# Zomedica Corp.: Form 10-Q for the period ended Mar 31, 2024 - Company: [Zomedica Corp.](/companies/zomdf.md) (CIK 1684144) - Form: 10-Q - Filed: 2024-05-09 - Accepted by EDGAR: May 9, 2024, 16:05 ET - Period: 2024-03-31 - Accession: 0001558370-24-007597 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1684144/000155837024007597/zom-20240331x10q.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1684144/000155837024007597/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-03-31. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-01-01 to 2024-03-31 | $6.3m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Cost of revenue | 3 months, 2024-01-01 to 2024-03-31 | $2.1m | us-gaap:CostOfRevenue | | Gross profit | 3 months, 2024-01-01 to 2024-03-31 | $4.1m | us-gaap:GrossProfit | | Research and development | 3 months, 2024-01-01 to 2024-03-31 | $1.8m | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 3 months, 2024-01-01 to 2024-03-31 | −$10.4m | us-gaap:OperatingIncomeLoss | | Income tax | 3 months, 2024-01-01 to 2024-03-31 | −$166.0k | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-01-01 to 2024-03-31 | −$9.2m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.01 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | −$0.01 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 979,949,668 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$7.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $2.3m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Cash and equivalents | at 2024-03-31 | $10.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2024-03-31 | $92.1m | us-gaap:AssetsCurrent | | Total assets | at 2024-03-31 | $243.7m | us-gaap:Assets | | Current liabilities | at 2024-03-31 | $8.0m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2024-03-31 | $11.8m | us-gaap:Liabilities | | Shareholders' equity | at 2024-03-31 | $231.9m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 33,500 characters. ### MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ### AND RESULTS OF OPERATION (All amounts are expressed in thousands unless otherwise indicated) ### CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS 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 consolidated financial statements and notes thereto for the quarter ended March 31, 2024. This report contains forward-looking statements or forward-looking information (collectively, “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, as well as the safe harbor provisions of applicable Canadian securities legislation, that are based on management’s beliefs and assumptions and involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. 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 actual results may differ significantly from the results discussed in the forward-looking statements. Zomedica cautions that these statements are subject to numerous important risks, uncertainties, assumptions, and other factors, some of which are beyond Zomedica’s control. These risks could cause Zomedica’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to adverse macroeconomic conditions; changes in consumer confidence and spending in response to economic volatility; our ability to develop and commercialize our products; our ability to integrate our acquisitions successfully into our business; supply chain disruptions that increase our costs and impair our ability to manufacture our products; our ability to attract and keep senior management and key scientific personnel; our ability to obtain and maintain intellectual property protection; our ability to maintain the listing of our common shares on the NYSE American exchange; the accuracy of our estimates regarding expenses, future revenues, and capital requirements; and the “Risk Factors” described in our Annual Report on Form 10-K for the year ended December 31, 2023. 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. 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 10-Q to conform our prior statements to actual results or revised expectations, except as required by applicable law. ### Components of Revenue and Costs and Expenses ### Revenue Our revenue consisted of consumables sold in the U.S. and internationally associated with our Assisi® products; capital and consumables sold in the U.S and internationally associated with our PulseVet® platform; consumables sold in the U.S associated with our TRUFORMA® platform; subscriptions and services sold in the U.S. associated with our TRUVIEW™ products; and capital and service agreements sold in the U.S. associated with our VetGuardian® products. ### Cost of Revenue Cost of revenue consisted primarily of the cost of raw materials used in the assembly of: PulseVet capital and consumables; TRUFORMA capital and consumables; Assisi consumables; TRUVIEW capital and consumables; and VetGuardian capital and services. We expense all inventory obsolescence provisions related to normal manufacturing changes as cost of revenue. ### Operating Expenses Our current operating expenses consist of three components — general and administrative expenses, research and development expenses, and selling and marketing expenses. #### General and Administrative Expenses General and administrative expenses consist primarily of salaries, wages, and overhead costs incurred to support our business as a publicly traded company. The functions involved include Accounting, Business Development, Finance, HR, Information Technology, Investor Relations, Legal, and portions of other functional areas. Included within these support costs are significant public company expenses such as stock exchange fees, annual meeting expenses, and audit, tax, Sarbanes-Oxley, and other compliance costs. #### Research and Development Expenses Research and development expenses consist of salaries and related expenses for R&D personnel, fees paid to consultants and outside service providers, travel costs, and materials used in clinical trials and general research and development. These costs are primarily focused on leveraging our recent acquisition of Qorvo into new assay development for our TRUFORMA® platform, expanding capabilities and usability within existing products, and exploring new market opportunities. #### Selling and Marketing Expenses Selling and marketing expenses consist of personnel costs (including salaries, related benefits, and stock-based compensation) and costs associated with sales and marketing activities (including conference and tradeshow attendance, sponsorships, and general advertising and promotional activities). #### 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, 2023, 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 U.S. 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. ### Canadian Taxes In Canada, due to the uncertainty of realizing any tax benefits as of March 31, 2024, we continue to record a full valuation allowance against our Canadian deferred tax assets. ### 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. ### 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. 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. ### Loss Per Share Basic loss per share, or EPS (earnings per share), 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. ### Comprehensive Loss 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, 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 included within our Annual Report on Form 10-K, management has identified the following as “Critical Accounting Policies and Estimates”: Intangible Assets and Business Combinations; Impairment Testing; Valuation and Payback of Property and Equipment; and Revenue Recognition and Liabilities Due to Customers. We believe that the estimates and assumptions involved in these accounting policies may have the greatest potential impact on our financial statements. #### 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 fair values for recent business combinations, we utilize various forms of the income, cost, and market approaches depending on the asset or liability being valued. We use a discounted cash flow model to measure the customer relationship, developed technology, license, trademark, and tradename assets. The estimation of fair value requires significant judgment related to future net cash flows based on assumptions related to revenue and EBITDA growth rates, discount rates, and attrition factors. Inputs are generally determined by taking into account competitive trends, market comparisons, independent appraisals, and historical data, among other factors, and were supplemented by current and anticipated market conditions. 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. #### Impairment Testing We evaluate goodwill for impairment annually or more frequently when an event occurs or circumstances change indicating the carrying value may not be recoverable. When testing goodwill for impairment, we may first assess qualitative factors to determine if it is more likely than not the carrying value of a reporting unit exceeds its estimated fair value. During a qualitative analysis, we consider the impact of changes, if any, to the following factors: macroeconomic industry and market factors; cost factors; changes in overall financial performance; and any other relevant events and uncertainties impacting a reporting unit. If our qualitative assessment indicates a goodwill impairment is more likely than not, we perform additional quantitative analyses. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing. For reporting units where a quantitative analysis is performed, we perform a test measuring the fair values of the reporting units and comparing them to their aggregate carrying values, including goodwill. If the fair value is less than the carrying value of the reporting unit, an impairment is recognized for the difference, up to the carrying amount of goodwill. We estimate the fair values of our reporting units using a discounted cash flow method or a weighted combination of discounted cash flows and a market-based method. The discounted cash flow method includes assumptions about a wide variety of internal and external factors. Significant assumptions used in the discounted cash flow method include financial projections of free cash flow, including revenue trends, medical costs trends, operating productivity, income taxes and capital levels; long-term growth rates for determining terminal value beyond the discretely forecasted periods; and discount rates. Financial projections and long-term growth rates used for our reporting units will be consistent with, and use inputs from, our internal long-term business plan and strategies. Discount rates will be determined for each reporting unit and include consideration of the implied risk inherent in their forecasts. Our most significant estimate in the discount rate determinations involves our adjustments to the peer company weighted average costs of capital reflecting reporting unit-specific factors. We do not make any adjustments to decrease a discount rate below the calculated peer company weighted average cost of capital for any reporting unit. Company-specific adjustments to discount rates are subjective and thus are difficult to measure with certainty. The passage of time and the availability of additional information regarding areas of uncertainty with respect to the reporting units’ operations could cause these assumptions to change in the future. Additionally, as part of our quantitative impairment testing, we perform various sensitivity analyses on certain key assumptions, such as discount rates, cash flow projections, and peer company multiples to analyze the potential for a material impact. The market-based method requires determination of an appropriate peer group whose securities are traded on an active market. The peer group is used to derive market multiples to estimate fair value. #### Valuation and Payback of Property and Equipment Diagnostic based TRUFORMA® capital is placed in fixed assets once purchased or manufactured, where they remain, undepreciated, until they are placed with our customers under the agreement that they will repeatedly purchase consumables or services which are utilized within. Each instance of this placed capital represents an asset that we own. An estimate is made of the anticipated future revenue over its respective life which is ten years. If the payback period of the initial investment in the asset is less than the ten-year life of the asset, we conclude that the assets have been properly recorded, and no write-down is necessary. We rely on various data points and assumptions, including, but not limited to, the expected volume of consumables which will be sold, anticipated growth rates, and anticipated placements. Realization of the anticipated revenue is dependent on the current assumptions and forecasted models. The customer is obligated to purchase consumables during the placement period. However, since the customer is not obligated to purchase the capital, and can return it at any time, we are exposed to a risk of loss to the extent the customer returns the capital and discontinues consumable or related service purchases. On March 31, 2024, the carrying value of our Diagnostic instruments was $10,189. Significant assumptions included in the realization model are the rate of placement and expected utilization over the life of the instrument. The effect of a 25% reduction in the estimated revenues associated with annual placements of instruments would increase the payback period on March 31, 2024 from 3.03 years to 3.86 years. #### Revenue Recognition and Liabilities Due to Customers The nature of our Therapeutic Device 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, enabling the customer to always have a trode on hand with ample capacity to perform treatments. The number of trodes returned by year is tracked against the number of trodes sold in that same year, creating a current experience rate. It is assumed that the ultimate return rate for the trodes is 98%. For annual calculations, it is assumed that the expected returns in the current year for each layer increase to the experience rate of the year immediately preceding it. Once the 98% is reached the layer is removed from the calculation. The annual incremental change in expected returns is multiplied by an average return credit amount, generating the current liability due to customers. 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 year and create a corresponding misstatement of the liability due to customers. On March 31, 2024, the estimated value of our Therapeutic Device customer contract liability was $539. If the expected return rate was increased by 2%, the effect on current year reduction in sales and customer liability would have been approximately $59. ### Results of Consolidated Operations Our results of operations for the three months ended March 31, 2024 and 2023 are as follows: #### Revenue Revenue for the three months ended March 31, 2024 was $6,262, compared to $5,482 for the three months ended March 31, 2023, an increase of $780 or 14%. The increase in sales was primarily due to growth of our existing PulseVet® and TRUFORMA® products and the continued performance of our VetGuardian® products which had just recently launched as of the three months ended March 31, 2023. In general, we expect revenue to increase in subsequent periods as we increase our sales, marketing, and commercialization efforts. #### Cost of Revenue Cost of revenue for the three months ended March 31, 2024 was $2,145, compared to $1,647 for the three months ended March 31, 2023, an increase of $498 or 30%. The increase in cost of revenue was primarily driven by increased manufacturing expense as a result of increased unit sales. We anticipate that costs of revenue will continue to increase in subsequent periods in accordance with increased unit sales as described above. #### Gross Profit Gross profit margin for the three months ended March 31, 2024 was 66%, compared to 70% for the three months ended March 31, 2023. The decrease in gross profit margin percentage was primarily due to the continued integration of products and new launches along with product mix impacts associated with sales of these new offerings. #### General and Administrative General and administrative expense for the three months ended March 31, 2024 was $8,625, compared to $7,013 for the three months ended March 31, 2023, an increase of $1,612 or 23%. The increase in general and administrative expenses was primarily driven by proxy and special meeting costs and professional fees for specialized accounting and development work. While we expect future general and administrative expense to increase, we expect it to decrease proportionally with sales and related product expansion. #### Research and Development Research and development expense for the three months ended March 31, 2024 was $1,771, compared to $918 for the three months ended March 31, 2023, an increase of $853 or 93%. The increase in research and development expenses was primarily driven by the continued buildup of internal capabilities to develop, test, and manufacture our next generation of diagnostic products. We anticipate that R&D costs will increase as we maintain and enhance our current product lines and continue to develop new products. #### Selling and Marketing Selling and marketing expense for the three months ended March 31, 2024 was $4,107, compared to $3,416 for the three months ended March 31, 2023, an increase of $691 or 20%. The increase in selling and marketing expenses was primarily driven by salaries, commissions, and non-cash stock option expense associated with increased hiring campaigns and increased marketing campaigns / attendance at tradeshows to build brand awareness and recognition of our expanding suite of products. We expect future selling and marketing expense to increase in line with product expansion and growth in our commercialization efforts. #### Net Loss Net loss for the three months ended March 31, 2024 was $9,160, compared to a loss of $6,385 for the three months ended March 31, 2023, an increase of $2,775 or 43%. The increase in net loss 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 product sales to offset our operating expenses. #### Cash Flows The following table shows a summary of our cash flows for the periods set forth below | ​ ​ ​ | ​ | ​ ​ For the Three Months Ended March 31, 2024 | ​ | ​ ​ 2023 | ​ ​ | ​ ​ ​ ​ Change | ​ ​ ​ ​ | | --- | --- | --- | --- | --- | --- | --- | ---: | | Cash used in operating activities | ​ | $(7,590) | ​ | $(4,257) | ​ | $(3,333) | 78% | | Cash provided by (used in) investing activities | | ​ 5,625 | | ​ (14,792) | ​ | ​ 20,417 | (138)% | | **(Decrease) increase in cash and cash equivalents** | | ​ **(1,965)** | | ​ **(19,049)** | ​ | **​** **17,084** | **(90)%** | | Effect of exchange rate changes on cash | | ​ (48) | | ​ 3 | ​ | ​ (51) | (1,700)% | | Cash and cash equivalents, beginning of period | | ​ 12,952 | | ​ 27,399 | ​ | ​ (14,447) | (53)% | | **Cash and cash equivalents, end of period** | ​ | $10,939 | ​ | $8,353 | ​ | **$2,586** | **31%** | Net cash used in operating activities for the three months ended March 31, 2024 was $7,590, compared to $4,257 for the three months ended March 31, 2023, an increase in cash used of $3,333 or 78%. The increase in cash used in operating activities primarily resulted from the losses noted above and lower non-cash stock compensation. Net cash provided by investing activities for the three months ended March 31, 2024 was $5,625, compared to cash used of $14,792 for the three months ended March 31, 2023. The decrease in cash used in investing activities primarily resulted from a significant reduction in spend on available for sale securities as compared to 2022 offset by the acquisition related buildup of construction in progress. ### Liquidity, Capital Resources, and Financial Condition We have incurred losses and negative cash flows from operations since our inception in May 2015. As of March 31, 2024, we had an accumulated deficit of $180,093. We have funded our working capital requirements primarily through the sale of our equity and equity-related securities and the exercise of stock options and warrants. As of March 31, 2024, the Company had working capital (defined as current assets minus current liabilities) of $84,061. #### Short-Term Cash Requirements We believe that our existing cash is sufficient to fund our expected short-term needs. We currently have fixed obligations in association with our building leases and quarterly inventory orders. We also have payment obligations associated with our on-going clinical studies, and we expect that we have sufficient cash to cover these requirements. We do not expect that our operations will require significant increases in our short-term cash needs and our short-term cash requirements have not changed materially since the 2023 Form 10-K. #### Long-Term Cash Requirements We believe that our existing cash resources will be sufficient to fund our expected operational requirements for the foreseeable future. We regularly evaluate our business plans and strategy. These evaluations often result in changes to our business plans and strategy, some of which may be material and significantly change our cash requirements. Ongoing business development activity may also require us to use some of our liquidity and use of additional capital to fund newly acquired operations. 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. Our future capital requirements depend on many factors, including, but not limited to: - the 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. The Company’s long-term cash requirements have not changed materially since the 2023 Form 10-K. ### U.S. Taxes As of March 31, 2024, we had deferred tax assets for net operating loss carryforwards for U.S. federal income tax purposes of $12,577 and non-capital loss carryforwards for Canada of $9,581, 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. In 2021, we concluded that, due to the limitations under Section 382, our U.S. federal income tax net operating loss carryforwards, as well as R&D credit carryforwards, for the periods prior to February 11, 2021 have been limited to zero. We therefore have derecognized $3,814 of this asset, reducing the carryforward of these amounts to $8,763. ### Climate Change 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. ## Controls and procedures As filed, 4,142 characters. ### Disclosure Controls and Procedures #### Evaluation of our disclosure controls We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized, and reported within the specified time periods and accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report was made under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer. Based upon this evaluation, our principal executive officer and principal financial and accounting officer have concluded that, our disclosure controls and procedures were not effective because of the material weakness in internal control over financial reporting described below and in Part II, Item 9A "Controls and Procedures" of our 2023 Annual Report. The material weakness has not been remediated as of March 31, 2024. #### Management's report on internal control over financial reporting Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with GAAP. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, misstatements due to error or fraud may not be prevented or detected on a timely basis. Our management performed an assessment of the effectiveness of our internal control over financial reporting as of March 31, 2024, utilizing the criteria discussed in the Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The objective of this assessment was to determine whether our internal control over financial reporting was effective as of March 31, 2024. Based on management's assessment, we have concluded that our internal control over financial reporting was not effective as of March 31, 2024, due to the material weakness described below. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. As of December 31, 2023, there was a material weakness relating to the timeliness and precision of management's review controls around financial projections relevant to the evaluation of goodwill impairment relating to our Assisi product line. #### Plan for remediation of the material weakness The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management, with oversight from the Audit Committee of the Board of Directors, has begun developing a comprehensive plan to remediate the material weakness. Remediation efforts are focused on more rigorous policies and procedures and sufficiency of reviews of the projections included in the discounted cash flow model used in the Company’s evaluation of goodwill for impairment. These efforts will include development of a continuous process for monitoring, assessment and communication, as well as involvement of additional key stakeholders in reviews. We will not be able to conclude whether these efforts will fully remediate the material weakness until the updated controls have operated for a sufficient period of time and management has concluded, through testing, that such controls are operating effectively. ## Risk factors As filed, 159 characters. There have been no material changes in our risk factors from those previously disclosed in our annual report on Form 10-K for the year ended December 31, 2023. Filed May 9, 2024. Source: SEC EDGAR, the filing index for accession 0001558370-24-007597. Last ingested by Listed: Nov 4, 2026, 17:25 ET. No prices; not investment advice.