ZOMEDICA CORP. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read together with our financial statements and the related notes and the other financial information included elsewhere in this Report. This discussion contains forward-looking statements as well as forward-looking information under applicable Canadian securities legislation (collectively, "forward-looking statements") that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this Report, and those set forth in our most recent Annual Report on Form 10-K particularly those under "Risk Factors" discussed below and in our most recent Annual Report on Form 10-Kand in other reports we file under applicable securities laws.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 under Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and pursuant to applicable Canadian securities legislation that are based on management's beliefs and assumptions and on information currently available to management. Some of the statements under "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Report contain forward-looking statements. In some cases, you can identify forward-looking statements through our use of words such as "may," "might," "will," "could," "would," "should," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "project," "potential," "continue," "ongoing" or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words.
There are a number of important factors that could cause the actual results to differ materially from those expressed in any forward-looking statement made by us. These factors include, but are not limited to:
· our ability to successfully commercialize our lead product, TRUFORMA®;
· our ability to successfully integrate our recent acquisition of PulseVet
(as defined below) and the timing and costs to achieve that integration;
· our ability to successfully market and sell TRUFORMA®, and the PulseVet
veterinary products and services and any other products we develop or
acquire and the related cost and timing thereof;
· the ability of our contract partners and contractors to conduct our
product development, validation studies, verification studies, and beta
testing, and certain other development activities appropriately and on a
timely basis;
· the ability of our contract manufacturing organizations to manufacture and
supply our products to satisfy our requirements on a timely basis;
· our plans to develop and commercialize our planned and future products;
· our ability to obtain funding for our operations;
· our ability to develop and commercialize products that can compete
effectively;
· the size and growth of the veterinary diagnostics and medical device
markets;
· our ability to obtain and maintain intellectual property protection for
our planned and future products candidates;
· regulatory developments in the United States and other important
geographical markets;
· the loss of key personnel;
· the accuracy of our estimates regarding expenses, future revenues, capital
requirements and needs for additional financing;
the impact of the novel coronavirus pandemic on our operations, including
· the development, manufacturing, and selling of our TRUFORMA® platform and
related assays.
· our ability to maintain the listing of our common shares on the NYSE
American exchange; and
· our status as a "passive foreign investment company" for U.S. federal
income tax purposes.
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The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with that may cause our actual results to differ from those anticipated in our forward-looking statements. Please see "Risk Factors" below and in our most recent Annual Report on Form 10-K and in other reports we file under applicable securities laws for additional risks which could adversely impact our business and financial performance.
All forward-looking statements are expressly qualified in their entirety by this cautionary notice. You are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Report or the date of the document incorporated by reference into this Report. We have no obligation, and expressly disclaim any obligation, to update, revise or correct any of the forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. We have expressed our expectations, beliefs and projections in good faith, and we believe they have a reasonable basis. However, we cannot assure you that our expectations, beliefs or projections will result or be achieved or accomplished.
Overview
We are a veterinary health company creating products for companion animals by focusing on the unmet needs of clinical veterinarians. We expect that our product portfolio will include innovative diagnostics and medical devices that emphasize patient health and practice health. With a team that includes clinical veterinary professionals, our goal is to provide veterinarians the opportunity to increase productivity and grow revenue while better serving the animals in their care.
Our strategic focus has been on the commercialization of our TRUFORMA® diagnostic biosensor platform and the final development and commercialization of the first three assays for the detection of adrenal and thyroid disorders in cats and dogs. We also have continued our efforts on the development of the final two assays and will begin commercialization as soon as they are available. The TRUFORMA® platform uses Bulk Acoustic Wave (BAW) technology to provide a non-optical and fluorescence free detection system for use at the point-of-care. We believe that BAW technology will enable precise and repeatable test results at the point-of-care during a typical veterinary appointment.
We employ fifteen direct field commercialization personnel, supported by two regional directors, a Vice President of Sales, and a Chief Commercial Officer.
We believe that market acceptance of TRUFORMA® has been adversely impacted by delays in the development of our fT4 and ACTH assays by our development partner. Pending commercial availability of those assays, we have focused on encouraging veterinarians to install the TRUFORMA® instrument in order to test and utilize the TRUFORMA® platform. We expect this initiative to continue as we focus our efforts on growth of TRUFORMA® in the market.
We are also continuing to recruit and hire level sales representatives, professional services veterinarians, and support staff in order both to further the execution of our instrument placement programs and to prepare for an acceleration of our sales efforts once the fT4 and ACTH assays are available for commercial release.
We are continuing to develop the fT4 and ACTH assays with our development
partner. We are also continuing development work on three assays to diagnose
gastro-intestinal conditions (cPL, Cobalamin and Folate) and are in discussions
with our development partner regarding the development order and timing of
additional assays. We also expect to commence the marketing of TRUFORMA® in
select markets outside
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On
We expect to continue the development of another point-of-care diagnostic
platform, which is based on miniaturized laser-based Raman spectroscopy
technology and is designed to detect pathogens in companion animals. We believe
this platform will enable the identification of biological and biochemical
signatures in complex biological samples and has the potential to achieve
reference lab sensitivity/specificity to screen for a wide range of pathogens in
companion animal feces, urine, respiratory, and dermatological samples in
minutes without the need for extensive sample prep or the use of reagents. The
diagnostic platform has automated analysis and does not require specialized
staff training. We believe that this diagnostic platform does not require
pre-market regulatory approval for use with companion animals in
We have performed initial development work on a circulating tumor cell (CTC) "liquid biopsy" product for use in a reference lab setting as a canine cancer diagnostic. This product is intended for use to detect canine cancers faster, more affordably and less invasively compared to existing methods, which can be expensive and cost-prohibitive for pet owners. We have worked on the development of an assay that targets hard-to-diagnose canine cancers, such as hemangiosarcoma and osteosarcoma.
Consistent with our focus on the development of point-of-care diagnostic products, we intend to seek one or more partners for the further development and commercialization of the liquid biopsy product.
Through the year ended
For the foreseeable future, we expect to continue to incur losses, which will approximate historical levels as we continue the commercialization of our TRUFORMA® platform, support the marketing and sales of PulseVet's products and services and expand our product development and sales and marketing activities.
For further information on the regulatory, business and product pipeline, please see the "Business" section of our Annual Report on Form 10-K. For further information on the risk factorswe face, please see the "Risk Factors" section of our Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.
Revenue
We launched our TRUFORMA® platform and our first three assays during the first
quarter of 2021. Through
Cost of Revenue
Cost of revenue through
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Operating Expenses
The majority of our operating expenses through
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 testing and research and development.
Selling General and Administrative Expense
Selling, general and administrative expense consists of personnel costs, including salaries, related benefits and stock-based compensation for administrative employees, consultants, and directors. These expenses also include costs associated with sales and marketing activity, professional fees, and corporate administrative and overhead costs, including rent and other facilities costs, amortization, and depreciation.
Income Taxes
As of
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
JOBS Act
The Jumpstart Our Business Startups Act, or the JOBS Act, contains provisions that, among other things, reduce certain reporting requirements for an "emerging growth company." We have irrevocably elected not to avail ourselves of the JOBS Act provision that an emerging growth company may delay adopting new or revised accounting standards until such times as those standards apply to private companies.
In addition, as an "emerging growth company" we are not required to, among other
things, (i) provide an auditor's attestation report on our system of internal
controls over financial reporting pursuant to Section 404, and (ii) comply with
any requirement that may be adopted by the
Because our public float was in excess of
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Use of Estimates
The preparation of our Consolidated Financial Statements in accordance with
accounting principles generally accepted in
Inventories are stated at the lower of cost or net realizable value determined by the specific identification method. Inventories are regularly reviewed and write-downs for excess and obsolete inventory are recorded based primarily on current inventory levels, expiration date and estimated sales forecasts. While estimated sales forecasts are subjective in nature, the projections allow management to reasonably predict the net realizable value of current inventory based on expected demand. A decrease in the estimated sales forecasts would indicate the need to write-down excess and obsolete inventory. Management continuously monitors the market activity and assesses inventory levels.
Research and Development
Research and development costs related to continued research and development programs are expensed as incurred in accordance with ASC topic 730.
Translation of Foreign Currencies
The functional currency, as determined by management, is
Stock-Based Compensation
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 if the fair value of the goods or services received by us cannot be reliably estimated.
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
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Loss Per Share
Basic loss per share, or EPS, is computed by dividing the loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur from common shares issuable through the exercise or conversion of stock options, restricted stock awards, warrants and convertible securities. In certain circumstances, the conversion of options, warrants and convertible securities are excluded from diluted EPS if the effect of such inclusion would be anti-dilutive.
The dilutive effect of stock options is determined using the treasury stock method. Stock options and warrants to purchase our common shares issued during the period were not included in the computation of diluted EPS, as the effect would be anti-dilutive.
Comprehensive Loss
We follow 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. We currently have no other comprehensive loss items.
Results of Operations Revenue
Revenue for the three and nine months ended
As noted in the "Overview" section above, we believe that market acceptance of TRUFORMA® has been adversely impacted by unexpected delays in the development of our fT4 and ACTH assays by our development partner. We expect that market adoption of TRUFORMA® will be challenging until our fT4 and ACTH assays are available for commercial release.
Our future revenue will include revenue associated with PulseVet operations.
Cost of Revenue
Cost of revenue for the three and nine months ended
Research and Development
Research and development expense for the three and nine months ended
Selling, General and Administrative
Selling, general and administrative expense for the three months ended
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Selling, general and administrative expense for the nine months ended
Net Loss
Our net loss for the three months ended
Our net loss for the nine months ended
Cash Flows
Nine months ended
The following table shows a summary of our cash flows for the periods set forth
below:
Nine months ended September 30
2021 2020 Change
$ %
Cash flows used in
operating activities $ (9,373,804 ) $ (13,556,283 ) 4,182,479 -31 %
Cash flows (used)
provided by investing
activities (342,299 ) 1,006,900 (1,349,199 ) -134 %
Cash flow provided by
financing activities 219,135,443 64,071,437 155,064,006 242 %
Increase in cash and
cash equivalents 209,419,340 51,522,054 157,897,286 306 %
Cash and cash
equivalents, beginning
of period 61,991,703 510,586 61,481,117 12041 %
Cash and cash
equivalents, end of
period $ 271,411,043 $ 52,032,640 219,378,403 422 %
Operating Activities
Net cash used in operating activities for the nine months ended
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Investing Activities
Net cash used in investing activities for the nine months ended
Financing Activities
Net cash from financing activities for the nine months ended
Liquidity and Capital Resources
We have incurred losses and negative cash flows from operations since our
inception in
As of
Subsequent to
On
On
Interest rate risk is the risk that the value of a financial instrument might be adversely affected by a change in interest rates. The Company does not believe that the results of operations or cash flows would be affected to any significant degree by a sudden change in market interest rates, relative to interest rates on cash and cash equivalents, due to the short-term nature of these balances.
The Company has balances in Canadian dollars that give rise to exposure to
foreign exchange ("FX") risk relating to the impact of translating certain
non-
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Liquidity risk is the risk that the Company will encounter difficulty raising liquid funds to meet commitments as they fall due. In meeting its liquidity requirements, the Company closely monitors its forecasted cash requirements with expected cash drawdown.
We believe that our existing cash resources will be sufficient to fund our
expected working capital needs at least through
Our future capital requirements depend on many factors, including, but not limited to:
· the scope, progress, results and costs of researching and developing our
current or future product candidates;
· the number and characteristics of the product candidates we pursue;
· the cost of manufacturing our current and future product candidates and
any products we successfully commercialize;
· the cost of commercialization activities 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;
· our ability to establish and maintain strategic collaborations, licensing
or other arrangements and the financial terms of such agreements;
· the scope and terms of our business plans from time to time, and our
ability to realize upon our business plans;
· the costs involved in preparing, filing, prosecuting, maintaining,
defending and enforcing possible patent claims, including litigation costs
and the outcome of any such litigation; and
· the costs associated with additional business development or mergers and
acquisitions activity.
Off Balance Sheet Arrangements
Since inception, we have not engaged in the use of any off-balance sheet arrangements, such as structured finance entities, special purpose entities or variable interest entities.
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Outstanding Share Data
The only class of outstanding voting equity securities of the Company are the
common shares. As of
· there are 979,894,668 common shares issued and outstanding.
· there are stock options outstanding under our Stock Option Plan to acquire
an aggregate of 38,982,724 common shares.
· there are common share purchase warrants outstanding to acquire an
aggregate of 197,917 common shares at an exercise price of $0.15 per share
issued in February 2020 .
· there are common share purchase warrants outstanding to acquire an
aggregate of 363,501 common shares at an exercise price of $0.15 per share
issued in April 2020 .
· there are common share purchase warrants outstanding to acquire an
aggregate of 120,000 common shares at an exercise price of $0.15 per share
issued in May 2020 .
· there are common share purchase warrants outstanding to acquire an
aggregate of 231,000 common shares at an exercise price of $0.16 per share
issued in July 2020 .
· All of the currently outstanding warrants also have a "cashless exercise"
feature which is applicable in certain circumstances. The cashless
exercise feature could result in the potential issuance of common shares
based upon the "in-the-money" value of the applicable warrants at the time
of exercise of the applicable warrants. The number of the common shares
that may be issued is not determinable. However, the number of common
shares that are issuable is based upon a formula contained in the
applicable warrants, which determines the number of common shares issuable
by dividing the "in-the-money" value (based upon the then current market
price, as provided in the applicable warrants) by the then current market
price and multiplying this result by the number of common shares that are
issuable under the applicable warrants pursuant to cash exercise.
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