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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2022.

OR

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

For the transition period from __________ to __________.

Commission File Number: 001-38298

Zomedica Corp.

(Exact name of registrant as specified in its charter)

Alberta, Canada

N/A

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

100 Phoenix Drive, Suite 125
Ann Arbor, Michigan

48108

(Address of principal executive offices)

(Zip code)

(734) 369-2555

(Registrant’s telephone number, including area code)

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

 

 

Emerging growth company

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

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, without par value

ZOM

NYSE American

As of November 14, 2022, 979,949,668 shares of the registrant’s common shares, without par value, were issued and outstanding.

ZOMEDICA CORP.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

September 30, 2022

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

3

Item 2.

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

24

Item 4.

Controls and Procedures

33

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

33

Item 1A.

Risk Factors

33

Item 6.

Exhibits

34

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Zomedica Corp.

Consolidated balance sheets

(Unaudited) (United States dollars in thousands)

As of

    

September 30, 

    

December 31, 

    

2022

    

2021

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

45,095

$

194,952

Available-for-sale securities

 

74,200

 

Trade receivables, net

 

719

 

315

Inventory, net

 

2,400

 

2,848

Prepaid expenses and deposits

 

3,611

 

1,842

Other receivables

 

1,078

 

450

Total current assets

 

127,103

 

200,407

Prepaid expenses and deposits

 

230

 

394

Property and equipment, net

 

6,727

 

1,130

Construction in progress

202

420

Right-of-use asset

 

1,567

 

1,320

Goodwill

 

64,230

 

43,288

Intangible assets, net

 

42,778

 

33,176

Non current available-for-sale securities

 

39,197

 

Other assets

 

265

 

265

Total assets

$

282,299

$

280,400

Liabilities and shareholders’ equity

 

  

 

Current liabilities

 

  

 

Accounts payable and accrued liabilities

$

6,244

$

3,225

Accrued income taxes

 

41

 

240

Current portion of lease obligations

 

578

 

415

Customer contract liabilities

 

205

 

198

Other current liabilities

 

58

 

262

Total current liabilities

 

7,126

 

4,340

Lease obligations

 

1,058

 

964

Deferred tax liabilities

 

2,249

 

3,709

Customer contract liabilities

 

213

 

140

Other liabilities

 

2,872

 

361

Total liabilities

$

13,518

$

9,514

Commitments and contingencies (Note 15)

 

  

 

  

Shareholders’ equity

 

  

 

  

Unlimited common shares, no par value; 979,949,668 and 979,899,668 issued and outstanding at September 30, 2022 and December 31, 2021

$

380,973

$

380,962

Additional paid-in capital

 

22,227

 

9,313

Accumulated deficit

 

(133,597)

 

(119,391)

Accumulated comprehensive (loss)

 

(822)

 

2

Total shareholders' equity

 

268,781

 

270,886

Total liabilities and shareholders’ equity

$

282,299

$

280,400

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

3

Zomedica Corp.

Consolidated statements of loss and comprehensive loss

(Unaudited) (United States dollars in thousands, except per share data)

    

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

    

2022

    

2021

    

2022

    

2021

Net revenue

$

4,776

$

23

$

12,773

$

52

Cost of revenue

 

1,215

 

18

 

3,415

 

59

Gross profit (loss)

 

3,561

 

5

 

9,358

 

(7)

Expenses

 

 

 

  

 

  

Research and development

 

1,131

 

289

 

1,801

 

1,008

Selling, general and administrative

 

9,022

 

6,124

 

24,344

 

14,594

Loss from operations

 

(6,592)

 

(6,408)

 

(16,787)

 

(15,609)

Interest income

 

1,012

 

94

 

1,396

 

262

Loss on disposal of assets

(27)

(1)

(270)

Other income (loss)

 

(5)

 

1

 

(8)

 

530

Foreign exchange loss

 

(67)

 

(6)

 

(123)

 

(6)

Loss before income taxes

 

(5,652)

 

(6,346)

 

(15,523)

 

(15,093)

Income tax benefit

 

657

 

 

1,317

 

Net loss

 

(4,995)

 

(6,346)

 

(14,206)

 

(15,093)

Unrealized losses, change in fair value of available-for-sale securities, net of tax

 

(803)

 

 

(803)

 

Change in foreign currency translation

 

(32)

 

 

(21)

 

Net loss and comprehensive loss

$

(5,830)

$

(6,346)

$

(15,030)

$

(15,093)

Weighted average number of common shares - basic and diluted

 

979,946,407

 

978,494,076

 

979,915,419

 

948,664,410

Loss per share - basic and diluted (Note 17)

$

(0.005)

$

(0.006)

$

(0.014)

$

(0.050)

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

4

Zomedica Corp.

Consolidated statements of shareholders’ equity

(Unaudited) (United States dollars in thousands)

    

For the Nine Months Ended September 30, 2022

Common

Additional

Accumulated

Common Stock

Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Subscribed

Capital

    

Deficit

    

(Loss)

    

Total

Balance at December 31, 2021

979,899,668

$

380,962

$

-

    

$

9,313

$

(119,391)

$

2

$

270,886

Stock-based compensation

 

 

 

 

6,452

 

 

 

6,452

Warrants issued

6,465

6,465

Stock issuance from warrant exercises

 

50,000

 

8

 

 

 

 

 

8

APIC reclass for warrants

 

 

3

 

 

(3)

 

 

 

Net (loss)

 

 

 

 

 

(14,206)

 

 

(14,206)

Other comprehensive (loss)

 

 

 

 

 

 

(824)

 

(824)

Balance at September 30, 2022

 

979,949,668

$

380,973

$

-

$

22,227

$

(133,597)

 

$

(822)

$

268,781

    

For the Three Months Ended September 30, 2022

Common

Additional

Accumulated

Common Stock

Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Subscribed

Capital

    

Deficit

    

(Loss)

    

Total

Balance at June 30, 2022

979,899,668

$

380,962

$

-

    

$

13,845

$

(128,602)

$

13

$

266,218

Stock-based compensation

 

 

 

 

1,920

 

 

 

1,920

Warrants issued

6,465

6,465

Stock issuance from warrant exercises

 

50,000

 

8

 

 

 

 

 

8

APIC reclass for warrants

 

 

3

 

 

(3)

 

 

 

Net (loss)

 

 

 

 

 

(4,995)

 

 

(4,995)

Other comprehensive (loss)

 

 

 

 

 

 

(835)

 

(835)

Balance at September 30, 2022

 

979,949,668

$

380,973

$

-

$

22,227

$

(133,597)

 

$

(822)

$

268,781

    

For the Nine Months Ended September 30, 2021

Common

Additional

Accumulated

Common Stock

Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Subscribed

Capital

    

Deficit

    

(Loss)

    

Total

Balance at December 31, 2020

642,036,228

$

104,784

$

460

    

$

14,792

$

(68,969)

$

-

$

51,067

Stock-based compensation

 

 

 

 

4,503

 

 

 

4,503

Stock issuance from warrant exercises

 

200,951,905

 

44,082

 

(460)

 

(11,511)

 

 

 

32,111

Stock issuance costs

 

 

(14,281)

 

 

 

 

 

(14,281)

Stock issuance for financing

 

105,013,158

 

199,525

 

 

 

 

 

199,525

Stock issuance from exercise of stock options

 

7,017,776

 

2,819

 

 

(1,051)

 

 

 

1,768

Stock redemption

 

24,719,101

 

44,000

 

 

 

(32,039)

 

 

11,961

Net (loss)

 

 

 

 

 

(15,093)

 

 

(15,093)

Balance at September 30, 2021

 

979,738,168

$

380,929

$

-

$

6,733

$

(116,101)

 

$

-

$

271,561

    

For the Three Months Ended September 30, 2021

Common

Additional

Accumulated

Common Stock

Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Subscribed

Capital

    

Deficit

    

(Loss)

    

Total

Balance at June 30, 2021

977,950,993

$

380,222

$

-

    

$

5,602

$

(109,755)

$

$

276,069

Stock-based compensation

 

 

 

 

1,438

 

 

 

1,438

Stock issuance from warrant exercises

 

 

 

 

 

 

 

Stock issuance costs

 

 

 

 

 

 

 

Stock issuance from exercise of stock options

 

1,787,175

 

707

 

 

(307)

 

 

 

400

Net (loss)

 

 

 

 

 

(6,346)

 

 

(6,346)

Balance at September 30, 2021

 

979,738,168

$

380,929

$

$

6,733

$

(116,101)

 

$

$

271,561

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

5

Zomedica Corp.

Condensed consolidated statements of cash flows

(Unaudited) (United States dollars in thousands)

    

For the Nine Months Ended September 30, 

    

2022

    

2021

Cash flows from operating activities:

 

  

 

  

Net loss

$

(14,206)

$

(15,093)

Adjustments for

 

  

 

  

Depreciation

 

270

 

175

Amortization - intangible assets

 

2,540

 

136

Loss on disposal of property and equipment

 

1

 

248

Loss on other assets

 

 

5

(Gain) loss on right-of-use assets

 

 

(533)

Stock-based compensation

 

6,452

 

4,503

Non cash portion of rent expense

 

9

 

36

Accretion/amortization of available-for-sale securities

 

(400)

 

Change in non-cash operating working capital, net of acquisitions

 

 

Purchased inventory

 

(3,637)

 

(1,875)

Prepaid expenses and deposits

 

(1,330)

 

(61)

Trade receivables

 

(442)

 

(7)

Other receivables

 

69

 

(123)

Accounts payable and accrued liabilities

 

3,020

 

3,216

Accrued income tax

 

(199)

 

Deferred tax liabilities

 

(1,319)

 

Other current liabilities

 

(204)

 

Customer contract liabilities

 

81

 

Other liabilities

 

8

 

Net cash used in operating activities

 

(9,287)

 

(9,373)

Cash flows from investing activities:

 

  

 

  

Investment in securities

 

(113,225)

 

Investment in debt security (at fair value)

 

(1,000)

 

Investment in property and equipment

 

(583)

 

(97)

Acquisition of intangibles

 

(143)

 

(246)

Investment in construction in progress

(1,274)

Investment in assets purchased (Assisi and Revo)

(24,304)

Net cash used in investing activities

 

(140,529)

 

(343)

Cash flows from financing activities:

 

  

 

  

Cash proceeds from issuance of common shares and warrants

 

 

199,525

Cash received from warrant exercises

 

8

 

32,112

Cash paid for shares and warrant issuance costs

 

 

(14,269)

Cash received from stock option exercises

 

 

1,768

Net cash provided by financing activities

 

8

 

219,136

(Decrease) increase in cash and cash equivalents

 

(149,808)

 

209,420

Effect of exchange rate changes on cash

(49)

Cash and cash equivalents, beginning of year

 

194,952

 

61,992

Cash and cash equivalents, end of year

$

45,095

$

271,412

Noncash activities:

 

  

 

  

Accounts receivable recorded in intercompany account

$

$

(1)

Change in fair value of available-for-sale securities, net of tax

$

(803)

$

Deferred financing fees charged to stock issuance costs

$

$

12

Net equity effect of preferred share exchange

$

$

(11,961)

Transfer of construction in progress into property and equipment and intangibles

$

2,419

$

Transfer of inventory into property and equipment

$

4,291

$

452

Supplemental cash flow information:

 

  

 

  

Interest received

$

406

$

229

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

6

Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

1. Nature of operations

The Company is a veterinary health company creating point-of-care diagnostics and therapeutics products for dogs and cats that focuses on the needs of the veterinarians themselves. The Company consists of the parent company, Zomedica Corp and its wholly-owned U.S subsidiary, Zomedica Inc. and its international subsidiaries.

The impact of the novel strain of coronavirus (“COVID-19”)

Since the first quarter of 2020, the world has been impacted by the spread of a novel strain of coronavirus, its variants, and the disease that they cause known as COVID-19. The continued presence of COVID-19 has resulted in changes in the macro-economic environment including disruptions in supply chain, labor disruptions, an inability to manufacture, an inability to sell to customers, declines in customer demand, inflationary pressures, and an impaired ability to access credit and capital markets, among other things.

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 reduced the number of employees working in its facilities for a period of time which delayed the completion and verification of the five initial TRUFORMA assays and the manufacturing of commercial quantities of the TRUFORMA platform. Veterinary hospitals and clinics that 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, at times, restricted access to their facilities which 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.

To-date, the emergence of new variants has not caused significant modification to business operations. We continue to install remotely, if potential customers restrict access to their facilities. We intend to continue development of new assays, both for equine indications of our current and planned assays, and for various additional disease states affecting canine, feline, and equine patients in the future.

2. Basis of preparation

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) for the presentation of interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the unaudited financial statements do not include all the information and footnotes necessary for a comprehensive presentation of the financial position, results of operations and cash flows for the periods presented. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. Operating results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022. These unaudited financial statements should be read in combination with the other Notes in this section; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Item 2; and the Consolidated Financial Statements, including the Notes to the Consolidated Financial Statements, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The Consolidated Balance Sheet as of December 31, 2021 was derived from audited financial statements.

3. Significant accounting policies

Change in accounting for TRUFORMA instruments

As of September 30, 2022, the company changed its policy of recognizing TRUFORMA instruments as inventory and reclassified $3,364 to property and equipment, depreciable over 10 years. The instruments will remain undepreciated until they are placed with customers.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

Estimates and assumptions

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

Investment Securities

Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, “Investments – Debt and Equity Securities” (“ASC 320”). The company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next 12 months, as available for sale. We classify these securities as both current and non-current depending on their time to maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of stockholders’ equity

Inventories

Inventories are stated at the lower of cost or net realizable value. The Company utilizes the specific identification and First in, First out (“FIFO”) methods to track inventory costs. The Company records reserves, when necessary, to reduce the carrying value of inventory to its net realizable value. Management considers forecast demand in relation to the inventory on hand, competitiveness of product offerings, market conditions, and product life cycles when determining excess and obsolescence and net realizable value adjustments. At the point of loss recognition, a new, lower-cost basis for that inventory is established, and any subsequent improvements in facts and circumstances do not result in the restoration or increase in that newly established cost basis.

Intangible assets

Expenditures related to the planning and operation of the Company’s website are expensed as incurred. Expenditures related to website application and infrastructure development are capitalized and amortized over the website’s estimated useful life.

Costs related to acquired trademarks, tradenames, customer relationships and developed technology have been capitalized and amortized over the estimated useful life.

Revenue recognition and liabilities due to customers

The Company enters into agreements which may contain multiple promises where customers purchase products, services, or a combination thereof. Determining whether products and services are considered distinct performance obligations that should be accounted for separately requires judgment. We determine the transaction price for a contract based on the total consideration we expect to receive in exchange for the transferred goods or services.

The Company allocates revenue to each performance obligation in proportion to the relative standalone selling prices and recognizes revenue when control of the related goods or services is transferred for each obligation. We utilize the observable standalone selling price when available, which represents the price charged for the performance obligation when sold separately.

The Company's contracts with customers are generally comprised of purchase orders for the sale of the point of care instrument, consumable products, and extended warranties, or some variation thereof. The instrument and consumables each represent a single performance obligation when sold separately, that is satisfied at a point in time upon transfer of control of the product to the customer which is typically upon receipt of the goods by the customer. The extended warranties are also a separate performance obligation, whereby revenue is recognized over time.

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Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

The nature of the Company’s business gives rise to variable consideration, including discounts and applicator (“trode”) returns. Credits are issued for unused shocks on returned trodes, which can be used toward the purchase of replacement trodes. Discounts and the estimated unused shock credits decrease the transaction price, which reduces revenue. Variable consideration related to unused shock credits is estimated using the expected value method, which estimates the amount that is expected to be earned. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Estimates of variable consideration are based upon historical experience and known trends. These estimated credits are nonrefundable and may only be used towards the purchase of future trode refurbishments. This practice encourages refurbishment purchase prior to complete utilization of the previous trode, so the customer will always have a trode on hand with ample capacity to perform treatments.

At times the Company receives consideration prior to when the performance obligation is completed, giving rise to a contract liability. Sales are recorded net of sales tax. Sales tax is charged on sales to end users and remitted to the appropriate state authority.

Segmented revenue for the three and nine months ended, September 30, 2022 was as follows:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

Diagnostic

Therapeutics

Diagnostic

Therapeutics

2022

2021

2022

2021

2022

2021

2022

2021

Consumables

$

94

$

23

$

1,011

$

-

$

242

$

52

$

1,011

$

-

Instruments

-

-

1,272

-

-

-

4,374

-

Trodes

-

-

2,319

-

-

-

6,545

-

Other (e.g., Warranty and Repairs)

-

-

80

-

-

-

601

-

Total Revenue

$

94

$

23

$

4,682

$

-

$

242

$

52

$

12,531

$

-

Accounts receivable are recorded at net realizable value and have payment terms of 30 days. The Company recorded an allowance for doubtful accounts of $36 and $34, as of September 30, 2022 and December 31, 2021, respectively, which is recorded net in trade receivables.

Cost of revenue

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

Comparative figures  

Construction in progress is separately stated in the current period balance sheet for $202. The consolidated balance sheets for the year ended December 31, 2021 have been adjusted for $420 of construction in progress that was included in intangible assets and property and equipment. This amount has been reclassified to a separate line in the balance sheet to conform to the current year presentation. The change in presentation had no effect on the reported results of operations. These changes in classification do not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.

4. Investment securities

The following represents the Company’s investment securities as of September 30, 2022 (in thousands):

Acquisition
Cost

Accretion /
(Amortization)

Unrealized
Gain / (Loss)

Estimated
Fair Value

Commercial paper

$

51,059

$

332

$

(172)

$

51,219

Corporate notes / bonds

39,168

82

(547)

38,703

Debt security

1,000

-

-

1,000

Money market funds

2,020

-

-

2,020

U.S. govt. agencies

34,118

4

(178)

33,944

U.S. treasuries

24,773

58

(134)

24,697

Total investment securities

$

152,138

$

476

$

(1,031)

$

151,583

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Table of Contents

Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

Accretion / (amortization) refers to the discounts and premiums incurred on bonds and notes purchased and are included within interest income on our consolidated income statement.

Accrued interest receivables related to the above investment securities amounted to $405 and are included within Other Receivables on our consolidated balance sheet.

Contractual maturities of investment securities as of September 30, 2022 are as follows (in thousands):

Acquisition
Cost

Estimated
Fair Value

Original maturities of 90 days or less

$

38,111

$

38,186

Original maturities of 91-365 days

74,249

74,200

Original maturities of 366+ days

39,778

39,197

Total investment securities

$

152,138

$

151,583

5. Fair value measurements

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”), the Company measures its cash and cash equivalents and investments at fair value on a recurring basis. The company also measures certain assets and liabilities at fair value on a non-recurring basis when applying acquisition accounting.

ASC Topic 820 clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.

As a basis for considering such assumptions, ASC Topic 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

Level 1:

Observable inputs that reflect quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2:

Observable inputs other than quoted prices included in Level 1 for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities.

Level 3:

Unobservable data points for the assets or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuations based on inputs that are unobservable and involve management judgement and the reporting entity’s own assumptions about market participants and pricing.

Cash and cash equivalents, accounts receivable, and accounts payable: The carrying amount of these assets approximate fair value due to the short maturity of these instruments. Cash and cash equivalents include marketable securities that are maturing within 90 days.

Available-for-sale securities: The Company classifies marketable securities and other highly liquid investments, with a maturity of greater than three months and that can be readily purchased or sold using established markets, as available-for-sale. These investments are reported at fair value on the Company’s consolidated balance sheets and unrealized gains and losses are reported as a component of stockholders’ equity.

Included within these available-for-sale securities is our $1M convertible note associated with Structured Monitoring Products, Inc.’s (“SMP”) VetGuardian line. There were no unrealized gains or losses recorded and no other than temporary impairments recognized as of September 30, 2022.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of September 30, 2022:

Level 1

Level 2

Level 3

Estimated
Fair Value

Commercial paper

$

$

51,219

$

-

$

51,219

Corporate notes / bonds

38,703

-

38,703

Debt security

-

-

1,000

1,000

Money market funds

2,020

-

-

2,020

U.S. govt. agencies

33,944

-

-

33,944

U.S. treasuries

24,697

-

24,697

Total investment securities

$

60,661

$

89,922

$

1,000

$

151,583

The following table shows these same investments and their respective balance sheet classifications:

Cash &
Cash Equiv.

Available-
For-Sale
(Current)

Available-
For-Sale
(Non-Current)

Estimated
Fair Value

Commercial paper

$

8,993

$

42,226

$

-

$

51,219

Corporate notes / bonds

-

17,256

21,447

38,703

Debt security

-

-

1,000

1,000

Money market funds

2,020

-

-

2,020

U.S. govt. agencies

15,192

7,881

10,871

33,944

U.S. treasuries

11,981

6,837

5,879

24,697

Total investment securities

$

38,186

$

74,200

$

39,197

$

151,583

Unrealized losses on our investments have not been recorded into income as we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that have resulted in higher credit spreads. The credit ratings associated with our debt securities are mostly unchanged, are highly rated, and the debtors continue to make timely principal and interest payments. As a result, there were no credit or non-credit impairment charges recorded through September 30, 2022.

6. Business combinations

All of the Company’s acquisitions of business have been accounted for under ASC 805, Business Combinations. Accordingly, the assets of the acquired companies reflect the fair values and have been included in the Company’s Condensed Financial Statements from their respective dates of acquisition.

The results of operations of Pulse Veterinary Technologies, LLC, Revo Squared LLC, and Assisi Animal Health, LLC have been included in the Company’s Condensed Financial Statements since the dates of acquisition on October 1, 2021, June 14, 2022, and July 15, 2022, respectively.

2022 Acquisitions

Asset Purchase Agreement with Assisi Animal Health LLC

On July 15, 2022 (the “Effective Date”), Zomedica Corp. (the “Company”) and its wholly-owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement (the “Purchase Agreement”) with Assisi Animal Health LLC (“Assisi”), its wholly-owned subsidiary, AAH Holdings LLC (“AAH Holdings,” and together with Assisi as the “Sellers”), and certain of Assisi’s members (the Sellers and such Assisi members are collectively referred to herein as the “Selling Parties”) pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of the Sellers (the “Acquisition”). The Sellers are in the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines. The Acquisition was consummated on the Effective Date (the “Closing Date”)

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

At the closing, Zomedica Inc. paid Assisi a purchase price of $18,293 in cash, which was subject to adjustments based on, among other things, the value of Assisi’s inventory and prepaid expenses at the closing of the Acquisition. $1,400 of the purchase price was deposited into a third-party escrow account to support the Selling Parties’ indemnification obligation under the Purchase Agreement, of which $500 and $900 will be distributed to Assisi on the one-year and 18-month anniversary of the Closing Date, respectively, less the amount of prior or pending indemnification claims. An additional $200 of the purchase price was deposited into the escrow account for a period of approximately 90 days to support payment of post-closing adjustments to the purchase price, if any. The Company also issued to Assisi a ten-year warrant to purchase an aggregate of 22,000,000 of the Company’s common shares at a per share exercise price equal to $0.252. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.

As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $14,329 was recorded in connection with this acquisition, none of which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.

The Company made a preliminary allocation of the purchase price for Assisi Animal Health LLC’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.

The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:

    

Initial

Allocation of

    

Consideration

Inventory, net

$

220

Prepaid expenses and deposits

 

271

Other receivables

406

Intangible Assets (estimated useful life)

 

Customer relationships (19 years)

 

2,800

Developed technology (10 years)

 

4,500

E-commerce technology (2 years)

 

200

Trade name (5 years)

 

300

Total assets acquired

 

8,697

Other non current liabilities

 

45

Total liabilities assumed

 

45

Net assets acquired, excluding goodwill

 

8,652

Goodwill

 

14,329

Net assets acquired

$

22,981

Purchase price consideration was made up of the following:

Cash

$

18,293

Fair value of warrants

$

4,688

Total

$

22,981

The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

The following table provides unaudited proforma financial information, prepared in accordance with Topic 805, for the 3 and 9 months ended September 30, 2022, and 2021, as if Assisi had been acquired as of January 1, 2021. Proforma results do not include the effect of any synergies anticipated to be achieved from the acquisition, and accordingly, are not necessarily indicative of the results that would have occurred if the acquisition had occurred on the date indicated or that may result in the future.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2022

    

2021

    

2022

    

2021

Net Revenue

$

5,086

$

1,330

$

15,681

$

3,652

Net Losses

$

(4,995)

$

(6,512)

$

(14,845)

$

(15,286)

The proforma amounts have been calculated by including the results of Assisi, and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on January 1, 2021, together with the consequential tax effects thereon:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2022

    

2021

    

2022

    

2021

Adjustments to net revenues

Assisi preacquisition revenues

$

310

$

1,307

$

2,908

$

3,600

Adjustments to net income

Assisi preacquisition net losses

$

-

$

(167)

$

(639)

$

(193)

Asset Purchase Agreement with Revo Squared LLC

On June 14, 2022, Zomedica Corp. (“Company”) and its wholly-owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement (“Purchase Agreement”) with Revo Squared LLC (“Revo Squared”) and its majority member (Revo Squared and its majority member are referred to herein as the “Selling Parties”) pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Revo Squared (“Acquisition”). Revo Squared, based in Marietta, Georgia, is in the business of developing, manufacturing, marketing, distributing, and selling diagnostic imaging products and services for use in animal health, including its SuperView, Sonoview Color, Sonoview Mini/Mini Plus and Microview product offerings (the “Revo Squared Products”).

On July 1, 2022, the parties consummated the Acquisition. At the closing, Zomedica Inc. paid Revo Squared a base purchase price of $6,011 in cash, which was subject to adjustments based on the amount of Revo Squared’s working capital at the closing. On this date, $500 of the purchase price was deposited into a third-party escrow account for a period of 15 months to support Revo Squared’s indemnification obligation under the Purchase Agreement and an additional $50 of the purchase price was deposited into the escrow account for a period of approximately 90 days to support payment of post-closing adjustments to the purchase price, if any. The Company also issued to Revo Squared a ten-year warrant to purchase an aggregate of 10,000,000 of the Company’s common shares at a per share exercise price equal to $0.2201. Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments of up to $4,000 based on the achievement of milestones related to future net sales from Revo Squared Products. One-time earn-out payments of $2,000 each will be payable upon net sales from Revo Squared Products exceeding $5,000 and $10,000 during any calendar year ending on or prior to December 31, 2027.

As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $6,528 was recorded in connection with this acquisition, which will be deductible for US tax purposes. The goodwill largely results from our ability to market and sell their respective products and services through our established customer base.

The Company made a preliminary allocation of the purchase price for Revo Squared’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments:

    

Initial

Allocation of

    

Consideration

Trade receivables, net

$

8

Prepaid expenses and deposits

 

10

Intangible Assets (estimated useful life)

 

Customer relationships (16 years)

 

1,200

Developed technology (10 years)

 

2,300

Trade name (5 years)

 

200

Total assets acquired

 

3,718

Earnout liabilities

 

2,458

Total liabilities assumed

 

2,458

Net assets acquired, excluding goodwill

 

1,260

Goodwill

 

6,528

Net assets acquired

$

7,788

Purchase price consideration was made up of the following:

Cash

$

6,011

Fair value of warrants

$

1,777

Total

$

7,788

The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.

2021 Acquisitions

Acquisition of PulseVet®

On October 1, 2021, Zomedica Inc., a wholly-owned subsidiary of Zomedica Corp. (the “Company”), entered into a Stock Purchase Agreement with Branford PVT Mid-Hold, LLC pursuant to which Zomedica Inc. acquired 100% of the capital stock of Branford PVT Acquiror, Inc., a Delaware corporation (“BPA”). BPA is a holding company whose direct and indirect wholly-owned subsidiaries include Pulse Veterinary Technologies, LLC (“PulseVet”), which, together with its consolidated subsidiaries, is a leading provider of non-invasive shock wave therapy treatment devices to the veterinary industry (the “Acquisition”). The purchase price for the acquisition was $71,929 in cash.

As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $44,915 was recorded in connection with this acquisition, none of which will be deductible for U.S tax purposes. The goodwill largely results from our ability to market and sell the PulseVet Technology through our established customer base.

The Company finalized the allocation of the purchase price for PulseVet as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities.

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Zomedica Corp.

Notes to the condensed consolidated financial statements

(Unaudited) (United States dollars in thousands, except for per share data)

The final allocation of the purchase price to the assets acquired and liabilities assumed, based on their estimated fair values at the acquisition date, is as follows

    

Initial

    

Measurement

    

Allocation of

Period

Updated

    

Consideration

    

Adjustments

    

Allocation