10-Q 1 zom-20240331x10q.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 March 31, 2024.

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 May 9, 2024, 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

March 31, 2024

TABLE OF CONTENTS

Page

PART I

FINANCIAL INFORMATION

Item 1.

Condensed Financial Statements

3

Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023

Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023

Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023

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

33

PART II

OTHER INFORMATION

Item 1.

Legal Proceedings

34

Item 1A.

Risk Factors

34

Item 6.

Exhibits

35

2

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements.

Zomedica Corp.

Consolidated Balance Sheets as of March 31, 2024 (Unaudited) and December 31, 2023

(United States Dollars in Thousands)

As of

    

March 31, 

    

December 31, 

    

2024

    

2023

Assets

 

  

 

  

Current assets

 

  

 

  

Cash and cash equivalents

$

10,939

$

12,952

Available-for-sale securities

 

72,023

 

77,545

Trade receivables, net

 

1,649

 

1,197

Inventory, net

 

5,062

 

5,123

Prepaid expenses and deposits

 

1,616

 

2,064

Other receivables

 

780

 

1,001

Total current assets

 

92,069

 

99,882

Prepaid expenses and deposits

 

243

 

250

Property and equipment, net

 

23,971

 

22,828

Right-of-use asset

 

2,253

 

2,466

Goodwill

 

61,580

 

61,580

Intangible assets, net

 

54,802

 

55,364

Non current available-for-sale securities

 

7,964

 

10,005

Other assets

 

819

 

822

Total assets

$

243,701

$

253,197

Liabilities and shareholders’ equity

 

  

 

Current liabilities

 

  

 

Accounts payable and accrued liabilities

$

6,676

$

7,668

Accrued income taxes

 

66

 

65

Current portion of lease obligations

 

847

 

916

Customer contract liabilities

 

260

 

276

Other current liabilities

 

159

 

107

Total current liabilities

 

8,008

 

9,032

Lease obligations

 

1,657

 

1,814

Deferred tax liabilities

 

955

 

1,138

Customer contract liabilities

 

279

 

252

Other liabilities

 

907

 

944

Total liabilities

$

11,806

$

13,180

Commitments and contingencies (Note 14)

 

  

 

  

Shareholders’ equity

 

  

 

  

Unlimited common shares, no par value; 979,949,668 issued and outstanding at March 31, 2024 and December 31, 2023

$

380,973

$

380,973

Additional paid-in capital

 

31,030

 

29,929

Accumulated deficit

 

(180,093)

 

(170,933)

Accumulated comprehensive income (loss)

 

(15)

 

48

Total shareholders' equity

 

231,895

 

240,017

Total liabilities and shareholders’ equity

$

243,701

$

253,197

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 Months Ended March 31, 2024 and 2023

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

    

For the Three Months Ended March 31, 

    

2024

    

2023

Net revenue

$

6,262

$

5,482

Cost of revenue

 

2,145

 

1,647

Gross profit

 

4,117

 

3,835

  

  

  

  

Expenses

 

  

  

  

  

General and administrative

 

8,625

 

7,013

Research and development

 

1,771

 

918

Selling and marketing

 

4,107

 

3,416

Loss from operations

 

(10,386)

 

(7,512)

Interest income

 

1,093

 

1,412

Interest expense

 

 

(50)

Gain on disposal of assets

12

Other income (loss)

 

84

 

(1)

Foreign exchange loss

 

(129)

 

(26)

Loss before income taxes

 

(9,326)

 

(6,177)

Income tax (benefit) expense

 

(166)

 

208

Net loss

 

(9,160)

 

(6,385)

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

 

(11)

 

283

Change in foreign currency translation

 

(52)

 

3

Net loss and comprehensive loss

$

(9,223)

$

(6,099)

Weighted average number of common shares - basic and diluted

 

979,949,668

 

979,949,668

Loss per share - basic and diluted (Note 16)

 

(0.009)

 

(0.007)

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

4

Zomedica Corp.

Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023

(Unaudited) (United States Dollars in Thousands)

    

For the Three Months Ended March 31, 2024

Additional

Accumulated

Common Stock

Paid-In

Accumulated  

Comprehensive  

 

Shares

    

Amount

    

Capital

    

Deficit

    

(Loss)

    

Total

Balance at December 31, 2023

979,949,668

$

380,973

$

29,929

$

(170,933)

$

48

$

240,017

Stock-based compensation

 

 

 

1,101

 

 

 

1,101

Net loss

(9,160)

(9,160)

Other comprehensive loss

 

 

 

 

 

(63)

 

(63)

Balance at March 31, 2024

 

979,949,668

$

380,973

$

31,030

$

(180,093)

 

$

(15)

$

231,895

    

For the Three Months Ended March 31, 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

 

 

 

1,765

 

 

 

1,765

Net loss

 

 

 

 

(6,385)

 

 

(6,385)

Other comprehensive income

 

 

 

 

 

286

 

286

Balance at March 31, 2023

 

979,949,668

$

380,973

$

25,431

$

(142,789)

 

$

(557)

$

263,058

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

5

Zomedica Corp.

Consolidated Statements of Cash Flows for the Three Ended March 31, 2024 and 2023

(Unaudited) (United States Dollars in Thousands)

    

For the Three Months Ended March 31, 

    

2024

    

2023

Cash flows from operating activities:

 

  

 

  

Net loss

$

(9,160)

$

(6,385)

Adjustments for:

 

  

 

  

Depreciation

 

334

 

164

Amortization - intangible assets

 

1,597

 

1,199

Gain on disposal of property and equipment

 

(12)

 

Stock-based compensation

 

1,101

 

1,765

Non cash portion of rent benefit

 

2

 

(1)

Accretion/amortization of available-for-sale securities

 

(543)

 

(654)

Deferred tax expense

 

(184)

 

Change in assets and liabilities, net of acquisitions:

 

 

Purchased inventory

 

60

 

(731)

Prepaid expenses and deposits

 

450

 

(1,022)

Trade receivables

 

(452)

 

144

Other receivables

 

322

 

263

Accounts payable and accrued liabilities

 

(1,133)

 

721

Accrued income tax

 

1

 

46

Other current liabilities

 

52

 

(16)

Customer contract liabilities

 

10

 

116

Other liabilities

 

(35)

 

134

Net cash used in operating activities

$

(7,590)

$

(4,257)

Cash flows from investing activities:

 

  

 

  

Securities (purchased) matured

$

7,988

$

(8,072)

Investment in debt security (at fair value)

 

 

(1,750)

Investment in property and equipment

 

(2,335)

 

(970)

Acquisition of intangibles

 

(28)

 

(4,000)

Net cash provided by (used in) investing activities

$

5,625

$

(14,792)

Decrease in cash and cash equivalents

$

(1,965)

$

(19,049)

Effect of exchange rate changes on cash

(48)

3

Cash and cash equivalents, beginning of year

 

12,952

 

27,399

Cash and cash equivalents, end of period

$

10,939

$

8,353

Noncash activities:

 

  

 

  

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

$

(11)

$

283

Property and equipment accrued for in accounts payable

$

151

$

3

Transfer of property and equipment into intangibles

$

1,007

$

354

Transfer of inventory into property and equipment

$

2

$

732

Supplemental cash flow information:

 

 

  

Interest received on available-for-sale securities

$

708

$

783

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., its wholly owned U.S subsidiary, Zomedica Inc., and the wholly owned subsidiaries of Zomedica Inc.

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”). In the opinion of management, the unaudited consolidated financial statements include all normal recurring adjustments necessary to present fairly the information required to be set forth therein.

3. Significant Accounting Policies

Basis of Measurement

The 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.

Functional and Reporting Currencies

The functional currency 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 exchange gains or losses resulting from these transactions are recognized in the consolidated statements of operations.

7

Table of Contents

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

Comparative Figures

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 Therapeutic Device segment were previously designated as instruments and trodes in our form 10Q for the three months ended March 31, 2023. 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®, TRUVIEW™ 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 Therapeutic Device segments, only the product names making up the total.

To provide further clarity on the way in which we present our operating expenses, we have broken up our SG&A spend into distinct and separate General and Administrative and Selling and Marketing line items on the consolidated statements of operations and comprehensive loss for the three months ended March 31, 2024. The consolidated statements of operations and comprehensive loss for the three months ended March 31, 2023 have been adjusted to conform to the current year presentation of operating expenses. 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 track our business, we’ve combined construction in progress into property and equipment, net for the three months ended March 31, 2024. The consolidated balance sheets for the year ended December 31, 2023 have been adjusted to conform to the current year presentation of property and equipment, net. The change in presentation had no effect on the reported results in our balance sheets and does not affect previously reported cash flows from investing activities in the consolidated statements of cash flows.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU improves reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The key amendments include: (a) introduce a new requirement to disclose significant segment expenses regularly provided to the chief operating decision maker(“CODM”), (b) extend certain annual disclosures to interim periods, (c) clarify single reportable segment entities must apply ASC 280 in its entirety, (d) permit more than one measure of segment profit or loss to be reported under certain conditions, and (e) require disclosure of the title and position of the CODM. This ASU is effective for public entities with fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures. This ASU standard requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as information on income taxes paid. The standard is intended to benefit investors by providing more detailed income tax disclosures that would be useful in making capital allocation decisions. This ASU is effective for public entities with fiscal years beginning after December 15, 2024. The guidance will be applied on a prospective basis with the option to apply the standard retrospectively. Early adoption is permitted. The Company is in the process of reviewing the impact of this ASU and has not yet determined the impact of the adoption of this ASU on its consolidated financial statements.

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 Therapeutic Devices.

Cash and Cash Equivalents

The Company considers all highly liquid securities with an original maturity of three months or less to be cash equivalents. As of March 31, 2024 and 2023, the Company's balances exceeded federally insured limits by approximately $2,183 and $5,049.

8

Table of Contents

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

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 comprehensive loss.

Accounts Receivable and Allowance for Credit Losses

Accounts receivables 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. For the three months ended March 31, 2024 and 2023, our allowances were $85 and $47, respectively, and were recorded net in trade receivables. While we believe that our allowance for credit losses is adequate and represents our best estimate as of March 31, 2024, 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.

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

9

Table of Contents

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

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.

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 Company also enters into contracts with customers where it receives payment for the consumable products and does not receive additional or separate consideration for the use of the point of care instrument furnished by the Company for the clinical veterinarian’s use. For these contracts, the Company considers the guidance under ASC 842 in order to determine if the furnishing of the point of care instrument to the customer during the period of use creates an embedded lease. If the point of care instrument is identified as a lease, it is classified as an operating lease as it does not meet any of the finance lease criteria per ASC 842. In these arrangements, the consumable products are classified as non-lease components. The Company allocates revenue to these lease and non-lease components based on standalone selling prices or, if not available, a cost-plus approach. Revenue related to the lease component is recognized ratably over the term of the contract. Revenue related to the non-lease components is recognized when control of the product has been transferred to the customer.

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 months ended March 31, 2024 and 2023 is as follows:

For the Three Months Ended March 31,

Diagnostics

Therapeutic
Devices

Consolidated

  

2024

  

2023

  

2024

  

2023

  

2024

  

2023

Capital

$

450

$

217

$

1,774

$

1,493

$

2,224

$

1,710

Consumables

294

182

3,716

3,567

4,010

3,749

Other

-

-

28

23

28

23

Total revenue

$

744

$

399

$

5,518

$

5,083

$

6,262

$

5,482

10

Table of Contents

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

Cost of Revenue

Cost of goods sold consists of overhead, materials, labor, shipping costs, and a portion of depreciation 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.

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 Switzerland, Japan, the United States and various states within, 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 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 the translation of its Japanese subsidiary to the reporting currency.

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

11

Table of Contents

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

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 revision 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.

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.

12

Table of Contents

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

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.

5. Investment Securities

The following represents the Company’s investment securities as of March 31, 2024 and December 31, 2023 (in thousands):

Balance at March 31, 2024

Acquisition
Cost

Accretion /
(Amortization)

Unrealized
Gain / (Loss)

Estimated
Fair Value

Commercial paper

$

24,983

$

527

$

(26)

$

25,484

Corporate notes / bonds

39,077

349

(70)

39,356

Money market funds

5,133

-

-

5,133

U.S. govt. agencies

9,080

152

(18)

9,214

U.S. treasuries

7,467

184

(21)

7,630

Total investment securities

$

85,740

$

1,212

$

(135)

$

86,817

Balance at December 31, 2023

Acquisition
Cost

Accretion /
(Amortization)

Unrealized
Gain / (Loss)

Estimated
Fair Value

Commercial paper

$

15,681

$

285

$

20

$

15,986

Corporate notes / bonds

45,954

614

(75)

46,493

Money market funds

5,374

-

-

5,374

U.S. govt. agencies

18,076

122

(33)

18,165

U.S. treasuries

10,282

156

(36)

10,402

Total investment securities

$

95,367

$

1,177

$

(124)

$

96,420

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 $521 and $690 for the three months ended March 31, 2024 and 2023 and are included within Other Receivables on our consolidated balance sheets.

13

Table of Contents

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

Contractual maturities of investment securities as of March 31, 2024 are as follows (in thousands):

Acquisition
Cost

Estimated
Fair Value

Original maturities of 90 days or less

$

6,824

$

6,830

Original maturities of 91-365 days

70,926

72,023

Original maturities of 366+ days

7,990

7,964

Total investment securities

$

85,740

$

86,817

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.

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.

14

Table of Contents

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

In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of March 31, 2024 and December 31, 2023:

Balance at March 31, 2024

Level 1

Level 2

Level 3

Estimated
Fair Value

Commercial paper

$

-

$

25,484

$

-

$

25,484

Corporate notes / bonds

-

39,356

-

39,356

Money market funds

5,133

-

-

5,133

U.S. govt. agencies

9,214

-

-

9,214

U.S. treasuries

7,630

-

-

7,630

Total investment securities

$

21,977

$

64,840

$

-

$

86,817

Balance at December 31, 2023

Level 1

Level 2

Level 3

Estimated
Fair Value

Commercial paper

$

-

$

15,986

$

-

$

15,986

Corporate notes / bonds

-

46,493

-

46,493

Money market funds

5,374

-

-

5,374

U.S. govt. agencies

18,165

-

-

18,165

U.S. treasuries

10,402

-

-

10,402

Total investment securities

$

33,941

$

62,479

$

-

$

96,420

The following tables shows our investments as of March 31, 2024 and December 31, 2023 and their respective balance sheet classifications:

Balance at March 31, 2024

Cash &
Cash Equiv.

Available-
For-Sale
(Current)

Available-
For-Sale
(Non-Current)

Estimated
Fair Value

Commercial paper

$

-

$

25,484

$

-

$

25,484

Corporate notes / bonds

-

31,392

7,964

39,356

Money market funds

5,133

-

-

5,133

U.S. govt. agencies

-

9,214

-

9,214

U.S. treasuries

1,697

5,933

-

7,630

Total investment securities

$

6,830

$

72,023

$

7,964

$

86,817

Balance at December 31, 2023

Cash &
Cash Equiv.

Available-
For-Sale
(Current)

Available-
For-Sale
(Non-Current)

Estimated
Fair Value

Commercial paper

$

-

$

15,986

$

-

$

15,986

Corporate notes / bonds

-

36,973

9,520

46,493

Money market funds

5,374

-

-

5,374

U.S. govt. agencies

-

17,680

485

18,165

U.S. treasuries

3,496

6,906

-

10,402

Total investment securities

$

8,870

$

77,545

$

10,005

$

96,420

Unrealized gains 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 March 31, 2024.

7. Business Combinations

All of the Company’s acquisitions of businesses 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.

15

Table of Contents

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

The results of operations of Revo Squared LLC, Assisi Animal Health, LLC, Structured Monitoring Products, Inc, and Qorvo Biotechnologies, LLC have been included in the Company’s Condensed Financial Statements since the dates of acquisition on June 14, 2022, July 15, 2022, September 4, 2023, and October 4, 2023 respectively.

2022 Acquisitions


Asset Purchase Agreement with Revo Squared LLC

On June 14, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Revo Squared LLC (“Revo Squared”) and its majority member pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Revo Squared. Revo Squared, based in Marietta, Georgia, was 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 ultrasound, Sonoview Mini/Mini Plus ultrasound, and Microview™ product offerings.

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 fifteen months to support Revo Squared’s indemnification obligation under the Purchase Agreement. No indemnification claims were made during this period resulting in the $500 being released from the escrow to the seller. 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. The warrants may be exercised on a cash or cashless basis, at the election of the warrant holder.

In addition, Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments ranging from $0 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. The fair value of the earnout liability was adjusted from $2,000 to $540 at March 31, 2024. Fair value of the earnout was determined using Level 3 inputs.

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 finalized the allocation of the purchase price for Revo Squared 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 Consolidated Financial Statements
(United States Dollars in Thousands)

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

Trade receivables, net

$

8

$

$

8

Prepaid expenses and deposits

 

10

 

 

10

Intangible Assets (estimated useful life)

 

Trade name (5 years)

 

200

 

 

200

Developed technology (10 years)

 

2,300

 

 

2,300

Customer relationships (16 years)

 

1,200

 

 

1,200

Total assets acquired

 

3,718

 

 

3,718

Earnout liabilities

 

2,458

 

(458)

 

2,000

Total liabilities assumed

 

2,458

 

(458)

 

2,000

Net assets acquired, excluding goodwill

 

1,260

 

458

 

1,718

Goodwill

 

6,528

 

(458)

 

6,070

Net assets acquired

$

7,788

$

$

7,788

Purchase price consideration was made up of the following:

Cash

$

6,011

Fair value of warrants

1,777

Total

$

7,788

Asset Purchase Agreement with Assisi Animal Health LLC

On July 15, 2022, Zomedica Corp. and its wholly owned subsidiary Zomedica Inc. entered into an Asset Purchase Agreement with Assisi Animal Health LLC (“Assisi”), its wholly owned subsidiary, AAH Holdings LLC, and certain of Assisi’s members (collectively the “Seller”) pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets related to the Assisi® product lines. The Sellers were 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.

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. A portion of the purchase price ($1,400) was deposited into a third-party escrow account. The balance of the escrow account was released to seller on the 18-month anniversary of the Closing Date as there were no indemnification claims. 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, 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 finalized the allocation of the purchase price for Assisi as of the acquisition date based on its understanding of the fair value of the acquired assets and assumed liabilities.

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Table of Contents

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

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

Inventory, net

$

220

$

$

220

Prepaid expenses and deposits

 

271

 

 

271

Other receivables

406

(206)

200

Right of use asset

260

260

Intangible Assets (estimated useful life)

 

E-commerce technology (2 years)

 

200

 

 

200

Trade name (5 years)

 

300

 

 

300

Developed technology (10 years)