UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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 March 31, 2020.2021.
OR
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from________ to_________.
Commission File Number: 001-38298
Zomedica 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 | [ | 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 May 11, 2020, 166,538,23312, 2021, 974,350,084 shares of the registrant’s common shares, without par value, were issued and outstanding.
Zomedica Pharmaceuticals CorporationCorp.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 20202021
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated financial statements
For the three months ended March 31, 2020 and 2019
(Expressed in United States Dollars, except as otherwise noted)
Zomedica Pharmaceuticals Corp.
Condensed unaudited interim consolidated balance sheets
As atof March 31, 20202021, and December 31, 20192020
(Stated(Unaudited) (Stated in United States dollars)
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Assets | ||||||||
Current assets | ||||||||
Cash and cash equivalents | $ | 276,601,860 | $ | 61,991,703 | ||||
Inventory | 309,658 | - | ||||||
Prepaid expenses and deposits | 1,393,616 | 1,727,814 | ||||||
Trade receivables | 8,535 | - | ||||||
Other receivables | 235,905 | 146,207 | ||||||
Total current assets | 278,549,574 | 63,865,724 | ||||||
Prepaid expenses and deposits | 39,101 | 13,924 | ||||||
Property and equipment, net | 293,516 | 583,007 | ||||||
Right-of-use asset | 1,263,061 | 1,318,716 | ||||||
Intangible assets, net | 323,471 | 362,663 | ||||||
Total assets | $ | 280,468,723 | $ | 66,144,034 | ||||
Liabilities, mezzanine and shareholders' equity | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued liabilities | $ | 1,128,233 | $ | 1,248,628 | ||||
Current portion of debt obligations | 527,360 | 527,360 | ||||||
Current portion of lease obligations | 306,770 | 252,788 | ||||||
Total current liabilities | 1,962,363 | 2,028,776 | ||||||
Lease obligations | 978,470 | 1,087,998 | ||||||
Total liabilities | 2,940,833 | 3,116,774 | ||||||
Commitments and contingencies (Note 13) | ||||||||
Mezzanine equity: | ||||||||
Series 1 preferred shares, no par value; 20 shares authorized 0 and 12 Series 1 preferred shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively | - | 11,961,397 | ||||||
Shareholders' equity | ||||||||
Unlimited common shares, no par value; 972,092,308 and 642,036,228 issued and outstanding at March 31, 2021 and December 31, 2020, respectively | 377,970,846 | 104,783,612 | ||||||
Common shares subscribed | - | 459,600 | ||||||
Additional paid-in capital | 4,602,089 | 14,792,276 | ||||||
Accumulated deficit | (105,045,045 | ) | (68,969,625 | ) | ||||
Total shareholders' equity | 277,527,890 | 51,065,863 | ||||||
Total liabilities, mezzanine equity and shareholders' equity | $ | 280,468,723 | $ | 66,144,034 |
March 31, | December 31, | ||||||||||
Note | 2020 | 2019 | |||||||||
Assets | |||||||||||
Current assets | |||||||||||
Cash and cash equivalents | $ | 1,496,752 | $ | 510,586 | |||||||
Prepaid expenses and deposits | 5 | 520,290 | 1,228,585 | ||||||||
Tax credits and other receivable | 142,463 | 67,618 | |||||||||
2,159,505 | 1,806,789 | ||||||||||
Property and equipment | 6 | 876,760 | 729,142 | ||||||||
Right-of-use asset | 8 | 1,499,906 | 1,103,658 | ||||||||
Intangible assets | 7 | 498,359 | 543,395 | ||||||||
$ | 5,034,530 | $ | 4,182,984 | ||||||||
Liabilities and shareholders' equity | |||||||||||
Current liabilities | |||||||||||
Accounts payable and accrued liabilities | $ | 1,578,968 | $ | 2,087,525 | |||||||
Current portion of lease obligations | 8 | 222,795 | - | ||||||||
1,801,763 | 2,087,525 | ||||||||||
Lease obligations | 8 | 1,281,124 | - | ||||||||
3,082,887 | 2,087,525 | ||||||||||
Shareholders' equity | |||||||||||
Capital stock | |||||||||||
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 128,871,732 common shares (2019 - 108,038,398) | 11 | 39,998,442 | 38,566,820 | ||||||||
Additional paid-in capital | 12,13 | 4,500,263 | 3,625,083 | ||||||||
Accumulated deficit | (54,508,459 | ) | (52,057,841 | ) | |||||||
1,951,643 | 2,095,459 | ||||||||||
$ | 5,034,530 | $ | 4,182,984 |
Nature of operations and going concern (Note 1)
Commitments and contingencies (Note 14)
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 operationsloss and comprehensive loss
For the three months ended March 31, 20202021 and 20192020
(Stated(Unaudited) (Stated in United States dollars)
March 31, | March 31, | ||||||||||
Note | 2020 | 2019 | |||||||||
Expenses: | |||||||||||
Research and development | 17 | $ | 630,066 | $ | 7,531,375 | ||||||
General and administrative | 17 | 1,248,861 | 3,212,357 | ||||||||
Professional fees | 17 | 290,682 | 758,298 | ||||||||
Amortization - right-of-use asset | 8 | 42,448 | 127,345 | ||||||||
Amortization - intangible asset | 7 | 45,036 | 267 | ||||||||
Depreciation | 6 | 76,416 | 62,054 | ||||||||
Loss from operations | 2,333,509 | 11,691,696 | |||||||||
Interest expense | 651 | 6,174 | |||||||||
Loss on disposal of property and equipment | 6 | 69,834 | - | ||||||||
Loss on right-of-use asset | 8 | 59,097 | - | ||||||||
Gain on settlement of liabilities | - | (19,737 | ) | ||||||||
Other income | (5,500 | ) | - | ||||||||
Foreign exchange gain | (6,973 | ) | (1,225 | ) | |||||||
Loss before income taxes | 2,450,618 | 11,676,908 | |||||||||
Income tax expense | - | - | |||||||||
Net loss and comprehensive loss | $ | 2,450,618 | $ | 11,676,908 | |||||||
Weighted average number of common shares | 118,340,596 | 100,864,022 | |||||||||
Loss per share - basic and diluted | $ | (0.02 | ) | $ | (0.12 | ) |
March 31, | March 31, | |||||||
2021 | 2020 | |||||||
Net revenue | $ | 14,124 | $ | - | ||||
Cost of revenue | 5,658 | - | ||||||
Gross profit | 8,466 | - | ||||||
Expenses | ||||||||
Research and development | 413,128 | 630,066 | ||||||
Selling, general and administrative | 3,467,670 | 1,703,443 | ||||||
Loss from operations | (3,872,332 | ) | (2,333,509 | ) | ||||
Interest income | (55,147 | ) | - | |||||
Interest expense | - | 651 | ||||||
Loss on disposal of assets | 218,986 | 128,931 | ||||||
Other income | - | (5,500 | ) | |||||
Foreign exchange loss (gain) | 646 | (6,973 | ) | |||||
Loss before income taxes | (4,036,817 | ) | (2,450,618 | ) | ||||
Income tax expense | - | - | ||||||
Net loss and comprehensive loss | $ | (4,036,817 | ) | $ | (2,450,618 | ) | ||
Weighted average number of common shares - basic and diluted | 890,245,654 | 118,340,596 | ||||||
Loss per share - basic and diluted (Note 18) | $ | (0.04 | ) | $ | (0.02 | ) |
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’ (deficiency) equity
For the three months ended March 31, 20202021 and 20192020
(Stated(Unaudited) (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 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2018 | - | $ | - | 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 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance for financing, net of cost | 10,11 | - | - | 9,337,529 | 6,686,828 | (4,280,000 | ) | - | - | 2,406,828 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 13 | - | - | - | - | - | 2,341,104 | - | 2,341,104 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance due to exercise of options | 11,13 | - | - | 394,735 | 754,148 | - | (154,148 | ) | - | 600,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (11,676,908 | ) | (11,676,908 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2019 | - | $ | - | 108,038,398 | $ | 38,643,728 | $ | - | $ | 3,427,095 | $ | (43,950,695 | ) | $ | (1,879,872 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Common stock subscribed | Additional paid-in capital | Accumulated deficit | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2019 | 12 | 11,961,397 | 108,038,398 | 38,566,820 | - | 3,625,083 | (52,057,841 | ) | 2,095,459 | 12 | $ | 11,961,397 | 108,038,398 | $ | 38,566,820 | $ | - | $ | 3,625,083 | $ | (52,057,841 | ) | $ | 2,095,459 | ||||||||||||||||||||||||||||||||||||||||||||
Stock and warrant issuance for financing | 11 | - | - | 20,833,334 | 1,705,655 | - | 794,345 | - | 2,500,000 | - | - | 20,833,334 | 1,705,655 | - | 794,345 | - | 2,500,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance costs | 11 | - | - | - | (238,217 | ) | - | (110,003 | ) | - | (348,220 | ) | - | - | - | (238,217 | ) | - | (110,003 | ) | - | (348,220 | ) | |||||||||||||||||||||||||||||||||||||||||||||
Placement agent warrants | 11 | - | - | - | (35,816 | ) | - | 35,816 | - | - | - | - | - | (35,816 | ) | - | 35,816 | - | - | |||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | 12 | - | - | - | - | - | 155,022 | - | 155,022 | - | - | - | - | - | 155,022 | - | 155,022 | |||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (2,450,618 | ) | (2,450,618 | ) | - | - | - | - | - | - | (2,450,618 | ) | (2,450,618 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 | 12 | $ | 11,961,397 | 128,871,732 | $ | 39,998,442 | $ | - | $ | 4,500,263 | $ | (54,508,459 | ) | $ | 1,951,643 | 12 | 11,961,397 | 128,871,732 | 39,998,442 | - | 4,500,263 | (54,508,459 | ) | 1,951,643 | ||||||||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 | 12 | 11,961,397 | 642,036,228 | 104,783,612 | 459,600 | 14,792,276 | (68,969,625 | ) | 51,065,863 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance for financing | - | - | 105,013,158 | 199,525,000 | - | - | - | 199,525,000 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance costs | - | - | - | (14,281,368 | ) | - | - | - | (14,281,368 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock-based compensation | - | - | - | - | - | 1,282,741 | - | 1,282,741 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock issuance from warrant exercises | - | 200,323,821 | 43,943,602 | (459,600 | ) | (11,472,928 | ) | - | 32,011,074 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock redemption | (12 | ) | (11,961,397 | ) | 24,719,101 | 44,000,000 | - | (32,038,603 | ) | 11,961,397 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net loss | - | - | - | - | - | - | (4,036,817 | ) | (4,036,817 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Balance at March 31, 2021 | - | $ | - | 972,092,308 | $ | 377,970,846 | $ | - | $ | 4,602,089 | $ | (105,045,045 | ) | $ | 277,527,890 |
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 months ended March 31, 20202021 and 20192020
(Stated(Unaudited) (Stated in United States dollars)
March 31, | March 31, | ||||||||||
Note | 2020 | 2019 | |||||||||
Cash flows used in operating activities: | |||||||||||
Net loss | $ | (2,450,618 | ) | $ | (11,676,908 | ) | |||||
Adjustments for | |||||||||||
Depreciation | 6 | 76,416 | 62,054 | ||||||||
Amortization - intangible assets | 7 | 45,036 | 267 | ||||||||
Amortization - right-of-use asset | 8 | 42,448 | 127,345 | ||||||||
Loss on disposal of property and equipment | 6 | 69,834 | - | ||||||||
Loss on right-of-use asset | 8 | 59,097 | - | ||||||||
Non-cash portion of rent expense | 8 | 4,012 | - | ||||||||
Stock issued for services | 11 | - | 792,104 | ||||||||
Stock-based compensation | 12 | 155,022 | 2,341,104 | ||||||||
Change in non-cash operating working capital | |||||||||||
Tax and other receivable | (74,845 | ) | (24,313 | ) | |||||||
Prepaid expenses | 11,625 | 35,591 | |||||||||
Deposits | 397,403 | 364,063 | |||||||||
Accounts payable and accrued liabilities | (508,557 | ) | 5,397,418 | ||||||||
(2,173,127 | ) | (2,581,275 | ) | ||||||||
Cash flows from financing activities: | |||||||||||
Proceeds from issuance of shares and warrants | 11,13 | 2,500,000 | 3,000,000 | ||||||||
Proceeds from stock option exercises | 12 | - | 600,000 | ||||||||
Stock issuance costs | 11,13 | (348,220 | ) | (593,172 | ) | ||||||
2,151,780 | 3,006,828 | ||||||||||
Cash flows from (used) in investing activities: | |||||||||||
Cash from sale of property and equipment | 6 | 5,400 | - | ||||||||
Investment in property and equipment | 6 | - | (69,087 | ) | |||||||
Cash from lease repurchase | 8 | 1,002,113 | - | ||||||||
1,007,513 | (69,087 | ) | |||||||||
Increase in cash and cash equivalents | 986,166 | 356,466 | |||||||||
Cash and cash equivalents, beginning of period | 510,586 | 1,940,265 | |||||||||
Cash and cash equivalents, end of period | $ | 1,496,752 | $ | 2,296,731 | |||||||
Supplemental cash flows information: | |||||||||||
Interest paid | $ | 651 | $ | 6,174 |
March 31 | March 31, | |||||||
2021 | 2020 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (4,036,817 | ) | $ | (2,450,618 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation | 59,326 | 76,416 | ||||||
Amortization - intangible assets | 44,321 | 45,036 | ||||||
Amortization - right-of-use asset | - | 42,448 | ||||||
Loss on sale of property and equipment | 243,061 | 69,834 | ||||||
(Gain) loss on right-of-use assets | (24,075 | ) | 59,097 | |||||
Stock-based compensation | 1,282,741 | 155,022 | ||||||
Non cash portion of rent expense | 24,185 | 4,012 | ||||||
Change in non-cash operating working capital | ||||||||
Purchased Inventory | (309,658 | ) | - | |||||
Prepaid expenses and deposits | 309,021 | 409,028 | ||||||
Trade receivable | (8,535 | ) | - | |||||
Other receivable | (101,508 | ) | (74,845 | ) | ||||
Accounts payable and accrued liabilities | (120,395 | ) | (508,557 | ) | ||||
Net cash used in operating activities | (2,638,333 | ) | (2,173,127 | ) | ||||
Cash flows from investing activities: | ||||||||
Cash received from sale of property and equipment | 75 | 5,400 | ||||||
Investment in intangibles | (3,185 | ) | - | |||||
Investment in property and equipment | (14,916 | ) | - | |||||
Cash from lease cancellation | - | 1,002,113 | ||||||
Net cash (used in) provided by investing activities | (18,026 | ) | 1,007,513 | |||||
Cash flows from financing activities: | ||||||||
Cash proceeds from issuance of common shares and warrants | 199,525,000 | 2,500,000 | ||||||
Cash received from warrant exercises | 32,011,074 | - | ||||||
Cash paid for shares and warrant issuance costs | (14,269,558 | ) | (348,220 | ) | ||||
Net cash provided by financing activities | 217,266,516 | 2,151,780 | ||||||
Increase in cash and cash equivalents | 214,610,157 | 986,166 | ||||||
Cash and cash equivalents, beginning of year | 61,991,703 | 510,586 | ||||||
Cash and cash equivalents, end of year | $ | 276,601,860 | $ | 1,496,752 | ||||
Supplemental cash flow information: | ||||||||
Interest paid | $ | - | $ | 651 | ||||
Interest (received) | $ | (24,313 | ) | $ | - |
The accompanying notes are an integral part of these condensed unaudited interim consolidated financial statements.
5
5 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
1. | Nature of operations |
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.
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.
Zomedica has one corporate subsidiary, Zomedica Pharmaceuticals, Inc., a Delaware company whose results and operations are included in these consolidated financial statements. The Company is a biopharmaceuticalveterinary health company targeting healthcreating point-of-care diagnostics products for dogs and wellness solutions for the companion pet through a ground-breaking approachcats, that focuses on the needs of the veterinarians themselves. Zomedica's head office is located at 100 Phoenix Drive, Suite 180, Ann Arbor, MI 48108 and its registered office is located at 3400, 350-7th Ave SW, Calgary, AB, T2P 3N9.
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 $54,508,459 as at March 31, 2020 (December 31, 2019 - $52,057,841). The Company has funded its research and development (“R&D”) activities principally through the issuance of securities. 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 operation 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, if required, for any of its future product candidates, if required, or that it will reach the level of sales and revenues necessary to achieve and sustain profitability.
6
Going concern (continued)
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, and due to the emergence of the COVID-19 pandemic, strategic alliance agreements, and other relevant commercial considerations. In addition, if the Company raises additional funds by issuing equity securities, 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. There is no certainty the Company will be able to raise the necessary funds to continue operations as a going concern. These financial statements do not reflect adjustments, if any, which would be required to the carrying amounts or classification of assets and liabilities, or the amounts of reported expenses, should the use of the going concern assumption be determined not to be appropriate. Such adjustments, if any, could be material.
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 months ended March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.
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.
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 determination of fair value of stock-based compensation; the useful lives of property and equipment; 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.
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 remeasured at the period end rates. Revenue and expenses are remeasured 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 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 is 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 months ended March 31, 2020 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.
The preparation of financial statements 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 months ended March 31, 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.
The impact of the novel strain of coronavirus (“COVID-19”)
Since December 31, 2019, theThe outbreak of the novel strain of coronavirus, specifically identified as “COVID-19”, has resulted in the World Health Organization declaring this virus a global pandemic in March 2020. Governments around the world have enacted emergency measures to combat the spread of the virus. These measures which include the implementation of travel bans, self-imposed quarantine periods and social distancing anddistancing. The closure of businesses havehas caused material disruption to businesses resulting in an economic slowdown. Governments and central banks have responded with significant monetary and fiscal interventions designed to stabilize the financial markets. A critical estimate
The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA® platform and the initial five assays. In response to the pandemic, our development partner had reduced the number of employees working in its facilities for a period of time which has delayed the completion of the verification of the five initial TRUFORMA® assays and the manufacturing of commercial quantities of the TRUFORMA® platform and the related assays. Veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA® assays either shut down for a period of time or limited their operations to those involving only life-threatening conditions, which we have mitigated to a certain extent with our recent ability to successfully complete remote installations. Potential customers have at times restricted access to their facilities which has affected and may continue to affect our ability to perform on-site demonstrations and other marketing activities. The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic.
2. | Basis of preparation |
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the Company ispresentation of interim financial statements and with the instructions to assessForm 10-Q and Article 10 of Regulation S-X. Accordingly, the impactunaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the pandemicfinancial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Consolidated Balance Sheet as of December 31, 2020 was derived from audited financial statements.
3. | Significant accounting policies |
Estimates and assumptions
In preparing these financial statements, management was required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. These estimates and assumptions are subject to an inherent degree of uncertainty. We are not presently aware of any events or circumstances that would require us to update such estimates and assumptions or revise the carrying value of our assets or liabilities. Our estimates may change, however, as new events occur, and additional information is obtained. As a result, actual results may differ significantly from our estimates, and any such differences may be material to our financial statements.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is based on the recoverabilityfirst in, first out method. The Company records reserves, when necessary, to reduce the carrying value of long-lived assets as well asinventory to its net realizable value. Management considers forecast demand in relation to the availabilityinventory on hand, competitiveness of future financingproduct offerings, market conditions and product life cycles when determining excess and obsolescence and net realizable value adjustments. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in assessingfacts and circumstances do not result in the going concern assumption.
restoration or increase in that newly established cost basis.
Revenue recognition
The Company enters into agreements which may contain multiple promises where customers purchase products, services or a combination thereof. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires judgment. We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services.
The Company allocates revenue to each performance obligation in proportion to the relative standalone selling prices and recognize revenue when control of the related goods or services is transferred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately.
The Company's contracts with customers are generally comprised of purchase orders for the sale of the point of care diagnostic instrument, consumable products, and warranties, or some variation thereof. The instrument and consumables each represent a single performance obligation when sold separately, that is satisfied at a point in time upon transfer of control of the product to the customer which is typically upon receipt of the goods by the customer. The warranties are also a separate performance obligation, whereby revenue is recognized over time.
Sales tax is charged on sales to end users, and remitted to the appropriate state authority.
Accounts receivable are recorded at net realizable value, and have payment terms of 30 days.
Cost of revenue
Cost of goods sold consists of materials, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of goods sold.
9
6 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
3. | Significant accounting policies (continued) |
Comparative figures
Certain prior year amounts have been reclassified to conform to the current year presentation. The change in presentation had no effect on the reported results of operations. Adjustments have been made to the consolidated balance sheets and consolidated statements of loss and comprehensive loss for three months ended March 31, 2020. These changes in classification do not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.
Prepaid expenses, deposits and deferred financing costs |
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
Deposits (i) | $ | 336,560 | $ | 1,033,231 | ||||
Prepaid marketing (ii) | 15,459 | 19,829 | ||||||
Prepaid insurance (ii) | 65,249 | 110,636 | ||||||
Other (iii) | 103,022 | 64,889 | ||||||
Total | $ | 520,290 | $ | 1,228,585 |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Deposits (i) | $ | 1,148,755 | $ | 1,455,119 | ||||
Prepaid marketing | 15,444 | 26,330 | ||||||
Prepaid insurance | 109,440 | 184,154 | ||||||
Other (ii) | 159,078 | 62,211 | ||||||
Total | $ | 1,432,717 | $ | 1,727,814 |
(i) | Deposits include payments made to vendors in advance and are primarily associated with inventory, warranties, and research |
Other is comprised of deferred financing costs, subscription payments, utilities, travel costs, and software licensing. As of March 31, |
10
7 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
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 March 31, 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 | 277,149 | |||||||||||||||
Disposals | (901 | ) | - | - | - | (901 | ) | |||||||||||||
Balance at December 31, 2019 | 192,434 | 56,202 | 168,215 | 129,803 | 546,653 | |||||||||||||||
Depreciation | 22,704 | 4,421 | 17,297 | 31,994 | 76,416 | |||||||||||||||
Disposals | (2,849 | ) | (28,505 | ) | (30,843 | ) | (26,686 | ) | (88,883 | ) | ||||||||||
Balance at March 31, 2020 | 212,289 | 32,118 | 154,669 | 135,111 | 534,186 | |||||||||||||||
Net book value as at: | ||||||||||||||||||||
December 31, 2019 | $ | 193,434 | $ | 129,092 | $ | 187,772 | $ | 218,844 | $ | 729,142 | ||||||||||
March 31, 2020 | $ | 163,648 | $ | 89,157 | $ | 187,606 | $ | 436,349 | $ | 876,760 |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Computer equipment | $ | 387,055 | $ | 364,165 | ||||
Furniture and equipment | 110,244 | 121,281 | ||||||
Laboratory equipment | 220,372 | 234,087 | ||||||
Leasehold improvements | 272,194 | 571,460 | ||||||
989,865 | 1,290,993 | |||||||
Accumulated depreciation and amortization | 696,349 | 707,986 | ||||||
Net property and equipment | $ | 293,516 | $ | 583,007 |
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.
DuringDepreciation expense for the three months ended March 31, 2020, the Company reclassified $299,268 of prepaid expenses to property and equipment for leasehold improvements that became ready for use in February 2020, but were paid for in 2019.
2021 was $59,326.
6. | Intangible assets |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Computer software | $ | 28,011 | $ | 22,882 | ||||
Trademarks | 16,236 | 16,236 | ||||||
Website | 513,680 | 513,680 | ||||||
557,927 | 552,798 | |||||||
Accumulated amortization | 234,456 | 190,135 | ||||||
Net intangibles | $ | 323,471 | $ | 362,663 |
Amortization expense for the three months ended March 31, 2021 was $44,321.
11
8 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
7. |
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 March 31, 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 | - | 272 | 44,764 | 45,036 | ||||||||||||
Balance at March 31, 2020 | 5,143 | 4,532 | 44,764 | 54,439 | ||||||||||||
Net book value as at: | ||||||||||||||||
December 31, 2019 | $ | - | $ | 11,975 | $ | 531,419 | $ | 543,395 | ||||||||
March 31, 2020 | $ | - | $ | 11,704 | $ | 486,655 | $ | 498,359 |
Total estimated future amortization of intangible assets for each fiscal year is as follows:
2020 | $ | 134,804 | ||
2021 | 180,144 | |||
2022 | 180,144 | |||
2023 | 1,089 | |||
2024 | 1,089 | |||
2025 | 1,089 | |||
Total | $ | 498,359 |
12
Leases |
The Company adopted ASC 842 with an initial application date of January 1, 2019. The Company was party to two lease agreements under which it rented office and laboratory space. The rent for both leases was prepaid upon inception and therefore at January 1, 2019, the Company reclassified its prepaid lease balances of $1,613,038 to a right-of-use asset. The Company recorded $42,448 of amortization on the right-of-use asset for the three months ended March 31, 2020 (March 31, 2019 - $127,345).
On February 1, 2020 the Company cancelled its existing lease with Wickfield Phoenix LLCLLC. and entered into a new lease. The new lease period iswas for 60 months, commencing on February 1, 2020 and ending on January 31, 2025 with a monthly rent payment of $32,452 escalating to $36,525 over the lease period. Upon cancellation of the previous existing lease, the Company received a refund of prepaid rent in the amount of $1,002,113. The carrying value of the right of use asset was $1,061,210 upon cancellation. The Company recorded a loss on right-of-use asset of $59,097 in the consolidated statements of operations and comprehensive loss.
On February 1, 2020, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $1,553,611 using the Company’s incremental borrowing rate of 12%.
On February 1, 2021 the Company downsized its office space and modified its existing lease with Wickfield Phoenix LLC. The new lease period was for 48 months, commencing on February 1, 2021 and ending on January 31, 2025 with a monthly rent payment of $12,039 for the first two months and escalating to $30,911 over the lease period. The carrying value of the right of use asset was $1,297,666 upon modification. The Company recorded a gain on right-of-use asset of $24,075 in the consolidated statements of comprehensive loss.
On February 1, 2021, the Company recorded a right-of-use asset and a corresponding lease liability in the amount of $1,306,082 using the Company’s incremental borrowing rate of 3.95%.
During the three months ended March 31, 2020,2021, the Company recognized $68,917$80,714 in rent expense related to the February 1, 2020 lease expense with $17,229$18,626 recorded in research and development expenses and $51,687$62,088 recorded in general and administrative expense in the consolidated statements of operations and comprehensive loss. During the three months ended March 31, 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
Right-of-use asset | Premise lease | |||
Cost | ||||
Aggregate lease commitments | $ | 2,067,505 | ||
Less: impact of present value | (513,894 | ) | ||
Balance at March 31, 2020 | 1,553,611 | |||
Reduction in right-of-use asset | ||||
Straight line amortization | 68,917 | |||
Interest | (15,212 | ) | ||
Balance at March 31, 2020 | 53,705 | |||
Net book value as at: | ||||
March 31, 2020 | $ | 1,499,906 |
Lease liabilities | Premise lease | |||
Additions | $ | 1,553,611 | ||
Payments | (64,904 | ) | ||
Interest | 15,212 | |||
Total lease liabilities at March 31, 2020 | 1,503,919 | |||
Current portion of lease liabilities | 222,795 | |||
Long term portion of lease liabilities | 1,281,124 | |||
Total lease liabilities at March 31, 2020 | $ | 1,503,919 | ||
Total remaining undiscounted lease liabilities related to the above lease are as follows: | ||||
2020 | $ | 292,068 | ||
2021 | 400,133 | |||
2022 | 412,137 | |||
2023 | 424,501 | |||
2024 | 437,236 | |||
2025 | 36,525 | |||
Total | $ | 2,002,600 |
13
9 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
7. | Leases (continued) |
Right-of-use asset | Premise lease | |||
Cost | ||||
Aggregate lease commitments | $ | 1,387,655 | ||
Less: impact of present value | (81,573 | ) | ||
Balance at March 31, 2021 | 1,306,082 | |||
Reduction in right-of-use asset | ||||
Straight line amortization | 46,256 | |||
Interest | (3,235 | ) | ||
Balance at March 31, 2021 | 43,021 | |||
Net book value as at: | ||||
March 31, 2021 | $ | 1,263,061 | ||
Lease liabilities | Premise lease | |||
Additions | $ | 1,306,082 | ||
Payments | (24,077 | ) | ||
Interest | 3,235 | |||
Total lease liabilities at March 31, 2021 | 1,285,240 | |||
Current portion of lease liabilities | 306,770 | |||
Long term portion of lease liabilities | 978,470 | |||
Total lease liabilities at March 31, 2021 | $ | 1,285,240 |
Total remaining undiscounted lease liabilities related to the above lease are as follows:
2021 - remainder balance | $ | 254,591 | ||
2022 | 348,790 | |||
2023 | 359,254 | |||
2024 | 370,031 | |||
2025 | 30,911 | |||
Total | $ | 1,363,577 |
10 |
Zomedica Corp. |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) (Stated in United States dollars) |
Loan arrangements |
On October 18, 2017, the Company entered into a loan arrangement with a shareholder of the Company, pursuant to which such shareholder has agreed to provide a loan facility to the Company, whereby the Company may borrow up to $5,000,000, with the proceeds to be used for working capital and general corporate purposes. The term of the loan facility is five (5) years, with principal and interest payments being due only at the time of maturity. Under the loan agreement, the Company may borrow in one or more advances, provided however that a minimum amount of $250,000 must be borrowed at any one time and not more than two advances may occur per month. Interest shall accrue at a rate of fourteen percent (14%) per annum, payable upon maturity. As of March 31, 2020,2021, no amounts have been borrowed.
The Coronavirus Aid, Relief, and Economic Security Act, or (“CARES”) Act, was signed into law on March 27, 2020, and provides over $2.0 trillion in emergency economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration to temporarily guarantee loans under a new loan program called the Paycheck Protection Program (the “Program”). The Program provides for 100% federally guaranteed loans to small businesses to allow employers to keep workers employed and maintain payroll during the pandemic and economic downturn. Under the Program, qualified companies are eligible for a loan in an amount equal to the lesser of $10 million or 2.5x the business’s average monthly payroll. Collateral or guarantor support is not required for the loan.
Under the Program, the borrower is eligible for loan forgiveness up to the amount the borrower spends on certain eligible costs during the 8-week period beginning on the date the proceeds were received on the loan. Eligible costs under the Program include payroll costs, interest on mortgage obligations incurred before the covered period, rent on leasing agreements and utility services. The amount of loan forgiveness is reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Under the Program, proceeds that are not forgiven convert to a loan bearing interest at a fixed rate of 1% payable in 18 equal monthly installments commencing after the forgiveness period. The Program was subsequently amended to allow the borrower to use an extended forgiveness period of 24 weeks beginning on the date the proceeds were received on the loan and to extend the repayment period to 54 months commencing after the 24 week forgiveness period.
In April of 2020, the Company received $527,360 under the program. The receipt is currently reported as a current liability and accounted for as a loan. The company filed for forgiveness, pending approval from the Small Business Administration.
9. | Preferred |
The Company is authorized to issue up to 20 shares of ourits 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 PaymentsReturns (“Net Sales Payments”Returns” is defined as annual payments equal to 9 percent of net sales) until such time as the holders have received total Net Sales PaymentsReturns 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 PaymentsReturns 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 PaymentsReturns 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 ourthe 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.
14
11 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
Preferred |
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 March 31, 2020 | 12 | $ | 11,961,397 |
Number of | ||||||||
preferred | Preferred | |||||||
stock | stock amount | |||||||
Balance at December 31, 2019 | 12 | $ | 11,961,397 | |||||
Balance at December 31, 2020 | 12 | 11,961,397 | ||||||
Stock redemption | (12 | ) | (11,961,397 | ) | ||||
Balance at March 31, 2021 | - | $ | - |
The Company exchanged the issued and outstanding shares of its Series 1 Preferred Shares on March 7, 2021 for 24,719,101 of common shares valued at $44,000,000. The difference between the carrying value of the preferred shares and the fair value of the common shares exchanged was charged to accumulated deficit.
Common |
The Company is authorized to issue an unlimited number of shares of common stock, allshares, without par value.
Issued and outstanding common stock:shares:
Number of common stock | Common stock amount | |||||||
Balance at December 31, 2018 | 97,598,898 | $ | 30,410,648 | |||||
Stock issued for services (i and ii) | 707,236 | 792,104 | ||||||
Stock issued from financing (iii and iv) | 9,337,529 | 6,686,828 | ||||||
Stock issued due to exercise of options | 394,735 | 754,148 | ||||||
Balance at March 31, 2019 | 108,038,398 | $ | 38,643,728 | |||||
Balance at December 31, 2019 | 108,038,398 | $ | 38,566,820 | |||||
Stock issued from financing (v) | 20,833,334 | 1,431,622 | ||||||
Balance at March 31, 2020 | 128,871,732 | $ | 39,998,442 |
Number of common stock | Common stock amount | |||||||
Balance at December 31, 2019 | 108,038,398 | $ | 38,566,820 | |||||
Stock issued from financing (i) | 20,833,334 | 1,431,622 | ||||||
Balance at March 31, 2020 | 128,871,732 | $ | 39,998,442 | |||||
Balance at December 31, 2020 | 642,036,228 | $ | 104,783,612 | |||||
Stock issued from financing (ii) | 105,013,158 | 185,243,632 | ||||||
Stock issued from exercises of warrants (iii) | 200,323,821 | 43,943,602 | ||||||
Stock issued from preferred share redemption (Note 10) | 24,719,101 | 44,000,000 | ||||||
Balance at March 31, 2021 | 972,092,308 | $ | 377,970,846 |
(i) |
15
On February 14, 2020, the Company completed a registered direct offering (“RDO”) of its common shares and a simultaneous private placement of its warrants (“Series A Warrants”) in a fixed combination of one common share and a Series A Warrant to purchase one common share, resulting in the sale of 20,833,334 common shares and Series A Warrants to purchase 20,833,334 common shares at a combined offering price of $0.12 per share and related Series A Warrant. Each Series A Warrant has an exercise price of $0.20 per share, is exercisable six months after issuance and has a term of 5.5 years. The Company also issued warrants to the placement agents to purchase 1,041,667 common shares at an exercise price of $0.15 per share (“Placement Agent Warrants”), which were exercisable immediately upon issuance and have a term of 5 years. In aggregate, the Company issued 20,833,334 common shares, 20,833,334 Series A Warrants, |
12 |
Zomedica Corp. |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) (Stated in United States dollars) |
10. | Common shares (continued) |
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 stockshares and $794,345 as the value of Series A Warrants under additional paid-in-capital in the consolidated statements of shareholders’ equity.
The direct cash costs related to the issuance of the common shares and warrants issued in February 2020 were $348,220. These direct costs were recorded as an offset against the statement of shareholders’ equity with $238,217 being recorded under capital stockcommon shares and $110,003 being recorded under additional paid-in-capital. The Company also recorded the value of the Series A Placement Agent Warrants in the amount of $52,496 as an offset against the statement of shareholders’ equity with $35,816 being recorded under capital stockcommon shares and $16,680 being recorded under additional paid-in-capital.
(ii) | On February 8, 2021, the Company completed a sale of 91,315,790 common shares at an offering price of $1.90 per share. The company also granted the underwriter a 30-day option to purchase up to 13,697,368 additional common shares at the public offering price. |
The Company raised $199,525,000 in gross proceeds as part of the offering. The Company recorded $199,525,000 as the value of common shares under common shares.
The direct cash costs related to the issuance of the common shares and warrants issued in February 2021 were $14,281,368. These direct costs were recorded as an offset against the statement of shareholders’ equity with the entirety recorded under common shares.
(iii) | For the three months ended warrant exercises were as follows: |
Warrant series | Warrants exercised | Amount | ||||||
Series A | 21,677,084 | $ | 4,293,229 | |||||
Series B | 3,037,167 | 455,576 | ||||||
Series C | 37,566,195 | 5,646,929 | ||||||
Series D | 138,043,375 | 22,074,940 | ||||||
Subtotal | 200,323,821 | 32,470,674 | ||||||
Common stock subscribed | - | (459,600 | ) | |||||
Total | 200,323,821 | $ | 32,011,074 |
13 |
Zomedica Corp. |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) (Stated in United States dollars) |
Stock-based compensation |
During the three months ended March 31, 2020,2021, the Company issued 5,056,000 stock options each option entitling the holder to purchase onean aggregate of 1,400,000 common share of the Company.shares. The options vest over a period of threefour years and an have an expiration period of fiveten years. During the three months ended March 31, 2020, nil2021, no options were exercised. During the three months ended March 31, 2019,2020, the Company issued 5,995,000 stock options each option entitling the holder to purchase onean aggregate of 5,056,000 common share of the Company. Theseshares. The options vest immediatelyover a period of four years and have a two-yearan expiration period. During the three months ended March 31, 2019, 394,735 stock options were exercised.period of five years.
The continuity of stock options are as follows:
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 | ) | $ | 1.52 | ||||
Stock options forfeited March 1, 2020 | (50,000 | ) | $ | 1.52 | ||||
Stock options granted March 14,2020 | 5,056,000 | $ | 0.19 | |||||
Balance at March 31, 2020 | 11,991,265 | $ | 0.82 | |||||
Vested at March 31, 2020 | 8,199,265 | $ | 1.11 |
Number of Options | Weighted Avg Exercise Price | |||||||
Balance at December 31, 2020 | 39,604,515 | $ | 0.36 | |||||
Stock options forfeited | (3,965,265 | ) | $ | 1.52 | ||||
Stock options forfeited | (18,750 | ) | $ | 0.19 | ||||
Stock options granted | 800,000 | $ | 1.87 | |||||
Stock options granted | 200,000 | $ | 2.06 | |||||
Stock options granted | 200,000 | $ | 1.88 | |||||
Stock options granted | 200,000 | $ | 2.49 | |||||
Balance at March 31, 2021 | 37,020,500 | $ | 0.30 | |||||
Vested at March 31, 2021 | 11,916,500 | $ | 0.29 |
16
As at March 31, 2020,2021, details of the issued and outstanding stock options were as follows:
Grant date | Exercise price | Number of options issued and outstanding | Number of vested options outstanding | Number of unvested options outstanding | Weighted Avg Remaining Life outstanding (years) | |||||||||||||||
August 19, 2019 | 0.26 | 500,000 | 500,000 | - | 0.39 | |||||||||||||||
August 19, 2019 | 0.35 | 100,000 | 100,000 | - | 0.39 | |||||||||||||||
August 19, 2019 | 0.45 | 100,000 | 100,000 | - | 0.39 | |||||||||||||||
August 19, 2019 | 0.55 | 100,000 | 100,000 | - | 0.39 | |||||||||||||||
August 19, 2019 | 0.65 | 100,000 | 100,000 | - | 0.39 | |||||||||||||||
August 19, 2019 | 0.75 | 100,000 | 100,000 | - | 0.39 | |||||||||||||||
September 16, 2019 | 0.43 | 500,000 | 500,000 | - | 0.46 | |||||||||||||||
March 14, 2020 | 0.19 | 3,705,500 | 1,852,750 | 1,852,750 | 3.96 | |||||||||||||||
June 16, 2020 | 0.19 | 2,000,000 | 2,000,000 | - | 4.21 | |||||||||||||||
July 9, 2020 | 0.18 | 175,000 | 43,750 | 131,250 | 4.28 | |||||||||||||||
August 25, 2020 | 0.13 | 40,000 | 10,000 | 30,000 | 4.41 | |||||||||||||||
September 29, 2020 | 0.11 | 300,000 | 75,000 | 225,000 | 4.50 | |||||||||||||||
October 1, 2020 | 0.11 | 300,000 | 75,000 | 225,000 | 4.51 | |||||||||||||||
October 20, 2020 | 0.09 | 40,000 | 10,000 | 30,000 | 4.56 | |||||||||||||||
December 31, 2020 | 0.23 | 27,560,000 | 6,000,000 | 21,560,000 | 9.76 | |||||||||||||||
February 26, 2021 | 1.87 | 800,000 | 200,000 | 600,000 | 9.92 | |||||||||||||||
March 1, 2021 | 2.06 | 200,000 | 50,000 | 150,000 | 9.92 | |||||||||||||||
March 8, 2021 | 1.88 | 200,000 | 50,000 | 150,000 | 9.94 | |||||||||||||||
March 15, 2021 | 2.49 | 200,000 | 50,000 | 150,000 | 9.96 | |||||||||||||||
Balance at March 31, 2021 | 37,020,500 | 11,916,500 | 25,104,000 |
14 |
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 | 5,390,265 | 5,390,265 | - | 0.78 | ||||||||||||||
January 10, 2019 | 1.52 | 15,000 | 15,000 | - | 0.10 | |||||||||||||||
January 10, 2019 | 1.52 | 10,000 | 10,000 | - | 0.10 | |||||||||||||||
January 10, 2019 | 1.52 | 10,000 | 10,000 | - | 0.10 | |||||||||||||||
January 10, 2019 | 1.52 | 10,000 | 10,000 | - | 0.10 | |||||||||||||||
August 19, 2019 | 0.26 | 500,000 | 500,000 | - | 1.39 | |||||||||||||||
August 19, 2019 | 0.35 | 100,000 | 100,000 | - | 1.39 | |||||||||||||||
August 19, 2019 | 0.45 | 100,000 | 100,000 | - | 1.39 | |||||||||||||||
August 19, 2019 | 0.55 | 100,000 | 100,000 | - | 1.39 | |||||||||||||||
August 19, 2019 | 0.65 | 100,000 | 100,000 | - | 1.39 | |||||||||||||||
August 19, 2019 | 0.75 | 100,000 | 100,000 | - | 1.39 | |||||||||||||||
September 16, 2019 | 0.43 | 500,000 | 500,000 | - | 1.46 | |||||||||||||||
March 14, 2020 | 0.19 | 5,056,000 | 1,264,000 | 3,792,000 | 4.96 | |||||||||||||||
Balance at March 31, 2020 | 11,991,265 | 8,199,265 | 3,792,000 |
Zomedica Corp. |
Notes to the condensed consolidated financial statements |
For the three months ended March 31, 2021 and 2020 |
(Unaudited) (Stated in United States dollars) |
11. | Stock-based compensation (continued) |
The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
The fair value of options granted during the three months ended March 31, 20202021 and March 31, 20192020 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
March 14, 2020 | January 10, 2019 | March 14, 2020 | February 26, 2021 | |||||||||
Volatility | 87% | 68% | 87 | % | 117 | % | ||||||
Risk-free interest rate | 0.49% | 2.56% | 0.49 | % | 0.95 | % | ||||||
Expected life (years) | 5 | 2 | ||||||||||
Divedend yield | 0% | 0% | ||||||||||
Expected life (in years) | 5 | 10 | ||||||||||
Dividend yield | 0 | % | 0 | % | ||||||||
Common share price | $0.18 | $1.23 | $ | 0.18 | $ | 1.87 | ||||||
Strike price | $0.19 | $1.52 | $ | 0.19 | $ | 1.87 | ||||||
Forfeiture rate | nil | nil | 0 | 0 |
March 1, 2021 | March 8, 2021 | |||||||
Volatility | 117 | % | 117 | % | ||||
Risk-free interest rate | 0.92 | % | 1.07 | % | ||||
Expected life (in years) | 10 | 10 | ||||||
Dividend yield | 0 | % | 0 | % | ||||
Common share price | $ | 2.06 | $ | 1.88 | ||||
Strike price | $ | 2.06 | $ | 1.88 | ||||
Forfeiture rate | 0 | 0 |
March 15, 2021 | |||||
Volatility | 117 | % | |||
Risk-free interest rate | 1.06 | % | |||
Expected life (in years) | 10 | ||||
Dividend yield | 0 | % | |||
Common share price | $ | 2.49 | |||
Strike price | $ | 2.49 | |||
Forfeiture rate | 0 |
The Company recorded $1,282,741 and $155,022 of stock-based compensation for the three months ended March 31, 2021 and 2020, (2019 - $2,341,104).respectively. For the three months ended March 31, 2019 the Company recorded cash receipts of $600,000 as capital2021 and 2020 there were no stock and reclassified $154,148 of stock-based compensation to capital stock due to the exercise of options.
The Company has estimated its stock option forfeitures to be nil for the three months ended March 31, 2020 (three months ended March 31, 2019 - nil).options exercised.
17
15 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
Warrants |
The Company calculates volatility of warrants based on the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options.
In connection with the February 14, 2020 registered direct offering, the Company issued 20,833,334 five and one half-year Series A warrants to purchase one share of common stock at an exercise price of $.20. The Company also issued 1,041,667 warrants to purchase a share of common stock at an exercise price of $0.15 per share to the placement agents.
In connection with the April 9, 2020 CMPO, the Company issued 16,666,667 five-year Series B Warrants to purchase one common share at an exercise price of $0.15. The Company also issued 1,666,667 Placement Agent Warrants to purchase one common share at an exercise price of $0.15 per share.
In connection with the May 29, 2020 public offering, the Company issued 133,333,333 two-year Series C Warrants to purchase one common share at an exercise price of $0.15. The Company also issued 12,170,000 Series C Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001 on a cashless exercise basis. As of December 31, 2020, all of the Series C Pre-Funded Warrants have been exercised.
In connection with the July 7, 2020 public offering, the Company issued 187,500,000 two-year Series D Warrants to purchase one common share at an exercise price of $0.16. The Company also issued 25,000,000 Series D Pre-Funded Warrants to purchase common shares at an exercise price of $0.0001 on a cashless exercise basis. As of December 31, 2020, all of the Series D Pre-Funded Warrants have been exercised.
As at March 31, 2020,2021, details of the outstanding warrants were as follows:
Original Issue date | Exercise Price | Warrants Issued | Weighted Average Remaining Life | |||||||||
February 14, 2020 | 0.20 | 20,833,334 | 5.38 | |||||||||
February 14, 2020 | 0.15 | 1,041,667 | 4.87 | |||||||||
Balance at March 31, 2020 | 21,875,001 |
The fair value of warrants issued the three months ended March 31, 2020 was estimated using the Black-Scholes option pricing model to determine the fair value of options granted using the following assumptions:
Series A Warrants | Placement Agent Warrants | |||
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 |
Original Issue date | Exercise Price | Warrants Outstanding | Weighted Average Remaining Life | |||||||||
February 14, 2020 | 0.20 | - | - | |||||||||
February 14, 2020 | 0.15 | 197,917 | 3.87 | |||||||||
April 9, 2020 | 0.15 | 366,585 | 4.03 | |||||||||
May 29, 2020 | 0.15 | 276,500 | 1.16 | |||||||||
July 7, 2020 | 0.16 | 856,000 | 1.27 | |||||||||
Balance at March 31, 2021 | 1,697,002 |
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:
16 |
Zomedica Corp. | ||
18
Notes to the condensed |
For the three months ended March 31, |
Commitments and contingencies |
As at March 31, 2020, the first and second milestones have been met and paid. The third milestone was met in April 2020. Per the terms of the agreement the cash 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 March 31, 2020,2021, none of the future development milestones related to the above agreement have been met. The Company has assessed the probability of meeting the above milestones and has determined that an accrual is not necessary at March 31, 2021.
From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As at March 31, 2020,2021, and continuing as atof May 11, 2020,12, 2021, 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”). which was amended on November 22, 2019. The amended Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The amended Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATMour TRUFORMA® diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. The Court has not yet ruled onHeska subsequently moved to strike a portion of the Defendants’ response. On September 30, 2020, the court denied the Defendants’ motion to dismiss and granted Heska’s motion to strike. On October 14, 2020 the litigation remains stayed pending a ruling on that motion.Defendants filed their answer to the amended Complaint. On May 10, 2021, the Defendants filed an updated answer and counterclaims to Heska’s amended complaint alleging unfair and deceptive trade practices claims against Heska. Discovery is ongoing. The Company believes that the allegations in the amended Complaint have no merit and will not have a material adverse effect on the Company’sour business, results of operations or financial condition. Although the Company is expected to commence the commercialization of its TRUFORMATM platform by the end of 2020, the novel coronavirus, or COVID-19, pandemic has impacted the Company’s expected timing, as described further in the “Risk Factors” section of this Quarterly Report.
Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the(as amended, 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 amended Complaint and will indemnify the Company for losses arising from the amended Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Companyus that it intends to mount a vigorous defense to the claims in the amended Complaint, and that it believes the allegations contained in the amended Complaint are without merit.
19
17 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
Financial instruments |
(a) | Fair values |
The Company follows ASC topic 820, “Fair Value Measurements” which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. The provisions of ASC topic 820 apply to other accounting pronouncements that require or permit fair value measurements. ASC topic 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date; and establishes a three level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. Inputs refers broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk. To increase consistency and comparability in fair value measurements and related disclosures, the fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The three levels of the hierarchy are defined as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly for substantially the full term of the financial instrument.
Level 3 inputs are unobservable inputs for asset or liabilities.
The categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
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, trade and other receivable, accounts payable and accrued liabilities and shareholder loans payable approximates their fair values because of the short-term nature of these instruments.
(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. 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.
20
18 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
Financial |
(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.
The following are the contractual maturities of the undiscounted cash flows of financial liabilities as at March 31, 20202021 and December 31, 2019:2020:
March 31, 2020 | March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
| | Less than 3 months | | 3 to 6 months | | 6 to 9 months | | 9 months 1 year | | Greater than 1 year | | Total | 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 | 1,578,968 | - | - | - | - | 1,578,968 | $ | 1,128,233 | $ | - | $ | - | $ | - | $ | - | $ | 1,128,233 | ||||||||||||||||||||||||||||||
Debt obligations | 527,360 | - | - | - | - | 527,360 | ||||||||||||||||||||||||||||||||||||||||||
Lease obligations | 75,413 | 75,980 | 76,551 | 78,826 | 978,470 | 1,285,240 | ||||||||||||||||||||||||||||||||||||||||||
1,578,968 | - | - | - | - | 1,578,968 | $ | 1,731,006 | $ | 75,980 | $ | 76,551 | $ | 78,826 | $ | 978,470 | $ | 2,940,833 |
December 31, 2019 | December 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| | Less than 3 months | | 3 to 6 months | | 6 to 9 months | | 9 months 1 year | | Greater than 1 year | | Total | 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 | $ | 1,248,628 | $ | - | $ | - | $ | - | $ | - | $ | 1,248,628 | ||||||||||||||||||||||||||||||
Debt obligations | 527,360 | - | - | - | - | 527,360 | ||||||||||||||||||||||||||||||||||||||||||
Lease obligations | 59,662 | 62,463 | 64,356 | 66,307 | 1,087,998 | 1,340,786 | ||||||||||||||||||||||||||||||||||||||||||
2,087,525 | - | - | - | - | 2,087,525 | $ | 1,835,650 | $ | 62,463 | $ | 64,356 | $ | 66,307 | $ | 1,087,998 | $ | 3,116,774 |
The Company's operations comprise a single reportable segment engaged in the research, development targeting health and wellness solutions for the companion animal. As the operations comprise a single reportable segment, amounts disclosed in the financial statements for loss for the period, depreciation and total assets also represent segmented amounts. In addition, all the Company's long-lived assets are in the United States of America (“US”).
March 31, | December 31, | |||||||
2020 | 2019 | |||||||
$ | $ | |||||||
Total assets | ||||||||
Canada | 312,420 | 249,929 | ||||||
US | 4,722,110 | 3,933,055 | ||||||
Total US property and equipment | 876,760 | 729,142 | ||||||
Total US right-of-use asset | 1,499,906 | 1,103,658 | ||||||
2,376,666 | 1,832,800 |
March 31, | December 31, | |||||||
2021 | 2020 | |||||||
Canada | $ | 250,972,315 | $ | 53,160,701 | ||||
US | 29,496,408 | 12,983,333 | ||||||
Total assets | $ | 280,468,723 | $ | 66,144,034 | ||||
Total US property and equipment | $ | 293,516 | $ | 583,007 | ||||
Total US right-of-use asset | 1,263,062 | 1,318,716 | ||||||
$ | 1,556,578 | $ | 1,901,723 |
21
19 |
Zomedica |
Notes to the condensed |
For the three months ended March 31, |
For the three months ended March 31, | ||||||||||||
2020 | ||||||||||||
Research and | Professional | General and | ||||||||||
Development | Fees | Administrative | ||||||||||
Salaries, bonus and benefits | $ | 212,143 | $ | - | $ | 751,389 | ||||||
Contracted expenditures | 362,868 | - | - | |||||||||
Marketing and investor relations | - | - | 49,552 | |||||||||
Travel and accommodation | 454 | - | 12,474 | |||||||||
Insurance | 239 | - | 46,031 | |||||||||
Office | 22,656 | - | 244,929 | |||||||||
Consultants | 2,976 | 290,682 | - | |||||||||
Regulatory | - | - | 88,468 | |||||||||
Rent | 17,229 | - | 56,018 | |||||||||
Supplies | 11,501 | - | - | |||||||||
Total | $ | 630,066 | $ | 290,682 | $ | 1,248,861 |
For the three months ended March 31, | ||||||||||||
2019 | ||||||||||||
Research and | Professional | General and | ||||||||||
Development | Fees | Administrative | ||||||||||
Salaries, bonus and benefits | $ | 245,307 | $ | - | $ | 2,972,172 | ||||||
Contracted expenditures | 1,254,847 | - | - | |||||||||
Marketing and investor relations | - | - | 52,509 | |||||||||
Travel and accommodation | 10,049 | - | 57,264 | |||||||||
Insurance | 1,466 | - | 20,781 | |||||||||
License fees | 5,886,841 | - | - | |||||||||
Office | 6,428 | - | 67,243 | |||||||||
Consultants | 59,786 | 758,298 | - | |||||||||
Regulatory | 20,998 | - | 24,104 | |||||||||
Rent | - | - | 5,940 | |||||||||
Supplies | 45,653 | - | 12,344 | |||||||||
Total | $ | 7,531,375 | $ | 758,298 | $ | 3,212,357 |
The capital of the Company includes equity, which is comprised of issued common capital stock, preferred stock, 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.
22
Loss per share |
For the three months ended March 31, 2020 | For the three months ended March 31, 2019 | For the three months ended March 31, 2021 | For the three months ended March 31, 2020 | |||||||||||||
Numerator | ||||||||||||||||
Net loss for the period | $ | 2,450,618 | $ | 11,676,908 | $ | (4,036,817 | ) | $ | (2,450,618 | ) | ||||||
Charge to retained earnings for preferred share exchange | (32,038,603 | ) | - | |||||||||||||
Loss attributable to common shareholders | (36,075,420 | ) | (2,450,618 | ) | ||||||||||||
Denominator | ||||||||||||||||
Weighted average shares - basic | 118,340,596 | 100,864,022 | 890,245,654 | 118,340,596 | ||||||||||||
Stock options | - | - | - | - | ||||||||||||
Warrants | - | - | - | - | ||||||||||||
Denominator for diluted loss per share | 118,340,596 | 100,864,022 | 890,245,654 | 118,340,596 | ||||||||||||
Loss per share - basic and diluted | $ | (0.02 | ) | $ | (0.12 | ) | $ | (0.04 | ) | $ | (0.02 | ) |
For the above-mentioned periods, the Company had securitiesstock options and warrants outstanding which could potentially dilute basic earnings per share in the future but were excluded from the computation of diluted loss per share in the periods presented, as their effect would have been anti-dilutive. The Company excluded 11,991,265 options and 21,875,001 warrants from the calculation of diluted earnings per share as their effect would have been anti-dilutive.
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 March 31, 2020 | For the three months ended March 31, 2019 | |||||||
Salaries and benefits, including bonuses | $ | 156,536 | $ | 320,647 | ||||
Stock-based compensation | 99,613 | 1,644,325 | ||||||
Total | $ | 256,149 | $ | 1,964,972 |
21. Subsequent events
On April 9, 2020, the Company completed a $4,000,000 confidentially marketed public offering (“CMPO”) of its common shares and warrants (“Series B Warrants) in a fixed combination of one common share and 0.5 of Series B Warrant at a combined offering price of $0.12 per share and related Series B Warrant, resulting in the sale of 33,333,334 common shares and Series B Warrants to purchase 16,666,667 common shares. Each Series B Warrant has an exercise price of $0.15 per share, is immediately exercisable, and has a term of 5 years. The gross proceeds to from the offering, before deducting the placement agent’s fees and other estimated offering expenses payable by the Company are $4,000,000.
As of May 11, 2020, the Company has received gross proceeds of $649,870 from the exercise of 4,333,167 Series B Warrants.
On April 3, 2020, the Paycheck Protection Program (“PPP”) authorized forgivable loans to small businesses to pay their employees during the COVID-19 crisis. Under the terms of the program the loan amounts will be forgiven as long as:
Payroll costs are capped at $100,000 on an annualized basis for each employee. It is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs and loan payments will be deferred for 6 months. The Company received funding on April 20, 2020 for $527,360.
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 quarter ended March 31, 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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
��
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this 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.10-K
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report on Form 10-QReport 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-QReport contain forward-looking statements. In some cases, you can identify forward-looking statements through our use of words such as “may,” “might,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
· |
· | our ability to |
· | our ability to obtain funding for our operations; |
· | the ability of our contract |
· | the ability of our contract manufacturing organizations to manufacture and supply our |
· | our plans to develop and commercialize our |
· | the expected impact of the novel coronavirus pandemic on our operations, including the development, manufacturing, and commercialization of our |
· | our ability to develop and commercialize |
· | the size and growth of the veterinary diagnostics and |
· | our ability to obtain and maintain intellectual property protection for our |
· | regulatory developments in the United States; |
· | the loss of key |
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· | our expectations regarding the period during which we will be an “emerging growth company” under the JOBS Act; |
· | the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; |
· | our ability to maintain the listing of our common shares on the NYSE American exchange; and |
· | our status as a “passive foreign investment company” for U.S. federal income tax purposes. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipateanticipated 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 reportReport or the date of the document incorporated by reference into this report.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 diagnostichealth company focused on creating point-of-care diagnostic platformsproducts for use by veterinarians treating companion animals (canine, feline, and equine) by focusing on the unmet needs of clinical veterinarians. We believeexpect that our diagnostic platforms haveproduct portfolio will include innovative diagnostics and medical devices that emphasize patient health and practice health. With a team that includes clinical veterinary professionals, our goal is to provide veterinarians the potentialopportunity to significantly improveincrease productivity and grow revenue while better serving 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 segment of the animal health industry is likely to grow substantially as new diagnostic tools and treatments are identified, developed, and marketed specifically for companion animals.animals in their care.
Our strategic focus is on the commercialization of our TRUFORMA® diagnostic biosensor platform and the final development and commercialization of our TRUFORMA™ diagnostic biosensor platform and the first five assays for the detection of adrenal and thyroid disorders in cats and dogs. The TRUFORMA™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.
InAs TRUFORMA®’s market presence grew, we intended to transition from a distributor-based sales model to a direct sales organization. However, due to anticipated changes at our Annual Report on Form 10-K forcurrent distributor that we believe have impacted its ability to market our products effectively, we will be accelerating that transition and the year ended December 31, 2019, we stated the following expectations with respect to our TRUFORMA™ platform:building of a direct sales organization.
However, the COVID-19, pandemic has impacted our expected timing for the developmentZomedica currently employs nine direct field commercialization personnel, supported by two regional managers, a Vice President of Sales, and commercialization of our TRUFORMA™ platform and the five initial assays due to a number of factors, including the following:Chief Commercial Officer.
Following the commercial launch of TRUFORMA™TRUFORMA®, we expect to continue the development of our point- of-careanother point-of-care diagnostic platform, which is based on miniaturized laser-based Raman spectroscopy technology and is designed to detect pathogens in companion animals. We believe this platform will enable the identification of biological and biochemical signatures in complex biological samples and has the potential to achieve reference lab sensitivity/specificity to screen for a wide range of pathogens in companion animal feces, urine, respiratory, and dermatological samples in minutes without the need for extensive sample prep or the use of reagents. The diagnostic platform 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 development and commercialization of the TRUFORMA™ platform, which has been adversely affected by the COVID-19 pandemic, we deferred work on this platform. We believe that this diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.
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We have performed initial development work on a circulating tumor cell (CTC) “liquid biopsy” platformproduct for use in a reference lab setting as a canine cancer diagnostic. This platformproduct is intended for use to detect canine cancers faster, more affordably and less invasively compared to existing methods, which can be expensive and cost prohibitivecost-prohibitive for pet owners. We have worked on the development of an assay for use with this platform that targets hard-to-diagnose canine cancers, such as hemangiosarcoma and osteosarcoma.
We areConsistent with our focus on the development of point-of-care diagnostic products, we intend to seek one or more partners for the further development and commercialization of the liquid biopsy product.
Through the year ended December 31, 2020, we were a development-stage company with no commercialized products, approved for marketing and sale, and we havedid not generatedgenerate any revenue.revenue from product sales. We have incurred significant net losses since our inception. We incurred net losses of $2,450,618approximately $4.0 million and $11,676,908approximately $2.5 million for the three months ended March 31, 20202021 and March 31, 2019, respectively,2020 and $19,784,054approximately $16.9 million and $16,647,687$19.8 million for the years ended December 31, 20192020 and December 31, 2018,2019 respectively. 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 March 31, 2020,2021, we had an accumulated deficit of $54,508,459approximately $105.0 million and cash and cash equivalents of $1,496,752.approximately $276.6 million.
For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we continue the commercialization of our TRUFORMA® platform, expand our product development activities, commercialize them if they do not require U.S. Food and Drug Administration’s Center for Veterinary Medicine, or FDA-CVM, pre-market approval, seek regulatory approvals forexpand our product candidates where required from the FDA-CVM or the United States Department of Agriculture Center for Veterinary Biologics, or the USDA-CVB.sales and marketing activities.
For further information on the regulatory, business and product pipeline, please see the “Business” section of thethis Annual Report on Form 10-K. For further information on the risk factors, please see the “Risk Factors” section of thethis Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.10-K.
Revenue
We do not have any products approved for sale, have not generated anylaunched our TRUFORMA® platform and our first three assays during the first quarter of 2021. Our revenue from product sales since our inceptionconsisted of instruments, cartridges, and do not expect to generate any revenue from the sale of productswarranty services sold in the near future. If our development efforts result in clinical successU.S.
Cost of Revenue
Cost of revenue consists primarily of costs related to the costs of manufacturing instruments and regulatory approval or collaboration agreements with third parties for anycartridges and the related warranty purchases. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of our product candidates, we may generate revenue from those product candidates.revenue.
Operating Expenses
The majority of our operating expenses to date have been for the general and administrative activities related to general business activities, capital market activities and stock-based compensation, developing a commercial team, and research and development activities related to our lead product candidates.
Research and Development Expense
All costs of research and development are expensed in the period in which they are incurred. Research and development costs primarily consist of salaries and related expenses for personnel, fees paid to consultants, outside service providers, professional services, travel costs and materials used in clinical trials and research and development.
Selling General and Administrative Expense
GeneralSelling, 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, professional fees, amortization and professional and consulting fees for legal, accounting, tax services and other general business services.depreciation.
Professional Fees
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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, 2019,2020, we had net operating loss carryforwards for U.S. federal and state income tax purposes of $16,140,344approximately $19.6 million and non-capital loss carryforwards for Canadian income tax purposesCanada of approximately $20,366,610,$27.8 million, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards. We concluded that, due to the uncertainty of realizing any tax benefits as of December 31, 2019,2020, a valuation allowance was necessary to fully offset our deferred tax assets. There has been no significant change in the first three months ended March 31, 2021.
Critical Accounting Policies and Significant Judgments and Estimates
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and revenue, costs and expenses and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
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, we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements.
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 mayare 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 forecasting future cash flows for assessing the going concern assumption.warrants, and fair value of warrants and placement agent warrants.
Research and Development Costs
Research and development expenses comprise costs incurred in performing research and development activities, including salaries and benefits, safety and efficacy studies, 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.commercialization.
Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.
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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 remeasuredtranslated at the period end exchange rates. Revenue and expenses are remeasuredmeasured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by us cannot be reliably estimated.
We calculate stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and 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 CanadianU.S. treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is nilzero as we are not expected to pay dividends in the foreseeable future.
Loss Per Share
Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
The dilutive effect of stock options is determined using the treasury stock method. Stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted EPS, as the effect would be anti-dilutive.
Comprehensive Loss
We follow ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders' equity. We currently have no other comprehensive loss items.
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Results of Operations
Three months ended March 31, 2020 compared to three months ended March 31, 2019Revenue
Our results of operationsRevenue for the three months ended March 31, 20202021 was $14,124 and resulted from the sale of our TRUFORMA® products and associated warranties. We commenced commercialization of TRUFORMA® on March 31, 2019 are15, 2021 and accordingly had only limited sales activity in the first quarter of 2021. We expect that revenue will increase in subsequent periods as follows:we increase our sales and marketing activities and have full periods during which we obtain sales and record related revenue.
Three months ended | Three months ended | |||||||||||||||
March 31, 2020 | March 31, 2019 | Change | ||||||||||||||
$ | $ | $ | % | |||||||||||||
Expenses | ||||||||||||||||
Research and development | 630,066 | 7,531,375 | (6,901,309 | ) | -92 | % | ||||||||||
General and administrative | 1,248,861 | 3,212,357 | (1,963,496 | ) | -61 | % | ||||||||||
Professional fees | 290,682 | 758,298 | (467,616 | ) | -62 | % | ||||||||||
Amortization - right-of-use asset | 42,448 | 127,345 | (84,897 | ) | -67 | % | ||||||||||
Amortization - intangible | 45,036 | 267 | 44,769 | 16767 | % | |||||||||||
Depreciation | 76,416 | 62,054 | 14,362 | 23 | % | |||||||||||
Loss from operations | 2,333,509 | 11,691,696 | (9,358,187 | ) | -80 | % | ||||||||||
Interest expense | 651 | 6,174 | (5,523 | ) | -89 | % | ||||||||||
Loss on fixed assets | 69,834 | - | 69,834 | N/A | ||||||||||||
Loss on right-of-use asset | 59,097 | - | 59,097 | N/A | ||||||||||||
Gain on settlement of liabilities | - | (19,737 | ) | 19,737 | -100 | % | ||||||||||
Other income | (5,500 | ) | - | (5,500 | ) | N/A | ||||||||||
Foreign exchange gain | (6,973 | ) | (1,225 | ) | (5,748 | ) | 469 | % | ||||||||
Loss before income taxes | 2,450,618 | 11,676,908 | (9,226,290 | ) | -79 | % | ||||||||||
Income tax expense | - | - | - | N/A | ||||||||||||
Net loss and comprehensive loss | 2,450,618 | 11,676,908 | (9,226,290 | ) | -79 | % |
Cost of Revenue
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Revenue
We did not generate anyCost of revenue duringfor the three months ended March 31, 2020 and2021 was $5,658. As noted above, commercialization of TRUFORMA® commenced on March 31, 2019.15, 2021. We expect that cost of revenue will increase as we sell additional products in subsequent periods.
Research and Development
Research and development expense for the three months ended March 31, 20202021 was $630,066approximately $0.4 million compared to $7,531,375approximately $0.6 million for the three months ended March 31, 2019,2020, a decrease of $6,901,309approximately $0.2 million, or 92%34%. The decrease was primarily due toa result of an overall reduction in research and development activity as we curtailed our drug development activities, and a reduction in milestone payments and licensing fees of $5,886,841, contracted expenditures of $891,979, consulting fees of $56,810, salaries, bonus and benefits of $33,164, and supplies of $34,152. The reduction in milestone payments resulted primarily from the payment in the 2019 period of an aggregate of $5,000,000 in milestone paymentsdevelopment costs related to ourTRUFORMA® as we completed development of TRUFORMATM under our developmentthe instrument and supply agreement with Qorvo Biotechnologies, LLC which did not recur in the 2020 period. In addition, as previously announced, we have focused our efforts on the development and commercialization of TRUFORMATM, which resulted in the elimination of milestone payments relating to our other product candidates. We expect that our research and development expenditures in 2020 will be lower than in 2019, as our work will focus solely on the verification and validation of TRUFORMATM. The novel coronavirus, or COVID-19, pandemic has impacted our expected timing for the completionthree of the development. Changes in timing may also affect anticipated costs of associated with such delays.first five assays and began commercialization.
Selling, General and Administrative
GeneralSelling, general and administrative expense for the three months ended March 31, 20202021 was $1,248,861,approximately $3.5 million, compared to $3,212,357 for the three months ended March 31, 2019, a decrease of $1,963,496 or 61%. The decrease was primarily due to a reduction in share-based compensation which was $155,022approximately $1.7 million for the three months ended March 31, 2020, compared to $2,341,104 for the comparable period in 2019. After adjusting for the share-based compensation expense, general and administrative expense increased $222,586. Thisan increase of approximately $1.8 million, or 105%. The increase primarily was due to an increase in officeshare-based compensation expense of $177,686, primarily associated with the purchase of office furniture for our newly leased office space, an increase in regulatory fees of $64,364, primarily associated with NYSE American listing fees, the reclassification of rent expense from amortization of right-of-use asset of $50,078, offset by a reduction in travel and accommodation of $44,790. Due to our focus on our TRUFORMATM platform, we have reduced administrative headcount and associated activities and therefore, we expect that general and administrative expense will decrease in the remainder of 2020.
Professional Fees
Professional feeswhich was approximately $1.3 million for the three months ended March 31, 2020 were $290,6822021 compared to $758,298approximately $0.2 million for the three months ended March 31, 2019,comparable period in 2020 as a decreaseresult of $467,616 or 62%. The decrease was primarily due to expensesstock option grants made during the first quarter of 2021. Other significant increases include professional fees incurred in the three-month period ended March 31, 2019 relating to filingsconnection with the Securitiesexchange of the Series 1 preferred shares, and Exchange Commission which did not recur in the comparable 2020 period.fees associated with SEC filings for $.7 million.
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Net Loss
Our net loss for the three months ended March 31, 20202021 was $2,450,618 or $0.02 per share, compared withapproximately $4.0 million. We also incurred a direct charge to retained earnings as a result of the exchange of the Series 1 preferred shares of approximately $32.0 million as a result of the exchange of the Series 1 preferred shares, resulting in a net loss of $11,676,908,$0.04 per share, compared to a net loss of approximately $2.5 million, or $0.12$0.02 per share, for the three months ended March 31, 2019, a decrease2020, an increase of $9,226,290approximately $1.5 million, or 79%60%. 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 candidatessales to offset our operating expenses.
Cash Flows
Three months ended March 31, 20202021 compared to three months ended March 31, 20192020
The following table shows a summary of our cash flows for the periods set forth below:
Three months ended | Three months ended | Three months ended | Three months ended | |||||||||||||||||||||||||||||
March 31, 2020 | March 31, 2019 | Change | March 31, 2021 | March 31, 2020 | Change | |||||||||||||||||||||||||||
$ | $ | $ | % | $ | $ | $ | % | |||||||||||||||||||||||||
Cash flows used in operating activities | (2,173,127 | ) | (2,581,275 | ) | 408,148 | -16 | % | (2,638,333 | ) | (2,173,127 | ) | (465,206 | ) | 21.4 | % | |||||||||||||||||
Cash flows (used in) from investing activities | (18,026 | ) | 1,007,513 | (1,025,539 | ) | -101.8 | % | |||||||||||||||||||||||||
Cash flows from financing activities | 2,151,780 | 3,006,828 | (855,048 | ) | -28 | % | 217,266,516 | 2,151,780 | 215,114,736 | 9997.1 | % | |||||||||||||||||||||
Cash flows from (used) in investing activities | 1,007,513 | (69,087 | ) | 1,076,600 | -1558 | % | ||||||||||||||||||||||||||
Increase in cash | 986,166 | 356,466 | 629,700 | 177 | % | 214,610,157 | 986,166 | 213,623,991 | 21662.1 | % | ||||||||||||||||||||||
Cash and cash equivalents, beginning of period | 510,586 | 1,940,265 | (1,429,679 | ) | -74 | % | 61,991,703 | 510,586 | 61,481,117 | 12041.3 | % | |||||||||||||||||||||
Cash and cash equivalents, end of period | 1,496,752 | 2,296,731 | (799,979 | ) | -35 | % | ||||||||||||||||||||||||||
Cash and cash equivalents , end of period | 276,601,860 | 1,496,752 | 275,105,108 | 18380.1 | % |
Operating Activities
Net cash used in operating activities for the three months ended March 31, 20202021 was $2,173,127,approximately $2.6 million, compared to $2,581,275approximately $2.2 million for the three months ended March 31, 2019, a decrease2020, an increase of $408,148approximately $0.4 million, or 16%21%. The largest uses ofincrease in cash used in operations primarily resulted primarily from the increase in our netoperating loss, as well inventory purchases of approximately $0.3 million related to our preparation for commercialization of our TRUFORMA® product, as a decreasewell as changes in accounts payable and accrued liabilities of $508,557 and an increaseworking capital items, offset in accounts receivable of $74,845, partially offsetpart by a decrease in the utilization of prepaid expenses and deposits of $409,028 and an increase in non-cash expenses including stock-based compensation of $155,022, depreciation of $76,416,approximately $1.3 million, loss on fixed asset dispositiondispositions of $69,834, loss of right-of-use asset disposition of $59,097 amortization of intangible assets of $45,036,approximately $0.2 million and amortization of right-of-use assets of $42,448.positive changes in other non-cash items.
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Investing Activities
Net cash used in operatinginvesting activities for the three months ended March 31, 20192021 was $2,581,275. The largest uses$18,026, compared to cash from investing activities of cash inapproximately $1.0 million for the 2019 period resulted primarily from our net loss, as well asthree months ended March 31, 2020, a decrease in accrued liabilities of $5,397,418, which were partially offset by non-cash expenses associated with stock-based compensationapproximately $1.0 million, or 102%. The decrease primarily resulted from cash received from the repurchase of $2,341,104, stock issuedour previously prepaid lease for servicesapproximately $1.0 million during the first quarter of $792,104, and amortization of right-of-use assets and intangible assets of $127,612. Other uses included prepaid expenses and deposits of $399,654.2020.
Financing Activities
Net cash from financing activities for the three months ended March 31, 20202021 was $2,151,780,approximately $217.3 million, compared to $3,006,828approximately $2.2 million for the three months ended March 31, 2019, a decrease2020, an increase of $855,048$215.1 million, or 28%9,997%. Cash from financing activities in the first quarter of 20202021 primarily resulted primarilyfrom approximately $199.5 million of proceeds from the $2,500,000February 2021 public offering of our common shares, partially offset by stock issuance costs of $348,220.approximately $14.3 million.
Net cash from financing activities in the first quarter of 2019 resulted from the $3,000,000 public offering of our common shares, partially offset by stock issuance costs of $593,172 and the exercise of stock options for $600,000.
Investing Activities
Net cash from investing activities for the three months ended March 31, 2020 was $1,007,513, compared to cash used of $69,087 for the three months ended March 31, 2019, an increase of $1,076,600 or 1,558%. The increase resulted primarily from the repurchase of our previous prepaid lease for $1,002,113 and cash received on the sale of property and equipment for $5,400.
Net cash used in investing activities for the three months ended March 31, 2019 was $69,087 which resulted primarily from the additional leasehold improvements in Ann Arbor.
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 March 31, 2020,2021, we had an accumulated deficit of $54,508,459.approximately $105.0 million. We have funded our working capital requirements primarily through the sale of our equity and equity-related securities and the exercise of stock options.options and warrants.
As at
At March 31, 2020,2021, the Company had cash and cash equivalents of $1,496,752,approximately $276.6 million, inventory of approximately $0.3 million, prepaid expenses and deposits of $520,290, andapproximately $1.4 million, accounts receivable of $142,463. Current$8,535 and tax credits receivable of approximately $0.2 million. At March 31, 2021, current assets amounted to $2,159,505 withapproximately $278.5 million and current liabilities of $1,801,763,were approximately $2.0 million, resulting in working capital (defined as current assets minus current liabilities) of $357,742.approximately $276.5 million.
On April 9, 2020,March 7, 2021, we exchanged the Company completed a confidentially marketed public offering (“CMPO”)12 issued and outstanding shares of itsour Series 1 Preferred Shares for 24,719,101 common shares valued at $44.0 million.
Subsequent to March 31, 2021, warrants and warrants for grossstock options to purchase 625,000 and 1,632,776 common shares, respectively were exercised, resulting in additional cash proceeds of $4,000,000.approximately $0.7 million.
As of March 31, 2020,
In December 2018, we had shareholders’entered into an at-the-market equity of $1,951,643. After giving effectoffering sales agreement with Cantor Fitzgerald & Co. under which we may sell pursuant to the April 2020 offering and exercises of Series B Warrants issueduniversal shelf registration statement common shares in the April 2020 offering, asUnited States only, from time to time, for up to $50.0 million and which was amended on March 25, 2019 to $10.0 million in aggregate sales proceeds in "at the market" transactions. No sales of May 11, 2020 our pro forma shareholders’ equitycommon shares were made under the sales agreement, and the program was inactive at March 31, 2020 would have been $6,173,718.
On April 20, 2020 we received a $527,360 loan under the SBA’s the Paycheck Protection Program.2021.
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. TheNo amounts were outstanding under the Equidebt Facility is unsecured. As ofat March 31, 2020, no amounts have been borrowed against this facility.2021.
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We believe that our existing cash resources will be sufficient to fund our expected working capital needs through December 2023. If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations. In the event that we are unable to obtain sufficient capital to meet our working capital requirements, we may be required to change or curtail current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated. In such an event, we may not be able to take advantage of business opportunities and may have to terminate or delay safety and efficacy studies, curtail our product development programs, or sell or assign rights to our product candidates, products and technologies.
Our future capital requirements depend on many factors, including, but not limited to:
Off Balance Sheet Arrangements
Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities.
Outstanding Share Data
The only class of outstanding voting or equity securities of the Company are the common shares. As of May 11, 2020:10, 2021,
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Evaluation of Our Disclosure Controls
We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and our principal financial officer concluded that, as of March 31, 2020,2021, our disclosure controls and procedures were effective.
Management’s Report onChanges in Internal Control Over Financial ReportingControls
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as definedThere has been no change 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(as defined in Rules 13a-15(f) and 15(d)-15(f) under the framework in “Internal Control — Integrated Framework (2013)” issuedExchange Act) during the period covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that ourCompany’s internal control over financial reporting was effective as of March 31, 2020.reporting.
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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 Companyus (collectively with Qorvo, the “Defendants”). which was amended on November 22, 2019. The amended Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The amended Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMATMour TRUFORMATM diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. The Court has not yet ruled onHeska subsequently moved to strike a portion of the Defendants’ response. On September 30, 2020, the court denied the Defendants’ motion to dismiss and granted Heska’s motion to strike. On October 14, 2020 the litigation remains stayed pending a ruling on that motion. The Company believesDefendants filed their answer to the amended Complaint. On May 10, 2021, the Defendants filed an updated answer and counterclaims to Heska’s amended complaint alleging unfair and deceptive trade practices claims against Heska. Discovery is ongoing. We believe that the allegations in the amended Complaint have no merit and will not have a material adverse effect on the Company’sour business, results of operations or financial condition. Although the Company is expected to commence the commercialization of its TRUFORMATM platform by the end of 2020, the novel coronavirus, or COVID-19, pandemic has impacted the Company’s expected timing, as described further in the “Risk Factors” section of this Quarterly Report.
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Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the(as amended, the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Companyus 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 Companyus that Qorvo Biotech has assumed the defense of the amended Complaint and will indemnify the Companyus for losses arising from the amended Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Companyus that it intends to mount a vigorous defense to the claims in the amended Complaint, and that it believes the allegations contained in the amended Complaint are without merit.
RISK FACTORSItem 1A. Risk Factors.
Risks RelatedIf we are unable to Our Businessestablish an effective direct sales capability, our ability to market and sell our existing and future products and our ability to generate product revenue will be materially and adversely affected.
As a result of our experience with the initial commercialization of TRUFORMA®, we have recently changed our sales strategy to focus on enhancing our internal capability to sell our existing and future products. As part of this strategic change, we are hiring additional sales personnel and sales support staff. We expect that expanding our internal sales capability will increase our compensation and other expenses. While members of our management team are experienced in the marketing, sale and distribution of animal diagnostic products, we as a company have not previously commercialized any products and there are significant risks involved in building and managing a sales organization, including our ability to hire, retain and motivate qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively oversee a geographically dispersed sales team. If we are unable to build an effective sales organization, our ability to sell our existing and future products and our ability to generate product revenue will be materially and adversely affected.
We have a limited operating history,used third parties to assist in the sales and distribution of our products. If these third parties are not profitablesuccessful in selling our products or do not adequately perform their obligations, our ability to market and may never become profitable.sell our existing and future products and our ability to generate product revenue could be materially and adversely affected.
We have not generated any revenueused third parties to date,assist in the sales and we expect to continue to incur significant research and development costs and other expenses. Our net loss and comprehensive loss for the three months ended March 31, 2020 and March 31, 2019 was $2,450,618 and $11,676,908, respectively, and for the years ended December 31, 2019 and December 31, 2018 was $19,784,054 and $16,647,687, respectively. Our accumulated deficit as of March 31, 2020 was $54,508,459. As of March 31, 2020, we had total shareholders' equity of $1,951,643. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand 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 moredistribution of our TRUFORMA® instrument and related assays. We cannot assure you that these third parties will be successful in selling our products or that they will satisfy their obligations to us. If our sales and distribution partners are not successful in selling our products, or do not adequately perform their obligations, our ability to sell our existing and future products and our ability to generate product 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 mayrevenue could be unable to continue our operations at planned levels and be forced to reduce or cease operations.
The “Novel Coronavirus Disease 2019” (“COVID-19”) pandemic has materially and adversely affected the development and commercialization of our TRUFORMA™ platform.affected.
The COVID-19 pandemic has materially and adversely affected the development and commercialization of our TRUFORMA™ platform and the initial five assays. In response to the pandemic, our development partner has reduced the number of employees working in its facilities which we expect will delay 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 either shut down or limited their operations to those involving only life-threatening conditions. Potential customers have restricted access to their facilities which will affect our ability to perform on-site demonstrations and other marketing activities and to install purchased equipment. The extent to which the COVID-19 pandemic may impact the development and commercialization of our TRUFORMA™ platform and the related assays 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 future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results.
The COVID-19 outbreak has 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 has reduced the number of employees working in its facility which has 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. At this point in time, there is 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.
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 has resulted in a significant spike in unemployment and a concomitant decline in economic activity in the U.S. and many other countries and 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 to those involving only life-threatening conditions which will affect our ability to perform on-site demonstrations and other marketing activities and to install purchased equipment. 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. If we fail to regain compliance with the NYSE American continued listing standards by October 10, 2020, the NYSE American will commence delisting proceedings.
If the NYSE American delists our common shares from trading on its exchange and we are not 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:
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.
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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 | ||||
By: | /s/ | |||
Name: | ||||
Title: | ||||
By: | /s/ Ann Marie Cotter | |||
Name: | Ann Marie Cotter | |||
Title: | Chief Financial Officer | |||
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* 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.
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