UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM 10-Q

 

 

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

 

For the quarterly period ended March 31, 2020.

 

OR

 

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

 

For the transition period from________ to_________.

 

Commission File Number: 001-38298

 

 

Zomedica Pharmaceuticals Corp.

(Exact name of registrant as specified in its charter)

 

 

Alberta, Canada		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)

 

100 Phoenix Drive, Suite 180 Ann Arbor, Michigan		48108
(Address of principal executive offices)		(Zip code)

 

(734) 369-2555

(Registrant’s telephone number, including area code)

 

 

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

 

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

 

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

 

Large accelerated filer	[  ]		Accelerated filer	[   ]
Non-accelerated filer	[  ]		Smaller reporting company	[X]
			Emerging growth company	[X]

 

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

 

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

 

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

 

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Shares, without par value	ZOM	NYSE American

 

 

As of May 11, 2020, 166,538,233 shares of the registrant’s common shares, without par value, were issued and outstanding.

 

Zomedica Pharmaceuticals Corporation

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED

MARCH 31, 2020

 

TABLE OF CONTENTS

 

	Page
PART I
FINANCIAL INFORMATION
1. Condensed Financial Statements	1
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
3. Quantitative and Qualitative Disclosures about Market Risk	34
4. Controls and Procedures	34
PART II
OTHER INFORMATION
1. Legal Proceedings	35
1A. Risk Factors	36
6. Exhibits	37

 

 

 

 

 

 

 

 

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

 

 

 

 

 

 

Zomedica Pharmaceuticals Corp.

 

 

Condensed unaudited interim consolidated financial statements

 

For the three months ended March 31, 2020 and 2019

 

(Expressed in United States Dollars, except as otherwise noted)

 

 

 

 

 

 

 

 

 

 

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated balance sheets

As at March 31, 2020 and December 31, 2019

(Stated in United States dollars)

 

 

 

 

Nature of operations and going concern (Note 1)

 

Commitments and contingencies (Note 14)

 

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

 

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of operations and comprehensive loss

For the three months ended March 31, 2020 and 2019

(Stated in United States dollars)

 

 

 

 

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

 

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of shareholders’ (deficiency) equity

For the three months ended March 31, 2020 and 2019

(Stated in United States dollars)

 

 

 

 

 

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

 

 

Zomedica Pharmaceuticals Corp.

Condensed unaudited interim consolidated statements of cash flows

For the three months ended March 31, 2020 and 2019

(Stated in United States dollars)

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

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 Quarterly Report. This discussion contains forward-looking statements and 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 Quarterly 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-K.

 

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report on Form 10-Q 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 “Business” and elsewhere in this Form 10-Q 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:

 

·

the success, cost and timing of our research and development activities, validation studies and pivotal trials, including with respect to our lead product candidates, TRUFORMA™, ZM-017, ZM-022, ZM-020, ZM-007, ZM-012 ZM-006, and ZM-011;

 

·

our ability to obtain, and the requirements for, regulatory approval from the Food and Drug Administration’s Center for Veterinary Medicine and/or the USDA Center for Veterinary Biologics for our pharmaceutical and diagnostic product candidates, as applicable;

 

·

our ability to obtain funding for our operations;

 

·

the ability of our contract research organizations to appropriately conduct our safety studies and certain development activities;

 

·

the ability of our contract manufacturing organizations to manufacture and supply our product candidates in accordance with current Good Manufacturing Practices and our clinical needs;

 

·

our plans to develop and commercialize our product candidates;

 

·

the expected impact of the novel coronavirus pandemic on our operations, including the development and commercialization of our TRUFORMA™ platform and the five initial assays;

 

·

our ability to develop and commercialize product candidates that can compete effectively against the product candidates developed and commercialized by our competitors or the current standards of care (including human generic drugs);

 

·

the size and growth of the veterinary diagnostics and therapeutics markets;

 

·

our ability to obtain and maintain intellectual property protection for our current and future product candidates;

 

·

regulatory developments in the United States;

 

·

the loss of key scientific or management personnel;

 

·

our expectations regarding the period during which we will be an “emerging growth company” under the JOBS Act;

 

·

the accuracy of our estimates regarding expenses, future revenues, capital requirements and needs for additional financing; and

 

·

our status as a “passive foreign investment company” for U.S. federal income tax purposes.

 

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 anticipate in our forward-looking statements. Please see “Risk Factors” below and in our most recent Annual Report on Form 10-K 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 development stage veterinary diagnostic company focused on creating point-of-care diagnostic platforms for use by veterinarians treating companion animals (canine, feline, and equine) by focusing on the unmet needs of clinical veterinarians. We believe that our diagnostic platforms have the potential to significantly improve the diagnosis and treatment of various diseases affecting companion animals. We believe that there are significant unmet medical needs for point-of-care diagnostic tools for use on pets, and that the pet diagnostic segment of the animal health industry is likely to grow substantially as new diagnostic tools and treatments are identified, developed, and marketed specifically for companion animals.

 

Our strategic focus is on the final development and commercialization of our TRUFORMA™ diagnostic biosensor platform and the first five assays for the detection of adrenal and thyroid disorders in cats and dogs. 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.

 

In our Annual Report on Form 10-K for the year ended December 31, 2019, we stated the following expectations with respect to our TRUFORMA™ platform:

 

·

verification of TRUFORMA’s™ five initial assays were expected to be completed by the end of the first quarter of 2020;

 

·

our goal was to complete validation by the end of the second quarter of 2020; and

 

·

we expected to commence commercialization of the five initial assays in select strategic markets by the end of 2020.

 

However, the COVID-19, pandemic has impacted our expected timing for the development and commercialization of our TRUFORMA™ platform and the five initial assays due to a number of factors, including the following:

 

·

our development partner has significantly reduced the number of employees working in its facilities which we expect will delay the completion of the verification of the five initial TRUFORMA™ assays and the manufacturing of commercial quantities of the TRUFORMA™ platform and the related assays;

 

·

veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA™ assays have either shut down or limited their operations to those involving only life-threatening conditions; and

 

·

potential customers have restricted access to their facilities which will affect our ability to perform on-site demonstrations and other marketing activities and to install purchased equipment.

 

·

The aforementioned impact of the COVID-19 pandemic was disclosed in our Form 8-K dated April 7,2020 and referred to in a press release issued on April 13, 2020.

 

Following the commercial launch of TRUFORMA™, we expect to continue the development of our 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 requires a small fecal sample preparation. Additionally, the platform has automated analysis and does not require specialized staff training. Because we are focused on the development and commercialization of the TRUFORMA™ platform, which has been adversely affected by the COVID-19 pandemic, we deferred work on this platform. We believe that this diagnostic platform does not require pre-market regulatory approval for use with companion animals in the United States.

 

We have performed initial development work on a circulating tumor cell (CTC) “liquid biopsy” platform for use in a reference lab setting as a canine cancer diagnostic. This platform 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 for use with this platform that targets hard-to-diagnose canine cancers, such as hemangiosarcoma and osteosarcoma.

 

We are a development-stage company with no products approved for marketing and sale, and we have not generated any revenue. We have incurred significant net losses since our inception. We incurred net losses of $2,450,618 and $11,676,908 for the three months ended March 31, 2020 and March 31, 2019, respectively, and $19,784,054 and $16,647,687 for the years ended December 31, 2019 and December 31, 2018, respectively. These losses have resulted principally from costs incurred in connection with investigating and developing our product candidates, research and development activities and general and administrative costs associated with our operations. As of March 31, 2020, we had an accumulated deficit of $54,508,459 and cash and cash equivalents of $1,496,752.

 

For the foreseeable future, we expect to continue to incur losses, which will increase significantly from historical levels as we expand our product development activities, commercialize them if they do not require U.S. Food and Drug Administration’s Center for Veterinary Medicine, or FDA-CVM, pre-market approval, seek regulatory approvals for our product candidates where required from the FDA-CVM or the United States Department of Agriculture Center for Veterinary Biologics, or the USDA-CVB.

 

For further information on the regulatory, business and product pipeline, please see the “Business” section of the Annual Report on Form 10-K. For further information on the risk factors, please see the “Risk Factors” section of the Annual Report on Form 10-K and this Quarterly Report on Form 10-Q.

 

Revenue

 

We do not have any products approved for sale, have not generated any revenue from product sales since our inception and do not expect to generate any revenue from the sale of products in the near future. If our development efforts result in clinical success and regulatory approval or collaboration agreements with third parties for any of our product candidates, we may generate revenue from those product candidates.

 

Operating Expenses

 

The majority of our operating expenses to date have been for the general and administrative activities related to general business activities, capital market activities and stock-based compensation, and research and development activities related to our lead product candidates.

 

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.

   

General and Administrative Expense

 

General and administrative expense consists primarily of personnel costs, including salaries, related benefits and stock-based compensation for employees, consultants and directors. General and administrative expenses also include rent and other facilities costs and professional and consulting fees for legal, accounting, tax services and other general business services.

 

Professional Fees

 

Professional fees include attorney’s fees, accounting fees and consulting fees incurred in connection with product investigation and analysis, regulatory analysis, government relations, audit, securities offerings, investor relations, and general corporate and intellectual property advice.

 

Income Taxes

 

As of December 31, 2019, we had net operating loss carryforwards for federal and state income tax purposes of $16,140,344 and non-capital loss carryforwards for Canadian income tax purposes of approximately $20,366,610, which will begin to expire in fiscal year 2035. We have evaluated the factors bearing upon the realizability of our deferred tax assets, which are comprised principally of net operating loss carryforwards and non-capital loss carryforwards. We concluded that, due to the uncertainty of realizing any tax benefits as of December 31, 2019, a valuation allowance was necessary to fully offset our deferred tax assets.

 

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, and revenue, costs and expenses and related disclosures during the reporting periods. On an ongoing basis, we evaluate our estimates and judgments, including those described below. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and 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 3 of the notes to our consolidated financial statements appearing elsewhere in this document, we believe that the estimates and assumptions involved in the following accounting policies may have the greatest potential impact on our financial statements.

 

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, we are in the process of evaluating the benefits of relying on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an “emerging growth company” we choose to rely on such exemptions, we may not be 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 Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis). These exemptions will apply until December 31, 2022 or until we no longer meet the requirements of being an “emerging growth company,” whichever is earlier.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the year. Actual results could differ from those estimates.

 

Areas where significant judgment is involved in making estimates are: the fair values of financial assets and liabilities; the determination of fair value of stock-based compensation; the useful lives and recoverability of property and equipment; deferred income taxes and forecasting future cash flows for assessing the going concern assumption. 

 

Research and Development Costs

 

Research and development expenses comprise costs incurred in performing research and development activities, including salaries and benefits, safety and efficacy studies and contract manufacturing costs, contract research costs, patent procurement costs, materials and supplies and occupancy costs. Research and development activities include internal and external activities associated with research and development studies of current product candidates and advancing product candidates towards a goal of obtaining regulatory approval to manufacture and market the product candidate.

 

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 U.S. dollars, which is also our reporting currency. Transactions denominated in currencies other than U.S. dollars and the monetary value of assets and liabilities are remeasured at the period end exchange rates. Revenue and expenses are remeasured at rates of exchange prevailing on the transaction dates. All of the exchange gains or losses resulting from these other transactions are recognized in the consolidated statements of operations and comprehensive loss.

 

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 revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Volatility is determined based on volatilities of comparable companies when the Company does not have its own trading history. 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 nil as we are not expected to pay dividends in the foreseeable future.

 

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

 

Three months ended March 31, 2020 compared to three months ended March 31, 2019

 

Our results of operations for the three months ended March 31, 2020 and March 31, 2019 are as follows:

 

		Three months ended				Three months ended
		March 31, 2020				March 31, 2019				Change
		$				$				$				%
Expenses
Research and development			630,066				7,531,375				(6,901,309	)			-92	%
General and administrative			1,248,861				3,212,357				(1,963,496	)			-61	%
Professional fees			290,682				758,298				(467,616	)			-62	%
Amortization - right-of-use asset			42,448				127,345				(84,897	)			-67	%
Amortization - intangible			45,036				267				44,769				16767	%
Depreciation			76,416				62,054				14,362				23	%
Loss from operations			2,333,509				11,691,696				(9,358,187	)			-80	%
Interest expense			651				6,174				(5,523	)			-89	%
Loss on fixed assets			69,834				-				69,834				N/A
Loss on right-of-use asset			59,097				-				59,097				N/A
Gain on settlement of liabilities			-				(19,737	)			19,737				-100	%
Other income			(5,500	)			-				(5,500	)			N/A
Foreign exchange gain			(6,973	)			(1,225	)			(5,748	)			469	%
Loss before income taxes			2,450,618				11,676,908				(9,226,290	)			-79	%
Income tax expense			-				-				-				N/A
Net loss and comprehensive loss			2,450,618				11,676,908				(9,226,290	)			-79	%

 

Revenue

 

We did not generate any revenue during the three months ended March 31, 2020 and March 31, 2019.

 

Research and Development

 

Research and development expense for the three months ended March 31, 2020 was $630,066 compared to $7,531,375 for the three months ended March 31, 2019, a decrease of $6,901,309 or 92%. The decrease was primarily due to a reduction in milestone payments and licensing fees of $5,886,841, contracted expenditures of $891,979, consulting fees of $56,810, salaries, bonus and benefits of $33,164, and supplies of $34,152. The reduction in milestone payments resulted primarily from the payment in the 2019 period of an aggregate of $5,000,000 in milestone payments related to our development of TRUFORMA^TM under our development and supply agreement with Qorvo Biotechnologies, LLC which did not recur in the 2020 period. In addition, as previously announced, we have focused our efforts on the development and commercialization of TRUFORMA^TM, which resulted in the elimination of milestone payments relating to our other product candidates. We expect that our research and development expenditures in 2020 will be lower than in 2019, as our work will focus solely on the verification and validation of TRUFORMA^TM. The novel coronavirus, or COVID-19, pandemic has impacted our expected timing for the completion of the development. Changes in timing may also affect anticipated costs of associated with such delays.

 

General and Administrative

 

General and administrative expense for the three months ended March 31, 2020 was $1,248,861, compared to $3,212,357 for the three months ended March 31, 2019, a decrease of $1,963,496 or 61%. The decrease was primarily due to a reduction in share-based compensation which was $155,022 for the three months ended March 31, 2020 compared to $2,341,104 for the comparable period in 2019. After adjusting for the share-based compensation expense, general and administrative expense increased $222,586. This increase was due to an increase in office expense of $177,686, primarily associated with the purchase of office furniture for our newly leased office space, an increase in regulatory fees of $64,364, primarily associated with NYSE American listing fees, the reclassification of rent expense from amortization of right-of-use asset of $50,078, offset by a reduction in travel and accommodation of $44,790. Due to our focus on our TRUFORMA^TM platform, we have reduced administrative headcount and associated activities and therefore, we expect that general and administrative expense will decrease in the remainder of 2020.

 

Professional Fees

 

Professional fees for the three months ended March 31, 2020 were $290,682 compared to $758,298 for the three months ended March 31, 2019, a decrease of $467,616 or 62%. The decrease was primarily due to expenses incurred in the three-month period ended March 31, 2019 relating to filings with the Securities and Exchange Commission which did not recur in the comparable 2020 period.

 

Net Loss

 

Our net loss for the three months ended March 31, 2020 was $2,450,618 or $0.02 per share, compared with a net loss of $11,676,908, or $0.12 per share, for the three months ended March 31, 2019, a decrease of $9,226,290 or 79%. 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, if ever, as we have sufficient revenue from our product candidates to offset our operating expenses.

 

Cash Flows

 

Three months ended March 31, 2020 compared to three months ended March 31, 2019

 

The following table shows a summary of our cash flows for the periods set forth below:

 

		Three months ended				Three months ended
		March 31, 2020				March 31, 2019				Change
		$				$				$				%
Cash flows used in operating activities			(2,173,127	)			(2,581,275	)			408,148				-16	%
Cash flows from financing activities			2,151,780				3,006,828				(855,048	)			-28	%
Cash flows from (used) in investing activities			1,007,513				(69,087	)			1,076,600				-1558	%
Increase in cash			986,166				356,466				629,700				177	%
Cash and cash equivalents, beginning of period			510,586				1,940,265				(1,429,679	)			-74	%
Cash and cash equivalents, end of period			1,496,752				2,296,731				(799,979	)			-35	%

 

Operating Activities

 

Net cash used in operating activities for the three months ended March 31, 2020 was $2,173,127, compared to $2,581,275 for the three months ended March 31, 2019, a decrease of $408,148 or 16%. The largest uses of cash resulted primarily from our net loss, as well as a decrease in accounts payable and accrued liabilities of $508,557 and an increase in accounts receivable of $74,845, partially offset by a decrease in the utilization of prepaid expenses and deposits of $409,028 and an increase in non-cash expenses including stock-based compensation of $155,022, depreciation of $76,416, loss on fixed asset disposition of $69,834, loss of right-of-use asset disposition of $59,097 amortization of intangible assets of $45,036, and amortization of right-of-use assets of $42,448.

 

Net cash used in operating activities for the three months ended March 31, 2019 was $2,581,275. The largest uses of cash in the 2019 period resulted primarily from our net loss, as well as a decrease in accrued liabilities of $5,397,418, which were partially offset by non-cash expenses associated with stock-based compensation of $2,341,104, stock issued for services of $792,104, and amortization of right-of-use assets and intangible assets of $127,612. Other uses included prepaid expenses and deposits of $399,654.

 

Financing Activities 

 

Net cash from financing activities for the three months ended March 31, 2020 was $2,151,780, compared to $3,006,828 for the three months ended March 31, 2019, a decrease of $855,048 or 28%. Cash from financing activities in the first quarter of 2020 resulted primarily from the $2,500,000 public offering of our common shares, partially offset by stock issuance costs of $348,220.

 

Net cash from financing activities in the first quarter of 2019 resulted from the $3,000,000 public offering of our common shares, partially offset by stock issuance costs of $593,172 and the exercise of stock options for $600,000.

 

Investing Activities

 

Net cash from investing activities for the three months ended March 31, 2020 was $1,007,513, compared to cash used of $69,087 for the three months ended March 31, 2019, an increase of $1,076,600 or 1,558%. The increase resulted primarily from the repurchase of our previous prepaid lease for $1,002,113 and cash received on the sale of property and equipment for $5,400.

  

Net cash used in investing activities for the three months ended March 31, 2019 was $69,087 which resulted primarily from the additional leasehold improvements in Ann Arbor.

 

Liquidity and Capital Resources

 

We have incurred losses and negative cash flows from operations and have not generated any revenue since our inception in May 2015. As of March 31, 2020, we had an accumulated deficit of $54,508,459. We have funded our working capital requirements primarily through the sale of our securities and the exercise of stock options.

 

As at March 31, 2020, the Company had cash of $1,496,752, prepaid expenses and deposits of $520,290, and accounts receivable of $142,463. Current assets amounted to $2,159,505 with current liabilities of $1,801,763, resulting in working capital (defined as current assets minus current liabilities) of $357,742.

 

On April 9, 2020, the Company completed a confidentially marketed public offering (“CMPO”) of its common shares and warrants for gross proceeds of $4,000,000.

 

As of March 31, 2020, we had shareholders’ equity of $1,951,643. After giving effect to the April 2020 offering and exercises of Series B Warrants issued in the April 2020 offering, as of May 11, 2020 our pro forma shareholders’ equity at March 31, 2020 would have been $6,173,718.

 

On April 20, 2020 we received a $527,360 loan under the SBA’s the Paycheck Protection Program.

 

On October 17, 2017 we entered into a five-year $5,000,000 unsecured working capital facility with Equidebt LLC, one of our shareholders (the “Equidebt Facility”). Amounts borrowed under the Equidebt Facility bear interest at a rate of 14% per annum payable at maturity. All amounts borrowed under the Equidebt Facility become due and payable on October 17, 2022. We can make two borrowings per month under the Equidebt Facility, each of which must be for a minimum of $250,000. The Equidebt Facility is unsecured. As of March 31, 2020, no amounts have been borrowed against this facility.

 

If we raise additional funds by issuing equity securities, our existing security holders will likely experience dilution, and the incurring of indebtedness would result in increased debt service obligations and could require us to agree to operating and financial covenants that could restrict operations. In the event that we are unable to obtain sufficient capital to meet our working capital requirements, we may be required to change or curtail current or planned operations in order to conserve cash until such time, if ever, that sufficient proceeds from operations are generated. In such an event, we may not be able to take advantage of business opportunities and may have to terminate or delay safety and efficacy studies, curtail our product development programs, or sell or assign rights to our product candidates, products and technologies.

 

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 timing of, and the costs involved in, obtaining regulatory approvals for any of 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 if any of our current or future product candidates are approved for sale, 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; 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.

 

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. 

 

Outstanding Share Data

 

The only class of outstanding voting or equity securities of the Company are the common shares. As of May 11, 2020:

 

·

there are 166,538,233 common shares issued and outstanding;

 

·

there are stock options outstanding under our Stock Option Plan to acquire an aggregate of 11,841,265 common shares; and

 

·

there are common share purchase warrants (collectively, the “February Warrants”) outstanding to acquire an aggregate of 21,875,001 common shares, which February Warrants were issued in connection with an offering completed by the Company on February 14, 2020 (which has been described in a Form 8-K dated February 12, 2020). Of these February Warrants, 20,833,334 are exercisable for a cash price of $0.20 per share (the “Series A Warrants”), and 1,041,667 are exercisable for cash price of $0.15 per share (the Placement Agent Warrants”). The February 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 February Warrants at the time of exercise of the applicable February 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 February 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 February Warrants) by the then current market price, and multiplying this result by the number of common shares that are issuable under the applicable February Warrants pursuant to cash exercise.

 

·

there were common share purchase warrants (collectively, the “April Warrants”) outstanding to acquire an aggregate of 18,333,334 common shares, which April Warrants were issued in connection with an offering completed by the Company on April 9,2020 (which has been described in a Form 8-K dated April 7 2020). Of these April Warrants, 16,666,667 are Series B Warrants, 1,666,667 are Placement Agent Warrants, and are all exercisable for a cash price of $0.15 per share. There are currently 14,000,167 April Warrants outstanding to acquire an aggregate of 14,000,167 common shares. The April 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 April Warrants at the time of exercise of the applicable April 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 April 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 April Warrants) by the then current market price, and multiplying this result by the number of common shares that are issuable under the applicable April Warrants pursuant to cash exercise.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

Not applicable.

 

Item 4. Controls and Procedures.

 

Disclosure 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 and forms and to provide reasonable assurance that such information is accumulated and communicated to our management, our chief executive officer and our chief financial officer, to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2020, our disclosure controls and procedures were effective.  

 

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 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on criteria established in the framework in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of March 31, 2020.

 

 

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

On November 1, 2019, Heska Corporation (“Heska”) filed a complaint for damages and injunctive relief (the “Complaint”) in the United States District Court for the Middle District of North Carolina, Case 1:19-cv-01108-LCB-JLW, against Qorvo US, Inc. (“Qorvo US”), Qorvo Biotechnologies, LLC (“Qorvo Biotech” and, together with Qorvo US, “Qorvo”) and the Company (collectively with Qorvo, the “Defendants”). The Complaint alleges, among other things, that the Defendants improperly obtained Heska’s trade secrets and confidential information and/or conspired to use improper means to misappropriate Heska’s trade secrets related to an instrument and related consumable products for performing immunoassay analysis of biomarkers and other substances. The Complaint seeks compensatory and exemplary damages, as well as preliminary and permanent injunctive relief to prevent the Defendants from commercializing the Company’s TRUFORMA^TM diagnostic instrument. On January 21, 2020, the Defendants filed a motion seeking dismissal of the Complaint. On February 11, 2020, Heska filed its response to the Defendants’ motion to dismiss to which the Defendants responded on February 25, 2020. The Court has not yet ruled on Defendants’ motion to dismiss, and the litigation remains stayed pending a ruling on that motion. The Company believes that the allegations in the Complaint have no merit and will not have a material adverse effect on the Company’s business, results of operations or financial condition. Although the Company is expected to commence the commercialization of its TRUFORMA^TM platform by the end of 2020, the novel coronavirus, or COVID-19, pandemic has impacted the Company’s expected timing, as described further in the “Risk Factors” section of this Quarterly Report.

 

Under the terms of the Development and Supply Agreement, dated November 26, 2018, by and between Qorvo Biotech and the Company (the “Qorvo Agreement”), Qorvo Biotech agreed to indemnify the Company and certain related parties against claims alleging infringement or misappropriation of third-party intellectual property rights, subject to certain limitations and exceptions. Qorvo Biotech has notified the Company that Qorvo Biotech has assumed the defense of the Complaint and will indemnify the Company for losses arising from the Complaint in accordance with the terms of the Qorvo Agreement. Qorvo Biotech has further advised the Company that it intends to mount a vigorous defense to the claims in the Complaint, and that it believes the allegations contained in the Complaint are without merit.

 

 

 

 

 

 

 

 

 

 

 

Item 1A. Risk Factors.

 

RISK FACTORS

 

Risks Related to Our Business

 

We have a limited operating history, are not profitable and may never become profitable.

  

We have not generated any revenue to date, and we expect to continue to incur significant research and development costs and other expenses. Our net loss and comprehensive loss for the three months ended March 31, 2020 and March 31, 2019 was $2,450,618 and $11,676,908, respectively, and for the years ended December 31, 2019 and December 31, 2018 was $19,784,054 and $16,647,687, respectively. Our accumulated deficit as of March 31, 2020 was $54,508,459. As of March 31, 2020, we had total shareholders' equity of $1,951,643. We expect to continue to incur losses for the foreseeable future, which will increase significantly from historical levels as we expand our product development activities (including conducting required clinical studies and trials), seek necessary approvals for our product candidates, and begin commercialization activities. Even if we succeed in developing and broadly commercializing one or more of our product candidates, we expect to continue to incur losses for the foreseeable future, and we may never become profitable. If we fail to achieve or maintain profitability, then we may be unable to continue our operations at planned levels and be forced to reduce or cease operations. 

 

The “Novel Coronavirus Disease 2019” (“COVID-19”) pandemic has materially and adversely affected the development and commercialization of our TRUFORMA™ platform.

 

The COVID-19 pandemic has materially and adversely affected the development and commercialization of our TRUFORMA™ platform and the initial five assays. In response to the pandemic, our development partner has reduced the number of employees working in its facilities which we expect will delay the completion of the verification of the five initial TRUFORMA™ assays and the manufacturing of commercial quantities of the TRUFORMA™ platform and the related assays. Veterinary hospitals and clinics that had agreed to participate in the validation of our initial TRUFORMA™ assays have either shut down or limited their operations to those involving only life-threatening conditions. Potential customers have restricted access to their facilities which will affect our ability to perform on-site demonstrations and other marketing activities and to install purchased equipment. The extent to which the COVID-19 pandemic may impact the development and commercialization of our TRUFORMA™ platform and the related assays 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.

 

The COVID-19 outbreak has disrupted our development partners and the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results.

 

The COVID-19 outbreak has disrupted our development partners and the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect our business and operating results. For example, our development partner for our TRUFORMA™ platform and the related assays has reduced the number of employees working in its facility which has significantly impacted our expected timing for the completion of the development and the commencement of the commercialization of our TRUFORMA™ platform and the related assays. If our suppliers are unable or fail to fulfill their obligations to us for any reason, we may not be able to manufacture our products and satisfy customer demand or our obligations under sales agreements in a timely manner, and our business could be harmed as a result. At this point in time, there is uncertainty relating to the potential effect of COVID-19 on our business. Infections may become more widespread and should that cause supply disruptions it would have a negative impact on our business, financial condition and operating results. In addition, a significant health epidemic could adversely affect the economies and financial markets of many countries, resulting in an economic downturn that could affect the market for our products, which could have a material adverse effect on our business, operating results and financial condition.

 

 

The COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.

 

The COVID-19 pandemic has resulted in a significant spike in unemployment and a concomitant decline in economic activity in the U.S. and many other countries and any future outbreak of a health epidemic or other adverse public health developments may have similar effects. Pet owners may be unwilling or unable to seek treatment for their pets in such circumstances, thereby decreasing demand for our products. In addition, as noted above, potential customers for our products have either shut down or limited their operations to those involving only life-threatening conditions which will affect our ability to perform on-site demonstrations and other marketing activities and to install purchased equipment. Potential customers also may be unwilling or unable to invest in new equipment or to introduce new treatments for their patients. As a result, the COVID-19 pandemic and any future outbreak of a health epidemic or other adverse public health developments could materially and adversely affect the sales of our products.

 

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. On April 10, 2020, we received a deficiency letter from the NYSE American indicating that the we are not compliance with Section 1003(f)(v) of the NYSE American Company Guide, because our common shares have been selling for a low price per share for a substantial period time. If we fail to regain compliance with the NYSE American continued listing standards by October 10, 2020, the NYSE American will commence delisting proceedings.

 

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 and possibly result in a reduced level of trading activity in the secondary trading market for our securities;

 

·

a limited amount of news and analyst coverage; and

 

·

a decreased ability to issue additional securities or obtain additional financing in the future.

 

 

Item 6. Exhibits.

 

The exhibits listed on the accompanying index to exhibits immediately preceding the exhibits are filed as part of, or hereby incorporated by reference into, this Quarterly Report.

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

		Zomedica Pharmaceuticals Corp.
		By:		/s/ Shameze Rampertab
		Name:		Shameze Rampertab
		Title:		Interim CEO and CFO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  

EXHIBIT INDEX

 

Exhibit No.		Description
3.1		Articles of Amalgamation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.1 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
3.2		Amended and Restated By-Law No. 1 of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.2 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
3.3		Certificate of Amendment and Registration of Restated Articles of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.3 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
3.4		Certificate of Amalgamation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.4 to the Company's Registration Statement on Form S-1 filed with the Commission on November 20, 2017 (File No. 333-217409))
3.5		Articles of Amendment to the Articles of Incorporation of Zomedica Pharmaceuticals Corp. (incorporated by reference to Exhibit 3.5 to the Company’s Quarterly Report on Form 10-Q filed with the Commission on May 10, 2019 (File No. 001-38298))
31.1		Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Interim Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350.
101.INS		XBRL Instance Document.*
101.SCH		XBRL Taxonomy Extension Schema Document.*
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document.*
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document.*
101.LAB		XBRL Taxonomy Extension Label Linkbase Document.*
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document.*

 

* This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the registrant specifically incorporates it by reference.

 

 

 

 

 

 

 

 

 

 

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