SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM For the fiscal For the transition period from __________ to __________ Commission file number: (Exact name of registrant as specified in its charter)
UNITED STATES
TABLE OF CONTENTS
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 40 | |
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 41 | |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 42 | |
Certain Relationships and Related Transactions, and Director Independence | 42 | |
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CAUTIONARY NOTE This report on Form Forward-looking statements can also be identified by words such as “future”, “anticipates”, “believes”, “projects”, “estimates”, “expects”, “intends”, “plans”, “predicts”, “will”, “should”, “would”, “could”, “can”, “may”, or similar terms. Forward-looking statements are not guarantees of future performance and Zomedica’s Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance, or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We undertake no duty to update any of these forward-looking statements after the date of this Form
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PART I
Item 1. Business
Zomedica On April 21, 2016, the Company closed its qualifying transaction (“Transaction”), consisting of the acquisition of ZoMedica Pharmaceuticals Inc. (“ZoMedica”) pursuant to a three-cornered amalgamation, whereby ZoMedica was amalgamated with 9674128 Canada Inc. (which was wholly-owned by WOW) and common shares and options of the Company were issued to former holders of ZoMedica securities as consideration. The amalgamated company changed its name to Zomedica Pharmaceuticals Ltd. and WOW subsequently changed its name to Zomedica Pharmaceuticals Corp. Prior to completion of the Transaction, WOW consolidated its common shares on the basis of the one post-consolidation common share for every 2.5 pre-consolidation common shares. The Transaction constituted WOW’s qualifying transaction under TSX Venture Exchange Policy 2.4 – Capital Pool Companies. The shares of Zomedica Pharmaceuticals Corp. began trading on the TSX Venture Exchange under the new symbol “ZOM” on Monday, May 2, 2016. On June 21, 2016, the Company filed Articles of Amalgamation and vertically amalgamated with its wholly-owned subsidiary, Zomedica Pharmaceuticals Ltd. On November 10, 2017, our shares were approved for listing on the NYSE American under the symbol “ZOM”. On February 10, 2020, we effected the voluntary withdrawal of our common shares from listing on the TSX-V. On October 2, 2020, we changed our name to Zomedica Corp and on January 19, 2021, we changed the name of our U.S. subsidiary to Zomedica Inc. from Zomedica Pharmaceuticals, Inc. On October 1, 2021, we acquired the shares of Branford PVT Acquiror, Inc. from Branford PVT Mid-Hold, LLC. Branford PVT Acquiror held all the shares of PVT Holdings, Inc. which in turn held all the membership interests of Pulse Veterinary Technologies, LLC. Pulse Veterinary Technologies held all the equity interests of HMT High Medical Technologies (Japan) Co. Ltd. and PVT NeoPulse Acquisition GmbH which held all the equity of NeoPulse GmbH. Effective July 1, 2022, we collapsed Branford PVT Acquiror, PVT Holdings, Inc. and Pulse Veterinary Technologies, LLC by merging these companies into Zomedica Inc. HMT High Medical Technologies (Japan) and PVT NeoPulse Acquisition are wholly owned subsidiaries of Zomedica Inc. Zomedica has one corporate subsidiary, Zomedica, Inc., which has two wholly owned subsidiaries, HMT High Medical Technologies (Japan) and PVT NeoPulse Acquisition, and PVT NeoPulse Acquisition has one wholly owned subsidiary, NeoPulse GmbH, all whose results and operations are included in these consolidated financial statements. Unless the text clearly suggests otherwise, references to “us”, “we”, “our”, “Zomedica” or “the Overview We are an animal health company focused on meeting the
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Our focus is on our veterinarian customer and the pets that they treat. Our goal is to deliver innovative diagnostic and therapeutic technologies to veterinarians that improve the quality of care for the pet and the satisfaction of the pet parent, as well as the workflow, cashflow and profitability of the veterinarian’s practice.
Over the 18-month period ending December 31, 2022, we have grown primarily through acquisitions of companies and products designed to build revenue streams, infrastructure, manufacturing capacity, and commercial capabilities. Through these acquisitions and our internal efforts, we have:
| - | expanded our product portfolio to include product platforms; |
| - | acquired and expanded robust marketing and social media programs; |
| - | developed the commercial team to include field sales, inside sales, and professional services veterinarians; |
| - | acquired and expanded relationships with domestic animal health distributors and online retailers; |
| - | acquired and expanded a robust set of international subsidiary and distribution channels; |
| - | built manufacturing and distribution capability and capacity at our new Global Manufacturing & Distribution Center in Roswell, Georgia; |
| - | grown revenue from $0 in 2020 to $4.1 million in 2021 to $18.9 million in 2022; and |
| - | established a pipeline of new product launches for 2023. |
Our intent is to leverage this infrastructure and commercial capability to continue to grow our existing products, launch new products and
Our website address is www.zomedica.com. The information contained in, or accessible through, our website is not part of the registration statement of which this prospectus forms a part.
We are currently commercializing
Diagnostic Products:
| - | Our TRUFORMA® Bulk Acoustic Wave (BAW) point of care diagnostic platform is marketed with full diagnostic and thyroid panels for dogs and cats that include the only assays |
| - | The VetGuardian™ zero-touch vital signs remote monitoring system, launched in January 2023 in collaboration with Structured Medical Products, enables contact-free, continuous monitoring of pets' vital signs, including temperature, pulse, and respiration ("TPR”) without harnesses or wired leads on the pet, thus allowing pet patients to rest comfortably during recovery at veterinary facilities. Veterinarians receive real-time notifications should the vital signs fall outside their customizable range, and they can remotely observe patient data from anywhere via a smart device. |
Therapeutic Products:
| - | Our PulseVet® electrohydraulic shockwave therapy platform, acquired in October of 2021, utilizes sound waves to treat a variety of musculoskeletal conditions in horses and small animals |
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| - | Our Assisi Loop® line of products, acquired in July of 2022, including the Assisi Loop, Assisi Loop Lounge®, and DentaLoop® devices, treat pain and inflammation through delivery of targeted pulsed electromagnetic field focused energy (tPEMF). Our Assisi Calmer Canine® devices utilize tPEMF to treat separation anxiety in small animals. These products are marketed through traditional animal health distributors, online animal product retailers and animal health retail outlets. |
Development of Companion Animal Diagnostics and Therapeutic Devices
Currently, approximately
The Petcare industry reached $123.6 billion in 2021, of which vet care and products make up 24.1%. It is expected to maintain strong growth, more than
The
Key drivers for the growth in the equine market include increased adoption of horses as pets, an increase in number of horses routinely seeing a vet, improved animal health awareness, and new medications driving improved outcomes. Additionally, among the professional competitive set, a keen focus on the ROI of racehorses has driven more competition and an increased utilization of veterinary services.
We believe that these factors, along with humanization of pets, longer pet lifespans, and the emotional benefits of pets and support animals, have and will continue to contribute to an increase in spending on pet healthcare.
The development of companion animal diagnostics and
Enhanced capability to detect the frequency of occurrence and severity of diseases and conditions that impact companion animals; |
Increased accuracy and faster means to obtain test results; |
Wider availability of new diagnostic tools; | ||
Development and availability of new treatment options; and |
Enhanced economic benefits for veterinarians. |
Compared to human diagnostic and medical
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Product Portfolio
TRUFORMA® Platform Our TRUFORMA We are currently marketing our diagnostic instrument and related assays for: We intend to Qorvo is also developing our first equine assay, for endogenous ACTH, to screen for equine Cushing’s disease. This is a serious condition for horses since if it is not diagnosed and treated, it may lead to laminitis which can lead to death. We believe that this will be widely adopted by equine veterinarians and horse owners and expect this to launch in 2023. TRUVIEWTM Digital Microscopy Platform As part of our acquisition of the assets of Revo Squared in June of 2022, we acquired rights to the MicroView® digital microscopy platform in development which we have rebranded as the TRUVIEW system. This technology features a cutting-edge liquid lens imaging platform to provide best in class microscopic images, while incorporating proprietary automated slide preparation technology, which we believe will both reduce staff time needed to prepare slides and also significantly reduce the number of slides that fail to provide a diagnostic image due to suboptimal slide manual slide preparation.- TSH - canine and feline, the only feline optimized assay available at the point of care; - Total T4 - canine and feline; - Free T4 - canine, the only Free T4 assay available at the point of care ; - eACTH – canine, the only endogenous ACTH available at the - Cortisol (Quantitative) - canine, the only quantitative cortisol assay available at the point
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Our proprietary TRUVIEW platform, which is planned to launch in the first half of 2023, is intended to assist with a clinic’s critical slide prep needs in a number of ways, including:
| - | Freeing up the veterinary technician, who traditionally would have invested 10 minutes or more in preparing a slide to capture digital images for pathologic diagnosis; |
| - | Providing consistent automated preparation to help reduce errors that make an accurate diagnosis difficult; and |
| - | Improving workflow and allowing more economic control by providing flexibility to the veterinarian in either using the microscope to interpret the slides themselves, or if they choose, sending the images out digitally to be read by one of our contract pathologists This provides enhanced flexibility and reduced costs to the practices versus competitive systems, which often require all slides to be sent out to be read by a pathologist, at significantly higher cost than if the veterinarian does their own interpretation. |
TRUSOUND™ Ultrasound
In addition, and as part of our acquisition of the assets of Revo Squared in June of 2022, we acquired a line of digital ultrasound products that offer remote training and coaching (via telemedicine). We intend to rebrand these products as TRUSOUND Ultrasound to our customers in the United States. While ultrasound is less of a strategic growth imperative for Zomedica, we believe our private labeled system has advantages that customers have traditionally sought out from Revo Squared, including the ability to receive training and coaching in the use of ultrasound from our experts. We plan to continue offering ultrasound equipment through our field sales team and will leverage internal and external ultrasound experts to continue to offer telemedicine consultation and ultrasound training to our customers.
VetGuardianTM Zero-Touch Vital Signs Remote Monitoring Platform
As part of a distribution agreement entered in January of 2023, we acquired the non-exclusive rights to distribute and commercialize the VetGuardian zero-touch vital signs remote monitoring system. This system enables contact-free, continuous monitoring of pets' vital signs, including temperature, pulse, and respiration ("TPR"). With its patented doppler technology, the VetGuardian monitor can capture vital signs in real time without harnesses or wired leads on the pet, thus allowing pet patients to rest comfortably during recovery at veterinary facilities. The system is easily set up by clinic staff and connected to the cloud using a smartphone app, after which monitoring of multiple monitors on a single screen is enabled by connecting to the MyZomedica® web portal. Veterinarians receive real-time notifications should the vital signs fall outside their customizable range, and they can remotely observe patient data from anywhere via a smart device.
Therapeutic Products
PulseVet® Electrohydraulic Shock Wave Platform
Our PulseVet products
The PulseVet business
PulseVet
We
a study designed to measure efficacy in treating osteoarthritis (“OA”) in small animals with the X-Trode. Animals | ||
● | a study designed to measure safety and efficacy in treating pulmonary |
We are also participating in studies that are being conducted by independent investigators, including:
a randomized, double blinded, cross | ||
● | a study to document small animal tolerance of the X -Trode vs. the traditional trode. This study is examining pain caused by treatment with the X -Trode compared to a traditional trode in dogs without sedation. This study began in the first quarter of 2021 |
Assisi® targeted Pulsed Electromagnetic Field Therapy (tPEMF) line of products.
Our Assisi products, including the Assisi Loop®, Assisi Loop Lounge®, and DentaLoop® devices, treat pain and inflammation through delivery of targeted pulsed electromagnetic field focused energy (tPEMF). Our Assisi Calmer Canine® devices utilize tPEMF to treat separation anxiety in small animals.
Targeted Pulsed Electromagnetic Field (tPEMF™) therapy delivers a micro-current to damaged tissue that is precisely tuned to trigger an animal’s own natural anti-inflammatory process. The electromagnetic signal, which is one-one-thousandth the strength of a cell phone, stimulates cellular repair by upregulating the body’s own production of endogenous nitric oxide (NO).
We commercialize the Assisi tPEMF products primarily to our network of 4,000 veterinarians. We also offer the products for sale through numerous channels including for sale on our own website to both veterinarians and pet owners, through traditional veterinary distributors such as MWI, Midwest Veterinary Supply, and others, and through online retail channels such as Amazon.
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License Agreements
In November of 2018, we entered into a development and supply agreement with Qorvo, focused on bringing In January of 2023, we entered into new agreements with Qorvo. The agreements include a worldwide exclusive license agreement, a transition services agreement, and a BAW sensor supply agreement. Collectively, these agreements expand our rights and responsibilities for the TRUFORMA product line. Under the license agreement Under the transition services agreement, we will pay Qorvo a market based hourly rate, for up to the next two years, for work to transition the manufacturing, research, and development practices around the TRUFORMA platform. This transition includes the sharing of industry knowledge, design history files, manufacturing equipment sourcing, and setup practices to our personnel. We also entered into a new BAW sensor supply agreement with Qorvo. This agreement allows Zomedica to purchase Qorvo’s proprietary BAW sensors for use in the TRUFORMA instrument. It also provides for exclusivity provisions such that Qorvo will not sell BAW sensors for use in a diagnostic product in the animal health sector during the term of our supply agreement. Collectively, these agreements will give Zomedica control of the future of the TRUFORMA platform, subject to royalty fees and BAW sensor supply requirements once the transition period is completed. We intend to accelerate investment in this platform which should benefit Zomedica in two key ways: PulseVet® Platform The technology used in our PulseVet products is licensed to us pursuant to a license agreement with SANUWAVE, Inc. Under the license agreement, we have a worldwide, exclusive license under specified patents to develop and commercialize products in the veterinary field. In 2019, the license was converted to a worldwide, irrevocable and perpetual, exclusive license in exchange for a one-time payment. Assisi Loop® Platform The technology used in our Assisi Loop product line is licensed to us pursuant to an amended license agreement from 2016 with Rio Grande Neurosciences Inc, a Delaware Corporation. Under this license agreement, we have a worldwide, - We are currently evaluating market opportunities for our next set of potential assays and will select the most attractive options for future development. We intend to invest additional resources to focus on expanding shelf life and seeking to improve temperature sensitivity of the cartridges; and - We believe we can implement measures to reduce the cost of manufacturing cartridges, thus potentially improving the margins of the TRUFORMA product line. This could provide more flexibility to respond to changes in demand for cartridges through its production scheduling.
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exclusive license under specified patents to develop and commercialize products in the veterinary field. The license agreement has been paid for in full and no future royalties or milestone payments are owed.
Legacy Programs
As a result of an internal strategic
Seraph Biosciences, Inc.
In May of 2018, we entered into a development, commercialization, and exclusive distribution agreement with Seraph Biosciences, Inc. (
Celsee, Inc.
In January of 2017, we entered into a collaborative research agreement with Celsee, Inc.,
In January of 2020, we amended and restated the Celsee agreement to acknowledge the completion of the initial development work and to provide for definitive supply and pricing terms for the liquid biopsy instrument and related consumables. In March of 2021, we amended the Celsee agreement to clarify certain exclusionary provisions related to rights granted to us.
Under the terms of the restated agreement, we continue to have exclusive, veterinary oncology care
We engage in development work on our diagnostic and therapeutic platforms
Sales and Marketing We market our
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While our products are generally sold directly to veterinary professionals or through on-line orders, we also use third party distributors in the U.S., particularly for the Assisi Loop® product line, and anticipate leveraging U.S. distributors for more of our products in the future.
Our TRUFORMA
Our PulseVet® platform is sold directly to equine and small animal veterinarians in the U.S. and to Equine veterinarians in Japan through a wholly owned subsidiary. Outside the United States and Japan, we sell PulseVet products primarily through a network of distributors.
PulseVet products have traditionally been widely adopted in the equine market but had limited adoption in the small animal market due to the need to sedate small animals to comfortably provide treatments. In September of 2021 the PulseVet companies launched the X-Trode product for use in the small animal market. We believe that the X-Trode will significantly expand the market opportunity for the use of shock wave technology
We provide a product warranty to
Manufacturing
We manufacture our PulseVet system in our newly renovated global manufacturing and operations center in Roswell, Georgia. We invested $1,100 in this facility to expand our footprint and capacity for planned trode refurbishment and
Our PulseVet products are assembled by us from readily available components. We assemble our products in Roswell, Georgia, and distribute our products in North America, South America, Europe, and Asia. We assemble and refurbish our Trodes in our facility in
products for sale in Japan. Although most components essential to our PulseVet business are generally available from multiple sources, we obtain printed circuit boards (“PCBs”) from two manufacturers.
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seen small disruptions in lead time due to the current conflict in the region, our use of multiple precious metal service companies and lack of sole sourcing has minimized the impact.
Currently TRUFORMA cartridges and instruments are manufactured by Qorvo, then shipped to our Roswell facility for distribution. Under the restructured TRUFORMA agreements, Qorvo will support the transition of instrument manufacturing from their contract manufacturer, and cartridge manufacturing from their facility in Plymouth, MN to our Roswell, GA facility. They will be compensated at an hourly rate for these transition services until we assume instrument and cartridge manufacturing responsibility, currently estimated to take place no later than the first half of 2024. Assisi® Products The Assisi line of products is manufactured by two contract manufacturing organizations, ADM Tronics Unlimited, LLC in New Jersey and Evolve Manufacturing Technologies in California. Final packaging and shipping are currently provided by the Wheelership, LLC in New Jersey. Distribution of Assisi products will transition to our Roswell facility in 2023. TRUVIEWTM Digital Microscopy We anticipate manufacturing, warehousing, and shipping the TRUVIEW digital microscopy system at our Roswell, Georgia manufacturing facility beginning in the first half of 2023. We purchase ultrasound components from a supplier in Europe for use in our proprietary ultrasound system. We complete final assembly and customization in Roswell, GA to include proprietary telemedicine components that enable our expert ultrasound technicians to view and control the customer’s system remotely in real time as they conduct training or coaching sessions. Intellectual Property We rely primarily upon a combination of in-licensed exclusive rights, patents, proprietary know-how, and confidentiality agreements to protect our processes, methods, and other technologies Our TRUFORMA We We acquired a portfolio of five U.S. patents, including one PCT and two continuation patents, together with sixteen foreign patent and patent applications for the Assisi Loop® and Assisi Calmer Canine® products. Following the acquisition of the Revo Squared assets, we expanded the original U.S. patent application by filing five continuation applications and also filed an additional four U.S. patent applications to cover the TRUVIEWTM microscope. We depend upon the skills, knowledge, and experience of our management personnel, as well as that of our other employees, advisors, consultants, and contractors, none of which are patentable. To help protect our know-how, and any inventions for which patents may be difficult to obtain or enforce, we require all
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disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries, and inventions important to our business.
In the diagnostic market, our potential competitors include large veterinary diagnostics companies, small businesses focused on animal health, and reference laboratory services provided by academic institutions and in-clinic product providers. These competitors include Idexx Laboratories, Inc., Antech Diagnostics
In the shock-wave market we face competition from laser
Assisi faces competition from Respond Systems Incorporated, which manufactures a line of Pulsed Electro Magnetic Therapy products, primarily in a bed format which most closely compares to the Assisi Loop Lounge® line of products.
In-clinic ultrasound can be an extremely versatile tool for veterinarians today. It can be useful in diagnosing, or ruling out a variety of cardiac, urinary, and GI conditions. The veterinary ultrasound equipment market is a highly competitive market, with major companies such as Sound, a division of Antech, Heska and Universal Imaging, among others providing equipment options to customers. In the services category, two smaller companies, Oncura Partners and WeeSeeYou each offer ultrasound training and interpretation services. We intend to offer our private label ultrasound system to customers and will include a limited amount of training with the purchase of each system. Once a customer exceeds the amount of included training, we would charge a modest fee per case. We are evaluating whether to offer more in-depth training programs for operators new to in-clinic ultrasound.
Our TRUVIEW platform, which is in development and is expected to launch in the first half of the year, will also enter a competitive market. Several major competitors offer some type of digital microscopy system ranging from Zoetis’ Imagyst™ for fecal, urine and cytology testing, to Heska’s Element AIM™ which is optimized for fecal and urine testing, to Idexx’ Digital Cytology™ platform.
Many of our competitors and potential competitors have substantially more financial, technical, and human resources than we do. Many also have
Government Regulation
There are no requirements for U.S. Food and Drug Administration, ( As of December 31,
1A. Risk Factors
We have a limited operating history, are not profitable, and may never become profitable. We are generating revenues from our products
the successful |
● | our ability to provide a suite of |
| our ability to successfully market our products; |
● | the availability, perceived advantages, relative cost, relative safety, and relative efficacy of |
● | the acceptance and utilization of our |
| ● | our ability to convince the veterinary community of the clinical utility of our products and their potential advantages over existing tests and devices; |
| ● | the willingness or ability of animal owners to pay for our products and the willingness of veterinarians to recommend our products; and |
| ● | the willingness of veterinarians to utilize our diagnostic tests and devices. |
Many of these factors are beyond our control. Accordingly, we cannot assure you that we will be successful in developing or commercializing our
We face unproven markets for our existing and future products.
The animal diagnostic and medical device markets are less developed than the related human markets and as a result no assurance can be given that our existing and future products will be successful. Animal owners, veterinarians, or other veterinary health providers in general may not accept or utilize any products that we may develop or acquire. The animal care industry is characterized by rapid technological changes, frequent new product introductions and enhancements, and evolving industry standards, all of which could make our products obsolete. Our future success will depend on our ability to keep pace with the evolving needs of our customers on a timely and cost-effective basis and to pursue new market opportunities that develop
The development and commercialization of veterinary diagnostics and medical devices is highly competitive, and our success depends on our ability to compete effectively with other products in the market and identify potential partners for additional development and commercialization.
There are several competitors in the companion animal diagnostic market that have substantially greater financial and operational resources and established marketing, sales and service organizations. We expect to compete primarily with commercial clinical laboratories, hospitals’ clinical laboratories, other veterinary diagnostic equipment manufacturers and other energy-based therapeutics companies. Our principal competitors in the veterinary diagnostic market are IDEXX Laboratories, Inc., Antech Diagnostics (a unit of Mars Inc.), Abaxis, Inc. (a wholly owned subsidiary of Zoetis Inc.), Heska Corporation, Zoetis Inc. In the veterinary therapeutic device market, our principal competitors are Companion Animal Health (a division of LiteCure, LLC), Summus Medical Laser, LLC, ELvation Vet USA, and other veterinary laser manufacturers. We must develop our distribution channels and build our direct sales force to compete effectively in the veterinary market.
The economic impact of the ongoing COVID-19 pandemic (or other outbreaks, epidemics, pandemics, or public health crises) could adversely affect our financial condition and results of operations.
For nearly the past three years, the ongoing COVID-19 pandemic and efforts to control its spread have significantly impacted the movement of people, goods and services worldwide, including in most or all of the regions in which we sell our products and services and conduct our business operations. The pandemic has resulted in and may continue to or at a later time result in, a global slowdown of economic activity, including travel restrictions, prohibitions of non-essential activities in some cases, disruption and shutdown of businesses and greater uncertainty in global financial markets.
Deteriorating economic and political conditions caused by the ongoing COVID-19 pandemic, such as increased unemployment, decreased capital spending, declines in consumer confidence and economic slowdowns or recessions, have caused and could continue to cause a decrease in demand for our products and
Although many health and safety restrictions have been lifted and vaccine distribution has increased, certain adverse consequences of the pandemic continue to impact the macroeconomic environment and may persist for some time,
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including labor shortages and disruptions of global supply chains, particularly in China and other parts of Asia. The growth in economic activity and in the demand for goods and services, coupled with labor shortages and supply chain disruptions, has also contributed to rising inflationary pressures and the risk of recession. Given the ongoing dynamic nature of variants of COVID-19, it is difficult to predict the full impact of the ongoing COVID-19 pandemic outbreak on our business. As the result of the ongoing COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to a number of risks, any of which could have a material, adverse effect on our business, financial condition, liquidity and cash flow, results of operations, ability to execute our growth strategy.
The Company’s operations and performance depend on global and regional economic conditions and adverse economic conditions can adversely affect the Company’s business, results of operations and financial condition.
Adverse macroeconomic conditions, including inflation, slower growth or recession, geopolitical conflict, new or increased tariffs and other barriers to trade, changes to fiscal and monetary policy, tighter credit, higher interest rates, high unemployment and currency fluctuations can materially adversely affect demand for the Company’s products and services. In addition, consumer confidence and spending can be adversely affected in response to financial market volatility, negative financial news, conditions in the real estate and mortgage markets, declines in income or asset values, changes to fuel and other energy costs, labor and healthcare costs and other economic factors. In addition to an adverse impact on demand for the Company’s products, uncertainty about, or a decline in, global or regional economic conditions can have a significant impact on the Company’s suppliers, logistics providers, distributors, and other channel partners. Potential effects include financial instability; inability to obtain credit to finance operations and purchases of the Company’s products; and insolvency.
We rely on our developmental partners and third-party suppliers and manufacturers to develop and manufacture our products. Global supply chains have been significantly disrupted by the COVID-19 pandemic, the Russia-Ukraine conflict, and other factors. For example, supply disruptions have led to a global shortage of semiconductor chips. In addition, shipping delays have increased, and transportation costs have risen significantly. As a result, component costs have increased, and the supply of materials has become less certain and more unpredictable. Any interruption or delay in the supply of parts and components for our products, or the inability to obtain those parts or components at acceptable prices and within a reasonable amount of time, could increase our costs and delay, prevent or impair our ability to manufacture our products and satisfy customer demand, which could have a material adverse effect on our business, operating results and financial condition.
Our dependence on suppliers could limit our ability to develop and commercialize certain products. We rely on third-party suppliers to provide components in our products, manufacture products that we do not manufacture ourselves, and perform services that we do not provide ourselves. Because these suppliers are independent third parties with their own financial objectives, actions taken by them could have a materially negative effect on our results of operations. In addition, we currently purchase
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exercise termination rights under the agreement, or that any of our suppliers will not experience disruptions in their ability to supply our requirements for products. In cases where we purchase sole and single source products or components under purchase orders, we are more susceptible to unanticipated cost increases or changes in other terms of supply. In addition, under some contracts with suppliers we have minimum purchase obligations, and our failure to satisfy those obligations may result in loss of some or all of our rights under these contracts or require us to compensate the supplier. If we are unable to obtain adequate quantities of products in the future from sole and single source suppliers, we may be unable to supply the market, which could have a material adverse effect on our results of operations.
Our strategic partnerships are important to our business. If we are unable to maintain any of these partnerships, or if these partnerships are not successful, our business could be adversely affected.
We have entered into strategic
partners may have significant discretion in determining the efforts and resources that they will apply to these |
● | partners may not perform their obligations as expected; |
● | partners may not pursue development of our product candidates or may elect not to continue or renew development based on development results, changes in the partners’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; |
● | disagreements with partners, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research and development of product candidates, might lead to additional responsibilities for us with respect to product candidates, or might result in litigation or arbitration, any of which would be time consuming and expensive; |
● | partners may not properly maintain or defend their intellectual property rights or may use proprietary information in such a way as to invite litigation that could jeopardize or invalidate the intellectual property or proprietary information or expose us to potential litigation; |
● | partners may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; |
● | there may be conflicts between different partners that could negatively affect those partnerships and potentially others; and |
● | the number and type of our |
If any
Additionally, subject to its contractual obligations to us, if a partner of ours is involved in a business combination or otherwise changes its business priorities, the partner might deemphasize or terminate the development of any technology licensed to it by us. If one of our partners terminates its agreement with us, we may find it more difficult to attract new partners and our perception in the business and financial communities and our stock price could be adversely affected.
We may in the future determine to partner with additional life science and technology companies for development of additional products. We face significant competition in seeking appropriate partners. Our ability to reach a definitive agreement for partnership will depend, among other things, upon our assessment of the partner’s resources and expertise, the terms and conditions of the proposed partnership and the proposed partner’s evaluation of a number of factors. If we are unable to reach agreements with suitable partners on a timely basis, on acceptable terms, or at all, we may not be able to access technologies that are important for the future development of our business. If we elect to fund and undertake development activities on our own, we may need to obtain additional expertise and additional capital, which may not be available to us on acceptable terms or at all. If we fail to enter into
If we fail to attract and keep senior management and key scientific personnel, we may be unable to successfully develop any of our existing or future product candidates, conduct our in-licensing and development efforts, and commercialize any of our existing or future products. Our success depends in part on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We are highly dependent upon our senior management, particularly Larry Heaton, our Chief Executive Officer, Ann Marie Cotter, our Chief Financial Officer, Continued growth may place a significant strain on financial, operational, and managerial resources. We must continue to implement and enhance our managerial, operational, and financial systems, expand our operations, and continue to recruit and train qualified personnel. There can be no assurance that our strategic and operational planning will allow us to adequately manage anticipated growth. In addition, the expense associated with increased manufacturing and sales/marketing may exceed our expectations. Any inability to successfully manage growth could have a material adverse effect on our business, operating results, and financial condition.
Zomedica and certain of its third-party vendors receive and store personal information in connection with Zomedica’s human resources operations and other aspects of our business. Despite implementation of security measures, our IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack, ransomware attack, and other similar disruptions. Any system failure, accident, or cyber security breach or incident could result in disruptions to our operations. A material network breach in the security of our IT systems could lead to vendor payments being paid to fraudulent bank accounts and the theft of intellectual property, trade secrets, customer information, human resources information, or other confidential information. To the extent that any disruptions or security breach results in a loss or damage to our data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to our reputation, affect our relationships with its customers and vendors, lead to claims against us and ultimately harm our business. In addition, we may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
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We are now considered a smaller reporting company, and as such, are not required to provide the same level of information in our filings that a larger reporting company is. This reduction in the amount and depth of information could adversely affect investor insights and decision making.
We
| - | The determination that our voting and non-voting common stock held by non-affiliates is more than $250 million measured on the last business day of our second fiscal quarter; or |
| - | Our annual revenue is more than $100 million during the most recently completed fiscal year and our voting and non-voting common stock held by non-affiliates is more than $700 million measured on the last business day of our second fiscal quarter. |
Smaller reporting companies are able to provide simplified executive compensation disclosure and have certain other reduced disclosure obligations, including, among other things, being required to provide only two years of audited financial statements and not being required to provide selected financial data, supplemental financial information or risk factors.
Further, as a non-accelerated filer, we will not be required to provide an auditor attestation of management's assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Sarbanes-Oxley Act Section 404(b), and, in contrast to other reporting companies, we’ll have more time to file our annual and periodic reports.
We may choose to take advantage of the available exemptions for smaller reporting companies. We cannot predict whether investors will find our common stock less attractive if we rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our shares price may be more volatile.
Climate change may affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable, such as an increase in the frequency or severity of wind and thunderstorm events, and tornado or hailstorm events due to increased convection in the atmosphere; more frequent wildfires and subsequent landslides in certain geographies; higher incidence of deluge flooding; and the potential for an increase in severity of the hurricane events due to higher sea surface temperatures.
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The failure to fully transition the appropriate knowledge and As part of the transition agreement with Qorvo, both companies have agreed to a joint initiative to transfer applicable knowledge of processes and procedures. The quality of this transition is contingent on our ability to inquire, document, and absorb the information given and may be limited by several factors including time, quality and completeness of documentation provided by Qorvo, expertise at Zomedica to understand and interpret what is being provided, etc. Failure to adequately collect, document, and implement this information could lead to eventual delays in production, quality control issues, inventory shortfalls, an inability to meet customer demand, and other related matters that could hamper our relationships with both our suppliers and customer base. We may not be able to leverage the same supplier relationships or production efficiencies that Qorvo was able to achieve, resulting in risk of increased costs, longer lead times, and a lower quality of product. Qorvo has been able to build and leverage favorable relationships with their suppliers given their time in the industry and their significant volumes and related demand. Upon taking over the manufacturing process from Qorvo, we will need to build the same relationships with the same set of suppliers. Given our new entry into the market, this may prove difficult as some suppliers may not be willing to take on additional customers, we may not be able to get the same pricing as more established customers, and/or we may be given less priority in terms of demand. All of these could negatively impact the availability and cost of materials and impact our ability to produce and deliver products to our customers. The long-term success envisioned when entering into this new agreement may not come to fruition if we are unable to attract, train, and keep the appropriate personnel required to manage the growth expected and the related changes in processes and procedures to effectively produce the cartridges on our own. Transferring, implementing, and executing the production processes from Qorvo requires us to find personnel with specific skill sets that may not be readily available due in part to timing, availability, and geographic concerns. Should we struggle to find these skill sets, we could be forced to delay hiring or to hire those with less experience than required. While we feel we will eventually be able to train them to the appropriate levels, this could cause delays in the standing up of our production processes and an increase in the time needed to bring our products to market as a standalone company. Failure of Qorvo to Provide BAW Sensors could lead to delays or an inability to manufacture cartridges. Manufacturing the TRUFORMA cartridges is dependent on the supply of BAW Sensors from Qorvo. If Qorvo fails to deliver the sensors in accordance with forecast, modifies the sensors so that they can no longer work with the TRUFORMA products, discontinues production of the BAW sensors or otherwise terminates the BAW Sensor Supply Agreement, we could experience delays in manufacturing, or an inability to manufacture, cartridges. We have incurred, and will continue to incur, significant transaction and integration costs in connection with our recent acquisitions and they could materially and adversely affect our results of operations. We have incurred significant costs associated with the negotiation and consummation of
Risks Related to Our Recently Completed Acquisitions of the PulseVet Companies and the Assisi Animal Health and Revo Squared Assets
The failure to integrate our acquisitions successfully into our business could have a material adverse effect on our results of operations and financial condition.
In order to realize the expected benefits of
The failure to realize the anticipated growth opportunities from our We may not realize the expected growth opportunities from our The assumption of unknown liabilities Because we acquired all of the If the PulseVet Companies’ Risks Related to Government Regulation Various government regulations could limit or delay our ability to develop and commercialize our products or otherwise negatively impact our business. Our existing and future products may be subject to post-market oversight by USDA-CBM and/or FDA-CVM regulations. The manufacture and sale of our products, as well as our research and development processes, are subject to similar and potentially more stringent laws in foreign countries. We are also subject to a variety of federal, state, local and international laws and regulations that govern, among other things, the importation and exportation of products; our business practices in the U.S. and abroad, such as anti-corruption and anti-competition laws; and immigration and travel restrictions. These legal and regulatory requirements differ among jurisdictions around the world and are rapidly changing and increasingly complex. The costs associated with compliance with these legal and regulatory requirements are significant and likely to increase in the future.
Any failure to comply with applicable legal and regulatory requirements could result in fines, penalties and sanctions; product recalls; suspensions or discontinuations of, or limitations or restrictions on, our ability to design, manufacture, market, import, export or sell our products; and damage to our reputation.
From time to time, legislation is drafted and introduced in the U.S. Congress that could significantly change the statutory provisions governing the testing, regulatory clearance or approval, manufacture, and marketing of regulated and/or licensed products. In addition, FDA-CVM and USDA-CVB regulations and guidance are often revised or reinterpreted by the FDA-CVM and USDA-CVB in ways that may significantly affect our business and our products. Similar changes in laws or regulations can occur in other countries. Any new regulations or revisions or reinterpretations of existing regulations in the United States may impose additional costs or lengthen review times of any of our existing or future product candidates. We cannot determine what effect changes in regulations, statutes, legal interpretation or policies, when and if promulgated, enacted or adopted may have on our business in the future. Such changes could, among other things, require:
changes to manufacturing methods; | recall, replacement or discontinuance of certain products; and | |
| additional record-keeping. |
Each of these would likely entail substantial time and cost and could materially harm our financial results. In addition, delays in receipt of or failure to receive regulatory clearances or approvals for any future products would harm our business, financial condition, and results of operations.
Risks Related to Intellectual Property Our ability to obtain intellectual property protection for our products is limited. Some of our products may or may not be covered by a patent. Further if an application is filed, it is not certain that a patent will be granted or if granted whether it will be held to be valid. All of which may impact our market share and ability to prevent others (competitor third parties) from making, selling, or using our products. We intend to rely upon a combination of patents, trade secret protection, confidentiality agreements, and license agreements to protect the intellectual property related to our existing and future products. We may not be successful in protecting our intellectual property rights, including our unpatented proprietary know-how and trade secrets, or in avoiding claims that we infringed on the intellectual property rights of others. In addition to relying on patent and trademark rights, we rely on unpatented proprietary know-how and trade secrets, and employ various methods, including confidentiality agreements with employees and consultants, customers and suppliers to protect our know-how and trade secrets. However, 23 these methods and our patents and trademarks may not afford complete protection and there can be no assurance that others will not independently develop the know-how and trade secrets or develop better production methods than us. Further, we may not be able to deter current and former employees, contractors and other parties from breaching confidentiality agreements and misappropriating proprietary information and it is possible that third parties may copy or otherwise obtain and use our information and proprietary technology without authorization or otherwise infringe on our intellectual property rights. In the future, we may also rely on litigation to enforce our intellectual property rights and contractual rights, and, if not successful, we may not be able to protect the value of our intellectual property. Any litigation could be protracted and costly and could have a material adverse effect on our business and results of operations regardless of its outcome. If we are unable to obtain trademark registrations for our products, our business could be adversely affected. We have trademark registrations for our company name and composite marks comprised of our company name, logo and/or slogan in the U.S., Canada, European Union, the United Kingdom, and Mexico. We also have an allowed application for our name in the U.S. for an expanded listing of diagnostic testing equipment. We have secured registrations for our MYZOMEDICA platform We have also secured registrations for our in-clinic biosensor testing platform We own four live federal trademark registrations, including one for the TRUFORMA testing platform product Third parties may have intellectual property rights, which may require us to obtain a license or other applicable rights to make, sell or use our products. If such rights are not granted or obtained, it could have a material adverse effect on our business, financial condition, and results of operations. Our success depends in part on our ability to obtain, or license from third parties, patents, trademarks, trade secrets and similar proprietary rights without infringing on the proprietary rights of third parties. Although we believe our intellectual property rights are sufficient to allow us to conduct our business without incurring liability to third parties, our products may infringe on the intellectual property rights of such persons. Furthermore, no assurance can be given that we will not be subject to claims asserting the infringement of the intellectual property rights of third parties seeking damages, the payment of royalties or licensing fees and/or injunctions against the sale of our products. Any such litigation could be protracted and costly and could have a material adverse effect on our business, financial condition and results of operations. We expect that the price of our common shares will fluctuate substantially. The market price of our common shares has been subject to significant fluctuations, and we expect that the market price of our common shares will remain volatile. At times, the price of our common shares has changed significantly unrelated to any change in our financial condition or results of operations that would explain such a change. Numerous factors, including many over which we have no control, may have a significant impact on the market price of our common shares. Examples of these include:
● ● ● ● ● ● ● ● ● ● ● ● ● In addition, the stock market, in general, or the market for stocks in our industry Our Articles of Amalgamation (as amended) authorize us to issue an unlimited number of common shares and preferred shares without shareholder approval and we may issue additional equity securities 25 including securities that are convertible into or exchangeable for, or that represent the right to receive, common shares or preferred shares. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future offerings, or the prices at which such offerings may be affected. Additional equity offerings may dilute the holdings of our existing shareholders or reduce the market price of our common shares, or both. Holders of our common shares are not entitled to pre-emptive rights or other protections against dilution. New investors also may have rights, preferences and privileges that are senior to, and that adversely affect, the then current holders of our common shares. Additionally, if we raise additional capital by making offerings of debt or preference shares, upon our liquidation, holders of our debt securities and preferred shares, and lenders with respect to other borrowings, may receive distributions of our available assets before the holders of our common shares. We have never paid and do not expect to pay dividends on our common shares in the future. We intend to invest our future earnings, if any, to fund our growth and not to pay any cash dividends on our common shares. Since we do not intend to pay dividends, your ability to receive a return on your investment will depend on any future appreciation in the market price of our common shares. There is no assurance that our common shares will appreciate in price. We are subject to the continued listing requirements of the NYSE American. If we are unable to comply with such requirements, our common shares would be delisted from the NYSE American, which would limit investors’ ability to effect transactions in our common shares and subject us to additional trading restrictions. Our common shares are currently listed on the NYSE American. In order to maintain our listing, we must maintain certain share prices, financial and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to these objective standards, the NYSE American may delist the securities of any issuer if, in its opinion, the issuer’s financial condition and/or operating results appear unsatisfactory; if it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on the NYSE American inadvisable; if the issuer sells or disposes of principal operating assets or ceases to be an operating company; if an issuer fails to comply with the NYSE American’s listing requirements; if an issuer’s common stock sells at what the NYSE American considers a “low selling price” (generally trading below $0.20 per share for an extended period of time); or if any other event occurs or any condition exists which makes continued listing on the NYSE American, in its opinion, inadvisable. Although the If the NYSE American delists our common shares from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our common shares would qualify to be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including: a limited availability of market quotations for our securities; ● reduced liquidity for our securities; ● a determination that our common shares are a “penny stock” which will require brokers trading in our common shares to adhere to more stringent rules ● a limited amount of news and analyst coverage; and ● a decreased ability to issue additional securities or obtain additional financing in the future. Risks Related to Income Taxes Our U.S. businesses have generated consolidated net operating loss carryforwards (“U.S. NOLs”) for U.S. federal and state income tax purposes of $32,456 as In the event of an ownership change, Section 382 imposes an annual limitation on the amount of taxable income we may offset with U.S. NOLs. This annual limitation is generally equal to the product of the value of our shares We concluded that, due to the limitations under Section 382 of the Code, it is likely our U.S. NOL carryforwards for the periods prior to February 11, 2021, for $21,013 are limited to zero, and are not available to offset taxable income generated in the US in We have generated net operating loss carryforwards for Canadian income tax purposes, but our ability to use these net operating losses may be limited by our inability to generate future taxable income in Canada. Our Canadian businesses have generated net operating loss carryforwards of $46,384 (“Canadian NOLs”) for Canadian federal and provincial income tax purposes. These Canadian NOLs can be available to Our ability to use any U.S. NOLs may be limited by our inability to generate future taxable income. U.S. NOLs may be available to reduce income taxes that might otherwise be incurred on future U.S. taxable income. The utilization of these U.S. NOLs could have a positive effect on our cash flow. However, there can be no assurance that we will generate the taxable income in the future necessary to utilize these U.S. NOLs and realize the positive cash flow benefit. We have generated Canadian NOLs, but our ability to reserve and use these Canadian NOLs may be limited or impaired by future ownership changes. Our ability to utilize the Canadian NOLs after a “loss restriction event” is subject to the rules of the Income Tax Act (Canada). A loss restriction event will occur if, among other things, there is change of control (which would generally occur if a person or group of related persons acquired more than 50% of our voting shares). If we experience a “loss 27 restriction event”: (i) we will be deemed to We believe that we will be a “passive foreign investment company,” or PFIC, for the current taxable We believe we were classified as a PFIC during our taxable If the Internal Revenue Service determines that we are not a PFIC and you previously paid taxes pursuant to a QEF Election or a Mark-to- Market Election, you may pay more taxes than you legally owe. If the Internal Revenue Service, or the IRS, makes a determination that we are not a PFIC and you previously paid taxes pursuant to a QEF Election or Mark-to-Market Election, then you may have paid more taxes than you legally owed due to such election. If you do not, or are unable to, file a refund claim before the expiration of the applicable statute of limitations, you will not be able to claim a refund for those taxes. 28 Item 1B. Unresolved Staff Comments None Item 2. Properties Our corporate headquarters and research and development laboratory are in Ann Arbor, Michigan where we lease and occupy approximately 18,966 feet pursuant to a lease that expires January Revo Squared operations and administrative activities were located in Marietta, Georgia where we lease and occupy 4,626 square feet pursuant to a lease that expires on December 31, 2023. As we have now relocated Revo Squared operations to our Roswell facility, we will be seeking to sublet this space. Assisi product distribution and certain operations are located in Carlstadt, New Jersey where we sub-lease 5,185 square feet pursuant to a license agreement that expires on November 30, 2026. As we None Not applicable Market Information Our common shares commenced trading on the NYSE American on November Common Stock Information 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to help the reader understand the results of operations and financial condition of the Company. The Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our audited consolidated financial statements and notes thereto for the We are a veterinary health company creating and marketing products for companion animals by focusing on the unmet needs of clinical veterinarians. Our mission is to enrich the lives of the animals we love and the people that care for them by providing products and technologies that improve patient care and enhance We currently have Diagnostic Products Therapeutic Products targeted Pulsed Electromagnetic Field (tPEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety. 30 As a result of an internal strategic view, we have focused our development and commercialization efforts on our TRUFORMA For the foreseeable future, we expect to continue to incur losses, which we expect will begin to decrease from historical levels as we continue the commercialization of our TRUFORMA For further information on the regulatory, business and product pipeline, please see the “Business” section of this Annual Report on Form Cost of revenue consisted primarily of the cost of raw materials used in the assembly of PulseVet instruments and trodes, the cost of TRUFORMA instruments purchased, the cost of Assisi parts purchased and related sub-components, and consumables and the related warranties purchased. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue. The majority of our operating expenses Research and Development Expense All costs of research and development are expensed in the period in which they are incurred. Research and development costs primarily consist of salaries and related expenses for personnel, fees paid to consultants, outside service providers, professional services, travel costs and materials used in clinical trials and research and development. Selling, General, and Administrative Expense Selling, general, and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. These expenses also include costs associated with sales and marketing As of December 31, Inflation Reduction Act On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax, such as repurchases under $1 million. Any redemption or other repurchase that occurs after December 31, 2022, in connection with a business combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, extension or otherwise; (ii) the structure of a business combination; (iii) the nature and amount of any equity issuances in connection with a business combination (or otherwise issued not in connection with a business combination but issued within the same taxable year of a business combination); and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury. The IR Act also included a new 15% Corporate Alternative Minimum Tax (“CAMT”) that acts as a new book minimum tax of at least 15% of consolidated GAAP pre-tax income for corporations with average book income in excess of $1 billion. Any increase in our effective tax rate will depend on a number of factors, including any offsets for general business credits or changes in book income following business combinations. The CAMT is effective for tax years beginning on or after January 1, 2023. Lastly, the IR Act also creates several potentially beneficial tax credits to incentivize investments in certain technologies and industries. We are in the process of evaluating the potential impacts of the IR Act. While we do not believe the IR Act will have a material negative impact on our business or our financial performance, the effects of the measures are unknown at this time. Our analysis is ongoing and incomplete, and it is possible that the IR Act could ultimately have a material adverse effect on our tax liability. We continue to monitor the IR Act and related regulatory developments to evaluate their potential impact on our business, tax rate and financial results. 32 Canadian Taxes In Canada, due to the uncertainty of realizing any tax benefits as of December 31, Translation of Foreign Currencies The functional currency, as determined by management, for our subsidiaries in the United States, Switzerland, and Canada is the U.S. dollar, which is also our reporting currency The functional currency, as determined by management, for our Japanese subsidiary is the 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. We measure the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted. We calculate stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of our stock-based compensation plans do not require us to settle any options by transferring cash or other assets, and therefore we classify the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest. We estimate forfeitures at the time of grant and revise these estimates, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The expected term, which represents the period of time that options granted are expected to be outstanding, is estimated based on an average of the term of the options. The risk-free rate assumed in valuing the options is based on the Canadian treasury yield curve in effect at the time of grant for the expected term of the option. The expected dividend yield percentage at the date of grant is zero as we are not expected to pay dividends in the foreseeable future. Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders We follow FASB 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. Critical Accounting Policies and Significant Judgments and Estimates Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, 33 liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. While our significant accounting policies are more fully described in Note 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 We Variances in future cash flows, anticipated growth rates, and revenue could significantly impact the value assigned to intangible assets. Any variance could cause impairment charges upon testing. We 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 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 34 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. We elected to perform a quantitative analysis as part of our annual goodwill impairment test for fiscal year 2022. As of October 1, 2022, The carrying value of goodwill for the PulseVet, Assisi, and Revo Squared reporting units at December 31, 2022 were $43.4 million, $14.3 million, and $6.1 million, respectively. The implied fair value for each reporting unit was calculated on a standalone basis using a weighted combination of the income approach and market approach. The implied fair values of each reporting unit were added together along with our unallocated assets to get an indicated value of total equity. This indicated value was compared to the total market capitalization as of October 3, 2022. This implied a control premium of 40.9%. This control premium is in line with the control premiums observed in the last five years in the Medical, Dental, and Hospital Equipment and Supplies industry which have historically been significantly higher than the aggregate control premiums across all other industries. As a result, the market capitalization reconciliation analysis provided support for the reasonableness of the fair values estimated for each individual reporting unit. Our Diagnostics segment purchases instruments and places them in The customer is obligated to purchase assays during the placement period. However, since the customer is not obligated to purchase the instrument, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the instrument and discontinues assay purchases. On December 31, The effect of a Changes to placement rates are not expected to decrease, nor do we expect that any decrease would be permanent. Revenue Recognition and Liabilities Due to Customers The nature of our Therapeutics business segment 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. When revenue is recognized, a simultaneous adjustment for returns is estimated, reducing revenue. Estimated return credits are presented as a reduction to gross sales with the corresponding reserve presented as customer contract liabilities. Variable consideration related to unused shock credits is calculated 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. Estimates of variable consideration are 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, The number of trodes returned by The average return credit is calculated by dividing the actual shock credits issued by the actual number of trodes returned. A variance in the assumed return rate compared to the actual rate would impact the estimate and potentially understate net sales (overestimated rate) or overstate net sales (underestimated rate) in any given Results of Consolidated Operations Revenue Revenue for the year ended December 31, 2022 was $18,930, compared to $4,133 for the year ended December 31, 2021, We launched our TRUFORMA platform in March of 2021 36 Cost of revenue for the year ended December 31, We anticipate that Gross profit margin for the year ended December 31, The increase in gross profit resulted primarily from the inclusion of Research and development expense for the year ended December 31, We anticipate that R&D costs will increase as we maintain and enhance our current product lines and continue to develop new products. Selling, General, and Administrative Selling, general, and administrative expense for the year ended December 31, We expect future selling, general and administrative expense to increase in Our net loss for the year ended December 31, The net loss in each period was attributed to the matters described above. We expect to continue to record net losses in future periods until such time as we have sufficient revenue from Cash Flows The following table shows a summary of our cash flows for the periods set forth below: Year Ended Year Ended December 31, 2022 December 31, 2021 Change Cash used in operating activities $ (11,670) $ (14,276) $ 2,606 (18)% Cash used in investing activities (155,880) (71,925) $ (83,955) 117% Cash provided by financing activities 8 219,159 $ (219,151) (100)% (Decrease) increase in cash and cash equivalents (167,542) 132,958 $ (300,500) (226)% Effect of exchange rate changes on cash (11) 2 $ (13) (650)% Cash and cash equivalents, beginning of period 194,952 61,992 $ 132,960 (215)% Cash and cash equivalents, end of period $ 27,399 $ 194,952 $ (167,553) (86)% Net cash used in operating activities for the year ended December 31, 2022 was Liquidity and Capital Resources We have incurred losses and negative cash flows from operations since our inception in May 2015. As of December 31, As of December 31, We believe that our existing cash is sufficient to fund our expected short-term needs. We believe that our existing cash resources will be sufficient to fund our expected operational requirements through at least December 38 Our future capital requirements depend on many factors, including, but not limited to: ● ● ● ● ● ● ● ● The only class of outstanding voting equity securities of the Company are the common shares. As of March there are 979, ● there are stock options outstanding under our Stock Option Plan to acquire an aggregate of ● ● ● ● All Recently Adopted Accounting Pronouncements From time to time, the FASB or other standard setting bodies issue new accounting pronouncements. Updates to the FASB ASC are communicated through issuance of an ASU. Unless otherwise discussed, we believe that recently issued guidance, whether adopted or to be adopted in the future, is not expected to have a material impact on our Consolidated Financial Statements upon adoption. To understand the impact of recently issued guidance, whether adopted or to be adopted, please review the information provided in Note There is general consensus in the scientific community that greenhouse gas emissions are linked to climate change, and that these emissions must be reduced dramatically to avert its worst effects. As a result, increased public awareness and concern about climate change will likely continue to (1) generate more regional and/or national requirements to reduce greenhouse gas emissions; (2) increase energy efficiency and reduce carbon pollution; and (3) cause a shift to cleaner and more sustainable sources of energy which may be more expensive than using fossil fuels as an energy source. The potential impact of climate change on our operations and the needs of our customers remains uncertain. Scientists have proposed that the impacts of climate change could include changes in rainfall patterns, water shortages, changes to the water levels of lakes and other bodies of water, changing storm patterns, more intense storms and changing temperature levels. These changes could be severe and vary by geographic location. Climate change may also affect the occurrence of certain natural events, the incidence and severity of which are inherently unpredictable. The effects of climate change also may impact our decisions to construct new buildings or maintain existing facilities in any areas that are or become prone to physical risks, which could similarly increase our operating costs. We could also face indirect financial risks passed through the supply chain that could result in higher prices for resources, such as energy. Additionally, climate change may adversely impact the demand, price and availability of property and casualty insurance that insures our physical assets. Due to significant economic variability associated with future changing climate conditions, we are unable to predict the impact climate change will have on us in the future. Item 8. Financial Statements and Supplementary Data Item 9A. Controls and Procedures Evaluation of Our Disclosure Controls We maintain disclosure controls and procedures that are designed to provide reasonable assurance that material information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules 40 Management’s Report on Internal Control Over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Item 9B. Other Information Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not applicable 41 PART III The information called for by this item will be set forth in our Proxy Statement for the The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference. The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference. The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference. The information called for by this item will be set forth in our Proxy Statement and is incorporated herein by reference. 42 PART IV Index to Consolidated Financial Statements Report of the Independent Registered Public Accounting Firm (Grant Thornton, PCAOB ID number F-1 Consolidated Balance Sheets as of December 31, 2022 and 2021 F-3 F-4 Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2022 and 2021 F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2022 and 2021 F-6 F-7 43 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Opinion on the financial statements We have audited the accompanying consolidated balance These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our We conducted our Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our The critical audit Valuation of developed technology, As described further in Note The principal consideration for our determination that the valuation of developed technology, F-1 inputs and assumptions made by management in the valuation models used to determine fair value. Those key assumptions include revenue growth rates, royalty rates, customer attrition rates Our audit procedures related to the valuation of developed technology, We obtained an understanding ● We evaluated the reasonableness of the Company ● We involved our valuation professionals with specialized skills and knowledge, to evaluate key inputs and assumptions used to determine fair value. Our valuation professionals compared the estimated annual customer attrition rate used to value the customer relationship intangible asset to historical customer retention data of the acquired company, compared the discount rate used to value the developed technology As described further in Note 4 to the financial statements, goodwill is evaluated for impairment at least annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. The Company performs a quantitative test to measure the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. The fair values are estimated using a discounted cash flow method, which includes significant assumptions such as financial projections of free cash flow, revenue trends, operating productivity, income taxes and capital levels. We identified goodwill impairment analysis as a critical audit matter. The principal consideration for our determination that the goodwill impairment analysis is a critical audit matter is the high degree of auditor judgment necessary in evaluating certain inputs and assumptions made by management in the valuation models used to determine the fair value of the reporting units. Those key assumptions include forecasted revenue growth, operating income, and discount rates. Our audit procedures related to the goodwill impairment analysis included the following, among others. /s/ We have served as the Company’s auditor since 2021. March 15, 2023 Zomedica Corp. Consolidated Balance Sheets As of December 31, December 31, 2022 2021 Assets Cash and cash equivalents $ $ Available-for-sale securities — Trade receivables, net Inventory, net Prepaid expenses and deposits Other receivables Total current assets Prepaid expenses and deposits Property and equipment, net Construction in progress Right-of-use asset Goodwill Intangible assets, net Non current available-for-sale securities — Other assets Total assets $ $ Liabilities and shareholders’ equity Current liabilities Accounts payable and accrued liabilities $ $ Accrued income taxes Current portion of lease obligations Customer contract liabilities Other current liabilities Total current liabilities Lease obligations Deferred tax liabilities Customer contract liabilities Other liabilities Total liabilities $ $ Commitments and contingencies (Note 17) Shareholders’ equity Unlimited common shares, no par value; $ $ Additional paid-in capital Accumulated deficit ( ( Accumulated comprehensive income (loss) ( Total shareholders' equity Total liabilities and shareholders’ equity $ $ The accompanying notes are an integral part of these consolidated financial statements F-3 Consolidated (United States Dollars in Thousands, Except for Per Share Data) December 31, December 31, 2022 2021 Net revenue $ $ Cost of revenue Gross profit Expenses Research and development Selling, general and administrative Loss from operations ( ( Interest income Interest expense ( ( Gain (loss) on disposal of assets ( Gain on extinguishment of debt — Other (loss) income ( Foreign exchange loss ( ( Loss before income taxes ( ( Income tax benefit Net loss ( ( Unrealized losses, change in fair value of available-for-sale securities, net of tax ( — Change in foreign currency translation Net loss and comprehensive loss $ ( $ ( Weighted average number of common shares - basic and diluted Loss per share - basic and diluted (Note 19) (0.02) (0.05) The accompanying notes are an integral part of these consolidated financial statements Zomedica Corp. Consolidated (United States Dollars in Thousands) For the Year Ended December 31, Common Additional Accumulated Common Stock Stock Paid-In Accumulated Comprehensive Shares Amount Subscribed Capital Deficit (Loss) Total Balance at December 31, 2020 $ $ $ $ ( $ — $ Stock-based compensation — — — — — Stock issuance from warrant exercises — ( — — Stock issuance costs — ( — — — — ( Stock issuance for financing — — — — Stock issuance from exercise of stock options — ( — — Stock redemption — — ( — Common stock subscribed — — ( — - — ( Net (loss) — — — — ( — ( Other comprehensive income (loss) — — — — — Balance at December 31, 2021 $ $ - $ $ ( $ $ Stock-based compensation — — — — — Stock issuance from warrant exercises — ( — — Warrants issued — — — — — Net (loss) — — — — ( — ( Other comprehensive income (loss) — — — — — ( ( Balance at December 31, 2022 $ $ - $ $ ( $ ( $ The accompanying notes are an integral part of these consolidated financial statements F-5 Zomedica Corp. Consolidated Statements of Cash Flows For the Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( $ ( Adjustments for: Depreciation Amortization - intangible assets (Gain) loss on disposal of property and equipment ( Gain on other assets — ( Gain on extinguishment of debt — ( Stock-based compensation Non cash portion of rent expense Accretion/amortization of available-for-sale securities ( — Change in assets and liabilities, net of acquisitions: Purchased inventory ( ( Prepaid expenses and deposits ( ( Trade receivables ( ( Other receivables ( ( Accounts payable and accrued liabilities Accrued income tax ( Deferred tax liabilities ( ( Other current liabilities ( Customer contract liabilities Other liabilities ( ( Net cash used in operating activities ( ( Cash flows from investing activities: Investment in available-for-sale securities ( — Investment in debt security (at fair value) ( — Investment in property and equipment ( ( Acquisition of intangibles ( ( Investment in construction in progress ( — Investment in acquisitions, net of cash acquired (Assisi, PulseVet, and ( ( Net cash used in investing activities ( ( Cash flows from financing activities: Cash proceeds from issuance of common shares and warrants — Cash received from warrant exercises Cash paid for shares and warrant issuance costs — ( Cash received from stock option exercises — Net cash provided by financing activities (Decrease) increase in cash and cash equivalents ( Effect of exchange rate changes on cash ( Cash and cash equivalents, beginning of year Cash and cash equivalents, end of year $ $ Noncash activities: Change in fair value of available-for-sale securities, net of tax $ ( $ — Deferred financing fees charged to stock issuance costs $ — $ Net equity effect of preferred share exchange $ — $ ( Transfer of construction in progress into property and equipment and intangibles $ $ — Transfer of inventory into property and equipment $ $ Supplemental cash flow information: Interest received $ $ The accompanying notes are an integral part of these consolidated financial statements F-6 Notes 1. Nature of The impact of the novel strain of coronavirus (“COVID-19”) The COVID-19 pandemic materially and adversely affected the development and commercialization of our TRUFORMA The extent to which the COVID-19 pandemic may impact our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the duration of the outbreak, the spread and severity of COVID-19, and the effectiveness of governmental actions in response to the pandemic. 2. Basis of 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”). Basis of Measurement The consolidated financial statements have been prepared on the historical cost basis except as otherwise noted. F-7 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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 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, as determined by management, for our subsidiaries in the United States, Switzerland, and Canada 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. Construction in progress is separately stated in the current period balance sheet for $ Recently Adopted Accounting Pronouncements In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets held. The Company adopted ASU 2016-13 as of January 1, 2022 and there was no significant impact on its consolidated condensed financial statements and related disclosures as a result. The Company considered, among other things, historical trends and projected economic / market conditions and determined that the estimate of credit losses was not significantly impacted. F-8 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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, reporting of which began in 2021, consist of Diagnostics and Therapeutics. Cash and Cash Equivalents The Company considers all highly liquid securities with an original maturity of three Our investment securities, which are comprised of corporate bonds/notes and US treasuries, are accounted for in accordance with ASC 320, “Investments – Debt and Equity Securities” (“ASC 320”). The company considers all of its securities for which there is a determinable fair market value, and there are no restrictions on the Company’s ability to sell within the next 12 months, as available for sale. We classify these securities as both current and non-current depending on their time to maturity. Available-for-sale securities are carried at fair value, with unrealized gains and losses reported as a component of shareholders’ equity. Accounts Receivable and Allowance for Credit Losses Accounts receivables are recorded net of an allowance for credit losses and have payment terms of 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 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 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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. Office equipment Furniture and equipment Laboratory equipment Machinery and equipment Leasehold improvements Over shorter of estimated useful life and lease term 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 trademarks, tradename, customer relationships and developed technology 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. E-commerce technology years Computer software and website years Tradename years Developed technology years Customer relationships years Trademarks years 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. Share issue costs are recorded as a reduction of the proceeds from the issuance of capital stock. Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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 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 years ended December 31, 2022 and 2021 is as follows: For the Year Ended December 31, Diagnostics Therapeutics 2022 2021 2022 2021 Consumables $ $ $ $ - Instruments - - Trodes - - Other (e.g., Warranty and Repairs) - - Total revenue $ $ $ $ Cost of goods sold consists of materials, labor, and shipping costs incurred internally to produce and receive the products. Shipping and handling costs incurred by the Company are included in cost of revenue. F-11 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) Research and Development Research and development costs related to continued research and development programs are expensed as incurred. Stock-based Compensation The Company measures the cost of equity-settled transactions by reference to the fair value of the equity instruments at the date at which they are granted if the fair value of the goods or services received by the Company cannot be reliably estimated. The Company calculates stock-based compensation using the fair value method, under which the fair value of the options at the grant date is calculated using the Black-Scholes Option Pricing Model, and subsequently expensed over the vesting period of the option using the graded vesting method. The provisions of the Company’s stock-based compensation plans do not require the Company to settle any options by transferring cash or other assets, and therefore the Company classifies the awards as equity. Stock-based compensation expense recognized during the period is based on the value of stock-based payment awards that are ultimately expected to vest. The Company estimates forfeitures at the time of grant and Income Taxes The Company accounts for income taxes in accordance with Deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the tax bases of assets and liabilities and their financial statement reported amounts using enacted tax rates and laws in effect in the 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 jurisdictions such as the United States and Canada. The Company recognizes tax-related interest and penalties, if any, as a component separate from income tax expense The Company Loss Per Share Basic loss per share (“EPS”) is computed by dividing the loss attributable to common shareholders by F-12 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) The dilutive effect of stock options is determined using the treasury stock method. Stock options to purchase common shares of the Company during fiscal 2022 and 2021 were not included in 4. Critical Accounting Judgments and Key Sources of 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 We use a discounted cash flow model to measure the trade names, customer relationship, and technology assets. The 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 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 F-13 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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 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 Our Diagnostics segment purchases instruments and places them in fixed assets, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase assays (tests) which are utilized in the instrument. Each instrument placed in the portfolio represents an asset that we own. An estimate is made of the anticipated future revenue over the life of the instrument, based on the sale of assays, which is typically 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 assays which will be sold, anticipated growth rates and placements of instruments. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models. 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. 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 December 31, 2022 (in thousands): Acquisition Accretion / Unrealized Estimated Commercial paper $ $ $ ( $ Corporate notes / bonds ( Debt security - - Money market funds - - U.S. govt. agencies ( U.S. treasuries ( Total investment securities $ $ $ ( $ Accrued interest receivable related to the above investment securities amounted to $ Contractual maturities of investment securities as of December 31, 2022 are as follows (in thousands): Acquisition Estimated Original maturities of 90 days or less $ $ Original maturities of 91-365 days Original maturities of 366+ days Total investment securities $ $ 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. F-15 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 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. Included within these available-for-sale securities is a $ Level 1 Level 2 Level 3 Estimated Commercial paper $ - $ $ - $ Corporate notes / bonds - - Debt security - - Money market funds - - U.S. govt. agencies - - U.S. treasuries - Total investment securities $ $ $ $ Cash & Available- Available- Estimated Commercial paper $ - $ $ - $ Corporate notes / bonds - Debt security - - Money market funds - - U.S. govt. agencies U.S. treasuries - Total investment securities $ $ $ $ F-16 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 7. Business Combinations All of the Company’s acquisitions of business have been accounted for under ASC 805, Business Combinations. Accordingly, the assets of the acquired companies reflect the fair values and have been included in the Company’s Condensed Financial Statements from their respective dates of acquisition. The results of operations of Pulse Veterinary Technologies, LLC, Revo Squared LLC, and Assisi Animal Health, LLC have been included in the Company’s Condensed Financial Statements since the dates of acquisition on October 1, 2021, June 14, 2022, and July 15, 2022, respectively. 2022 Acquisitions Asset Purchase Agreement with Assisi Animal Health LLC On July 15, 2022, 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 pursuant to which Zomedica Inc. agreed to acquire substantially all of the assets of Assisi. The Sellers are in the business of developing, manufacturing, marketing, distributing and selling animal health products which use targeted Pulsed Electromagnetic Field (PEMF) therapy to decrease pain and inflammation, accelerate healing, and reduce anxiety that include the Assisi Loop®, Assisi Loop Lounge®, Assisi DentaLoop® and Calmer Canine® product lines. Zomedica Inc. paid Assisi a purchase price of $ As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $ The Company made a preliminary allocation of the purchase price for Assisi Animal Health LLC’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period. F-17 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments: Initial Measurement Allocation of Period Updated Consideration Adjustments Allocation Inventory, net $ $ — $ Prepaid expenses and deposits — Other receivables ( Right of use asset — Intangible Assets (estimated useful life) E-commerce technology ( — Trade name ( — Developed technology ( — Customer relationships ( — Total assets acquired Current portion of lease obligations — Non current portion of lease obligations — Other non current liabilities — Total liabilities assumed Net assets acquired, excluding goodwill ( Goodwill Net assets acquired $ $ — $ Cash $ Fair value of warrants $ Total $ The following table provides unaudited proforma financial information, prepared in accordance with Topic 805, for the years ended December 31, For the Year Ended December 31, 2022 2021 Net Revenue $ $ Net Losses $ ( $ ( F-18 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) The proforma amounts have been calculated by including the results of Assisi, and adjusting the combined results to give effect to the following, as if the acquisitions had been consummated on January 1, 2021, together with the consequential tax effects thereon: For the Year Ended December 31, 2022 2021 Adjustments to net revenues Assisi preacquisition revenues $ $ Adjustments to net income Assisi preacquisition net losses $ ( $ ( 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 $ In addition, Zomedica Inc. has agreed to pay Revo Squared aggregate earn-out payments of up to $ As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $ The Company made a preliminary allocation of the purchase price for Revo Squared’s asset base based on its understanding of the fair value of the acquired assets and assumed liabilities. As the Company continues to obtain additional information about these assets and liabilities, including intangible asset appraisals, inventory valuation, and accrued expenses, and continues to integrate the newly acquired business, the Company will refine the estimates of fair value and more accurately allocate the purchase price. Only items identified as of the acquisition date are considered for subsequent adjustment. The Company will continue to make required adjustments to the purchase price allocation prior to the completion of the acquisition period. F-19 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) The following table summarizes the preliminary acquisition date fair values of the assets acquired and liabilities assumed and subsequent initial period adjustments: Initial Measurement Allocation of Period Updated Consideration Adjustments Allocation Trade receivables, net $ $ — $ Prepaid expenses and deposits — Intangible Assets (estimated useful life) Trade name ( — Developed technology ( — Customer relationships ( — Total assets acquired — Earnout liabilities ( Total liabilities assumed ( Net assets acquired, excluding goodwill Goodwill ( Net assets acquired $ $ — $ Cash $ Fair value of warrants $ Total $ Acquisition of PulseVet On October 1, 2021, Zomedica Inc., a wholly As a result of total consideration exceeding the preliminary fair value of the net assets acquired, goodwill in the amount of $ The Company F-20 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 Initial Measurement Allocation of Period Updated Consideration Adjustments Allocation Cash and cash equivalents $ $ $ Trade receivables — Inventory Prepaid expenses and — — — Intangible Assets (estimated useful life) Customer relationships ( — Developed technology ( — Trade name ( — Other Assets Total assets acquired Accounts payable and accrued liabilities ( Income tax payable — Deferred revenue — Liability for contracts with customers — Deferred tax liabilities ( Other non current liabilities Total liabilities assumed ( Net assets acquired, excluding goodwill Goodwill ( Net assets acquired $ $ — $ 8. Inventory Inventory details are as follows: December 31, 2022 December 31, 2021 Diagnostics Therapeutics Consolidated Diagnostics Therapeutics Consolidated Raw Materials $ — $ $ $ — $ $ Finished Goods — — Purchased Inventory — — Total Reserves ( ( ( ( ( ( Net inventory $ $ $ $ $ $ F-21 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) 9. Prepaid Expenses and Deposits December 31, December 31, 2022 2021 Deposits $ $ Prepaid marketing Prepaid insurance Prepaid taxes — Other Total prepaid expenses and deposits $ $ 10. Property and Equipment December 31, December 31, 2022 2021 Machinery and office equipment $ $ Furniture and equipment Laboratory equipment Leasehold improvements Accumulated depreciation and amortization Net property and equipment $ $ Depreciation expense for the year ended December 11. Intangible Assets December 31, December 31, 2022 2021 Computer software $ $ Customer relationships Technology Trademarks Tradename Website Accumulated amortization Net intangibles $ $ The estimated future amortization of intangible assets is as follows: 2023 $ 2024 2025 2026 2027 and beyond Total $ Amortization expense for the year ended December Zomedica Corp. Notes On February 1, 2021 the Company downsized its office space and modified its existing lease with Wickfield Phoenix LLC. The new lease period was for On September 15, 2021, the Company entered into an additional lease with Wickfield Phoenix LLC for warehousing space. The new lease period is for On July 1, 2022, as part of the Revo Squared Purchase, the Company assumed an agreement with Lebow 1031 Legacy, LLC to lease On July 15, 2022, as part of the Assisi asset purchase agreement, the Company assumed a license agreement pursuant to a lease agreement between The Wheelership LLC and The Realty Associates Fund XII portfolio, L.P., whereby Assisi sublet For the years ended December 31, 2021 and December 31, 2022, the Company recognized $ F-23 Zomedica Corp. Notes December 31, December 31, 2022 2021 Cost $ $ Less: impact of present value ( ( $ $ Reduction in right-of-use asset Interest ( ( Balance $ $ Net book value as at: Balance $ $ Lease liabilities Additions $ $ Payments ( ( Interest Total lease liabilities $ $ Current portion of lease liabilities Long term portion of lease liabilities Total lease liabilities $ $ Total remaining undiscounted lease liabilities related to the above lease are as follows: $ Less imputed interest Total $ Our weighted-average remaining lease term and discount rate are as follows: Year Ended Weighted-average remaining lease term Weighted-average discount rate 13. Common Stock On February 8, 2021, the Company completed a sale of The Company raised $ The direct cash costs related to the issuance of the common shares and warrants issued in February Zomedica Corp. Notes 14. Stock- During the During the During the The continuity of stock options are as follows: Number of Weighted Avg Options Exercise Price Balance at December 31, 2021 $ Stock options granted Stock options forfeited Balance at December 31, 2022 $ Vested at December 31, 2022 $ As of December Number of Weighted Avg Number of Options Number of Unvested Remaining Life Issued Vested Options Options Outstanding Grant Date Exercise Price and Outstanding Outstanding Outstanding (Years) March 14, 2020 July 9, 2020 August 25, 2020 October 1, 2020 October 20, 2020 December 31, 2020 February 26, 2021 — March 1, 2021 March 8, 2021 — March 15, 2021 — May 12, 2021 May 14, 2021 August 11, 2021 August 18, 2023 August 23, 2021 — September 13, 2021 October 1, 2021 January 3, 2022 — January 4, 2022 — January 14, 2022 — January 16, 2022 — January 18, 2022 — February 14, 2022 — February 21, 2022 — F-25 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) Number of Weighted Avg Number of Options Number of Unvested Remaining Life Issued Vested Options Options Outstanding Grant Date Exercise Price and Outstanding Outstanding Outstanding (Years) February 25, 2022 — March 30, 2022 — April 1, 2022 — April 6, 2022 — April 11, 2022 — May 2, 2022 — May 9, 2022 — May 11, 2022 — May 16, 2022 — May 31, 2022 — June 1, 2022 — June 6, 2022 — June 13, 2022 — June 17, 2022 — July 1, 2022 — July 5, 2022 — July 6, 2022 — July 25, 2022 — August 1, 2022 — August 5, 2022 — August 8, 2022 — August 17, 2022 — August 19, 2022 — August 22, 2022 — August 29, 2022 — August 31, 2022 — September 21, 2022 — September 23, 2022 — September 26, 2022 — October 4, 2022 — November 3, 2022 — November 7, 2022 — November 8, 2022 — November 9, 2022 — November 14, 2022 — November 21, 2022 — December 1, 2022 — December 9, 2022 — Balance at December 31, 2022 The Company calculates volatility of stock-based compensation using the historical price of the Company’s stock. An increase/decrease in the volatility would have resulted in an increase/decrease in the fair value of the options. Zomedica Corp. Notes The fair value of options granted during the year ended December Grant Date Volatility Risk-Free Expected Life Dividend Common Strike Forfeiture February 26, 2021 % % % $ $ % March 1, 2021 March 8, 2021 March 15,2021 May 12, 2021 May 14, 2021 May 14, 2021 August 11, 2021 August 18,2021 August 23, 2021 October 1, 2021 January 3, 2022 January 4, 2022 January 14, 2022 January 16, 2022 January 18, 2022 February 14, 2022 February 21, 2022 February 25, 2022 March 30, 2022 April 1, 2022 April 6, 2022 April 11, 2022 May 2, 2022 May 9, 2022 May 11, 2022 May 16, 2022 May 31, 2022 June 1, 2022 June 6, 2022 June 13, 2022 June 17, 2022 June 17, 2022 June 17, 2022 July 1, 2022 July 1, 2022 July 1, 2022 July 5, 2022 July 6, 2022 July 25, 2022 August 1, 2022 August 1, 2022 August 5, 2022 August 5, 2022 August 5, 2022 August 5, 2022 August 8, 2022 August 17, 2022 August 19, 2022 August 22, 2022 August 22, 2022 August 29, 2022 August 29, 2022 August 31, 2022 September 21, 2022 September 23, 2022 F-27 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) Grant Date Volatility Risk-Free Expected Life Dividend Common Strike Forfeiture September 23, 2022 September 26, 2022 September 26, 2022 October 4, 2022 November 3, 2022 November 7, 2022 November 8, 2022 November 9, 2022 November 14, 2022 November 21, 2022 December 1, 2022 December 9, 2022 For the years ended December 31, 2022 and 2021, the Company recorded $ 15. Warrants The Company values warrants issued in equity placements using the Black Scholes model to allocate the fair value of the proceeds from equity financings using a relative fair value approach. Like other stock-based compensation, management uses judgment to determine the inputs to the Black-Scholes option pricing model including the expected life, and underlying share price volatility. Changes in these assumptions will impact the calculation of fair value and the value attributed to the warrants. The Company calculates volatility of warrants based on the historical price of the Company’s stock. An increase/decrease in the In connection with the July In connection with the July 15, 2022 asset acquisition of Assisi, the Company issued a As of December 31, 2022, details of the outstanding warrants were as follows: Weighted Average Exercise Warrants Remaining Original Issue date Price Outstanding Life February 14, 2020 (Series A) April 9, 2020 (Series B) May 29, 2020 (Series C) - - July 7, 2020 (Series D) - - July 1, 2022 (Revo Squared) July 15, 2022 (Assisi) Balance at December 31, 2022 F-28 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) Cumulative Warrants Warrants Warrant Series Exercised Amount Expired Amount Series A $ — $ — Series B — — Series C Series D Total $ $ 16. Income The reconciliation of the combined Canadian federal and provincial statutory income tax rate of 2022 2021 Loss before income taxes $ ( $ ( Expected income tax expense (benefit) ( ( Difference in foreign tax rates Tax rate changes and other adjustments ( Changes in stock based compensation ( — Foreign accrual property income Stock based compensation and nondeductible expenses Prior period adjustment — Share issuance costs recorded in equity — ( Section 382 derecognition — Change in valuation allowance ( Total deferred income tax benefit $ ( $ ( The following table summarizes the components of deferred tax: 2022 2021 Deferred tax assets Intangible assets - licenses $ $ Share issuance costs Non-capital loss carried forward - Canada Net operating losses carried forward - US Investment tax credits Operating leases Stock-based compensation — Other — Total deferred tax assets $ $ Deferred tax liabilities Property and equipment ( ( Intangibles ( ( Other — ( Total deferred tax liabilities $ ( $ ( Valuation allowance Net deferred tax liability $ ( $ ( F-29 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) No deferred tax asset has been recognized for Canada, as it is not more likely than not 2036 $ 2037 2038 2039 2040 2041 2042 Total $ The Company’s US 2035 $ 2036 2037 Indefinitely (subject to 80% limitation) Derecognized under Section 382 ( Total $ As of December 31, 2022, we had net operating loss carryforwards for U.S. federal and state income tax purposes of 17. On May F-30 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) ● As of December From time to time, the Company may be exposed to claims and legal actions in the normal course of business. As of December 18. The Company The Company’s Chief Operating Decision Maker (CODM) is its Chief Executive Officer who has ultimate responsibility for enterprise decisions. Although our reportable segments provide similar products, each one is managed separately to better align with the Company’s customers and distribution The following is a reconciliation of consolidated revenue, cost of revenue, and gross profit amongst our reportable segments: Diagnostics Therapeutics Consolidated Net revenue $ $ $ Cost of revenue Gross profit $ $ $ 19. Loss Per Share F-31 Zomedica Corp. Notes to the Consolidated Financial Statements (United States Dollars in Thousands) December 31, December 31, 2022 2021 Numerator Net loss for the period $ (17,015) $ (18,384) Charge to retained earnings for preferred share exchange — (32,039) Loss attributable to common shareholders (17,015) (50,423) Denominator Weighted average shares - basic 979,924,052 956,533,761 Stock options — — Warrants — — Denominator for diluted loss per share 979,924,052 956,533,761 Loss per share - basic and diluted $ (0.02) $ (0.05) As of December 31, 20. On January 13, 2023, Zomedica Inc. entered into a Distribution Agreement with Structured Monitoring Products, Inc. (“SMP”) whereby the Company acquired non-exclusive rights to distribute the VetGuardian remote animal vital sign and surveillance monitoring device. The Distribution Agreement was entered into as a result of the Company exercising its right to commercialize the Product pursuant to a Note Purchase Agreement with an effective date of May 16, 2022 between the Company and SMP. The Company Agreement with Qorvo to take over new assay development and manufacturing of TRUFORMA product line through long-term agreement with Qorvo Biotechnologies, LLC On January 17, 2023, Zomedica Corp., along with its U.S. subsidiary Zomedica Inc. ("ZomInc," and together with the Company, the "Zomedica Entities"), entered into three related agreements with Qorvo Biotechnologies, LLC ("Qorvo"). These agreements include a Transition and Support Agreement, a BAW Sensor Supply Agreement, and a Development and Manufacturing License Agreement. The Qorvo Agreements represent a strategic restructuring of the Zomedica Entities' prior development and commercialization agreement with Qorvo for the Company's TRUFORMA® line of products. Under the Qorvo Agreements, ZomInc will take control of aspects of the TRUFORMA product line previously provided by Qorvo, including development of new assays and manufacturing both instruments and assay cartridges. This will position the Zomedica Entities to invest in accelerated development of new TRUFORMA assays and to begin manufacturing directly. ZomInc will provide up-front licensing and certain milestone payments, and an option payment if ZomInc exercises its option to extend exclusive rights for TRUFORMA in the veterinary health market in perpetuity. A related agreement F-32 Zomedica Corp. Notes to the Consolidated Financial Statements provides ZomInc the right to purchase Bulk Acoustic Wave sensors from Qorvo for inclusion in the TRUFORMA products. While Qorvo will continue to work with ZomInc to develop the TRUFORMA assays currently planned, including the first assay for the equine market and several assays for non-infectious gastrointestinal disease, Qorvo has agreed to provide technology transfer assistance to ZomInc to undertake all future new assay development for the TRUFORMA product line. Qorvo has also agreed to assist ZomInc to install manufacturing capabilities at the Zomedica Entities' Global Manufacturing and Distribution Center in Roswell, Georgia. The Zomedica Entities will thereafter have control of development, manufacturing, and commercialization of the TRUFORMA product line. The Zomedica Entities expect the manufacturing transfer process to take up to F-33 Exhibit Description 2.1 2.2 2.3 3.1 3.2 4.1 4.2 4.3 4.4 4.5 10.1+ 10.2 10.3+ 10.4# 10.5*** 10.6 10.7 10.8 10.9+** 10.10 10.11*** 10.12*** 10.13*** 10.14 43 Exhibit Description 10.15 10.16 10.17+ 10.18 10.19 10.20 21.1** 23.2** 31.1* 31.2* 32.1* 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.) 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101.1) The registrant has received confidential treatment for certain portions of this exhibit. Indicates management contract or compensatory plan. Furnished herewith. Filed herewith. Certain identified information has been excluded from this exhibit because it is both (i) not material and (ii) would be competitively harmful if publicly disclosed. Item 16. Form 10-K Summary None 44 Pursuant to the requirements of Section Larry Heaton Title: Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Larry Heaton Larry Heaton March (principal executive officer) /s/ Ann Marie Cotter Ann Marie Cotter Chief Financial Officer, Corporate Secretary March (principal financial and accounting officer) /s/ Chris MacLeod Chris MacLeod Director March /s/ Rodney Williams Rodney Williams Director March /s/ Jeffrey Rowe Jeffrey Rowe Director March /s/ Johnny D. Powers Johnny D. Powers Director March /s/ Robert Cohen Robert Cohen Director March /s/Sean Whelan Sean Whelan Director March /s/Pam Nichols Pam Nichols Director March 15, 2023 45any delays in, or suspension or failure of, any future studies; 24 delays in the commercialization of our existing or future products; manufacturing and supply issues related to our existing or future products; quarterly variations in our results of operations or those of our competitors; changes in our earnings estimates or recommendations by securities analysts or adverse publicity about us or our product candidates; announcements by us or our competitors of new products, significant contracts, commercial relationships, acquisitions or capital commitments; announcements relating to future development or license agreements including termination of such agreements; adverse developments with respect to our intellectual property rights or those of our principal collaborators; commencement of litigation involving us or our competitors; any major changes in our board of directors or management; new legislation in the United States and abroad relating to our markets or our industry; announcements of regulatory approval or disapproval of any of our future products or of regulatory actions affecting us or our industry; product liability claims, other litigation or public concern about the safety of our existing or future products; market conditions in the animal health industry, or in the sectors in which we participate, in particular, including performance of our competitors; the impact of social media posts by third parties that may draw attention to our company and increase trading in our common shares by retail investors; and general economic conditions in the United States and abroad.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities- our TRUFORMA® platform, comprising point-of-care diagnostic products for disease states in dogs and cats, providing assays for use at the point-of-care that provide reference lab accuracy, thereby enabling practitioners to diagnose and treat diseases sooner; - our Revo Squared imaging platform, - the VetGuardian™ platform, which provides continuous wireless monitoring of pets’ vital signs and provides them remotely to veterinarian practice staff, along with alert messaging should the vital signs rise or fall out of range. - our world-leading PulseVet® platform, which provides for non-invasive electro-hydraulic - our Assisi Loop® platform including a series
Valuation and Payback of Property and Equipmentthe costs and timing of our development and commercialization activities; the cost of manufacturing our existing and future products; the cost of marketing and selling our existing and future products, including marketing, sales, service, customer support and distribution costs; the expenses needed to attract and retain skilled personnel; the costs associated with being a public company; the costs associated with additional business development or mergers and acquisitions activity, including acquisition-related costs, earn-outs or other contingent payments and costs of developing and commercializing any technologies to which we obtain rights; third-party costs associated with the development and commercialization of our existing and future products and the ability of our development partners to satisfy our requirements on a timely basis; the scope and terms of our business plans from time to time, and our ability to realize upon our business plans; and the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing possible patent claims, including litigation costs and the outcome of any such litigation. . ● We obtained an understanding of the design of relevant controls within the Company’s process to perform the goodwill impairment analysis, including the Company’s control over the selection and review of the reasonableness of assumptions used in determining fair value. ● We evaluated the reasonableness of the Company’s forecasted revenue growth, operating income and discount rates used by comparing these assumptions to historical operating results for the reporting units and relevant available industry and market data. ● We involved our valuation professionals with specialized skills and knowledge, to evaluate key inputs and assumptions used in the discounted cash flow models to determine fair value. Our valuation professionals compared the discount rates used to value the reporting units to independently developed discount rates derived from publicly available data and re-performed the discounted cash flow calculations. Revo Squared)
Dollars in Thousands)
$2022, the balance related to these undepreciated instruments in property and equipment is
Cost of Revenue
Cost
(Amortization)
Gain / (Loss)
Fair Value
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.
Cost
Fair Value
In accordance with the fair value hierarchy described above, the following table shows the fair value of our investments as of December 31, 2022:
Fair Value
The following table shows these same investments and their respective balance sheet classifications:
Cash Equiv.
For-Sale
(Current)
For-Sale
(Non-Current)
Fair Value
Unrealized losses on our investments have not been recorded into income as we do not intend to sell nor is it more likely than not that we will be required to sell these investments prior to recovery of their amortized cost basis. The decline in fair value of our debt securities is largely due to the rising interest rate environment driven by current market conditions that have resulted in higher credit spreads. The credit ratings associated with our debt securities are mostly unchanged, are highly rated, and the debtors continue to make timely principal and interest payments. As a result, there were no credit or non-credit impairment charges recorded through December 31, 2022
Purchase price consideration was made up of the following:
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.
Asset Purchase Agreement with Revo Squared LLC
Purchase price consideration was made up of the following:
The determination of the final purchase price allocation to specific assets and liabilities assumed is incomplete. The purchase price allocation may change in future periods as the fair value estimates of the assets (including intangibles) and liabilities are adjusted.Dollars in Thousands)
759 624
December 31, 2022
Interest Rate
(In Years)
Yield
Share Price
Price
Rate
Interest Rate
(In Years)
Yield
Share Price
Price
Rate
● Diagnostics, which consists of TRUFORMA® products, and ● Therapeutics, which consists of PulseVet® and Assisi® products
Number
Number
