Item 1A. Risk Factors.
RISK FACTORS
As used below, “Corporation” refers to Zomedica Corp.,
an Alberta corporation.
Risks Relating to Our Proposed Domestication
While we believe the domestication will be tax-free to U.S. Holders(as defined
below) for U.S. federal income tax purposes, if the Internal Revenue Service (“IRS”) does not agree with our calculation
of the “all earnings and profits amount” attributable to a holder’s shares in the Corporation, Zomedica Corp.’s
U.S. Holders may owe U.S. federal income taxes as a result of the domestication under Section 367(b) of the United States Internal
Revenue Code of 1986, as amended (the “Code”).
Code Section 367(b) has the effect of potentially imposing income
tax on U.S. Holders (as defined below) in connection with the domestication. Pursuant to the Treasury Regulations under Code Section
367(b), any 10% Shareholder (as defined below) will have to recognize a deemed dividend on the domestication equal to the “all
earnings and profits amount,” within the meaning of Treasury Regulations Section 1.367(b)-2, attributable to such U.S. Holder’s
shares in the Corporation. Any U.S. Holder that is not a 10% Shareholder and whose shares have a fair market value of less than
$50,000 on the date of the domestication will recognize no gain or loss pursuant to Code Section 367(b) as a result of the domestication.
A U.S. Holder that is not a 10% Shareholder but whose shares have a fair market value of at least $50,000 on the date of the domestication
must generally recognize gain (but not loss) on the domestication equal to the difference between the fair market value of the
Zomedica Corp. stock received at the time of the domestication over the U.S. Holder’s tax basis in the Corporation’s
shares. Such a holder, however, instead of recognizing gain, may elect to include in income as a deemed U.S. dividend the “all
earnings and profits amount” attributable to such holder’s shares in the Corporation, which we refer to as a “Deemed
Dividend Election.”
As used herein, the term ‘‘U.S.
Holder’’ means a beneficial owner of shares or warrants of the Corporation or stock or warrants of Zomedica Corp. that
is for U.S. federal income tax purposes:
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a citizen or resident of the United States;
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a corporation (including any entity treated as a corporation for U.S. federal income tax purposes)
created or organized under the laws of the United States, any state thereof, or the District of Columbia;
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an estate the income of which is taxable in the United States regardless of its source; or
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a trust, the administration of which is subject to the primary supervision of a U.S. Court and
one or more United States persons (within the meaning of Section 7701(a)(30)) have the authority to control all substantial decisions
of the trust, or that has a valid election in effect under applicable Treasury Regulations to be treated as a United States person.
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As used herein, the term “10% Shareholders” means U.S.
Holders who own, directly or by attribution, ten percent (10%) or more of the total voting power of the Corporation’s all
classes of shares or ten percent (10%) or more of the total value of shares of all classes of stock of the Corporation.
Based on the Corporation’s limited activity at the holding
company level and the size of the Corporation’s existing earnings and profits deficit, we believe that no U.S. Holder should
have a positive ‘‘all earnings and profits amount’’ attributable to such holder’s shares in the Corporation,
and accordingly no 10% Shareholder or U.S. Holder who makes a Deemed Dividend Election should be required to include any such amount
in income on the domestication. Our belief with respect to the “all earnings and profits amount” results from calculations
performed by our accounting firm based on information provided to them by us. However, no assurance can be given that the IRS will
agree with us. If it does not agree, then a U.S. Holder may be subject to adverse U.S. federal income tax consequences.
While we believe the domestication will be tax-free to U.S. Holders for U.S. federal
income tax purposes, if proposed Treasury Regulations under Code Section 1291(f) are finalized in their current form, Zomedica
Corp.’s U.S. Holders may owe U.S. federal income taxes as a result of the domestication under the rules applicable to a passive
foreign investment company (“PFIC”).
The Corporation believes that it is likely a PFIC for U.S. federal
income tax purposes. In the event that the Corporation is considered a PFIC, then proposed Treasury Regulations under Code Section
1291(f) (which were promulgated in 1992 with a retroactive effective date), if finalized in their current form, generally would
require a U.S. Holder to recognize gain on the exchange of equity securities of the Corporation for equity securities of Zomedica
Corp. pursuant to the domestication. The tax on any such gain so recognized would be imposed at the rate applicable to ordinary
income and an interest charge would apply based on a complex set of computational rules designed to offset the tax deferral to
such U.S. Holders on the Corporation’s undistributed earnings. Any “all earnings and profits amount” included
in income by a U.S. Holder as a result of the domestication generally would be treated as gain subject to these rules. However,
it is difficult to predict whether, in what form and with what effective date final Treasury Regulations under Code Section 1291(f)
will be adopted. U.S. Holders that make or have made certain elections with respect to their common shares of the Corporation are
generally not subject to the same gain recognition rules under the current proposed Treasury Regulations.
The rights of our shareholders under Canadian law will differ from their rights
under Delaware law, which will, in some cases, provide less protection to shareholders following the domestication.
Upon consummation of the domestication, our shareholders will become
stockholders of a Delaware corporation. There are material differences between the Alberta Business Corporations Act (the “ABCA”)
and the Delaware General Corporations Law (the “DGCL”) and our current and proposed charter and bylaws. For example,
under Canadian law, many significant corporate actions such as amending a corporation’s articles of incorporation, effecting
a share consolidation or consummating a merger require the approval of two-thirds of the votes cast by shareholders, whereas under
Delaware law, a majority of the total voting power of all of those entitled to vote may approve the matter. Furthermore, shareholders
under Canadian law are entitled to dissent and appraisal rights under a number of extraordinary corporate actions, including an
amalgamation with another unrelated corporation, certain amendments to a corporation’s articles of incorporation or the sale
of all or substantially all of a corporation’s assets; under Delaware law, stockholders are entitled to dissent and appraisal
rights for certain specified corporate transactions such as mergers or consolidations. If the domestication is approved, shareholders
may be afforded less protection under the DGCL than they had under the ABCA in certain circumstances.
The proposed domestication will result in additional direct and indirect costs
whether or not it is completed.
The domestication will result in additional direct costs. We will
incur attorneys’ fees, accountants’ fees, filing fees, mailing expenses and financial printing expenses in connection
with the domestication. The domestication will also temporarily divert the attention of our management and employees from the day-to-day
management of the business to a limited extent.
The amount of corporate tax payable by us will be affected by the value of our
property on the date of the domestication.
For Canadian tax purposes, on the date of the domestication we will
be deemed to have a year end and to have disposed of all of our property for proceeds equal to the fair market value of those properties.
We will also be subject to an additional corporate emigration tax imposed on the amount, if any, by which the fair market value
of our property, net of certain liabilities, exceeds the paid-up capital of our issued and outstanding shares. We have completed
certain calculations of our tax accounts with the assistance of tax advisors, and we have estimated that the domestication will
not result in any Canadian tax liability.
Provisions in Zomedica Corp.’s certificate of incorporation and bylaws and
Delaware law might discourage, delay or prevent a change of control of our company or changes in our management and, therefore,
depress the trading price of our common stock.
Zomedica Corp.’s certificate of incorporation and bylaws will
contain provisions that could depress the trading price of our common stock by acting to discourage, delay or prevent a change
in control of our company or changes in our management that the stockholders of our company may deem advantageous. These provisions:
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establish a classified board of directors so that not all members of our board are elected at one
time;
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provide that directors may only be removed ‘‘for cause;’’
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authorize the issuance of ‘‘blank check’’ preferred stock that our board
of directors could issue from time to time to increase the number of outstanding shares and discourage a takeover attempt;
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eliminate the ability of our stockholders to call special meetings of stockholders;
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prohibit stockholder action by written consent, which has the effect of requiring all stockholder
actions to be taken at a meeting of stockholders;
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provide that the board of directors is expressly authorized to make, alter or repeal our bylaws;
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establish advance notice requirements for nominations for election to our board of directors or
for proposing matters that can be acted upon by stockholders at stockholder meetings; and
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require supermajority approvals to remove the protective provisions in our certificate of incorporation
and bylaws listed above or to amend our bylaws.
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Such provisions could impede any merger, consolidation, takeover
or other business combination involving the company or discourage a potential acquirer from making a tender offer or otherwise
attempting to obtain control of the company.
The certificate of incorporation of Zomedica Corp. will designate the Court of
Chancery of the State of Delaware as the sole and exclusive forum for certain types of actions and proceedings that may be initiated
by Zomedica Corp.’s stockholders, which could limit the ability of Zomedica Corp.’s stockholders to obtain a favorable
judicial forum for disputes with us or our directors, officers or other employees.
The certificate of incorporation of Zomedica Corp. will require
that, unless we consent in writing to the selection of an alternative forum:
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any derivative action or proceeding brought on our behalf;
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any action asserting a claim of breach of any fiduciary duty owed by any current or former director,
officer, other employee or stockholder of ours to our company or our stockholders;
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any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of
incorporation or bylaws or as to which the DGCL confers jurisdiction on the Court of Chancery of the State of Delaware; or
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any action asserting a claim governed by the internal affairs doctrine;
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the Court of Chancery of the State of Delaware will, to the fullest extent permitted
by law, be the exclusive forum or if the Court of Chancery of the State of Delaware does not have subject matter jurisdiction thereof,
the federal district court of the State of Delaware.
Furthermore, Section 22 of the Securities Act of 1933, as amended
(the “Securities Act”) creates concurrent jurisdiction for federal and state courts over all such Securities Act actions.
Accordingly, both state and federal courts have jurisdiction to entertain such claims. To prevent having to litigate claims in
multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, Zomedica
Corp.’s certificate of incorporation will provide that the federal district courts of the United States of America will be
the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act.
The exclusive forum provisions described above will not apply to
claims arising under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). While the Delaware courts
have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring such a claim
arising under the Securities Act against Zomedica Corp., its directors, officers, or other employees in a venue other than in the
federal district courts of the United States of America. In such instance, we would expect to vigorously assert the validity and
enforceability of the exclusive forum provisions of Zomedica Corp.’s certificate of incorporation.
Although we believe this provision benefits Zomedica Corp. by providing
increased consistency in the application of Delaware law in the types of lawsuits to which it applies, this provision may limit
or discourage a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with Zomedica
Corp. or its directors, officers or other employees, which may discourage such lawsuits against Zomedica Corp. and its directors,
officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in the certificate
of incorporation to be inapplicable or unenforceable in an action, Zomedica Corp. may incur additional costs associated with resolving
such action in other jurisdictions, which could adversely affect its business and financial condition.
We note that there is uncertainty as to whether a court would enforce
the provision and that investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder.
Although we believe this provision will benefit Zomedica Corp. by providing increased consistency in the application of Delaware
law in the types of lawsuits to which it applies, the provision may have the effect of discouraging lawsuits against Zomedica Corp.’s
directors and officers.
The anticipated benefits of the domestication may not be realized.
We may not realize the benefits we expect from the domestication. If we do not, we will
have expended considerable resources and management efforts in completing the domestication without benefiting the company or our
shareholders. Such expenditure of time and resources would adversely affect our business, operating results, and financial condition
if the anticipated benefits are not achieved.
Risks Related to our Business
We have a limited operating history, are not profitable and may never become profitable.
We have not generated any revenue to date, and we expect to continue
to incur significant research and development costs and other expenses. Our net loss and comprehensive loss for (i) the three months
ended September 30, 2020 and September 30, 2019 was approximately $5.0 million and $2.8 million, respectively, (ii) for the nine
months ended September 30, 2020 and September 30, 2019 was approximately $12.7 million and $16.9 million, respectively, and (iii)
for the years ended December 31, 2019 and December 31, 2018 was approximately $19.8 million and $16.6 million, respectively. Our
accumulated deficit as of September 30, 2020 was approximately $64.7 million. As of September 30, 2020, we had total shareholders'
equity of approximately $53.4 million. We expect to continue to incur losses for the foreseeable future, as we continue our product
development and commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our product
candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to
achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or
cease operations.
We may need to raise additional capital to achieve our goals.
We do not have any products available for sale at this time. Although
we believe that we do not require pre-market approval from the U.S. Food and Drug Administration’s Center for Veterinary
Medicine, or the FDA-CVM, or the United States Department of Agriculture Animal and Health Inspection Service’s Center for
Veterinary Biologics, or USDA-CVB, to market and sell TRUMFORMATM , our Raman spectroscopy-based point-of-care diagnostic
platform, nor our circulating tumor cell, or CTC, diagnostic assay that we are developing, the COVID-19 pandemic has impacted our
expected timing for the development and commercialization of our TRUFORMA™ platform and the five initial assays.
We are also seeking to identify potential complementary opportunities
in the animal health sectors. We will continue to expend substantial resources for the foreseeable future to develop our existing
products and any other product that we may develop or acquire. These expenditures will include: costs of developing and validating
our diagnostic products and related assays and consumables; costs associated with conducting any required clinical trials; costs
associated with completing other research and development activities; costs of identifying additional potential products; costs
associated with payments to technology licensors and maintaining other intellectual property; costs of obtaining regulatory approvals;
costs associated with securing contract manufacturers to meet our commercial manufacturing and supply capabilities; and costs associated
with marketing and selling our products. In addition, our existing and future development agreements may require us to make significant
cash milestone payments to our development partners and to pay certain development costs. We will not control the timing of these
payments. We also may incur unanticipated costs. Because the outcome of our development activities and commercialization efforts
is inherently uncertain, the actual amounts necessary to successfully complete the development and commercialization of our existing
or future products may be greater or less than we anticipate.
As a result, we may need to obtain additional capital to fund the
development of our business. Except for our unsecured working capital line we have no existing agreements or arrangements with
respect to any financings, and any such financings may result in dilution to our shareholders, the imposition of debt covenants
and repayment obligations or other restrictions that may adversely affect our business or the value of our common shares.
Our future capital requirements depend on many factors, including,
but not limited to:
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the scope, progress, results and costs of researching and developing our existing or future diagnostics
and medical device products;
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the extent to which any of our future diagnostic assays or medical devices may be subject to USDA-CVB
pre-market regulation;
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the timing of, and the costs involved in, obtaining regulatory approvals for any of our existing
or future diagnostics or medical device products;
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the number and characteristics of the diagnostics and/or medical device products we pursue;
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the cost of contract manufacturers to manufacture our existing and future diagnostic and medical
device products and any additional products we seek to commercialize;
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the cost of commercialization activities, including marketing, sales and distribution costs;
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the expenses needed to attract and retain skilled personnel;
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the costs associated with being a public company;
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our ability to establish and maintain strategic partnerships, licensing or other arrangements and
the financial terms of such agreements; and
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the costs involved in preparing and filing patent applications, maintaining any successfully obtained
patents and protecting and enforcing any such patents.
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Additional funds may not be available when we need them on terms
that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay,
limit, reduce or terminate one or more of our product development programs or any future commercialization efforts.
The “Novel Coronavirus Disease 2019” (“COVID-19”) pandemic
has materially and adversely affected the development and commercialization of our TRUFORMA™ platform.
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.
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 disrupted our development partners and the
COVID-19 pandemic, and any future outbreak of a health epidemic or other adverse public health developments could materially and
adversely affect our business and operating results. For example, our development partner for our TRUFORMA™ platform and
the related assays had reduced the number of employees working in its facility which significantly impacted our expected timing
for the completion of the development and the commencement of the commercialization of our TRUFORMA™ platform and the related
assays. If our suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture
our products and satisfy customer demand or our obligations under sales agreements in a timely manner, and our business could be
harmed as a result. As noted above, there is continuing uncertainty relating to the potential effect of COVID-19 on our business.
Infections may become more widespread and should that cause supply disruptions it would have a negative impact on our business,
financial condition and operating results. In addition, a significant health epidemic could adversely affect the economies and
financial markets of many countries, resulting in an economic downturn that could affect the market for our products, which could
have a material adverse effect on our business, operating results and financial condition.
The COVID-19 pandemic and any future outbreak of a health epidemic or other adverse
public health developments could materially and adversely affect the sales of our products.
The COVID-19 pandemic resulted in a significant spike in unemployment
and a concomitant decline in economic activity in the U.S. and many other countries. A worsening of the COVID-19 pandemic, any
future outbreak of a health epidemic or other adverse public health developments may have similar effects. Pet owners may be unwilling
or unable to seek treatment for their pets in such circumstances, thereby decreasing demand for our products. In addition, as noted
above, potential customers for our products have either shut down or limited their operations which has affected and may continue
to affect our ability to perform on-site demonstrations and other marketing activities. Potential customers also may be unwilling
or unable to invest in new equipment or to introduce new treatments for their patients. As a result, the COVID-19 pandemic and
any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the
sales of our products.
The audit opinion on our financial statements contains a going concern modification.
As a result of our recurring losses from operations and our accumulated
deficit, the opinion of our independent registered public accountants on our financial statements as of and for the year ended
December 31, 2019 contains a going concern modification. If we are unable to continue as a going concern, we might have to liquidate
our assets and the values we receive for our assets in liquidation or dissolution could be significantly lower than the values
reflected in our financial statements. In addition, the inclusion of a going concern modification by our independent registered
public accountants, our recurring losses, our accumulated deficit and our potential inability to continue as a going concern may
materially adversely affect our share price and our ability to raise new capital or to enter into contractual relationships with
third parties.
We have generated net operating loss carryforwards for U.S. income tax purposes,
but our ability to use these net operating losses may be limited by our inability to generate future taxable income.
Our U.S. businesses have generated consolidated net operating loss
carryforwards (“U.S. NOLs”) for U.S. federal and state income tax purposes of approximately $16.1 million as of December
31, 2019. These U.S. NOLs can be available to reduce income taxes that might otherwise be incurred on future U.S. taxable income.
The utilization of these U.S. NOLs would have a positive effect on our cash flow. However, there can be no assurance that we will
generate the taxable income in the future necessary to utilize these U.S. NOLs and realize the positive cash flow benefit. A portion
of our U.S. NOLs have expiration dates. There can be no assurance that, if and when we generate taxable income in the future from
operations or the sale of assets or businesses, we will generate such taxable income before such portion of our U.S. NOLs expire.
Under the Tax Cuts and Jobs Act (the “TCJA”), federal NOLs generated in tax years ending after December 31, 2017 may
be carried forward indefinitely. Under the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), federal
NOL carryforwards arising in tax years beginning after December 31, 2017 and before January 1, 2021 may be carried back to each
of the five tax years preceding the tax year of such loss. Due to our cumulative losses through September 30, 2020 we do not anticipate
that such provision of the CARES Act will be relevant to us. The deductibility of federal NOLs, particularly for tax years beginning
after December 31, 2020, may be limited. It is uncertain if and to what extent various states will conform to TCJA or the CARES
Act.
We have generated U.S. NOLs, but our ability to reserve and use these U.S. NOLs
may be limited or impaired by future ownership changes.
Our ability to utilize the U.S. NOLs after an “ownership change”
is subject to the rules of Code Section 382. An ownership change occurs if, among other things, the shareholders (or specified
groups of shareholders) who own or have owned, directly or indirectly, five (5%) percent or more of the value of our shares or
are otherwise treated as five (5%) percent shareholders under Code Section 382 and the Treasury Regulations promulgated thereunder
increase their aggregate percentage ownership of the value of our shares by more than 50 percentage points over the lowest percentage
of the value of the shares owned by these shareholders over a three-year rolling period. An ownership change could also be triggered
by other activities, including the sale of our shares that are owned by our five (5%) shareholders. In the event of an ownership
change, Section 382 would impose an annual limitation on the amount of taxable income we may offset with U.S. NOLs. This annual
limitation is generally equal to the product of the value of our shares on the date of the ownership change multiplied by the long-term
tax-exempt rate in effect on the date of the ownership change. The long-term tax-exempt rate is published monthly by the IRS. Any
unused Section 382 annual limitation may be carried over to later years until the applicable expiration date for the respective
U.S. NOLs (if any). In the event an ownership change as defined under Section 382 were to occur, our ability to utilize our U.S.
NOLs would become substantially limited. The consequence of this limitation would be the potential loss of a significant future
cash flow benefit because we would no longer be able to substantially offset future taxable income with U.S. NOLs. There can be
no assurance that such ownership change will not occur in the future.
We are substantially dependent on the success of our TRUMFORMATM platform
and cannot be certain that it will be successfully commercialized.
We are focused primarily on the development of our TRUMFORMATM
diagnostic platform and the related assays. Accordingly, our near-term prospects, including our ability to generate material product
revenue, or enter into potential strategic transactions, will depend heavily on the successful development and commercialization
of this product and the related assays, which in turn will depend on a number of factors, including the following:
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the successful completion of clinical validation and verification of our TRUMFORMATM
diagnostic platform and the related assays, which may take significantly longer than we anticipate and will depend, in part, upon
the satisfactory performance of our strategic partner and third-party contractors;
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the ability of our strategic partner to manufacture supplies of our TRUMFORMATM diagnostic
instrument and the related assays and to develop, validate and maintain viable commercial manufacturing processes that are compliant
with Good Manufacturing Practices, or GMP, to the extent applicable;
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our ability to successfully market our TRUMFORMATM diagnostic platform and the related
assays, whether alone or in partnership with others;
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the availability, perceived advantages, relative cost, relative safety and relative efficacy of
TRUMFORMATM diagnostic platform and the related assays compared to alternative and competing products;
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the acceptance of our TRUMFORMATM diagnostic platform and the related assays by veterinarians,
pet owners and the animal health community;
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our ability to achieve and maintain compliance with all regulatory requirements applicable to our
business; and
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our ability to obtain and enforce intellectual property rights, and avoid or prevail in any third-party
patent interference, patent infringement claims or administrative patent proceedings initiated by third parties or the United States
Patent and Trademark Office (“USPTO”).
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Many of these factors are beyond our control. Accordingly, we cannot
assure you that we will be successful in developing or commercializing our TRUMFORMATM diagnostic platform and the related
assays or any of our future products. If we are unsuccessful or are significantly delayed in developing and commercializing our
products, our business and prospects will be materially adversely affected, and you may lose all or a portion of your investment.
We face unproven markets for our products.
The companion animal diagnostic and medical device markets are less
developed than the related human markets and as a result no assurance can be given that our products will be successful. Veterinarians,
pet owners or other veterinary health providers in general may not accept or utilize any products that we may develop. The companion
animal care industry is characterized by rapid technological changes, frequent new product introductions and enhancements, and
evolving industry standards, all of which could make our products obsolete. Our future success will depend on our ability to keep
pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that
develop as a result of technological and scientific advances. We must continuously enhance our product offerings to keep pace with
evolving standards of care. If we do not update our product offerings to reflect new scientific knowledge or new standards of care,
our products could become obsolete, which would have a material adverse effect on our business, financial condition, and results
of operations.
Our ability to successfully develop and commercialize our existing and any
future products will depend on several factors, including:
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our ability to convince the veterinary community of the clinical utility of our products and their
potential advantages over existing tests and devices;
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the willingness or ability by pet owners to pay for our products and the willingness of veterinarians
to recommend our products;
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the willingness of veterinarians to utilize our diagnostic tests and devices; and
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where applicable, the willingness of testing labs to buy our assay equipment.
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Our dependence on suppliers could limit our ability to develop and commercialize
certain products
We rely on third-party suppliers to provide components in our products,
manufacture products that we do not manufacture ourselves and perform services that we do not provide ourselves. Because these
suppliers are independent third parties with their own financial objectives, actions taken by them could have a materially negative
effect on our results of operations. The risks of relying on suppliers include our inability to enter into contracts with third-party
suppliers on reasonable terms, inconsistent or inadequate quality control, relocation of supplier facilities, supplier work stoppages
and suppliers’ failure to comply with applicable regulations or their contractual obligations. Problems with suppliers could
materially negatively impact our ability to complete development, supply the market, lead to higher costs or damage our reputation
with our customers.
In addition, we currently purchase many products and materials from
sole or single sources. Some of the products that we purchase from these sources are proprietary and, therefore, cannot be readily
or easily replaced by alternative sources. To mitigate risks associated with sole and single source suppliers, we will seek when
possible to enter into long-term contracts that provide for an uninterrupted supply of products at predictable prices. However,
some suppliers may decline to enter into long-term contracts, and we are required to purchase products with short term contracts
or on a purchase order basis. There can be no assurance that suppliers with which we do not have contracts will continue to supply
our requirements for products, that suppliers with which we do have contracts will always fulfill their obligations under these
contracts, or that any of our suppliers will not experience disruptions in their ability to supply our requirements for products.
In cases where we purchase sole and single source products or components under purchase orders, we are more susceptible to unanticipated
cost increases or changes in other terms of supply. In addition, under some contracts with suppliers we have minimum purchase obligations,
and our failure to satisfy those obligations may result in loss of some or all of our rights under these contracts or require us
to compensate the supplier. If we are unable to obtain adequate quantities of products in the future from sole and single source
suppliers, we may be unable to supply the market, which could have a material adverse effect on our results of operations.
The commercial potential of our products is difficult to predict. The market for
any product, or for companion animal diagnostics and medical devices overall, is uncertain and may be smaller than we anticipate,
which could significantly and negatively impact our revenue, results of operations and financial condition.
We believe that the emerging nature of our industry and our unproven
business plan make it difficult to estimate the commercial potential of any of our proposed or future products. The market for
any product that we seek to commercialize will depend on important factors such as the cost, utility and ease of use of our products,
changing standards of care, preferences of veterinarians, the willingness of pet owners to pay for such products, and the availability
of competitive alternatives that may emerge either during the product development process or after commercial introduction. If
the market potential for our proposed and future products is less than we anticipate due to one or more of these factors, it could
negatively impact our business, financial condition and results of operations. Further, the willingness of pet owners to pay for
the use of our products may be less than we anticipate and may be negatively affected by overall economic conditions. Because relatively
few pet owners purchase insurance for their companion animals, pet owners are more likely to have to pay for the use of our products
directly and may be unwilling or unable to pay for any such use.
Our proposed and future products will face significant competition and may be unable
to compete effectively.
The development and commercialization of veterinary diagnostics
and medical devices is highly competitive, and our success depends on our ability to compete effectively with other products in
the market and identify potential partners for continued development and commercialization.
There are a number of competitors in the diagnostic market that
have substantially greater financial and operational resources and established marketing, sales and service organizations. We expect
to compete primarily with commercial clinical laboratories, hospitals’ clinical laboratories and other veterinary diagnostic
equipment manufacturers. Our principal competitors in the veterinary diagnostic market are IDEXX Laboratories, Inc., Antech Diagnostics,
a unit of VCA Inc., Abaxis, Inc., a wholly-owned subsidiary of Zoetis Inc., Heska Corporation and Zoetis Inc. We must develop our
distribution channels and build our direct sales force in order to compete effectively in these markets. If we are unable to effectively
manage our distribution channels in our highly competitive industry, we may fail to retain customers or obtain new customers and
our business will suffer.
Many of our competitors and potential competitors have substantially
more financial, technical and human resources than we do. Many also have far more experience than we have in the development, manufacture,
regulation and worldwide commercialization of animal health diagnostics and medical devices. We also expect to compete with academic
institutions, governmental agencies and private organizations that are conducting research in the fields of animal diagnostics
and medical devices. If such competing products are commercialized prior to our products, or if our intellectual property protection
fail to provide us with exclusive marketing rights for our products, we may be unable to compete effectively in the markets in
which we participate. Contractual agreements between clinics and from competitors may limit practices’ ability to use other
tests and technologies due to predetermined minimums in those agreements.
The research, testing, manufacturing, labeling, approval, sale, marketing and distribution
of our proposed and future products may be subject to extensive regulation. We may be unable to obtain regulatory approval for
our proposed or future diagnostic or medical device products under applicable regulatory requirements or maintain any regulatory
approval obtained. The denial, delay or loss of any regulatory approval would prevent or delay our commercialization efforts and
adversely affect our financial condition and results of operations.
The research, testing, manufacturing, labeling, approval, sale,
marketing and distribution of our product candidates may be subject to extensive regulation. We may not be able to market and sell
any point-of-care diagnostic products or medical devices without pre-marketing approval from the USDA-CVB and/or FDA-CVM. To gain
approval to market a pet point-of-care diagnostic product kit or a medical device, we must provide the results of specific tests
required to be conducted in accordance with USDA-CVB and/or FDA-CVM’s guidance demonstrating data from Assay Validation Studies
that demonstrate the diagnostic accuracy, analytical sensitivity, analytical specificity and ruggedness, and stability. In addition,
we must provide manufacturing data meeting Good Manufacturing Procedures (“GMP”). The USDA-CVB and/or FDA-CVM may also
require us to conduct costly postapproval testing and/or collect post-approval safety data to maintain our approval for any diagnostic
or medical device. The results of our development activities, and the results of any previous studies conducted by us or third
parties, may not be predictive of future results of future studies, and failure can occur at any time during or after the completion
of development activities by us or our contract research organizations or CROs.
The USDA-CVB and/or FDA-CVM can delay, limit, deny or revoke approval
of any of our product candidates for many reasons, including:
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if they disagree with our interpretation of data from our studies or other development efforts;
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if they require additional studies or changes its approval policies or regulations;
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if they do not approve of the specifications of our proposed and future products;
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if they fail to approve the manufacturing processes of our third-party contract manufacturers;
and
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if any approved product subsequently fails post-approval testing required by them.
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Further, even if we receive approval of our products, such approval
may be for a more limited claim than we originally requested, the USDA-CVB may not approve the labeling that we believe is necessary
or desirable for the successful commercialization of our products and we may be required to conduct costly post-approval testing.
Any delay or failure in obtaining applicable regulatory approval for the intended claims of our product candidates would delay
or prevent commercialization of such products and would materially adversely impact our business and prospects.
Our strategic partnerships are important to our business. If we are unable to maintain
any of these partnerships, or if these partnerships are not successful, our business could be adversely affected.
We have entered into a number of strategic partnerships that are
important to our business and we expect to enter into similar partnerships as part of our growth strategy. These partnerships may
pose a number of risks, including:
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partners may have significant discretion in determining the efforts and resources that they will
apply to these partnerships;
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partners may not perform their obligations as expected;
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partners may not pursue development of our product candidates or may elect not to continue or renew
development based on development results, changes in the partners’ strategic focus or available funding, or external factors,
such as an acquisition, that divert resources or create competing priorities;
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partners could independently develop, or develop with third parties, products that compete directly
or indirectly with our products or product candidates if the partners believe that competitive products are more likely to be successfully
developed or can be commercialized under terms that are more economically attractive than ours, which may cause partners to cease
to devote resources to the development of our product candidates;
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disagreements with partners, including disagreements over proprietary rights, contract interpretation
or the preferred course of development, might cause delays or termination of the research and development of product candidates,
might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration,
any of which would be time-consuming and expensive;
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partners may not properly maintain or defend their intellectual property rights or may use proprietary
information in such a way as to invite litigation that could jeopardize or invalidate the intellectual property or proprietary
information or expose us to potential litigation;
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partners may infringe the intellectual property rights of third parties, which may expose us to
litigation and potential liability;
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partners may learn about our technology and use this knowledge to compete with us in the future;
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there may be conflicts between different partners that could negatively affect those partnerships
and potentially others; and
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the number and type of our partnerships could adversely affect our attractiveness to future partners
or acquirers.
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If any partnerships we enter into do not result in the successful
development of our product candidates or if one of our partners terminates its agreement with us, we may not be able to successfully
develop our product candidates, our continued development of our product candidates could be delayed and we may need additional
resources to develop additional product candidates. All of the risks relating to our product development, regulatory approval and
commercialization also apply to the activities of our partners and there can be no assurance that our partnerships will produce
positive results or successful products on a timely basis or at all.
Additionally, subject to its contractual obligations to us, if a
partner of ours is involved in a business combination or otherwise changes its business priorities, the partner might deemphasize
or terminate the development of any technology licensed to it by us. If one of our partners terminates its agreement with us, we
may find it more difficult to attract new partners and our perception in the business and financial communities and our stock price
could be adversely affected.
We may in the future determine to partner with additional life science
and technology companies for development of additional products. We face significant competition in seeking appropriate partners.
Our ability to reach a definitive agreement for partnership will depend, among other things, upon our assessment of the partner’s
resources and expertise, the terms and conditions of the proposed partnership and the proposed partner’s evaluation of a
number of factors. If we are unable to reach agreements with suitable partners on a timely basis, on acceptable terms, or at all,
we may not be able to access technologies that are important for the future development of our business. If we elect to fund and
undertake development activities on our own, we may need to obtain additional expertise and additional capital, which may not be
available to us on acceptable terms or at all. If we fail to enter into partnerships and do not have sufficient funds or expertise
to undertake the necessary development activities, we may not be able to further develop our product candidates and our business
may be materially and adversely affected.
Under the terms of our partnership arrangements, we are required to make significant
milestone and other payments to our strategic partners. The timing of any such payments is uncertain and could adversely affect
our cash flows and results of operations. If we are not able to make such payments when due, our business could be materially and
adversely affected.
In November 2018, we entered into a development and supply agreement
with Qorvo Biotechnologies, LLC, or Qorvo, a wholly-owned subsidiary of Qorvo, Inc. Under this agreement, Qorvo is responsible
for the development of certain assay cartridges and the related instrument. We agreed to pay the associated non-recurring engineering
costs of up to $500,000 per assay cartridge and the instrument and are responsible for the validation of the assay cartridges and
the instrument. Under the terms of this agreement, we were required to pay Qorvo additional milestone payments in cash or, if elected
by Qorvo, additional unregistered common shares having a value calculated as specified in the agreement. All of the milestones
under this agreement have been met and we paid Qorvo a total of $10.0 million in cash in connection therewith. Under the terms
of the agreement, we will be responsible for the cost of additional development work undertaken by Qorvo on our behalf.
In May 2018, we entered into a development, commercialization and
exclusive distribution agreement with Seraph Biosciences, Inc., or Seraph. Under this agreement, we are responsible for development
and validation, and their associated costs. Seraph is entitled to additional payments for development costs. Seraph will be entitled
to receive up to an additional $7,000,000, payable 50 percent in cash and 50 percent in additional unregistered common shares,
upon the achievement of a series of staged, specified milestones, including completion of laboratory studies and field studies,
production and commercial shipment of products. In addition, we have agreed to pay Seraph license fees based on a percentage of
gross profit from commercial sales of ZM-020. At September 30, 2020, all milestone payments under our agreement with Seraph remain
unpaid.
We will rely on third parties to conduct certain portions of our development activities.
If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may be unable to obtain
regulatory approval for or commercialize our product candidates.
We have used contract manufacturing organizations (“CMOs”)
and contract research organizations (“CROs”) to conduct our manufacturing and research and development activities.
We expect to continue to do so, including with respect to our manufacturing, clinical validation, verification and beta testing
of our proposed and future diagnostic and medical device products. These CMOs and CROs are not our employees, and except for contractual
duties and obligations, we have limited ability to control the amount or timing of resources that they devote to our programs or
manage the risks associated with their activities on our behalf. We are responsible to regulatory authorities for ensuring that
products subject to regulatory authority are manufactured using good manufacturing practices and studies are conducted in accordance
with the development plans and trial protocols, and any failure by our CMOs and CROs to do so may adversely affect our ability
to obtain regulatory approvals, subject us to penalties, or harm our credibility with regulators.
Our agreements with our CMOs and CROs may allow termination by the
CMOs and CROs in certain circumstances with little or no advance notice to us. These agreements generally will require our CMOs
and CROs to reasonably cooperate with us at our expense for an orderly winding down of the CMOs’ and CROs’ services
under the agreements. If the CMOs and CROs conducting our manufacturing and studies do not comply with their contractual duties
or obligations to us, or if they experience work stoppages, do not meet expected deadlines, terminate their agreements with us
or need to be replaced, or if the quality or accuracy of the data they obtain is compromised due to the failure to adhere to our
development protocols or quality expectations or for any other reason, we may need to secure new arrangements with alternative
CMOs and CROs, which could be difficult and costly. In such event, our studies also may need to be extended, delayed or terminated
as a result, or may need to be repeated. If any of the foregoing were to occur, regulatory approval and commercialization of our
product candidates may be delayed, and we may be required to expend substantial additional resources.
The failure of any CMO and CRO to perform adequately or the termination
of any arrangements with any of them may adversely affect our business.
We will rely on third-party manufacturers to produce our products. If we experience
problems with any of these suppliers, the manufacturing of our product candidates or products could be delayed.
We do not have the capability to manufacture our proposed and future
products and do not intend to develop that capability. As a result, we will rely on CMOs to produce our proposed and future products.
We expect to enter into contracts with CMOs for the commercial scale production of the products we intend to commercialize. Reliance
on CMOs involves risks, including:
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the inability to meet our product specifications and quality requirements consistently;
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inability to access production facilities on a timely basis;
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inability or delay in increasing manufacturing capacity;
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manufacturing and product quality issues related to the scale-up of manufacturing;
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costs and validation of new equipment and facilities required for commercial level activity;
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a failure to satisfy any applicable regulatory requirements on a consistent basis;
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the inability to negotiate manufacturing agreements with third parties under commercially reasonable
terms;
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termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time
that is costly or damaging to us;
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the reliance on a single source of supply which, if unavailable, would delay our ability to complete
the development and testing and commercialization of our products;
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the lack of qualified backup suppliers for supplies that are currently purchased from a single
source supplier;
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operations of our CMOs or suppliers could be disrupted by conditions unrelated to our business
or operations, including the bankruptcy of the CMO or supplier;
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carrier disruptions or increased costs that are beyond our control; and
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the failure to deliver products under specified storage conditions and in a timely manner.
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Any of these risks could cause the delay of validation studies,
clinical trials, regulatory submissions, the receipt of any required approvals or the commercialization of our products, cause
us to incur higher costs and prevent us from commercializing our product candidates successfully. Furthermore, if our CMOs fail
to deliver the required commercial quantities of finished product on a timely basis and at commercially reasonable prices and we
are unable to find one or more replacement manufacturers capable of production at a substantially equivalent cost, in substantially
equivalent volumes and quality and on a timely basis, we would likely be unable to meet demand for our products and could lose
potential revenue.
Even if a product receives regulatory approval, it may never achieve market acceptance
or commercial success.
Even if we obtain USDA-CVB or other regulatory approvals for a specific
product, that product may not achieve market acceptance among veterinarians and pet owners and may not be commercially successful.
Market acceptance of our products depends on a number of factors, including:
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the claims for which our products are approved or intended;
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the acceptance by veterinarians and pet owners of the product as safe and effective;
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the proper training and use of our products by veterinarians;
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the potential and perceived advantages of our products over alternative diagnostics or medical
devices;
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the cost of our products in relation to alternative diagnostics and willingness to pay for our
products, if approved, on the part of veterinarians and pet owners;
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the willingness of pet owners to pay for the use of our products, relative to other discretionary
items, especially during economically challenging times;
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the relative convenience and ease of use; and
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the effectiveness of our sales and marketing efforts.
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If our products fail to achieve market acceptance or commercial
success, our business could fail and you could lose your entire investment.
If we are unable to establish sales capabilities on our own or through third parties,
we may not be able to market and sell our existing or future products or generate product revenue.
We do not currently have a fully staffed sales organization. We
intend to commercialize our products with a direct sales force and through third-party distributors. To achieve this, we will be
required to build a direct sales organization and to establish relationships with distributors of veterinary products. We also
will have to build our marketing, sales, managerial and other non-technical capabilities and make arrangements with third parties
for distribution and to perform certain of these other services, and we may not be successful in doing so. Building an internal
sales organization is time consuming and expensive and will significantly increase our compensation expense. We may be unable to
secure third-party distribution contracts with distributors on favorable terms or at all. We have no prior experience in the marketing,
sale and distribution of diagnostic products or medical devices for companion animals 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 and marketing team. If we are unable to build an effective sales organization and/or if we are unable to secure relationships
with third-party distributors for our products, we will not be able to successfully commercialize our products, our future product
revenue will suffer and we would incur significant additional losses.
In jurisdictions outside of the United States we intend to utilize
companies with an established commercial presence to market our products in those jurisdictions, but we may be unable to enter
into such arrangements on acceptable terms, it at all.
If we fail to attract and keep senior management and key scientific personnel,
we may be unable to successfully develop any of our existing or future product candidates, conduct our in-licensing and development
efforts and commercialize any of our existing or future products.
Our success depends in part on our continued ability to attract,
retain and motivate highly qualified management and scientific personnel. We are highly dependent upon our senior management, particularly
Robert Cohen, our interim Chief Executive Officer, Ann Marie Cotter, our Chief Financial Officer, Stephanie Morley, DVM, our President
and Chief Medical Officer, and Bruk Herbst, our Chief Commercial Officer. The loss of services of any of these individuals could
delay or prevent the successful development of our existing or future product pipeline, completion of our planned development efforts
or the commercialization of our product candidates. Although we have entered employment agreements with Dr. Morley and Mr. Herbst
for one-year terms (automatically extending for one-year terms thereafter) there can be no assurance that either of Dr. Morley
or Mr. Herbst will extend their terms of service. We have also entered into an employment agreement with Mr. Cohen without a fixed
term of service.
Consolidation of our customers could negatively affect the pricing of our products.
Veterinarians will be our primary customers for our proposed and
future products. In recent years, there has been a trend towards the consolidation of veterinary clinics and animal hospitals.
If this trend continues, these large clinics and hospitals could attempt to leverage their buying power to obtain favorable pricing
from us and other similar companies. Any resulting downward pressure on the prices of any of our products could have a material
adverse effect on our results of operations and financial condition.
We will need to increase the size of our organization and may not successfully
manage our growth.
We will need to significantly expand our organization and systems
to support our future expected growth. If we fail to manage our growth effectively, we will not be successful, and our business
could fail.
We may seek to raise additional funds in the future through debt financing which
may impose operational restrictions on our business and may result in dilution to existing or future holders of our common shares.
We expect that we will need to raise additional capital in the future
to help fund our business operations. Debt financing, if available, may require restrictive covenants, which may limit our operating
flexibility and may restrict or prohibit us from:
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paying dividends and/or making certain distributions, investments and other restricted payments;
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incurring additional indebtedness or issuing certain preferred shares;
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selling some or all of our assets;
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entering into transactions with affiliates;
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creating certain liens or encumbrances;
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merging, consolidating, selling or otherwise disposing of all or substantially all of our assets;
and
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designating our subsidiaries as unrestricted subsidiaries.
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Debt financing may also involve debt instruments that are convertible
into or exercisable for our common shares. The conversion of the debt to equity financing may dilute the equity position of our
existing shareholders.
We may not be able to obtain or maintain sufficient insurance on commercially reasonable
terms or with adequate coverage against potential liabilities in order to protect ourselves against product liability claims.
Our business exposes us to potential product liability risks that
are inherent in the testing, manufacturing and marketing of diagnostic products and medical devices. We may become subject to product
liability claims resulting from the use of our product candidates. We do not currently have product liability insurance and we
may not be able to obtain or maintain this type of insurance for any future trials or product candidates. In addition, product
liability insurance is becoming increasingly expensive. Being unable to obtain or maintain product liability insurance in the future
on acceptable terms or with adequate coverage against potential liabilities could have a material adverse effect on our business.
We may acquire other businesses or form joint ventures that may be unsuccessful
and could adversely dilute your ownership of our company.
As part of our business strategy, we may
pursue in-licenses or acquisitions of other complementary assets and businesses and may also pursue strategic alliances. We
have no experience in acquiring other assets or businesses and have limited experience in forming such alliances. We may not
be able to successfully integrate any acquisitions into our existing business, and we could assume unknown or contingent
liabilities or become subject to possible stockholder claims in connection with any related-party or third-party acquisitions
or other transactions. We also could experience adverse effects on our reported results of operations from
acquisition-related charges, amortization of acquired technology and other intangibles and impairment charges relating to
write-offs of goodwill and other intangible assets from time to time following an acquisition. Integration of an acquired
company requires management resources that otherwise would be available for ongoing development of our existing business. We
may not realize the anticipated benefits of any acquisition, technology license or strategic alliance.
To finance future acquisitions, we may choose to issue shares of
our common stock as consideration, which would dilute your ownership interest in us. Alternatively, it may be necessary for us
to raise additional funds through public or private financings. Additional funds may not be available on terms that are favorable
to us and, in the case of equity financings, may result in dilution to our stockholders.
Risks Related to Government Regulation
Various government regulations could limit or delay our ability to develop and
commercialize our products or otherwise negatively impact our business.
In the U.S., the manufacture and sale of certain diagnostic products
are regulated by agencies such as the USDA, the FDA or the EPA. While our point-of-care Bulk Acoustic Wave sensor-based diagnostic
platform and Raman spectroscopy-based diagnostic platform and our reference lab-based diagnostic test for canine cancer do not
require approval by the USDA-CVB prior to sale in the U.S., these diagnostic solutions will be subject to postmarketing oversight
by the FDA-CVM. In addition, delays in obtaining regulatory approvals for new products or product upgrades could have a negative
impact on our growth and profitability.
The manufacture and sale of our products, as well as our research
and development processes, are subject to similar and potentially more stringent laws in foreign countries.
We are also subject to a variety of federal, state, local and international
laws and regulations that govern, among other things, the importation and exportation of products; our business practices in the
U.S. and abroad, such as anti-corruption and anti-competition laws; and immigration and travel restrictions. These legal and regulatory
requirements differ among jurisdictions around the world and are rapidly changing and increasingly complex. The costs associated
with compliance with these legal and regulatory requirements are significant and likely to increase in the future.
Any failure to comply with applicable legal and regulatory requirements
could result in fines, penalties and sanctions; product recalls; suspensions or discontinuations of, or limitations or restrictions
on, our ability to design, manufacture, market, import, export or sell our products; and damage to our reputation.
Even if we receive regulatory approval for a product candidate, we will be subject
to ongoing FDA-CVM or USDA-CVB obligations and continued regulatory oversight, which may result in significant additional expense.
Additionally, any product candidates, if approved, will be subject to labeling and manufacturing requirements and could be subject
to other restrictions. Failure to comply with these regulatory requirements or the occurrence of unanticipated problems with our
products could result in significant penalties.
If the FDA-CVM or USDA-CVB approves any of our existing or future
diagnostic product candidates, the manufacturing processes, labeling, packaging, distribution, adverse event reporting, storage,
advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory requirements. These
requirements include post-marketing information and reports, establishment registration, and product listing, as well as continued
compliance with GMP, GLP and GCP for any studies that we conduct post-approval. Later discovery of previously unknown problems
with a product, including adverse events of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing
processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, withdrawal of the product from the
market, or voluntary product recalls;
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fines, warning letters or holds on promotional materials and claims;
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refusal by the FDA-CVM or USDA-CVB to approve pending applications or supplements to approved applications
filed by us or our strategic collaborators, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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injunctions or the imposition of civil or criminal penalties.
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The FDA-CVM’s or USDA-CVB’s policies may change and
additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our product candidates.
We cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative
action in the United States or abroad. If we are slow or unable to adapt to changes in existing requirements or the adoption of
new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that
we may have obtained and we may not achieve or sustain profitability, which would adversely affect our business.
Legislative or regulatory reforms with respect to veterinary diagnostics, medical
devices and test kits may make it more difficult and costly for us to obtain regulatory clearance or approval of any of our existing
or future product candidates and to produce, market, and distribute our products after clearance or approval is obtained.
From time to time, legislation is drafted and introduced in the
U.S. Congress that could significantly change the statutory provisions governing the testing, regulatory clearance or approval,
manufacture, and marketing of regulated and/or licensed products. In addition, FDA-CVM and USDA-CVB regulations and guidance are
often revised or reinterpreted by the FDA-CVM and USDA-CVB in ways that may significantly affect our business and our products.
Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing
regulations in the United States may impose additional costs or lengthen review times of any of our existing or future product
candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated,
enacted or adopted may have on our business in the future. Such changes could, among other things, require:
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changes to manufacturing methods;
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recall, replacement or discontinuance of certain products; and
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additional record-keeping.
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Each of these would likely entail substantial time and cost and
could materially harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals
for any future products would harm our business, financial condition, and results of operations.
Risks Related to Intellectual Property
Our ability to obtain intellectual property protection for our products is limited.
Our diagnostic technologies are dependent on intellectual property
developed by our strategic partners and licensed to us. We do not own the intellectual property rights that underlie these technology
licenses. Our rights to use the technology we license are subject to the negotiation of, continuation of and compliance with the
terms of our licenses. However, we have filed four U.S. patent applications and two Patent Cooperation Treaty (PCT) applications
for U.S. and international protection of our diagnostic tests. These applications cover tests developed for our ZM-017, ZM-022
and ZM- 020 technology platforms. Even if such patents are issued, we do not expect that all of the patents will provide significant
protection for our intellectual property.
Some of our products may or may not be covered by a patent. Further if an application
is filed, it is not certain that a patent will be granted or if granted whether it will be held to be valid. All of which may impact
our market share and ability to prevent others (competitor third parties) from making, selling, or using our products.
We intend to rely upon a combination of patents, trade secret protection,
confidentiality agreements, and license agreements to protect the intellectual property related to our proposed and future products.
We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade
secrets, or in avoiding claims that we infringed on the intellectual property rights of others. In addition to relying on patent
and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality
agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, these methods
and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently
develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current
and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary
information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology
without authorization or otherwise infringe on our intellectual property rights. In the future, we may also rely on litigation
to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value
of our intellectual property. Any litigation could be protracted and costly and could have a material adverse effect on our business
and results of operations regardless of its outcome.
If we are unable to obtain trademark registrations for our products our business
could be adversely affected.
We have pending trademark applications for our company name and
composite marks comprised of our company name, logo and/or slogan in the U.S., Canada, European Union, the United Kingdom, and
Mexico. In addition, we have approved pending trademark applications for our “Voice of the Vet” mark in the U.S. and
Canada. We have secured two registrations in the European Union for our company name, company name and logo, and for the mark “Voice
of the Vet powered by Zomedica” (and Design). We also have secured registrations in Brazil for our company name and logo.
While we cannot make assurances that any pending trademark applications will mature to registration, most of these applications
are now poised to mature to registration.
We have also filed for protection of several product names in the
U.S., Canada and European Union. Currently, no significant hurdles have been encountered in the registration process. Moreover,
any name we propose to use with our product candidates in the United States must be approved by the FDA-CVM or the USDA-CVB if
it is a regulated product. The FDA-CVM typically conducts a review of proposed product names, including an evaluation of potential
for confusion with other product names. If the FDA-CVM or the USDA-CVB object to any of our proposed proprietary product names,
we may be required to expend significant additional resources in an effort to identify a suitable substitute name that would qualify
under applicable trademark laws, not infringe the existing rights of third parties and be acceptable to the FDA-CVM and the USDA-CVB.
Third parties may have intellectual property rights, which may require us to obtain
a license or other applicable rights to make, sell or use our products. If such rights are not granted or obtained, it could have
a material adverse effect on our business, financial condition and results of operations.
Our success depends in part on our ability to obtain, or license
from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights
of third parties. Although we believe our intellectual property rights are sufficient to allow us to conduct our business without
incurring liability to third parties, our products may infringe on the intellectual property rights of such persons. Furthermore,
no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights
of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products.
Any such litigation could be protracted and costly and could have a material adverse effect on our business, financial condition
and results of operations.
Our diagnostic technologies depend on certain technologies that are licensed to
us. We do not control these technologies and any loss of our rights to them could prevent us from marketing our diagnostic product
candidates.
Our diagnostic technologies are dependent on intellectual property
developed by our strategic partners and licensed to us. We do not own the intellectual property rights that underlie these licenses.
Our rights to use the technology we license are subject to the negotiation of, continuation of and compliance with the terms of
our licenses. We do not control the prosecution, maintenance or filing of the patents and other intellectual property licensed
to us, or the enforcement of these intellectual property rights against third parties. The patents and patent applications underlying
our licenses were not written by us or our attorneys, and we do not have control over the drafting and prosecution of such rights.
Our partners might not have given the same attention to the drafting and prosecution of patents and patent applications as we would
have if we had been the owners of the intellectual property rights and had control over such drafting and prosecution. We cannot
be certain that drafting and/or prosecution of the licensed patents and patent applications has been or will be conducted in compliance
with applicable laws and regulations or will result in valid and enforceable patents and other intellectual property rights.
Our intellectual property agreements with third parties may be subject to disagreements
over contract interpretation, which could narrow the scope of our rights to the relevant intellectual property or technology or
increase our financial or other obligations to our licensors.
Certain provisions in our intellectual property agreements may be
susceptible to multiple interpretations. The resolution of any contract interpretation disagreement that may arise could affect
the scope of our rights to the relevant intellectual property or technology, or affect financial or other obligations under the
relevant agreement, either of which could have a material adverse effect on our business, financial condition, results of operations
and prospects.
In addition, while it is our policy to require our employees and
contractors who may be involved in the conception or development of intellectual property to execute agreements assigning such
intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact conceives or develops
intellectual property that we regard as our own. Our assignment agreements may not be self-executing or may be breached, and we
may be forced to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of
what we regard as our intellectual property.
We may be subject to claims that our employees, consultants or independent contractors
have wrongfully used or disclosed confidential information of third parties.
We have received confidential and proprietary information from third
parties. In addition, we employ individuals who were previously employed at other pharmaceutical or animal health companies. We
may be subject to claims that we or our employees, consultants or independent contractors have inadvertently or otherwise improperly
used or disclosed confidential information of these third parties or our employees’ former employers. Litigation may be necessary
to defend against any such claims. Even if we are successful in defending against any such claims, such litigation could result
in substantial cost and be a distraction to our management and employees.
Risks Related to Our Preferred Shares
We will be obligated to pay a significant portion of our net sales to the holders
of our Series 1 Preferred Shares. This payment obligation will materially and adversely affect our liquidity and capital resources,
may adversely impact our ability to raise additional capital, and could adversely affect the trading price of our common shares.
We are obligated to make annual payments to the holders of our Series
1 Preferred Shares in an amount equal to nine percent of the net sales (as defined in the Series 1 Preferred Shares), if any, of
our company and our affiliates (the “Net Sales Payments”) until such time as the holders have received total Net Sales
Payments equal to nine times the aggregate stated value of the outstanding Series 1 Preferred Shares. Such payments will materially
and adversely affect our liquidity and capital resources which could result in a shortage of capital necessary to fund our operations
or to take advantage of business opportunities as they arise. Our obligation to make these payments may make it more difficult
for us to raise additional capital on terms acceptable to us, or at all. This payment obligation also may adversely affect investor
perceptions of our company which could adversely affect the trading price of our common shares.
In the event of a sale of our company, holders of our Series 1 Preferred Shares
will be entitled to a substantial premium on the purchase price they paid for their Series 1 Preferred Shares, which will reduce
the sale proceeds to be received by holders of our common shares.
In the event that our company is the subject of a “fundamental
transaction” (defined in the Series 1 Preferred Shares to include an amalgamation, merger or other business combination transaction
involving our company in which our shareholders do not have the right to cast more than 50% of the votes that may be cast for the
election of directors, or a sale, lease or other disposition of the properties and/or assets of our company as an entirety or substantially
as an entirety to a third party) the holders of the Series 1 Preferred Shares will have the right, in preference to the holders
of our common shares, to receive a portion of the aggregate consideration paid in the fundamental transaction that will represent
a substantial premium on the purchase price they paid for their Series 1 Preferred Shares. Such premium will reduce the proceeds
of any such fundamental transaction that would be received by holders of our common shares.
In the event of the liquidation, dissolution or winding up of our company, holders
of the Series 1 Preferred Shares will have a liquidation preference over holders of our common shares and if the net assets of
our company available for distribution to holders of our equity securities is not sufficient to pay this liquidation preference
in full, holders of our common shares would receive no liquidating distribution in respect of their common shares.
In the event of the liquidation, dissolution or winding up of our
company, holders of the Series 1 Preferred Shares will have a liquidation preference equal to the stated value of the Series 1
Preferred Shares less the Net Sales Returns (as defined in the Series 1 Preferred Shares) paid on the Series 1 Preferred Shares
before holders of our common shares would be entitled to any proceeds of such liquidation, dissolution or winding up. If the net
assets of our company available for distribution to holders of our equity securities is not sufficient to pay this liquidation
preference in full, holders of our common shares would receive no liquidating distribution in respect of their common shares.
Our Series 1 Preferred Shares will be reclassified as a liability on our consolidated
balance sheet once we begin to recognize revenues which may cause us to fail to meet the NYSE American’s continued listing
requirements.
Because we are obligated to make annual payments to the holders
of our Series 1 Preferred Shares in an amount equal to nine percent of the Net Sales (as defined in the Series 1 Preferred Shares),
if any, of our company and our affiliates, once we begin to recognize revenues from our commercial activities, we will be required
under United States general accounting principles to reclassify the Series 1 Preferred Shares as a liability on our consolidated
balance sheet. The reclassification will significantly increase our total liabilities and significantly reduce our shareholders’
equity. Under the NYSE American’s continued listing requirements, we are required to maintain shareholders’ equity
of at least $4.0 million, which will increase to $6.0 million after December 31, 2020. As a result of the reclassification, we
may fail to meet this continued listing requirement. If we are unable to satisfy the NYSE American’s continued listing requirements,
our common shares could be delisted from the NYSE American which could adversely affect the liquidity and market price of our common
shares.
Risks Related to Our Common Shares
If securities or industry analysts do not publish research or reports about our
company, or if they issue adverse or misleading opinions regarding us or our stock, our stock price and trading volume could decline.
Although we have research coverage by securities and industry analysts,
if coverage is not maintained, the market price for our stock may be adversely affected. Our stock price also may decline if any
analyst who covers us issues an adverse or erroneous opinion regarding us, our business model, our intellectual property or our
stock performance, or if our product validations and operating results fail to meet analysts’ expectations. If one or more
analysts cease coverage of us or fail to regularly publish reports on us, we could lose visibility in the financial markets, which
could cause our stock price or trading volume to decline and possibly adversely affect our ability to engage in future financings.
We expect that the price of our common shares will fluctuate substantially.
You should consider an investment in our common shares risky and
invest only if you can withstand a significant loss and wide fluctuations in the market value of your investment. The price of
our common shares that will prevail in the market after the sale of our common shares by a selling shareholder may be higher or
lower than the price you have paid. Numerous factors, including many over which we have no control, may have a significant impact
on the market price of our common shares. These risks include those described or referred to in this “Risk Factors”
section and elsewhere in this report as well as, among other things:
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any delays in, or suspension or failure of, our existing and future studies;
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announcements of regulatory approval or disapproval of any of our existing or future product candidates
or of regulatory actions affecting us or our industry;
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delays in the commercialization of our existing or future product candidates;
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manufacturing and supply issues related to our development programs and commercialization of our
existing or future product candidates;
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quarterly variations in our results of operations or those of our competitors;
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changes in our earnings estimates or recommendations by securities analysts or adverse publicity
about us or our product candidates;
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announcements by us or our competitors of new product candidates, significant contracts, commercial
relationships, acquisitions or capital commitments;
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announcements relating to future development or license agreements including termination of such
agreements;
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adverse developments with respect to our intellectual property rights or those of our principal
collaborators;
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commencement of litigation involving us or our competitors;
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any major changes in our board of directors or management;
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new legislation in the United States relating to the prescription, sale, distribution or pricing
of pet pharmaceuticals or diagnostic products;
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product liability claims, other litigation or public concern about the safety of our product candidates
or future products;
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market conditions in the animal health industry, in general, or in the pet therapeutics sector,
in particular, including performance of our competitors; and
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general economic conditions in the United States and abroad.
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In addition, the stock market, in general, or the market for stocks
in our industry, in particular, may experience broad market fluctuations, which may adversely affect the market price or liquidity
of our common shares. Any sudden decline in the market price of our common shares could trigger securities class-action lawsuits
against us. If any of our shareholders were to bring such a lawsuit against us, we could incur substantial costs defending the
lawsuit and the time and attention of our management would be diverted from our business and operations. We also could be subject
to damages claims if we are found to be at fault in connection with a decline in our stock price.
We are an “emerging growth company,” as defined under the JOBS Act
and if we take advantage of reduced disclosure requirements applicable to “emerging growth companies,” our common shares
could be less attractive to investors.
We are an “emerging growth company,” as defined in the
Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act, and, for as long as we continue to be an “emerging
growth company,” we may choose to take advantage of certain exemptions from various reporting requirements applicable to
other public companies but not to “emerging growth companies,” including, but not limited to, not being required to
comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, as amended, or SOX, reduced
disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day
of the first fiscal year in which our annual gross revenues exceed $1.07 billion, (ii) the date that we become a “large accelerated
filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common shares that is
held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or
(iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period. We
cannot predict if investors will find our common shares less attractive if we choose to continue to rely on these exemptions. If
some investors find our common shares less attractive as a result of any choices to reduce future disclosure, there may be a less
active trading market for our common shares and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act provides that an “emerging
growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act
for complying with new or revised accounting standards. An “emerging growth company” can delay the adoption of certain
accounting standards until those standards would otherwise apply to private companies. We have chosen to “opt out”
of such extended transition period, however, and, as a result, we are required to comply with new or revised accounting standards
on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS
Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards
is irrevocable.
Our Articles of Amalgamation (as amended) authorize us to issue an unlimited number
of common shares and preferred shares without shareholder approval and we may issue additional equity securities, or engage in
other transactions that could dilute your ownership interest, which may adversely affect the market price of our common shares
Our Articles of Amalgamation (as amended) authorize our Board of
Directors, subject to the provisions of the ABCA, to issue an unlimited number of common shares and preferred shares without shareholder
approval. Our Board of Directors may determine from time to time to raise additional capital by issuing common shares, preferred
shares or other equity securities. We are not restricted from issuing additional securities, including securities that are convertible
into or exchangeable for, or that represent the right to receive, common shares or preferred shares. Because our decision to issue
securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate
the amount, timing, or nature of any future offerings, or the prices at which such offerings may be affected. Additional equity
offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders
of our common shares are not entitled to pre-emptive rights or other protections against dilution. New investors also may have
rights, preferences and privileges that are senior to, and that adversely affect, the then-current holders of our common shares.
Additionally, if we raise additional capital by making offerings of debt or preference shares, upon our liquidation, holders of
our debt securities and preferred shares, and lenders with respect to other borrowings, may receive distributions of our available
assets before the holders of our common shares.
We have incurred significant costs as a result of operating as a U.S. public company,
and our management will continue to devote substantial time to new compliance initiatives.
As a U.S. publicly traded company, we have incurred significant
legal, accounting and other expenses and will incur additional expenses after we are no longer an “emerging growth company”
as defined under the JOBS Act. In addition, new and changing laws, regulations and standards relating to corporate governance and
public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act and the rules and regulations promulgated
thereunder, as well as under the Sarbanes-Oxley Act, the JOBS Act, and the rules and regulations of the U.S. Securities and Exchange
Commission, or SEC, have created uncertainty for U.S. public companies and increased our costs and time that our board of directors
and management must devote to complying with these rules and regulations. We expect these rules and regulations to increase our
legal and financial compliance costs and lead to a diversion of management time and attention from revenue generating activities.
For as long as we remain an “emerging growth company”
as defined in the JOBS Act, we may choose to take advantage of certain exemptions from various reporting requirements that are
applicable to other U.S. public companies that are not “emerging growth companies.” These exceptions provide for, but
are not limited to, relief from the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, less extensive disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, exemptions from the requirements to
hold a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved and an extended transition period for complying with new or revised accounting standards. We may take advantage of these
reporting exemptions until we are no longer an “emerging growth company.” We may remain an “emerging growth company”
for up to five years. To the extent we are no longer eligible to use exemptions from various reporting requirements under the JOBS
Act, we may be unable to realize our anticipated cost savings from those exemptions.
Failure to maintain effective internal control over financial reporting in accordance
with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and share price.
As a Canadian public company, we were not required to evaluate our
internal control over financial reporting in a manner that meets the standards of U.S. public companies required by Section 404
of the Sarbanes-Oxley Act, or Section 404. We were required to meet these standards in the course of preparing our financial statements
as of and for the year ended December 31, 2019, and our management has reported on the effectiveness of our internal control over
financial reporting for such year. Additionally, under the JOBS Act, our independent registered public accounting firm is not required
to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act
until we are no longer an “emerging growth company.” The rules governing the standards that must be met for our management
to assess our internal control over financial reporting are complex and require significant documentation, testing and possible
remediation.
In connection with the implementation of the necessary procedures
and practices related to internal control over financial reporting, we may identify deficiencies that we may not be able to remediate
in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition,
we may encounter problems or delays in completing the implementation of any requested improvements and receiving a favorable attestation
in connection with the attestation provided by our independent registered public accounting firm. We will be unable to issue securities
in the public markets through the use of a shelf registration statement if we are not in compliance with Section 404. Furthermore,
failure to achieve and maintain an effective internal control environment could have a material adverse effect on our business
and share price and could limit our ability to report our financial results accurately and timely.
If we sell common shares in future financings, shareholders may experience immediate
dilution and, as a result, our share price may decline.
We may from time to time issue additional common shares at a discount
from the existing trading price of our common shares. As a result, our shareholders would experience immediate dilution upon the
sale of any shares of our common shares at such discount. In addition, as opportunities present themselves, we may enter into financing
or similar arrangements in the future, including the issuance of debt securities, preferred shares or common shares. If we issue
common shares or securities convertible into common shares, our common shareholders would experience additional dilution and, as
a result, our share price may decline.
Future sales of our common shares by our shareholders or the perception that these
sales may occur could cause our stock price to decline.
As of November 11, 2020, we had 564,051,438 common shares outstanding.
Substantially all of our outstanding common shares have been registered for resale or other disposition by the holders thereof
or are otherwise freely tradable by the holders thereof.
Sales of a substantial number of our common shares by our shareholders
or the perception that these sales may occur, could depress the market price of our common shares and could impair our ability
to raise capital through the sale of additional equity securities, even if there is no relationship between such sales and the
performance of our business.
We have never and do not, in the future, intend to pay dividends on our common
shares, and your ability to achieve a return on your investment will depend on appreciation in the market price of our common shares.
We have never paid and do not expect to pay dividends on our common
shares in the future. We intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on
our common shares. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on
any future appreciation in the market price of our common shares. There is no assurance that our common shares will appreciate
in price.
An active, liquid and orderly market for our common shares may not develop or be
sustained, and you may not be able to sell your common shares.
Our common shares trade on the NYSE American exchange. We cannot
assure you that an active trading market for our common shares will develop or be sustained. The lack of an active market may impair
your ability to sell the common shares at the time you wish to sell them or at a price that you consider reasonable. An inactive
market may also impair our ability to raise capital by selling common shares and may impair our ability to acquire other businesses,
applications or technologies using our common shares as consideration, which, in turn, could materially adversely affect our business.
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. In addition, the NYSE American has advised us that if
the trading price of our common shares falls below $0.06 per share, our common shares may be immediately suspended from further
trading on the exchange.
Our shareholders failed to approve a proposal to effect a reverse
split of our common shares at our annual and special meeting of shareholders held on September 25, 2020. If shareholders approve
the domestication and the domestication is effected, we intend to seek stockholder approval for a reverse split of our common stock
promptly thereafter to regain compliance with the NYSE American’s continued listing standards, although no assurance can
be given that stockholders will approve a reverse stock split.
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:
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a limited availability of market quotations for our securities;
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reduced liquidity for our securities;
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a determination that our common shares are a “penny stock” which will require brokers
trading in our common shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the
secondary trading market for our securities;
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a limited amount of news and analyst coverage; and
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a decreased ability to issue additional securities or obtain additional financing in the future.
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