820 | |||||
Stock issued from financing (v,vi,vii) | 175,330,001 | 15,984,325 | ||||||
Stock issuance costs | - | (1,755,376 | ) | |||||
Placement agent costs | - | (154,767 | ) | |||||
Stock issued from the financing and exercise of pre-funded warrants (viii) | 12,162,492 | 1,080,289 | ||||||
Stock issued from the exercise of warrants (ix) | 65,509,055 | 13,607,631 | ||||||
Balance at June 30, 2020 | 361,039,946 | $ | 67,328,922 |
(i) | On January 14, 2019, the Company settled $75,000 of amounts due to a vendor by issuing 49,342 common shares valued at $55,263 at the date of issuance. The Company recorded a $19,737 gain on the settlement of |
(ii) | On January 14, 2019, the Company issued 657,894 common shares in satisfaction of $1,000,000 of all remaining milestones under a License and Supply Agreement with a third party. The Company recognized $736,841 as research and development expense, based on the value of the common stock on the date of |
(iii) | On January 14, 2019, the Company completed a non-brokered private placement, and issued 2,815,789 common shares. Gross proceeds of $4,280,000 were received prior to December 31, 2018.The Company recorded $465 of share issuance costs as an offset to common |
(iv) | On March 28, 2019, the Company completed an underwritten public offering of its common stock pursuant to which the Company sold an aggregate 6,521,740 common shares for gross proceeds of $3,000,000. The Company recorded |
(v) | 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 (“Series A 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 in addition to 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 stock and $794,345 as the value of Series A Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.
14
16 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
11. | Common stock (continued) |
The direct cash costs related to the issuance of the common shares and warrants issued in February were $348,220. These direct costs were recorded as an offset against the statement of shareholders’ equity with $238,217 being recorded under capital stock 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 capital stock and $16,680 being recorded under additional paid-in-capital.
(vi) | 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.
(vii) | 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.
17 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
11. | Common stock (continued) |
(viii) | 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. |
(ix) | As of June 30, 2020, 11,602,084 Series B Warrants have been exercised, resulting in additional cash proceeds of $1,740,313 and 53,906,971 Series C Warrants have been exercised, resulting in additional cash proceeds of $8,086,046. All warrants were exercised during the three months ended June 30, 2020. |
12. | Shares to be issued |
The Company received cash on Series C Warrant exercises in for 9,770,000 shares at an exercise price of $0.15 per share, for aggregate gross proceeds of $1,465,500. The Company issued the shares in the subsequent period.
13. | Stock-based compensation |
During the three months ended SeptemberJune 30, 2020 and 2019, nil options were exercised. During the threesix months ended SeptemberJune 30, 2018, 85,000 options were exercised. During the nine months ended September 30,2020 and 2019, nil and 394,735 options were exercised. During the nine months ended September 30, 2018, 1,866,996 options were exercised.exercised, respectively. During the three months ended SeptemberJune 30, 2020 and 2019, the Company issued 1,500,0002,000,000 and nil stock options.options, respectively. During the ninesix months ended SeptemberJune 30, 2020 and 2019, the Company issued 7,495,0007,056,000 and 5,995,000 stock options, respectively, each option entitling the holder to purchase one common share of the Company. During the three and nine months ended September 30, 2018, the Company issued nil options.
The continuity of stock options are as follows:
Number of options | Weighted avg exercise price (US$)(i) | |||||||
Balance at December 31, 2018 | 422,004 | $ | 1.95 | |||||
Stock options granted January 10, 2019 | 5,995,000 | 1.52 | ||||||
Stock options expired February 24, 2019 | (35,000 | ) | 1.12 | |||||
Stock options exercised March 8, 2019 | (164,473 | ) | 1.52 | |||||
Stock options exercised March 15, 2019 | (164,473 | ) | 1.52 | |||||
Stock options exercised March 29, 2019 | (65,789 | ) | 1.52 | |||||
Stock options expired May 23, 2019 | (10,000 | ) | 1.52 | |||||
Stock options expired June 16, 2019 | (40,000 | ) | 1.52 | |||||
Stock options cancelled August 13, 2019 | (5,000 | ) | 1.52 | |||||
Stock options expired August 14, 2019 | (392,004 | ) | 2.07 | |||||
Stock options granted August 19, 2019 | 500,000 | 0.26 | ||||||
Stock options granted August 19, 2019 | 100,000 | 0.35 | ||||||
Stock options granted August 19, 2019 | 100,000 | 0.45 | ||||||
Stock options granted August 19, 2019 | 100,000 | 0.55 | ||||||
Stock options granted August 19, 2019 | 100,000 | 0.65 | ||||||
Stock options granted August 19, 2019 | 100,000 | 0.75 | ||||||
Stock options granted September 16, 2019 | 500,000 | 0.43 | ||||||
Balance at September 30, 2019 | 7,040,265 | $ | 1.28 |
Number of options | Weighted avg exercise price | |||||||
Balance at December 31, 2019 | 7,040,265 | $ | 1.28 | |||||
Stock options forfeited January 23, 2020 | (50,000 | ) | 1.52 | |||||
Stock options forfeited February 25, 2020 | (5,000 | ) | 1.12 | |||||
Stock options forfeited March 1, 2020 | (50,000 | ) | 1.52 | |||||
Stock options granted March 14, 2020 | 5,056,000 | 0.19 | ||||||
Stock options forfeited April 21, 2020 | (150,000 | ) | 0.19 | |||||
Stock options forfeited May 4, 2019 | (15,000 | ) | 0.19 | |||||
Stock options forfeited May 5, 2020 | (30,000 | ) | 1.52 | |||||
Stock options forfeited May 7, 2020 | (15,000 | ) | 1.52 | |||||
Stock options forfeited June 11, 2020 | (15,000 | ) | 1.52 | |||||
Stock options granted June 16, 2020 | 2,000,000 | 0.19 | ||||||
Balance at June 30, 2020 | 13,766,265 | $ | 0.73 | |||||
Vested at June 30, 2020 | 8,805,932 | $ | 1.04 |
(i) As of the year ended December 31, 2018, the weighted average exercised price in CDN$ was $2.65.
As at September 30, 2019, details of the issued and outstanding stock options were as follows:
Grant date | Exercise price (USD$) | Number of options | Number of vested options | Weighted Avg Remaining Life (years) | ||||||||||||
January 10, 2019 | $ | 1.52 | 5,540,265 | 5,540,265 | 1.28 | |||||||||||
August 19, 2019 | 0.26 | 500,000 | 500,000 | 1.88 | ||||||||||||
August 19, 2019 | 0.35 | 100,000 | 100,000 | 1.88 | ||||||||||||
August 19, 2019 | 0.45 | 100,000 | 100,000 | 1.88 | ||||||||||||
August 19, 2019 | 0.55 | 100,000 | 100,000 | 1.88 | ||||||||||||
August 19, 2019 | 0.65 | 100,000 | 100,000 | 1.88 | ||||||||||||
August 19, 2019 | 0.75 | 100,000 | 100,000 | 1.88 | ||||||||||||
September 16, 2019 | 0.43 | 500,000 | 500,000 | 1.96 | ||||||||||||
Balance at September 30, 2019 | 7,040,265 | 7,040,265 |
15
18 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
Stock-based compensation (continued) |
As at June 30, 2020, 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) | |||||||||||||||
January 10, 2019 | $ | 1.52 | 5,375,265 | 5,375,265 | - | 0.53 | ||||||||||||||
August 19, 2019 | 0.26 | 500,000 | 500,000 | - | 1.14 | |||||||||||||||
August 19, 2019 | 0.35 | 100,000 | 100,000 | - | 1.14 | |||||||||||||||
August 19, 2019 | 0.45 | 100,000 | 100,000 | - | 1.14 | |||||||||||||||
August 19, 2019 | 0.55 | 100,000 | 100,000 | - | 1.14 | |||||||||||||||
August 19, 2019 | 0.65 | 100,000 | 100,000 | - | 1.14 | |||||||||||||||
August 19, 2019 | 0.75 | 100,000 | 100,000 | - | 1.14 | |||||||||||||||
September 16, 2019 | 0.43 | 500,000 | 500,000 | - | 1.21 | |||||||||||||||
March 14, 2020 | 0.19 | 4,891,000 | 1,264,000 | 3,627,000 | 4.71 | |||||||||||||||
June 16, 2020 | 0.19 | 2,000,000 | 666,667 | 1,333,333 | 4.96 | |||||||||||||||
Balance at June 30, 2020 | 13,766,265 | 8,805,932 | 4,960,333 |
The fair value of options granted during the three and ninesix months ended SeptemberJune 30, 20192020 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
June 16, 2020 | March 14, 2020 | January 10, 2019 | |||
Volatility | 100% | 87% | 68% | ||
Risk-free interest rate | 0.21% | 0.49% | 2.56% | ||
Expected life (years) | 5 | 5 | 2 | ||
Divedend yield | 0% | 0% | 0% | ||
Common share price | $0.19 | $0.18 | $1.23 | ||
Strike price | $0.19 | $0.19 | $1.52 | ||
Forfeiture rate | nil | nil | nil |
January 10, 2019 | August 19, 2019 | September 16, 2019 | ||||||||||
Volatility | 68% | 87% | 89% | |||||||||
Risk-free interest rate | 2.56% | 1.48% | 1.74% | |||||||||
Expected life (years) | 2 | 2 | 2 | |||||||||
Dividend yield | 0 | 0 | 0 | |||||||||
Common share price | $1.23 | $0.26 | $0.42 | |||||||||
Strike price | $1.52 | $ 0.26 - $ 0.75 | $0.43 | |||||||||
Forfeiture rate | nil | nil | nil |
The Company recorded $197,988$135,844 and $290,866 of stock-based compensation for the three and six months ended SeptemberJune 30, 2019 (three2020 (2019 – nil and $2,341,104). For the three and six months ended SeptemberJune 30, 2018 – nil). The2020 the Company recorded $2,539,092nil cash receipts due to the exercise of stock-based compensation for the nine months ended September 30, 2019 (nine months ended September 30, 2018 - $7,288).options. The Company recorded nil in cash receipts due to the exercise of options during the three months ended SeptemberJune 30, 2019. The Company recorded the cash receipt of $600,000 and reclassified $154,148 of stock-based compensation to common stock due to the exercise of options during the ninesix months ended SeptemberJune 30, 2019. The Company recorded the cash receipt of $98,716 and reclassified $34,608 of stock-based compensation to common stock due to the exercise of options during the three months ended September 30, 2018. The Company recorded the cash receipt of $1,537,024 and reclassified $386,898 of stock-based compensation to common stock due to the exercise of options during the nine months ended September 30, 2018.
The Company has estimated its stock option forfeitures to be nil for the three and ninesix months ended SeptemberJune 30, 20192020 (three and ninesix months ended September 2018June 30, 2019 - nil).
On October 1, 2018, the Company entered into a one-year rental agreement. On September 1, 2019, the Company elected to renew this rental agreement for an additional one-year period, as well as enter into an additional one-year rental agreement. The Company elected not to account for these leases in accordance with ASC 842 as they are for a one-year term. Total future annual lease payments for the premises are as follows:
2019 | $ | 12,480 | ||
2020 | 33,280 | |||
Total | $ | 45,760 |
16
19 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
14. Warrants
In connection with the February 14, 2020 RDO, the Company issued 20,833,334 five and one half-year Series A Warrants to purchase one common share at an exercise price of $.20. The Company also issued 1,041,667 placement agent warrants to purchase one common share at an exercise price of $0.15 per share.
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 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 on share of common stock 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 June 30, 2020, the Series C pre-funded warrants have all been exercised.
As at June 30, 2020, details of the outstanding warrants were as follows:
Original Issue date | Exercise Price | Warrants Outstanding | Weighted Average Remaining Life | |||||||||
February 14, 2020 | 0.20 | 20,833,334 | 5.13 | |||||||||
February 14, 2020 | 0.15 | 1,041,667 | 4.62 | |||||||||
April 9, 2020 | 0.15 | 6,731,250 | 4.77 | |||||||||
May 29, 2020 | 0.15 | 79,426,362 | 1.91 | |||||||||
Balance at June 30, 2020 | 108,032,613 |
20 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
14. Warrants (continued)
The fair value of warrants issued the three and six months ended June 30, 2020 was estimated using the Black-Scholes option pricing model to determine the fair value of warrants granted using the following assumptions:
Series A Warrants February 14, 2020 | Placement Agent Warrants February 14, 2020 | |||
Volatility | 87% | 87% | ||
Risk-free interest rate | 1.42% | 1.42% | ||
Expected life (years) | 5.5 | 5 | ||
Dividend yield | 0% | 0% | ||
Common share price | $0.12 | $0.12 | ||
Strike price | $0.20 | $0.15 | ||
Forfeiture rate | nil | nil | ||
Series B Warrants April 9, 2020 | Placement Agent Warrants April 9, 2020 | |||
Volatility | 99% | 99% | ||
Risk-free interest rate | 0.41% | 0.41% | ||
Expected life (years) | 5 | 5 | ||
Dividend yield | 0% | 0% | ||
Common share price | $0.14 | $0.14 | ||
Strike price | $0.15 | $0.15 | ||
Forfeiture rate | nil | nil | ||
Series C Warrants May 29, 2020 | ||||
Volatility | 118% | |||
Risk-free interest rate | 0.16% | |||
Expected life (years) | 2 | |||
Dividend yield | 0% | |||
Common share price | $0.16 | |||
Strike price | $0.15 | |||
Forfeiture rate | nil |
21 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
15. | Commitments and contingencies |
On November 26, 2018, the Company entered into a Development and Supply Agreement and as part of this agreement, the Company has contingent future outflows as follows:
• | |||
° | $3,000,000 in cash or | ||
° | $1,500,000 in cash and $1.95 million in equity | ||
• | |||
• | 3 | ||
° | $3,000,000 in cash or | ||
° | $1,500,000 in cash and $1.95 million in equity | ||
• | 4th payment: At the later of the achievement of a future milestone or February 19, 2020 - $2,000,000 in cash. |
As at Septemberof June 30, 2019, neither2020, the first and second milestones have been met and paid. The third milestone was met and paid in April 2020. Per the terms of the future development milestones related toagreement the above agreement havecash option of $3,000,000 was chosen. The fourth milestone payment has not been met.
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:
• | |||
• | |||
As at Septemberof June 30, 2019,2020, neither of the future development milestones related to the above agreement have been met.
From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As at September 30, 2019, and continuing as at November 12, 2019, the Company is not aware of any pending or threatened material litigation claims against the Company, other than as described below.
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”). The 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 Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATMTRUFORMATM 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. The Court has not yet ruled on Defendants’ motion to dismiss, and the litigation remains stayed pending a ruling on that motion. The Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s 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 (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company 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 the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit.
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:
22 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
16. | Financial instruments (continued) |
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
17
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.
(i) | The Company calculates expected volatility based on historical volatility of the Company’s peer group that is publicly traded for options. |
An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
The carrying values of cash, tradetax credit and other receivable,receivables, accounts payable and accrued liabilities and shareholder loans payable approximates their fair values because of the short-term nature of these instruments.
(b) | Interest rate and credit risk |
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 related parties due to the short-term nature of these balances.
The Company is also exposed to credit risk at period end from the carrying value of its cash. The Company manages this risk by maintaining bank accounts with a Canadian Chartered Bank and a U.S. Bank. The Company’s cash is not subject to any external restrictions.
(c) | Foreign exchange risk |
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.
(d) | Liquidity risk |
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.
18
The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at June 30, 20192020 and December 31, 2018:2019:
September 30, 2019 | ||||||||||||||||||||||||
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 | 1,577,525 | - | - | - | - | 1,577,525 | ||||||||||||||||||
1,577,525 | - | - | - | - | 1,577,525 |
23 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
16. | Financial instruments (continued) |
December 31, 2018 | June 30, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Less than | 3 to 6 | 6 to 9 | 9 months | Greater than | Less than | 3 to 6 | 6 to 9 | 9 months | Greater than | |||||||||||||||||||||||||||||||||||||||
3 months | months | months | 1 year | 1 year | Total | 3 months | months | months | 1 year | 1 year | Total | |||||||||||||||||||||||||||||||||||||
$ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
Third parties | ||||||||||||||||||||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | 2,376,519 | - | - | - | - | 2,376,519 | 1,731,469 | - | - | - | - | 1,731,469 | ||||||||||||||||||||||||||||||||||||
2,376,519 | - | - | - | - | 2,376,519 | 1,731,469 | - | - | - | - | 1,731,469 | |||||||||||||||||||||||||||||||||||||
December 31, 2019 | ||||||||||||||||||||||||||||||||||||||||||||||||
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 | 2,087,525 | - | - | - | - | 2,087,525 | ||||||||||||||||||||||||||||||||||||||||||
2,087,525 | - | - | - | - | 2,087,525 |
Segmented 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 of the Company's long-lived assets are in the United States of America (“US”).
September 30, | December 31, | June 30, | December 31, | |||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
$ | $ | $ | $ | |||||||||||||
Total assets | ||||||||||||||||
Canada | 431,063 | 383,567 | 27,291,934 | 249,929 | ||||||||||||
US | 6,179,961 | 5,649,952 | 5,469,653 | 3,933,055 | ||||||||||||
Total US property and equipment | 805,218 | 717,088 | 798,901 | 729,142 | ||||||||||||
Total US right-of-use asset | 1,231,003 | - | ||||||||||||||
Tota US right-of-use asset | 1,441,124 | 1,103,658 | ||||||||||||||
2,036,221 | 717,088 | 2,240,025 | 1,832,800 |
19
24 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
For the three months ended September 30, | For the three months ended September 30, | |||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Research and | Professional | General and | Research and | Professional | General and | |||||||||||||||||||
Development | Fees | Administrative | Development | Fees | Administrative | |||||||||||||||||||
Salaries, bonus and benefits | $ | 129,319 | $ | - | $ | 849,458 | $ | 164,267 | $ | - | $ | 454,786 | ||||||||||||
Contracted expenditures | 661,917 | - | - | 259,947 | - | - | ||||||||||||||||||
Marketing and investor relations | - | - | 165,837 | - | - | 53,996 | ||||||||||||||||||
Travel and accommodation | 8,327 | - | 198,993 | 8,023 | - | 36,491 | ||||||||||||||||||
Insurance | 19,497 | - | 66,029 | 20,855 | - | 76,903 | ||||||||||||||||||
License fees | - | - | - | - | - | - | ||||||||||||||||||
Office | 11,565 | - | 80,032 | 6,665 | - | 82,416 | ||||||||||||||||||
Consultants | 29,343 | 279,237 | - | 80,425 | 293,484 | - | ||||||||||||||||||
Regulatory | 31,773 | - | 26,163 | 19,247 | - | 32,904 | ||||||||||||||||||
Rent | - | - | 7,603 | 15,396 | - | 90,463 | ||||||||||||||||||
Supplies | 70,722 | - | 10,837 | 55,546 | - | 6,611 | ||||||||||||||||||
Total | $ | 962,463 | $ | 279,237 | $ | 1,404,952 | $ | 630,371 | $ | 293,484 | $ | 834,570 |
For the nine months ended September 30, | For the nine months ended September 30, | |||||||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Research and | Professional | General and | Research and | Professional | General and | |||||||||||||||||||
Development | Fees | Administrative | Development | Fees | Administrative | |||||||||||||||||||
Salaries, bonus and benefits | $ | 579,110 | $ | - | $ | 4,422,480 | $ | 490,706 | $ | - | $ | 1,957,341 | ||||||||||||
Contracted expenditures | 2,474,483 | - | - | 968,159 | - | - | ||||||||||||||||||
Marketing and investor relations | - | - | 297,252 | - | - | 177,151 | ||||||||||||||||||
Travel and accommodation | 21,103 | - | 318,730 | 13,360 | - | 228,359 | ||||||||||||||||||
Insurance | 76,402 | - | 179,367 | 65,099 | - | 234,646 | ||||||||||||||||||
License fees | 5,936,841 | - | - | 1,738,513 | - | - | ||||||||||||||||||
Office | 31,162 | - | 216,521 | 41,312 | - | 220,823 | ||||||||||||||||||
Consultants | 178,223 | 1,230,151 | - | 169,613 | 1,001,886 | - | ||||||||||||||||||
Regulatory | 95,418 | - | 76,333 | 57,422 | - | 226,604 | ||||||||||||||||||
Rent | - | - | 19,483 | 31,047 | - | 176,501 | ||||||||||||||||||
Supplies | 162,603 | - | 27,495 | 190,101 | - | 21,807 | ||||||||||||||||||
Total | $ | 9,555,345 | $ | 1,230,151 | $ | 5,557,661 | $ | 3,765,332 | $ | 1,001,886 | $ | 3,243,232 |
Schedule of expenses |
For the three months ended June 30, | For the three months ended June 30, | |||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Research and | Professional | General and | Research and | Professional | General and | |||||||||||||||||||
Development | Fees | Administrative | Development | Fees | Administrative | |||||||||||||||||||
Salaries, bonus and benefits | $ | 129,259 | $ | - | $ | 726,290 | $ | 258,493 | $ | - | $ | 674,088 | ||||||||||||
Contracted expenditures | 515,944 | - | - | 557,719 | - | - | ||||||||||||||||||
Marketing and investor relations | - | - | 67,827 | - | - | 78,905 | ||||||||||||||||||
Travel and accommodation | - | - | 393 | 2,727 | - | 62,473 | ||||||||||||||||||
Insurance | 202 | - | 46,318 | 1,430 | - | 19,319 | ||||||||||||||||||
License fees | 3,000,000 | - | - | 50,000 | - | - | ||||||||||||||||||
Office | 8,282 | - | 44,406 | 13,169 | - | 30,214 | ||||||||||||||||||
Consultants | 75,150 | 282,791 | - | 89,094 | 231,647 | - | ||||||||||||||||||
Regulatory | 151,073 | - | 21,888 | 42,647 | - | 26,066 | ||||||||||||||||||
Rent | 21,763 | - | 81,612 | - | - | 5,940 | ||||||||||||||||||
Supplies | 6,498 | - | - | 46,228 | - | 4,314 | ||||||||||||||||||
Total | $ | 3,908,171 | $ | 282,791 | $ | 988,734 | $ | 1,061,507 | $ | 231,647 | $ | 901,319 |
For the six months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||||
2020 | 2019 | |||||||||||||||||||||||
Research and | Professional | General and | Research and | Professional | General and | |||||||||||||||||||
Development | Fees | Administrative | Development | Fees | Administrative | |||||||||||||||||||
Salaries, bonus and benefits | $ | 315,643 | $ | - | $ | 1,503,436 | $ | 503,800 | $ | - | $ | 3,646,260 | ||||||||||||
Contracted expenditures | 878,812 | - | - | 1,812,566 | - | - | ||||||||||||||||||
Marketing and investor relations | - | - | 117,379 | - | - | 131,415 | ||||||||||||||||||
Travel and accommodation | 407 | - | 12,915 | 12,776 | - | 119,737 | ||||||||||||||||||
Insurance | 441 | - | 92,349 | 2,896 | - | 40,100 | ||||||||||||||||||
License fees | 3,000,000 | - | - | 5,936,841 | - | - | ||||||||||||||||||
Office | 22,077 | - | 298,196 | 19,597 | - | 97,457 | ||||||||||||||||||
Consultants | 78,126 | 573,472 | - | 148,880 | 989,946 | - | ||||||||||||||||||
Regulatory | 151,073 | - | 110,356 | 63,645 | - | 50,170 | ||||||||||||||||||
Rent | 38,992 | - | 137,630 | - | - | 11,880 | ||||||||||||||||||
Supplies | 17,999 | - | - | 91,881 | - | 16,658 | ||||||||||||||||||
Total | $ | 4,503,570 | $ | 573,472 | $ | 2,272,261 | $ | 8,592,882 | $ | 989,946 | $ | 4,113,677 |
19. | Capital risk management |
The capital of the Company includes equity, which is comprised of issued common capital stock,shares, additional paid-in capital, and accumulated deficit. The Company's objective when managing its capital is to safeguard the ability to continue as a going concern in order to provide returns for its shareholders, and other stakeholders and to maintain a strong capital base to support the Company's core activities.
20
25 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and |
(Stated in United States dollars) |
Loss per share |
For the three months ended September 30, | For the nine months ended September 30, | For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Numerator | ||||||||||||||||||||||||||||||||
Net loss for the period | $ | 2,845,679 | $ | 1,910,278 | $ | 16,927,016 | $ | 8,226,005 | $ | 5,307,990 | $ | 2,404,427 | $ | 7,758,607 | $ | 14,081,337 | ||||||||||||||||
Denominator | ||||||||||||||||||||||||||||||||
Weighted average shares - basic | 108,038,398 | 94,514,905 | 105,711,459 | 92,534,667 | 214,830,818 | 108,038,398 | 166,814,645 | 104,528,705 | ||||||||||||||||||||||||
Warrants | - | - | - | - | ||||||||||||||||||||||||||||
Stock options | - | - | - | - | - | - | - | - | ||||||||||||||||||||||||
Denominator for diluted loss per share | 108,038,398 | 94,514,905 | 105,711,459 | 92,534,667 | 214,830,818 | 108,038,398 | 166,814,645 | 104,528,705 | ||||||||||||||||||||||||
Loss per share - basic and diluted | $ | (0.03 | ) | $ | (0.02 | ) | $ | (0.16 | ) | $ | (0.09 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.13 | ) |
For the above-mentioned periods, the Company had securities 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.
Related party transactions and key management compensation |
Key management personnel are comprised of the Company’s directors and executive officers. In addition to their salaries, key management personnel also receive share-based compensation. Key management personnel compensation is as follows:
For the three months ended September 30, | For the nine months ended September 30, | For the three months ended June 30, | For the six months ended June 30, | |||||||||||||||||||||||||||||
2019 | 2018 | 2019 | 2018 | 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||||||
Salaries and benefits, including bonuses | $ | 251,737 | $ | 324,784 | $ | 887,635 | $ | 1,046,449 | $ | 183,831 | $ | 375,177 | $ | 340,366 | $ | 635,898 | ||||||||||||||||
Stock-based compensation | 100,002 | - | 1,744,327 | - | 279,944 | - | 379,557 | 1,644,325 | ||||||||||||||||||||||||
Total | $ | 351,739 | $ | 324,784 | $ | 2,631,962 | $ | 1,046,449 | $ | 463,775 | $ | 375,177 | $ | 719,923 | $ | 2,280,223 |
26 |
Zomedica Pharmaceuticals Corp. |
Notes to the condensed unaudited interim consolidated financial statements |
For the three and six months ended June 30, 2020 and 2019 |
(Stated in United States dollars) |
22. | Subsequent events |
On July 7, 2020 the Company completed a $30,000,000 public offering of its common shares or common share equivalent (“Series D pre-funded warrants”), and warrants (“Series D Warrants”) in a fixed combination of one common share or 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 warrants or a combined offering price of $0.1599 per 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.
As part of this transaction, one of the Company’s directors purchased 625,000 shares for $100,000 and received Series D Warrants to purchase an additional 625,000 common shares.
As of July 20, 2020, all the Series D pre-funded warrants have all been exercised.
23. Comparative figures
Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations. Adjustments have been made to the consolidated schedule of expenses for the three and six months ended June 30, 2019, to classify health insurance benefits as part of salaries, wages and bonuses and audit fees to professional fees. This change in classification does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
27 |
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 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 Quarterly Report. This discussion contains forward-looking statements and forward-looking information under applicable Canadian securities legislation (collectively, “forward-looking statements”) that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Quarterly Report, and those set forth in our most recent Annual Report on Form 10-K particularly those under “Risk Factors” discussed below and in our most recent Annual Report on Form 10-K.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-Q 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 “Business” and elsewhere in this Form 10-Q 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:
· | the success, cost and timing of our research and development activities, validation studies and pivotal trials, including with respect to our lead product candidates, TRUFORMA™ |
· | our ability to obtain, and the requirements for, regulatory approval from the Food and Drug Administration’s Center for Veterinary Medicine |
· | our ability to obtain funding for our operations; |
· | the ability of our contract research organizations to appropriately conduct our safety studies and certain development activities; |
· | the ability of our contract manufacturing organizations to manufacture and supply our product candidates in accordance with current Good Manufacturing Practices and our clinical needs; |
· |
our plans to develop and commercialize our product candidates; |
· | the potential impact of the novel coronavirus pandemic on our operations, including the development and commercialization of our TRUFORMA™ platform and the five initial assays; |
· | our ability to develop and commercialize product candidates that can compete effectively against the product candidates developed and commercialized by our competitors or |
· | the size and growth of the veterinary diagnostics and therapeutics markets; |
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· | our ability to obtain and maintain intellectual property protection for our current and future product candidates; |
· | regulatory developments in the United States; |
· | the loss of key scientific or management 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; 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 anticipate in our forward-looking statements. Please see “Risk Factors” below and in our most recent Annual Report on Form 10-K for additional risks which could adversely impact our business and financial performance.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this report or the date of the document incorporated by reference into this report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We are a development stage veterinary diagnostic and pharmaceutical company focused on creating productspoint-of-care diagnostic platforms for use by veterinarians treating companion animals (canine, feline, and equine) by focusing on the unmet needs of clinical veterinarians. We believe that we have identified and are developing diagnostics and therapeutics thatour diagnostic platforms have the potential to significantly improve the diagnosis and treatment of various diseases affecting companion animals. We believe that there are significant unmet medical needs for point-of-care diagnostic tools for use on pets, and that the pet diagnostic and therapeutic segmentssegment of the animal health industry areis likely to grow substantially as new diagnostic tools and treatments are identified, developed, and marketed specifically for companion animals.
Together withOur strategic focus is on the final development and commercialization of our strategic partners, we are developing threeTRUFORMA™ diagnostic platforms, a Bulk Acoustic Wave sensor-based veterinary point-of-care diagnosticbiosensor platform for performing immunodiagnostic testing, a Raman spectroscopy-based point-of-care diagnostic platform forand the detection of pathogens, and liquid biopsyfirst five assays for the detection of cancer, along with related consumables.adrenal and thyroid disorders in cats and dogs. 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 believe that the TRUFORMA™ diagnostic platform does not require pre-market regulatory pathwayapproval for use with companion animals in the United States.
In our Annual Report on Form 10-K for the year ended December 31, 2019, we stated the following expectations with respect to approvalour TRUFORMA™ platform:
• | verification of TRUFORMA’s™ five initial assays was expected to be completed by the end of the first quarter of 2020; |
• | our goal was to complete validation of TRUFORMA’s™ five initial assays by the end of the second quarter of 2020; and |
• | we expected to commence commercialization of the five initial assays in select strategic markets by the end of 2020. |
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However, the COVID-19 pandemic has impacted our expected timing for the development and commercialization of our TRUFORMA™ platform and the five initial assays due to a number of factors, including the following:
· | our development partner significantly has reduced the number of employees working in its facilities 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 have, at times, either shut down or limited their operations to those involving only life-threatening conditions; and, |
· | potential customers have restricted access to their facilities which will affect our ability to perform on-site demonstrations and other marketing activities. |
Following the commercial launch of TRUFORMA™, we expect to expand our TRUFORMA™ assay offerings and to continue the development of our second point- of-care diagnostic platform based on miniaturized laser-based Raman spectroscopy technology 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 diagnostics is significantly shorter thanfeces, urine, respiratory, and dermatological samples in minutes without the need for similarextensive sample prep or the use of reagents. This pathogen diagnostic products intended for human use. In certain cases, pre-market clearance may be unnecessary, dependingplatform requires a small fecal sample preparation. Additionally, the platform has automated analysis and does not require specialized staff training. Because we are focused on the intended usedevelopment and commercialization of the diagnostic.TRUFORMA™ platform, we have deferred work on this pathogen diagnostic platform. We believe that this pathogen diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.
We also have identified several drugs that have proven safe and effective in humans that we are developingperformed initial development work on a circulating tumor cell (CTC) “liquid biopsy” platform for use in caninesa reference lab setting as a canine cancer diagnostic. This platform is intended for use to detect canine cancers faster, more affordably and felines. We believe this development approach enables usless invasively compared to reduce the risks associated with obtaining regulatory approvalexisting methods, which can be expensive and cost-prohibitive for unproven product candidates and shortens the development timeline necessary to bring our product candidates to market.pet owners. We have four drug product candidates in early development and have identified several other potential product candidates for further investigation.
In addition, we are investigatingworked on the development of alternative drug delivery technologiesan assay for our drug product candidates. Many of the human-approved therapeutics used in companion animals are only available in pill or injectable form. However, it can be difficult to give a companion animal an injection or to assureuse with this platform that the animal has swallowed a pill. As a result, we believe that compliance with treatment regimens is a significant problem for veterinarianstargets hard-to-diagnose canine cancers, such as hemangiosarcoma and pet owners. The challenges associated with medicating pets are unique, and we believe that developing product candidates that can be easily taken by the pet or easily administered by pet owners will help increase compliance.osteosarcoma.
We are a development-stage company with no products approved for marketing and sale, and we have not generated any revenue. We have incurred significant net losses since our inception. We incurred net losses of $2,845,679$5,307,990 and $1,910,278$7,758,607 for the three and six months ended SeptemberJune 30, 20192020 and September 30, 2018, respectively,loss of $2,404,427 and $16,927,016 and $8,226,005$14,081,337 for the ninethree and six months ended SeptemberJune 30, 2019 and September 30, 2018, respectively.2019. 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 SeptemberJune 30, 2019,2020, we had an accumulated deficit of $49,200,803$59,816,448 and cash and cash equivalents of $2,487,651.$29,103,049.
For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our product development activities, commercialize themthe resulting products if they do not require U.S. Food and Drug Administration’s Center for Veterinary Medicine, or FDA-CVM, pre-market approval, and seek regulatory approvals for our product candidates where required from the FDA-CVM or the United States Department of Agriculture Center for Veterinary Biologics, or the USDA-CVB.
For further information on the regulatory, business and product pipeline, please see the “Business” section of thisour Annual Report on Form 10-K. For further information on the risk factors we face, please see the “Risk Factors” section of theour Annual Report on Form 10-K.10-K and this Quarterly Report on Form 10-Q.
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Revenue
We do not have any products approved for sale, have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future. If our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for any of our product candidates, we may generate revenue from those product candidates.
Operating Expenses
MostThe 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, and research and development activities related to the development of 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 clinical trials and research and development.
We have a point-of-care biosensor platform, TRUFORMA™ that we are developing for diagnosis and treatment management of disorders such as thyroid and adrenal disorders, a non-invasive diagnostic assay or blood test, that we are developing as an aid for veterinarians in diagnosing cancer in canines, and a diagnostic instrument and related assays, for the detection of pathogens in urine and fecal samples at the point-of-care.
We have four drug product candidates in development. Our lead drug product candidate is ZM-007, an oral suspension formulation of metronidazole targeting the treatment of acute diarrhea in small dog breeds and puppies under nine pounds or four kilograms. Our second drug product candidate is ZM-012, a novel tablet formulation of metronidazole, most commonly known as Flagyl™, its human pharmaceutical brand name, and a complementary formulation to ZM-007, targeting the treatment of acute diarrhea in larger dogs. Our third drug product candidate is ZM-006, a transdermal gel formulation of methimazole, most commonly known as Tapazole™, its human pharmaceutical brand name, and Felimazole™, its feline pharmaceutical brand name, targeting hyperthyroidism in cats. Our fourth drug product candidate is ZM-011, a transdermal gel formulation of fluoxetine, most commonly known as Prozac™, its human pharmaceutical brand name.
General and Administrative Expense
General and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. General and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal, accounting, tax services and other general business services.
Professional Fees
Professional fees include attorney’s fees, accounting fees and consulting fees incurred in connection with product investigation and analysis, regulatory analysis, government relations, audit, securities offerings, investor relations, and general corporate and intellectual property advice.
Income Taxes
As of December 31, 2018,2019, we had net operating loss carryforwards for federal and state income tax purposes of $11,522,620$16,140,344 and non-capital loss carryforwards for CanadaCanadian income tax purposes of approximately $13,353,870,$20,366,610, which will begin to expire in fiscal year 2036.2035. 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, 2018,2019, a valuation allowance was necessary to fully offset our deferred tax assets.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenue, costs and expenses and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note 3 of the notes to our consolidated financial statements appearing elsewhere in this document,report, we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements.
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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, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be 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.
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 fair values of financial assets and liabilities;are, the determination of fair value of stock-based compensation;compensation, the useful lives and recoverability of property and equipment; deferred income taxesequipment, allocation of proceeds from financings to shares and warrants, fair value of placement agent warrants and forecasting future cash flows for assessing the going concern assumption. assumption.
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 and 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 a goal of obtaining regulatory approval to manufacture and market the product candidate.
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 translatedremeasured at the period endperiod-end exchange rates. Revenue and expenses are translatedmeasured 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.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 ultimately are ultimately expected to vest. We estimate forfeitures at the time of grant and revised,revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Volatility is determined based on volatilities of comparable companies when the Company does not have its own trading history. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options. The risk-free rate assumed in valuing the options is based on the Canadian treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is nil as we are not expected to pay dividends in the foreseeable future.
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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
Three and ninesix months ended SeptemberJune 30, 20192020 compared to three and ninesix months ended SeptemberJune 30, 20182019
Our results of operations for the three and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 20182020 are as follows:
Three months ended September 30, | Nine months ended September 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | $ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||||||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Research and development | 962,463 | 630,371 | 332,092 | 53 | % | 9,555,345 | 3,765,332 | 5,790,013 | 154 | % | 3,908,171 | 1,061,507 | 2,846,664 | 268 | % | 4,503,570 | 8,592,882 | (4,089,312 | ) | -48 | % | |||||||||||||||||||||||||||||||||||||||||||
General and administrative | 1,404,952 | 834,570 | 570,382 | 68 | % | 5,557,661 | 3,243,232 | 2,314,429 | 71 | % | 988,734 | 901,319 | 87,415 | 10 | % | 2,272,261 | 4,113,677 | (1,841,416 | ) | -45 | % | |||||||||||||||||||||||||||||||||||||||||||
Professional fees | 279,237 | 293,484 | (14,247 | ) | -5 | % | 1,230,151 | 1,001,886 | 228,265 | 23 | % | 282,791 | 231,647 | 51,144 | 22 | % | 573,472 | 989,946 | (416,474 | ) | -42 | % | ||||||||||||||||||||||||||||||||||||||||||
Amortization - right-of-use asset | 127,345 | - | 127,345 | N/A | 382,035 | - | 382,035 | N/A | – | 127,345 | (127,345 | ) | N/A | 42,448 | 254,690 | (212,242 | ) | N/A | ||||||||||||||||||||||||||||||||||||||||||||||
Amortization - intangible | 273 | 431 | (158 | ) | -37 | % | 810 | 1,810 | (1,000 | ) | -55 | % | 44,990 | 270 | 44,720 | 16563 | % | 90,025 | 537 | 89,488 | 16664 | % | ||||||||||||||||||||||||||||||||||||||||||
Depreciation | 70,096 | 86,162 | (16,066 | ) | -19 | % | 201,075 | 150,320 | 50,755 | 34 | % | 77,859 | 68,925 | 8,934 | 13 | % | 154,275 | 130,979 | 23,296 | 18 | % | |||||||||||||||||||||||||||||||||||||||||||
Loss from operations | 2,844,366 | 1,845,018 | 999,348 | 54 | % | 16,927,077 | 8,162,580 | 8,764,497 | 107 | % | 5,302,545 | 2,391,013 | 2,911,532 | 122 | % | 7,636,051 | 14,082,711 | (6,446,660 | ) | -46 | % | |||||||||||||||||||||||||||||||||||||||||||
Loss on fixed assets | - | 69,382 | (69,382 | ) | N/A | 1,308 | 69,382 | (68,074 | ) | -98 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest income | (247 | ) | – | (247 | ) | NA | (328 | ) | – | (328 | ) | NA | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense | - | - | - | N/A | 18,338 | - | 18,338 | N/A | – | 12,164 | (12,164 | ) | -100 | % | 732 | 18,338 | (17,606 | ) | -96 | % | ||||||||||||||||||||||||||||||||||||||||||||
Loss on property and equipment | – | 1,308 | (1,308 | ) | -100 | % | 69,834 | 1,308 | 68,526 | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss on right-of-use asset | – | – | – | N/A | 59,097 | – | 59,097 | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain on settlement of liabilities | - | - | - | N/A | (19,737 | ) | - | (19,737 | ) | N/A | – | – | – | N/A | – | (19,737 | ) | 19,737 | N/A | |||||||||||||||||||||||||||||||||||||||||||||
Other income | – | – | – | N/A | (5,500 | ) | – | (5,500 | ) | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Foreign exchange gain | 1,313 | (4,122 | ) | 5,435 | -132 | % | 30 | (5,957 | ) | 5,987 | -101 | % | 5,692 | (58 | ) | 5,750 | -9914 | % | (1,279 | ) | (1,283 | ) | 4 | 0 | % | |||||||||||||||||||||||||||||||||||||||
Loss before income taxes | 2,845,679 | 1,910,278 | 935,401 | 49 | % | 16,927,016 | 8,226,005 | 8,701,011 | 106 | % | 5,307,990 | 2,404,427 | 2,903,563 | 121 | % | 7,758,607 | 14,081,337 | (6,322,730 | ) | -45 | % | |||||||||||||||||||||||||||||||||||||||||||
Income tax expense | - | - | - | N/A | - | - | - | N/A | – | – | – | N/A | – | – | – | N/A | ||||||||||||||||||||||||||||||||||||||||||||||||
Net loss and comprehensive loss | 2,845,679 | 1,910,278 | 935,401 | 49 | % | 16,927,016 | 8,226,005 | 8,701,011 | 106 | % | 5,307,990 | 2,404,427 | 2,903,563 | 121 | % | 7,758,607 | 14,081,337 | (6,322,730 | ) | -45 | % |
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Revenue
We did not generate any revenue during the three and ninesix months ended SeptemberJune 30, 20192020 and SeptemberJune 30, 2018.2019.
Research and Development
Research and development expense for the three months ended SeptemberJune 30, 20192020 was $962,463$3,908,171 compared to $630,371$1,061,507 for the three months ended SeptemberJune 30, 2018,2019, an increase of $332,092$ 2,846,664 or 53%268%. The increase primarily resulted from a milestone expense of $3,000,000 recognized in accordance with our development and supply agreement with Qorvo Biotechnologies, LLC. (“Qorvo”) and increased regulatory fees. This increase partially was primarily due to an increaseoffset by a reduction in contracted expendituressalaries and bonuses of $401,970 related to the development$129,234 and supplies of the five assays for TRUFORMATM.$39,730.
Research and development expense for the ninesix months ended SeptemberJune 30, 2020 was $4,503,570 compared to $8,592,882 for the six months ended June 30, 2019, was $9,555,345 compared to $3,765,332 for the nine months ended September 30, 2018, an increasea reduction of $5,790,013$4,089,312 or 154%48%. The increasedecrease primarily was primarily due to increasesa reduction of $2,000,000 in license fees of $4,198,328, and contracted expenditures of $1,506,324. The license fees increase related to $5,000,000 ofmilestone expenses recognized upon the achievement of development milestones relating to TRUFORMA™ under our development and supply agreement with Qorvo, Biotechnologies, LLC (“Qorvo”), anda reduction of $736,841 of additionalin milestone expenses relating to our development of ZM-017 under our license and supply agreement with Celsee, Diagnostics, Inc. The increase was partially offset by no recurrence from the 2018 period, a reduction of an up-front licensing fee$933,754 in consulting expenses, a reduction of $1,738,513 to Seraph Biosciences, Inc. (“Seraph”), upon the execution$188,157 in salaries, bonus and benefits, and a reduction of our development, commercialization and exclusive distribution agreement, and $333,247 of additional development fees due to Seraph. The contract expenditures increase related to the development of the five assays for TRUFORMATM.$73,882 in supplies.
General and Administrative
General and administrative expense for the three months ended SeptemberJune 30, 20192020 was $1,404,952,$988,734, compared to $834,570$901,319 for the three months ended SeptemberJune 30, 2018,2019, an increase of $570,382$87,415 or 68%10%. The increase primarily was due to an increase in salaries, bonusbonuses and benefits of $394,673, which included share-based$52,202, inclusive of $135,844 in cost associated with options granted to employees in the period. After adjusting for the stock option compensation expense, of $197,988 as a result ofsalaries decreased by $53,075. This decrease was due to no bonuses being earned in the granting of options to purchase an aggregate of 1,500,000 common shares, all of which vested uponcurrent period versus the dates of grant.prior period, offset by increases in salaries. Other increases include rent expense of $75,672 relating to the reclassification of right-of-use asset amortization, $26,999 in salaries, bonusinsurance expense, and benefits are due to$14,192 in office expense. These increases were offset by reductions in sales, marketing and other administrative salaries and benefits. Traveltravel and accommodation increased by $162,502 andexpense of $62,080, marketing and investor relations increased by $111,841, which were partially offset by rent decreaseexpense of $82,860 which was reclassified to amortization$11,078, office supplies of right-of-use asset.$4,314 and $4,178 for regulatory fees.
General and administrative expense for the ninesix months ended SeptemberJune 30, 2020 was $2,272,261, compared to $4,113,677 for the six months ended June 30, 2019, was $5,557,661, compared to $3,243,232 for the nine months ended September 30, 2018, an increasea decrease of $2,314,429$1,841,416 or 71%45%. The increasedecrease primarily was primarily due to a $2,465,139 increasereduction in salaries, bonusbonuses and benefits which included share–basedof $2,142,824 as a result of a reduction in stock option compensation expense of $2,539,092.compared to the prior period. After adjusting for the share-basedstock option compensation expense, general and administrative expensesalaries decreased $224,663 or 7%, primarily as a result of$45,105. This decrease was due to no bonuses being earned in the reclassification of rent to amortization of right-of-use asset of $254,690 and regulatory feescurrent period versus the prior period, offset in part by an increase in salary expense. This decrease of $150,271,was partially offset by marketing and investor relationsan increase in office expense associated with the expensing of $120,101 and travel and accommodation increase of $90,371.furniture in the office space completed in the first quarter.
Professional Fees
Professional fees for the three months ended SeptemberJune 30, 20192020 were $279,237,$282,791 compared to $293,484$231,647 for the three months ended SeptemberJune 30, 2018, a decrease2019, an increase of $14,247$51,144 or 5%22%. The decreaseincrease was due to a reduction inadditional legal and consulting fees associated with SECthe COVID-19 pandemic disclosures, our offering activity and related filings.the appointment of our new Interim Chief Executive Officer.
Professional fees for the ninesix months ended SeptemberJune 30, 2020 were $573,472 compared to $989,946 for the six months ended June 30, 2019, were $1,230,151, compared to $1,001,886 for the nine months ended September 30, 2018, an increasea decrease of $228,265$416,474 or 23%42%. The increasedecrease was primarily due to increased expenses incurred in the prior period related to the filingpreparation of our S-3 resale registration statement and our S-8 registration statement.
Net Loss
Our net loss for the three months ended SeptemberJune 30, 20192020 was $2,845,679$5,307,990 or $0.03$0.02 per share, compared with a net loss of $1,910,278$2,404,427 or $0.02 per share, for the three months ended SeptemberJune 30, 2018,2019, an increase of $935,401$2,903,563 or 49%121%. The net loss in each period was attributed to the matters described above.
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Our net loss for the ninesix months ended SeptemberJune 30, 20192020 was $16,927,016$7,758,607 or $0.16$0.05 per share, compared with a net loss of $8,226,005$14,081,337 or $0.09$0.13 per share an increasefor the six months ended June 30, 2019, a decrease of $8,701,011$6,322,730 or 106%45%. 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, if ever, as we have sufficient revenue from our product candidates to offset our operating expenses.
Cash Flows
Three and ninesix months ended SeptemberJune 30, 20192020 compared to three and ninesix months ended SeptemberJune 30, 20182019
The following table shows a summary of our cash flows for the periods set forth below:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||||||||||
2019 | 2018 | Change | 2019 | 2018 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Cash flows used in operating activities | (3,910,078 | ) | (3,371,059 | ) | (539,019 | ) | 16 | % | (13,767,933 | ) | (7,819,347 | ) | (5,948,586 | ) | 76 | % | ||||||||||||||||
Cash flows (used) from financing activities | (1,414 | ) | 86,388 | (87,802 | ) | -102 | % | 14,972,319 | 5,503,385 | 9,468,934 | 172 | % | ||||||||||||||||||||
Cash flows used in investing activities | (582,437 | ) | (467,675 | ) | (114,762 | ) | 25 | % | (657,000 | ) | (605,368 | ) | (51,632 | ) | 9 | % | ||||||||||||||||
Increase in cash | (4,493,929 | ) | (3,752,346 | ) | (741,583 | ) | 20 | % | 547,386 | (2,921,330 | ) | 3,468,716 | -119 | % | ||||||||||||||||||
Cash and cash equivalents, beginning of period | 6,981,580 | 4,279,163 | 2,702,417 | 63 | % | 1,940,265 | 3,448,147 | (1,507,882 | ) | -44 | % | |||||||||||||||||||||
Cash and cash equivalents, end of period | 2,487,651 | 526,817 | 1,960,834 | 372 | % | 2,487,651 | 526,817 | 1,960,834 | 372 | % |
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||||||||||
2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Cash flows used in operating activities | (5,720,528 | ) | (8,436,011 | ) | 2,715,483 | -32 | % | (7,893,653 | ) | (11,017,287 | ) | 3,123,634 | -28 | % | ||||||||||||||||||
Cash flows from financing activities | 33,326,825 | 11,966,905 | 21,359,920 | 178 | % | 35,478,603 | 14,973,733 | 20,504,870 | 137 | % | ||||||||||||||||||||||
Cash flows from (used) in investing activities | - | (5,477 | ) | 5,477 | -100 | % | 1,007,513 | (74,563 | ) | 1,082,076 | -1451 | % | ||||||||||||||||||||
Increase in cash | 27,606,297 | 3,525,417 | 24,080,880 | 683 | % | 28,592,463 | 3,881,883 | 24,710,580 | 637 | % | ||||||||||||||||||||||
Cash and cash equivalents, beginning of period | 1,496,752 | 2,296,731 | (799,979 | ) | -35 | % | 510,586 | 1,940,265 | (1,429,679 | ) | -74 | % | ||||||||||||||||||||
Cash and cash equivalents, end of period | 29,103,049 | 5,822,148 | 23,280,901 | 400 | % | 29,103,049 | 5,822,148 | 23,280,901 | 400 | % |
Operating Activities
Net cash used in operating activities for the three months ended SeptemberJune 30, 20192020 was $3,910,078,$5,720,528, compared to $3,371,059$8,436,011 for the three months ended SeptemberJune 30, 2018, an increase2019, a decrease of $539,019$2,715,483 or 16%32%. The increase in net cash used in operating activitiesdecrease resulted primarily from an increase in oura lower net loss cash used in decreasing accounts payable and accrued liabilitiesthe second quarter of $1,378,710 and cash used2020 compared to the second quarter of 2019, offset in increasing prepaid expensespart by a reduction of $122,315, partially offset by non-cash impacts of stock-based compensation of $197,988, amortization – right-of-use asset of $127,345 and depreciation of $70,096.current liabilities.
Net cash used in operating activities for the ninesix months ended SeptemberJune 30, 2020 was $7,893,653, compared to $11,017,287 for the six months ended June 30, 2019, was $13,767,933, compared to $7,819,347 for the nine months ended September 30, 2018, an increasea decrease of $5,948,586$3,123,634 or 76%28%. The largest use of cash in the current period was the payment of $5,000,000 upon the achievement of development milestones relating to TRUFORMA™ under our development and supply agreement with Qorvo. Other increases in cash used in operating activitiesdecrease resulted primarily from other increases in oura lower net loss cash used in decreasing accounts payablethe first half of 2020 compared to the first half of 2019, offset in part by a reduction in current liabilities and accrued liabilities of $798,994, partially offset by non-cash impacts of stock-based compensation of $2,539,092, stock issued for services of $792,104, amortization – right-of-use asset of $382,035, depreciation of $201,075 and cash provided by decreasing prepaid expenses of $140,695.
Net cash usedan increase in operating activities for the three and nine months ended September 30, 2018 was $3,371,059, and $7,819,347, which resulted primarily from our net loss of $1,910,278 and $8,226,005, respectively. The largest use of cash stemmed from increases in deposits of $1,281,617 and $1,311,463, respectively.current assets.
Financing Activities
Net cash used infrom financing activities for the three months ended SeptemberJune 30, 20192020 was $1,414,$33,326,825, compared to cash from financing activities of $86,388$11,966,905 for the three months ended SeptemberJune 30, 2018 a decrease2019, an increase of $87,802$21,359,920 or 102%178%. The decrease in cash used from financing activitiesincrease resulted primarily from a reductionthe sale of our equity securities for total gross proceeds of approximately $23,998,783 as well as $9,826,359 cash received from warrant exercises, $1,465,500 cash received from pending warrant exercises, and cash received of $527,360 from the SBA’s Paycheck Protection Program, offset in financing activities as compared to the prior period.part by increased stock issuance costs of $2,491,177.
Net cash from financing activities for the ninesix months ended SeptemberJune 30, 20192020 was $14,972,319,$35,478,603, compared to $5,503,385$14,973,733 for the ninesix months ended SeptemberJune 30, 20182019 an increase of $9,468,934$20,504,870 or 172%137%. The increase in cash from financing activities resulted primarily from $12,000,000 inthe sale of our equity securities for total gross proceeds of approximately $26,498,783, cash received of $9,826,359 from warrant exercises, $1,465,500 cash received from pending warrant exercises and cash received of $527,360 from the private saleSBA’s Paycheck Protection Program offset in part by stock issuance costs of preferred shares, $3,000,000 in proceeds from the underwritten public offering of common stock, net of financing costs, and $600,000 in proceeds from the exercise of stock options.
Net cash from financing activities for the three and nine months ended September 30, 2018 was $86,388 and $5,503,385, which resulted from cash proceeds from financing and the exercise of stock options.$2,839,399.
Investing Activities
Net cash used in investing activities for the three months ended SeptemberJune 30, 20192020 was $582,437,nil, compared to $467,675$5,477 for the three months ended SeptemberJune 30, 2018,2019, a decrease of $5,477 or 100%.
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Net cash from investing activities for the six months ended June 30, 2020 was $1,007,513, compared to net cash used of 74,563 for the six months ended June 30, 2019, an increase of $114,762$1,082,076 or 25%1,451%. The increase in net cash used infrom investing activities resulted primarily from costs associated with the digital data platform, the construction of marketing assets, and the capitalization of integration costs associated with the implementation of an ERP system, comparedrelated to the prior period build-outcancellation and buyout of our office space and purchases of lab and office equipment for our Ann Arbor facility completed in the three months ended September 30, 2018.
Net cash used in investing activities for the nine months ended September 30, 2019 was $657,000, compared to $605,368 for the nine months ended September 30, 2018, an increase of $51,632 or 9%. The increase in net cash used in investing activities resulted primarily from costs associated with the digital data platform, the construction of marketing assets, and the capitalization of integration costs associated with the implementation of an ERP system, compared to the prior period build-out of office space and purchases of lab and office equipment for our Ann Arbor facility completed in the nine months ended September 30, 2018.lease.
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations and have not generated any revenue since our inception in May 2015. As of SeptemberJune 30, 2019,2020, we had an accumulated deficit of $49,200,803.$59,816,448. We have funded our working capital requirements primarily through the sale of our preferred and common sharessecurities and the exercise of stock options.options and warrants.
As at Septemberof June 30, 2019,2020, the Company had cash of $2,487,651,$29,103,049, prepaid expenses and deposits of $1,497,425,$782,647, and accounts receivable of $75,992.$182,496. Current assets amounted to $4,061,068$30,068,192, with current liabilities of $1,577,525,$1,963,965, resulting in working capital (defined as current assets minus current liabilities) of $2,483,543.$28,104,227.
As of June 30, 2020, we had shareholders’ equity of $29,578,961.
In the second quarter of 2019,July 2020, we sold $12,000,000an aggregate of our(i) 162,500,000 common shares, (ii) pre-funded warrants to purchase up to 25,000,000 common shares and (iii) Series 1 Preferred SharesD warrants to purchase an accredited investoraggregate of 187,500,000 common shares for aggregate gross proceeds of $30,000,000. The pre-funded warrants sold in a private placement at a purchase price of $1,000,000 per Series 1 Preferred Share. Each Series 1 Preferred Share has a stated value of $1,000,000. The Series 1 Preferred Shares do notthe July offering 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,been exercised in lieu thereof, will receive Net Sales Payments until such time as the holdersfull.
Since June 30, 2020, we have received total Net Sales Payments equal to 9 timesan aggregate of $863,550 from the aggregate stated valueexercise of the outstanding Series 1 Preferred Shares. We 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 Payments 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 Payments paid on the Series 1 Preferred Shares. In the event of a fundamental transaction (defined in the Series 1 Preferred Shares to include an amalgamation, merger or other business combination transaction involving our company in which our 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.warrants.
In December 2018,As of August 10, 2020, we entered into an at-the-market equity offering sales agreement with Cantor Fitzgerald & Co. under which we may sell pursuant to the universal shelf registration statement common shares in the United States only, from time to time, for up to $50.0 millionhad cash and was amended on March 25, 2019 to $10.0 million in aggregate sales proceeds in "at the market" transactions. No salescash equivalents of common shares were made under the sales agreement in the second and third quarters, and the program was inactive at September 30, 2019.approximately $55,000,000.
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. The Equidebt Facility is unsecured; however Gerald A. Solensky Jr., our Chairman of the Board, President and Chief Executive Officer, has personally guaranteed our obligations under the Equidebt Facility.unsecured. As of SeptemberJune 30, 2019,2020, no amounts were outstanding under the Equidebt Facility.have been borrowed against this facility.
We believe that our existing cash resources will be sufficient to fund our expected working capital needs through December 2021. 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:
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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.
Contingencies and Legal ProceedingsOutstanding Share Data
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 DistrictThe only class 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”) andoutstanding voting or equity securities of the Company (collectively with Qorvo,are the “Defendants”). The 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 analysiscommon shares. As of biomarkers and other substances. The Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATM diagnostic instrument. For the reasons set forth below, the Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s business, results of operations or financial condition, and the Company reaffirms its intention to commence the commercialization of its TRUFORMATM platform in the first quarter of 2020.
Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company 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 the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit for many reasons, including without limitation, the following:August 10, 2020:
there are 564,051,438 common shares issued and outstanding; |
· | there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 13,472,515 common shares; and |
· | there are common share purchase warrants (collectively, the “February Warrants”) outstanding to acquire an aggregate of 21,875,001 common shares, which February Warrants were issued in connection with an offering completed by the Company on February 14, 2020 (which has been described in a Form 8-K dated February 12, 2020). Of these February Warrants, 20,833,334 are Series A Warrants exercisable for a cash price of $0.20 per share, and 1,041,667 are Series A Placement Agent Warrants exercisable for a cash price of $0.15 per share. |
· | there were common share purchase warrants (collectively, the “April Warrants”) outstanding to acquire an aggregate of 18,333,334 common shares, which April Warrants were issued in connection with an offering completed by the Company on April 9, 2020 (which has been described in a Form 8-K dated April 7, 2020). Of these April Warrants, 16,666,667 are Series B Warrants, 1,666,667 are Series B Placement Agent Warrants, and all are exercisable for a cash price of $0.15 per share. There are currently 6,731,250 April Warrants outstanding to acquire an aggregate of 6,731,250 common shares. |
· | there were common share purchase warrants (collectively, the “May Warrants”) outstanding to acquire an aggregate of 145,503,333 common shares, which May Warrants were issued in connection with an offering completed by the Company on May 29, 2020 (which has been described in a registration statement on Form S-1 (File No. 333-238322) filed on May 26, 2020). Of these May Warrants, 133,333,333 are Series C Warrants, all exercisable for a cash price of $0.15 per share, and 12,170,000 are Pre-funded Warrants, all of which have now been exercised. There are currently 63,899,362 Series C Warrants outstanding to acquire an aggregate of 63,899,362 common shares. |
· | the there were common share purchase warrants (collectively, the “July Warrants”) outstanding to acquire an aggregate of 212,500,000 common shares, which July Warrants were issued in connection with an offering completed by the Company on July 7, 2020 (which has been described in a Form 8-K dated July 6, 2020). Of these July Warrants, 187,500,000 are Series D Warrants, all exercisable for a cash price of $0.16 per share, and 25,000,000 are Pre-funded Warrants, all of which have now been exercised. There are currently 187,500,000 Series D Warrants outstanding to acquire an aggregate of 187,500,000 common shares. |
· | All of the currently outstanding warrants also have a “cashless exercise” feature which is applicable in certain circumstances. The |
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued new guidance, ASU No. 2016-02, Leases (Topic 842). The new standard establishes a right-of-use model (“ROU”) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Additional qualitative and quantitative disclosures are also required by the new guidance. Topic 842 is effective for annual reporting periods (including interim reporting periods) beginning after December 15, 2018. Early adoption is permitted.
A modified retrospective transition approach is required, applying the new standard to all leases existing at the date of initial application. The Company adopted the new standard with an initial application date of January 1, 2019 and used the effective date as its date of initial application. Consequently, financial information was not updated, and the disclosures required under the new standard were not provided for dates and periods before January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the ‘package of practical expedients’, which permits the Company not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company has not elected the use-of-hindsight or the practical expedient pertaining to land easements; the latter not being applicable to the Company.
On August 29, 2018, the FASB issued ASU 2018-15, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (CCA) that is a service contract. ASU 2018-15 aligns the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, the ASU amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2019. Early adoption is permitted.
The Company has chosen to adopt this guidance during the three months ended September 30, 2019.
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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 principal financial officer concluded that, as of June 30, 2019,2020, our disclosure controls and procedures were effective.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of June 30, 2019.2020.
PART II — OTHER INFORMATION
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”). The 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 Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATM diagnostic instrument. ForOn January 21, 2020, the reasons set forth below,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. The Court has not yet ruled on Defendants’ motion to dismiss, and the litigation remains stayed pending a ruling on that motion. The Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s business, results of operations or financial condition, and the Company reaffirms its intention to commence the commercialization of its TRUFORMATM platform in the first quarter of 2020.
condition. Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company 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 the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit for many reasons, including without limitation, the following:merit.
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RISK FACTORS
Risks Related to Our Business
We have a limited operating history, are not profitable and may never become profitable.
We have not generated any revenue to date, and we expect to continue to incur significant research and development costs and other expenses. Our net loss and comprehensive loss for (i) the three months ended SeptemberJune 30, 2020 and June 30, 2019 was $5,307,990 and September 30, 2018 was $3,338,549 and $1,910,278,$2,404,427, respectively, (ii) for the ninesix months ended SeptemberJune 30, 2020 and June 30, 2019 was $7,758,607 and September 30, 2018 was $17,419,886 and $8,226,005,$14,081,337, respectively, and (iii) for the years ended December 31, 20182019 and December 31, 20172018 was $16,647,687$19,784,054 and $8,065,075,$16,647,687, respectively. Our accumulated deficit as of SeptemberJune 30, 20192020 was $49,693,673.$59,816,448. As of SeptemberJune 30, 2019,2020, we had total shareholders’shareholders' equity of $4,540,629.$29,578,961. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expandcontinue our product development activities (including conducting required clinical studies and trials), seek necessary approvals for our product candidates, and begin commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations.
We will need to raise additional capital to achieve our goals.
We do not have any products approved for sale. Although we believe that we do not require pre-market approval from the U.S. FoodThe “Novel Coronavirus Disease 2019” (“COVID-19”) pandemic has materially and Drug Administration’s Center for Veterinary Medicine, or the FDA-CVM, to market and sell our point-of-care biosensor platform TRUFORMATM, our point-of-care pathogen detection platform (ZM-020), or the circulating tumor cell, or CTC, diagnostic assay and lymphoma assay (ZM-017 and ZM-022, respectively) that we are developing, we do not expect to commence marketing of these solutions until the first half of 2020.
Until, and unless, we receive approval from the FDA-CVM for our drug product candidates, we cannot market or sell our drug products in the United States and will have no material drug product revenue. Our lead drug product candidates are in the formulation, optimization and/or pilot study stage, and we have not yet begun pivotal trials. We anticipate that each of our drug product candidates will require approximately five years of development at a cost of approximately $6 million per drug product candidate before we expect to be able to apply for marketing approval in the United States. In addition, certain assays that we may choose to pursue for use in our diagnostic platforms may require pre-market regulatory approval.
We are also seeking to identify potential complementary opportunities in the veterinary diagnostics and therapeutics sectors. We will continue to expend substantial resources for the foreseeable future to develop our existing product candidates and any other product candidates that we may develop or acquire. These expenditures will include: costs of developing and validating our diagnostic product candidates and related assays and consumables; costs associated with drug formulation; costs associated with conducting pilot and pivotal trials and clinical studies; costs associated with completing other research and development activities; costs of identifying additional potential product candidates; costs associated with payments to technology licensors and maintaining other intellectual property; costs of obtaining regulatory approvals; costs associated with securing contract manufacturers to meet our commercial manufacturing and supply capabilities; and costs associated with marketing and selling our products. In addition, under our existing development agreements, we are required make significant cash milestone payments to our development partners and to pay certain development costs. We do not control the timing of these payments. We also may incur unanticipated costs. Because the outcome of our development activities and commercialization efforts is inherently uncertain, the actual amounts necessary to successfully completeadversely affected the development and commercialization of our existing or future product candidates may be greater or less than we anticipate.TRUFORMA™ platform.
As a result, we will need to obtain additional capital to fundThe COVID-19 pandemic materially and adversely affected the development and commercialization of our business. ExceptTRUFORMA™ 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 $5,000,000 unsecured working capital loaninitial TRUFORMA™ assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have no existing agreements or arrangementsmitigated to a certain extent with respectour recent ability to any financings,successfully complete remote installations. Potential customers have at times restricted access to their facilities which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.
The COVID-19 outbreak has disrupted our development partners and the COVID-19 pandemic and any such financings may result in dilution to our shareholders, the impositionfuture outbreak of debt covenants and repayment obligationsa health epidemic or other restrictions that mayadverse public health developments could materially and adversely affect our business and operating results.
The COVID-19 outbreak disrupted our development partners and the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results. For example, our development partner for our TRUFORMA™ platform and the related assays had reduced the number of employees working in its facility which significantly impacted our expected timing for the completion of the development and the commencement of the commercialization of our TRUFORMA™ platform and the related assays. If our suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture our products and satisfy customer demand or our obligations under sales agreements in a timely manner, and our business could be harmed as a result. As noted above, there is continuing uncertainty relating to the potential effect of COVID-19 on our business. Infections may become more widespread and should that cause supply disruptions it would have a negative impact on our business, financial condition and operating results. In addition, a significant health epidemic could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the market for our products, which could have a material adverse effect on our business, operating results and financial condition.
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The COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.
The COVID-19 pandemic resulted in a significant spike in unemployment and a concomitant decline in economic activity in the U.S. and many other countries. A worsening of the COVID-19 pandemic, any future outbreak of a health epidemic or other adverse public health developments may have similar effects. Pet owners may be unwilling or unable to seek treatment for their pets in such circumstances, thereby decreasing demand for our products. In addition, as noted above, potential customers for our products have either shut down or limited their operations which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. Potential customers also may be unwilling or unable to invest in new equipment or to introduce new treatments for their patients. As a result, the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.
We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common shares would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common shares and subject us to additional trading restrictions.
Our common shares are currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “low selling price” (generally trading below $0.20 per share for an extended period of time); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. On April 10, 2020, we received a deficiency letter from the NYSE American indicating that the we are not compliance with Section 1003(f)(v) of the NYSE American Company Guide, because our common shares have been selling for a low price per share for a substantial period time. We intend to seek shareholder approval for a share consolidation of our common shares.shares in order to regain compliance with the NYSE continued listing standards. If we fail to regain compliance with the NYSE American continued listing standards by October 10, 2020, the NYSE American will commence delisting proceedings.
Our future capital requirements dependIf the NYSE American delists our common shares from trading on many factors, including, butits exchange and we are not limited to:able to list our securities on another national securities exchange, we expect our common shares would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
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· | a determination that our common shares are a “penny stock” which will require brokers trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the |
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· | a decreased ability to issue additional securities or obtain additional financing in the |
Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate one or more of our product development programs or any future commercialization efforts.
In March of 2019, we completed an underwritten public offering of our common shares for $3,000,000 and in June of 2019, we completed a private offering of our Series 1 Preferred Shares for $12,000,000, however, we will need to obtain additional capital to fund the development of our business.
Risks Related to Our Securities
We will be obligated to pay a significant portion of our net sales to the holders of our Series 1 Preferred Shares. This payment obligation will materially and adversely affect our liquidity and capital resources, may adversely impact our ability to raise additional capital, and could adversely affect the trading price of our common shares.
We are obligated to make annual payments to the holders of our Series 1 Preferred Shares in an amount equal to nine percent of the net sales (as defined in the Series 1 Preferred Shares), if any, of our company and our affiliates (the “Net Sales Payments”) until such time as the holders have received total Net Sales Payments equal to nine times the aggregate stated value of the outstanding Series 1 Preferred Shares. Such payments will materially and adversely affect our liquidity and capital resources which could result in a shortage of capital necessary to fund our operations or to take advantage of business opportunities as they arise. Our obligation to make these payments may make it more difficult for us to raise additional capital on terms acceptable to us, or at all. This payment obligation also may adversely affect investor perceptions of our company which could adversely affect the trading price of our common shares.
In the event of a sale of our company, holders of our Series 1 Preferred Shares will be entitled to a substantial premium on the purchase price they paid for their Series 1 Preferred Shares, which will reduce the sale proceeds to be received by holders of our common shares.
In the event that our company is the subject of a “fundamental transaction” (defined in the Series 1 Preferred Shares to include an amalgamation, merger or other business combination transaction involving our company in which our 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 have the right, in preference to the holders of our common shares, to receive a portion of the aggregate consideration paid in the fundamental transaction that will represent a substantial premium on the purchase price they paid for their Series 1 Preferred Shares. Such premium will reduce the proceeds of any such fundamental transaction that would be received by holders of our common shares.
In the event of the liquidation, dissolution or winding up of our company, holders of the Series 1 Preferred Shares will have a liquidation preference over holders of our common shares and if the net assets of our company available for distribution to holders of our equity securities is not sufficient to pay this liquidation preference in full, holders of our common shares would receive no liquidating distribution in respect of their common shares.
In the event of the liquidation, dissolution or winding up of our company, holders of the Series 1 Preferred Shares will have a liquidation preference equal to the stated value of the Series 1 Preferred Shares less the Net Sales Payments paid on the Series 1 Preferred Shares before holders of our common shares would be entitled to any proceeds of such liquidation, dissolution or winding up. If the net assets of our company available for distribution to holders of our equity securities is not sufficient to pay this liquidation preference in full, holders of our common shares would receive no liquidating distribution in respect of their common shares.
Risks Related to Intellectual Property
Our ability to obtain intellectual property protection for our product candidates is limited.
Our diagnostic technologies are dependent on intellectual property developed by our strategic partners and licensed to us. We do not own the intellectual property rights that underlie these technology licenses. Our rights to use the technology we license are subject to the negotiation of, continuation of and compliance with the terms of our licenses. However, we have filed three U.S. patent applications and two Patent Cooperation Treaty (PCT) applications for U.S. and international protection of our diagnostic tests. These applications cover tests developed for our ZM-017, ZM-022 and ZM-020 technology platforms. Even if such patents are issued, we do not expect that all of the patents will provide significant protection for our intellectual property.
If we are unable to obtain trademark registrations for our products our business could be adversely affected.
We have pending trademark applications for our company name and composite marks comprised of our company name, logo and/or slogan in the U.S., Canada, European Union, the United Kingdom, and Mexico. In addition, we have pending trademark applications for our “Voice of the Vet” mark in the U.S. and Canada. We have secured two registrations in the European Union for our company name, company name and logo, and for the mark “Voice of the Vet powered by Zomedica” (and Design). We also have secured registrations in Brazil for our company name and logo. While we cannot make assurances that any pending trademark applications will mature to registration, most of these applications are now poised to mature to registration.
We have also filed for protection of several product names in the U.S., Canada and European Union. Currently, no significant hurdles have been encountered in the registration process. Moreover, any name we propose to use with our product candidates in the United States must be approved by the FDA-CVM or the USDA-CVB regardless of whether we have registered it, or applied to register it, as a trademark. The FDA-CVM typically conducts a review of proposed product names, including an evaluation of potential for confusion with other product names. If the FDA-CVM or the USDA-CVB object to any of our proposed proprietary product names, we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA-CVM and the USDA-CVB.
In most jurisdictions, third parties are given an opportunity to oppose pending trademark applications and to seek to cancel registered trademarks. Opposition or cancellation proceedings may be filed against our trademark applications/registrations, and our trademark applications/registrations may not survive such proceedings. Finally, we may need to enforce our trademark rights against third parties and expend significant additional resources to enforce such rights against infringements.
Our business depends on our ability to acquire rights to use intellectual property developed by third parties and to avoid infringing the proprietary rights of third parties. We may not be able to obtain such rights on terms acceptable to us, if at all. We may be subject to claims of third parties alleging infringement of their intellectual property rights. If we are sued for infringing third party intellectual property rights, such litigation could be costly and time consuming and could prevent or delay us from developing or commercializing our product candidates or increase the cost of such development.
Our commercial success depends on our ability to develop, manufacture, market and sell our product candidates and use the proprietary technologies we have developed or licensed for use in our product candidates without infringing the proprietary rights of third parties. We may not be able to obtain rights to use technology developed by third parties on terms acceptable to us, if at all.
We cannot assure you that marketing and selling our product candidates and using such technologies will not infringe the intellectual property rights of third parties. We may be exposed to, or threatened with, future litigation by third parties alleging that our product candidates or proprietary technologies infringe such third parties’ intellectual property rights. This type of litigation can be costly and could adversely affect our operating results and divert the attention of managerial and technical personnel, even if it is ultimately determined that we have not infringed such third-party rights. Such litigation could prevent or delay us from developing or commercializing our product candidates or increase the cost of such development. There is a risk that a court could decide that we are infringing the third party’s intellectual property rights and could order us to stop the activities covered by such third-party rights. In addition, there is a risk that a court could order us to pay the other party significant damages for having violated the other party’s intellectual property rights. We may be forced to seek a license to use such intellectual property on terms that are not favorable to us.
Because we rely on certain third-party licensors and partners and will continue to do so in the future, if one of our licensors or partners is sued for infringing a third party’s intellectual property rights, our business, financial condition, operating results and prospects could suffer in the same manner as if we were sued directly, even if we are entitled to indemnification for such claims.
The occurrence of any of the foregoing could adversely affect our business, financial condition or operating results.
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”). The 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 Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATM diagnostic instrument.
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.
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EXHIBIT INDEX
* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.
+ Indicates management contract or compensatory plan.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Zomedica Pharmaceuticals Corp. | |||
By: | /s/ Robert Cohen | ||
Name: | Robert Cohen | ||
Title: | Interim Chief Executive Officer | ||
By: | /s/ Shameze Rampertab | ||
Name: | Shameze Rampertab | ||
Title: | Chief Financial Officer |
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