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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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.

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 ☒

~~Indicate~~As of November 6, 2020, the ~~number~~registrant had 51,922,480 shares of ~~shares outstanding of each of the issuer’s classes of~~Class A common stock, ~~as of the latest practicable date.~~

(Except for share data, amounts in ~~thousands and expressed in United States Dollars)~~thousands)

	September 30, 2017			December 31, 2016			September 30, 2020			December 31, 2019
ASSETS
Current assets
Cash	$	2,617		$	2,669		$	2,680		$	5,459
Receivables		755			225
Prepaid expenses and other current assets		190			556
Accounts receivable, net								80			210
Other receivables								138			364
Inventory, net								572			598
Prepaid expenses								666			610
Total current assets		3,562			3,450			4,136			7,241
Property, plant and equipment, net		174			—
Property and equipment, net								463			712
Other assets		18			—
Goodwill								725			1,242
Intangible assets, net								579			582
Operating lease right-of-use asset, net								105			552
Other assets								18			18
Total other assets								1,427			2,394
TOTAL ASSETS	$	3,754		$	3,450		$	6,026		$	10,347
LIABILITIES AND STOCKHOLDERS' DEFICIT
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	3,637		$	2,161		$	720		$	1,676
Accrued liabilities		340			259			1,399			1,519
Operating lease liability								107			172
Derivative financial instruments		9,926			4,474			—			5
Deferred revenue								339			430
Total current liabilities		13,903			6,894			2,565			3,802
Non-current liabilities
Operating lease liability								47			465
Deferred revenue								217			245
TOTAL LIABILITIES		13,903			6,894			2,829			4,512
Commitments and contingencies (Note 5)
STOCKHOLDERS’ DEFICIT
Common stock (Unlimited Class A common shares authorized, no par value); (96,410,413 shares issued and outstanding as of September 30, 2017 and 84,630,676 shares issued and outstanding as of December 31, 2016)		45,917			30,897
Commitments and contingencies (Note 6)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019								—			—
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 45,354,612 and 30,718,554 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively								45			31
Additional paid-in capital		6,386			5,732			120,213			111,479
Accumulated other comprehensive loss								(693	)		(902	)
Accumulated deficit		(62,640	)		(38,345	)		(116,368	)		(104,773	)
Accumulated other comprehensive income (loss)		188			(1,728	)
TOTAL STOCKHOLDERS’ DEFICIT		(10,149	)		(3,444	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	3,754		$	3,450
TOTAL STOCKHOLDERS’ EQUITY								3,197			5,835
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY							$	6,026		$	10,347

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

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Revenue:
Product sales, net	$	124		$	150		$	441		$	1,295
Fee revenue		—			—			9			49
License revenue		7			—			20			—
Total operating revenue		131			150			470			1,344
Cost of sales:
Cost of product sales		22			89			187			538
Gross profit		109			61			283			806
Operating expenses:
Research and development		1,327			1,506			3,755			6,462
Selling, general and administrative		2,370			4,291			7,625			12,715
Amortization expense		72			—			287			—
Total operating expenses		3,769			5,797			11,667			19,177
Operating loss		(3,660	)		(5,736	)		(11,384	)		(18,371	)
Other income (expense):
Other income		—			11			63			35
Change in fair value of derivative financial instruments		1			196			4			14,033
Foreign exchange gain (loss)		182			(59	)		(278	)		(147	)
Total other income (expense)		183			148			(211	)		13,921
Net loss		(3,477	)		(5,588	)		(11,595	)		(4,450	)
Other comprehensive loss:
Foreign currency translation adjustments		(172	)		68			209			(168	)
Comprehensive loss	$	(3,649	)	$	(5,520	)	$	(11,386	)	$	(4,618	)
Net loss per share
Basic	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(0.17	)
Diluted	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(0.17	)
Weighted average shares outstanding
Basic		45,137,995			25,903,544			39,187,370			25,869,039
Diluted		45,137,995			25,903,544			39,187,370			25,869,039

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

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2020 and 2019

	Common Stock, $0.001 par value				Additional Paid-In		Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital		Loss			Deficit			Total
Balance as of June 30, 2019		25,903,544	$	26	$	107,437	$	(827	)	$	(93,854	)	$	12,782
Stock-based compensation		—		—		1,560		—			—			1,560
Foreign currency translation adjustments		—		—		—		68			—			68
Net loss		—		—		—		—			(5,588	)		(5,588	)
Balance as of September 30, 2019		25,903,544	$	26	$	108,997	$	(759	)	$	(99,442	)	$	8,822

	Common Stock, $0.001 par value				Additional Paid-In		Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital		Loss			Deficit			Total
Balance as of June 30, 2020		45,114,506	$	45	$	119,763	$	(521	)	$	(112,891	)	$	6,396
Settlement of restricted stock units		240,106		—		—		—			—			—
Stock-based compensation		—		—		450		—			—			450
Foreign currency translation adjustments		—		—		—		(172	)		—			(172	)
Net loss		—		—		—		—			(3,477	)		(3,477	)
Balance as of September 30, 2020		45,354,612	$	45	$	120,213	$	(693	)	$	(116,368	)	$	3,197

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

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2020 and 2019

	Common Stock, $0.001 par value				Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital			Loss			Deficit			Total
Balance as of December 31, 2018		25,827,860	$	26	$	105,411		$	(591	)	$	(94,992	)	$	9,854
Proceeds from the exercise of stock options and warrants		74,720		—		215			—			—			215
Settlement of restricted stock units		964		—		—			—			—			—
Reclassification of derivative financial instruments from exercise of warrants		—		—		35			—			—			35
Stock-based compensation		—		—		3,336			—			—			3,336
Foreign currency translation adjustments		—		—		—			(168	)		—			(168	)
Net loss		—		—		—			—			(4,450	)		(4,450	)
Balance as of September 30, 2019		25,903,544	$	26	$	108,997		$	(759	)	$	(99,442	)	$	8,822

	Common Stock, $0.001 par value				Additional Paid-In			Accumulated Other Comprehensive			Accumulated
	Shares		Amount		Capital			Loss			Deficit			Total
Balance as of December 31, 2019		30,718,554	$	31	$	111,479		$	(902	)	$	(104,773	)	$	5,835
Proceeds from the issuance of common stock from At-the-Market program		8,138,808		8		5,035			—			—			5,043
Proceeds from issuance of common stock from the March 2020 Offering		6,257,144		6		1,342			—			—			1,348
Warrant issuance from the March 2020 Offering		—		—		842			—			—			842
Share issuance costs		—		—		(506	)		—			—			(506	)
Settlement of restricted stock units		240,106		—		—			—			—			—
Stock-based compensation		—		—		2,021			—			—			2,021
Foreign currency translation adjustments		—		—		—			209			—			209
Net loss		—		—		—			—			(11,595	)		(11,595	)
Balance as of September 30, 2020		45,354,612	$	45	$	120,213		$	(693	)	$	(116,368	)	$	3,197

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

	Nine Months Ended
	September 30,
	2020			2019
Cash flows from operating activities:
Net loss	$	(11,595	)	$	(4,450	)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative financial instruments		(4	)		(14,033	)
Stock-based compensation expense		2,021			3,336
Unrealized foreign exchange loss		245			211
Depreciation expense		92			89
Amortization expense		287			—
Provision for doubtful accounts		160			—
Intangible asset impairment		182			—
Loss from disposal of property and equipment		110			—
Gain on lease modification		(56	)		—
Changes in operating assets and liabilities:
Accounts receivable		(30	)		(380	)
Other receivables		226			(123	)
Inventory		26			(897	)
Prepaid expenses		(56	)		285
Other current assets		—			264
Operating lease liability		20			(9	)
Accounts payable		(956	)		(678	)
Accrued liabilities		(120	)		(75	)
Deferred revenue		(119	)		—
Net cash used in operating activities		(9,567	)		(16,460	)
Cash flows from investing activities:
Purchase of property and equipment		(14	)		(260	)
Proceeds from sale of property and equipment		61			—
Internally developed software		(7	)		—
Net cash provided by (used in) investing activities		40			(260	)
Cash flows from financing activities:
Proceeds from the issuances of common stock and warrants		7,233			—
Share issuance costs		(506	)		(52	)
Proceeds from the exercise of stock options and warrants		—			215
Proceeds from Paycheck Protection Program Loan		323			—
Repayment of Paycheck Protection Program Loan		(323	)		—
Net cash provided by financing activities		6,727			163
Effect of foreign exchange rate changes on cash		21			(7	)
Net decrease in cash		(2,779	)		(16,564	)
Cash at beginning of period		5,459			25,583
Cash at end of period	$	2,680		$	9,019

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

~~Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss~~

~~(Amounts in~~ ~~thousands except shares and per share data, and expressed in United States Dollars)~~

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Operating expenses:

Research and development

$
3,798

$
1,411

$
11,121

$
3,164

General and administrative

2,172

1,980

5,862

5,246

Total operating expenses

5,970

3,391

16,983

8,410

Operating loss

(5,970
)

(3,391
)

(16,983
)

(8,410
)
Other income (expense):

Other expense

—

—

—

(20
)
Other income

—

1

—

111

Change in fair value of derivative financial instruments

(5,960
)

288

(5,452
)

(1,052
)
Foreign exchange gain (loss)

(1,008
)

115

(1,860
)

(530
)
Total other income (expense)

(6,968
)

404

(7,312
)

(1,491
)
Net loss

(12,938
)

(2,987
)

(24,295
)

(9,901
)
Other comprehensive income (loss):

Foreign currency translation adjustments

1,266

(172
)

1,916

597

Comprehensive loss

$
(11,672
)

$
(3,159
)

$
(22,379
)

$
(9,304
)
Net loss per share, basic and diluted

$
(0.13
)

$
(0.04
)

$
(0.26
)

$
(0.12
)
Weighted average common shares outstanding, basic

96,125,284

84,366,692

91,844,867

79,232,232

Weighted average common shares outstanding, diluted

96,125,284

85,004,192

91,844,867

79,232,232

~~(The accompanying notes are an integral part of the condensed consolidated financial statements.)~~

~~(Except shares data, amounts in thousands and expressed in United States Dollars)~~

Accumulated

Additional

Other

Common Stock

Common Stock

Paid-In

Accumulated

Comprehensive

Shares

Amount

Capital

Deficit

Income (Loss)

Total

Balance as of January 1, 2017

84,630,676

$
30,897

$
5,732

$
(38,345
)

$
(1,728
)

$
(3,444
)
Issuance of common stock in public offering

6,555,000

9,187

—

—

—

9,187

Issuance of common stock in private placement

4,000,000

5,360

—

—

—

5,360

Share issuance costs

—

(1,248
)

—

—

—

(1,248
)
Stock-based compensation expense

—

—

1,464

—

—

1,464

Proceeds from the exercise of stock options and warrants

1,218,232

911

—

—

911

Vesting of restricted stock units

6,505

—

—

—

—

—

Reclassification of exercised stock options, warrants and issued restricted stock units from additional paid-in capital

—

810

(810
)

—

—

—

Net loss

—

—

—

(24,295
)

—

(24,295
)
Foreign currency translation adjustments

—

—

—

—

1,916

1,916

Balance as of September 30, 2017

96,410,413

$
45,917

$
6,386

$
(62,640
)

$
188

$
(10,149
)

~~(The accompanying notes are an integral part of the condensed consolidated financial statements.)~~

Nine Months Ended

September 30,

2017

2016

Cash flows from operating activities:

Net loss

$
(24,295
)

$
(9,901
)
Adjustments to reconcile net loss to net cash used in operating activities:

Depreciation

7

—

Change in fair value of derivative financial instruments

5,452

1,052

Interest accretion

—

5

Stock-based compensation expense

1,464

1,724

Unrealized foreign exchange loss

1,758

781

Changes in operating assets and liabilities:

Receivables

(530
)

(42
)
Prepaid expenses and other current assets

366

336

Other assets

(18
)

—

Accounts payable and accrued liabilities

1,557

120

Shares to be issued

—

150

Net cash used in operating activities

(14,239
)

(5,775
)
Cash flows from investing activities:

Purchase of property, plant and equipment

(181
)

—

Net cash used in investing activities

(181
)

—

Cash flows from financing activities:

Proceeds from the issuance of common stock

14,547

7,903

Share issuance costs

(1,248
)

(1,509
)
Proceeds from the exercise of stock options and warrants

911

1,494

Net cash provided by financing activities

14,210

7,888

Effect of foreign exchange rate changes on cash

158

(290
)
Net change in cash

(52
)

1,823

Cash at beginning of period

2,669

4,350

Cash at end of period

$
2,617

$
6,173

~~(The accompanying notes are an integral part of the condensed consolidated financial statements.)~~

Helius Medical Technologies, Inc. ~~(the~~(“we” or the “Company”), is ~~engaged primarily in the medical technology industry~~a neurotech company focused on neurological wellness. The Company’s ~~planned principal operations include the development, licensing and acquisition of~~purpose is to develop, license or acquire unique and non-invasive ~~platform~~ technologies targeted at reducing symptoms of neurological disease or trauma.

The Company’s first product, known as the Portable Neuromodulation Stimulator (“PoNS^TM”), is authorized for sale in Canada as a class II, non-implantable medical device intended as a short term treatment (14 weeks) of gait deficit due to ~~amplify~~mild and moderate symptoms from multiple sclerosis (“MS”,) and chronic balance deficit due to mild-to-moderate traumatic brain injury (“mmTBI”) and is to be used in conjunction with physical therapy (“PoNS Treatment^TM”). It is an investigational medical device in the ~~brain’s ability~~United States, the European Union (“EU”), and Australia (“AUS”). The device is currently under review for de novo classification and clearance by the U.S. Food and Drug Administration (the “FDA”) as a potential treatment for gait deficit due to ~~heal itself.~~symptoms of MS. It is also under premarket review by the AUS Therapeutic Goods Administration. PoNS Treatment™ is not currently commercially available in the United States, the European Union or Australia.

The Company was incorporated in British Columbia, Canada on March 13, 2014. On May 28, 2014, ~~the Company completed a continuation via a plan of arrangement whereby the Company moved~~we were reincorporated from ~~being a corporation governed by the~~ British Columbia ~~Corporations Act~~ to ~~a corporation governed by~~ the State of Wyoming, ~~Business Corporations Act. The Company is~~and on July 20, 2018, we were reincorporated from the State of Wyoming to the State of Delaware. We are headquartered in Newtown, Pennsylvania.

~~The~~ On December 21, 2018, the Company’s wholly owned subsidiary, NeuroHabilitation Corporation, changed its name to Helius Medical, Inc (“HMI”). On January 31, 2019, the Company ~~has two wholly-owned subsidiaries, Neurohabilitation Corporation~~formed another wholly owned subsidiary, Helius NeuroRehab, Inc., (“~~NHC”~~HNR”), a Delaware corporation. On October 10, 2019, the Company formed Helius Canada Acquisition Ltd. (“HCA”), a company incorporated under the federal laws of Canada and a wholly owned subsidiary of Helius Medical Technologies (Canada), Inc. (“~~Helius Canada”~~HMC”).

The Company’s Class A common stock without par value (“common stock”) is currently listed on the Toronto Stock Exchange (the “TSX”). The Company’s common stock began trading on the Canadian Securities Exchange on June 23, 2014,, a company incorporated under the ~~ticker symbol “HSM”, and trading~~federal laws of ~~the common stock subsequently moved to the TSX~~Canada, which acquired Heuro Canada, Inc. (“Heuro”) from Health Tech Connex Inc. (“HTC”) on April 18, 2016. The Company’s common stock also began trading on the OTC Markets (“OTCQB”) under the ticker symbol “HSDT” on February 10, 2015. The financial information is presented in United States Dollars.October 30, 2019.

As of September 30, ~~2017,~~2020, the ~~Company’s~~Company had cash ~~was $2.6~~of $2.7 million. ~~During~~For the nine months ended September 30, ~~2017,~~2020, the Company ~~incurred a net~~had an operating loss of ~~$24.3~~$11.4 million, and as of September 30, ~~2017,~~2020, its accumulated deficit was ~~$62.6~~$116.4 million. ~~The~~For the nine months ended September 30, 2020, the Company ~~has not generated any product revenues and has not achieved profitable operations.~~had $0.5 million of revenue from the commercial sale of products or services. 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, ~~will ever be achieved,~~ and, if achieved, whether it will be sustained on a ~~continuing~~continued basis. These factors ~~raise~~indicate substantial doubt about the Company’s ability to continue as a going ~~concern.~~concern within one year after the date the financial statements are filed. The Company’s 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.~~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 will require substantial additional financing to fund its operations and to continue to execute its strategy.~~

The Company intends to fund ongoing activities by utilizing its current ~~available~~ cash on hand, cash received from the sale of its PoNS™ device in Canada and by raising additional capital through equity or debt financings. As discussed further in Note 8, on October 26, 2020, the Company closed a private placement and received net proceeds of approximately $3.2 million. There can be no assurance that the Company will be successful in raising ~~sufficient~~that additional capital ~~at the level needed to sustain operations and develop its product candidate~~ 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 ~~expenditure~~expenditures.

On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States 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 has significantly increased economic uncertainty. Authorities implemented 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. While all clinics have re-opened, they are all currently operating at reduced capacity, and patients have been and may continue to be less willing to return to these clinics, impacting our commercial activities and our customer engagement efforts. Moreover, the Company’s ability to conduct its ongoing clinical experience programs in Canada has been and may continue to be impaired due to trial participants’ attendance being adversely affected by COVID-19, leading to further delays in the development and approval of the Company’s product candidate. In addition, the COVID-19 pandemic has and may continue to cause delays in the Company’s suppliers’ ability to ship materials that the Company relies upon, and disruptions in business or ~~sell certain assets, including intellectual property assets.~~governmental operations due to COVID-19 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 could 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, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The Company does not know yet the full extent of the impact of COVID-19 on its business, operations or the global economy as a whole.

On March 23, 2020, the Company received a letter (the “Notice”) from the Listing Qualifications staff of Nasdaq indicating that, based on the closing bid price of the Company’s Class A common stock (the “common stock”) for the 30 consecutive business days preceding the Notice, the Company no longer meets the requirement to maintain a minimum bid price of $1.00 per share, as set forth in Nasdaq Listing Rule 5550(a)(2) (the “Minimum Bid Price Requirement”). The Notice did not result in the immediate delisting of the Company’s common stock from Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a period of 180 calendar days in which to regain compliance.

On April 17, 2020, the Company received a second letter (the “Second Notice”) for the Listing Qualifications staff of Nasdaq stating that the 180-day period to regain compliance with the Minimum Bid Price Requirement has been extended due to the global market impact caused by COVID-19. More specifically, Nasdaq has stated that compliance periods were suspended from April 16, 2020 until June 30, 2020. On July 1, 2020, companies received the balance of any pending compliance period to regain compliance with the Minimum Bid Price Requirement. As a result of this extension, the Company was given to until December 3, 2020 to regain compliance with the Minimum Bid Price Requirement. In order to regain compliance with the Minimum Bid Price Requirement, the closing bid price of the Company’s common stock must be at least $1.00 for a minimum of ten consecutive business days.

In the event that the Company does not regain compliance by December 3, 2020, the Company may be eligible to obtain an additional compliance period of 180 calendar days so long as the Company satisfies the continued listing requirement for market value of publicly held shares and all criteria for initial listing on the Nasdaq Capital Market, but for the Minimum Bid Price Requirement and market value of publicly held shares requirement, and provides written notice to Nasdaq of its intent to cure the deficiency during the second compliance period via the implementation of a reverse stock split if necessary. If the Company does not regain compliance with the Minimum Bid Price Requirement by the end of the applicable compliance period (either December 3, 2020 or June 1, 2021 in the event a second compliance period is requested and granted), the Company’s common stock would be subject to delisting from Nasdaq. In that case, however, the Company would have the right to request a hearing before a Nasdaq Hearings Panel to address its plan to remedy the deficiency, which request would stay any delisting action by the Listing Qualifications staff pending the ultimate outcome of the hearing process.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)~~, applicable to interim periods and, in the opinion of management, include all normal and recurring adjustments that are necessary to state fairly the results of operations for the reported periods.~~. The condensed consolidated financial statements have also been prepared on a basis substantially consistent with, and should be read in conjunction with the Company’s audited consolidated financial statements for the ~~nine months~~year ended December 31, ~~2016,~~2019, included in its ~~Transition~~Annual Report on Form 10-K that was filed with the Securities and Exchange Commission ~~(“SEC”),~~ on ~~April 3, 2017.~~March 12, 2020. The ~~results of operations for~~Company’s reporting currency is the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the entire fiscal year or for any other interim period. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all material adjustments consisting of normal and recurring accruals necessary to present fairly the Company's condensed consolidated financial position as of September 30, 2017, and the results of operations and comprehensive loss for the three and nine months ended September 30, 2017, and 2016 and cash flows for the nine months ended September 30, 2017 and 2016. Certain prior period amounts within operating expenses have been reclassified to conform to the current period presentation.U.S. Dollar (“USD$”).

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and disclosure of contingent assets and liabilities. Significant estimates include the assumptions used in the fair value pricing model for stock-based compensation, derivative financial instruments and deferred income tax asset valuation allowance. Financial statements include estimates which, by their nature, are uncertain. Actual outcomes could differ from these estimates.

The accompanying unaudited condensed consolidated financial statements reflect the operations of Helius Medical Technologies, Inc. and its ~~wholly-owned~~wholly owned subsidiaries. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. However, a controlling financial interest may also exist through arrangements that do not involve controlling voting interests. As such, the Company applies the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 – Consolidation (“ASC 810”), to determine when an entity that is insufficiently capitalized or not controlled through its voting interests, referred to as a variable interest entity should be consolidated. All intercompany balances and transactions have been eliminated.

The Company is subject to credit risk with respect to its cash. Amounts invested in such instruments are limited by credit rating, maturity, industry group, investment type and issuer. The Company is not currently exposed to any significant concentrations of credit risk from these financial

instruments. The Company seeks to maintain safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements and a competitive after-tax rate of return.

~~Receivable~~Accounts receivables are stated at their net realizable value. In determining the appropriate allowance for doubtful accounts, the Company considers a combination of factors, such as the aging of trade receivables, its customers’ financial strength, and payment history. Changes in these factors, among others, may lead to adjustments in the Company’s allowance for doubtful accounts. The calculation of the allowance required judgment by Company management. As of September 30, ~~2017,~~2020, the Company’s accounts receivable of $0.1 million, is net of an allowance for doubtful accounts of $0.4 million and is the result of revenue from product sales. As of December 31, 2019, the Company’s accounts receivable of $0.2 million, is net of an allowance for doubtful accounts of $0.2 million and is the result of revenue from product sales.

Other receivables ~~consisted primarily~~as of September 30, 2020 and December 31, 2019 included refunds from research and development (“R&D”) tax credits of $21 thousand and $0.2 million, respectively, and Goods and Services Tax (“GST”) and Quebec Sales Tax (‘(“QST”) refunds of $0.1 million and $0.1 million, respectively, related to the Company’s Canadian expenditures.

The Company’s inventory consists of raw materials, work in progress and finished goods of the PoNS device. Inventory is stated at the lower of cost (average cost method) or net realizable value. Adjustments to reduce the cost of inventory to its net realizable value are made if required. The Company calculates provisions for excess inventory based on inventory on hand compared to anticipated sales or usage. Management uses its judgment to forecast sales or usage and to determine what constitutes a reasonable period. There can be no assurance that the amount ultimately realized for inventories will not be materially different than that assumed in the calculation of the reserves. Inventory markdowns to net realizable value of $0 thousand and $2 thousand were recorded during the three and nine months ended September 30, 2020, respectively. No inventory markdowns to net realizable value were recorded during the three and nine months ended September 30, 2019.

As of September 30, 2020 and December 31, 2019, inventory consisted of the following (amounts in thousands):

Property ~~plant~~ and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the useful ~~live~~lives of the related ~~asset.~~asset or the term of the related lease. Expenditures for maintenance and repairs, which do not improve or extend the expected useful life of the assets, are expensed to operations while major repairs are capitalized. The estimated useful life of the Company’s ~~property, plant~~leasehold improvements is over the shorter of its lease term or useful life of 5 years; the estimated useful life for the Company’s furniture and fixtures is 7 years; and equipment ~~is comprised~~has an estimated useful life of ~~leasehold improvements~~15 years, while computer software and ~~software.~~ hardware has an estimated useful life of 3 to 5 years.

As of September 30, ~~2017,~~2020 and December 31, 2019, property and equipment consisted of the following (amounts in thousands):

Depreciation expense was $26 thousand and $43 thousand for the three months ended September 30, 2020 and 2019, respectively. Depreciation expense was $92 thousand and $89 thousand for the nine months ended September 30, 2020 and 2019, respectively.

During the second quarter of 2020, the Company ~~had~~sold furniture and fixtures with a net book value of $118 thousand for $61 thousand. Additionally, the Company abandoned leasehold improvements with a net book value of $53 thousand. The loss on the disposal of the furniture

and fixtures and leasehold improvements of $110 thousand was recorded as selling, general and administrative expense in the condensed consolidated statements of operations and comprehensive loss.

Transactions in which the Company obtains control of a business are accounted for according to the acquisition method as described in FASB ASC 805 – Business Combinations. The assets acquired and liabilities assumed are recognized and measured at their fair values as of the date control is obtained. Acquisition related costs in connection with a business combination are expensed as incurred. Contingent consideration is recognized and measured at fair value at the acquisition date and until paid re-measured on a recurring basis. It is classified as a liability based on appropriate GAAP.

On October 30, 2019, the Company and HTC entered into a Share Purchase Agreement (the “SPA”) whereby the Company, through its wholly owned subsidiary, acquired Heuro from HTC. Under the terms of the SPA, total consideration of approximately ~~$0.2~~CAD$2.1 million (USD$1.6 million) was transferred to HTC, which included (1) cash of CAD$0.5 million (USD$0.4 million), (2) delivery of 55 PoNS devices for which the fair value was determined to be CAD$0.5 million (USD$0.4 million), (3) the forgiveness of CAD$750 thousand (USD$0.5 million) receivable from the September 2018 strategic alliance agreement and (4) the exclusivity rights granted to HTC in ~~property plant~~the Co-Promotion Agreement (as defined below) to provide PoNS Treatment in the Fraser Valley and ~~equipment, primarily~~Vancouver metro regions of British Columbia with a determined fair value of CAD$0.4 million (USD$0.3 million). The transaction has been accounted for as a business combination.

The acquisition related costs were $0.1 million and were accounted for as selling, general and administrative expenses in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2019.

The following table summarizes the recognized fair values of identifiable assets acquired and liabilities assumed as of October 30, 2019:

The fair values assigned to identifiable intangible assets assumed were based on management’s estimates and assumptions as of such date and are considered finalized. The Company recorded measurement adjustments of $0.4 million during the nine months ended September 30, 2020, all of which was recorded during the first quarter of 2020. The recorded adjustments related to ~~leasehold improvements~~the recognition of reacquired exclusivity rights.

Acquired intangibles consisted of customer relationships, proprietary technology and reacquired rights. The remaining useful life at acquisition was 1.25 years, 5 years and 3.87 years, respectively, and the acquired intangibles are amortized using the straight-line method.

Factors considered by the Company in determination of goodwill include synergies, strategic fit and other benefits that do not meet the recognition criteria of acquired identifiable intangible assets. The recognized goodwill of $0.7 million is not expected to be deductible for tax purposes.

The fair value of 55 PoNS devices which we agreed to transfer to HTC pursuant to the SPA in the amount of CAD$0.5 million will be recognized as revenue within the consolidated statements of operations and comprehensive loss once control has been transferred in accordance with ASC 606. As of December 31, 2019, the control had not been transferred resulting in the fair value being recorded as deferred revenue on the condensed consolidated balance sheet. As of September 30, 2020, the control of 11 devices had been transferred resulting in recognition of revenue for these devices. The fair value of the remaining 44 devices is still recorded as deferred revenue on the condensed consolidated balance sheet.

In connection with the SPA, on October 30, 2019, the Company entered into a Clinical Research and Co-Promotion Agreement with HTC (the “Co-Promotion Agreement”), whereby each company will promote the sales of the Company’s PoNS Treatment and HTC’s NeuroCatch^TM device throughout Canada. This co-promotion arrangement terminates upon the earlier of the collection of data from 200 patients in Canada and December 31, 2020. Also, subject to certain terms and conditions, Helius 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 the Company and on terms no less favorable than the then-current standard terms and conditions. This exclusivity right has an initial term of ten (10) years, renewable by HTC for one additional ten (10) year term upon sixty (60) days’ written notice to Helius. The Co-Promotion Agreement had a fair value of CAD$360 thousand at the time of acquisition. License revenue will be recognized in connection with the Co-Promotion Agreement ratably over the ten-year term.

Goodwill represents the excess of purchase price over the fair values underlying net assets acquired in an acquisition. All of the Company’s goodwill as of September 30, 2020 is the result of the Heuro acquisition discussed above. Goodwill is not amortized, but rather will be tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company will test goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year.

Goodwill is allocated to and evaluated for impairment at the Company’s one identified reporting unit. Goodwill 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.

If the estimated fair value exceeds the carrying value, no further evaluation is required, and no impairment loss is recognized. If the carrying amount of a reporting unit, including goodwill, exceeds the estimated fair value, the excess of the carrying value over the estimated fair value is recorded as an impairment loss, the amount of which is not to exceed the total amount of goodwill allocated to the reporting unit.

The COVID-19 pandemic was a triggering event for testing whether goodwill is impaired. The Company performed quantitative assessments at March 31, 2020, June 30, 2020 and September 30, 2020. As a result of these assessments, the Company determined that the estimated fair value of the reporting unit exceeded the carrying value of the reporting unit. Therefore, the Company concluded that goodwill was not impaired as of any of the aforementioned periods. The Company will continue to monitor the impacts of the COVID-19 pandemic in future periods.

The following is a summary of the activity for the ~~Company’s new office space in Newtown, Pennsylvania. For~~period ended September 30, 2020 for goodwill:

Definite-lived intangibles consist principally of acquired customer relationships, proprietary software and reacquired rights as well as internally developed software. All are amortized straight-line over their estimated useful lives. Amortization expense related to intangible assets was $0.1 million and $0.3 million during the three and nine months ended September 30, ~~2017,~~2020, respectively. No amortization expense related to intangible assets was recorded during the three and nine months ended September 30, 2019. During the nine months ended September 30, 2020, the Company ~~recorded $7 thousand~~incurred an intangible asset impairment loss of $0.2 million related to the customer relationships, all of which was incurred during the first quarter of 2020, which is included in ~~depreciation expense.~~selling, general and administrative expenses in the accompanying condensed consolidated statement of operations and comprehensive loss.

~~Stock-Based Compensation~~Intangible assets as of September 30, 2020 and December 31, 2019 consist of the following:

		As of September 30, 2020					As of December 31, 2019
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Gross Carrying Amount		Accumulated Amortization
Customer relationships	1.25 years	$	227	$	(191	)	$	423	$	(55	)
Acquired proprietary software	5 years		143		(26	)		148		(5	)
Reacquired rights	3.87 years		480		(113	)		—		—
Internally developed software	3 years		82		(23	)		75		(4	)
Total intangible assets		$	932	$	(353	)	$	646	$	(64	)

On January 1, 2019, the Company adopted ASU No. 2016-02, Leases, using the modified retrospective method. The Company elected the package of practical expedients permitted under the transition guidance within the new standard which allowed the Company to carry forward the historical lease classification. Adoption of this standard resulted in the recording of an operating lease right-of-use (“ROU”) asset and corresponding operating lease liabilities of $0.7 million on January 1, 2019.

The Company ~~accounts~~does not record an operating lease ROU asset and corresponding lease liability for ~~all stock-based payments~~leases with an initial term of twelve months or less and ~~awards under~~recognizes lease expense for these leases as incurred over the ~~fair value based method.~~lease term. The Company ~~recognizes~~had only one operating lease, which was for its ~~stock-based compensation using~~headquarters office in Newtown, Pennsylvania upon the adoption date. As of September 30, 2020, the Company has not entered into any additional lease arrangements, but did modify the existing lease arrangement. Operating lease ROU assets and operating lease liabilities are recognized upon the adoption date based on the present value of lease payments over the lease term. The Company does not have a public credit rating and as such used a corporate yield with a “CCC” rating by S&P Capital IQ with a term commensurate with the term of its lease as its incremental borrowing rate in determining the present value of lease payments. Lease expense is recognized on a straight-line ~~method.~~basis over the lease term. The Company’s lease arrangement does not have lease and non-lease components which are to be accounted for separately (see Note 6).

The ~~Company accounts for~~Company’s functional currency is the ~~granting of stock options~~U.S. dollar. Monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to ~~employees using~~non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets acquired, and non-monetary liabilities incurred are translated at the ~~fair value method whereby all awards to employees are measured~~approximate exchange rate prevailing at ~~fair value on~~ the date of the grant. The fair value of all stock options is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to share capital. Stock options granted to employeestransaction. Revenue and expense transactions are ~~accounted for as liabilities when they contain conditions or other features that are indexed to other than a market, performance or service conditions.~~

~~Stock-based payments to non-employees are measured~~translated at the ~~fair value~~approximate exchange rate in effect at the time of the ~~consideration received, or the fair value of the equity instruments issued, or liabilities incurred, whichever is more reliably measurable. The fair value of stock-based payments to non-employees~~transaction. Foreign exchange gains and losses are ~~periodically re-measured until the counterparty performance is complete, and any change therein is recognized over the vesting period of the award and~~included in the ~~same manner~~condensed consolidated statement of operations and comprehensive loss as if the Company had paid cash instead of paying with or using equity based instruments. The fair value of the stock-based payments to non-employees that are fully vested and non-forfeitable as of the grant date are measured and recognized at that date.

The Company uses the Black-Scholes option pricing model to calculate the fair value of stock options. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected term of the option, the expected volatility of the common stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. Changes in these assumptions can materially affect the fair value estimate.

The functional currency of HMC and HCA, the ~~Company and Helius Canada~~Company’s Canadian subsidiaries, is the ~~Canadian dollar (“CAD”)~~CAD$ and the functional currency of ~~NHC~~HMI and HNR is the ~~U.S. dollar (“USD”)~~USD$. ~~The Company’s reporting currency is the U.S. dollar.~~ Transactions in foreign currencies are recorded into the functional currency of the relevant subsidiary at the exchange rate in effect at the date of the transaction. Any monetary assets and liabilities arising from these transactions are translated into the functional currency at exchange rates in effect at the balance sheet date or on settlement. ~~Resulting~~Revenues, expenses and cash flows are translated at the weighted-average rates of exchanges for the reporting period. The resulting currency translation adjustments are not included in the Company’s condensed consolidated statements of operations and comprehensive loss for the reporting period, but rather are accumulated and gains and losses are recorded in foreign exchange (loss) gain, ~~(loss)~~as a component of comprehensive loss, within the condensed consolidated statements of operations and comprehensive loss.

The ~~foreign~~Company accounts for all stock-based payments and awards under the fair value-based method. The Company recognizes its stock-based compensation expense using the straight-line method. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option.

The Company accounts for the granting of stock options to employees and non-employees using the fair value method whereby all awards are measured at fair value on the date of the grant. The fair value of all employee-related stock options is expensed over the requisite service period with a corresponding increase to additional paid-in capital. Upon exercise of stock options, the consideration paid by the option holder, together with the amount previously recognized in additional paid-in capital is recorded as an increase to common stock, while the par value of the shares received is reclassified from additional paid in capital. Stock options granted to employees are accounted for as liabilities when they contain conditions or other features that are indexed to other than a market, performance or service condition.

In accordance with ASU 2018-07, Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”), stock-based payments to non-employees are measured based on the fair value of the equity instrument issued. Compensation expense for non-employee stock awards is recognized over the requisite service period following the measurement of the fair value on the grant date over the vesting period of the award.

stock consistent with the expected term of the option, risk-free interest rates, the value of the common stock and expected dividend yield of the common stock. Changes in these assumptions can materially affect the fair value estimate.

Awards of options that provide for an exercise price that is not denominated in: (a) the currency of a market in which a substantial portion of the Company's equity securities trades, (b) the currency in which the employee's pay is denominated, or (c) the Company's functional currency, are required to be classified as liabilities.

In accordance with the FASB’s ASC 606, Revenue from Contracts with Customers (“ASC 606”), the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to be entitled in exchange ~~adjustment~~for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps:

The Company applies the five-step model to contracts when it determines that it is probable it will collect substantially all of the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price, after consideration of variability and constraints, if any, that is allocated to the respective performance obligation when the performance obligation is satisfied.

During the first half of 2019, product sales were derived from the sale of the PoNS device and certain support services including services from the use of the NeuroCatch^TM device, which is owned by HTC and assesses electroencephalogram brain waves related to cognition of patients participating in the ~~books~~PoNS Treatment at neuroplasticity clinics in Canada. The Company acted in an agency capacity for services performed using the NeuroCatch device and remitted CAD$600 for each patient assessed with the NeuroCatch device. According to the supply agreement with each of ~~NHC relating~~these clinics, the Company’s performance obligation was met when it delivered the PoNS device to ~~intercompany advances~~the clinic’s facility and the clinic assumed title of the PoNS device upon acceptance. As such, revenue is recognized at a point in time. Shipping and handling costs associated with outbound freight before control of a product has been transferred to a customer is accounted for as a fulfillment cost and are included in cost of sales. Further, according to the Company’s arrangement with HTC and Heuro, the Company shared 50/50 with Heuro in fees from ~~Helius that are denominated~~support services excluding the CAD$600 payment for an assessment using the NeuroCatch device. For the three and nine months ended September 30, 2019, the Company recorded $0.2 million and $1.3 million, respectively, in ~~Canadian dollars~~product sales net of $0 and $11 thousand, respectively, for HTC’s portion related to services performed using the NeuroCatch device. As described above, the Company modified its arrangement with HTC on October 30, 2019 and product sales were derived from the sale of the PoNS device alone as the NeuroCatch is sold directly to the neuroplasticity clinics in Canada by HTC. For the three and nine months ended September 30, 2020, the Company recorded $0.1 million and $0.4 million, respectively, in product sales. As of September 30, 2020, the control of 11 of the 55 PoNS devices included as consideration in the Heuro acquisition had been transferred resulting in revenue of $0.1 million being recognized which is included in the aforementioned $0.4 million in product sales for the nine months ended September 30, 2020. The fair value of the remaining 44 devices is recorded inas deferred revenue of $0.3 million on the condensed consolidated ~~statements~~balance sheet. The only returns during the three and nine months ended September 30, 2020 were the result of ~~operations.~~warranty returns for defective products. These returns were insignificant and any future replacements are expected to be insignificant.

During the three and nine months ended September 30, 2020, the Company recognized $0 and $9 thousand, respectively, of fee revenue related to engaging new neuroplasticity clinics to provide the PoNS Treatment. During the three and nine months ended September 30, 2019, the Company recognized $0 and $49 thousand, respectively, of fee revenue associated with the Company’s agreement with HTC and Heuro that entitled the Company to 50% of the franchise fees collected by Heuro from each executed franchise agreement. As of September 30, 2020 and December 31, 2019, the Company had no contract assets or liabilities on its condensed consolidated balance sheets related to the supply agreements with each clinic.

The Company did not record any license revenue during the nine months ended September 30, 2019. As described above, the Company modified its arrangement with HTC on October 30, 2019. License revenue will be recognized ratably over the ten-year term as the performance obligation is met in connection with the Co-Promotion Agreement. During the three and nine months ended September 30, 2020, the Company recognized

revenues of $7 thousand and $20 thousand, respectively, in license fees associated with the Co-Promotion Agreement. Revenue not yet recognized of $0.2 million is recorded as deferred revenue on the condensed consolidated balance sheet.

Cost of product sales includes the cost to manufacture the PoNS device, royalty expenses, freight charges, customs duties, wages and salaries of employees involved in the management of the supply chain and logistics of fulfilling the Company’s sales orders and certain support services provided by Heuro on the Company’s behalf.

The Company accounts for income taxes using the asset and liability method. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit ~~carry-forwards.~~carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company has adopted the provisions of ~~Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)~~ASC 740 Income Taxes regarding accounting for uncertainty in income taxes. The Company initially recognizes tax ~~provisions~~positions in the condensed consolidated financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of the tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the tax authority, assuming full knowledge of the position and all relevant facts. Application requires numerous estimates based on available information. The Company considers many factors when evaluating and estimating its tax positions and tax benefits. These periodic adjustments may have a material impact on the condensed consolidated statements of operations and comprehensive loss. When applicable, the Company classifies penalties and interest associated with uncertain tax positions as a component of income tax expense in its condensed consolidated statements of operations and comprehensive loss.

On March 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impact that the CARES Act may have on our business. Currently, we do not believe the CARES Act will have a material impact on our accounting for income taxes.

Research and development (“R&D”) expenses consist primarily of personnel costs, including salaries, benefits and stock-based compensation, clinical studies performed by contract research organizations, development and manufacturing of clinical trial devices and devices for manufacturing testing and materials and supplies as well as regulatory ~~costs.~~costs related to post market surveillance, quality assurance complaint handling and adverse event reporting. R&D costs are charged to operations when they are incurred.

Operating segments are defined as components of an enterprise about which separate discrete information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. The Company operates and manages its business within one operating and reportable segment. Accordingly, the Company reports the accompanying condensed consolidated financial statements in the aggregate in one reportable segment.

The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815, Derivatives and Hedging(“ASC 815”). The result of this accounting treatment is that the fair value of the derivative is ~~marked-to-market~~re-measured at each balance sheet date and recorded as a liability or asset and the change in fair value is recorded in the condensed consolidated statements of operations and comprehensive loss. ~~The~~As of September 30, 2020 and December 31, 2019, the Company’s derivative financial instruments ~~are~~accounted for in accordance with ASC 815 were comprised of warrants ~~and non-employee stock options.~~issued in connection with both public and/or private securities offerings. Upon settlement of a derivative financial instrument, the instrument is ~~marked to fair value~~re-measured at the settlement date and the fair value of the underlying instrument is reclassified to equity.

The classification of derivative financial instruments, including whether such instruments should be recorded as liabilities/assets or as equity, is reassessed at the end of each reporting period. Derivative financial instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative financial instruments will be classified in the condensed consolidated balance sheet as current if the right to exercise or settle the derivative financial instrument lies with the holder.

The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest

priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and

Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The Company’s financial instruments recorded in its condensed consolidated balance sheets consist primarily of cash, accounts receivable, other current receivables, operating lease ROU asset, accounts payable, accrued liabilities, operating lease liability and derivative financial instruments. The book values of these instruments, with the exception of derivative financial instruments, non-current lease liability, operating lease ROU asset and non-current receivables approximate their fair values due to the immediate or short-term nature of ~~those~~these instruments.

The Company’s derivative financial instruments are classified as Level 3 within the fair value ~~hierarchy and required to be recorded at fair value on a recurring basis.~~hierarchy. Unobservable inputs used in the valuation of these financial instruments include volatility of the underlying share price and the expected term. See Note 3 for the inputs used in the Black-Scholes option pricing model as of September 30, ~~2017~~2020 and ~~2016~~December 31, 2019 and the roll forward of the Company’s derivative financial instruments. The Company’s derivative financial instruments ~~related to the~~are comprised of warrants ~~and see Note 4 for the inputs used in the Black-Scholes option pricing model~~which are classified as ~~of September 30, 2017 and 2016 for the roll forward of the derivative financial instruments related to the non-employee stock options.~~liabilities.

The following table summarizes the Company’s recurring fair value measurements for derivative financial instruments and stock-based compensation liability within the fair value hierarchy as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):

Fair Value

Level 1

Level 2

Level 3

September 30, 2017

Liabilities:

Non-employee stock options

$
3,385

—

—

$
3,385

Warrants

6,541

—

—

6,541

December 31, 2016

Liabilities:

Non-employee stock options

$
1,617

—

—

$
1,617

Warrants

2,857

—

—

2,857

	Fair Value		Level 1		Level 2		Level 3
September 30, 2020
Liabilities:
Derivative financial instruments	$	—		—		—	$	—
December 31, 2019
Liabilities:
Derivative financial instruments	$	5		—		—	$	5

There were no transfers between any levels for any of the ~~levels~~periods presented.

In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. Due to the COVID-19 pandemic and the related risks and uncertainties, the Company’s customer relationship intangible asset incurred an impairment loss during the nine months ended September 30, ~~2017 or~~2020 of $0.2 million, all of which was recorded during the ~~nine months ended December 31, 2016.~~first quarter of 2020, and has a remaining net book value of $0.1 million as of September 30, 2020. The fair value of this intangible asset was determined based on Level 3 measurements within the fair value hierarchy. Inputs to these fair value measurements included estimates of the amount and timing of the asset’s net future discounted cash flows based on historical data, current trends and market conditions.

Earnings or loss per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.

The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, would be used to purchase common shares at the average market price for the ~~period.~~period, unless including the effects of these potentially dilutive securities would be anti-dilutive.

The basic and diluted loss per share for the periods noted below is as follows (amounts in thousands except shares and per share data):

Three Months Ended

Nine Months Ended

September 30,

September 30,

2017

2016

2017

2016

Basic and diluted

Numerator

Net loss

$
(12,938
)

$
(2,987
)

$
(24,295
)

$
(9,901
)
Denominator

Weighted average common shares outstanding, basic

96,125,284

84,366,692

91,844,867

79,232,232

Weighted average common shares outstanding, diluted

96,125,284

85,004,192

91,844,867

79,232,232

Basic and diluted net loss per share

$
(0.13
)

$
(0.04
)

$
(0.26
)

$
(0.12
)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2020			2019			2020			2019
Basic
Numerator:
Net loss	$	(3,477	)	$	(5,588	)	$	(11,595	)	$	(4,450	)
Denominator:
Weighted average common shares outstanding		45,137,995			25,903,544			39,187,370			25,869,039
Basic net loss per share	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(0.17	)

Diluted
Numerator:
Net loss, basic	$	(3,477	)	$	(5,588	)	$	(11,595	)	$	(4,450	)
Effect of dilutive securities		—			—			—			—
Net loss, diluted	$	(3,477	)	$	(5,588	)	$	(11,595	)	$	(4,450	)
Denominator:
Weighted average common shares outstanding - basic		45,137,995			25,903,544			39,187,370			25,869,039
Potential common share issuances:
Incremental dilutive shares from equity instruments (treasury stock method)		—			—			—			—
Weighted average common shares outstanding		45,137,995			25,903,544			39,187,370			25,869,039
Diluted net loss per share	$	(0.08	)	$	(0.22	)	$	(0.30	)	$	(0.17	)

~~For~~The following outstanding securities have been excluded from the computation of diluted weighted shares outstanding for the periods noted below, as they would have been anti-dilutive due to the Company’s losses for the three and nine months ended September 30, ~~2017 a total~~2020 and 2019 and because the exercise price of ~~13,214,177 stock options, 9,878,384 warrants and 9,634 restricted stock units (“RSUs”) were excluded from~~certain of these outstanding securities was greater than the ~~calculation~~average closing price of ~~diluted loss per share as their effect would have been anti-dilutive. For~~ the three and nine months ended September 30, 2016 a total of 8,135,000 and 9,335,000 options, respectively, were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive. During the three and nine months ended September 30, 2016, a total of 10,182,629 warrants in both periods were excluded from the calculation of diluted loss per share as their effect would have been anti-dilutive.Company’s common stock.

In ~~March~~June 2016, the FASB issued ~~Accounting Standards Update~~ASU 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, 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 the effective date of ASU 2016-13. Public business entities that meeting the definition of an SEC filer, excluding entities eligible to be a Smaller Reporting Company (“~~ASU”~~SRC”) ~~2016-09,~~as defined by the SEC, are required to adopt the standard 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. The Company is evaluating the effect that ASU 2016-13 will have on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, ~~Compensation—Stock Compensation~~Fair Value Measurement (Topic ~~718)~~820): ~~Improvements~~Disclosure Framework-Changes to ~~Employee Share-Based Payment Accounting~~ the Disclosure Requirements for Fair Value Measurement~~(“ASU 2016-09”). The amendments in this update change existing guidance related~~, which adds disclosure requirements to ~~accounting~~Topic 820 for ~~employee share-based payments affecting~~ the ~~income tax consequences~~range and weighted average of ~~awards, classification of awards as equity or liabilities, and classification on the statement of cash flows.~~significant unobservable inputs used to develop Level 3 fair value measurements. This ASU ~~2016-09~~ is effective for interim and annual reporting periods beginning after December 15, ~~2016, including interim periods within those annual periods, with early adoption permitted.~~2019. The ~~updated accounting guidance was effective for the~~ Company onadopted this standard as of January 1, ~~2017~~2020 and itthe adoption did not have a material ~~effect~~impact on the Company’s condensed consolidated financial ~~statements and any deferred tax benefits would be offset by a valuation allowance.~~statements.

In ~~February 2016, the~~November 2018, FASB issued ASU ~~2016-02,~~ 2018-18, C~~Leases~~ollaborative Arrangements (Topic ~~842)~~808): Clarifying the Interaction Between Topic 808 and Topic 606, (“which, among other things, provides guidance on how to assess whether certain collaborative arrangement transactions should be accounted for under Topic 606. The amendments in this ASU 2016-02”) The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12

~~months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. ASU 2016-02 is~~are effective for ~~annual~~fiscal years, and interim periods within those fiscal years, beginning after December 15, ~~2018, including interim periods within those annual periods,~~2019, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. The Company ~~is currently evaluating the potential impact of the~~adopted this standard ~~on its condensed consolidated financial statements.~~

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which was further amended through various updates issued by the FASB thereafter. The amendments of Topic 606 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a five-step model to be applied by an entity in evaluating its contracts with customers. The Company expects to adopt the standard effective January 1, 2018 and apply the guidance retrospectively to contracts at the date of adoption. The Company also expects to elect the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that corresponds directly with the value to the customer for performance completed to date by the entity. The Company continues to assess the new standard with a focus on identifying the performance obligations included within any revenue arrangements with customers and will evaluate the methods of estimating the amount and timing of variable consideration. The Company does not currently have, and has not previously held, any significant contracts with customers. Accordingly, the Company does not believe the adoption of Topic 606 on January 1, ~~2018 will~~2020 and the adoption did not have a material impact on ~~its~~the Company’s condensed consolidated financial ~~statements.~~statements.

AsThe Company’s authorized capital stock pursuant to its Delaware charter consists of ~~September 30, 2017, the Company’s certificate of incorporation~~150,000,000 authorized ~~the Company to issue unlimited~~ shares of common ~~stock. Each~~stock, at a par value per share of $0.001 and 10,000,000 authorized shares of preferred stock at a par value per share of $0.001. Holders of common stock isare entitled ~~to have the right~~ to vote at any ~~shareholder~~ meeting of the Company’s stockholders on the basis of one vote per ~~share.~~share of common stock owned as of the record date of such meeting. Each share of common stock ~~held~~ entitles the holder to receive dividends, if any, as declared by the ~~directors.~~ Company’s Board of Directors.

No dividends have been declared since inception of the Company through September 30, ~~2017.~~2020. In the event of a liquidation, dissolution or winding-up of the Company, other distribution of assets of the Company among its ~~shareholders~~stockholders for the purposes of winding-up its affairs or upon a reduction of capital, the ~~shareholders~~stockholders shall, share equally, share for share, in the remaining assets and property of the Company.

On April 13, 2018, the Company ~~is subject~~issued 2,141,900 shares of its common stock and warrants to ~~a shareholders’ agreement, which places certain restrictions on~~purchase 2,141,900 shares of the Company’s common stock and its shareholders. These restrictions include approvals prior to sale or transfer of stock, a right of first refusal to purchase stock held by the Company and a secondary right of refusal to shareholders, right of co-sale whereby certain shareholders may be enabled to participate in a sale of the common stock of other shareholders to obtain the same price, terms and conditions on a pro-rata basis, rights of first offer of new security issuances to current shareholders on a pro-rata basis and certain other restrictions.

~~On October 9, 2015, the Company entered into a $7.0 million funding commitment with A&B Company Limited (“A&B”), in the form of a convertible promissory note consisting of~~ an initial $2.0 million note and a $5.0 million funding commitment. On October 9, 2015, the Company received the conversion notice on the promissory note and in November 2015, the Company issued 2,083,333 shares of common stockunderwritten public offering at a price of ~~$0.96~~$7.47 per share and 1,041,667 warrants exercisable at $1.44 for a period of three years from the date of issuance. The shares of common stock and the warrants were issued on November 10, 2015. On December 29, 2015, the Company drew down the $5.0 million funding commitment through the issuance of 5,555,556 shares of common stock at a price of $0.90 per share and 2,777,778 warrants exercisable at $1.35 for a period of three years from the date of issuance. The shares of common stock and the warrants were issued on January 7, 2016.

accompanying warrant. On April ~~18, 2016,~~24, 2018, the Company closed a short form prospectus offering in Canada and a concurrent U.S. private placement (the “April 2016 Offering”) of units, at a price of CAD $1.00 per unit, with gross proceeds to the Company of $7.2 million. Each unit consisted of one share of common stock and one half of one common share purchase warrant (each whole warrant, a “warrant”). Each warrant entitles the holder thereof to acquire one additional common share at an exercise price of CAD $1.50 on or before April 18, 2019. Mackie Research Capital Corporation (“Mackie”), acted as agent and sole bookrunner in connection with the April 2016 Offering. The Company paid Mackie a cash commission of $0.3 million and granted Mackie compensation options exercisable to purchase 436,050 units at an exercise price of CAD $1.00 per unit for a period of 24 months from the closing of the April 2016 Offering. The Company incurred other cash issuance costs of $1.1 million related to the April 2016 Offering.

~~On May 2, 2016, the Company closed~~ the sale of an additional ~~1,090,125 units issued~~321,285 shares of its common stock and warrants to purchase 321,285 shares of the Company’s common stock pursuant to the exercise of the underwriters’ over-allotment option ~~granted to Mackie in connection with~~(collectively the “April 2018 Offering”). The Company received net proceeds of $16.3 million from the April ~~2016 Offering for additional gross proceeds to the Company~~2018 Offering. The fair value of ~~$0.9 million, bringing the total aggregate gross proceeds to $8.1~~these warrants at issuance was approximately $7.4 million. In connection with this closing, the Company paid Mackie a cash commission of $0.1 million and granted Mackie compensation options exercisable to purchase an additional 65,407 units for a period of 24 months from the closing of the April 2016 Offering.

~~The warrants~~Each warrant issued in connection with the April ~~2016~~2018 Offering ~~were classified within equity in~~entitles the Company’s condensed consolidated balance sheets. The proceeds from the April 2016 Offering were allocated on a relative fair value basis between the common stock and the warrants issued. These warrants representholder to acquire one additional share ~~issuance costs and are recorded within equity in the Company’s condensed consolidated balance sheets at their fair value.~~

~~The fair value of the warrants granted in the April 2016 Offering were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:~~

~~The fair value of the compensation options granted during the April 2016 Offering were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:~~

On June 6, 2016, the Company received proceeds of $1.4 million from the exercise of 1,825,600 outstanding warrants issued in connection with the Company’s May 2014 private placement of subscription. The remaining 6,604,400 warrants issued in this offering expired unexercised.

~~On February 16, 2017, the Company completed an underwritten registered public offering and issued an aggregate of 6,555,000 shares~~ of common stock ~~for gross proceeds~~at an exercise price of $9.2 million. The offering was made by means of written prospectuses and prospectus supplements, dated February 9, 2017, that form part of the Company’s existing Canadian multi-jurisdictional disclosure system (“MJDS”) short-form base shelf prospectus dated January 26, 2017, in Canada, and U.S. shelf registration statementCAD$12.25 per share on ~~Form S-3 that became effective on January 6, 2017, in the U.S. The Company incurred cash issuance costs of $1.2 million in connection with this offering.~~

On June 28, 2017, the Company completed a non-brokered private placement of 4,000,000 shares of common stock for gross proceeds of $5.4 million. The Company incurred approximately $9 thousand in share issuance cost related to the private placement.

or before April 10, 2021. Pursuant to the guidance of ASC 815 Derivatives and Hedging, the Company has determined that ~~the~~ warrants issued ~~in the May 2014 private placement as well as the warrants issued in January 2016~~ in connection with the ~~funding commitment with A&B were required to~~April 2018 Offering should be accounted for as liabilities ~~because they were considered not~~as the ability to ~~be indexed to~~maintain an effective registration is outside of the Company’s ~~stock due~~control and that it may be required to settle the exercise ~~price being denominated~~of the warrants in cash and because, as a result of the change in the Company’s functional currency (see Note 2), the exercise prices of these warrants are in a currency other than the Company’s functional currency. Consequently, the Company determined the fair value of each warrant issuance using the Black-Scholes option pricing model, with the remainder of the proceeds allocated to the common shares. As of September 30, 2020, 70,900 warrants had been exercised, all during 2018, for gross proceeds of CAD$0.9 million.

The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants issued in the April 2018 Offering using the Black-Scholes option pricing model as of the date of the initial closing of the offering and the date of the closing of the over-allotment option and September 30, 2020.

On November 22, 2019, the Company issued 4,815,010 shares of its common stock in an underwritten public offering at a price of $0.35 per share. The Company received net proceeds of $1.1 million.

On January 27, 2020, the Company filed a Form S-3 shelf registration under the Securities Act which was declared effective by the SEC on February 6, 2020 (the “2020 Shelf”). In conjunction with the 2020 Shelf, on January 27, 2020, the Company entered into an At The Market Offering Agreement (the “2020 ATM”) with H.C. Wainwright & Co., LLC (“Wainwright”) under which the Company may offer and sell, from time to time at its sole discretion, to or through Wainwright, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $11.34 million, which, in March 2020, was subsequently reduced to $9.15 million, including the shares previously sold under the 2020 ATM. For the nine months ended September 30, 2020, under the 2020 ATM, the Company sold and issued 8,138,808 shares of its common stock with an aggregated market value of $5.0 million at an average price of $0.62 per share and paid Wainwright a sales commission of approximately $181 thousand related to those shares.

On March 20, 2020, the Company, in a registered direct offering, issued an aggregate of 6,257,144 shares of its common stock at a price of $0.35 per share. Additionally, the Company issued unregistered warrants in a concurrent private placement to purchase up to 6,257,144 shares of its common stock at an exercise price of $0.46 per share. Gross proceeds from the offering (the “March 2020 Offering”) were approximately $2.2 million. The underwriting discounts and commissions and offering expenses of $0.3 million were recorded to share issuance costs.

Each warrant issued in connection with the March 2020 Offering entitles the holder to acquire one additional share of common stock at an exercise price of $0.46 per share, which became exercisable on September 20, 2020 and will expire on March 20, 2025. Pursuant to the guidance of ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging, the Company has determined that warrants issued in connection with the March 2020 Offering should be classified as equity as the warrants can be settled with unregistered shares. The relative fair value of these warrants at issuance was approximately $0.8 million and was included in additional paid-in capital.

The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the March 2020 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on March 20, 2020.

The following table summarizes warrants ~~having an exercise price denominated in a currency other than the functional currency of the Company that are required to be~~ accounted for as liabilities ~~are summarized~~and recorded as ~~follows~~derivative financial instruments on the Company’s condensed consolidated balance sheets for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):

These warrants which are classified as derivative financial instruments in the Company’s condensed consolidated balance sheets are required to be ~~revalued~~re-measured at each reporting period, with the change in fair value recorded as a gain or loss in the change ofin fair value of derivative financial instruments, included in other income (expense) in the Company’s condensed consolidated statements of operations and comprehensive loss. The fair value of the warrants will continue to be classified as a liability until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as such.

The fair value of ~~the~~all warrants classified as derivative financial instruments outstanding as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

The following is a summary of the Company’s warrant activity during the nine months ended September 30, ~~2017:~~2020:

	Number of Warrants					Weighted Average Exercise Price				Number of Warrants					Weighted Average Exercise Price
	CAD			US		CAD$		US$		CAD		US			CAD$		USD$
Outstanding as of January 1, 2017		5,557,653			4,528,609	$	1.46	$	1.62
Outstanding as of December 31, 2019											2,392,285		651,320		$	12.25	$	12.24
Granted		100,179			—		1.50		—		—		6,257,144			—		0.46
Cancelled/Expired											—		(5,304	)		—		10.75
Exercised		(458,232	)		—		1.28		—		—		—			—		—
Outstanding as of September 30, 2017		5,199,600			4,528,609	$	1.47	$	1.62
Outstanding as of September 30, 2020											2,392,285		6,903,160		$	12.25	$	1.56

The Company’s warrants outstanding and exercisable as of September 30, ~~2017~~2020 were as follows:

On ~~June 18, 2014,~~May 15, 2018, the Company’s Board of Directors authorized and approved the adoption of the ~~June 2014 Equity~~2018 Omnibus Incentive Plan, ~~(“2014~~(as amended, the “2018 Plan”), which was effective upon approval by the stockholders of the Company on June 28, 2018 and under which an aggregate of ~~12,108,016~~5,356,114 shares ~~of common stock was authorized to~~may be issued. This share reserve is the sum of 3,000,000 new shares, plus the 2,356,114 shares that remained available for issuance under the Company’s 2016 Omnibus Incentive Plan (the “2016 Plan”), the predecessor incentive plan at the time of the adoption of the 2018 Plan. Pursuant to the terms of the ~~2014~~2018 Plan, the Company is authorized to grant stock options, as well as awards of stock appreciation rights, restricted stock, unrestricted shares, restricted stock units and deferred stock units. These awards could be granted to directors, officers, employees and eligible consultants. Vesting and the term of an option is determined at the discretion of the Company’s Board of Directors. The Company has now granted awards for the full amount of the shares authorized under the 2014 Plan, and no future awards may be made under the 2014 Plan. On August 22, 2017, the Company’s Board of Directors approved the amended and restated 2014 Plan to correct for a formulaic error included in the deemed net stock and cashless exercise equation within the 2014 Plan. This amendment had no impact on the Company’s condensed consolidated financial statements.

~~On August 8, 2016, the Company’s Board of Directors authorized and approved the adoption of the 2016 Omnibus Incentive Plan~~ (“~~2016 Plan”~~RSUs”), under which an aggregate of 15,000,000 shares of common stock may be issued. Pursuant to the terms of the 2016 Plan, the Company is authorized to grant stock options, as well as awards of stock appreciation rights, restricted stock, unrestricted shares, restricted stock units, stock equivalent units and ~~performance based~~performance-based cash awards. These awards may be granted to directors, officers, employees and eligible consultants. Vesting and the term of an option is determined at the discretion of the Company’s Board of Directors. Subsequent to the adoption of the 2018 Plan, the Company ceased granting awards under the 2016 Plan, the predecessor incentive plan. However, outstanding stock options granted prior to the effective date of the 2018 Plan are still governed by the 2016 Plan or the Company’s 2014 Stock Incentive Plan, which preceded the 2016 Plan.

As of September 30, ~~2017,~~2020, there ~~were~~was an aggregate of ~~12,804,626~~3,387,958 shares of common stock remaining available for grant under the ~~2016 Plans.~~Company’s 2018 Plan.

For the nine months ended September 30, 2020, the Company issued 809,590 stock options to employees and directors. The Company issued no stock options to consultants during the nine months ended September 30, 2020.

The following is a summary of the Company’s stock option activity during the nine months ended September 30, ~~2017:~~2020:

Weighted

Average

Aggregate

Number of

Exercise Price

Intrinsic Value

Stock Options

(CAD)

(CAD$ 000's)

Outstanding as of January 1, 2017

9,845,000

$
1.20

$
8,218

Granted

4,269,513

2.20

Forfeited

(40,336
)

2.00

Cancelled

(100,000
)

2.52

Exercised

(760,000
)

0.78

Outstanding as of September 30, 2017

13,214,177

$
1.54

$
26,468

Exercisable as of September 30, 2017

7,256,311

$
1.22

$
16,850

				Weighted			Aggregate
	Number of			Average			Intrinsic Value
	Stock Options			Exercise Price			(in thousands)
Outstanding as of December 31, 2019		3,467,292		$	6.76		$	—
Granted		809,590			0.47			—
Forfeited/Cancelled		(346,938	)		(5.66	)		—
Exercised		—			—			—
Outstanding as of September 30, 2020		3,929,944		$	5.56		$	—
Exercisable as of September 30, 2020		2,449,829		$	4.27		$	—

~~The aggregate intrinsic value of stock options exercised during the nine months ended September 30, 2017 was $2.1 million.~~

~~The Company’s stock options outstanding and exercisable as of September 30, 2017 were as follows:~~

Stock Options

Outstanding

Remaining

Grant Date

Number of

Number of Stock

Contractual Life

Exercise

Fair Value

Stock Options

Options Outstanding

Expiration Date

(In Years)

Price (CAD)

(CAD)

Exercisable

3,000,000

June 18, 2019

1.72

$
0.60

$
0.26

3,000,000

450,000

December 8, 2019

2.19

$
2.92

$
1.65

450,000

100,000

December 8, 2019

2.19

$
2.92

$
1.31

100,000

400,000

December 8, 2019

2.19

$
2.96

$
1.29

400,000

100,000

March 16, 2020

2.46

$
3.20

$
1.42

100,000

50,000

August 15, 2020

2.87

$
0.98

$
0.39

50,000

750,000

October 21, 2020

3.06

$
0.87

$
0.36

375,000

550,000

October 28, 2020

3.08

$
0.84

$
0.44

550,000

100,000

December 31, 2020

3.25

$
1.24

$
0.50

66,668

2,975,000

July 13, 2020

2.79

$
1.39

$
0.65

1,983,332

100,000

August 8, 2020

2.86

$
1.31

$
0.65

50,000

410,000

October 3, 2020

3.01

$
1.35

$
0.80

102,500

3,585,000

April 17, 2027

9.55

$
2.16

$
1.55

—

44,177

May 18, 2021

3.63

$
2.00

$
1.05

28,811

100,000

May 18, 2027

9.64

$
2.00

$
1.74

—

50,000

May 18, 2027

9.64

$
2.00

$
1.53

—

450,000

August 7, 2027

9.86

$
2.00

$
1.53

—

13,214,177

7,256,311

Included in the table above are non-employee awards that are subject to re-measurement each reporting period until vested. As a result, the grant date fair value is not representative of the total expense that will be recorded for these awards. As of September 30, ~~2017,~~2020, the unrecognized compensation ~~expense~~cost related to non-vested stock options outstanding for employees and directors, was ~~$7.5~~$4.1 million towhich will be recognized over a weighted-average remaining vesting period of approximately ~~2.87~~2.8 years. ~~The Company recognizes compensation expense~~Compensation cost is not adjusted for ~~only the portion~~estimated forfeitures, but instead is adjusted upon an actual forfeiture of ~~awards that are expected to vest. During the nine months ended September 30, 2017 and 2016, the Company applied an expected forfeiture rate of 0% based on its historical experience.~~a stock option.

The weighted average grant date fair value of employee and director stock options granted ~~during~~for the nine months ended September 30, ~~2017, had a weighted average~~2020 was $0.30 per option and the grant date fair ~~value~~values of ~~$1.55 per option and~~these stock options were estimated using the Black-Scholes option pricing model ~~with~~using the following weighted average assumptions:

~~During~~As of September 30, 2020, the ~~second~~unrecognized compensation cost related to non-vested stock options outstanding for non-employees was $15 thousand which will be recognized over a weighted-average remaining vesting period of approximately 0.9 years. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option.

Beginning in the fourth quarter of ~~2017,~~2019, certain members of the ~~Company granted~~Company’s executive management team elected to receive restricted stock ~~units to certain employees~~awards in lieu of cash compensation under the ~~2016~~2018 Plan that vest ~~over a three-year period beginning on the date of the grant.~~upon issuance. The fair value of the restricted stock ~~units~~awards is based on the closing price of the Company’s common stock on the ~~date~~day of the grant.

The following is a summary of the Company’s restricted stock ~~unit~~award activity ~~during~~for the nine months ended September 30, ~~2017:~~

Weighted Average

Number of

Grant Date

Restricted

Fair Value per Unit

Stock Units

(CAD)

Outstanding as of January 1, 2017

—

$
—

Granted

40,487

2.00

Forfeited

(15,914
)

Outstanding as of September 30, 2017

24,573

$
2.00

Vested as of September 30, 2017

14,939

$
2.00

	Number of Restricted Stock Units			Weighted Average Grant Date Fair Value per Unit
Outstanding as of December 31, 2019		27,697		$	0.61
Granted		218,161			0.50
Settled		(240,106	)		0.52
Outstanding as of September 30, 2020		5,752		$	0.39

In accordance with the guidance of ASC 815-40-15, stock options awarded to non-employees that are performing services for NHC are required to be accounted for as derivative financial instruments once the services have been performed and the options have vested because they are considered not to be indexed to the Company’s stock due to their exercise price being denominated in a currency other than NHC’s functional currency. Stock options awarded to non-employees that have not vested are re-measured at their respective fair values at each reporting period and accounted for as equity awards until the terms associated with their vesting requirements have been met. The changes in fair value of the unvested non-employee awards are reflected in their respective operating expense classification in the Company’s condensed consolidated statements of operations and comprehensive loss.

~~The non-employee stock options that are required to be accounted for as liabilities and classified as derivative financial instruments are summarized as follows (amounts in thousands):~~

The non-employee stock options that have vested are required to be re-valued at each reporting period with the change in fair value recorded as a gain or loss in the change of fair value of derivative financial instruments and included in other income (expense) in the Company’s condensed consolidated statements of operations and comprehensive loss at the end of each reporting period. The fair value of the non-employee stock options will continue to be classified as a derivative financial instrument until such time as they are exercised, expire or there is an amendment to the respective agreements that renders these financial instruments to be no longer classified as such.

The fair value of non-employee stock options classified as derivative financial instruments as of September 30, 2017 and December 31, 2016 was estimated using the Black-Scholes option pricing model with the following weighted average assumptions:

Stock-based compensation expense is classified in the Company’s condensed consolidated statements of operations and comprehensive loss as follows (amounts in thousands):

Stock-based compensation expense for the three and nine months ended September 30, 2020 includes the reversal of $125 thousand of expense as a result of forfeitures due to the departure of our former chief executive officer in August 2020.

Accrued severance expenses as of September 30, 2020 included $0.5 million in severance costs related to the departure of our former chief executive officer in August 2020.

The following table summarizes the Company’s operating lease information including future minimum lease payments ~~related to the Company’s~~under a non-cancellable ~~operating~~ lease ~~commitments were~~ as ~~follows~~of September 30, 2020 (amounts in thousands):.

For the Period Ending December 31,

2017 (three months)

$
5

2018

231

2019

246

2020

253

2021

260

Thereafter

279

$
1,274

For the Nine Months Ended September 30, 2020
Operating lease cost	$	57
Operating lease - operating cash flows	$	189
Weighted average remaining lease term	1.75 years
Weighted average discount rate		7.2	%

Future minimum lease payments under non-cancellable lease as of September 30, 2020 were as follows:
For the Period Ending December 31,
2020 (remaining three months)	$	63
2021		63
2022		32
Total future minimum lease payments		158
Less imputed interest		(4	)
Total liability	$	154
Reported as of September 30, 2020
Current operating lease liability		107
Non-current operating lease liability		47
Total	$	154

On ~~February 14, 2017, Mackie Research Capital Corporation (“Mackie”~~or about July 9, 2019, a putative shareholder class action lawsuit, Caramahai v. Helius Medical Technologies, Inc. et al., Case No. 1:19-cv-06365 (S.D.N.Y.), ~~a Canadian investment banking firm,~~was filed ~~a statement~~against the Company and three of ~~claim~~its individual officers in the ~~Ontario Superior Court~~Southern District of ~~Justice alleging~~New York (“the Caramahai Action”). The lawsuit alleges that the Company ~~breached~~made materially false and misleading statements regarding the prospects for FDA approval of Helius’ application for de novo classification and clearance of its PoNS device in the United States. As a ~~term~~result of these alleged misstatements, the Caramahai Action asserts claims on behalf of shareholders who bought or sold Helius common stock between from November 9, 2017 to April 10, 2019 for alleged violations of the ~~agency agreement dated March 23, 2016 between~~federal securities laws, specifically Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934, as amended.

On or about July 31, 2019, a putative shareholder class action lawsuit, Evans v. Helius Medical Technologies, Inc. et al., Case No. 1:19-cv-07171 (S.D.N.Y.), was filed against the Company and ~~Mackie~~three of its individual officers in ~~connection with its public offering~~the Southern District of ~~common stock, which closed on February 16, 2017 by not complying with Mackie’s right of first refusal to serve~~New York (the “Evans Action”). The Evans Action alleges similar claims as the ~~lead underwriter~~ Caramahai Action.

On September 9, 2019, three Helius shareholders each filed motions in the ~~offering. In April 2017,~~Caramahai and Evans cases seeking to consolidate the ~~Company settled with Mackie~~two proceedings into a single putative class action. The individual motions also sought to have the movant appointed as Lead Plaintiff (the plaintiff responsible for ~~an amount which is~~prosecuting the class’s claims and has the power to settle and release claims of all class members) and have the movant’s attorneys appointed as Lead Counsel. On September 13 and 17, 2019, respectively, two of the~~insignificant~~ movants filed notices withdrawing their motions on the ground that they did not appear to ~~the Company’s condensed consolidated~~have “the largest financial ~~statements.~~ ~~The settlement expense is reflected~~interest in the ~~Company’s condensed consolidated statements~~relief sought by the class.” The third movant was appointed Lead Plaintiff on April 28, 2020 and movant’s attorneys were appointed as Lead Counsel.

During the second quarter of ~~operations and comprehensive loss for~~2020, the ~~nine months ended September 30, 2017.~~plaintiffs voluntarily dismissed the lawsuit without prejudice, ending the case. The U.S. District Judge signed the final order dismissing the litigation on July 1, 2020.

During the three and nine months ended September 30, ~~2017 and 2016,~~2020, the Company paid $0 and ~~$40,000~~approximately $5 thousand, respectively, in consulting fees to ~~certain directors~~a director of the Company. During the three and nine months ended September 30, ~~2017 and 2016,~~2019, the Company paid ~~$21,000~~approximately $2 thousand and ~~$60,975~~$25 thousand, respectively, in consulting fees to ~~certain directors~~a director of the Company. As of September 30, ~~2017, and December 31, 2016,~~2020, the Company ~~owed $5,292 and $2,550, respectively,~~did not have an accrued liability for consulting fees to a director ~~for consulting services.~~

~~In April 2016, the Company entered into a consulting agreement with Montel Media, Inc. (“Montel Media”), pursuant to which Montel Media provides consulting services for the promotion~~ of the Company’s clinical trials and ongoing media and marketing strategies. Under the agreement, Montel Media received $15,000 per month. During the three months ended September 30, 2017 and 2016, the Company paid Montel Media $45,000, in each period pursuant to the consulting agreement. During the nine months ended September 30, 2017 and 2016, the Company paid Montel Media $0.1 million in each period, pursuant to the consulting agreement. Montel Media is owned by Montel Williams, who beneficially owns greater than 5% of the Company’s common stock.

During the three months ended September 30, 2017 and 2016, an expense of $1.4 million and a benefit of $0.1 million, respectively, was included in the change in fair value of derivative financial instruments as the fair value of stock-based compensation attributed to the options granted to a director, a former director and a consultant for consulting services rendered with respect to the design and development of the PoNS™ device.During the nine months ended September 30, 2017 and 2016, an expense of $1.5 million and $0.4 million, respectively, was included in the change in fair value of derivative financial instruments as the fair value of stock-based compensation attributed to the options granted to two directors and a consultant for consulting services rendered with respect to the design and development of the PoNS™ device.

~~7. SOLE-SOURCE COST-SHARING AGREEMENT AND COOPERATIVE RESEARCH AND DEVELOPMENT AGREEMENT~~

In July 2015, the Company entered into a sole source cost sharing agreement with the U.S. Army Medical Research and Materiel Command (“USAMRMC”). Under the terms of the contract, the USAMRMC will reimburse the Company up to a maximum of $3.0 million to conduct a registrational trial investigating the safety and effectiveness of the PoNS™ device the treatment of chronic balance deficits due to mild to moderate traumatic brain injury. Reimbursement of expenses under the agreement is based on a schedule of milestones related to the completion of subjects in the trial. The original contract expired on December 31, 2016; however, the Company extended the contract agreement through December 31, 2017. On November 7, 2017, the Company received another extension of the contract agreement to December 31, 2018. As of September 30, 2017, the Company has received a total of $2.7 million with respect to expenses reimbursed for amounts owed to the Company for completion of development milestones. All reimbursement amounts received are credited directly to the accounts in which the original expense is recorded, including research and development, wages and salaries, and legal expenses. In addition, in September 2017, the Company announced the execution of an extension to its Cooperative Research and Development Agreement (“CRADA”) with the USAMRMC through 2018 and extended the deadline for commercialization of the PoNS™ device to December 31, 2021.

~~As discussed in Note 5,~~ ~~Commitment and Contingencies~~, On October ~~30, 2017, NHC executed~~26, 2020, the Company closed on a private placement of an ~~amendment~~aggregate of 6,567,868 shares of common stock and warrants to purchase an aggregate of 3,283,936 shares of common stock at a purchase price of $0.52 per unit, consisting of one share and a warrant to purchase 0.50 shares of common stock, resulting in gross proceeds of approximately $3.4 million, excluding the proceeds, if any, that the Company may receive in the future from the exercise of the warrants. The Company incurred $0.2 million in share issuance costs, including placement agent fees. The warrants have an initial exercise price of $0.452 per share and are exercisable for a period of three years from the date of issuance. The Company also issued warrants to the ~~asset~~placement agent to purchase 33,654 shares of common stock, with an exercise price of $0.565 per share. An officer of the Company and affiliates of an officer and director of the Company participated in the private placement on the same terms and conditions as all other purchasers, except that they paid $0.5244 per unit and their warrants have an exercise price of $0.4619 per share.

Pursuant to the securities purchase agreement ~~entered into~~for the private placement, if the Company issues any shares of common stock or common stock equivalents for cash consideration, indebtedness or a combination thereof, with ~~A&B(HK) Company, Limited, dated~~certain exceptions, within twelve months of the closing of the private placement, each purchaser who subscribed for at least $250,000 has the right to participate in up to such purchaser’s pro rata portion of 30% of the such subsequent financing on the same terms, conditions and price provided for in the subsequent financing.

The following table sets forth the Company’s total stockholders’ equity as reported as of ~~October 9, 2015. The amendment extends~~September 30, 2020 and as adjusted on a pro forma basis to reflect the deadline to satisfy NHC’s obligations under the CRADA to obtain FDA marketing authorization for commercialization of or otherwise ensure that the PoNS™ device is available for purchase by the U.S. Government to December 31, 2021.recently completed private placement (amounts in thousands):

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” or “our” mean Helius Medical Technologies, Inc. and its wholly owned subsidiaries, ~~NeuroHabilitation Corporation,~~Helius Medical, Inc., or ~~NHC, and~~HMI, Helius Medical Technologies (Canada), Inc., or HMC, Helius Canada Acquisition Ltd., or HCA, and Helius NeuroRehab, Inc., or HNR. 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 ~~nine months~~year ended December 31, ~~2016,~~2019, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the ~~Company’s Transition~~our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2019 filed with the Securities and Exchange Commission, or the SEC, on ~~April 3, 2017,~~March 12, 2020, or ~~the Transition~~our 2019 Annual Report. All financial information is stated in U.S. dollars unless otherwise specified. ~~The Company’s~~Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, (“or U.S. ~~GAAP”).~~GAAP.

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. Such forward-looking statements involve risks and uncertainties regarding the success of our business plan, availability of funds, its ability to maintain and enforce its intellectual property rights, government regulations, operating costs, and its ability to achieve significant revenues and other factors. Forward-looking statements are made, without limitation, in relation to operating plans, availability of funds and operating costs. 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. Actual events or results may differ materially. ~~In evaluating these~~Such forward-looking statements ~~you should consider various factors,~~involve risks and uncertainties regarding the COVID-19 pandemic, including its impact on the Company, the success of our business plan, availability of funds, our ability to maintain and enforce our intellectual property rights, government regulations, operating costs, and our ability to achieve significant revenues and other factors. Forward-looking statements are made, without limitation, in relation to operating plans, availability of funds and operating costs. The forward-looking statements are subject to a number of risks ~~outlined~~and uncertainties which are discussed in the ~~“Risk~~section entitled “Item 1A. Risk Factors” ~~sections of~~in this Quarterly Report on Form 10-Q and in our ~~Transition~~2019 Annual Report and ~~this report.~~those described from time to time in our future reports filed with the SEC. These factors may cause our actual results to differ materially from any forward-looking statements. 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 forward-looking statements are subject to a number of risks and uncertainties which are discussed in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and in our Transition Report and those described from time to time in our future reports filed with the SEC. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we cannot guarantee future results, events, levels of activity, performance or achievement. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.

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

We are a ~~medical technology~~neurotechnology company focused on ~~the development of products for the treatment of~~ neurological ~~symptoms caused by disease or trauma. We seek~~wellness. Our purpose is to develop, license or acquire ~~unique and noninvasive platform~~non-invasive technologies ~~that amplify the brain’s ability to heal itself.~~targeted at reducing symptoms of neurological disease or trauma.

Many patients with brain injury or brain-related disease have disrupted neural networks that result in their brains being unable to correctly or efficiently carry neural impulses, which are responsible for directing bodily functions like movement control or sensory perception. Our first product, ~~in development,~~ known as the ~~portable neuromodulation stimulator or PoNS™ t~~Portable Neuromodulation Stimulator (PoNS^TM)~~herapy platform~~, is ~~designed~~authorized for sale in Canada as a class II, non-implantable medical device intended as a short term treatment (14 weeks) of gait deficit due to ~~enhance the brain’s ability~~mild and moderate symptoms from multiple sclerosis (MS) and chronic balance deficit due to ~~compensate for this damage.~~ ~~The PoNS™ therapy is a combination of a powerful, wearable, direct current stimulation device, and functional, targeted therapy,~~mild-to-moderate traumatic brain injury (mmTBI) and is to be used in conjunction with physical therapy (PoNS Treatment^TM). It is an investigational medical device in the United States, the European Union (EU), and Australia (AUS). The device is currently ~~being developed~~under review for de novo classification and clearance by the U.S. Food and Drug Administration (the FDA) as a potential treatment for gait deficit due to symptoms of MS. It is also under premarket review by the AUS Therapeutic Goods Administration. PoNS Treatment™ is not currently commercially available in the United States, the European Union or Australia.

On October 17, 2018, we received our Canadian marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for use as a short-term treatment (14 weeks) of chronic balance deficit due to mmTBI.

On March 18, 2020, we received marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for the treatment of ~~movement,~~ gait ~~and balance disorders~~deficit in patients with ~~traumatic brain injury~~mild and moderate MS symptoms. Our market authorization application comprised objective statistical evidence as well as independently reviewed clinical research analysis. We believe this label expansion will significantly expand our addressable market opportunity in Canada to include a patient population that is motivated to pursue treatment options which may resolve or delay the progression of MS gait deficit symptoms.

In March 2020, we announced that based on the quality of the data included in our MS submission package to Health Canada and the significant unmet needs of those afflicted with MS, we are prioritizing the MS indication as the pathway to pursue our first U.S. clearance of the PoNS device. We believe the existing published data and real-world evidence with use of the PoNS for the treatment of gait disorder in patients with mild and moderate MS are sufficient to demonstrate a favorable risk/benefit profile, as required for de novo classification and clearance to enable US marketability. Novel treatments for MS are highlighted as a specific target of the FDA as a high unmet medical need disease.

On May 7, 2020 we received Breakthrough Designation for the PoNS™ device as a potential treatment for gait deficit due to symptoms of Multiple Sclerosis (“~~TBI”~~MS”), to be used as an adjunct to a supervised therapeutic exercise program. The goal of the Breakthrough Devices Program is to provide patients and ~~other~~health care providers with timely access to these medical devices by speeding up their development, assessment, and review, while preserving the statutory standards for premarket approval, 510(k) clearance, and de novo classification and clearance, consistent with FDA’s mission to protect and promote public health.

The Breakthrough Devices Program replaces the Expedited Access Pathway and Priority Review for medical devices. The FDA considers devices granted designation under the Expedited Access Pathway to be part of the Breakthrough Devices Program.

The Breakthrough Devices Program offers manufacturers an opportunity to interact with the FDA's experts through several different program options to efficiently address topics as they arise during the premarket review phase, which can help manufacturers receive feedback from the FDA and identify areas of agreement in a timely way. Manufacturers can also expect prioritized review of their submission.

Breakthrough Device Designation does not change the requirements for approval of an application for a marketing authorization under section 510(k) of the Food, Drug, and Cosmetic Act.

On August 4, 2020, we submitted our request to the FDA for de novo classification and clearance of the PoNS device for the treatment of gait deficit due to symptoms from MS, to be used as an adjunct to a supervised therapeutic exercise program in patients over 18 years of age.

On October 19, 2020, we announced that we received a request for additional information from the FDA related to the Company’s request for de novo classification and clearance of the PoNS device.During the substantive review phase of a request for de novo classification and clearance, FDA may request additional information in order to obtain information necessary for the FDA to continue or complete its review and, in such instances, places its review on hold until the requested information is submitted. The FDA’s request for additional information was received approximately 75 days from the submission date, which is consistent with FDA’s expected timing for review of a Breakthrough Designated product, such as the PoNS device. The FDA’s request for additional information includes requests for additional analysis of clinical data and proposes certain labeling modifications.

Our U.S. regulatory strategy initially focused on pursuing de novo classification and clearance of the PoNS device from the FDA for the treatment of chronic ~~neurological diseases~~

We ~~completed~~submitted a request for de novo classification and clearance of the PoNS device to the FDA for this indication in August 2018. This request was supported by data from two of our clinical trials in mmTBI, including our registrational ~~clinical~~ trial, TBI-001.

In April 2019, we announced the FDA had completed its review and had denied our request for de novo classification and clearance of the ~~PoNS™~~PoNS device for the treatment of chronic balance ~~deficits~~deficit due to ~~mild~~mmTBI. In reaching its conclusion, the FDA noted, via a denial letter, that although the safety profile of the PoNS device is acceptable, the FDA did not have sufficient information to ~~moderate TBI~~discern the relative independent contributions of the PoNS device and physical therapy on the improvements from baseline. The FDA noted that we could generate additional data to address its concerns and resubmit our application.

In October 2019, we had a pre-submission meeting where the FDA provided feedback needed to help complete the design of a new clinical trial intended to address the FDA’s request for a trial that demonstrates the benefit of the PoNS Treatment compared to physical therapy alone. In January 2020, we received the FDA’s feedback on the minutes from the October 2019 pre-submission meeting. In its feedback, the FDA provided post-meeting notes with specific recommendations regarding the trial design that were not discussed in the October 2019 pre-submission meeting.

Based on the receipt of the FDA’s final minutes from the pre-submission meeting, we finalized our clinical protocol for a new trial, TBI-002, intended to support a request for de novo classification and clearance of the PoNS device. TBI-002 will be a multi-center, randomized trial in the U.S. and Canada consisting of 103 subjects with balance deficit due to mmTBI. Although TBI-002 will take longer and be more costly than the design that we had discussed at our October 2019 pre-submission meeting, we believe that the chances of obtaining FDA de novo classification and clearance will be significantly increased if we incorporate the FDA’s pre-submission feedback into this next trial design.

TBI-002 will proceed in two phases: a run-in phase, followed by a treatment phase. During the run-in phase, all subjects will receive 5 weeks of physical therapy alone. Subjects will then be randomized and assigned to one of two groups in the treatment phase where subjects will either

receive up to 10 weeks of physical therapy with the PoNS device or 10 weeks of physical therapy without the PoNS device. The primary effectiveness endpoint of TBI-002 will be a responder analysis.

Prior to the COVID-19 pandemic, our expectation was that we would move forward with the revised protocol and estimated that enrollment would begin in April 2020 with the completion of the trial and submission to the FDA in the second quarter of 2021. However, the launch of the TBI-002 trial has been temporarily suspended, and we are evaluating our options for funding and timing to commence the trial.

In December 2018, we submitted an application for a CE Mark, which, if approved, would allow us to market the PoNS device in the EU. During the second quarter of 2019, we engaged with regulators in Europe to answer questions that we received from them as part of their review of our PoNS device for CE marking. In August 2019, we withdrew our application from the EU marketing process due to uncertainty in Europe caused by the switch from the Medical Device Directive, or MDD, to the Medical Device Regulation, or MDR, Brexit, and the withdrawal of Lloyd’s Register Quality Assurance, our notified body, from the EU notified body business. We have engaged G-MED NA (North America) as our new ISO registrar and new notified body and will reconsider submitting to the EU when conditions stabilize.

In the third quarter of 2019 we initiated the submission of our application to the Therapeutic Goods Administration, or TGA. We supplemented our submission with additional data based on questions supplied to date and provided responses to additional questions during the third quarter of ~~2017 as planned. On November 9, 2017,~~2020. We are currently awaiting additional feedback from TGA on our application.

From a real-world results perspective, in Canada thus far, the collective experience of our patients that have completed the 14-week PoNS Treatment have been encouraging. Consistent with what we ~~announced positive~~saw in our two clinical trials, one for 5 weeks and the other for 14 weeks, commercial patients are demonstrating improvements in balance and gait within the first two weeks followed by continued improvement over the following twelve weeks. The majority of patients have a mean patient adherence to treatment of over 90%, and showed significant improvement in their balance and gait with a meaningful clinical difference at the end of their treatment. The consistency of the patient results from our ~~registrational clinical trial evaluating~~initial commercial experience supports our plans to expand access PoNS Treatment in Canada.

In March 2019, we began the ~~safety~~initial commercialization of our PoNS Treatment in Canada, where our PoNS device is the first and ~~effectiveness of the PoNS™~~only device authorized for the treatment of subjects with chronic balance deficits due to mild-to-moderate TBI. The multi-center registrational trial titled, “A double-blind, randomized, sham-controlled study of the safety and effectiveness of the Portable Neuromodulation Stimulator (PoNS™) 4.0 device for cranial nerve noninvasive neuromodulation or CN-NINM, training in subjects with a chronic balance deficit due to ~~mild-to-moderate TBI”, evaluated~~mmTBI. Throughout 2019 we made important progress in advancing and refining our commercialization strategy in Canada building access, awareness and credibility for the PoNS Treatment. These efforts, which were led by our local Canadian commercial team, included the establishment of our authorized clinic network throughout Canada, launching digital marketing campaigns, and building key opinion leader and advocacy networks.

During the third quarter of 2019, we made the strategic decision to change our business model in Canada in order to accelerate the adoption of our novel technology. On October 30, 2019, we acquired the Heuro Canada operating entity from HTC which allowed us to streamline the decision-making process and increase our ability to react to evolving market factors as the market for the PoNS Treatment is being developed.

On March 18, 2020, the Company received notification that its Canadian Class II license amendment application for the treatment of gait deficit in patients with mild and moderate symptoms from MS, when used in conjunction with physical therapy, was successful and received marketing authorization for PoNS from Health Canada.

Following in-depth market analysis and field intelligence, our Canadian commercial team began an expansion plan to increase the number of authorized PoNS clinics. In the first two months of 2020, we authorized 7 new clinic locations for a total of ~~122 randomized subjects (61 active~~14 clinic locations to provide PoNS Treatment across Canada. As of June 30, 2020, we had 20 clinic locations which we increased to 22 clinic locations as of September 30, 2020 and ~~61 control). Subjects, age 18~~ to ~~65, received 5 weeks~~27 clinic locations as of November 4, 2020, including a clinical experience program through University Health Network Toronto at 3 private clinic locations which have transitioned to commercial treatment centers. We expect that it will take the newly authorized clinics time to work the PoNS Treatment into the clinic rotation but are confident that our focus on authorizing clinics which meet our refined criteria will drive efficiency and PoNS sales performance. Our commercialization efforts in Canada were negatively affected by the impact of the COVID-19 pandemic as described below.

In addition to pursuing this expansion plan, we continue to improve our go-to-market pricing model in 2020 based on direct market feedback. Our modified pricing approach is focused on reducing the need for clinics and patients to pay large, upfront costs at the start of treatment. We have also experimented with various promotional pricing programs resulting in lower unit prices for both PoNS system purchases and mouthpieces in order to increase access to the PoNS treatment and drive market awareness which we expect to result in an increase in the volume of units sold.

In parallel with our commercialization efforts, we, in concert with input from insurers, have created value dossiers for mmTBI and MS on behalf of the clinics and patients to fully demonstrate in both scientific and financial terms, the merits of PoNS Treatment for claimants. The dossier is provided to our clinics across Canada to submit as part of treatment ~~(2 weeks in-clinic and 3 weeks at-home) consisting of physical therapy and either a high-frequency~~ ~~PoNS™~~ ~~device (active) or a low-frequency~~ ~~PoNS™~~ ~~device (control).~~plans with reimbursement applications to the payer community. Our

~~Endpoints~~reimbursement strategy for ~~effectiveness were~~mmTBI is focused initially in the auto accident insurance and workers compensation, or WC, market as well as long-term disability cases. Our reimbursement strategy for MS is focused on commercial insurers.

As part of our overall PoNS Treatment strategy, we are also gathering comprehensive health economic assessments of treatment outcomes. These data will, in-turn, be used to support our applications for workers compensation, auto insurance and commercial insurance reimbursement initiatives in Canada, the United States and other markets around the world. The Canadian commercial experience will be extremely valuable to prepare us for our launches in the United States and internationally.

Additionally, while we do not currently have any clinical trials underway, we are running clinical experience programs in Canada and have experienced delays in the ~~Sensory Organization Test~~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, leading to further delays in the development and approval of the Company’s product candidate. As noted above, prior to the COVID-19 pandemic, our expectation was that we would move forward with the launch of our TBI-002 trial and we had estimated that enrollment would begin in April 2020 with the completion of the trial and submission to the FDA in the second quarter of 2021. However, the launch of the TBI-002 trial has been temporarily suspended and we are evaluating our options and timing for funding and starting the trial.

The COVID-19 pandemic and other outbreaks may cause delays in or ~~SOT, measuring balance using computerized dynamic posturography. A responder rate analysis was used~~the suspension of our business partners manufacturing operations, our research and product development activities, our regulatory workstreams, our research and development activities and other important commercial functions. We are also dependent upon our suppliers for the ~~primary endpoint. A responder was defined~~manufacture of our PoNS device, and in the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in the development and manufacturing of our product. 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. Disruptions in business operations or governmental operations due to COVID-19 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 could 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, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. We do not know yet the full extent of the impact of COVID-19 on its business, operations or the global economy as a ~~subject~~whole.

On March 23, 2020, we received a Notice from the Listing Qualifications staff of Nasdaq indicating that, based on the closing bid price of the common stock for the 30 consecutive business days preceding the Notice, we no longer meet the Minimum Bid Price Requirement. The Notice does not result in the immediate delisting of our common stock from Nasdaq. In accordance with ~~an improvement~~Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days in which to regain compliance.

On April 17, 2020, the Company the Second Notice for the Listing Qualifications staff of Nasdaq stating that the 180-day period to regain compliance with the Minimum Bid Price Requirement has been extended due to the global market impact caused by COVID-19. More specifically, Nasdaq has stated that compliance periods were suspended from April 16, 2020 until June 30, 2020. On July 1, 2020, companies received the balance of any pending compliance period to regain compliance with the Minimum Bid Price Requirement. As a result of this extension, we were given to until December 3, 2020 to regain compliance with the Minimum Bid Price Requirement. In order to regain compliance with the Minimum Bid Price Requirement, the closing bid price of our common stock must be at least ~~15 points~~$1.00 for a minimum of ten consecutive business days.

~~Secondary effectiveness endpoints were contingent on~~our intent to cure the deficiency during the second compliance period via the implementation of a reverse stock split if necessary. We plan to timely submit our request to Nasdaq for the additional 180-day extension, if necessary. If we do not regain compliance with the Minimum Bid Price Requirement by the end of the applicable compliance period (either December 3, 2020 or June 1, 2021 in the event a second compliance period is requested and granted), our common stock would be subject to delisting from Nasdaq. In that case, however, we would have the right to request a hearing before a Nasdaq Hearings Panel to address our plan to remedy the deficiency, which request would stay any delisting action by the Listing Qualifications staff pending the ultimate outcome of the ~~primary endpoint~~hearing process.

During the ~~clinical effectiveness~~third quarter of 2019, we engaged with HTC through the joint steering committee in discussions regarding the future development of the ~~low-frequency device.~~commercialization of the PoNS device and PoNS Treatment in Canada. As we worked with Heuro to expand the ~~low-frequency device demonstrated, on average, statistically significant improvements on composite SOT scores compared~~commercial infrastructure, the complexity and feasibility of using a franchise model to ~~baseline (P<0.025) –~~build a market for PoNS including the ~~secondary effectiveness endpoints evaluated~~physical therapy component became challenging. By acquiring Heuro, as noted below, we were able to streamline the decision-making process and increase our ability to react to evolving market factors as the market for the ~~study were~~PoNS Treatment is being developed.

On October 30, 2019, we and HTC entered into a Share Purchase Agreement, or the ~~mean change~~SPA, whereby we, through our wholly owned subsidiary, acquired Heuro from HTC. Under the terms of the SPA, total consideration of approximately $1.6 million was paid to HTC, which included (1) the repayment to HTC for their investment in ~~composite SOT score~~the set-up of Heuro’s initial commercial infrastructure including, the establishment of five authorized PoNS clinics across Canada, (2) the current market value of 55 PoNS devices which we also provided to HTC under the SPA, (3) the CAD$750,000 receivable from ~~baseline at 2~~the September 2018 strategic alliance agreement and ~~5 weeks, for both arms combined.~~(4) the sale of exclusivity rights granted to HTC in the Co-Promotion Agreement, as defined below, to provide PoNS Treatment in the Fraser Valley and Vancouver metro regions of British Columbia.

~~Endpoints for safety were assessed by frequency~~In connection with the Share Purchase Agreement, on October 30, 2019, we entered into a Clinical Research and Co-Promotion Agreement with HTC, or the Co-Promotion Agreement, whereby each company will promote the sales of ~~falls, frequency of headaches, and Adverse Events (AEs). Falls and headaches were measured by daily activity logs~~the PoNS Treatment and the ~~Headache Disability Index, respectively.~~

~~Study~~NeuroCatch^TM device throughout Canada. This co-promotion arrangement terminates upon the earlier of the collection of data from 200 patients in Canada and December 31, 2020. We anticipate that the co-promotion arrangement will terminate on December 31, 2020 and do not expect such termination to have a material impact to our results ~~highlights:~~

~~We continue~~HTC for one additional ten year term upon sixty days’ written notice to conduct the commercial design and manufacturing testing to meet the requirements of the applications for commercial clearance with the U.S. Food and Drug Administration, Health Canada, CE Mark in Europe and the Therapeutic Goods Administration in Australia and expect to complete this testing and submit to the FDA for clearance in the first half of 2018. We also anticipate finalization of the selection of our contract scale manufacturer for the manufacturing of our PoNS™ device during the fourth quarter of 2017. It is our expectation to complete all requirements for the various regulatory submissions during the first half of 2018 and, to the extent the FDA completes its review in 120 days, we anticipate clearance in the second half of 2018. We also anticipate a similar timeline for the foreign regulatory clearances.us.

Three Months Ended September 30, ~~2017~~2020 compared to the Three Months Ended September 30, ~~2016~~2019

The following table summarizes our results of operations for the three months ended September 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):

	Three Months Ended									Three Months Ended
	September 30,									September 30,
	2017			2016			Change			2020			2019			Change
Revenue	$	—		$	—		$	—
Revenue:
Product sales, net										$	124		$	150		$	(26	)
Fee revenue											—			—			—
License revenue											7			—			7
Total operating revenue											131			150			(19	)
Cost of sales:
Cost of product sales											22			89			(67	)
Gross profit											109			61			48
Operating expenses:
Research and development		3,798			1,411			2,387			1,327			1,506			(179	)
General and administrative		2,172			1,980			192
Selling, general and administrative											2,370			4,291			(1,921	)
Amortization expense											72			—			72
Total operating expenses		5,970			3,391			2,579			3,769			5,797			(2,028	)
Loss from operations		(5,970	)		(3,391	)		(2,579	)
Other income (expense):
Operating loss											(3,660	)		(5,736	)		2,076
Other income:
Other income		—			1			(1	)		—			11			(11	)
Change in fair value of derivative financial instruments		(5,960	)		288			(6,248	)		1			196			(195	)
Foreign exchange loss		(1,008	)		115			(1,123	)
Total other income (expense)		(6,968	)		404			(7,372	)
Foreign exchange gain (loss)											182			(59	)		241
Total other income											183			148			35
Net loss	$	(12,938	)	$	(2,987	)		(9,951	)	$	(3,477	)	$	(5,588	)	$	2,111

~~During~~For the three months ended September 30, ~~2017~~2020, we recognized revenue of $0.1 million, of which $0.1 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and ~~2016,~~$7 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. For the three months ended September 30, 2019 we recognized revenue of $0.2 million, all of which was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and none of which was generated from license fee revenue as the Co-Promotion Agreement with HTC did not ~~generate any revenue.~~go into effect until October 2019.

Cost of product sales includes the cost to manufacture the PoNS device, royalty expense, freight charges, customs duties as well as wages and salaries of employees involved in the management of the supply chain and logistics of fulfilling our sales orders. For the three months ended September 30, 2020, we incurred $22 thousand in our cost of sales. For the three months ended September 30, 2019, we incurred $0.1 million in our cost of sales, which also included certain support services provided by Heuro on our behalf.

Research and development, or R&D, expenses were $1.3 million for the three months ended September 30, 2020 compared to $1.5 million for the three months ended September 30, 2019, a decrease of $0.2 million. The decrease was primarily attributable to a $0.2 million reduction in medical affairs expenses due to the effort in 2019 to create awareness of the PoNS device by delivery of clinical and scientific data to key opinion leaders, professional societies and practitioners combined with a $0.2 million reduction in professional services expenses. These decreases were partially offset by a $0.2 million increase in legal expenses as a result of the submission of our request to the FDA on August 4, 2020 for de novo classification and clearance of the PoNS device for the treatment of gait deficit due to symptoms from MS, to be used as an adjunct to a supervised therapeutic exercise program in patients over 18 years of age.

Selling, general and administrative, or SG&A, expenses were $2.4 million for the three months ended September 30, 2020 compared to $4.3 million for the three months ended September 30, 2019, an decrease of approximately $1.9 million. The decrease was primarily due to a $1.1 million decrease in stock compensation expense, a $0.4 million reduction in commercial operations expense due to our investments in marketing and distribution capabilities in 2019 in support of a potential U.S. launch prior to receiving denial for clearance from the FDA coupled with a $0.2 million decrease in wages and salaries due to higher headcount in 2019.

manufacturing, design and engineering verification testing of the PoNS™ device, a $0.4 million increase related to the completion of our registrational clinical trial and a $0.2 million increase in regulatory costs in preparation for our FDA submission. This was partially offset by a $0.2 million reduction relating to invoices for reimbursement from the U.S. Army as a result of milestones met under the sole source cost sharing contract.

General and administrative or G&A, expense was $2.2 million during the three months ended September 30, 2017 compared to $2.0 million from the three months ended September 30, 2016, an increase of $0.2 million. The increase was primarily due to a business email compromise fraud which involved impersonation of our employees and fraudulent demands for wire transfers that targeted our finance department. See Item 4 for a further discussion.2019.

The change in fair value of derivative financial instruments was a ~~loss~~gain of ~~$6.0 million during~~$1 thousand for the three months ended September 30, ~~2017~~2020 compared to a gain of ~~$0.3~~$0.2 million ~~during~~for the three months ended September 30, ~~2016.~~ 2019.

The change in fair value of our derivative financial instruments was primarily attributable to the change in ~~volatility and~~ our stock price, volatility and the number of derivative financial instruments being measured during the period. The change in the fair value of derivative financial instruments is a non-cash item.

Foreign exchange ~~loss~~gain was ~~$1.0~~$0.2 million ~~during~~for the three months ended September 30, ~~2017~~2020, compared to a ~~gain~~loss of $0.1 million ~~during~~for the three months ended September 30, ~~2016.~~2019. This was primarily due to fluctuations in the foreign exchange rate as it relates to the amount of Canadian dollars held at the end of each reporting period.

Nine Months Ended September 30, ~~2017~~2020 compared to the Nine Months Ended September 30, ~~2016~~2019

The following table summarizes our results of operations for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):

	Nine Months Ended									Nine Months Ended
	September 30,									September 30,
	2017			2016			Change			2020			2019			Change
Revenue	$	—		$	—		$	—
Revenue:
Product sales, net										$	441		$	1,295		$	(854	)
Fee revenue											9			49		$	(40	)
License revenue											20			—			20
Total operating revenue											470			1,344			(874	)
Cost of sales:
Cost of product sales											187			538			(351	)
Gross profit											283			806			(523	)
Operating expenses:
Research and development		11,121			3,164			7,957			3,755			6,462			(2,707	)
General and administrative		5,862			5,246			616
Selling, general and administrative											7,625			12,715			(5,090	)
Amortization expense											287			—			287
Total operating expenses		16,983			8,410			8,573			11,667			19,177			(7,510	)
Loss from operations		(16,983	)		(8,410	)		(8,573	)
Other income (expense):
Other expense		—			(20	)		20
Operating loss											(11,384	)		(18,371	)		6,987
Other (expense) income:
Other income		—			111			(111	)		63			35			28
Change in fair value of derivative financial instruments		(5,452	)		(1,052	)		(4,400	)		4			14,033			(14,029	)
Foreign exchange loss		(1,860	)		(530	)		(1,330	)		(278	)		(147	)		(131	)
Total other expense		(7,312	)		(1,491	)		(5,821	)
Total other (expense) income											(211	)		13,921			(14,132	)
Net loss	$	(24,295	)	$	(9,901	)		(14,394	)	$	(11,595	)	$	(4,450	)	$	(7,145	)

~~During~~For the nine months ended September 30, ~~2017~~2020, we recognized revenue of $0.5 million, of which $0.4 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada, $9 thousand was generated from fee revenue related to engaging new PoNS authorized clinics, and ~~2016,~~$20 thousand was generated from license fee revenue related to our co-promotion agreement with HTC. For the nine months ended September 30, 2019, we ~~did not generate any revenue.~~recognized revenue of $1.3 million, of which $1.3 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $49 thousand was generated from fee revenue related to engaging new PoNS authorized clinics. The decrease year-over-year in revenue generated through product sales of our PoNS device in Canada is primarily due to pent up demand positively impacting our product sales for the first six months of 2019, the COVID-19 pandemic negatively impacting our product sales beginning in March 2020 and, to a lesser extent, the impact of price changes, focused on reducing the need for clinics and patients to pay large, upfront costs at the start of treatment, that we began implementing in September 2019.

Cost of product sales includes the cost to manufacture the PoNS device, royalty expense, freight charges, customs duties as well as wages and salaries of employees involved in the management of the supply chain and logistics of fulfilling our sales orders. For the nine months ended September 30, 2020, we incurred $0.2 million in our cost of sales. For the nine months ended September 30, 2019, we incurred $0.5 million in our cost of sales, which also included certain support services provided by Heuro on our behalf.

Research and development, or R&D, expenses were ~~$11.1~~$3.8 million for the nine months ended September 30, 2020 compared to $6.5 million for the nine months ended September 30, 2019, a decrease of $2.7 million. The decrease was attributable to a $0.9 million reduction in product development costs due to completion of the PoNS device development in 2019 and a $0.5 million reduction in wages and salaries. Medical affairs expenses also decreased by $1.0 million due to the effort in 2019 to create awareness of the PoNS device by delivery of clinical and scientific data to key opinion leaders, professional societies and practitioners. There was also a reduction of $0.3 million in professional services expenses.

Selling, general and administrative, or SG&A, expenses were $7.6 million for the nine months ended September 30, 2020 compared to $12.7 million for the nine months ended September 30, 2019, a decrease of approximately $5.1 million. The decrease was primarily due to $1.7 million

in less wages and salaries due to higher headcount in 2019 and a $1.9 million reduction in commercial operations expense as in 2019 we invested in marketing and distribution capabilities in support of our US launch prior to receiving denial for clearance from the FDA. Stock-based compensation expense also decreased by $1.4 million and legal expenses decreased by $0.5 million. These decreases were partially offset by a $0.2 million impairment loss related to intangible assets in 2020 and a $0.1 million loss as the result of the disposal of property and equipment.

Amortization expense consists of the periodic amortization of intangible assets, including customer relationships, proprietary software and reacquired rights recognized in connection with the acquisition of Heuro on October 30, 2019 and internally developed software. For the nine months ended September 30, 2020, amortization expense was $0.3 million. No amortization expense was recorded during the nine months ended September 30, 2017 compared to $3.2 million during the nine months ended September 30, 2016. The increase of $8.0 million was primarily attributable to an increase in our activities with respect to our devices and our clinical trials. We incurred $5.6 million related to the manufacturing of clinical trial devices, and the design and engineering verification testing of our PoNS™ devices. In addition, we incurred approximately $2.8 million in expenses related to our registrational clinical trial for mild-to-moderate TBI, which included start-up and operating costs which supported an increase in the number of clinical sites, a traditional and digital advertising campaign as well as payment to sites for the completion of trial subjects. We also incurred $0.4 million in regulatory costs in anticipation of our FDA submission for clearance to commercialize our PoNS™ device These costs were partially offset by a $0.8 million reduction relating to invoices for reimbursement from the U.S. Army as a result of milestones met under the sole source cost sharing contract.

G&A expenses were $5.9 million during the nine months ended September 30, 2017 compared to $5.2 million during the nine months ended September 30, 2016. The increase of $0.6 million was related to higher professional service fees of $0.4 million primarily the result of higher legal fees and an $0.2 million charge due to a business email compromise fraud which involved impersonation of our employees and fraudulent demands for wire transfers that targeted our finance department. See Item 4 for a further discussion.2019.

The change in fair value of derivative financial instruments was a ~~loss~~gain of ~~$5.5 million during~~$4 thousand for the nine months ended September 30, ~~2017~~2020 compared to a ~~loss~~gain of ~~$1.1~~$14.0 million ~~during~~for the nine months ended September 30, ~~2016.~~ 2019.

The change in fair value of our derivative financial instruments was primarily attributable to the change in our stock price, volatility and ~~volatility~~the number of derivative financial instruments being measured during the period. The change in the fair value of derivative financial instruments is a non-cash item.

Foreign exchange loss was ~~$1.9~~$0.3 million ~~during the nine months September 30, 2017 compared to a loss of $0.5 million during~~for the nine months ended September 30, ~~2016.~~2020, compared to a loss of $0.1 million for the nine months ended September 30, 2019. This was primarily due to fluctuations in the foreign exchange rate as ~~related~~it relates to the amount of Canadian dollars held at the end of each reporting period.

The following table summarizes our cash flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019 (amounts in thousands):

	Nine Months Ended
	September 30,									Nine Months Ended September 30,
	2017			2016			Change			2020			2019			Change
Net cash used in operating activities	$	(14,239	)	$	(5,775	)	$	(8,464	)	$	(9,567	)	$	(16,460	)	$	6,893
Net cash used in investing activities		(181	)		—			(181	)
Net cash provided by (used in) investing activities											40			(260	)		300
Net cash provided by financing activities		14,210			7,888			6,322			6,727			163			6,564
Effect of exchange rate changes on cash		158			(290	)		448			21			(7	)		28
Net change in cash	$	(52	)	$	1,823		$	(1,875	)
Net decrease in cash										$	(2,779	)	$	(16,564	)	$	13,785

Net cash used in operating activities during the nine months ended September 30, ~~2017~~2020 was ~~$14.2~~$9.6 million. This was comprised of a ~~net~~ loss from operations of $24.3 million adjusted for non-cash items including the change in fair value of derivative financial instruments of $5.5 million, stock-based compensation expense of $1.5 million, unrealized foreign exchange loss of $1.8$11.6 million and ~~change~~$1.0 million net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items of ~~$1.4~~$3.0 million comprised mainly of stock-based compensation of $2.0 million, unrealized foreign exchange losses of $0.2 million, depreciation and amortization of $0.4 million, impairment loss on intangible assets of $0.2 million, provision for doubtful accounts of $0.2 million, loss on disposal of office furniture of $0.1 million and gain on lease modification of $0.1 million.

Net cash used in operating activities during the nine months ended September 30, ~~2016~~2019 was ~~$5.8~~$16.5 million. This was comprised of a ~~net~~ loss from operations of $9.9 million adjusted for non-cash items such as change in fair value of derivative financial instruments of $1.1 million, stock-based compensation expense of $1.7 million, unrealized foreign exchange loss of $0.8$18.4 million and ~~change~~$1.6 million net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items comprised of ~~$0.6~~stock-based compensation of $3.3 million and unrealized foreign exchange losses of $0.2 million.

Net cash provided by investing activities during the nine months ended September 30, 2020 was $40 thousand, which was primarily related to the sale of office furniture, offset partially by the purchase of equipment.

Net cash used in investing activities during the nine months ended September 30, ~~2017~~2019 was ~~$0.2~~$0.3 million, which was primarily related to ~~leasehold improvements at~~the purchase of computer software, furniture and fixtures for our ~~new office space.~~office.

Net cash provided by financing activities during the nine months ended September 30, ~~2017~~2020 was ~~$14.2~~$6.7 million, which ~~was comprised~~consisted of ~~$14.5 million received~~proceeds from the ~~sale~~issuance of ~~6,555,000 shares of our~~ common stock ~~related to the February 2017 offering and 4,000,000 shares of our common stock related to the June 2017 private placement, as well as $0.9 million received~~ from the ~~exercise~~2020 ATM and March 2020 Offering, net of ~~stock options and warrants. These amounts were partially offset by $1.2 million in~~ share issuance ~~costs incurred in connection with the February 2017 offering.~~costs.

~~During the nine months ended September 30, 2016,~~Net cash provided by financing ~~activities provided cash of $7.9 million. Financing~~ activities during the nine months ended September 30, ~~2016~~2019 was $0.2 million, which consisted ~~of: $7.9 million in proceeds from the issuance~~primarily of ~~common stock and warrants related to the April 2016 offering and $1.5 million in~~ proceeds from the exercise of ~~warrants, partially offset by $1.5 million in share issuance costs incurred in connection with the~~our April 2016 ~~offering.~~

Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, ~~does~~do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should ~~the Company~~we be unable to continue in operation. Our major sources of cash have been proceeds from various public and private offerings of our common stock and exercises of stock options and warrants. From June 2014 through September 30, 2020, we raised approximately $103.2 million in gross proceeds from various public and private offerings of our common stock as well as the exercise of stock options and warrants. As described below, on October 26, 2020, we closed a private placement of shares of common stock and warrants for total gross proceeds of approximately $3.4 million.

The following table summarizes our cash and ~~its~~ working capital ~~which excludes non-cash items (derivative~~(which we define as current assets less current liabilities excluding derivative financial instruments) as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019 (amounts in thousands):

We currently have limited working capital and liquid assets. Based on management’s assessment, there is substantial doubt about our ability to continue as a going concern. This means that there is substantial doubt that we can continue as an on-going business for the next twelve months. Our cash as of September 30, ~~2017~~2020 was ~~$2.6~~approximately $2.7 million. ~~We expect~~As noted above, subsequent to the date of our latest balance sheet, on October 26, 2020, we closed a private placement of an aggregate of 6,567,868 shares of common stock and warrants to purchase an aggregate of 3,283,936 shares of common stock at purchase price of $0.52 per unit ($0.5244 per unit for certain participating affiliates), consisting of one share and a warrant to purchase 0.50 shares of common stock, resulting in net proceeds of approximately $3.2 million after deducting placement agents fees and estimated expenses and excluding the proceeds, if any, that ~~this~~we may receive in the future from the exercise of the warrants. The warrants have an initial exercise price of $0.452 per share ($0.4619 per share for certain participating affiliates) and are exercisable for three years from the date of issuance. The Company also issued warrants to the placement agent to purchase 33,654 shares of common stock, with an exercise price of $0.565 per share.

Pursuant to the securities purchase agreement for the private placement, if we issue any shares of common stock or common stock equivalents for cash ~~will allow us~~consideration, indebtedness or a combination thereof, with certain exceptions, within twelve months of the closing of the private placement, each purchaser who subscribed for at least $250,000 in the private placement has the right to ~~maintain our current operations into December 2017.~~participate in up to such purchaser’s pro rata portion of 30% of the such subsequent financing on the same terms, conditions and price provided for in the subsequent financing. In connection with the private placement, the Company agreed to file a registration statement covering the resale of the shares of common stock and the shares of common stock issuable upon exercise of the warrants within 30 days of the closing.

~~To date~~While we have ~~not generated any~~started generating revenue from the commercial ~~sales~~sale of ~~products or services. There are a number of conditions that~~our PoNS device in Canada, we ~~must satisfy before we will be able~~expect to ~~generate~~incur significant losses until such time as our revenue ~~including but not limited to, FDA clearance of the PoNS™ device for the treatment of movement, gait~~exceeds our expenses and balance disorders in patients with mild- to moderate TBI, manufacturing of a commercially-viable version of the PoNS™ device and demonstration of its effectiveness in combination with a functional targeted therapy sufficient to generate commercial orders by customers for our product. We do not currently have sufficient resources to accomplish these conditions necessary for us to generate revenue. We will therefore require substantial additional funds to continue to conduct the R&D and regulatory clearance and approval activities necessary to bring our product to market, to establish effective marketing and sales capabilities and to develop other product candidates. Weduring this time, we will require additional funding to fund our ongoing activities. We believe that our existing capital resources, including the net proceeds from the October 2020 private placement, will be sufficient to fund our operations throughout most of the first quarter of 2021. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. We expect our expenses to increase over time in connection with our ongoing activities, particularly if and as we: invest in marketing and distribution capabilities in support of potentially commercializing our PoNS device in the U.S., if approved; make improvements to our manufacturing process and product design; launch the TBI-002 trial or conduct other trials of the PoNS device; pursue further regulatory approvals; maintain, expand and protect our intellectual property portfolio; and add additional personnel. 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.~~ Company.

~~Off Balance~~Our ability to raise additional capital may be adversely impacted by global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.

To the best of management’s knowledge, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition.

~~This~~Our discussion and analysis of our financial condition and results of operations are based upon our 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 ~~Transition~~2019 Annual Report. There have been no changes in critical accounting policies in the current year from those described in our ~~Transition Report.~~2019 Annual Report.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation—Stock Compensation (Topic 718): Improvements~~The information set forth in Note 2 “Summary of Significant Accounting Policies” to ~~Employee Share-Based Payment Accounting~~. The amendments in this update change existing guidance related to accounting for employee share-based payments affecting the income tax consequences of awards, classification of awards as equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within those annual periods, with early adoption permitted. The updated accounting guidance was effective for us on January 1, 2017 and it did not have a material effect on our unaudited condensed consolidated financial statements ~~and any deferred tax benefits would be offset~~under Part I, Item 1, “Condensed Consolidated Financial Statements” is incorporated herein by ~~a valuation allowance.~~

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842).~~ The new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the consolidated balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the consolidated statement of operations. ASU 2016-02 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods, with early adoption permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the condensed consolidated financial statements, with certain practical expedients available. We are currently evaluating the potential impact of the standard on our condensed consolidated financial statements.

~~In May 2014, the FASB issued ASU No. 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~, which was further amended through various updates issued by the FASB thereafter. The amendments of Topic 606 completed the joint effort between the FASB and the IASB, to develop a common revenue standard for GAAP and IFRS, and to improve financial reporting. The guidance under Topic 606 provides that an entity should recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for the goods or services provided and establishes a five-step model to be applied by an entity in evaluating its contracts with customers. The Company expects to adopt the standard effective January 1, 2018 and apply the guidance retrospectively to contracts at the date of adoption. The Company also expects to elect the practical expedient available under Topic 606 for measuring progress toward complete satisfaction of a performance obligation and for disclosure requirements of remaining performance obligations. The practical expedient allows an entity to recognize revenue in the amount to which the entity has the right to invoice such that the entity has a right to the consideration in an amount that corresponds directly with the value to the customer for performance completed to date by the entity. The Company continues to assess the new standard with a focus on identifying the performance obligations included within any revenue arrangements with customers and will evaluate the methods of estimating the amount and timing of variable consideration. The Company does not currently have, and has not previously held, any significant contracts with customers. Accordingly, the Company does not believe the adoption of Topic 606 on January 1, 2018 will have a material impact on its financial statements.reference.

In April 2012, the Jumpstart Our Business Startups Act of 2012, or JOBS Act, was enacted in the United States. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies. We will remain an “emerging growth company” until December 31, 2020.

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the direction of ~~the~~our Interim Chief Executive Officer and ~~the~~our Chief Financial Officer, ~~the Company has~~we have evaluated ~~its~~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 Interim Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were ~~not~~ effective as of the end of the period covered by this ~~report due to the material weakness in our internal controls over financial reporting as discussed below. Notwithstanding this material weakness, our~~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.

In August 2017, we became aware that we had been a victim of a criminal fraud that law enforcement authorities refer to as business email compromise fraud, which involved impersonation of our employees and fraudulent demands for wire transfers that targeted our finance department. We immediately responded to the criminal fraud. Despite our response, the fraud resulted in a transfer of approximately $0.2 million. To date, no funds have been recovered. The Company’s investigation into this matter continues as further discussed in Item 1A. During the third quarter of 2017, enhancements were made to our controls relating to electronic payments, including by wire transfer of funds. These enhancements include additional verification and documentation procedures to be followed prior to the initiation or approval of electronic payments by or for us. We believe these enhancements increase the ability of our personnel to identify and block attempts by third parties to fraudulently initiate electronic payments from us. Our management believes that the foregoing actions will help improve our internal controls over financial reporting. We are actively working to implement effective internal control over financial reporting, which includes remediation of these material weaknesses. However, such compliance is not guaranteed, and we cannot provide any assurance that our internal control over financial reporting will be effective as a result of these efforts.

~~Other than the actions described above, there~~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 ~~the Company’s~~our internal control over financial reporting.

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.

~~The discussion~~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 ~~business and operations discussed~~securities. Except for the updated risk factors set forth immediately below, our risk factors have not changed materially from those risk factors previously disclosed in ~~this report~~our 2019 Annual Report. You should ~~be read together with~~carefully consider the risk factors ~~contained~~discussed below and in ~~Item 1A of~~Part I, “Item 1A. Risk Factors” in our ~~Transition~~2019 Annual Report. The risks described below and in our 2019 Annual Report ~~as filed with~~are not the ~~SEC on April 3, 2017, which describe various~~only risks facing us. Additional risks and uncertainties not currently known to ~~which~~us or that we ~~are or~~currently deem to be immaterial also may ~~become subject. These risks~~materially and ~~uncertainties have the potential to~~adversely affect our business, financial condition and/or operating results.

The COVID-19 pandemic has adversely impacted, and may continue to materially and adversely impact, our business, financial condition and results of operations.

On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The Company’s business, results of operations ~~cash flows, strategies,~~and financial condition have been adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 has significantly increased economic uncertainty. Authorities implemented numerous measures to try to contain the virus, 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 have been 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, they are all currently operating at reduced capacity within provincial guidelines, which limits operations to 50% capacity. Some patients have begun to return 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. We have expanded our services to include remote training and treatment, but the long-term viability of these remote programs is still being assessed. Additionally, while we do not currently have any clinical trials underway, we are running clinical experience programs in Canada and have experienced 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, leading to further delays in the development and approval of the Company’s product candidate. As noted above, prior to the COVID-19 pandemic, our expectation was that we would move forward with the launch of our TBI-002 trial and we had estimated that enrollment would begin in April 2020 with the completion of the trial and submission to the FDA in the second quarter of 2021. However, the launch of the TBI-002 trial has been temporarily suspended and we are evaluating our options and timing for funding and starting the trial.

The COVID-19 pandemic and other outbreaks may cause delays in or ~~prospects~~the suspension of our business partners manufacturing operations, our research and product development activities, our regulatory workstreams, our research and development activities and other important commercial functions. We are also dependent upon our suppliers for the manufacture of our PoNS device, and in ~~a material~~the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in the development and ~~adverse manner. There are no material changes~~manufacturing of our product. 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. Disruptions in business operations or governmental operations due to COVID-19 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 could affect our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

As the COVID-19 pandemic continues, we may experience additional disruptions that could severely impact our business and planned clinical trials including:

In addition to the risks specifically described above, the COVID-19 pandemic has exacerbated and precipitated the other risks described in our ~~Transition~~2019 Annual Report, ~~except~~and may continue to do so. The extent to which the COVID-19 pandemic will continue to impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The Company does not know yet the full extent of the impact of COVID-19 on its business, operations or the global economy as ~~noted below:~~a whole.

We could be delisted from Nasdaq, which could seriously harm the liquidity of our stock and our ability to raise capital.

On March 23, 2020, we received a Notice from the Listing Qualifications staff of Nasdaq indicating that, based on the closing bid price of the common stock for the 30 consecutive business days preceding the Notice, we no longer meet the Minimum Bid Price Requirement. The Notice does not result in the immediate delisting of our common stock from Nasdaq. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we were provided a period of 180 calendar days in which to regain compliance.

On April 17, 2020, the Company the Second Notice for the Listing Qualifications staff of Nasdaq stating that the 180-day period to regain compliance with the Minimum Bid Price Requirement has been extended due to the global market impact caused by COVID-19. More specifically, Nasdaq has stated that compliance periods were suspended from April 16, 2020 until June 30, 2020. On July 1, 2020, companies received the balance of any pending compliance period to regain compliance with the Minimum Bid Price Requirement. As a result of this extension, we were given to until December 3, 2020 to regain compliance with the Minimum Bid Price Requirement. In order to regain compliance with the Minimum Bid Price Requirement, the closing bid price of our common stock must be at least $1.00 for a minimum of ten consecutive business days.

In the event that we do not regain compliance by December 3, 2020, we may be eligible to obtain an additional compliance period of 180 calendar days so long as we satisfy the continued listing requirement for market value of publicly held shares and all criteria for initial listing on the Nasdaq Capital Market, but for the Minimum Bid Price Requirement and market value of publicly held shares requirement, and provide written notice to Nasdaq of our intent to cure the deficiency during the second compliance period via the implementation of a reverse stock split if necessary. We plan to timely submit our request to Nasdaq for the additional 180-day extension, if necessary. If we do not regain compliance with the Minimum Bid Price Requirement by the end of the applicable compliance period (either December 3, 2020 or June 1, 2021 in the event a second compliance period is requested and granted), our common stock would be subject to delisting from Nasdaq. In that case, however, we would have the right to request a hearing before a Nasdaq Hearings Panel to address our plan to remedy the deficiency, which request would stay any delisting action by the Listing Qualifications staff pending the ultimate outcome of the hearing process.

T ~~Before giving effect~~If our common stock is delisted from Nasdaq, our ability to ~~any potential sales~~raise capital through public offerings of our securities ~~we estimate that our existing capital resources will only be sufficient~~and to ~~fund~~finance our operations ~~into December 2017.~~

Ascould be adversely affected. We also believe that delisting would likely result in decreased liquidity and/or increased volatility in our common stock and could harm our business and future prospects. In addition, we believe that, if our common stock is delisted, our stockholders would likely find it more difficult to obtain accurate quotations as to the price of September 30, 2017, we had cash of $2.6 million. We expect that this cash will allow us to maintain our current operations into December 2017. Therefore, we will need to complete a financing or strategic transaction before the ~~end of December 2017 to continue as a going concern, or we~~common stock and it may be ~~forced~~more difficult for stockholders to ~~reduce the scope of our operations and planned capital expenditure~~buy 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, which would have a material adverse effect on the value of our common ~~stock.~~

~~We have been the victim of a cyber-related crime and our controls may not be successful in avoiding further cyber-related crimes in the future.~~

In the three months ended September 30, 2017, we were the victim of a business email compromise, fraud which resulted in our incurring a loss of approximately $0.2 million. We are working with law enforcement authorities and the banks involved in the wire transfer to pursue recovery of the $0.2 million, butstock at this time we do not know whether we will be able to recover any of the funds, and we have been advised that it may take several months before we are better able to evaluate our recovery prospects. Enhancements have been made to our controls relating to electronic payments bycompetitive market prices, or for us that we believe will reduce out risk of becoming a victim of future frauds related to our payments, including by wire transfers. However, cyber-related criminal activities continue to evolve and increase in sophistication, frequency and severity. As a result, the control enhancements that have been made, and any additional enhancements that may be made in the future, to our controls may not be successful in avoiding our becoming a victim to further cyber-related crimes.at all.

On November 7, 2017, NHC executed an amendment to the sole source cost sharing contract entered into with the USAMRMC, pursuant to which USAMRMC and the U.S. Army Medical Material Agency have agreed to cooperate with NHC on clinical studies and regulatory responsibilities necessary to obtain FDA marketing authorization of the PoNS™ device for the treatment of chronic balance deficits related to mild- to moderate-TBI. The amendment extends the agreement with USAMRMC to December 31, 2018 and is under NHC’s larger CRADA framework with the United States Army.

The preceding summary of the amendment is qualified in its entirety by reference to Amendment of Solicitation/Modification of Contract of Sole-Source Cost Sharing Agreement with the U.S. Army Medical Research and Materiel Command, which is filed herewith as Exhibit 10.2, Amendment to Performance Work Statement (filed as Exhibit 10.1 to the Form 8-K filed on November 21, 2016) and Performance Work Statement (filed as Exhibit 10.2 to the Form 8-K filed on November 21, 2016), each of which is incorporated by reference herein.Not applicable.

** 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.

+Schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. The Company agrees to furnish any omitted schedules or exhibits upon the request of the Securities and Exchange Commission. A list of the omitted schedules and exhibits to this agreement is as follows: Exhibit A: Schedule of Purchasers; Exhibit B: Form of Warrant; Exhibit C: Accredited Investor Qualification Questionnaire; Exhibit D: Bad Actor Questionnaire; and Exhibit E: Selling Stockholder Questionnaire.

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

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

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☐☒	~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☒
Emerging growth company	☒

~~Class~~	~~Outstanding as of November 7, 2017~~
~~Class A Common Stock~~	~~96,489,946~~

Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Unaudited Condensed Consolidated Balance Sheets as of September 30, ~~2017~~2020 and December 31, ~~2016~~2019	3

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and nine months ended September 30, ~~2017~~2020 and ~~2016~~ 2019	4

	Unaudited Condensed Consolidated Statements of Stockholders’ ~~Deficit~~Equity for the three and nine months ended September 30, ~~2017~~2020 and 2019	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, ~~2017~~2020 and ~~2016~~2019	67

	Notes to Unaudited Condensed Consolidated Financial Statements	78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1824

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2333

Item 4.	Controls and Procedures	2333

Part II.	Other Information	2434

Item 1.	Legal Proceedings	2434

Item 1A.	Risk Factors	2434

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2435

Item 3.	Defaults Upon Senior Securities	2435

Item 4.	Mine Safety Disclosures	2435

Item 5.	Other Information	2435

Item 6.	Exhibits	2536

Signatures		2637

	October 30, 2019 Fair Value
Assets:
Cash and cash equivalents	$	1
Other receivables		19
Fixed assets		7
Intangibles		1,053
Goodwill		737
Total assets	$	1,817
Liabilities:
Accounts payable	$	186
Other current liabilities		9
Total liabilities	$	195
Net assets acquired	$	1,622


												Accumulated
						Additional						Other
	Common Stock		Common Stock			Paid-In			Accumulated			Comprehensive
	Shares		Amount			Capital			Deficit			Income (Loss)			Total
Balance as of January 1, 2017		84,630,676	$	30,897		$	5,732		$	(38,345	)	$	(1,728	)	$	(3,444	)
Issuance of common stock in public offering		6,555,000		9,187			—			—			—			9,187
Issuance of common stock in private placement		4,000,000		5,360			—			—			—			5,360
Share issuance costs		—		(1,248	)		—			—			—			(1,248	)
Stock-based compensation expense		—		—			1,464			—			—			1,464
Proceeds from the exercise of stock options and warrants		1,218,232		911						—			—			911
Vesting of restricted stock units		6,505		—			—			—			—			—
Reclassification of exercised stock options, warrants and issued restricted stock units from additional paid-in capital		—		810			(810	)		—			—			—
Net loss		—		—			—			(24,295	)		—			(24,295	)
Foreign currency translation adjustments		—		—			—			—			1,916			1,916
Balance as of September 30, 2017		96,410,413	$	45,917		$	6,386		$	(62,640	)	$	188		$	(10,149	)

	As of			As of
	September 30, 2020			December 31, 2019
Raw materials	$	159		$	144
Work-in-process		446			375
Finished goods		19			129
Inventory	$	624		$	648
Inventory reserve		(52	)		(50	)
Total inventory, net of reserve	$	572		$	598

Goodwill	2020
Carrying amount at beginning of period	$	1,242
Business acquisition fair value allocation adjustment		(454	)
Foreign currency translation		(63	)
Carrying amount at end of period	$	725

For the Year Ending December 31,
2020 (remaining 3 months)	$	73
2021		189
2022		176
2023		117
2024		24
	$	579


~~Stock price~~	~~CAD $1.09~~
~~Exercise price~~	~~CAD $1.50~~
~~Expected life~~	~~3.0 years~~
~~Expected volatility~~		~~83.83~~	%
~~Risk-free interest rate~~		~~0.60~~	%
~~Dividend rate~~		~~0.00~~	%


~~Stock price~~	~~CAD $1.36~~
~~Exercise price~~	~~CAD $1.00~~
~~Expected life~~	~~2.0 years~~
~~Expected volatility~~		~~126.76~~	%
~~Risk-free interest rate~~		~~0.61~~	%
~~Dividend rate~~		~~0.00~~	%

	September 30, 2020			April 24, 2018			April 13, 2018
Stock price	CAD$ 0.53			CAD$ 10.76			CAD$ 9.85
Exercise price	CAD$ 12.25			CAD$ 12.25			CAD$ 12.25
Warrant term	0.53 years			3.00 years			3.00 years
Expected volatility		107.16	%		64.49	%		64.20	%
Risk-free interest rate		0.16	%		2.02	%		1.99	%
Dividend rate		0.00	%		0.00	%		0.00	%

	March 20, 2020
Stock price	$	0.35
Exercise price	$	0.46
Warrant term	5.50 years
Expected volatility		82.41	%
Risk-free interest rate		0.52	%
Dividend rate		0.00	%

Number of Warrants Outstanding				Exercise Price		Expiration Date
~~452,032~~	270,915		~~US $3.00~~	USD$12.25		~~April 30, 2018~~December 22, 2020
~~167,731~~	171,020		~~US $3.00~~	USD$12.25		~~June 26, 2018~~December 28, 2020
~~18,978~~	204,081		~~US $2.15~~		~~June 26, 2020~~
~~62,878~~		~~US $3.00~~		~~July 17, 2018~~
~~7,545~~		~~US $2.15~~		~~July 17, 2020~~
~~1,041,667~~		~~US $1.44~~		~~November 10, 2018~~
~~2,777,778~~		~~US $1.35~~USD$12.25		December 29, ~~2018~~2020
~~4,899,250~~	2,392,285		~~CAD $1.50~~	CAD$12.25		April ~~18, 2019~~10, 2021
~~300,350~~	6,257,144		~~CAD $1.00~~	USD$0.46		~~April 18, 2018~~March 20, 2025
	9,295,445

			Stock Options
			Outstanding
			Remaining				Grant Date		Number of
Number of Stock			Contractual Life		Exercise		Fair Value		Stock Options
Options Outstanding		Expiration Date	(In Years)		Price (CAD)		(CAD)		Exercisable
	3,000,000	June 18, 2019		1.72	$	0.60	$	0.26		3,000,000
	450,000	December 8, 2019		2.19	$	2.92	$	1.65		450,000
	100,000	December 8, 2019		2.19	$	2.92	$	1.31		100,000
	400,000	December 8, 2019		2.19	$	2.96	$	1.29		400,000
	100,000	March 16, 2020		2.46	$	3.20	$	1.42		100,000
	50,000	August 15, 2020		2.87	$	0.98	$	0.39		50,000
	750,000	October 21, 2020		3.06	$	0.87	$	0.36		375,000
	550,000	October 28, 2020		3.08	$	0.84	$	0.44		550,000
	100,000	December 31, 2020		3.25	$	1.24	$	0.50		66,668
	2,975,000	July 13, 2020		2.79	$	1.39	$	0.65		1,983,332
	100,000	August 8, 2020		2.86	$	1.31	$	0.65		50,000
	410,000	October 3, 2020		3.01	$	1.35	$	0.80		102,500
	3,585,000	April 17, 2027		9.55	$	2.16	$	1.55		—
	44,177	May 18, 2021		3.63	$	2.00	$	1.05		28,811
	100,000	May 18, 2027		9.64	$	2.00	$	1.74		—
	50,000	May 18, 2027		9.64	$	2.00	$	1.53		—
	450,000	August 7, 2027		9.86	$	2.00	$	1.53		—
	13,214,177									7,256,311

	~~September 30, 2017~~
~~Stock price~~	~~CAD $.2.08~~
~~Exercise price~~	~~CAD $2.17~~
~~Expected life~~	~~6.25 years~~
~~Expected volatility~~		~~90.84~~	%
~~Risk-free interest rate~~		~~1.06~~	%
~~Dividend rate~~		~~0.00~~	%

	Nine Months Ended September 30, 2020
Stock price	$	0.47
Exercise price	$	0.47
Expected term	5.26 years
Expected volatility		77.35	%
Risk-free interest rate		0.58	%
Dividend rate		0.00	%

				Weighted Average
	Number of			Grant Date
	Restricted			Fair Value per Unit
	Stock Units			(CAD)
Outstanding as of January 1, 2017		—		$	—
Granted		40,487			2.00
Forfeited		(15,914	)
Outstanding as of September 30, 2017		24,573		$	2.00
Vested as of September 30, 2017		14,939		$	2.00

For the Period Ending December 31,
2017 (three months)	$	5
2018		231
2019		246
2020		253
2021		260
Thereafter		279
	$	1,274

Total stockholders' equity as of September 30, 2020	$	3,197
Net proceeds from October 2020 private placement		3,254
Pro forma total stockholders' equity as of September 30, 2020	$	6,451

Exhibit No.	Description of Exhibit
3.1	~~Articles~~Certificate of ~~Continuation~~Conversion filed with the Delaware Secretary of State on July 18, 2018 (incorporated by reference to Exhibit 3.1 to the Form ~~S-1~~10-Q filed ~~with the SEC on July 14, 2014)~~August 9, 2018)
3.2	~~Articles~~Certificate of ~~Amendment filed with the Wyoming Secretary of State on July 3, 2014~~Incorporation, as corrected (incorporated by reference to Exhibit ~~3.2~~3.1 to the Form ~~S-1~~8-K filed ~~with the SEC on July 14, 2014)~~October 30, 2018)
3.3	~~Articles of Amendment filed with the Wyoming Secretary of State on April 27, 2015 (incorporated by reference to Exhibit 3.3 to amendment no. 1 to the Form 10 filed with the SEC on May 4, 2015)~~
~~3.4~~	Bylaws as amended and restated (incorporated by reference to Exhibit ~~3.1~~3.3 to the Form ~~8-K~~10-Q filed ~~with the SEC on March 23, 2016)~~August 9, 2018)
4.1	Form of Warrant ~~(included in Exhibit 4.2)~~
~~4.2~~	~~Warrant Indenture~~to Purchase Common Stock issued pursuant to the Securities Purchase Agreement, dated ~~April 18, 2016 by and between Helius Medical Technologies, Inc. and Computershare Investor Services Inc.~~October 21, 2020 (incorporated by reference to Exhibit 4.1 to ~~amendment no. 1 to~~ the Form 8-K filed ~~April 18, 2016 and amended~~ on ~~April 20, 2016)~~October 26, 2020)
~~4.3~~	~~Amended and Restated June 2014 Equity Incentive Plan~~*
10.1	~~Modification No. 4 to the Amended Cooperative Research~~Interim President and ~~Development~~CEO Employment Letter Agreement with Dane C. Andreeff dated ~~September 6, 2017~~August 23, 2020 (incorporated by reference to Exhibit ~~2.1~~10.1 to the Form 8-K filed ~~September 12, 2017)~~on August 25, 2020)
10.2	~~Amendment of Solicitation/Modification of Contract of Sole-Source Cost Sharing~~Separation and Release Agreement with Philippe Deschamps dated August 23, 2020 (incorporated by reference to Exhibit 10.2 to the ~~U.S. Army Medical Research and Materiel Command~~*Form 8-K filed on August 25, 2020)
~~31.1~~10.3	2018 Omnibus Incentive Plan Form of Option Grant Agreement – 2020 Retention Grant (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on October 7, 2020)
10.4+	Form of Securities Purchase Agreement dated October 21, 2020 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on October 26, 2020)
10.5#	Non-Employee Director Compensation Policy, effective as of June 10, 2020
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~~31.2#	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section302 of the Sarbanes-Oxley Act of 2002 **
~~32.1~~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~~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~~101.INS#	XBRL Instance Document *
~~101.SCH~~101.SCH#	XBRL Taxonomy Extension Schema Document *
~~101.CAL~~101.CAL#	XBRL Taxonomy Extension Calculation Linkbase Document *
~~101.LAB~~101.LAB#	XBRL Taxonomy Extension Label Linkbase Document *
~~101.PRE~~101.PRE#	XBRL Taxonomy Extension Presentation Linkbase Document *
~~101.DEF~~101.DEF#	XBRL Taxonomy Extension Definition Linkbase Document *

	HELIUS MEDICAL TECHNOLOGIES, INC.

Dated: November ~~9, 2017~~12, 2020	By:	/s/ ~~Philippe Deschamps~~Dane C. Andreeff
		~~Philippe Deschamps~~Dane C. Andreeff
		Interim President, Chief Executive Officer and a Director

Dated: November ~~9, 2017~~12, 2020	By:	/s/ Joyce LaViscount
		Joyce LaViscount
		Chief Financial Officer (Principal ~~Accounting~~Financial
		Officer)~~, and Corporate Secretary~~