UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023

ORor


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

For the transition period from to

Commission File No. 001-38445

HELIUS MEDICAL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware

36-4787690

(State or other jurisdiction of
incorporation or organization)

642 Newtown Yardley Road, Suite 100
Newtown, Pennsylvania
(Address of principal executive offices)

(I.R.S. Employer
Identification No.)

18940

(Zip Code)

(215) 944-6100

(Registrant’s telephone number, including area code)

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, $0.001 par value per share	HSDT	The Nasdaq Stock Market LLC

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

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

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



Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
Emerging growth company	☐

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

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

As of ~~November 11, 2022,~~August 3, 2023, the registrant had ~~28,203,298~~28,298,446 shares of Class A common stock, $0.001 par value per share, outstanding.

Table of Contents

HELIUS MEDICAL TECHNOLOGIES, INC.

INDEX


Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022	7

	Notes to Unaudited Condensed Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1716

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2625

Item 4.	Controls and Procedures	2625

Part II.	Other Information	2725

Item 1.	Legal Proceedings	2725

Item 1A.	Risk Factors	2725

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2725

Item 3.	Defaults Upon Senior Securities	2725

Item 4.	Mine Safety Disclosures	2725

Item 5.	Other Information	2726

Item 6.	Exhibits	2827

Signatures		2928

Table of Contents

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)


	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	16,658	$	11,005	$	8,599	$	14,549
Accounts receivable, net		21		66		144		71
Other receivables		196		185		41		272
Inventory, net		609		476		563		589
Prepaid expenses and other current assets		733		862		918		1,216
Total current assets		18,217		12,594		10,265		16,697
Property and equipment, net		348		409		345		347
Goodwill		—		763
Intangible assets, net		178		333		65		140
Operating lease right-of-use asset, net		116		3		78		103
Total assets	$	18,859	$	14,102	$	10,753	$	17,287
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	570	$	1,069	$	576	$	627
Accrued liabilities		551		1,433
Operating lease liabilities		53		3
Deferred revenue		26		148
Accrued and other current liabilities						856		1,280
Current portion of operating lease liabilities						49		54
Current portion of deferred revenue						43		27
Total current liabilities		1,200		2,653		1,524		1,988
Operating lease liabilities		70		—
Deferred revenue		173		193
Operating lease liabilities, net of current portion						35		56
Deferred revenue, net of current portion						149		175
Derivative liability		4,455		—		4,473		6,917
Total liabilities		5,898		2,846		6,181		9,136
Commitments and contingencies (Note 12)
Commitments and contingencies (Note 9)
Stockholders' equity
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 28,201,282 and 3,780,674 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		28		4
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 28,270,762 and 28,207,330 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively						28		28
Additional paid-in capital		159,386		149,412		160,443		159,618
Accumulated deficit		(146,221)		(137,035)		(155,249)		(151,107)
Accumulated other comprehensive loss		(232)		(1,125)		(650)		(388)
Total stockholders' equity		12,961		11,256		4,572		8,151
Total liabilities and stockholders' equity	$	18,859	$	14,102	$	10,753	$	17,287

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022

Revenue
Product sales, net	$	195	$	102	$	497	$	242	$	244	$	119	$	350	$	302
Other revenue		1		7		8		22		12		—		17		7
Total revenue		196		109		505		264		256		119		367		309
Cost of revenue		101		86		313		169		184		88		306		212
Gross profit		95		23		192		95
Gross profit (loss)										72		31		61		97
Operating expenses
Selling, general and administrative expenses		3,393		2,859		8,673		9,800		2,569		2,461		5,443		5,280
Research and development expenses		751		1,489		3,468		4,182		684		953		1,570		2,717
Amortization expense		47		48		141		153		38		47		77		94
Goodwill impairment		757		—		757		—
Total operating expenses		4,948		4,396		13,039		14,135		3,291		3,461		7,090		8,091
Loss from operations		(4,853)		(4,373)		(12,847)		(14,040)		(3,219)		(3,430)		(7,029)		(7,994)
Nonoperating income (expense)
Interest expense, net		(919)		—		(919)		—
Interest income (expense), net										89		—		189		—
Change in fair value of derivative liability		5,489		—		5,489		—		1,223		—		2,444		—
Foreign exchange (loss) gain		(747)		(314)		(910)		10		259		(380)		254		(163)
Other income, net		—		—		1		—
Other income (expense), net										—		—		—		1
Nonoperating income (expense), net		3,823		(314)		3,661		10		1,571		(380)		2,887		(162)
Loss before provision for income taxes		(1,030)		(4,687)		(9,186)		(14,030)		(1,648)		(3,810)		(4,142)		(8,156)
Provision for income taxes		—		—		—		—		—		—		—		—
Net loss		(1,030)		(4,687)		(9,186)		(14,030)		(1,648)		(3,810)		(4,142)		(8,156)
Other comprehensive income (loss)
Foreign currency translation adjustments		744		287		893		(26)		(267)		351		(262)		149
Comprehensive loss	$	(286)	$	(4,400)	$	(8,293)	$	(14,056)	$	(1,915)	$	(3,459)	$	(4,404)	$	(8,007)
Net loss per share
Loss per share
Basic	$	(0.12)	$	(2.01)	$	(0.52)	$	(6.29)	$	(0.06)	$	(0.97)	$	(0.15)	$	(2.11)
Diluted	$	(0.12)	$	(2.01)	$	(0.52)	$	(6.29)	$	(0.06)	$	(0.97)	$	(0.15)	$	(2.11)
Weighted average number of common shares outstanding
Basic		8,543,303		2,326,893		17,761,752		2,229,422		28,219,824		3,928,704		28,216,641		3,858,676
Diluted		8,543,303		2,326,893		17,761,752		2,229,422		28,219,824		3,928,704		28,216,641		3,858,676

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)


								Accumulated
				Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of April 1, 2023	28,213,378	$	28	$	160,023	$	(153,601)	$	(383)	$	6,067
Settlement of restricted stock units	57,384		—		—		—		—		—
Stock-based compensation	—		—		420		—		—		420
Other comprehensive income	—		—		—		—		(267)		(267)
Net loss	—		—		—		(1,648)		—		(1,648)
Balance as of June 30, 2023	28,270,762	$	28	$	160,443	$	(155,249)	$	(650)	$	4,572


								Accumulated											Accumulated
				Additional				Other							Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive				Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total		Shares	Amount		Capital		Deficit		Loss		Total
Balance as of July 1, 2022	4,195,113	$	4	$	150,665	$	(145,191)	$	(976)	$	4,502
Issuance of common stock in public offering	24,000,000		24		8,032		—		—		8,056
Share issuance costs	—		—		(752)		—		—		(752)
Balance as of April 1, 2022												3,794,797	$	4	$	149,834	$	(141,381)	$	(1,327)	$	7,130
Common stock issued under equity line of credit												391,363		—		638		—		—		638
Settlement of restricted stock units	6,169		—		—		—		—		—	4,690		—		—		—		—		—
Common stock issued for services												4,263		—		14		—		—		14
Stock-based compensation	—		—		1,441		—		—		1,441	—		—		179		—		—		179
Other comprehensive income	—		—		—		—		744		744	—		—		—		—		351		351
Net loss	—		—		—		(1,030)		—		(1,030)	—		—		—		(3,810)		—		(3,810)
Balance as of September 30, 2022	28,201,282	$	28	$	159,386	$	(146,221)	$	(232)	$	12,961
Balance as of June 30, 2022												4,195,113	$	4	$	150,665	$	(145,191)	$	(976)	$	4,502

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

Accumulated

Additional

Other

Class A Common Stock

Paid-In

Accumulated

Comprehensive


Shares

Amount

Capital

Deficit

Loss

Total
Balance as of January 1, 2022

3,780,674

$
4

$
149,412

$
(137,035)

$
(1,125)

$
11,256
Common stock issued under equity line of credit

391,363

—

644

—

—

644
Issuance of common stock in public offering

24,000,000

24

8,032

—

—

8,056
Share issuance costs

—

—

(758)

—

—

(758)
Settlement of restricted stock units

12,443

—

—

—

—

—
Common stock issued for services

8,791

—

34

—

—

34
Stock-based compensation

8,011

—

2,022

—

—

2,022
Other comprehensive income

—

—

—

—

893

893
Net loss

—

—

—

(9,186)

—

(9,186)
Balance as of September 30, 2022

28,201,282

$
28

$
159,386

$
(146,221)

$
(232)

$
12,961

~~Table of Contents~~

~~Helius Medical Technologies, Inc.~~

~~Unaudited Condensed Consolidated Statements of Stockholders’ Equity~~

~~(in thousands, except share data)~~


								Accumulated
				Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of January 1, 2023	28,207,330	$	28	$	159,618	$	(151,107)	$	(388)	$	8,151
Settlement of restricted stock units	63,432		—		—		—		—		—
Stock-based compensation	—		—		825		—		—		825
Other comprehensive income	—		—		—		—		(262)		(262)
Net loss	—		—		—		(4,142)		—		(4,142)
Balance as of June 30, 2023	28,270,762	$	28	$	160,443	$	(155,249)	$	(650)	$	4,572


								Accumulated											Accumulated
				Additional				Other							Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive				Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total		Shares	Amount		Capital		Deficit		Loss		Total
Balance as of July 1, 2021	2,317,772	$	2	$	138,023	$	(128,246)	$	(1,412)	$	8,367
Balance as of January 1, 2022												3,780,674	$	4	$	149,412	$	(137,035)	$	(1,125)	$	11,256
Common stock issued under equity line of credit	40,000		—		577		—		—		577	391,363		—		638		—		—		638
Share issuance costs	31,958		—		(247)		—		—		(247)
Settlement of restricted stock units	2,400		—		—		—		—		—	6,274		—		—		—		—		—
Common stock issued for services												8,791		—		34		—		—		34
Stock-based compensation	—		—		740		—		—		740	8,011		—		581		—		—		581
Other comprehensive income	—		—		—		—		287		287
Other comprehensive loss												—		—		—		—		149		149
Net loss	—		—		—		(4,687)		—		(4,687)	—		—		—		(8,156)		—		(8,156)
Balance as of September 30, 2021	2,392,130	$	2	$	139,093	$	(132,933)	$	(1,125)	$	5,037
Balance as of June 30, 2022												4,195,113	$	4	$	150,665	$	(145,191)	$	(976)	$	4,502

Accumulated

Additional

Other

Class A Common Stock

Paid-In

Accumulated

Comprehensive


Shares

Amount

Capital

Deficit

Loss

Total
Balance as of January 1, 2021

1,484,362

$
1

$
123,872

$
(118,903)

$
(1,099)

$
3,871
Common stock issued under equity line of credit

40,000

—

577

—

��
—

577
Issuance of common stock in public offering

744,936

1

8,398

—

—

8,399
Issuance of warrants in public offering

—

—

2,638

—

—

2,638
Share issuance costs

31,958

—

(1,608)

—

—

(1,608)
Exercise of warrants

81,895

—

1,318

—

—

1,318
Exercise of stock options

214

—

2

—

—

2
Settlement of restricted stock units

3,428

—

—

—

—

—
Stock-based compensation

5,337

—

3,896

—

—

3,896
Other comprehensive loss

—

—

—

—

(26)

(26)
Net loss

—

—

—

(14,030)

—

(14,030)
Balance as of September 30, 2021

2,392,130

$
2

$
139,093

$
(132,933)

$
(1,125)

$
5,037

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Nine Months Ended				Six Months Ended
	September 30,				June 30,
	2022		2021		2023		2022

Cash flows from operating activities:
Net loss	$	(9,186)	$	(14,030)	$	(4,142)	$	(8,156)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative liability		(5,489)		—		(2,444)		—
Stock-based compensation expense		2,022		3,896		825		581
Common stock issued for services		34		—		—		34
Foreign exchange loss (gain)		907		(26)		(254)		161
Depreciation expense		74		84		22		50
Amortization expense		141		153		77		94
Goodwill impairment		757		—
Provision (reversal) for doubtful accounts		—		(19)
Provision for (reversal of) inventory reserve		(37)		—		8		(37)
Non-cash operating lease expense		38		46		25		26
Changes in operating assets and liabilities:
Accounts receivable		43		70		(74)		57
Other receivables		(24)		(19)		230		(4)
Inventory, net		(97)		(149)		18		(64)
Prepaid expense and other current assets		159		(67)		298		(156)
Operating lease liability		(31)		(47)		(26)		(19)
Accounts payable		(472)		270		(53)		(7)
Accrued liabilities		(881)		(38)
Accrued and other current liabilities						(426)		(779)
Deferred revenue		(125)		(49)		(14)		(127)
Net cash used in operating activities		(12,167)		(9,925)		(5,930)		(8,346)
Cash flows from investing activities:
Purchase of property and equipment		(19)		(49)		(20)		(12)
Proceeds from sale of property and equipment		6		—		—		6
Internally developed software		—		(2)
Net cash used in investing activities		(13)		(51)		(20)		(6)
Cash flows from financing activities:
Proceeds from issuances of common stock and warrants		18,644		11,614
Proceeds from issuances of common stock						—		644
Share issuance costs		(775)		(1,581)		—		(24)
Proceeds from exercise of warrants and stock options		—		1,320
Net cash provided by financing activities		17,869		11,353		—		620
Effect of currency exchange rate changes on cash, cash equivalents, and restricted cash		(6)		(8)
Net increase in cash, cash equivalents, and restricted cash		5,683		1,369
Cash, cash equivalents and restricted cash at beginning of period		11,005		3,331
Cash, cash equivalents and restricted cash at end of period	$	16,688	$	4,700
Effect of currency exchange rate changes on cash and cash equivalents						—		—
Net decrease in cash and cash equivalents						(5,950)		(7,732)
Cash and cash equivalents at beginning of period						14,549		11,005
Cash and cash equivalents at end of period					$	8,599	$	3,273
Supplemental cash flow information
Cash paid for interest (share issuance costs allocated to derivative liability)	$	927	$	—
Non-cash investing and financing transactions:
Right-of-use assets obtained in exchange for new lease liabilities	$	151	$	—	$	—	$	151
Non-cash share issuance costs		—		476
Share issuance costs included in accrued liabilities		—		189

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

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Helius Medical Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. ~~ORGANIZATION, CONSOLIDATION AND~~BASIS OF PRESENTATION ~~OF FINANCIAL STATEMENTS~~

The accompanying interim Unaudited Condensed Consolidated Financial Statements of Helius Medical Technologies, Inc. (together with its wholly owned subsidiaries the “Company”) is a neurotech company focused on neurological wellness. The Company’s purpose is to develop, license or acquire non-implanted technologies targeted at reducing symptoms of neurological disease or trauma. The Company’s product, known as the Portable Neuromodulation Stimulator (“PoNS®”) has been commercially available in Canada since March 2019. The Company began accepting prescriptions for its PoNS product in the U.S. in the first quarter of 2022, and the first commercial sales began in April 2022. PoNS is authorized for sale as a Class IIa medical device in Australia. The Company is working to establish a distribution partner for Australia but currently does not expect to have commercial sales of PoNS in Australia in 2022.~~The Company operates and manages its business within one operating and~~ ~~reportable~~ ~~segment. The Company’s reporting currency is the U.S. Dollar (“USD$”).~~

~~The accompanying unaudited condensed consolidated financial statements~~ have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the ~~Company’s~~ audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021, included in its Annual Report on Form 10-K~~2022 that was filed with the Securities and Exchange Commission on March ~~14,~~ 9, 2023 (“2022 ~~(“2021~~ 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted. In

There have been no material changes to the ~~opinion of management, the information furnished~~Company's significant accounting policies from those described in the unaudited condensed consolidated financial statements include all adjustments (consisting of only normal, recurring adjustments), considered necessary to present fairly the results of operations, financial position and cash flows of the Company.

2022 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

~~2. RISKS AND UNCERTAINTIES~~On April 21, 2023, the Company filed a definitive proxy statement seeking stockholder approval for a reverse stock split of our outstanding Class A common stock at a ratio in the range of 1-for-10 to 1-for-80 to be determined at the discretion of the Company’s Board of Directors. At the annual meeting of stockholders on May 24, 2023, our stockholders voted to approve the reverse stock split. Refer to Note 6 for additional information.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from those estimates.

Going Concern Uncertainty

As of ~~September~~June 30, ~~2022,~~2023, the Company had cash and cash equivalents of ~~$16.7~~$8.6 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had an operating loss of ~~$12.8~~$7.0 million, and as of ~~September~~June 30, ~~2022,~~2023, its accumulated deficit was ~~$146.2~~$155.2 million. For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company had ~~$0.5~~$0.4 million of net revenue from the commercial sale of products. The Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue to support its cost structure. There is no assurance that the Company will achieve profitable operations, and, if achieved, whether it will be sustained on a continued basis. These factors indicate substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are filed. The Company’s ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

The Company intends to fund ongoing activities by utilizing its current cash and cash equivalents on hand, cash received from the sale of its PoNS device in the U.S. and Canada and by raising additional capital through equity or debt financings. There can be no assurance that the Company will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its ~~operations and planned capital expenditures.~~operations.

~~COVID-19, Increased Inflation and Worldwide~~Global Economic Conditions

Generally, worldwide economic conditions remain uncertain, particularly due to the conflict between Russia and Ukraine, disruptions in the banking system and financial markets, lingering effects of the COVID-19 pandemic and increased inflation. ~~Access to capital markets is critical to the Company’s ability to operate. Declines and~~

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uncertainties in these markets in the past have severely restricted raising new capital and have affected companies’ ability to continue to expand or find existing development, manufacturing, regulatory and commercialization efforts. The Company requires significant capital for its current and expected operations. The general economic and capital market conditions both in the ~~U.S.~~United States and worldwide, have been volatile in the past and at times have adversely affected the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.

~~COVID-19~~

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which has spread throughout the U.S. and around the world. The Company’s business, results of operations and financial condition have been and may continue to be adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 have significantly increased economic uncertainty. Authorities implemented, and continue to implement, numerous measures to try to contain COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders and business shutdowns. The COVID-19 pandemic initially led to the closure of PoNS authorized clinic locations across Canada from March until June 2020. Patients who completed their initial training in the clinics prior to the closures were able to continue working independently in the at-home portion of the treatment, with remote check-ins with their certified therapists. While all clinics had re-opened, as of December 31, 2021, they were all operating at reduced capacity, which limited operations to 50% capacity during the second half of 2021. Some patients returned to these clinics for treatment, but patients have been and may continue to be less willing to return to the clinics due to COVID-19, impacting the Company’s commercial activities and its customer engagement efforts. This was especially true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders and business shutdowns were imposed. The rate of vaccination increased throughout all provinces throughout 2021, facilitating the lifting of some of the previously imposed restrictions. As of April 2022, capacity has returned to 100%. The Company continues to monitor the impact of COVID-19 and adjust its operations as the circumstances change.

The Company expanded its services to include remote training and treatment, but the long-term viability of these remote programs is still being assessed. Additionally, clinical experience programs and clinical trials in Canada have experienced and may continue to experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff.

The COVID 19 pandemic has and may continue to cause delays in or the suspension of the Company’s business partners’ manufacturing operations as well as the Company’s research and product development activities, regulatory workstreams and other important commercial functions. The Company is also dependent upon its suppliers for the manufacture of its PoNS device. In the second quarter of 2020, two of the Company’s business partners diverted resources towards other activities related to COVID 19, resulting in delays in the Company’s product development activities. Such diversion of suppliers’ resources may occur again in the future, and the pandemic could limit the Company’s suppliers’ ability to travel or ship materials or force temporary closure of facilities that it relies upon. Manufacturing delays have occurred and may also occur as the result of labor shortages. Two of the Company’s suppliers experienced significant labor shortages as a result of COVID 19 from the end of November 2021 through early January 2022. In addition, during March 2022 and continuing into the second quarter of 2022, an increase in COVID 19 related cases in certain parts of China resulted in the re-imposition of widespread shutdowns and restrictions in China and additional supply chain disruptions. These labor shortages and increases in COVID-19 cases reduced the available resources needed to build and test product which may delay the timing for the submission and approval of the Company’s marketing applications with regulatory agencies. Further, the economic impact of the COVID 19 pandemic had affected, and may in the future affect, the Company’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.

The extent to which the COVID 19 pandemic will continue to impact the Company’s business, including its U.S. commercial launch and sales in Canada, as well as the Company’s results of operations and its financial condition will

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~~depend on future developments, which are highly uncertain and cannot be predicted.~~ The ~~Company does not yet know the full extent of the impact of COVID 19 on its business, operations or~~COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, asdisrupted supply chains and had a ~~whole.~~

~~Inflationary Environment~~

~~The~~widespread adverse effect on the financial markets. Additionally, the Company’s operating results could be materially impacted by changes in the overall macroeconomic environment and other economic ~~factors that impact customer confidence and spending, including capital spending.~~factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, disruptions in the banking system and financial markets, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to ~~higher~~high inflation, which has ~~led to an increase in~~increased costs and has caused changes in fiscal and monetary policy, including ~~increased~~an increase in interest rates. ~~As a result of inflation, we have experienced and may continue to experience, cost increases.~~ Although the Company may take measures to mitigate ~~the impact of this inflation,~~these impacts, if these measures are not effective, the Company’s business, financial condition, results of operations, and liquidity could be materially adversely affected.

3.In the opinion of management, the Unaudited Condensed Consolidated Financial Statements reflect all adjustments necessary for a fair statement of the results for the interim periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the ~~FASB~~Financial Accounting Standards Board issued ~~ASU 2016-13,~~ Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit ~~losses. In November 2019,~~losses. As the ~~FASB issued ASU 2019-10,~~ ~~Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates~~~~, which amends~~Company meets the ~~effective date of ASU 2016-13. Public business entities that meeting the~~SEC definition of ~~an SEC filer, excluding entities eligible to be~~ a Smaller Reporting Company ~~(“SRC”) as defined by~~filer, the ~~SEC, are required to adopt the standard~~guidance was effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are required to adopt the standard for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of an SRC and therefore the standard will not be effective until the beginning of 2023.2022. The adoption of ~~ASU 2016-13 is~~this guidance on January 1, 2023 did not ~~expected to~~ have a material impact on the ~~Company’s~~Company's unaudited condensed consolidated financial statements.

~~4. GOODWILL IMPAIRMENT~~

As more fully disclosed in the 2021 10-K, the Company tests goodwill for impairment annually in the fourth quarter of each year or when circumstances suggest that an indicator for impairment may be present. Goodwill is allocated to and evaluated for impairment at the Company’s one identified reporting unit and is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. The Company may elect not to perform the qualitative assessment for its reporting unit and perform the quantitative impairment test. The quantitative goodwill impairment test requires the Company to compare the carrying value of the reporting unit’s net assets to the estimated fair value of the reporting unit.

The significant decline in the price of the Company’s Class A common stock (“common stock”) following the Company’s registered public offering in August 2022 was considered a triggering event for testing whether goodwill was impaired. The Company performed a quantitative assessment as of September 30, 2022 and determined that the carrying value of the reporting unit exceeded the estimated fair value. As a result, the Company recorded a goodwill impairment charge of $757 thousand, reducing the goodwill balance to zero.

~~5. REVENUE FROM CONTRACTS WITH CUSTOMERS~~

Product sales are derived from the sale of PoNS devices directly to patients in the U.S. and to clinics in Canada. For both U.S. and Canada customers, the Company’s performance obligation is met, and revenue is recognized, upon delivery to the customer and the customer’s acceptance. During the three and nine months ended September 30, 2022 and 2021, Canada product net sales were $56 thousand, $295 thousand, $102 thousand and $242 thousand, respectively. For the three and nine months ended September 30, 2022, U.S. product net sales were $139 thousand and $202 thousand,

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~~respectively. As of September 30, 2022 and December 31, 2021, the Company had no contract assets or liabilities on its unaudited condensed consolidated balance sheets.~~

6.3. SUPPLEMENTAL BALANCE SHEET DISCLOSURES

The unaudited condensed consolidated balance sheets include financial instruments for which the fair market value of such instruments may differ from amounts reflected on a historical cost basis. The carrying value of cash and cash equivalents, accounts and other receivables, accounts payable and certain accrued liabilities generally approximate fair value due to their short-term nature.

Components of selected captions in the unaudited condensed consolidated balance sheets consisted of the following:

Accounts receivable, net

Accounts receivable from product sales are net of allowance for ~~doubtful accounts~~credit losses of ~~$330 thousand and $355~~less than $1 thousand as of ~~September~~both June 30, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022.

Inventory, net (in thousands)


	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
Raw materials	$	300	$	171	$	331	$	344
Work-in-process		318		528		199		284
Finished goods		48		32		105		39
Inventory, gross	$	666	$	731		635		667
Inventory reserve		(57)		(255)		(72)		(78)
Inventory, net	$	609	$	476	$	563	$	589

During the ~~nine~~six months ended ~~September~~June 30, ~~2022 existing reserves~~2023, $14 thousand of ~~$161 thousand were charged against work-in-process~~ inventory ~~and~~was written off to the inventory ~~reserves were decreased by $37 thousand.~~

~~Accrued expenses (in thousands)~~reserve.

September 30,

December 31,

2022

2021
Employees benefits

$
437

$
712
Professional services

16

174
Legal fees

14

23
Royalty fees

8

10
Franchise fees

30

193
Severance

—

258
Other

46

63
Total accrued expenses

$
551

$
1,433

~~Deferred revenue~~

~~Collaborative Arrangement~~

The Company recorded deferred license fee revenue in connection with a Clinical Research and Co-Promotion Agreement with Health Tech Connex Inc. (“HTC”) (the “Co-Promotion Agreement”), as more fully described in the 2021 10-K. Deferred revenue as of both September 30, 2022 and December 31, 2021 included approximately $200 thousand of license fees not yet recognized under the Co-Promotion Agreement. License fee revenue recognized is included in other revenue in the unaudited condensed consolidated statements of operations and comprehensive loss. On January 31, 2022, the Company notified HTC of its material breaches under the Co-Promotion Agreement which HTC failed to cure under the terms of the Co-Promotion Agreement. As such it is the Company’s position that this exclusivity

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~~right is no longer in effect. The Company and HTC have been discussing opportunities to work together moving forward.~~

~~Noncash Consideration in Acquisition~~

~~Deferred revenue as of December 31, 2021 included approximately $100 thousand for the fair value of the remaining 16~~ PoNS devices to be transferred that had been included as noncash consideration in the Company’s acquisition of Heuro Canada, Inc. (“Heuro”). During the nine months ended September 30, 2022, the remaining 16 PoNS devices were transferred and the remaining $100 thousand of deferred revenue was recognized in Product Sales in the unaudited condensed consolidated statements of operations and comprehensive loss. During the nine months ended September 30, 2021, there were four PoNS devices transferred which resulted in the recognition of $30 thousand of deferred revenue in Product Sales in the unaudited condensed consolidated statements of operations and comprehensive loss.

~~Cash, Cash Equivalents and Restricted Cash (in thousands)~~

September 30,

December 31,

2022

2021
Cash and cash equivalents

$
16,658

$
11,005
Restricted cash included in prepaid expenses and other current assets

30

—
Total cash, cash equivalents and restricted cash

$
16,688

$
11,005

~~Cash equivalents as of September 30, 2022 consist of an investment of excess cash in an unrestricted money market savings account.~~

~~Restricted cash as of September 30, 2022 is related to a money market savings account maintained by the Company as collateral in connection with corporate credit cards.~~

~~7. LEASES~~

~~The Company has two operating leases for office space with lease terms expiring in January 2024 and March 2025. The leases do not contain any options to extend.~~

~~The following table presents information on the lease terms and discount rates:~~

Weighted average remaining lease term

2.5 years

Weighted average discount rate

4.4
%

Maturities of operating lease liabilities as of September 30, 2022 were as follows (in thousands):

2022 (remaining)

$
14

2023

57

2024

46

2025

12

Total future lease payments

129

Less: interest

(6)

Present value of lease liabilities

$
123

~~8. DERIVATIVE LIABILITY~~

~~On August~~ 9 2022, in connection with the registered public offering discussed in Note 9, the Company issued warrants to purchase 36 million shares of common stock to investors (“Public Warrants”). The Public Warrants have an exercise

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Prepaid expenses and other current assets (in thousands)


	June 30,		December 31,
	2023		2022
Prepaid expenses	$	588	$	817
Inventory related		330		399
Total prepaid expenses and other current assets	$	918	$	1,216

Accrued and other current liabilities (in thousands)


	June 30,		December 31,
	2023		2022
Insurance payable	$	151	$	592
Employees benefits		439		509
Professional services		130		119
Other		136		60
Total accrued and other current liabilities	$	856	$	1,280

Deferred revenue

Exclusive Distribution Agreement

Pursuant to an Exclusive Distribution Agreement with Health Tech Connex Inc. (“HTC”) (“Exclusivity Agreement”) entered into on March 3, 2023, subject to certain terms and conditions, the Company granted to HTC the exclusive right to provide PoNS Therapy in the Fraser Valley and Vancouver metro regions of British Columbia. HTC will purchase the PoNS devices for use in these regions exclusively from the Company and on terms no less favorable than the then-current standard terms and conditions. This Exclusivity Agreement replaced the previous Clinical Research and Co-Promotion Agreement (“Co-Promotion Agreement”) between the parties entered into in October 2019 that included a similar exclusive right provision. The exclusive right under the Exclusivity Agreement was granted for a value of CAD$273 thousand, which is represented by the unamortized up-front payment under the former Co-Promotion Agreement. The initial term of the Exclusivity Agreement expires on December 31, 2027, and is renewable by HTC for one additional five-year term upon sixty days’ written notice to the Company.

Deferred revenue as of both June 30, 2023 and December 31, 2022 is comprised of the remaining unamortized amount under these agreements. Revenue recognized is included in other revenue in the Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

4. LEASES

The Company has two operating leases for office space with lease terms expiring in January 2024 and March 2025. The leases do not contain any options to extend. Operating lease costs for the three and six months ended June 30, 2023 and 2022 were $13 thousand $27 thousand, $14 thousand and $29 thousand, respectively.

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Maturities of operating lease liabilities as of June 30, 2023 were as follows (in thousands):


2023 (remaining)	$	29
2024		48
2025		12
Total lease payments		89
Less: imputed interest		(5)
Total lease liabilities	$	84

5. FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value of an asset or liability considers assumptions that market participants would use in pricing the asset or liability, including consideration of non-performance risk. The inputs used to determine fair values are categorized in one of the following three levels of the fair value hierarchy:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Inputs, other than quoted prices in active markets, that are observable, either directly or indirectly.

Level 3 – Unobservable inputs that are not corroborated by market data.

The Unaudited Condensed Consolidated Financial Statements include financial instruments for which the fair market value of such instruments may differ from amounts reflected on a historical cost basis. Financial instruments of the Company consist of cash equivalents, which were comprised of deposits of excess cash in an unrestricted money market savings account and a certificate of deposit as of both June 30, 2023 and December 31, 2022. The carrying value of cash equivalents generally approximates fair value due to their short-term nature.

The Company’s derivative liability as of June 30, 2023 and December 31, 2022 is comprised of warrants issued in connection with the registered public offering completed in August 2022 (“August 2022 Public Offering”) discussed in Note 6. The derivative liability is classified as Level 3 within the fair value hierarchy and is required to be recorded at fair value on a recurring basis. See Note 6 for further information on the fair value of the derivative liability.

6. COMMON STOCK, PREFERRED STOCK AND WARRANTS

At-The-Market Offering

On June 23, 2023, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) to create an at-the-market offering program (“ATM”) under which the Company may offer and sell shares having an aggregate offering price of ~~$0.75~~up to $2.0 million. Roth is entitled to a commission at a fixed commission rate equal to up to 3% of the gross proceeds pursuant to the Sales Agreement. As of June 30, 2023, no issuances of securities have occurred in connection with the ATM.

Series B Preferred Stock

On March 23, 2023, the Board of Directors declared a dividend of one one-thousandth of a share of Series B Preferred Stock (“Series B Preferred Stock”) for each outstanding share of Class A common stock held of record on April 3, 2023. The value of the Series B Preferred Stock issued in connection with the stock dividend was immaterial.

The outstanding shares of Series B Preferred Stock will vote together with the outstanding shares of the Company’s Class A common stock, as a single class, exclusively with respect to a proposal giving the Board of Directors the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of

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such proposal by the Company’s stockholders (the “Reverse Stock Split Proposal”), as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters (the “Adjournment Proposal”).

No shares of Series B Preferred Stock may be transferred by the holder except in connection with a transfer by such holder of any shares of Class A common stock held by such holder.

Each share of Series B Preferred Stock will entitle the holder to 1,000,000 votes per share and each fraction of a share of Series B Preferred Stock will have a ratable number of votes. The holder of Series B Preferred Stock, as such, will not be entitled to receive dividends.

All shares of Series B Preferred Stock that are ~~exercisable upon issuance~~not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split Proposal and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will ~~expire five years following~~automatically be redeemed in whole, but not in part, by the ~~date~~Company at the Initial Redemption Time without further action on the part of ~~issuance. No Public Warrants~~the Company or the holder of shares of Series B Preferred Stock.

The Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series B Preferred Stock has no stated maturity and is not subject to any sinking fund. The Series B Preferred Stock is not subject to any restriction on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments.

The Certificate of Designation was filed with the Delaware Secretary of State and became effective on March 24, 2023.

At the annual meeting of stockholders of the Company held on May 24, 2023, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of its outstanding Class A common stock. All shares of Series B Preferred Stock that did not vote in person or by proxy were ~~exercised~~redeemed in whole by the Company. Shares of Series B Preferred Stock that did vote in person or ~~cancelled during the period~~by proxy will need to request redemption from the Company at a rate of $0.001 per share in cash. As of June 30, 2023, no shareholders of Series B Preferred Stock have requested such redemption. As of the filing date, the Company’s Board of ~~issuance through~~ Directors has not declared a reverse stock split.

~~September 30, 2022~~Warrants.

The Company ~~performed~~issued warrants to purchase an ~~analysis~~aggregate of 36,000,000 shares of Class A common stock (“Public Warrants”) in connection with the ~~provisions of~~August 2022 Public Offering, as more fully described in the ~~Public Warrants and concluded that the~~2022 10-K. The Public Warrants did not meet the guidance for being classified as an equity instrument due to a potential price reset prompted by a change in an unrelated instrument’s conversion rate or, in the event of a fundamental transaction, settlement rights that differ from those of the underlying common stockholders. ~~As a result,~~Accordingly, the Public Warrants are being accounted for as a derivative liability ~~instrument in the unaudited condensed consolidated balance sheets.~~instrument. The fair value of the derivative liability as of ~~the issuance date on August 9, 2022~~June 30, 2023 and ~~September 30,~~December 31, 2022 was ~~$9.9~~ $4.5million and ~~$4.5~~$6.9 million, respectively. The change in the fair value of the derivative liability was recognized as a component of nonoperating income (expense) in the Company’s ~~unaudited condensed consolidated statements~~Unaudited Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive loss.~~

The following table summarizes the assumptions used in estimating the fair value of the Public Warrants using the Black-Scholes option pricing model as of the issuance date on August 9, 2022 and as of September 30, 2022:

August 9,

September 30,

2022

2022

Stock price

$
0.49

$
0.28

Exercise price

$
0.75

$
0.75

Warrant term

5 years

4.86 years

Expected volatility

78.27

78.41
%
Risk-free interest rate

2.97

4.06
%
Dividend rate

0.00

0.00
%

Comprehensive Loss.

~~9. STOCKHOLDERS’ EQUITY~~

On August 9, 2022, the Company closed on a registered public offering consisting of 18,560,000 shares of common stock, pre-funded warrants to purchase 5,440,000 shares of common stock and accompanying Public Warrants to purchase an aggregate of 36,000,000 shares of common stock at a combined offering price of $0.75 per share and accompanying Public Warrants, or $0.749 per pre-funded warrant and accompanying Public Warrants (“August 2022 Public Offering”). The pre-funded warrants had an exercise price of $0.001 per share and were all exercised on the closing date. As a result, an aggregate of 24,000,000 shares were issued on the closing date for gross proceeds of $18 million. In connection with the August 2022 Public Offering, the Company paid $1.7 million of share issuance costs, which consisted of placement agent fees and expenses and other offering costs.

As a result of the derivative liability classification of the Public Warrants discussed in Note 8, the gross proceeds were first allocated to the fair value of the Public Warrants as of August 9, 2022 of $9.9 million and the remaining $8.1 million in gross proceeds were allocated to stockholders’ equity. The share issuance costs associated with the August 2022 Public Offering were allocated between the issuance of common stock and Public Warrants on a pro rata basis with the allocation of the gross proceeds, which resulted in $0.8 million of share issuance costs being recorded as a reduction of additional paid-in capital and $0.9 million of share issuance costs being recorded in interest expense on the unaudited condensed consolidated statements of operations and comprehensive loss.

During the nine months ended September 30, 2022, the Company issued 391,363 shares of Class A common stock (“common stock”) at an average price of $1.65 per share to Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement with Lincoln Park, as more fully described in the 2021 10-K. As of September 30, 2022, the Company does not intend to issue any additional shares under the LPC Purchase Agreement.

~~During the nine months ended September 30, 2022, the Company issued 8,791 shares common stock for services with a value at issuance of $34 thousand.~~

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The fair value of the Public Warrants as of June 30, 2023 and December 31, 2022 was determined using both a Monte Carlo simulation model, which uses multiple input variables to determine the probability of the occurrence of a price reset or a fundamental transaction and the Black-Scholes option pricing model. The following table includes the share price and the inputs used to estimate the fair value of the warrants:


	June 30,			December 31,
	2023			2022
Stock price	$	0.19		$	0.31
Warrant term (in years)		4.11			4.61
Expected volatility		86.02	%		80.90	%
Risk-free interest rate		4.29	%		4.04	%
Dividend rate		0.00	%		0.00	%

The 36,000,000 outstanding liability classified Public Warrants have an exercise price of $0.75 per share, are exercisable upon issuance and will expire five years following the date of issuance. No Public Warrants were exercised or cancelled during the six months ended June 30, 2023.

The Company has outstanding equity-classified warrants to purchase 593,924 shares of Class A common stock at a weighted average exercise price of $16.32, with expiration dates ranging from ~~March 2025~~October 2023 to February 2026. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, no warrants were exercised or cancelled.

~~10.~~7. STOCK-BASED COMPENSATION

~~On May 23, 2022, the Company’s stockholders approved~~The Company may issue stock-based compensation awards under the Helius Medical Technologies, Inc. 2022 Equity Incentive Plan (“2022 Plan”)~~, which had been adopted by~~ or the ~~Company’s Board of Directors on February 16, 2022. The 2022~~Helius Medical Technologies, Inc. 2021 Inducement Plan ~~provides for~~(as amended, the ~~grant of incentive stock options (“ISOs”~~“Inducement Plan”), ~~nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards~~as described more fully in the 2022 10-K. On January 1, 2023, pursuant to ~~employees, directors and consultants, including employees and consultants of~~ the Company’s affiliates. Vesting and the term of an option is determined at the discretion of the Company’s Board of Directors. Initially, a maximum of 1,121,272 shares of common stock may be issued. The automatic increase provision in the 2022 Plan provides for an annual increase to the maximum number of authorized shares on January 1 of each year beginning on January 1, 2023 through January 1, 2027, to an amount equal to (i) 20% of the fully diluted number of shares of common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or (ii) a lesser number of shares determined by the Board prior to the date of the increase. The maximum number of shares of common stock that may be issued on the exercise of ISOs under the 2022 Plan is 11,212,720. Effective with the approval of the 2022 Plan, the ~~Company ceased granting awards under~~number of shares authorized for issuance increased from the ~~2018 Omnibus Incentive Plan. However, outstanding stock options granted prior~~initial 1,121,272 to ~~the effective date of the 2022 Plan are still governed by the respective predecessor plan under which they were granted, which are described more fully in the 2021 10-K.~~13,215,973. As of ~~September~~June 30, ~~2022,~~2023, the remaining shares available for grant were ~~256 shares~~734,223 under the 2022 Plan and ~~22,500 shares~~455,000 under the ~~Helius Medical Technologies, Inc. 2021~~ Inducement Plan.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company granted ~~595,170~~11,088,460 stock options out of the 2022 Plan and 25,000 stock options out of the Inducement Plan at a weighted average exercise price of ~~$3.03~~ $0.29per share. The options vest over one to four years and expire ten years after the grant date.

The following table includes the weighted-average assumptions used in the Black-Scholes option pricing model and the related weighted-average grant-date fair values of stock options granted during the periods ~~indicated and the related weighted-average assumptions used in the Black-Scholes option pricing model:~~indicated:


	Three Months Ended			Nine Months Ended			Three Months Ended June 30,						Six Months Ended June 30,
	September 30, 2022			September 30, 2022			2023			2022			2023			2022
Risk-free interest rate		3.56	%		2.86	%		3.75	%		2.89	%		3.93	%		2.63	%
Expected volatility		75.75	%		74.94	%		79.29	%		75.09	%		79.45	%		74.66	%
Expected term (years)		5.74			5.65			5.26			5.57			5.70			5.62
Expected dividend yield		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%		0.00	%
Fair value per option	$	0.36		$	1.09
Fair value, per share							$	0.11		$	0.70		$	0.20		$	1.34

During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the ~~Company’s~~Company's non-employee directors received a grant of ~~24,196~~332,216 restricted stock units at a weighted average grant date fair value of ~~$1.40~~$0.16 per share. ~~Share-based compensation expense for the nine months ended September 30, 2022 includes a grant to an officer of the Company of 8,011 shares of unrestricted common stock valued at $34 thousand.~~

As of ~~September~~June 30, ~~2022,~~2023, there were an aggregate of ~~1,174,320~~12,270,338 stock options outstanding with a weighted average exercise price of ~~$17.76~~$1.56 per share and ~~14,112~~276,848 unvested restricted stock units outstanding with a weighted average grant date fair value of ~~$1.40~~$0.16 per share.

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~~Compensation expense related to all~~Total stock-based compensation ~~net of forfeitures,~~expense was as follows (in thousands):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Cost of sales	$	4	$	2	$	11	$	5	$	5	$	4	$	9	$	7
Selling, general and administrative		1,367		582		1,837		3,351		339		224		659		470
Research and development		70		156		174		540		76		(49)		157		104
Total stock-based compensation expense	$	1,441	$	740	$	2,022	$	3,896	$	420	$	179	$	825	$	581

~~There were no tax benefits recognized~~As of June 30, 2023, the total remaining unrecognized compensation expense related to ~~stock-based compensation expense during these periods.~~

In conjunction with the public offering discussed in Note 9, certain performance criteria were achieved for performance-based stock options. For the three months and nine months ended September 30, 2022, the Company recognized additional share-based compensation expense of $1,184 thousand associated with the vesting of the performance-based stock options.

~~As of September 30, 2022, the unrecognized compensation cost related to non-vested time-based~~nonvested stock options and restricted stock units was ~~$1.5~~$3.4 million which will be ~~recognized~~amortized over athe weighted-average remaining ~~vesting~~requisite service period of ~~approximately 2.4~~1.2 years. ~~Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of an award.~~

~~11.~~8. BASIC AND DILUTED LOSS PER SHARE

~~Basic~~The table below presents the computation of basic and diluted loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted loss per share is calculated by adjusting the weighted-average number of shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. Diluted loss per share excludes, when applicable, the potential impact of stock options, unvested restricted stock units and common stock warrants because their effect would be anti-dilutive due to the net loss.

~~Basic and diluted net loss per share for the three and nine months ended September 30, 2022 and 2021 was calculated as follows~~ (in thousands, except share and per share ~~data)~~information):


	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2022		2021		2022		2021		2023		2022		2023		2022
Basic:
Net loss available to common stockholders - basic	$	(1,030)	$	(4,687)	$	(9,186)	$	(14,030)	$	(1,648)	$	(3,810)	$	(4,142)	$	(8,156)
Weighted average common shares outstanding - basic		8,543,303		2,326,893		17,761,752		2,229,422		28,219,824		3,928,704		28,216,641		3,858,676
Net loss per share - basic	$	(0.12)	$	(2.01)	$	(0.52)	$	(6.29)
Loss per share - basic									$	(0.06)	$	(0.97)	$	(0.15)	$	(2.11)

Diluted:
Net loss available to common stockholders - diluted ⁽¹⁾	$	(1,030)	$	(4,687)	$	(9,186)	$	(14,030)	$	(1,648)	$	(3,810)	$	(4,142)	$	(8,156)
Weighted average common shares outstanding - diluted ⁽¹⁾		8,543,303		2,326,893		17,761,752		2,229,422		28,219,824		3,928,704		28,216,641		3,858,676
Net loss per share - diluted	$	(0.12)	$	(2.01)	$	(0.52)	$	(6.29)
Loss per share - diluted									$	(0.06)	$	(0.97)	$	(0.15)	$	(2.11)

(1)

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, no adjustment was made to the numerator and no incremental shares were added to the denominator for the Public Warrants being accounted for as a derivative

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liability, as the Public Warrants were out-of-the-money during ~~both~~the periods. Refer to Note ~~8 and Note 9~~6 for additional information about the Public Warrants.

The following outstanding securities, presented based on amounts outstanding as of the end of each period, were not included in the computation of diluted net loss per share for the periods indicated, as they would have been anti-dilutive due to the net loss in each period.


	Three Months Ended		Nine Months Ended		Three Months Ended		Six Months Ended
	September 30,		September 30,		June 30,		June 30,
	2022	2021	2022	2021	2023	2022	2023	2022
Stock options	1,174,320	641,152	1,174,320	641,152	12,270,338	1,070,404	12,270,338	1,070,404
Restricted stock units	14,112	3,943	14,112	3,943	276,848	20,281	276,848	20,281
Warrants	36,593,924	593,924	36,593,924	593,924	36,593,924	593,924	36,593,924	593,924

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9. COMMITMENTS AND CONTINGENCIES

The Company is obligated under a license agreement with Advanced NeuroRehabilitation, LLC ~~(“ANR”)~~ to pay a 4% royalty on net revenue collected from the sale of devices covered by the patent-pending technology. During the three and six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recorded royalty expense from the sale of devices of approximately $8$10 thousand, $14 thousand, $5 thousand and $4$12 thousand, respectively, in its ~~unaudited condensed consolidated statement~~Unaudited Condensed Consolidated Statements of ~~operations~~Operations and ~~comprehensive loss. During~~Comprehensive Loss.

10. ENTERPRISE-WIDE DISCLOSURES

Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the ~~nine~~chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer. The Company operates and manages its business within one operating and reportable segment related to the sale of PoNS devices directly to patients in the United States and to clinics in Canada.

The following table presents the Company’s revenue disaggregated by geographic area (in thousands):


	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2023		2022		2023		2022
Product sales, net:
United States	$	175	$	63	$	250	$	63
Canada		69		56		100		239
Total product sales, net		244		119		350		302
Other revenue		12		—		17		7
Total revenue	$	256	$	119	$	367	$	309

Two customers accounted for 64% and one customer accounted for 35% of net product sales for the three and six months ended ~~September~~June 30, 2023 and two customers accounted for 91% of accounts receivable, net as of June 30, 2023. A single customer accounted for 13% and 41% of net product sales for the three and six months ended June 30, 2022 and ~~2021, the Company recorded royalty expense from the sale~~89% of ~~devices~~accounts receivable, net as of ~~approximately $20 thousand and $10 thousand, respectively, in its unaudited condensed consolidated statement of operations and comprehensive loss.~~December 31, 2022.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Unless otherwise specified or the context otherwise requires, references to ~~“we”, “us”~~“we,” “us,” “our,” “Helius” or ~~“our”~~“Company” mean Helius Medical Technologies, Inc. and its wholly owned operating subsidiaries, Helius Medical, Inc.~~, or HMI,~~ (“HMI”) and Helius Medical Technologies (Canada), Inc.~~, or HMC, Helius Canada Acquisition Ltd., or HCA and Helius NeuroRehab, Inc., or HNR.~~ (“HMC”). The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, ~~2021,~~2022, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission ~~or the SEC,~~(“SEC”) on March ~~14, 2022~~9, 2023 (the ~~“2021~~“2022 10-K”). All financial information is stated in U.S. dollars unless otherwise specified. Our ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements are prepared in accordance with accounting principles generally accepted in the United States or (“U.S. ~~GAAP.~~GAAP”).

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements regarding our market, strategy, competition, capital needs, business plans and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Forward-looking statements are made, without limitation, in relation to ~~operating plans,~~the Company’s future growth and operational progress, including expected enrollment, receipt of prescriptions and progress of commercialization of the PoNS device in the U.S., the impacts of the current global macroeconomic environment on the Company, the issuance by CMS of rules regarding coverage of emerging technologies, ~~patient participation~~clinical development plans, product development activities, the safety and ~~other details~~effectiveness of the ~~TEP study,~~Company’s product, sufficiency of cash and availability of funds, and operating costs. Such forward-looking statements involve risks and uncertainties, known and unknown, including capital requirements to achieve our business objectives, the ~~COVID 19 pandemic, including its~~ impact on ~~our~~the Company of global macroeconomic conditions including effects from disruptions in the banking system and financial markets, and the COVID-19 pandemic, the effect of inflation and increased interest rates on our ability to operate our business and access capital markets, the success of our business plan, including our ability to secure contracts with rehabilitation clinics, obtain national Medicare coverage and a reimbursement code so that the PoNS device is covered by Medicare and Medicaid, to build internal commercial infrastructure, secure state distribution licenses, build a commercial team and build relationships with Key Opinion Leaders, neurology experts and neurorehabilitation centers, market awareness of the PoNS device, availability of funds, manufacturing, labor shortage and supply chain risks, our ability to maintain and enforce our intellectual property rights, clinical trials and the clinical development process, the product development process, the regulatory submission review and approval process, our operating costs and use of cash, and our ability to achieve significant revenues and other factors discussed in the section entitled “Item 1A. Risk Factors” in ~~this Quarterly Report on Form 10 Q and in~~ our ~~2021~~2022 10-K and those described from time to time in our future reports filed with the SEC. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith, based on information available to us as of the date hereof, and reflect our current judgment regarding our business plans, we cannot guarantee future results, events, levels of activity, performance or achievement and our actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. We do not intend, and undertake no obligation, to update or revise any of the forward-looking statements as a result of new information, future events or otherwise or to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

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Company Overview

We are a neurotechnology company focused on neurological wellness. Our purpose is to develop, license or acquire ~~non-implanted~~non-implantable technologies targeted at reducing symptoms of neurological disease or trauma.

Our product, known as the Portable Neuromodulation Stimulator, or PoNS®, is an innovative ~~non-implanted~~non-implantable medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and chronic balance deficit. PoNS Therapy^TM is integral to the overall PoNS solution and is the physical therapy applied by patients during use of the PoNS neuromodulation stimulator. PoNS has marketing clearance in the U.S. for use ~~in the U.S.~~ as a short-term treatment of gait deficit due to mild-to-moderate symptoms for ~~multiple sclerosis, or~~ MS, and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. We began accepting prescriptions for PoNS in the U.S. in March 2022, and commercial sales of PoNS commenced in April 2022. PoNS is authorized for sale in Canada for ~~two~~three indications: (i) for use as a short term treatment (14 weeks) of chronic balance deficit due to mild-to-moderate traumatic brain injury, or mmTBI, and is to be used in conjunction with physical ~~therapy, or PoNS Therapy~~^TM~~; and~~therapy; (ii) for use as a short term treatment (14 weeks) of gait deficit due to mild and moderate symptoms from MS and it is to be used in conjunction with physical therapy; and (iii) as a short term treatment (14 weeks) of gait deficit due to mild and moderate symptoms from stroke, to be used in conjunction with physical therapy. It has been commercially available in Canada since March 2019. PoNS is authorized for sale as a Class IIa medical device in Australia and we ~~are currently~~have been seeking a business partner to commercialize and distribute PoNS in Australia.

Recent Developments

~~We began accepting prescriptions~~Corporate Updates

On April 21, 2023, we filed a definitive proxy statement seeking stockholder approval for ~~PoNS~~a reverse stock split of our outstanding Class A common stock at a ratio in the ~~U.S.~~range of 1-for-10 to 1-for-80 to be determined at the discretion of the Company’s Board of Directors. At the annual meeting of stockholders on May 24, 2023, stockholders voted to approve the reverse stock split.

On March 23, 2023, our Board of Directors declared a dividend of one one-thousandth of a share of our Series B Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), on each outstanding share of our Class A common stock, to stockholders of record on April 3, 2023. Refer to Note 6 to our Unaudited Condensed Consolidated Financial Statements for additional information.

On March 21, 2023, we received a letter from the Listing Qualifications Staff of The Nasdaq Stock Market, LLC (“Nasdaq”) notifying the Company that Nasdaq has granted the Company a 180-day extension, until September 18, 2023, to regain compliance with the requirement for the Company’s Class A common stock, to maintain a minimum bid price of $1.00 per share for continued listing on the Nasdaq Capital Market, as set forth in Nasdaq Listing Rule 5550(a) (2).

On March 8, 2023, we received marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for use as a short-term treatment of gait deficit due to mild and moderate symptoms from stroke. This expands our addressable market in Canada to include a patient population seeking treatment options that may resolve stroke gait deficit symptoms.

Pursuant to an Exclusive Distribution Agreement with Health Tech Connex Inc. (“HTC”) (“Exclusivity Agreement”), subject to certain terms and conditions, we granted to HTC the exclusive right to provide the PoNS Therapy in the ~~first quarter~~Fraser Valley and Vancouver metro regions of ~~2022,~~British Columbia. HTC is to purchase the PoNS devices for use in these regions exclusively from us and on terms no less favorable than the then-current standard terms and conditions. The initial term of the Exclusivity Agreement expires on December 31, 2027, and is renewable by HTC for one additional five-year term. Refer to Note 3 to our ~~first commercial sales began in April 2022.~~ Unaudited Condensed Consolidated Financial Statements for additional information.

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Presently, PoNS Therapy is not covered by Center for Medicare and Medicaid (“CMS”) or reimbursed by any third-party ~~payors~~payers in the ~~US.~~

In June 2022, the Company launched the Patient Therapy Access Program (“PTAP”) program, which will provide qualifying patients access to PoNS therapy at a significantly reduced price. To qualify for the PTAP pricing, the patient must provide a letter of medical necessity and consent to the release of their medical records for the last two years. Because of the significantly reduced price, the patient must also sign a document that prohibits him/her from submitting a reimbursement claim to third-party payers. PTAP participants will also be invited to join the Company’s registry program, which is designed to collect important health information to establish the value of PoNS on key therapeutic outcomes and will supplement the data collected through clinical trials and real-world data. The Company began processing orders under the PTAP program in June 2022, which is expected to run through December 31, 2022.

During 2021, we contracted with an industry consultant to conduct a health economic study of PoNS. Based upon the results of this study and comparing PoNS to other medical devices utilizing similar patented technologies we established a U.S. ~~list price for the PoNS device of $25,700, comprised of $17,800 for the controller and $7,900 for the mouthpiece.~~ We are pursuing commercial insurance coverage and Medicare reimbursement for PoNS within the Durable Medical Equipment, or DME, benefit category. While there are currently no applicable Healthcare Common Procedure Coding System, or HCPCS, codes to describe the PoNS device or mouthpiece, we intend to use miscellaneous codes – E1399 (Miscellaneous durable medical equipment) and A9999 (Miscellaneous DME supply or accessory, not otherwise specified) until specific HCPCS codes are created. We initially applied for unique HCPCS codes during the third quarter of 2021. In order to address CMS’s request for additional information to “further understand the PoNS device indication for ~~use”,~~use,” we decided to move forward and collect additional clinical and real-world data. As such, through our ongoing ~~TEP~~PoNSTEP study and ~~upcoming~~ongoing registry program, we plan to resubmit for unique HCPCS codes upon availability of a body of evidence that we consider adequate and sufficient to address CMS’s questions. We expect to ~~interact again~~re-engage with CMS in ~~the second half of 2023.~~mid-2023.

~~The Company~~We will continue ~~monitoring~~to monitor the development of CMS’s new pathway for coverage of innovative new devices, Transitional Coverage of Emerging Technology (“TCET”), which is replacing the repealed Medicare Coverage of Innovative Technologies ~~(“MCIT”)~~ rule. CMS is expected to share more about TCET with the public for comments in 2023. As we follow the evolution of TCET, we will continue to assess our evidence generation strategy to reach the greatest potential to gain CMS reimbursement benefits as a result of our Breakthrough designation in MS.

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We also intend to provide broad access and reimbursement for the PoNS Therapy over time through commercial insurers. Prior to the initiation of CMS or broad commercial payer coverage, we anticipate the primary source of sales will be self-pay patients. We expect to support the cost of the PoNS Therapy by offering a cash pay discount, collaborating with third parties to provide self-pay patients with financing options as well as working with advocacy groups and charitable organizations to help self-pay patients access our technology. In general, we anticipate that it will take at least 24 months to obtain broad coverage and reimbursement among government and private payers.

In connection with our acquisition of Heuro Canada, Inc. (“Heuro”) in October 2019, we entered into a Clinical Research and Co-Promotion Agreement with Health Tech Connex Inc. (“HTC”) (the “Co-Promotion Agreement”), as more fully describedWe launched an e-commerce site in the ~~2021 10-K. Although~~U.S. in December 2022 and began processing orders in January 2023. Accessed via ponstherapy.com, the ~~co-promotion provisions within~~site is powered through a new partnership with UpScriptHealth, a leading telehealth company focused on making medications and devices available direct-to-consumer. UpScriptHealth’s platform provides for (1) online health evaluations with qualified medical providers; (2) fulfillment of prescriptions required for PoNS Therapy; and (3) shipping of PoNS devices directly to the ~~Co-Promotion Agreement~~homes of eligible patients in the United States. The UpScriptHealth platform makes it possible for people with MS to have a PoNS device delivered directly to their doorstep.

Our Patient Therapy Access Program (“PTAP”), launched in June 2022 and effective through June 2023, provided qualifying patients access to PoNS therapy at a significantly reduced price. The PTAP was not renewed and terminated on December 31, 2020, the Co-Promotion Agreement remains in effect. Subject to certain terms and conditions, we granted to HTC the exclusive right to provide the PoNS Treatment in the Fraser Valley and Vancouver metro regions of British Columbia, where HTC has operated a PoNS authorized clinic since February 2019. HTC will purchase the PoNS devices for use in these regions exclusively from us and on terms no less favorable than the then-current standard terms and conditions. This exclusivity right has an initial term of ten years, renewable by HTC for one additional ten-year term upon sixty days’ written notice to us. On January 31, 2022, we notified HTC of its material breaches under the Co-Promotion Agreement, which HTC failed to cure under the terms of the Co-Promotion Agreement. As such, it is our position that this exclusivity right is no longer in effect. We have been in discussions with HTC to explore opportunities to work together moving forward.

As discussed further in Note 9 to our unaudited condensed consolidated financial statements, in August 2022, the Company closed on a public offering of its Class A common stock and warrants (“August 2022 Public Offering”) and received net proceeds of approximately $16.3 million.June 30, 2023.

Material Trends and Uncertainties

~~COVID-19 Pandemic~~Global Economic Conditions

~~On March 11, 2020,~~Generally, worldwide economic conditions remain uncertain, particularly due to the ~~World Health Organization declared~~conflict between Russia and Ukraine, disruptions in the ~~outbreak of COVID-19 as a global pandemic, which has spread throughout the U.S. and around the world. The Company’s business, results of operations~~banking system and financial ~~condition have been and may continue to be adversely impacted by~~markets, the lingering effects of the COVID-19 pandemic and ~~global~~increased inflation. The general economic ~~conditions.~~and capital market conditions both in the U.S. and worldwide, have been volatile in the past and at times have adversely affected our access to capital and increased the cost of capital. The ~~outbreak~~capital and ~~spread~~credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, our future cost of ~~COVID-19 have significantly increased economic uncertainty. Authorities implemented,~~equity or debt capital and ~~continue~~access to ~~implement, numerous measures to try to contain~~ the ~~virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns.~~ capital markets could be adversely affected.

The COVID-19 pandemic ~~initially led~~that began in late 2019 introduced significant volatility to the closure of PoNS authorized clinic locations across Canada from March until June 2020. Patients who completed their initial training in the clinics prior to the closures were able to continue working independently in the at-home portion of the treatment, with remote check-ins with their certified therapists. While all clinics have re-opened, as of December 31, 2021, they were all operating at reduced capacity, which limited operations to 50% capacity during the second half of 2021. Some patients returned to these clinics for treatment, but patients have been and may continue to be less willing to return to the clinics due to COVID-19, impacting our commercial activities and our customer engagement efforts. This was especially true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders, and business shutdowns were imposed. The rate of vaccination increased throughout all provinces throughout 2021, facilitating the lifting of some of the previously imposed restrictions. As of April 2022, capacity has returned to 100%. We continue to monitor the impact of COVID-19 and adjust our operations as the circumstances change.

We expanded our services to include remote training and treatment, but the long-term viability of these remote programs is still being assessed. Additionally, clinical experience programs and clinical trials in Canada have experienced and may continue to experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff.

The COVID 19 pandemic has and may continue to cause delays in or the suspension of our business partners’ manufacturing operations, our research and product development activities, our regulatory workstreams, our research

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and development activities and other important commercial functions. We are also dependent upon our suppliers for the manufacture of our PoNS device. In the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID 19, resulting in delays in our product development activities. Such diversion of suppliers’ resources may occur again in the future, and the pandemic could limit our suppliers’ ability to travel or ship materials or force temporary closure of facilities that we rely upon. Manufacturing delays have occurred and may also occur as the result of labor shortages. Two of our suppliers experienced significant labor shortages as a result of COVID 19 from the end of November 2021 through early January 2022. In addition, during March 2022 and continuing into the second quarter of 2022, an increase in COVID 19 related cases in certain parts of China resulted in the re-imposition of widespread shutdowns and restrictions in China and additional supply chain disruptions. These labor shortages and increases in COVID-19 cases reduced the available resources needed to build and test product which may delay the timing for the submission and approval of our marketing applications with regulatory agencies. Further, the economic impact of the COVID 19 pandemic had affected, and may in the future affect, our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

The extent to which the COVID 19 pandemic will continue to impact our business, including our U.S. commercial launch and sales in Canada, as well as our results of operations and our financial condition will depend on future developments, which are highly uncertain and cannot be predicted. We do not yet know the full extent of the impact of COVID 19 on our business, operations or the global economy, asdisrupted supply chains and had a ~~whole.~~

~~Inflationary Environment~~

~~Our~~widespread adverse effect on the financial markets. Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic ~~factors that impact customer confidence and spending, including capital spending.~~factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, disruptions in the banking system and financial markets, the conflict in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest

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rates. ~~As a result of inflation,~~Although we ~~have experienced and may continue to experience, cost increases. Although the Company~~ may take measures to mitigate ~~the impact of this inflation,~~these impacts, if these measures are not effective, ~~the Company’s~~our business, financial condition, results of operations, and liquidity could be materially adversely affected.

~~Other Trends and Uncertainties~~

Beginning in late 2021, production delays began to negatively impact the ability of our contract manufacturer to successfully ramp up production during 2022 to fulfill orders for both commercial sales and clinical trials, which has been exacerbated by both labor and supply chain shortages currently being experienced by many industries in the U.S.

To successfully commercialize, we need to continue to build infrastructure necessary to grow our business including adding headcount and implementing or upgrading business systems. Competition for talent in today’s labor market may impact our ability to add headcount and to recruit talent with the expertise we need to develop our commercial infrastructure.

In response to the aforementioned challenges and trends, we have supplemented our personnel including quality resources at our contract manufacturer. Additionally, we continue to actively recruit and source candidates to fill positions as we build out our team to support our anticipated growth.

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Results of Operations

Three Months Ended ~~September~~June 30, ~~2022~~2023 compared to the Three Months Ended ~~September~~June 30, ~~2021~~2022

The following table summarizes our results of operations for the three months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Three Months Ended September 30,						Three Months Ended June 30,
	2022		2021		Change		2023		2022		Change
Revenue:
Product sales, net	$	195	$	102	$	93
Product sales, net:
United States							$	175	$	63	$	112
Canada								69		56		13
Total product sales, net								244		119		125
Other revenue		1		7		(6)		12		—		12
Total revenue		196		109		87		256		119		137
Cost of revenue		101		86		15		184		88		96
Gross profit		95		23		72
Gross profit (loss)								72		31		41
Operating expenses:
Selling, general and administrative		3,393		2,859		534
Research and development		751		1,489		(738)
Selling, general and administrative expenses								2,569		2,461		108
Research and development expenses								684		953		(269)
Amortization expense		47		48		(1)		38		47		(9)
Goodwill impairment		757		—		757
Total operating expenses		4,948		4,396		552		3,291		3,461		(170)
Loss from operations		(4,853)		(4,373)		(480)		(3,219)		(3,430)		211
Nonoperating income (expense)
Interest expense, net		(919)		—		(919)
Interest income (expense), net								89		—		89
Change in fair value of derivative liability		5,489		—		5,489		1,223		—		1,223
Foreign exchange (loss) gain		(747)		(314)		(433)		259		(380)		639
Other income (expense), net		—		—		—		—		—		—
Nonoperating income (expense), net		3,823		(314)		4,137		1,571		(380)		1,951
Loss before provision for income taxes		(1,030)		(4,687)		3,657		(1,648)		(3,810)		2,162
Provision for income taxes		—		—		—		—		—		—
Net loss	$	(1,030)	$	(4,687)	$	3,657	$	(1,648)	$	(3,810)	$	2,162

Revenue

~~For the three months ended September 30, 2022, we recognized~~The increase in net product sales ~~of $139 thousand and $56 thousand in the U.S and Canada, respectively. Net product sales were $102 thousand in Canada~~ for the three months ended ~~September~~June 30, ~~2021. All~~2023 as compared with the same period in the prior year was primarily attributable to increased U.S. sales of PoNS systems under the PTAP driven, in part, by patients’ efforts to secure the favorable PTAP pricing prior to the termination of PTAP on June 30, 2023. Commercial product sales in ~~Canada for both periods were generated through product sales~~the United States commenced in April 2022.

Cost of ~~our PoNS device pursuant to our executed supply agreements with neuroplasticity clinics in Canada. Other~~Revenue

The cost of revenue increase for the three months ended ~~September~~June 30, ~~2021~~2023 was ~~comprised of license fee revenue related~~primarily attributable to ~~our Co-Promotion Agreement with HTC.~~higher sales compared to the same period in the prior year.

~~Cost of Revenue~~Gross Profit

~~For the three months ended September 30, 2022, cost of revenues was $101 thousand as compared with $86 thousand~~Gross profit for the three months ended ~~September~~June 30, ~~2021. The increase was primarily attributable~~2023 increased compared to ~~overhead costs, including salaries and benefits of employees involved in management of the supply chain and, to a lesser extent, higher product sales in the current period.~~

~~Selling, General and Administrative Expense~~

~~Selling, general and administrative expenses were $3.4 million for the three months ended September 30, 2022, an increase of 0.5 million from~~ the same period in ~~2021. The increase was primarily due to~~the prior year. As a ~~$0.8 million net~~percentage of total revenue, the increase in ~~stock-based compensation expense. In conjunction with the August 2022 Public Offering, certain performance criteria were achieved for the outstanding performance-based stock options, which~~gross profit resulted ~~in the recognition~~from greater absorption of ~~$1.2 million of~~fixed overhead costs across

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~~share-based compensation expense associated with their vesting. This additional expense was~~the higher unit volume on PoNS system sales, partially offset by a greater mix of lower ~~stock- based compensation expense~~margin PoNS system sales under the PTAP in the current ~~period for time-based awards.~~year period.

Selling, General and Administrative Expense

The increase in selling, general and administrative expenses resulted from a $0.1 million increase in professional fees incurred primarily in connection with certain registration statement filings with the Securities and Exchange Commission.

Research and Development Expense

~~Research~~The decrease in research and development expenses ~~decreased $0.7 million for the three months ended September 30, 2022~~was driven primarily by a decrease in product development expenses and clinical trial activities as ~~compared with the three months ended September 30, 2021. The decrease was primarily due~~we transitioned our focus from product development and clinical trials to ~~lower net expenses following the~~ U.S. ~~commercial launch, as well as decreases of $0.1 million in each of stock-based compensation and bonus expense.~~commercialization activities.

Amortization Expense

Amortization expense ~~consists~~was primarily comprised of the ~~periodic~~ amortization of acquired finite-lived intangible ~~assets, including proprietary software and reacquired rights recognized in connection with the acquisition of Heuro in October 2019 and internally developed software.~~assets. The change in amortization expense period over period is primarily due to ~~fluctuations in the Canadian to U.S. dollar exchange rates.~~

~~Goodwill Impairment~~

During the three months ended September 30, 2022, we recorded a goodwill impairment charge of $757 thousand, reducing the goodwill balance to zero. The significant decline in the price of our common stock following the August 2022 Public Offering was considered a triggering event for testing whether goodwill was impaired. Management performed a quantitative assessment as of September 30, 2022 and determined that the carrying value of our single reporting unit exceeded the estimated fair value. Refer to Note 4 to our unaudited condensed consolidated financial statements for additional information.certain intangible assets becoming fully amortized.

Nonoperating income (expense)

Interest ~~Expense,~~Income (Expense), Net

~~The Company recorded $0.9 million of~~Net interest ~~expense in~~income for the three months ended ~~September~~June 30, ~~2022 in connection with the derivative liability classification of warrants issued in connection with the August 2022 Public Offering. Refer~~2023 was primarily attributable to ~~Note 9 to our unaudited condensed consolidated financial statements for additional information. The interest expense in the period was offset by $8 thousand of~~ interest income earned on ~~an investment~~investments of excess cash in an unrestricted money market savings ~~account.~~account and a certificate of deposit.

Change in Fair Value of Derivative Liability

As discussed in more detail in Note 86 to our ~~unaudited condensed consolidated financial statements,~~Unaudited Condensed Consolidated Financial Statements, the warrants issued in connection with the public offering completed on August 9, 2022 ~~Public Offering~~ are being accounted for as a derivative liability instrument. The change in fair value of derivative liability for the three months ended ~~September~~June 30, ~~2022~~2023 of ~~$5.5~~$1.2 million ~~is the result of the decrease in fair value from the date of issuance on August 9, 2022 and September 30, 2022,~~was due to a decrease in ~~the Company’s~~our stock price.

Foreign Exchange (Loss) Gain

~~Foreign~~The change in foreign exchange ~~loss was $0.7 million for the three months ended September 30, 2022, compared to $0.3 million for the three months ended September 30, 2021. The increase in the loss~~(loss) gain was primarily due to fluctuations in the Canadian to U.S. dollar exchange rates.

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~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023 compared to the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022

The following table summarizes our results of operations for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022		2021		Change		2023		2022		Change
Revenue:
Product sales, net	$	497	$	242	$	255
Product sales, net:
United States							$	250	$	63	$	187
Canada								100		239		(139)
Total product sales, net								350		302		48
Other revenue		8		22		(14)		17		7		10
Total revenue		505		264		241		367		309		58
Cost of revenue		313		169		144		306		212		94
Gross profit		192		95		97
Gross profit (loss)								61		97		(36)
Operating expenses:
Selling, general and administrative		8,673		9,800		(1,127)
Research and development		3,468		4,182		(714)
Selling, general and administrative expenses								5,443		5,280		163
Research and development expenses								1,570		2,717		(1,147)
Amortization expense		141		153		(12)		77		94		(17)
Goodwill impairment		757		—
Total operating expenses		13,039		14,135		(1,096)		7,090		8,091		(1,001)
Loss from operations		(12,847)		(14,040)		1,193		(7,029)		(7,994)		965
Nonoperating income (expense)
Interest expense, net		(919)		—		(919)
Interest income (expense), net								189		—		189
Change in fair value of derivative liability		5,489		—		5,489		2,444		—		2,444
Foreign exchange (loss) gain		(910)		10		(920)		254		(163)		417
Other income (expense), net		1		—		1		—		1		(1)
Nonoperating income (expense), net		3,661		10		3,651		2,887		(162)		3,049
Loss before provision for income taxes		(9,186)		(14,030)		4,844		(4,142)		(8,156)		4,014
Provision for income taxes		—		—		—		—		—		—
Net loss	$	(9,186)	$	(14,030)	$	4,844	$	(4,142)	$	(8,156)	$	4,014

~~Revenue~~

For the nine months ended September 30, 2022, we recognized net product sales of $202 thousand and $295 thousand in the U.S and Canada, respectively. Net product sales were $242 thousand in Canada for the nine months ended September 30, 2021. All product sales in Canada for both periods were generated through product sales of our PoNS device pursuant to our executed supply agreements with neuroplasticity clinics in Canada. Other revenue for the nine months ended September 30, 2022 and 2021 was comprised of license fee revenue related to our Co-Promotion Agreement with HTC.

~~Cost of Revenue~~

Cost of revenues increased $0.1 million to $0.3 million for the nine months ended September 30, 2022 as compared with the nine months ended September 30, 2021. The increase was primarily attributable to overhead costs, including salaries and benefits of employees involved in management of the supply chain and third-party distribution costs.

~~Selling, General and Administrative Expense~~

Selling, general and administrative expenses decreased $1.1 million to $8.7 million for the nine months ended September 30, 2022 as compared with the nine months ended September 30, 2021. The decrease was primarily due to a net decrease of $1.5 million in stock-based compensation expense, partially offset by increased compensation expenses related to personnel additions in late 2021 and early in 2022 to support the U.S. commercial launch.

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Revenue

The increase in net product sales for the six months ended June 30, 2023 as compared with the same period in the prior year was primarily attributable to increased U.S. sales of PoNS systems driven, in part, by patients’ efforts to secure favorable PTAP pricing prior to the termination of PTAP on June 30, 2023 as well as the fact that commercial product sales in the United States did not commence until April 2022. This increase was partially offset by lower Canada product sales resulting mostly from prior year sales including approximately $120 thousand of revenue recognized in connection with the delivery of the remaining 16 PoNS devices that had been included as noncash consideration in the Company’s acquisition of Heuro Canada, Inc.

Cost of Revenue

The cost of revenue increase for the six months ended June 30, 2023 was primarily attributable to higher sales compared to the same period in the prior year.

Gross Profit

Gross profit for the six months ended June 30, 2023, decreased compared to the same period in the prior year. As a percentage of total revenue, the decrease in gross profit resulted primarily from a greater mix of lower margin PoNS system sales under the PTAP in the U.S. during the current year period.

Selling, General and Administrative Expense

The increase in selling, general and administrative expenses was the result of a $0.5 million increase in professional fees incurred primarily in connection with certain registration statement filings with the Securities and Exchange Commission, which was largely offset by a $0.3 million decrease in personnel related costs.

Research and Development Expense

~~Research~~The decrease in research and development expenses ~~decreased $0.7 million for the nine months ended September 30, 2022~~was driven primarily by a decrease in product development expenses and clinical trial activities as ~~compared with the nine months ended September 30, 2021. The decrease was primarily due~~we transitioned our focus from product development and clinical trials to ~~decreases of $0.4 million in stock-based compensation expense and $0.1 million in bonus expense as well as lower net expenses following the~~ U.S. ~~commercial launch.~~commercialization activities.

Amortization Expense

Nonoperating income (expense)

Interest ~~Expense,~~Income (Expense), Net

~~The Company recorded $0.9 million of~~Net interest ~~expense in~~income for the ~~nine~~six months ended ~~September~~June 30, ~~2022 in connection with the derivative liability classification of warrants issued in connection with the August 2022 Public Offering. Refer~~2023 was primarily attributable to ~~Note 9 to our unaudited condensed consolidated financial statements for additional information. The interest expense in the period was offset by $8 thousand of~~ interest income earned on ~~an investment~~investments of excess cash in an unrestricted money market savings ~~account.~~account and a certificate of deposit.

Change in Fair Value of Derivative Liability

As discussed in more detail in Note 86 to our ~~unaudited condensed consolidated financial statements,~~Unaudited Condensed Consolidated Financial Statements, the warrants issued in connection with the public offering completed on August 9, 2022 ~~Public Offering~~ are being accounted for as a derivative liability instrument. The change in fair value of derivative liability for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 of ~~$5.5~~ $2.4million ~~is the result of the decrease in fair value from the date of issuance on August 9, 2022 and September 30, 2022,~~was due to a decrease in ~~the Company’s~~our stock price.

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Foreign Exchange (Loss) Gain

~~Foreign~~The change in foreign exchange ~~loss was $0.9 million for the nine months ended September 30, 2022, compared to a~~(loss) gain ~~of $10 thousand for the nine months ended September 30, 2021. The loss in the current period~~ was primarily due to fluctuations in the Canadian to U.S. dollar exchange rates.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents and working capital as of the end of the periods indicated in the table below (in thousands):


	June 30,		December 31,
	2023		2022
Cash and cash equivalents	$	8,599	$	14,549
Working capital		8,741		14,709

Our available capital resources have been primarily used to expand our U.S. commercialization efforts, fund manufacturing activities for the PoNS device, conduct clinical trials and for working capital and general corporate purposes. Our primary sources of cash and cash equivalents have been proceeds from public and private offerings of our Class A common stock, which most recently included $16.3 million in net proceeds we received from a public offering of our Class A common stock and warrants completed in August 2022 (“August 2022 Public Offering”) as discussed in more detail in Note 8 to our Consolidated Financial Statements included our 2022 10-K. As discussed in more detail in Note 6 to our Unaudited Condensed Consolidated Financial Statements, the Company entered into a sales agreement related to our at-the-market offering program under which we may offer and sell shares having gross proceeds up to $2.0 million.

As discussed in more detail in Note 6 to our Unaudited Condensed Consolidated Financial Statements, the outstanding shares of Series B Preferred Stock will vote together with the outstanding shares of the Company’s Class A common stock, as a single class, exclusively with respect to a proposal giving the Board of Directors the authority, as it determines appropriate, to implement a reverse stock split within twelve months following the approval of such proposal by the Company’s stockholders, as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters. If these proposals do not receive approval at a meeting of stockholders duly called for the purpose of voting thereon, the Company may be unable to regain compliance with Nasdaq’s minimum bid price requirement within the required period of time, which could lead to our Class A common stock being delisted. If we are unable to maintain the listing of our Class A common stock on Nasdaq, we may face difficulty raising additional capital.

Statement of Cash Flows

The following table summarizes our cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021~~2022 (in thousands):


	Nine Months Ended September 30,						Six Months Ended June 30,
	2022		2021		Change		2023		2022		Change
Net cash used in operating activities	$	(12,167)	$	(9,925)	$	(2,242)	$	(5,930)	$	(8,346)	$	2,416
Net cash used in investing activities		(13)		(51)		38		(20)		(6)		(14)
Net cash provided by financing activities		17,869		11,353		6,516		—		620		(620)
Effect of foreign exchange rate changes on cash		(6)		(8)		2		—		—		—
Net increase in cash, cash equivalents and restricted cash	$	5,683	$	1,369	$	4,314
Net decrease in cash and cash equivalents							$	(5,950)	$	(7,732)	$	1,782

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Net Cash Used in Operating Activities

~~Net cash used in operating activities increased $2.3 million to $12.2 million for the nine months ended September 30, 2022 as compared with cash used of $9.9 million in the prior year period.~~ The ~~higher~~lower level of cash used in operating activities in the ~~current period~~six months ended June 30, 2023 primarily resulted from ~~decreases~~the decrease in ~~accounts payable and accrued liabilities.~~net loss for the six months ended June 30, 2023 as compared with the same period in the prior year.

Net Cash Used in Investing Activities

Our investing activities are primarily related to the ~~purchase~~purchases of property and equipment and, to a lesser extent, internally developed software. During the nine months ended September 30, 2022, net cash used in investing activities were net of $6 thousand in proceeds from the sale of furniture and equipment.

Net Cash Provided by Financing Activities

During the nine months ended September 30, 2022, we received net proceeds of $16.3 million from the August 2022 Public Offering described in Note 9 to our unaudited condensed consolidated financial statements. In addition, we received $0.6 million in net proceeds from the sale of 391,363 shares of common stock to Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement with Lincoln Park, as more fully described in the 2021 10-K. We dodid not ~~intend to issue~~complete any ~~additional shares under the LPC Purchase Agreement.~~

Net cash provided by financing activities during the nine months ended September 30, 2021 was $11.4 million, which consisted of $10.0 million in aggregate net proceeds from the issuances of common stock in the February 2021 public ~~offering of common stock and under the LPC Purchase Agreement and $1.3 million from the exercise of warrants and stock options.~~

~~Liquidity and Capital Resources~~

Our unaudited condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. Our primary sources of cash have been proceeds from various public andor private offerings of our Class A common stock during the six months ended June 30, 2023 and 2022. During the six months ended June 30, 2022, we paid $24 thousand of accrued share issuance costs related to a ~~lesser extent, exercises~~public offering of Class A common stock ~~options and warrants.~~

We currently have limited working capital and liquid assets. The following table summarizes our cash and working capital (which we define as current assets less current liabilities) as of September 30, 2022 and December 31, 2021 (in thousands):

September 30,

December 31,

2022

2021
Cash and cash equivalents

$
16,658

$
11,005
Working capital

17,017

9,941

completed in November 2021.

Cash ~~Requirements~~

~~August 2022 Public Offering~~

~~Additional Funding~~ Requirements

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful commercialization of PoNS Therapy in the U.S. Our net loss was ~~$9.2~~$4.1 million and ~~$14.0~~$8.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. As of ~~September~~June 30, ~~2022,~~2023, we had an accumulated deficit of ~~$146.2~~ $155.2million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. These and other factors indicate substantial doubt about our ability to continue as a going concern. Refer to Note 1 to our Unaudited Condensed Consolidated Financial Statements for additional discussion about our going concern uncertainty.

We intend to

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use our available capital resources primarily to expand our U.S. commercialization efforts, fund manufacturing activities for the PoNS device, conduct clinical trials and for working capital and general corporate purposes.

We believe that our existing capital resources ~~including the net proceeds from the August 2022 Public Offering,~~ will be sufficient to fund our operations ~~into the third quarter of~~through 2023, but we will be required to seek additional funding through the sale of equity or debt financing to continue to fund our operations thereafter. We will need additional funding for our planned clinical trial for stroke. The amount required to fund operations thereafter will depend on various factors, including timing of approval of clinical trials, duration and result of clinical trials and other factors that affect the cost of the clinical trial, manufacturing costs of product, development of our product for new indications and demand for our authorized products in the market.

There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital expenditure or sell certain assets, including intellectual property, and we may be forced to cease or wind down operations, seek protection under the provisions of the U.S. Bankruptcy Code, or liquidate and dissolve our company.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements that have been prepared in accordance with U.S. GAAP. This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.

Our critical accounting policies and estimates are described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” of our ~~2021~~2022 10-K. There have been no changes in critical accounting policies in the current year from those described in our ~~2021~~2022 10-K.

Recently Issued Accounting Pronouncements

The information set forth in Note 32 to our ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements under Part I, Item 1, “Condensed Consolidated Financial Statements” is incorporated herein by reference.

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ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) ofunder the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the direction of our Chief Executive Officer and our Chief Financial Officer, we have evaluated our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our management has concluded that the financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we are subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results or financial condition.

Item 1A. Risk Factors

Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. During the ~~three~~six months ended ~~September~~June 30, ~~2022,~~2023, our risk factors have not changed materially from those risk factors previously disclosed in our ~~2021 10-K and Quarterly Reports on Form 10-Q for the quarters ended March 31,~~ 2022 ~~and June 30, 2022.~~10-K. You should carefully consider the risk factors discussed in Part I, “Item 1A. Risk Factors” in our ~~2021 10-K and our Quarterly Reports on Form 10-Q for the quarters ended March 31,~~ 2022 ~~and June 30, 2022.~~10-K. The risks described in our ~~2021~~2022 10-K ~~and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2022 and June 30, 2022~~ are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.~~Click or tap here to enter text.~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

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Item 5. Other Information

None.

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Item 6. Exhibits


Exhibit No.		Description of Exhibit
3.1		Certificate of Conversion filed with the Delaware Secretary of State on July 18, 2018 (incorporated by reference to Exhibit 3.1 to the Form 10-Q filed August 9, 2018)
3.2		Certificate of Incorporation, as corrected (incorporated by reference to Exhibit 3.1 to the Form 8-K filed October 30, 2018)
3.3		Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 31, 2020)
3.4		Certificate of Designation of the Series B Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1(a) to the Registrant’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on March 24, 2023)
3.5		Bylaws as amended and restated (incorporated by reference to Exhibit 3.3 to the Form 10-Q filed August 9, 2018)
~~4.1~~		~~Form of Warrant to purchase shares of common stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed August 9, 2022)~~
~~4.2~~		Warrant Agency Agreement dated as of August 9, 2022 by and between Helius Medical Technologies, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to the Form 8-K filed August 9, 2022)
~~4.3~~		~~Form of Pre-Funded Warrant to purchase shares of common stock (incorporated by reference to Exhibit 4.3 to the Form 8-K filed August 9, 2022)~~
~~10.1~~		~~Form of Securities Purchase Agreement by and between Helius Medical Technologies, Inc. and the purchasers named therein (incorporated by reference to Exhibit 10.1 to the Form 8-K filed August 9, 2022)~~
~~10.2~~		Placement Agency Agreement dated as of August 5, 2022 by and between Helius Medical Technologies, Inc. and Roth Capital Partners, LLC (incorporated by reference to Exhibit 10.2 to the Form 8-K filed August 9, 2022)
31.1#		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to ~~Section302~~Section 302 of the Sarbanes-Oxley Act of 2002
32.1#*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS#		Inline XBRL Instance Document
101.SCH#		Inline XBRL Taxonomy Extension Schema Document
101.CAL#		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB#		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE#		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF#		Inline XBRL Taxonomy Extension Definition Linkbase Document
104#		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

#	Filed herewith.

These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements 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.


	HELIUS MEDICAL TECHNOLOGIES, INC.

Dated: ~~November 14, 2022~~August 10, 2023	By:	/s/ Dane C. Andreeff
		Dane C. Andreeff
		President and Chief Executive Officer

Dated: ~~November 14, 2022~~August 10, 2023	By:	/s/ Jeffrey S. Mathiesen
		Jeffrey S. Mathiesen
		Chief Financial Officer, Treasurer and ~~Treasurer~~Secretary (Principal Financial
		Officer and Principal Accounting Officer)

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Weighted average remaining lease term		2.5 years
Weighted average discount rate		4.4	%

Maturities of operating lease liabilities as of September 30, 2022 were as follows (in thousands):

2022 (remaining)	$	14
2023		57
2024		46
2025		12
Total future lease payments		129
Less: interest		(6)
Present value of lease liabilities	$	123


	August 9,		September 30,
	2022		2022
Stock price	$	0.49	$	0.28
Exercise price	$	0.75	$	0.75
Warrant term		5 years		4.86 years
Expected volatility		78.27		78.41	%
Risk-free interest rate		2.97		4.06	%
Dividend rate		0.00		0.00	%