10-Q 1 zom-20230630x10q.htm 10-Q
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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 June 30, 2023.

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 August 10, 2023, 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

June 30, 2023

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

3

Consolidated Balance Sheets as of June 30, 2023 and December 31, 2022

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2023 and 2022

Notes to the Consolidated Financial Statements

Item 2.

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

26

Item 4.

Controls and Procedures

35

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 6.

Exhibits

36

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Zomedica Corp.

Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

(United States Dollars in Thousands)

As of

    

June 30, 

    

December 31, 

    

2023

    

2022

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

27,951

$

27,399

Available-for-sale securities

 

102,522

 

87,693

Trade receivables, net

 

654

 

596

Inventory, net

 

3,634

 

2,746

Prepaid expenses and deposits

 

3,562

 

3,799

Other receivables

 

1,302

 

1,268

Total current assets

 

139,625

 

123,501

Prepaid expenses and deposits

 

126

 

188

Property and equipment, net

 

7,291

 

6,809

Construction in progress

2,146

692

Right-of-use asset

 

1,355

 

1,665

Goodwill

 

63,979

 

63,979

Intangible assets, net

 

48,071

 

41,799

Non current available-for-sale securities

 

11,920

 

40,712

Other assets

 

265

 

265

Total assets

$

274,778

$

279,610

Liabilities and shareholders’ equity

 

  

 

Current liabilities

 

  

 

Accounts payable and accrued liabilities

$

6,144

$

6,698

Accrued income taxes

 

74

 

187

Current portion of lease obligations

 

641

 

641

Customer contract liabilities

 

255

 

207

Other current liabilities

 

96

 

78

Total current liabilities

 

7,210

 

7,811

Lease obligations

 

781

 

1,097

Deferred tax liabilities

 

1,245

 

1,245

Customer contract liabilities

 

291

 

182

Liability due to Qorvo

 

3,591

 

Other liabilities

 

2,181

 

1,883

Total liabilities

$

15,299

$

12,218

Commitments and contingencies (Note 16)

 

  

 

  

Shareholders’ equity

 

  

 

  

Unlimited common shares, no par value; 979,949,668 issued and outstanding at June 30, 2023 and December 31, 2022

$

380,973

$

380,973

Additional paid-in capital

 

27,156

 

23,666

Accumulated deficit

 

(148,038)

 

(136,404)

Accumulated comprehensive loss

 

(612)

 

(843)

Total shareholders' equity

 

259,479

 

267,392

Total liabilities and shareholders’ equity

$

274,778

$

279,610

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

3

Zomedica Corp.

Consolidated Statements of Operations and Comprehensive Loss for the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited) (United States Dollars in Thousands, Except for Per Share Data)

    

For the Three Months Ended June 30,

For the Six Months Ended June 30,

    

2023

    

2022

    

2023

    

2022

Net revenue

$

6,020

$

4,246

$

11,502

$

7,997

Cost of revenue

 

1,972

 

1,240

 

3,619

 

2,250

Gross profit

 

4,048

 

3,006

 

7,883

 

5,747

Expenses

 

 

 

 

Research and development

 

859

 

319

 

1,777

 

670

Selling, general and administrative

 

9,931

 

8,567

 

20,360

 

15,270

Loss from operations

 

(6,742)

 

(5,880)

 

(14,254)

 

(10,193)

Interest income

 

1,460

 

277

 

2,872

 

384

Interest expense

 

(62)

 

 

(112)

 

Gain (loss) on disposal of assets

1

(1)

1

(1)

Other income (loss)

 

 

1

 

(1)

 

(4)

Foreign exchange gain (loss)

 

17

 

(52)

 

(9)

 

(56)

Loss before income taxes

 

(5,326)

 

(5,655)

 

(11,503)

 

(9,870)

Income tax expense (benefit)

 

(77)

 

(382)

 

131

 

(660)

Net loss

 

(5,249)

 

(5,273)

 

(11,634)

 

(9,210)

Unrealized gain (loss), change in fair value of available-for-sale securities, net of tax

 

(8)

 

 

275

 

Change in foreign currency translation

 

(47)

 

(40)

 

(44)

 

11

Net loss and comprehensive loss

$

(5,304)

$

(5,313)

$

(11,403)

$

(9,199)

Weighted average number of common shares - basic and diluted

 

979,949,668

 

979,899,668

 

979,949,668

 

979,899,668

Loss per share - basic and diluted (Note 18)

$

(0.005)

$

(0.005)

$

(0.012)

$

(0.009)

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

4

Zomedica Corp.

Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited) (United States Dollars in Thousands)

    

For the Six Months Ended June 30, 2023

Additional

Accumulated

Common Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Total

Balance at December 31, 2022

979,949,668

$

380,973

$

23,666

$

(136,404)

$

(843)

$

267,392

Stock-based compensation

 

 

 

3,490

 

 

 

3,490

Net loss

(11,634)

(11,634)

Other Comprehensive Income

 

 

 

 

 

231

 

231

Balance at June 30, 2023

 

979,949,668

$

380,973

$

27,156

$

(148,038)

 

$

(612)

$

259,479

    

For the Three Months Ended June 30, 2023

Additional

Accumulated

Common Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Total

Balance at March 31, 2023

979,949,668

$

380,973

$

25,431

$

(142,789)

$

(557)

$

263,058

Stock-based compensation

 

 

 

1,725

 

 

 

1,725

Net loss

(5,249)

(5,249)

Other Comprehensive Income

 

 

 

 

 

(55)

 

(55)

Balance at June 30, 2023

 

979,949,668

$

380,973

$

27,156

$

(148,038)

 

$

(612)

$

259,479

    

For the Six Months Ended June 30, 2022

Additional

Accumulated

Common Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Total

Balance at December 31, 2021

979,899,668

$

380,962

$

9,313

$

(119,391)

$

2

$

270,886

Stock-based compensation

 

 

 

4,533

 

 

 

4,533

Net loss

 

 

 

 

(9,210)

 

 

(9,210)

Other Comprehensive Income

 

 

 

 

 

11

 

11

Balance at June 30, 2022

 

979,899,668

$

380,962

$

13,846

$

(128,601)

 

$

13

$

266,220

    

For the Three Months Ended June 30, 2022

Additional

Accumulated

Common Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Total

Balance at March 31, 2022

979,899,668

$

380,962

$

11,354

$

(123,328)

$

53

$

269,041

Stock-based compensation

 

 

 

2,492

 

 

 

2,492

Net loss

 

 

 

 

(5,273)

 

 

(5,273)

Other Comprehensive Income

 

 

 

 

 

(40)

 

(40)

Balance at June 30, 2022

 

979,899,668

$

380,962

$

13,846

$

(128,601)

 

$

13

$

266,220

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

5

Zomedica Corp.

Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited) (United States Dollars in Thousands)

    

For the Six Months Ended June 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net loss

$

(11,634)

$

(9,210)

Adjustments for:

 

  

 

  

Depreciation

 

340

 

161

Amortization - intangible assets

 

2,492

 

1,495

Loss on disposal of property and equipment

 

1

 

1

Stock-based compensation

 

3,490

 

4,533

Non cash portion of rent expense

 

(5)

 

9

Accretion/amortization of available-for-sale securities

 

(1,247)

 

Change in assets and liabilities, net of acquisitions:

 

 

Purchased inventory

 

(1,561)

 

(2,572)

Prepaid expenses and deposits

 

297

 

(410)

Trade receivables

 

(52)

 

(96)

Other receivables

 

14

 

131

Accounts payable and accrued liabilities

 

(538)

 

292

Accrued income tax

 

(114)

 

(199)

Deferred tax liabilities

 

 

(661)

Other current liabilities

 

18

 

4

Customer contract liabilities

 

157

 

(25)

Other liabilities

 

409

 

30

Net cash used in operating activities

 

(7,933)

 

(6,517)

Cash flows from investing activities:

 

  

 

  

Investment in available-for-sale securities

 

17,178

 

Investment in debt security (at fair value)

 

(1,750)

 

(1,000)

Investment in property and equipment

 

(143)

 

(151)

Acquisition of intangibles

 

(4,066)

 

Investment in construction in progress

(2,690)

(492)

Net cash provided by (used in) investing activities

 

8,529

 

(1,643)

(Decrease) increase in cash and cash equivalents

 

596

 

(8,160)

Effect of exchange rate changes on cash

(44)

(29)

Cash and cash equivalents, beginning of year

 

27,399

 

194,952

Cash and cash equivalents, end of period

$

27,951

$

186,763

Noncash activities:

 

  

 

  

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

$

275

$

Transfer of construction in progress into property and equipment and intangibles

$

1,344

$

Transfer of inventory into property and equipment

$

668

$

557

Supplemental cash flow information:

 

 

  

Interest received

$

1,589

$

384

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

6

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

1. Nature of Operations

Zomedica is a veterinary health company creating products for companion animals by focusing on the unmet needs of clinical veterinarians. The Company consists of the parent company, Zomedica Corp. and its wholly-owned U.S subsidiary, Zomedica Inc. and its international subsidiaries.

Changes in Macroeconomic Conditions

We are currently dealing with the aftermath of global changes in the macro-economic environment including disruptions in supply chain, labor disruptions, challenges in manufacturing, COVID-19 related concerns, challenges selling to customers, declines in customer demand, inflationary pressures, rising interest rates, and an impaired ability to access credit and capital markets, among other things. There are uncertainties as to the outcome of current financial conditions, including recessionary environment or a contraction in the economy, which may impact overall consumer demand and supply requirements.

2. Basis of Preparation

Principles of Consolidation

The consolidated financial statements include the accounts of the Company, and its wholly owned subsidiaries. Intercompany transactions and balances between consolidated businesses have been eliminated.

The accounting policies set out below have been applied consistently in the consolidated financial statements. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

3. Significant Accounting Policies

Basis of Measurement

The condensed consolidated financial statements have been prepared on the historical cost basis except as otherwise noted.

Business Combinations

We account for business combinations in accordance with ASC 805, Business Combinations, if the acquired assets assumed and liabilities incurred constitute a business. We consider acquired companies to constitute a business if the acquired net assets and processes have the ability to create outputs in the form of revenue. For acquired companies constituting a business, we recognize the identifiable assets acquired and liabilities assumed at their acquisition-date fair values and recognize any excess of total consideration paid over the fair value of the identifiable net assets as goodwill.

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.

7

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

Functional and Reporting Currencies

The functional currency, as determined by management, for Canada and our subsidiaries in the United States and Switzerland is U.S. dollars, which is also our reporting currency.

The functional currency, as determined by management, for our Japanese subsidiary is Japanese Yen. Japanese Yen are translated for financial reporting purposes with translation gains and losses recorded as a component of other comprehensive income or loss.

In respect of transactions denominated in currencies other than the Company and its wholly owned operating subsidiaries’ functional currencies, the monetary assets and liabilities are remeasured at the period end rates. Revenue and expenses are measured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations and comprehensive loss.

Comparative Figures

A portion of depreciation expense for the three and six months ended June 30, 2023 has been stated as part of cost of revenue for $102 and $193 respectively. The consolidated statements of income and comprehensive income for the three and six months ended June 30, 2022 have been adjusted for $30 and $51 respectively for depreciation that was included in selling, general, and administrative expense. This amount has been reclassified to cost of revenue to conform to the current year presentation. The change in presentation had no effect on the reported results of operations and does not affect previously reported cash flows from operating activities in the consolidated statements of cash flows.

To better align with the way in which we measure and track our business, we have changed the categorization of products within our segmentation of revenue. A portion of the products in our Therapeutics segment were previously designated as instruments and trodes in our form 10Q for the period ending June 30, 2022. These products have since been renamed to be capital and consumables to better align with our other platforms and to provide a more consistent baseline for comparison of the product lines within. Capital refers to the devices we sell within our PulseVet®, Revo Squared®, and VetGuardian® product lines. Consumables continues to include our TRUFORMA® cartridges as it did last year and now includes our PulseVet trodes as well as our Assisi® products. There have been no changes to the overall sales numbers for our Diagnostics and Therapeutics segments, only the product names making up the total.

Segment Reporting

The Company reports segment information based on the “management” approach. The management approach designates the internal reporting used by management for making decisions and assessing performance as the source of the Company’s reportable segments. The Company’s reportable segments consist of Diagnostics and Therapeutics.

Cash and Cash Equivalents

The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents.

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 twelve 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 shareholders’ equity.


Accounts Receivable and Allowance for Credit Losses

Accounts receivable are recorded net of an allowance for credit losses and have payment terms of 30 days. Our policy for determining the allowance is based on factors that affect collectability, including: (a) historical trends of write-offs, recoveries, and credit losses; (b) the credit quality of our customers; and (c) projected economic and market conditions. As of June 30, 2023, our allowance was $66  and was recorded net in trade receivables. While we believe that our allowance for credit losses is adequate and represents our best estimate

8

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

as of June 30, 2023, we continue to closely monitor customer liquidity and industry and economic conditions, which may result in changes to these estimates.

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") method 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.

Property and Equipment

Property and equipment are carried at historical cost less accumulated depreciation and any accumulated impairment losses. Property and equipment acquired in a business combination are recorded at fair value as of the date of acquisition. Maintenance and repair expenditures that do not improve or extend the life are expensed in the period incurred.

Depreciation is recognized so as to write off the cost less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation methods are reviewed at the end of each year, with the effect of any changes in estimate accounted for on a prospective basis.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Intangible Assets

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

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

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives and amortization methods are reviewed at the end of each year, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for impairment when events or circumstances indicate that the carrying value of an asset may not be recoverable. For assets that are to be held and used, impairment is recognized when the sum of estimated undiscounted future cash flows associated with the asset or group of assets is less than its carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded as the difference between the carrying value and fair value.


Revenue Recognition

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

9

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

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.

The nature of the Company’s PulseVet® business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. 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.

Disaggregated revenue for the three and six months ended June 30, 2023 and 2022 is as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

Diagnostics

Therapeutics

Consolidated

Diagnostics

Therapeutics

Consolidated

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

  

2023

  

2022

Capital

$

67

$

-

$

1,892

$

1,543

$

1,959

$

1,543

$

284

$

-

$

3,386

$

3,102

$

3,670

$

3,102

Consumables

182

92

3,850

2,579

4,032

2,671

364

148

7,416

4,680

7,780

4,828

Other (e.g., warranty and repairs)

-

-

29

32

29

32

-

-

52

67

52

67

Total revenue

$

249

$

92

$

5,771

$

4,154

$

6,020

$

4,246

$

648

$

148

$

10,854

$

7,849

$

11,502

$

7,997


Cost of Revenue

Cost of goods sold consists of overhead, 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.

Research and Development


Research and development costs related to continued research and development programs are expensed as incurred.

Stock-based Compensation

The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest.

The Company estimates forfeitures at the time of grant and revises the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

10

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Income Taxes, on a tax jurisdictional basis. The Company files income tax returns in Canada and the province of Alberta and its subsidiaries file income tax returns in the United States and various states, including in Michigan where the Company’s headquarters are located.

Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax basis of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the year in which the differences are expected to reverse. A valuation allowance is provided against deferred tax assets when it is determined to be more likely than not that the deferred tax asset will not be realized.

The Company assesses the likelihood of the financial statement effect of an uncertain tax position that should be recognized when it is more likely than not that the position will be sustained upon examination by a taxing authority based on the technical merits of the tax position, circumstances, and information available as of the reporting date. The Company is subject to examination by taxing authorities in the United States, Canada, Japan, and Switzerland. The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense.

Comprehensive Loss

The Company follows ASC topic 220. This statement establishes standards for reporting and display of comprehensive (loss) income and its components. Comprehensive loss is net loss plus certain items that are recorded directly to shareholders’ equity. The Company has recorded a currency translation adjustment associated with its Japanese subsidiary.

Loss Per Share


Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options is excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.

4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

The preparation of financial statements in accordance with U.S. GAAP requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and further periods if the review affects both current and future periods.

Critical areas of estimation and judgements in applying accounting policies include the following:

Intangible Assets and Business Combinations

Assets acquired and liabilities assumed as part of a business combination are recognized at their acquisition date fair values. In determining these fair values, we utilize various forms of the income, cost, and market approaches depending on the asset or liability being valued.

We use a discounted cash flow model to measure the customer relationship, developed technology, license, trademark, and tradename assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and are supplemented by current and anticipated market conditions.

11

Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

Impairment Testing

We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic, industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill.

We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies.

Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We do not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty.

The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value.

Valuation and Payback of Property and Equipment

Diagnostic based TRUFORMA® capital is placed in fixed assets once purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase consumables or services which are utilized within. Each instance of this placed capital represents an asset that we own. An estimate is made of the anticipated future revenue over its respective life which is ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the assets have been properly recorded, and no write-down is necessary. We rely on third-party data that considers various data points and assumptions, including, but not limited to, the expected volume of consumables which will be sold, anticipated growth rates, and anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models.

Revenue Recognition and Liabilities Due to Customers

The nature of the Company’s business gives rise to variable consideration, including discounts and applicator (“trode”) returns for refurbishment. 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 estimated based upon historical experience and known trends. These estimated credits are non-refundable 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 at hand with ample capacity to perform treatments.

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Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

5. Investment Securities

The following represents the Company’s investment securities as of June 30, 2023 (in thousands):

Acquisition
Cost

Accretion /
(Amortization)

Unrealized
Gain / (Loss)

Estimated
Fair Value

Commercial paper

$

16,772

$

535

$

(12)

$

17,295

Corporate notes / bonds

39,204

408

(392)

39,220

Debt security

2,750

-

-

2,750

U.S. treasuries

12,639

177

(127)

12,689

U.S. govt. agencies

42,549

194

(255)

42,488

Money market funds

25,310

-

-

25,310

Total investment securities

$

139,224

$

1,314

$

(786)

$

139,752

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 receivable related to the above investment securities amounted to $771 and is included within Other Receivables on our consolidated balance sheets.

Contractual maturities of investment securities as of June 30, 2023 are as follows (in thousands):

Acquisition
Cost

Estimated
Fair Value

Original maturities of 90 days or less

$

25,310

$

25,310

Original maturities of 91-365 days

101,877

102,522

Original maturities of 366+ days

12,037

11,920

Total investment securities

$

139,224

$

139,752

6. 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 with an original maturity within 90 days.

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Table of Contents

Zomedica Corp.
Notes to the Consolidated Financial Statements
(United States Dollars in Thousands)

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 shareholders’ equity.

Earnout liability: The Company has reported the fair value of the earnout liability within other liabilities on the consolidated balance sheet. See footnote 7 for additional details.

Included within these available-for-sale securities are $2,750 in convertible notes associated with Structured Monitoring Products, Inc.’s (“SMP”) VetGuardian® line. There were no unrealized gains or losses recorded and no impairments recognized as of June 30, 2023.

In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of June 30, 2023:

Level 1

Level 2

Level 3

Estimated
Fair Value

Commercial paper

$

-

$

17,295

$

-

$

17,295

Corporate notes / bonds

-

39,220

-

39,220

Debt security

-

-

2,750

2,750

U.S. treasuries

12,689

-

-

12,689

U.S. govt. agencies

42,488

-

-

42,488

Money market funds

25,310

-

-

25,310

Total investment securities

$

80,487

$

56,515

$

2,750

$

139,752

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

$

-

$

17,295

$

-

$

17,295

Corporate notes / bonds

-

37,928

1,292

39,220

Debt security

-

-

2,750

2,750

U.S. treasuries

-

10,740

1,949

12,689

U.S. govt. agencies

-

36,559

5,929

42,488

Money market funds

25,310

-

-

25,310

Total investment securities

$

25,310

$