UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2020 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
HELIUS MEDICAL TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
| 36-4787690 | |
(State or other jurisdiction of 642 Newtown Yardley Road, Suite 100 |
| (I.R.S. Employer 18940 (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Class A Common Stock, $0.001 par value per share |
| HSDT |
| The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ |
| Accelerated filer | ☐ |
Non-accelerated filer | ☒ |
| Smaller reporting company | ☒ |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 6, 2020,4, 2021, the registrant had 51,922,4802,393,611 shares of Class A common stock, $0.001 par value per share, outstanding.
HELIUS MEDICAL TECHNOLOGIES, INC.
INDEX
Part I. | Financial Information |
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Item 1. | Condensed Consolidated Financial Statements |
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| 3 | |
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| 4 | |
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| 5 | |
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| 7 | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | 8 |
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Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. | 33 | |
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Item 4. | 33 | |
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Part II. | 34 | |
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Item 1. | 34 | |
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Item 1A. | 34 | |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
(Except for share data, amounts in thousands)
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
ASSETS |
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Current assets |
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Cash |
| $ | 2,680 |
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| $ | 5,459 |
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| $ | 4,700 |
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| $ | 3,331 |
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Accounts receivable, net |
|
| 80 |
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|
| 210 |
|
|
| 23 |
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|
| 74 |
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Other receivables |
|
| 138 |
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|
| 364 |
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|
| 175 |
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| 156 |
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Inventory, net |
|
| 572 |
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| 598 |
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|
| 538 |
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|
| 389 |
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Prepaid expenses |
|
| 666 |
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| 610 |
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|
| 802 |
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|
| 735 |
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Total current assets |
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| 4,136 |
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|
| 7,241 |
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|
| 6,238 |
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|
| 4,685 |
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Property and equipment, net |
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| 463 |
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|
| 712 |
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| 451 |
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| 486 |
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Other assets |
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Goodwill |
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| 725 |
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| 1,242 |
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|
| 762 |
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| 759 |
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Intangible assets, net |
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| 579 |
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|
| 582 |
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|
| 381 |
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|
| 527 |
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Operating lease right-of-use asset, net |
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| 105 |
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|
| 552 |
|
|
| 47 |
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|
| 90 |
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Other assets |
|
| 18 |
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|
| 18 |
| ||||||||
Total other assets |
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| 1,427 |
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|
| 2,394 |
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|
| 1,190 |
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|
| 1,376 |
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TOTAL ASSETS |
| $ | 6,026 |
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| $ | 10,347 |
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| $ | 7,879 |
|
| $ | 6,547 |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
| $ | 720 |
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| $ | 1,676 |
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| $ | 1,067 |
|
| $ | 747 |
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Accrued liabilities |
|
| 1,399 |
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|
| 1,519 |
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|
| 1,276 |
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|
| 1,337 |
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Operating lease liability |
|
| 107 |
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|
| 172 |
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|
| 47 |
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|
| 59 |
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Derivative financial instruments |
|
| — |
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| 5 |
| ||||||||
Deferred revenue |
|
| 339 |
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|
| 430 |
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|
| 252 |
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|
| 281 |
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Total current liabilities |
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| 2,565 |
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| 3,802 |
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|
| 2,642 |
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| 2,424 |
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Non-current liabilities |
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Operating lease liability |
|
| 47 |
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|
| 465 |
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|
| — |
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|
| 32 |
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Deferred revenue |
|
| 217 |
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|
| 245 |
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|
| 200 |
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|
| 220 |
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TOTAL LIABILITIES |
|
| 2,829 |
|
|
| 4,512 |
|
|
| 2,842 |
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|
| 2,676 |
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Commitments and contingencies (Note 6) |
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STOCKHOLDERS’ EQUITY |
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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 |
|
| — |
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|
| — |
| ||||||||
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 |
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| 31 |
| ||||||||
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding as of September 30, 2021 and December 31, 2020 |
|
| — |
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| — |
| ||||||||
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 2,392,130 and 1,484,362 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| 2 |
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| 1 |
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Additional paid-in capital |
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| 120,213 |
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| 111,479 |
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| 139,093 |
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| 123,872 |
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Accumulated other comprehensive loss |
|
| (693 | ) |
|
| (902 | ) |
|
| (1,125 | ) |
|
| (1,099 | ) |
Accumulated deficit |
|
| (116,368 | ) |
|
| (104,773 | ) |
|
| (132,933 | ) |
|
| (118,903 | ) |
TOTAL STOCKHOLDERS’ EQUITY |
|
| 3,197 |
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|
| 5,835 |
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|
| 5,037 |
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|
| 3,871 |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
| $ | 6,026 |
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| $ | 10,347 |
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| $ | 7,879 |
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| $ | 6,547 |
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(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands except shares and per share data)
|
| Three Months Ended |
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| Nine Months Ended |
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| September 30, |
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| September 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Revenue: |
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Product sales, net |
| $ | 124 |
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| $ | 150 |
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| $ | 441 |
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| $ | 1,295 |
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Product sales |
| $ | 102 |
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| $ | 124 |
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| $ | 242 |
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| $ | 441 |
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Fee revenue |
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| — |
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|
| — |
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| 9 |
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| 49 |
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|
| — |
|
|
| — |
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|
| — |
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| 9 |
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License revenue |
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| 7 |
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|
| — |
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| 20 |
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| — |
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|
| 7 |
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|
| 7 |
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|
| 22 |
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| 20 |
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Total operating revenue |
|
| 131 |
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|
| 150 |
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|
| 470 |
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|
| 1,344 |
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|
| 109 |
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| 131 |
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|
| 264 |
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|
| 470 |
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Cost of sales: |
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Cost of product sales |
|
| 22 |
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|
| 89 |
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|
| 187 |
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|
| 538 |
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|
| 86 |
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|
| 22 |
|
|
| 169 |
|
|
| 187 |
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Gross profit |
|
| 109 |
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|
| 61 |
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|
| 283 |
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|
| 806 |
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|
| 23 |
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|
| 109 |
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|
| 95 |
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|
| 283 |
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Operating expenses: |
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Research and development |
|
| 1,327 |
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| 1,506 |
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|
| 3,755 |
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| 6,462 |
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|
| 1,489 |
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|
| 1,327 |
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|
| 4,182 |
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| 3,755 |
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Selling, general and administrative |
|
| 2,370 |
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|
| 4,291 |
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|
| 7,625 |
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|
| 12,715 |
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|
| 2,859 |
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|
| 2,370 |
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|
| 9,800 |
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|
| 7,625 |
|
Amortization expense |
|
| 72 |
|
|
| — |
|
|
| 287 |
|
|
| — |
|
|
| 48 |
|
|
| 72 |
|
|
| 153 |
|
|
| 287 |
|
Total operating expenses |
|
| 3,769 |
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|
| 5,797 |
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|
| 11,667 |
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|
| 19,177 |
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|
| 4,396 |
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|
| 3,769 |
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|
| 14,135 |
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|
| 11,667 |
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Operating loss |
|
| (3,660 | ) |
|
| (5,736 | ) |
|
| (11,384 | ) |
|
| (18,371 | ) |
|
| (4,373 | ) |
|
| (3,660 | ) |
|
| (14,040 | ) |
|
| (11,384 | ) |
Other income (expense): |
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Other (expense) income: |
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Other income |
|
| — |
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|
| 11 |
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|
| 63 |
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|
| 35 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 63 |
|
Change in fair value of derivative financial instruments |
|
| 1 |
|
|
| 196 |
|
|
| 4 |
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|
| 14,033 |
|
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 4 |
|
Foreign exchange gain (loss) |
|
| 182 |
|
|
| (59 | ) |
|
| (278 | ) |
|
| (147 | ) | ||||||||||||||||
Total other income (expense) |
|
| 183 |
|
|
| 148 |
|
|
| (211 | ) |
|
| 13,921 |
| ||||||||||||||||
Foreign exchange (loss) gain |
|
| (314 | ) |
|
| 182 |
|
|
| 10 |
|
|
| (278 | ) | ||||||||||||||||
Total other (expense) income |
|
| (314 | ) |
|
| 183 |
|
|
| 10 |
|
|
| (211 | ) | ||||||||||||||||
Net loss |
|
| (3,477 | ) |
|
| (5,588 | ) |
|
| (11,595 | ) |
|
| (4,450 | ) |
|
| (4,687 | ) |
|
| (3,477 | ) |
|
| (14,030 | ) |
|
| (11,595 | ) |
Other comprehensive loss: |
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|
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|
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|
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Other comprehensive income (loss): |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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| ||||||||||||||||
Foreign currency translation adjustments |
|
| (172 | ) |
|
| 68 |
|
|
| 209 |
|
|
| (168 | ) |
|
| 287 |
|
|
| (172 | ) |
|
| (26 | ) |
|
| 209 |
|
Comprehensive loss |
| $ | (3,649 | ) |
| $ | (5,520 | ) |
| $ | (11,386 | ) |
| $ | (4,618 | ) |
| $ | (4,400 | ) |
| $ | (3,649 | ) |
| $ | (14,056 | ) |
| $ | (11,386 | ) |
Net loss per share |
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Basic |
| $ | (0.08 | ) |
| $ | (0.22 | ) |
| $ | (0.30 | ) |
| $ | (0.17 | ) |
| $ | (2.01 | ) |
| $ | (2.70 | ) |
| $ | (6.29 | ) |
| $ | (10.36 | ) |
Diluted |
| $ | (0.08 | ) |
| $ | (0.22 | ) |
| $ | (0.30 | ) |
| $ | (0.17 | ) |
| $ | (2.01 | ) |
| $ | (2.70 | ) |
| $ | (6.29 | ) |
| $ | (10.36 | ) |
Weighted average shares outstanding |
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Basic |
|
| 45,137,995 |
|
|
| 25,903,544 |
|
|
| 39,187,370 |
|
|
| 25,869,039 |
|
|
| 2,326,893 |
|
|
| 1,289,657 |
|
|
| 2,229,422 |
|
|
| 1,119,639 |
|
Diluted |
|
| 45,137,995 |
|
|
| 25,903,544 |
|
|
| 39,187,370 |
|
|
| 25,869,039 |
|
|
| 2,326,893 |
|
|
| 1,289,657 |
|
|
| 2,229,422 |
|
|
| 1,119,639 |
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 20202021 and 20192020
(Except share and per share data, amounts in thousands)
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
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|
| ||||||||||||||||||||||||||||||||
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| Shares |
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| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
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| 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 |
| ||||||||||||||||||||||||
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|
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| ||||||||||||||||||||||||
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
|
|
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||||||||
Balance as of June 30, 2020 |
|
| 45,114,506 |
|
| $ | 45 |
|
| $ | 119,763 |
|
| $ | (521 | ) |
| $ | (112,891 | ) |
| $ | 6,396 |
|
|
| 1,288,974 |
|
| $ | 1 |
|
| $ | 119,807 |
|
| $ | (521 | ) |
| $ | (112,891 | ) |
| $ | 6,396 |
|
Settlement of restricted stock units |
|
| 240,106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,831 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 450 |
|
|
| — |
|
|
| — |
|
|
| 450 |
|
|
| — |
|
|
| — |
|
|
| 450 |
|
|
| — |
|
|
| — |
|
|
| 450 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (172 | ) |
|
| — |
|
|
| (172 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (172 | ) |
|
| — |
|
|
| (172 | ) |
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,477 | ) |
|
| (3,477 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (3,477 | ) |
|
| (3,477 | ) |
Balance as of September 30, 2020 |
|
| 45,354,612 |
|
| $ | 45 |
|
| $ | 120,213 |
|
| $ | (693 | ) |
| $ | (116,368 | ) |
| $ | 3,197 |
|
|
| 1,295,805 |
|
| $ | 1 |
|
| $ | 120,257 |
|
| $ | (693 | ) |
| $ | (116,368 | ) |
| $ | 3,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance as of June 30, 2021 |
|
| 2,317,772 |
|
| $ | 2 |
|
| $ | 138,023 |
|
| $ | (1,412 | ) |
| $ | (128,246 | ) |
| $ | 8,367 |
| ||||||||||||||||||||||||
Proceeds from the issuance of common stock pursuant to the LPC Purchase Agreement |
|
| 40,000 |
|
|
| — |
|
|
| 577 |
|
|
| — |
|
|
| — |
|
|
| 577 |
| ||||||||||||||||||||||||
Share issuance costs |
|
| 31,958 |
|
|
| — |
|
|
| (247 | ) |
|
| — |
|
|
| — |
|
|
| (247 | ) | ||||||||||||||||||||||||
Settlement of restricted stock units |
|
| 2,400 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 740 |
|
|
| — |
|
|
| — |
|
|
| 740 |
| ||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 287 |
|
|
| — |
|
|
| 287 |
| ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,687 | ) |
|
| (4,687 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2021 |
|
| 2,392,130 |
|
| $ | 2 |
|
| $ | 139,093 |
|
| $ | (1,125 | ) |
| $ | (132,933 | ) |
| $ | 5,037 |
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 20202021 and 20192020
(Except share and per share data, amounts in thousands)
|
| 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 |
|
|
|
|
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
|
|
| ||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||||||||
Balance as of December 31, 2019 |
|
| 30,718,554 |
|
| $ | 31 |
|
| $ | 111,479 |
|
| $ | (902 | ) |
| $ | (104,773 | ) |
| $ | 5,835 |
|
|
| 877,672 |
|
| $ | 1 |
|
| $ | 111,509 |
|
| $ | (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 |
|
|
| 232,526 |
|
|
| — |
|
|
| 5,043 |
|
|
| — |
|
|
| — |
|
|
| 5,043 |
|
Proceeds from issuance of common stock from the March 2020 Offering |
|
| 6,257,144 |
|
|
| 6 |
|
|
| 1,342 |
|
|
| — |
|
|
| — |
|
|
| 1,348 |
|
|
| 178,776 |
|
|
| — |
|
|
| 1,348 |
|
|
| — |
|
|
| — |
|
|
| 1,348 |
|
Warrant issuance from the March 2020 Offering |
|
| — |
|
|
| — |
|
|
| 842 |
|
|
| — |
|
|
| — |
|
|
| 842 |
|
|
| — |
|
|
| — |
|
|
| 842 |
|
|
| — |
|
|
| — |
|
|
| 842 |
|
Share issuance costs |
|
| — |
|
|
| — |
|
|
| (506 | ) |
|
| — |
|
|
| — |
|
|
| (506 | ) |
|
| — |
|
|
| — |
|
|
| (506 | ) |
|
| — |
|
|
| — |
|
|
| (506 | ) |
Settlement of restricted stock units |
|
| 240,106 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,831 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Stock-based compensation |
|
| — |
|
|
| — |
|
|
| 2,021 |
|
|
| — |
|
|
| — |
|
|
| 2,021 |
|
|
| — |
|
|
| — |
|
|
| 2,021 |
|
|
| — |
|
|
| — |
|
|
| 2,021 |
|
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 209 |
|
|
| — |
|
|
| 209 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 209 |
|
|
| — |
|
|
| 209 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,595 | ) |
|
| (11,595 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (11,595 | ) |
|
| (11,595 | ) |
Balance as of September 30, 2020 |
|
| 45,354,612 |
|
| $ | 45 |
|
| $ | 120,213 |
|
| $ | (693 | ) |
| $ | (116,368 | ) |
| $ | 3,197 |
|
|
| 1,295,805 |
|
| $ | 1 |
|
| $ | 120,257 |
|
| $ | (693 | ) |
| $ | (116,368 | ) |
| $ | 3,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Common Stock, $0.001 par value |
|
| Additional Paid-In |
|
| Accumulated Other Comprehensive |
|
| Accumulated |
|
|
|
|
| ||||||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Total |
| ||||||||||||||||||||||||||||||
Balance as of December 31, 2020 |
|
| 1,484,362 |
|
| $ | 1 |
|
| $ | 123,872 |
|
| $ | (1,099 | ) |
| $ | (118,903 | ) |
| $ | 3,871 |
| ||||||||||||||||||||||||
Proceeds from the issuance of common stock from the February 2021 Offering |
|
| 744,936 |
|
|
| 1 |
|
|
| 8,398 |
|
|
| — |
|
|
| — |
|
|
| 8,399 |
| ||||||||||||||||||||||||
Warrant issuance from the February 2021 Offering |
|
| — |
|
|
| — |
|
|
| 2,638 |
|
|
| — |
|
|
| — |
|
|
| 2,638 |
| ||||||||||||||||||||||||
Proceeds from the issuance of common stock pursuant to the LPC Purchase Agreement |
|
| 40,000 |
|
|
| — |
|
|
| 577 |
|
|
| — |
|
|
| — |
|
|
| 577 |
| ||||||||||||||||||||||||
Share issuance costs |
|
| 31,958 |
|
|
| — |
|
|
| (1,608 | ) |
|
| — |
|
|
| — |
|
|
| (1,608 | ) | ||||||||||||||||||||||||
Proceeds from the exercise of warrants |
|
| 81,895 |
|
|
| — |
|
|
| 1,318 |
|
|
| — |
|
|
| — |
|
|
| 1,318 |
| ||||||||||||||||||||||||
Proceeds from the exercise of stock options |
|
| 214 |
|
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| — |
|
|
| 2 |
| ||||||||||||||||||||||||
Settlement of restricted stock units |
|
| 3,428 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||||||||||||||||||||
Stock-based compensation |
|
| 5,337 |
|
|
| — |
|
|
| 3,896 |
|
|
| — |
|
|
| — |
|
|
| 3,896 |
| ||||||||||||||||||||||||
Foreign currency translation adjustments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26 | ) |
|
| — |
|
|
| (26 | ) | ||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (14,030 | ) |
|
| (14,030 | ) | ||||||||||||||||||||||||
Balance as of September 30, 2021 |
|
| 2,392,130 |
|
| $ | 2 |
|
| $ | 139,093 |
|
| $ | (1,125 | ) |
| $ | (132,933 | ) |
| $ | 5,037 |
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
|
| Nine Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (11,595 | ) |
| $ | (4,450 | ) |
| $ | (14,030 | ) |
| $ | (11,595 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative financial instruments |
|
| (4 | ) |
|
| (14,033 | ) |
|
| — |
|
|
| (4 | ) |
Stock-based compensation expense |
|
| 2,021 |
|
|
| 3,336 |
|
|
| 3,896 |
|
|
| 2,021 |
|
Unrealized foreign exchange loss |
|
| 245 |
|
|
| 211 |
| ||||||||
Unrealized foreign exchange (gain) loss |
|
| (26 | ) |
|
| 245 |
| ||||||||
Depreciation expense |
|
| 92 |
|
|
| 89 |
|
|
| 84 |
|
|
| 92 |
|
Amortization expense |
|
| 287 |
|
|
| — |
|
|
| 153 |
|
|
| 287 |
|
Provision for doubtful accounts |
|
| 160 |
|
|
| — |
| ||||||||
(Recovery of) provision for doubtful accounts |
|
| (19 | ) |
|
| 160 |
| ||||||||
Non-cash lease expense |
|
| 46 |
|
|
| 209 |
| ||||||||
Intangible asset impairment |
|
| 182 |
|
|
| — |
|
|
| — |
|
|
| 182 |
|
Loss from disposal of property and equipment |
|
| 110 |
|
|
| — |
|
|
| — |
|
|
| 110 |
|
Gain on lease modification |
|
| (56 | ) |
|
| — |
|
|
| — |
|
|
| (56 | ) |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (30 | ) |
|
| (380 | ) |
|
| 70 |
|
|
| (30 | ) |
Other receivables |
|
| 226 |
|
|
| (123 | ) |
|
| (19 | ) |
|
| 226 |
|
Inventory |
|
| 26 |
|
|
| (897 | ) |
|
| (149 | ) |
|
| 26 |
|
Prepaid expenses |
|
| (56 | ) |
|
| 285 |
|
|
| (67 | ) |
|
| (56 | ) |
Other current assets |
|
| — |
|
|
| 264 |
| ||||||||
Operating lease liability |
|
| 20 |
|
|
| (9 | ) |
|
| (47 | ) |
|
| (189 | ) |
Accounts payable |
|
| (956 | ) |
|
| (678 | ) |
|
| 270 |
|
|
| (956 | ) |
Accrued liabilities |
|
| (120 | ) |
|
| (75 | ) |
|
| (38 | ) |
|
| (120 | ) |
Deferred revenue |
|
| (119 | ) |
|
| — |
|
|
| (49 | ) |
|
| (119 | ) |
Net cash used in operating activities |
|
| (9,567 | ) |
|
| (16,460 | ) |
|
| (9,925 | ) |
|
| (9,567 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (14 | ) |
|
| (260 | ) |
|
| (49 | ) |
|
| (14 | ) |
Proceeds from sale of property and equipment |
|
| 61 |
|
|
| — |
|
|
| — |
|
|
| 61 |
|
Internally developed software |
|
| (7 | ) |
|
| — |
|
|
| (2 | ) |
|
| (7 | ) |
Net cash provided by (used in) investing activities |
|
| 40 |
|
|
| (260 | ) | ||||||||
Net cash (used in) provided by investing activities |
|
| (51 | ) |
|
| 40 |
| ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from the issuances of common stock and warrants |
|
| 7,233 |
|
|
| — |
|
|
| 11,614 |
|
|
| 7,233 |
|
Share issuance costs |
|
| (506 | ) |
|
| (52 | ) |
|
| (1,581 | ) |
|
| (506 | ) |
Proceeds from the exercise of stock options and warrants |
|
| — |
|
|
| 215 |
| ||||||||
Proceeds from the exercise of warrants and stock options |
|
| 1,320 |
|
|
| — |
| ||||||||
Proceeds from Paycheck Protection Program Loan |
|
| 323 |
|
|
| — |
|
|
| — |
|
|
| 323 |
|
Repayment of Paycheck Protection Program Loan |
|
| (323 | ) |
|
| — |
|
|
| — |
|
|
| (323 | ) |
Net cash provided by financing activities |
|
| 6,727 |
|
|
| 163 |
|
|
| 11,353 |
|
|
| 6,727 |
|
Effect of foreign exchange rate changes on cash |
|
| 21 |
|
|
| (7 | ) |
|
| (8 | ) |
|
| 21 |
|
Net decrease in cash |
|
| (2,779 | ) |
|
| (16,564 | ) | ||||||||
Net increase (decrease) in cash |
|
| 1,369 |
|
|
| (2,779 | ) | ||||||||
Cash at beginning of period |
|
| 5,459 |
|
|
| 25,583 |
|
|
| 3,331 |
|
|
| 5,459 |
|
Cash at end of period |
| $ | 2,680 |
|
| $ | 9,019 |
|
| $ | 4,700 |
|
| $ | 2,680 |
|
Supplemental schedule of non-cash financing activities |
|
|
|
|
|
|
|
| ||||||||
Non-cash share issuance costs |
|
| 476 |
|
|
| — |
| ||||||||
Share issuance costs included in accounts payable and accrued liabilities |
|
| 189 |
|
|
| — |
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
Helius Medical Technologies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
Helius Medical Technologies, Inc. (“we” or the(the “Company”), is a neurotech company focused on neurological wellness. The Company’s purpose is to develop, license or acquire unique and non-invasive technologies targeted at reducing symptoms of neurological disease or trauma.
The Company’s first product, known as the Portable Neuromodulation Stimulator (“PoNSTMPoNS®”), is an innovative non-surgical medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and is indicated for use in the United States as a short term treatment of gait deficit due to mild-to-moderate symptoms from multiple sclerosis (“MS”), and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. It is not expected to be commercially available in the United States until the first quarter of 2022. PoNS is authorized for sale in Canada as a class II, non-implantable medical device intendedfor two indications: (i) PoNS is authorized as a short term treatment (14 weeks) of gait deficit due to 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 TreatmentTMTreatment®”). It; and (ii) PoNS is an investigational medical device in the United States, the European Union (“EU”), and Australia (“AUS”). The device is currently under reviewauthorized for de novo classification and clearance by the U.S. Food and Drug Administration (the “FDA”)use as a potentialshort term treatment for(14 weeks) of gait deficit due to mild and moderate symptoms of MS.from MS and is to be used in conjunction with physical therapy. It is also under premarket review by the AUS Therapeutic Goods Administration. PoNS Treatment™ is not currentlyhas been commercially available in the United States, the European Union or Australia.Canada since March 2019.
The Company was incorporated in British Columbia, Canada on March 13, 2014. On May 28, 2014, we werethe Company was reincorporated from British Columbia to the State of Wyoming, and on July 20, 2018, we wereit was reincorporated from the State of Wyoming to the State of Delaware. We areThe Company is headquartered in Newtown, Pennsylvania. 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 formed another wholly owned subsidiary, Helius NeuroRehab, Inc., (“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. (“HMC”), a company incorporated under the federal laws of Canada, which acquired Heuro Canada, Inc. (“Heuro”) from Health Tech Connex Inc. (“HTC”) on October 30, 2019.
Reverse Stock Split
Effective after the close of business on December 31, 2020, the Company completed a 1-for-35 reverse stock split of its common stock. All share and per share amounts in this Quarterly Report have been reflected on a post-split basis.
Going Concern Uncertainty
As of September 30, 2020,2021, the Company had cash of $2.7$4.7 million. For the nine months ended September 30, 2020,2021, the Company had an operating loss of $11.4$14.0 million, and as of September 30, 2020,2021, its accumulated deficit was $116.4$132.9 million. For the nine months ended September 30, 2020,2021, the Company had $0.5$0.3 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, and, if achieved, whether it will be sustained on a continued basis. These factors indicate substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are filed. The Company’s condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.
The Company intends to fund ongoing activities by utilizing its current cash 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,financings as well as by using its equity line facility entered into on October 26, 2020, the Company closed a private placementSeptember 1, 2021 with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which is subject to certain limitations and received net proceeds of approximately $3.2 million.conditions. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.
Risks and Uncertainties
COVID-19
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, and continue to implement, numerous measures to try to contain COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. The COVID-19 pandemic initially led to the closure of PoNS Authorized clinic locations across Canada. 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. In addition, the resurgence of COVID-19 cases across Canada in the fourth quarter of 2020 and first half of
2021 led to further restrictions on clinic activities. However, the rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions during the third quarter of 2021. Moreover, the Company’s ability to conduct its ongoing clinicalclinical experience programs and clinical trials 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.COVID-19. 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 disruptionsas well as manufacturing delays as the result of labor shortages. Disruptions in business 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 the Company’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.
To the extent the COVID-19 pandemic impacts the Company’s ability to complete the necessary pre-commercialization activities, the Company’s commercial launch in the U.S. could be impeded or delayed. 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 future business, operations or the global economy as a whole.
Nasdaq Delisting
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.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). 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 year ended December 31, 2019,2020, included in its Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 12, 2020.10, 2021. The information furnished in the consolidated condensed financial statements include all adjustments (consisting of only normal, recurring adjustments), considered necessary to present fairly the results of operations, financial position and cash flows of the Company. The Company’s reporting currency is the U.S. Dollar (“USD$”).
Use of Estimates
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.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements reflect the operations of Helius Medical Technologies, Inc. and its 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.
Concentrations of Credit Risk
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.
Receivables
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, 2021, the Company’s accounts receivable of $23 thousand, 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, 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 as of September 30, 20202021 and December 31, 20192020 included refunds from research and development (“R&D”) tax credits of $21$1 thousand and $0.2 million,$1 thousand, respectively, and Goods and Services Tax (“GST”) and Quebec Sales Tax (“QST”) refunds of $0.1$0.2 million and $0.1 million, respectively, related to the Company’s Canadian expenditures. As of December 31, 2020, there was also a receivable from rent deposits of $18 thousand.
Inventory
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. NoNaN inventory markdowns to net realizable value were recorded during the three and nine months ended September 30, 2019.2021, respectively. Inventory markdowns to net realizable value of $0 and $2 thousand were recorded during the three and nine months ended September 30, 2020, respectively.
As of September 30, 20202021 and December 31, 2019,2020, inventory consisted of the following (amounts in thousands):
|
| As of |
|
| As of |
|
| As of |
|
| As of |
| ||||
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Raw materials |
| $ | 159 |
|
| $ | 144 |
|
| $ | 171 |
|
| $ | 160 |
|
Work-in-process |
|
| 446 |
|
|
| 375 |
|
|
| 560 |
|
|
| 440 |
|
Finished goods |
|
| 19 |
|
|
| 129 |
|
|
| 62 |
|
|
| 44 |
|
Inventory |
| $ | 624 |
|
| $ | 648 |
|
| $ | 793 |
|
| $ | 644 |
|
Inventory reserve |
|
| (52 | ) |
|
| (50 | ) |
|
| (255 | ) |
|
| (255 | ) |
Total inventory, net of reserve |
| $ | 572 |
|
| $ | 598 |
|
| $ | 538 |
|
| $ | 389 |
|
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the useful lives of the related 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 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 equipmentyears. Equipment has an estimated useful life of 15 years, while computer software and hardware has an estimated useful life of 3 to 5 years.
As of September 30, 20202021 and December 31, 2019,2020, property and equipment consisted of the following (amounts in thousands):
|
| As of |
|
| As of |
|
| As of |
|
| As of |
| ||||
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Leasehold improvement |
| $ | 64 |
|
| $ | 182 |
|
| $ | 64 |
|
| $ | 64 |
|
Furniture and fixtures |
|
| 93 |
|
|
| 247 |
|
|
| 93 |
|
|
| 93 |
|
Equipment |
|
| 300 |
|
|
| 286 |
|
|
| 373 |
|
|
| 335 |
|
Computer software and hardware |
|
| 182 |
|
|
| 182 |
|
|
| 208 |
|
|
| 197 |
|
Property and equipment |
|
| 639 |
|
|
| 897 |
|
|
| 738 |
|
|
| 689 |
|
Less accumulated depreciation |
|
| (176 | ) |
|
| (185 | ) |
|
| (287 | ) |
|
| (203 | ) |
Property and equipment, net |
| $ | 463 |
|
| $ | 712 |
|
| $ | 451 |
|
| $ | 486 |
|
Depreciation expense was $26$28 thousand and $43$26 thousand for the three months ended September 30, 20202021 and 2019,2020, respectively. Depreciation expense was $92$84 thousand and $89$92 thousand for the nine months ended September 30, 2021 and 2020, and 2019, respectively.
During the second quarter of 2020, the Company 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.
Business Combinations
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 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 the Co-Promotion Agreement (as defined below) to provide PoNS Treatment in the Fraser Valley and 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:
|
| 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 |
|
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 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 NeuroCatchTM 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 and Other Intangible Assets
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, 20202021 is the result of the Heuro acquisition discussed above.completed in October 2019. 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 no0 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 period ended September 30, 20202021 for goodwill:
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 |
|
Carrying amount at December 31, 2020 |
| $ | 759 |
|
Foreign currency translation |
|
| 3 |
|
Carrying amount at September 30, 2021 |
| $ | 762 |
|
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 $48 thousand and $0.2 million during the three and nine months ended September 30, 2021, respectively. Amortization expense related to intangible assets was $0.1 million and $0.3 million during the three and nine months ended September 30, 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 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 selling, general and administrative expenses in the accompanying condensed consolidated statement of operations and comprehensive loss. During the nine months ended September 30, 2021, the Company wrote-off $0.2 million of fully amortized customer relationships, all of which occurred during the first quarter of 2021.
Intangible assets as of September 30, 20202021 and December 31, 20192020 consist of the following:
|
|
|
| As of September 30, 2020 |
|
| As of December 31, 2019 |
|
|
|
| As of September 30, 2021 |
|
| As of December 31, 2020 |
| ||||||||||||||||||||||||||||
|
| Useful Life |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Useful Life |
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Value |
|
| Gross Carrying Amount |
|
| Accumulated Amortization |
|
| Net Carrying Value |
| ||||||||||
Customer relationships |
| 1.25 years |
| $ | 227 |
|
| $ | (191 | ) |
| $ | 423 |
|
| $ | (55 | ) |
| 1.25 years |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 237 |
|
| $ | (228 | ) |
| $ | 9 |
|
Acquired proprietary software |
| 5 years |
|
| 143 |
|
|
| (26 | ) |
|
| 148 |
|
|
| (5 | ) |
| 5 years |
|
| 151 |
|
|
| (58 | ) |
|
| 93 |
|
|
| 150 |
|
|
| (35 | ) |
|
| 115 |
|
Reacquired rights |
| 3.87 years |
|
| 480 |
|
|
| (113 | ) |
|
| — |
|
|
| — |
|
| 3.87 years |
|
| 505 |
|
|
| (250 | ) |
|
| 255 |
|
|
| 503 |
|
|
| (152 | ) |
|
| 351 |
|
Internally developed software |
| 3 years |
|
| 82 |
|
|
| (23 | ) |
|
| 75 |
|
|
| (4 | ) |
| 3 years |
|
| 84 |
|
|
| (51 | ) |
|
| 33 |
|
|
| 82 |
|
|
| (30 | ) |
|
| 52 |
|
Total intangible assets |
|
|
| $ | 932 |
|
| $ | (353 | ) |
| $ | 646 |
|
| $ | (64 | ) |
|
|
| $ | 740 |
|
| $ | (359 | ) |
| $ | 381 |
|
| $ | 972 |
|
| $ | (445 | ) |
| $ | 527 |
|
(1) | During the nine months ended September 30, 2021, the Company wrote off $0.2 million of fully amortized customer relationships. |
Amortization expense is anticipated to be as follows in future years:
For the Year Ending December 31, |
|
|
|
|
|
|
|
|
2020 (remaining 3 months) |
| $ | 73 |
| ||||
2021 |
|
| 189 |
| ||||
2021 (remaining 3 months) |
| $ | 47 |
| ||||
2022 |
|
| 176 |
|
|
| 185 |
|
2023 |
|
| 117 |
|
|
| 123 |
|
2024 |
|
| 24 |
|
|
| 26 |
|
|
| $ | 579 |
|
| $ | 381 |
|
Leases
On January 1, 2019, theThe Company adoptedaccounts for its leases under 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 does not record an operating lease ROUright of use (“ROU”) asset and corresponding lease liability for leases with an initial term of twelve months or less and recognizes lease expense for these leases as incurred over the lease term. The Company had only one1 operating lease, which was for its headquarters office in Newtown, Pennsylvania upon the adoption date. As of September 30, 2020,2021, the Company has not entered into any additional lease arrangements, but did modify the existing lease arrangement.arrangement in the second quarter of 2020 and again in the first quarter of 2021. 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 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).
Foreign Currency
The Company’s functional currency is the 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 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 approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time
of the transaction. Foreign exchange gains and losses are included in the condensed consolidated statement of operations and comprehensive loss as foreign exchange gain (loss) gain..
The functional currency of HMC and HCA, the Company’s Canadian subsidiaries, is the CAD$ and the functional currency of HMI and HNR is the USD$. 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. 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 gain (loss) gain,, as a component of comprehensive loss, within the condensed consolidated statements of operations and comprehensive loss.
Stock-Based Compensation
The 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.
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.
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.
Revenue Recognition
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 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:
| (i) | identify the contract(s) with a customer; |
| (ii) | identify the performance obligations in the contract; |
| (iii) | determine the transaction price; |
| (iv) | allocate the transaction price to the performance obligations in the contract; and |
| (v) | recognize revenue when (or as) the entity satisfies a performance obligation. |
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.
Product Sales, net
During the first half of 2019, productProduct sales wereare derived from the sale of the PoNS device and certain support services including services from the use of the NeuroCatchTM device, which is owned by HTC and assesses electroencephalogram brain waves related to cognition of patients participating in the 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.clinics. According to the supply agreement with each of these clinics, the Company’s performance obligation was met when it delivered the PoNS device to 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 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 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$124 thousand 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. For the three and nine months ended September 30, 2021, the Company recorded $102 thousand and $0.2 million, respectively, in product sales. There were 4 PoNS devices, included as consideration in the Heuro acquisition, transferred during the nine months ended September 30, 2021 resulting in revenue of $30 thousand being recognized which is included in the aforementioned $0.2 million in product sales for the nine months ended September 30, 2021. As of September 30, 2021, there were 30 devices remaining to be transferred. The fair value of the remaining 44 devices is recorded as deferred revenue of $0.3$0.2 million on the condensed consolidated balance sheet. The only returns during the three and nine months ended September 30, 20202021 were the result of warranty returns for defective products. These returns were insignificant and any future replacements are expected to be insignificant.
Fee Revenue
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. These agreements were terminated in the second quarter of 2020. As a result, during the three and nine months ended September 30, 2021, the Company did 0t recognize any fee revenue.
License Revenue
In connection with the Heuro acquisition, the Company entered into a Clinical Research and Co-Promotion Agreement with HTC (the “Co-Promotion Agreement”). The Co-Promotion Agreement had a fair value of CAD$360 thousand at the time of acquisition and a ten-year term. License revenue is recognized ratably over the ten-year term of the Co-Promotion Agreement as the performance obligation is met. During the three and nine months ended September 30, 2019,2021, 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.
License Revenue
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$22 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.sheet as of September 30, 2021. 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.
As of September 30, 2021 and December 31, 2020, the Company had 0 contract assets or liabilities on its condensed consolidated balance sheets related to the supply agreements with each clinic.
Cost of Sales
Cost of product sales includes the cost to manufacture the PoNS device, inventory markdowns to net realizable value, 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.orders.
Income Taxes
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 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 ASC 740 Income Taxes regarding accounting for uncertainty in income taxes. The Company initially recognizes tax 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 than50% 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”). was signed into law. 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 theThe CARES Act will havehas not had a material impact on our accounting for income taxes.
Research and Development Expenses
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 related to post market surveillance, quality assurance complaint handling and adverse event reporting. R&D costs are charged to operations when they are incurred.
Segment Information
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 one1 operating and reportable segment. Accordingly, the Company reports the accompanying condensed consolidated financial statements in the aggregate in one1 reportable segment.
Derivative Financial Instruments
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 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. As of September 30, 2020 and December 31, 2019,2020, the Company’s derivative financial instruments accounted for in accordance with ASC 815 were comprised of warrants issued in connection with both public and/or private securities offerings. Upon settlement of a derivative financial instrument, the instrument is 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 last of the warrants accounted for in accordance with ASC 815 expired in April 2021 and as such, as of September 30, 2021, the Company does not hold any derivative financial instruments accounted for in accordance with ASC 815.
Fair Value Measurements
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 and operating lease ROU asset and non-current receivables approximate their fair values due to the immediate or short-term nature of these instruments.
The Company’s derivative financial instruments are classified as Level 3 within the fair value 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, 2020 and December 31, 20192020 and the roll forward of the Company’s derivative financial instruments. The Company’s derivative financial instruments arewere comprised of warrants which are classified as liabilities.
The following table summarizes the Company’s recurring fair value measurements forof the derivative financial instruments as of December 31, 2020 was 0. The warrants classified as liabilities expired in April 2021and stock-based compensation liability within the fair value hierarchyas such, as of September 30, 2020 and December 31, 2019 (amounts2021, the Company does not hold any derivative financial instructions accounted for in thousands):accordance with ASC 815.
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| Fair Value |
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| Level 1 |
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| Level 2 |
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| Level 3 |
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September 30, 2020 |
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Liabilities: |
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Derivative financial instruments |
| $ | — |
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| — |
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| — |
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| $ | — |
|
December 31, 2019 |
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Liabilities: |
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Derivative financial instruments |
| $ | 5 |
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|
| — |
|
|
| — |
|
| $ | 5 |
|
There were no transfers between any levels for any of the 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, 2020 of $0.2 million, all of which was recordedincurred during the 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. As of September 30, 2021, the Company’s customer relationship intangible asset had been fully amortized and written off.
Basic and Diluted Net Loss per Share
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, 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):
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Basic |
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Numerator: |
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Net loss |
| $ | (3,477 | ) |
| $ | (5,588 | ) |
| $ | (11,595 | ) |
| $ | (4,450 | ) |
Denominator: |
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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 | ) |
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Diluted |
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Numerator: |
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Net loss, basic |
| $ | (3,477 | ) |
| $ | (5,588 | ) |
| $ | (11,595 | ) |
| $ | (4,450 | ) |
Effect of dilutive securities |
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| — |
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| — |
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| — |
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| — |
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Net loss, diluted |
| $ | (3,477 | ) |
| $ | (5,588 | ) |
| $ | (11,595 | ) |
| $ | (4,450 | ) |
Denominator: |
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Weighted average common shares outstanding - basic |
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| 45,137,995 |
|
|
| 25,903,544 |
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| 39,187,370 |
|
|
| 25,869,039 |
|
Potential common share issuances: |
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Incremental dilutive shares from equity instruments (treasury stock method) |
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| — |
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| — |
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| — |
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| — |
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Weighted average common shares outstanding |
|
| 45,137,995 |
|
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| 25,903,544 |
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| 39,187,370 |
|
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| 25,869,039 |
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Diluted net loss per share |
| $ | (0.08 | ) |
| $ | (0.22 | ) |
| $ | (0.30 | ) |
| $ | (0.17 | ) |
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| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Basic and Diluted |
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Numerator: |
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Net loss |
| $ | (4,687 | ) |
| $ | (3,477 | ) |
| $ | (14,030 | ) |
| $ | (11,595 | ) |
Denominator: |
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|
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Weighted average common shares outstanding |
|
| 2,326,893 |
|
|
| 1,289,657 |
|
|
| 2,229,422 |
|
|
| 1,119,639 |
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Basic and diluted net loss per share |
| $ | (2.01 | ) |
| $ | (2.70 | ) |
| $ | (6.29 | ) |
| $ | (10.36 | ) |
The followingNaN incremental common stock equivalents, consisting of outstanding securities have been excluded from the computation ofstock options, warrants and restricted stock units, were included in calculating diluted weighted shares outstanding for the periods noted below, as theyloss per share because such inclusion would have beenbe anti-dilutive due to the Company’s losses for the three and nine months ended September 30, 2021 and 2020. Common stock equivalents excluded from the computation of diluted weighted average shares outstanding were 1,239,019 and 377,971 for the three and nine months ended September 30, 2021 and the three and nine months ended September 30, 2020, and 2019 and because the exercise price of certain of these outstanding securities was greater than the average closing price of the Company’s common stock.respectively.
|
| Three Months Ended |
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| Nine Months Ended |
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| September 30, |
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| September 30, |
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| 2020 |
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| 2019 |
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| 2020 |
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| 2019 |
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Stock options outstanding |
|
| 3,929,944 |
|
|
| 3,629,288 |
|
|
| 3,929,944 |
|
|
| 3,629,288 |
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RSUs |
|
| 5,752 |
|
|
| — |
|
|
| 5,752 |
|
|
| — |
|
Warrants outstanding |
|
| 9,295,445 |
|
|
| 3,043,605 |
|
|
| 9,295,445 |
|
|
| 3,043,605 |
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Total |
|
| 13,231,141 |
|
|
| 6,672,893 |
|
|
| 13,231,141 |
|
|
| 6,672,893 |
|
Recent Accounting Pronouncements
In June 2016, the FASB issued 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 (“SRC”) 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 condensed consolidated financial statements.
In August 2018, the2020, FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which adds disclosure requirementssimplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to Topic 820qualify for the rangederivative scope exception and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. This ASUit also simplifies the diluted earnings per share calculation in certain areas. The guidance is effective for interim and annual reporting periods beginning after December 15, 2019.2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The guidance is to be applied using either a full retrospective or modified retrospective method. In applying the full retrospective method, the cumulative effect of the accounting change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. In applying the modified retrospective method, the cumulative effect of the accounting change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The Company early adopted this standard as ofASU
2020-06 effective January 1, 2020 and2021 under the modified retrospective approach. The adoption of this guidance did not have a material impact on the Company’s condensed consolidated financial statements.
In November 2018, FASB issued ASU 2018-18, Collaborative Arrangements (Topic 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 are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company adopted this standard on January 1, 2020 and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
The Company’s authorized capital stock pursuant to its Delaware charter consists of 150,000,000 authorized shares of Class A common 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 are entitled to vote at any meeting of the Company’s stockholders on the basis of one vote per share of common stock owned as of the record date of such meeting. Each share of common stock entitles the holder to receive dividends, if any, as declared by the Company’s Board of Directors.
NoNaN dividends have been declared since inception of the Company through September 30, 2020.2021. In the event of a liquidation, dissolution or winding-up of the Company, other distribution of assets of the Company among its stockholders for the purposes of winding-up its affairs or upon a reduction of capital, the stockholders shall, share equally, share for share, in the remaining assets and property of the Company.
On April 13, 2018, the Company issued 2,141,900 shares of its common stock and warrants to purchase 2,141,900 shares of the Company’s common stock in an underwritten public offering at a price of $7.47 per share and accompanying warrant. On April 24, 2018, the Company closed on the sale of an additional 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 (collectively the “April 2018 Offering”). The Company received net proceeds of $16.3 million from the April 2018 Offering. The fair value of these warrants at issuance was approximately $7.4 million.
Each warrant issued in connection with the April 2018 Offering entitles the holder to acquire one additional share of common stock at an exercise price of CAD$12.25 per share on or before April 10, 2021. Pursuant to the guidance of ASC 815 Derivatives and Hedging, the Company has determined that warrants issued in connection with the April 2018 Offering should be accounted for as liabilities as the ability to maintain an effective registration is outside of the Company’s control and that it may be required to settle the exercise 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$0.9 million.
The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants issued in the April 2018 Offering using the Black-Scholes option pricing model as of the date of the initial closing of the offering and the date of the closing of the over-allotment option and September 30, 2020.
|
| September 30, 2020 |
|
| April 24, 2018 |
|
| April 13, 2018 |
| |||
Stock price |
| CAD$ 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 | % |
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 8,138,808232,526 shares of its common stock with an aggregated market value of $5.0 million at an average price of $0.6221.68 per share and paid Wainwright a sales commission of approximately $181 thousand related to those shares. The Company terminated the 2020 ATM effective November 25, 2020.
March 2020 Offering
On March 20, 2020, the Company, in a registered direct offering, issued an aggregate of 6,257,144178,776 shares of its common stock at a price of $0.35$12.25 per share. Additionally, the Company issued unregistered warrants in a concurrent private placement to purchase up to 6,257,144178,776 shares of its common stock at an exercise price of $0.46$16.10 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 one1 additional share of common stock at an exercise price of $0.46$16.10 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. partial cash settlement under certain circumstances and provisions related to market volatility did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $0.8 million and was included in additional paid-in capital. As of September 30, 2021, 81,633 warrants had been exercised, all during the first quarter of 2021, for gross proceeds of $1.3 million.
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.
|
| March 20, 2020 |
|
| March 20, 2020 |
| ||
Stock price |
| $ | 0.35 |
|
| $ | 12.25 |
|
Exercise price |
| $ | 0.46 |
|
| $ | 16.10 |
|
Warrant term |
| 5.50 years |
|
| 5.50 years |
| ||
Expected volatility |
|
| 82.41 | % |
|
| 82.41 | % |
Risk-free interest rate |
|
| 0.52 | % |
|
| 0.52 | % |
Dividend rate |
|
| 0.00 | % |
|
| 0.00 | % |
On October 26, 2020, the Company issued units consisting of 1 share and a warrant to purchase 0.50 shares of common stock, with an aggregate issuance of 187,646 shares of common stock and warrants to purchase an aggregate of 93,817 shares of common stock at a purchase price of $18.20 per unit, 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 “October 2020 Offering”). The Company incurred $0.3 million in share issuance costs, including placement agent fees. The warrants have an initial exercise price of $15.82 per share and are exercisable for a period of three years from the date of issuance. The Company also issued warrants to the placement agent to purchase 961 shares of common stock, with an exercise price of $19.775 per share. An officer of the Company and affiliates of an officer and director of the Company participated in the October 2020 Offering on the same terms and conditions as all other purchasers, except that they paid $18.354 per unit and their warrants have an exercise price of $16.1665 per share.
Pursuant to the securities purchase agreement for the October 2020 Offering, if the Company issues any shares of common stock or common stock equivalents for cash consideration, indebtedness or a combination thereof, with certain exceptions, within twelve months of the closing of the October 2020 Offering, 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. These participation rights expired on October 26, 2021.
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 October 2020 Offering should be classified as equity as partial cash settlement under certain circumstances did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $0.6 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 accountedgranted in the October 2020 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on October 26, 2020.
|
| October 26, 2020 |
| |
Stock price |
| $ | 15.92 |
|
Exercise price |
| $ | 15.92 |
|
Warrant term |
| 3.00 years |
| |
Expected volatility |
|
| 80.91 | % |
Risk-free interest rate |
|
| 0.18 | % |
Dividend rate |
|
| 0.00 | % |
February 2021 Offering
On February 1, 2021, in an underwritten public offering (the “February 2021 Offering”), the Company issued 744,936 shares of common stock and warrants to purchase up to an aggregate of 372,468 shares of common stock at a purchase price of $14.82 per unit, consisting of one share and a warrant to purchase 0.50 shares of common stock. The warrants have an initial exercise price of $16.302 per share and are exercisable for a period of five years from the date of issuance. The Company also issued warrants to the underwriter to purchase 29,797 shares of common stock, with an exercise price of $18.525 per share. Net proceeds from the February 2021 Offering after underwriter’s discounts and commission and offering expenses paid by us were approximately $9.6 million. Affiliates of an officer and director participated in the February 2021 Offering on the same terms and conditions as liabilitiesall other purchasers.
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 February 2021 Offering should be classified as equity as partial cash settlement under certain circumstances and provisions related to market volatility did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $2.6 million and was included in additional paid-in capital. As of September 30, 2021, 262 warrants had been exercised, all during the second quarter of 2021, for gross proceeds of $4 thousand.
The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the February 2021 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on February 1, 2021.
|
| February 1, 2021 |
| |
Stock price |
| $ | 14.82 |
|
Exercise price |
| $ | 16.47 |
|
Warrant term |
| 5.00 years |
| |
Expected volatility |
|
| 75.02 | % |
Risk-free interest rate |
|
| 0.42 | % |
Dividend rate |
|
| 0.00 | % |
Lincoln Park Purchase Agreement
On September 1, 2021, the Company entered into a purchase agreement (the “LPC Purchase Agreement”) and a registration rights agreement with Lincoln Park. The LPC Purchase Agreement provides that, subject to the terms and conditions therein, the Company has the right, but not the obligation, to sell from time to time, at its sole discretion, to Lincoln Park up to $15.0 million of shares of its common stock over a 36-month period commencing on September 15, 2021. In addition, under the LPC Purchase Agreement, during the third quarter of 2021, the Company issued 31,958 shares of common stock to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of the Company’s common stock. The $0.5 million fair value of the commitment fee shares was recorded as derivative financial instrumentsshare issuance costs as of September 30, 2021.
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions.
The number of shares the Company may sell to Lincoln Park on any single business day (provided that the closing sale price of the common stock is not below the “floor price” stated in the LPC Purchase Agreement) in a regular purchase is 20,000, but that amount may be increased to (i) up to 25,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $20.00 and (ii) up to 30,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $25.00, in each case, subject
to a maximum limit of $2.0 million per regular purchase. The purchase price per share for each such regular purchase will be based on prevailing market prices of the Company’s condensed consolidated balance sheetscommon stock immediately preceding the time of sale as computed under the LPC Purchase Agreement. In addition to regular purchases, the Company may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases as set forth in the LPC Purchase Agreement.
Under applicable rules of the Nasdaq Capital Market, the Company may not issue or sell to Lincoln Park under the LPC Purchase Agreement more than 19.99% of the shares of the common stock outstanding immediately prior to the execution of the LPC Purchase Agreement unless (i) the Company obtains stockholder approval to issue shares of Common Stock in excess of such amount to Lincoln Park under the LPC Purchase Agreement in accordance with applicable Nasdaq rules or (ii) the average price of all applicable sales of common stock to Lincoln Park under the LPC Purchase Agreement equals or exceeds $15.1661 per share, such that issuances of common stock to Lincoln Park under the LPC Purchase Agreement will not be subject to such limitation under applicable Nasdaq rules. In any event, the LPC Purchase Agreement specifically provides that the Company may not issue or sell any shares of its common stock under the LPC Purchase Agreement if such issuance or sale would breach any applicable Nasdaq rules.
In all instances, the LPC Purchase Agreement prohibits the Company from directing Lincoln Park to purchase any shares of its common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park, would result in Lincoln Park beneficially owning more than 9.99% of the outstanding shares of the Company’s common stock.
The Company has agreed with Lincoln Park that it will not enter into an additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with the Company to purchase securities over a period of time from the Company at a price based on the market price of the common stock at the time of such purchase for a period defined in the LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares.
Actual sales of common stock to Lincoln Park will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds under the LPC Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its common stock to Lincoln Park.
During the nine months ended September 30, 20202021, all of which occurred during the third quarter of 2021, the Company sold and 2019 (amounts in thousands):issued 40,000 shares under the LPC Purchase Agreement, excluding the 31,958 shares issued for the commitment fee, for net proceeds of $0.6 million.
|
| Nine Months Ended September 30, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Fair value of warrants at beginning of period |
| $ | 5 |
|
| $ | 13,769 |
|
Exercise of warrants |
|
| — |
|
|
| (35 | ) |
Foreign exchange losses |
|
| (1 | ) |
|
| 382 |
|
Change in fair value of warrants during the period |
|
| (4 | ) |
|
| (14,033 | ) |
Fair value of warrants at end of period |
| $ | — |
|
| $ | 83 |
|
Warrants
These warrants which are classified as derivative financial instruments in the Company’s condensed consolidated balance sheets are required to be re-measured at each reporting period, with the change in fair value recorded as a gain or loss in the change in 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 all warrants classified as derivative financial instruments outstanding as of September 30, 2020 and December 31, 2019 were estimated using the Black-Scholes option pricing model with the following weighted average assumptions:
|
| September 30, 2020 |
|
| December 31, 2019 |
| ||
Stock price |
| CAD$ 0.53 |
|
| CAD$ 1.23 |
| ||
Exercise price |
| CAD$ 12.25 |
|
| CAD$ 12.25 |
| ||
Warrant term |
| 0.53 years |
|
| 1.28 years |
| ||
Expected volatility |
|
| 107.16 | % |
|
| 72.43 | % |
Risk-free interest rate |
|
| 0.16 | % |
|
| 1.72 | % |
Dividend rate |
|
| 0.00 | % |
|
| 0.00 | % |
The following is a summary of the Company’s warrant activity during the nine months ended September 30, 2020:2021:
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
|
| Number of Warrants |
|
| Weighted Average Exercise Price |
| ||||||||||||||||||||
|
| CAD |
|
| US |
|
| CAD$ |
|
| USD$ |
|
| CAD |
|
| US |
|
| CAD$ |
|
| USD$ |
| ||||||||
Outstanding as of December 31, 2019 |
|
| 2,392,285 |
|
|
| 651,320 |
|
| $ | 12.25 |
|
| $ | 12.24 |
| ||||||||||||||||
Outstanding as of December 31, 2020 |
|
| 68,351 |
|
|
| 273,554 |
|
| $ | 428.75 |
|
| $ | 16.04 |
| ||||||||||||||||
Granted |
|
| — |
|
|
| 6,257,144 |
|
|
| — |
|
|
| 0.46 |
|
|
| — |
|
|
| 402,265 |
|
|
| — |
|
|
| 16.47 |
|
Cancelled/Expired |
|
| — |
|
|
| (5,304 | ) |
|
| — |
|
|
| 10.75 |
|
|
| (68,351 | ) |
|
| — |
|
|
| 428.75 |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (81,895 | ) |
|
| — |
|
|
| 16.10 |
|
Outstanding as of September 30, 2020 |
|
| 2,392,285 |
|
|
| 6,903,160 |
|
| $ | 12.25 |
|
| $ | 1.56 |
| ||||||||||||||||
Outstanding as of September 30, 2021 |
|
| — |
|
|
| 593,924 |
|
| $ | — |
|
| $ | 16.32 |
|
The Company’s warrants outstanding and exercisable as of September 30, 20202021 were as follows:
Number of Warrants Outstanding |
|
| Exercise Price |
| Expiration Date | |
|
|
|
| USD$ |
| |
|
|
| ||||
|
|
| ||||
|
|
| ||||
|
|
| March 20, 2025 | |||
|
| USD$16.1665 | October 26, 2023 | |||
76,386 | USD$15.82 | October 26, 2023 | ||||
961 | USD$19.775 | October 26, 2023 | ||||
372,206 | USD$16.302 | February 1, 2026 | ||||
29,797 | USD$18.525 | February 1, 2026 | ||||
593,924 |
|
|
|
|
|
2018 Omnibus Incentive Plan
On May 15, 2018, the Company’s Board of Directors authorized and approved the adoption of the 2018 Omnibus Incentive Plan, (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 5,356,114153,031 shares mayof common stock could be issued. This share reserve iswas the sum of 3,000,00085,714 new shares, plus the 2,356,11467,317 shares that remained available for issuance at the time of approval 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. On April 20, 2021, the Company’s Board of Directors authorized and approved an amendment, which was effective upon approval by the stockholders of the Company on May 25, 2021, authorizing an additional 565,000 shares of common stock to be issued under the 2018 Plan. Pursuant to the terms of the 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 (“RSUs”), stock equivalent units and 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, 2020,2021, there was an aggregate of 3,387,958139,139 shares of common stock remaining available for grant under the 2018 Plan.
2021 Inducement Plan
On July 2, 2021, the Company adopted the Helius Medical Technologies, Inc. 2021 Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved 100,000 shares of its common stock to be used exclusively for grants of awards to individuals who were not previously employees or directors of the Company, as an inducement material to the individuals’ entry into employment with the Company within the meaning of Rule 5635(c)(4) of the Nasdaq Listing Rules. The Inducement Plan was approved by the Company’s Board of Directors without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules.
The Inducement Plan permits the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share‑based awards.
As of September 30, 2021, there was an aggregate of 80,000 shares of common stock remaining available for grant under the Company’s 2018Inducement Plan.
Stock Options
For the nine months ended September 30, 2020,2021, the Company issued 809,590554,615 stock options to employees and directors.directors of which 13,200 were forfeited. The Company issued no0 stock options to consultants during the nine months ended September 30, 2020.2021.
The following is a summary of the Company’s stock option activity during the nine months ended September 30, 2020:2021:
|
|
|
|
|
| Weighted |
|
| Aggregate |
|
|
|
|
|
| Weighted Average |
|
|
|
|
|
| Aggregate |
| ||||
|
| Number of |
|
| Average |
|
| Intrinsic Value |
|
|
|
|
|
| Remaining |
|
| Weighted |
|
| Intrinsic |
| ||||||
|
| Stock Options |
|
| Exercise Price |
|
| (in thousands) |
|
| Number of |
|
| Contractual |
|
| Average |
|
| Value |
| |||||||
Outstanding as of December 31, 2019 |
|
| 3,467,292 |
|
| $ | 6.76 |
|
| $ | — |
| ||||||||||||||||
|
| Stock Options |
|
| Life (in years) |
|
| Exercise Price |
|
| (in thousands) |
| ||||||||||||||||
Outstanding as of December 31, 2020 |
|
| 113,558 |
|
| 7.75 |
|
| $ | 159.33 |
|
| $ | — |
| |||||||||||||
Granted |
|
| 809,590 |
|
|
| 0.47 |
|
|
| — |
|
|
| 554,615 |
|
|
|
|
|
|
| 15.05 |
|
|
| — |
|
Forfeited/Cancelled |
|
| (346,938 | ) |
|
| (5.66 | ) |
|
| — |
|
|
| (26,807 | ) |
|
|
|
|
|
| 64.55 |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (214 | ) |
|
|
|
|
|
| 10.50 |
|
|
| 1 |
|
Outstanding as of September 30, 2020 |
|
| 3,929,944 |
|
| $ | 5.56 |
|
| $ | — |
| ||||||||||||||||
Exercisable as of September 30, 2020 |
|
| 2,449,829 |
|
| $ | 4.27 |
|
| $ | — |
| ||||||||||||||||
Outstanding as of September 30, 2021 |
|
| 641,152 |
|
|
| 9.24 |
|
| $ | 38.54 |
|
| $ | — |
| ||||||||||||
Exercisable as of September 30, 2021 |
|
| 271,433 |
|
|
| 8.72 |
|
| $ | 66.81 |
|
| $ | — |
|
Employee and Director Stock OptionsAs of September 30, 2020,2021, the unrecognized compensation cost related to non-vested time-based stock options outstanding for employees and directors, was $4.1$3.0 million which will be recognized over a weighted-average remaining vesting period of approximately 2.83.4 years. As of September 30, 2021, the unrecognized compensation cost related to performance-based stock options for employees was $1.2 million. Recognition of compensation expense for performance-based stock options will commence at the time it is determined to be probable that the performance conditions will be met. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option.
The weighted average grant date fair value of employee and director stock options granted for the nine months ended September 30, 20202021 was $0.30$10.67 per option and the grant date fair values of these stock options were estimated using the Black-Scholes option pricing model using the following weighted average assumptions:
|
| Nine Months Ended September 30, 2020 |
|
| Nine Months Ended September 30, 2021 |
| ||
Stock price |
| $ | 0.47 |
|
| $ | 15.14 |
|
Exercise price |
| $ | 0.47 |
|
| $ | 15.05 |
|
Expected term |
| 5.26 years |
|
| 7.04 years |
| ||
Expected volatility |
|
| 77.35 | % |
|
| 78.27 | % |
Risk-free interest rate |
|
| 0.58 | % |
|
| 1.18 | % |
Dividend rate |
|
| 0.00 | % |
|
| 0.00 | % |
Consultant Stock Options
As of September 30, 2020,2021, the unrecognized compensation cost related to non-vested stock options outstanding for non-employees was $15$3 thousand which will be recognized over a weighted-average remaining vesting period of approximately 0.90.1 years. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option.
Restricted Stock AwardsUnits
Beginning in the fourth quarter of 2019, certain members of the Company’s executive management team elected to receive restricted stock awardsRSUs in lieu of cash compensation under the 2018 Plan that vest upon issuance. The fair value of the restrictedRSUs was based on the closing price of the Company’s common stock awardson the day of the grant. Subsequent to the March 31, 2021 pay period, no members of the Company’s executive management team continued to elect to receive RSUs in lieu of cash compensation.
During the second quarter of 2021, the Company granted 2,668 RSUs to an officer of the Company under the 2018 Plan that were scheduled to vest on October 2, 2021. The fair value of the RSUs was based on the closing price of the Company’s common stock on the day of the grant. These RSUs were forfeited during the third quarter of 2021.
During the nine months ended September 30, 2021, the Company granted 6,343 RSUs to the Company’s Board of Directors pursuant to the Non-Employee Director Compensation Policy which will vest in twelve monthly installments on the last day of each month. The fair value of the RSUs is based on the closing price of the Company’s common stock on the day of the grant.
The following is a summary of the Company’s restricted stockRSU award activity for the nine months ended September 30, 2020:2021:
|
| Number of Restricted Stock Units |
|
| Weighted Average Grant Date Fair Value per Unit |
|
| Number of RSUs |
|
| Weighted Average Grant Date Fair Value per Unit |
| ||||
Outstanding as of December 31, 2019 |
|
| 27,697 |
|
| $ | 0.61 |
| ||||||||
Outstanding as of December 31, 2020 |
|
| 168 |
|
| $ | 13.20 |
| ||||||||
Granted |
|
| 218,161 |
|
|
| 0.50 |
|
|
| 9,871 |
|
|
| 15.41 |
|
Forfeited |
|
| (2,668 | ) |
|
| 14.50 |
| ||||||||
Settled |
|
| (240,106 | ) |
|
| 0.52 |
|
|
| (3,428 | ) |
|
| 15.56 |
|
Outstanding as of September 30, 2020 |
|
| 5,752 |
|
| $ | 0.39 |
| ||||||||
Outstanding as of September 30, 2021 |
|
| 3,943 |
|
| $ | 15.81 |
| ||||||||
|
|
|
|
|
|
|
|
| ||||||||
|
|
|
|
|
|
|
|
|
Unrestricted Stock
On April 1, 2021, the Company granted 5,337 shares of unrestricted Class A Common Stock to an officer of the Company under the 2018 Plan.
Stock-Based Compensation Expense
Stock-based compensation expense is classified in the Company’s condensed consolidated statements of operations and comprehensive loss as follows (amounts in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||||||
Research and development |
| $ | 245 |
|
| $ | 233 |
|
| $ | 727 |
|
| $ | 643 |
|
| $ | 156 |
|
| $ | 245 |
|
| $ | 540 |
|
| $ | 727 |
|
Cost of sales |
|
| — |
|
|
| (6 | ) |
|
| (1 | ) |
|
| — |
|
|
| 2 |
|
|
| — |
|
|
| 5 |
|
|
| (1 | ) |
Selling, general and administrative |
|
| 205 |
|
|
| 1,333 |
|
|
| 1,295 |
|
|
| 2,693 |
|
|
| 582 |
|
|
| 205 |
|
|
| 3,351 |
|
|
| 1,295 |
|
Total |
| $ | 450 |
|
| $ | 1,560 |
|
| $ | 2,021 |
|
| $ | 3,336 |
|
| $ | 740 |
|
| $ | 450 |
|
| $ | 3,896 |
|
| $ | 2,021 |
|
Stock-based compensation expense for the three and nine months ended September 30, 2020 includeswas reduced by $0.1 million related to the reversalforfeiture of $125 thousand of expensestock options as a result of forfeitures due to the departure of our former chief executive officer. Stock-based compensation expense for the three and nine months ended September 30, 2021 included $0.5 million in expense related to the accelerated vesting of stock options as a result of the departure of our former chief operating officer in August 2020.July 2021.
5. | ACCRUED EXPENSES |
Accrued expenses consisted of the following (amounts in thousands): |
|
| As of |
|
| As of |
| ||||||||||
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Employees benefits |
| $ | 557 |
|
| $ | 722 |
|
| $ | 555 |
|
| $ | 496 |
|
Professional services |
|
| 6 |
|
|
| 67 |
|
|
| 175 |
|
|
| 292 |
|
Legal fees |
|
| 163 |
|
|
| 81 |
|
|
| 93 |
|
|
| 133 |
|
Royalty fees |
|
| 5 |
|
|
| 13 |
|
|
| 4 |
|
|
| 12 |
|
Franchise fees |
|
| 40 |
|
|
| 28 |
| ||||||||
Severance |
|
| 550 |
|
|
| 606 |
|
|
| 368 |
|
|
| 347 |
|
Other |
|
| 78 |
|
|
| 2 |
|
|
| 81 |
|
|
| 57 |
|
Total |
| $ | 1,399 |
|
| $ | 1,519 |
|
| $ | 1,276 |
|
| $ | 1,337 |
|
Accrued severance expensesexpense as of September 30, 20202021 included $0.5$0.4 million in severance costs related to the departure of our former chief executiveoperating officer in August 2020.July 2021.
6. COMMITMENTS AND CONTINGENCIES
(a) | On January 22, 2013, the Company entered into a license agreement with Advanced NeuroRehabilitation, LLC (“ANR”) for an exclusive right to ANR’s patent pending technology, claims and knowhow. In addition to the issuance of |
(b) |
|
The following table summarizes the Company’s operating lease information including future minimum lease payments under a non-cancellable lease as of September 30, 20202021 (amounts in thousands).
For the Nine Months Ended September 30, 2020 |
|
|
|
| ||||
For the Nine Months Ended September 30, 2021 |
|
|
|
| ||||
Operating lease cost |
| $ | 57 |
|
| $ | 7 |
|
Operating lease - operating cash flows |
| $ | 189 |
|
| $ | 47 |
|
Weighted average remaining lease term |
| 1.75 years |
|
| 0.75 years |
| ||
Weighted average discount rate |
|
| 7.2 | % |
|
| 7.2 | % |
|
|
|
|
|
|
|
|
|
Future minimum lease payments under non-cancellable lease as of September 30, 2020 were as follows: |
|
|
|
| ||||
Future minimum lease payments under non-cancellable lease as of September 30, 2021 were as follows: |
|
|
|
| ||||
For the Period Ending December 31, |
|
|
|
|
|
|
|
|
2020 (remaining three months) |
| $ | 63 |
| ||||
2021 |
|
| 63 |
| ||||
2021 (remaining three months) |
| $ | 16 |
| ||||
2022 |
|
| 32 |
|
|
| 32 |
|
Total future minimum lease payments |
|
| 158 |
|
|
| 48 |
|
Less imputed interest |
|
| (4 | ) |
|
| (1 | ) |
Total liability |
| $ | 154 |
|
| $ | 47 |
|
Reported as of September 30, 2020 |
|
|
|
| ||||
Reported as of September 30, 2021 |
|
|
|
| ||||
Current operating lease liability |
|
| 107 |
|
|
| 47 |
|
Non-current operating lease liability |
|
| 47 |
|
|
| — |
|
Total |
| $ | 154 |
|
| $ | 47 |
|
| On December 29, 2017, HMI (formerly known as NeuroHabilitation Corporation) entered into a Manufacturing and Supply Agreement (“MSA”) with |
|
|
Caramahai v. Helius Medical Technologies, Inc. et al.
On 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.), was filed against the Company and three of its individual officers in the Southern District of New York (“the Caramahai Action”). The lawsuit alleges that the Company 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 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 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 three of its individual officers in the Southern District of New York (the “Evans Action”). The Evans Action alleges similar claims as the Caramahai Action.
On September 9, 2019, three Helius shareholders each filed motions in the Caramahai and Evans cases seeking to consolidate the 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 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 movants filed notices withdrawing their motions on the ground that they did not appear to have “the largest financial interest in the 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 2020, the 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.
7. RELATED PARTY TRANSACTIONS
During the three and nine months ended September 30, 2020, the Company paid approximately $0 and approximately $5 thousand, respectively, in consulting fees to a director of the Company. DuringNaN consulting fees were paid to this director during the three and nine months ended September 30, 2019, the Company paid approximately $2 thousand and $25 thousand, respectively, in consulting fees to a director of the Company. As of September 30, 2020, the Company did not have an accrued liability for consulting fees to a director of the Company.2021.
8. SUBSEQUENT EVENTS
On October 26, 2020, the Company closed on 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 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 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 subscribed for units in the Company’s October 2020 Offering.
Affiliates of the Companyan officer and director 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.February 2021 Offering.
Pursuant to the securities purchase agreement 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 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 September 30, 2020 and as adjusted on a pro forma basis to reflect the recently completed private placement (amounts in thousands):
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 |
|
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, Helius Medical, Inc., or 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 year ended December 31, 2019,2020, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the our Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the Securities and Exchange Commission, or the SEC, on March 12, 2020,10, 2021, or our 20192020 Annual Report. All financial information is stated in U.S. dollars unless otherwise specified. Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements regarding our market, strategy, competition, capital needs, business plans and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Actual events or results may differ materially.Forward-looking statements are made, without limitation, in relation to operating plans, including expected enrollment, patient participation and other details of the TEP study, sufficiency of cash, availability of funds and operating costs. Such forward-looking statements involve risks and uncertainties, regardingknown and unknown, including capital requirements to achieve our business objectives, the COVID-19 pandemic, including its impact on the Company, the success of our business plan, including our ability to complete pre-commercialization activities, secure contracts with rehabilitation clinics, obtain national Medicare coverage and a reimbursement code so that the PoNS device is covered by Medicare and Medicaid, to build internal commercial infrastructure, secure state distribution licenses, build a commercial team and build relationships with Key Opinion Leaders, neurology experts and neurorehabilitation centers, market awareness of the PoNS device, availability of funds, including our ability to fully access our equity line with Lincoln Park, manufacturing, labor shortage and supply chain risks, our ability to maintain and enforce our intellectual property rights, government regulations,clinical trials and the clinical development process, the product development process, the regulatory submission review and approval process, our operating costs and use of cash, and our ability to achieve significant revenues and other factors. 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 and uncertainties which arefactors discussed in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and in our 20192020 Annual Report and 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 following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a neurotechnology company focused on neurological wellness. Our purpose is to develop, license or acquire non-invasive technologies targeted at reducing symptoms of neurological disease or trauma.
Our first product, known as the Portable Neuromodulation Stimulator (PoNSTM(PoNS®), is an innovative non-surgical medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and is indicated for use in the United States as a short term treatment of gait deficit due to mild-to-moderate symptoms for multiple sclerosis (MS) and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. It is not expected to be commercially available in the United States until the first quarter of 2022. PoNS is authorized for sale in Canada as a class II, non-implantable medical device intendedfor two indications: (i) PoNS is authorized as a short term treatment (14 weeks) of gait deficit due to 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 TreatmentTMTreatment®). It; and (ii) PoNS is an investigational medical device in the United States, the European Union (EU), and Australia (AUS). The device is currently under reviewauthorized for de novo classification and clearance by the U.S. Food and Drug Administration (the FDA)use as a potentialshort term treatment for(14 weeks) of gait deficit due to mild and moderate symptoms of MS. from MS and it is to be used in conjunction with physical therapy. It is also under premarket review by the AUS Therapeutic Goods Administration. PoNS Treatment™ is not currentlyhas been commercially available in Canada since March 2019.
Recent Developments
Our common stock was previously listed on the United States,TSX under the European Union or Australia.symbol “HSM”, but we voluntarily delisted from the TSX effective as of the close of trading on September 9, 2021.Following such delisting, our common stock continues to trade on The Nasdaq Capital Market under the symbol “HSDT”.
On September 1, 2021, we entered into a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement pursuant to which Lincoln Park Capital Fund, LLC (“Lincoln Park”) has committed to purchase up to $15.0 million of our common stock,subject to the terms
and conditions therein. See “Liquidity and Capital Resources” below for additional details on the LPC Purchase Agreement. During the third quarter of 2021, we issued 40,000 shares, excluding the 31,958 shares issued as the commitment fee, under the LPC Purchase Agreement for net proceeds of approximately $0.6 million.
Regulatory Status Worldwide
Canadian Regulatory Status: mmTBI and MS
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 gait deficit in patients with mild and moderate MS symptoms. Our market authorization application comprised objective statistical evidence as well as independently reviewed clinical research analysis. We believe thisThis label expansion will significantly expandexpanded our addressable market opportunity in Canada to include a patient population that is motivated to pursueseeking treatment options whichthat 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™PoNS device as a potential treatment for gait deficit due to symptoms of Multiple Sclerosis (“MS”),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 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 the 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 feedbackOn March 26, 2021, we received marketing authorization 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. The PoNS device is indicated for theuse as a short term treatment of gait deficit due to mild-to-moderate symptoms fromof MS and is to be used as an adjunct to a supervised therapeutic exercise program in patients over 1822 years of age.age and over by prescription only.
On October 19, 2020, we announced that we received a requestJanuary 14, 2021, the Centers for additional information fromMedicare & Medicaid Services, or CMS, issued the final rule (CMS-3372-F), 42 C.F.R. § 405.603 on the new Medicare coverage pathway referred to as Medicare Coverage of Innovative Technology, or MCIT, for FDA-designated breakthrough medical devices. The MCIT rule will provide national Medicare coverage as early as the same day as FDA related tomarket authorization for breakthrough devices and coverage would last for four years. To be eligible for coverage through MCIT, the Company’s request for de novo classification and clearance of the PoNSbreakthrough 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 must be used for the FDA approved or cleared indication(s) for use. Manufacturers will be able to continue or complete its reviewopt in to MCIT and in such instances, places its review on hold until the requested information is submitted. The FDA’s requestchoose a start date for additional information was received approximately 75 dayscoverage anytime within two years from the submission date of FDA market authorization, but coverage will only be valid for four years from market authorization regardless of opt in date. At the end of the four year period, manufacturers are expected to have obtained coding for the specific product which is consistentcan then be used as the reimbursement pathway for commercial payers. CMS announced MCIT was delayed from becoming effective March 15, 2021 to May 15, 2021 with FDA’s expected timingan additional comment period during that time. On May 14, 2021, CMS announced it further delayed the effective date of the final rule until December 15, 2021 to provide CMS an opportunity to determine appropriate next steps. On September 15, 2021, CMS published a proposal that would repeal the MCIT pathway. A 30-day comment period was included in the proposal with all comments due by October 15, 2021. While we will continue to monitor this, we also remain focused on building out our reimbursement strategy for reviewboth commercial and government payers. We are still working to understand current Medicare requirements and policies for coverage, coding, and payment of durable medical equipment and assess how the PoNS device may be treated with respect to coding, coverage, and reimbursement under the Medicare program.
In September 2021, we started activities to setup and implement a new study as part of a Breakthrough Designated product, suchTherapeutic Experience Program, or TEP, with NYU Langone Health as our first Center of Excellence clinical site. The TEP is a Helius-sponsored, open label observations, interventional multi-center outcome research trial designed to assess adherence to on-label PoNS therapy for improvement in gait deficits with MS in a real-world clinical setting. The study will measure subjects’ adherence to PoNS therapy, which combines the PoNS device.device with physical therapy, to better understand the relationship between adherence to the treatment regimen and therapeutic functional outcome. The FDA’s request for additional information includes requests for additional analysisprimary endpoint of the study is maintenance of gait improvement from the end of supervised therapy (Phase 1) to the end of unsupervised therapy (Phase 2) in relation to the subject’s adherence to PoNS therapy. The secondary endpoints are improvement of gait and balance deficit over time, and clinical dataglobal impression of change. The study will be conducted at ten to twelve Centers of Excellenceacross the United States, with an estimated four PoNS devices per site. Enrollment is expected to begin late in the fourth quarter of 2021 and proposes certain labeling modifications.continue through mid-2022. A total of fifty to sixty patients with MS are expected to take part in the program.
US Regulatory Status: mmTBI
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 balance deficit due to mmTBI.
We 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 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 device for the treatment of chronic balance deficit due to 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 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 ourare assessing the feasibility of a clinical protocolprogram to advance the development of a study aimed to obtain clearance for gait and balance deficits in mmTBI.
US Regulatory Status: Stroke
In August 2021, we received Breakthrough Designation for the PoNS™ device as a new trial, TBI-002, intended to support a requestpotential treatment for de novo classificationdynamic gait 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 deficitdeficits due to mmTBI. Although TBI-002 will take longersymptoms from stroke, to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and be more costly than the design that we had discussed at our October 2019 pre-submission meeting, we believe that the chancesover. With Breakthrough Designation received, a pivotal trial 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 proceedPoNS therapy 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 assignedstroke patients is planned 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 FDAcommence 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.2022.
European Regulatory Status
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.
Australian Regulatory Status
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 2020. We are currently awaiting additional feedbackIn November 2021, we received market authorization from the TGA on our application.for the sale of PoNS as a Class IIa medical device. Our representative in Australia is working with the TGA to finalize the exact scope of the authorization, which is expected to cover the use of PoNS to improve balance and gait when used as an adjunct to a therapeutic exercise program.
Canada Commercialization Efforts
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 saw in our two clinical trials, one for 5 weeks and the other for 14 weeks, commercial MS and mmTBI 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 initial commercial experience supports our plans to expand access to the PoNS Treatment in Canada.
In March 2019 we beganmarked the initial commercialization of our PoNS Treatment in Canada, where our PoNS device isbecame the first and only device authorized by Health Canada for the treatment of balance deficit due to 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. InDuring the first two months ofyear ended December 31, 2020, we authorized 724 new clinic locations for a total of 14 clinicclinical locations to provide PoNS Treatment across Canada. As of June 30, 2020, we had 20 clinic locations which we increased to 22have 31 clinic locations as of December 31, 2020. As of September 30, 2020 and to 272021, we have 36 authorized PoNS clinic locations across Canada. In addition to continuing to increase
the number of clinic locations, we have shifted our focus to driving patient throughput to these clinics. Sales performance in Canada continues to be impacted by the COVID-19 pandemic due to space restrictions that the provincial governments have imposed as well as the risk tolerance of November 4, 2020, including apatients and therapists.
In collaboration with the Toronto Rehabilitation Institute (part of University Health Network), we are continuing our clinical experience program, through University Health Network Toronto at 3 private clinic locationsthe results of which have transitionedwe look 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 effortspublish in Canada were negatively affected by the impact of the COVID-19 pandemic as described below. 2022.
In addition to pursuing this expansion plan, weWe continue to improverefine 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 treatmentTreatment and drive market awareness which we expect to resultbelieve resulted in an increase in the volume of units sold.sold, beginning in the second half of 2020. We intend to keep the promotional pricing in place through the end of 2021.
In parallel with our commercialization efforts, we, in concert with input from insurers, have createdThe value dossiers for mmTBI and MS on behalf of the clinics and patientsthat were created in mid-2020 to fully demonstrate in both scientific and financial terms, the merits of PoNS Treatment for claimants.claimants are now being utilized along with submissions from clinics on behalf of their patients. The dossier isdossiers are provided to our clinics across Canada to submit as part of treatment plans with reimbursement applications to the payer community. Our
reimbursement strategy for mmTBI is focused initially inon the auto accident insurance and workersworkers’ compensation or WC, market as well as long-term disability cases. Our reimbursement strategy for MS is focused on commercial insurers.insurers/extended health benefits.
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 workersworkers’ 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.
US Pre-Commercialization Efforts
As noted above, on March 26, 2021, we received marketing authorization from the FDA for the PoNS device. The PoNS device is indicated for use as a short term treatment of gait deficit due to mild-to-moderate symptoms of MS and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. Despite the marketing authorization, the PoNS device is not currently commercially available in the United States, and we expect it will not be commercially available until the first quarter of 2022.
In this pre-commercial phase, we are working on the development of our commercial strategy. This includes a focus on payer strategy, both government and commercial, attaining distribution licenses and beginning to build relationships with key large neurorehabilitation centers, which focus on treatment of MS patients. We continue to generate data on outcomes of the PoNS Treatment generated from treatment of patients in Canada and ensuring that our scientific data is presented at many of the key national and international neurology and neuromodulation meetings. We believe this scientific dissemination may begin to pave the way to establishing the PoNS Treatment as the standard of care for the treatment of MS-related gait deficit.
To commercialize the PoNS Treatment in the United States, we plan to target specific Key Opinion Leaders (neurologists and physiatrists) and their associated neurorehabilitation centers (physical therapists). PoNS certified neurorehabilitation centers will be trained to deliver the PoNS Treatment. Importantly, this focused strategy will also allow us to inspect whether we are generating patient outcomes similar to those seen in our clinical trials. To further develop and implement the PoNS commercialization strategy, we have hired a Vice President of Sales and Marketing and have identified the initial launch areas within the US. We continue to build out our commercial team, including field sales, reimbursement specialists and operational support.
We are pursuing coverage for PoNS with commercial and government payers within the Durable Medical Equipment, or DME, benefit category. While there are no currently applicable Healthcare Common Procedure Coding System, or HCPCS, codes to describe the PoNS system or Mouthpiece, our expectation is that we will use miscellaneous codes – E1399 (Miscellaneous durable medical equipment) and A9999 (Miscellaneous DME supply or accessory, not otherwise specified) until specific HCPCS codes are created. We applied for unique HCPCS codes during the third quarter of 2021, which is a nine month process from application until coding would be effective. We also intend to provide broad access and reimbursement for the PoNS Treatment over time through Commercial insurers. At launch, prior to the initiation of CMS or broad payer coverage, we anticipate the primary source of sales will be self-pay patients. We will support the cost of the PoNS Treatment by collaborating with third parties to provide self-pay patients with financing options as well as working with advocacy groups and charitable organizations to help self-pay patients access our technology. In general, we anticipate at least a 24-month window to obtain broad coverage and reimbursement among government and private payers.
COVID-19 Pandemic
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 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, and continue to implement, 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 limited operations to 50% capacity during the third quarter of 2020.2021 limited 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. This was especially true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders, and business shutdowns were imposed. The rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions.
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 runningcurrent and planned clinical experience programs and clinical trials in Canada and have experienced or could experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff, 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.staff.
The COVID-19 pandemic has and other outbreaks may continue to cause delays in or the suspension of our business partners manufacturing operations, our research and product development activities, our regulatory workstreams, our research and development activities and other important commercial functions. We are also dependent upon our suppliers for the 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 theour product development and manufacturing of our product.activities. Such diversion of suppliers’ resources may occur again in the future, and the pandemic could limit our suppliers’ ability to travel or ship materials or force temporary closure of facilities that we rely upon. Manufacturing delays have occurred and may also occur as the result of labor shortages. Disruptions in business operations or governmental operations due to COVID-19 may delay the timing for the submission and approval of the Company’sour 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.
To the extent the COVID-19 pandemic impacts our ability to complete necessary pre-commercialization activities, our commercial launch in the U.S. could be impeded or delayed. 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 itsour business, operations or the global economy as a whole.
Nasdaq Delisting
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.
Share Purchase Agreement and Co-Promotion Agreement
During the third quarter of 2019, we engaged with HTC through the joint steering committee in discussions regarding the future development of the commercialization of the PoNS device and PoNS Treatment in Canada. As we worked with Heuro to expand the commercial infrastructure, the complexity and feasibility of using a franchise model to build a market for PoNS including the 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 PoNS Treatment is being developed.
On October 30, 2019, we and HTC entered into a Share Purchase Agreement, or the 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 paidtransferred to HTC, which included (1) the repayment to HTC for their investment in 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 forgiveness of the CAD$750,000 receivable from the September 2018 strategic alliance agreement and (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.
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 willagreed to promote the sales of the PoNS Treatment and the NeuroCatchTM device throughout Canada. ThisThe co-promotion arrangement terminates uponprovisions within the earlier of the collection of data from 200 patients in Canada and December 31, 2020. We anticipate that the co-promotion arrangement will terminateCo-Promotion Agreement terminated on December 31, 2020, and do not expect such termination to have a material impact to our results of operations.although the Co-Promotion Agreement remains in effect. Also, subject to certain terms and conditions, we granted to HTC the exclusive right to provide the PoNS Treatment in the Fraser Valley and Vancouver metro regions of British Columbia, where HTC has operated a PoNS authorized clinic since February 2019. HTC will purchase the PoNS devices for use in these regions exclusively from us and on terms no less favorable than the then-current standard terms and conditions. This exclusivity right has an initial term of ten years, renewable by HTC for one additional ten year term upon sixty days’ written notice to us.
Results of Operations
Three Months Ended September 30, 20202021 compared to the Three Months Ended September 30, 20192020
The following table summarizes our results of operations for the three months ended September 30, 20202021 and 20192020 (amounts in thousands):
|
| Three Months Ended |
|
|
|
|
|
| Three Months Ended |
|
|
|
|
| ||||||||||
|
| September 30, |
|
|
|
|
|
| September 30, |
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| Change |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net |
| $ | 124 |
|
| $ | 150 |
|
| $ | (26 | ) | ||||||||||||
Product sales |
| $ | 102 |
|
| $ | 124 |
|
| $ | (22 | ) | ||||||||||||
Fee revenue |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
License revenue |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| 7 |
|
|
| 7 |
|
|
| — |
|
Total operating revenue |
|
| 131 |
|
|
| 150 |
|
|
| (19 | ) |
|
| 109 |
|
|
| 131 |
|
|
| (22 | ) |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
| 22 |
|
|
| 89 |
|
|
| (67 | ) |
|
| 86 |
|
|
| 22 |
|
|
| 64 |
|
Gross profit |
|
| 109 |
|
|
| 61 |
|
|
| 48 |
|
|
| 23 |
|
|
| 109 |
|
|
| (86 | ) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 1,327 |
|
|
| 1,506 |
|
|
| (179 | ) |
|
| 1,489 |
|
|
| 1,327 |
|
|
| 162 |
|
Selling, general and administrative |
|
| 2,370 |
|
|
| 4,291 |
|
|
| (1,921 | ) |
|
| 2,859 |
|
|
| 2,370 |
|
|
| 489 |
|
Amortization expense |
|
| 72 |
|
|
| — |
|
|
| 72 |
|
|
| 48 |
|
|
| 72 |
|
|
| (24 | ) |
Total operating expenses |
|
| 3,769 |
|
|
| 5,797 |
|
|
| (2,028 | ) |
|
| 4,396 |
|
|
| 3,769 |
|
|
| 627 |
|
Operating loss |
|
| (3,660 | ) |
|
| (5,736 | ) |
|
| 2,076 |
|
|
| (4,373 | ) |
|
| (3,660 | ) |
|
| (713 | ) |
Other income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other income |
|
| — |
|
|
| 11 |
|
|
| (11 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
Change in fair value of derivative financial instruments |
|
| 1 |
|
|
| 196 |
|
|
| (195 | ) |
|
| — |
|
|
| 1 |
|
|
| (1 | ) |
Foreign exchange gain (loss) |
|
| 182 |
|
|
| (59 | ) |
|
| 241 |
| ||||||||||||
Total other income |
|
| 183 |
|
|
| 148 |
|
|
| 35 |
| ||||||||||||
Foreign exchange (loss) gain |
|
| (314 | ) |
|
| 182 |
|
|
| (496 | ) | ||||||||||||
Total other (expense) income |
|
| (314 | ) |
|
| 183 |
|
|
| (497 | ) | ||||||||||||
Net loss |
| $ | (3,477 | ) |
| $ | (5,588 | ) |
| $ | 2,111 |
|
| $ | (4,687 | ) |
| $ | (3,477 | ) |
| $ | (1,210 | ) |
Revenue
For the three months ended September 30, 2020,2021, we recognized revenue of $0.1 million,$109 thousand, of which $0.1 million$102 thousand was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $7 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. For the three months ended September 30, 20192020 we recognized revenue of $0.2 million, all$131 thousand, of which $124 thousand 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$7 thousand was generated from license fee revenue as therelated to our Co-Promotion Agreement with HTC did not go into effect until October 2019.HTC.
Cost of Sales
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, 2020,2021, we incurred $22$86 thousand in our cost of sales. For the three months ended September 30, 2019,2020, we incurred $0.1 million$22 thousand in our cost of sales, which also included certain support services provided by Heuro on our behalf.sales. The increase was primarily attributable to overhead costs including wages and salaries of employees involved in the management of the supply chain.
Research and Development Expense
Research and development, or R&D, expenses were $1.5 million for the three months ended September 30, 2021 compared to $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 decreasean increase of $0.2 million. The decreaseincrease was primarily attributable to a $0.2 million reductionincrease in medical affairsproduct development 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 reductionincrease in professional services expenses. These decreasesincreases were partially offset by a $0.1 million decrease in stock-based compensation expense coupled with a $0.2 million increasedecrease in legal expenses compared to those incurred during 2020 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.MS.
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expenses were $2.9 million for the three months ended September 30, 2021 compared to $2.4 million for the three months ended September 30, 2020, comparedan increase of approximately $0.5 million. The increase was primarily due to $4.3 a $0.4
million increase in our stock-based compensation expense, as well as a $0.1 million increase in salaries and wages, which were both primarily the result of the addition of key management and sales executives in the second and third quarters of 2021. Severance expense for cash-based severance payments of $0.4 million related to the departure of our former chief operating officer and $0.5 million related to the departure of our former chief executive officer was incurred during 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 stock2021 and 2020, respectively. Additionally, stock-based compensation expense a $0.4increased $0.5 million reduction in commercial operations expense due to our investments in marketing and distribution capabilities in 2019 in supportdecreased $0.1 million during the three months ended September 30, 2021 and 2020, respectively as the result 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.aforementioned departures.
Amortization Expense
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 three months ended September 30, 2021, amortization expense was $48 thousand. For the three months ended September 30, 2020, amortization expense was $0.1 million. No amortization expense was recordedThe decrease is primarily the result of the customer relationships becoming fully amortized during the three months ended September 30, 2019.first quarter of 2021.
Change in Fair Value of Derivative Financial Instruments
TheThere was no change in fair value of derivative financial instruments wasfor the three months ended September 30, 2021 because the warrants that qualified as derivatives required to be accounted for in accordance with ASC 815 (requiring the re-measurement of fair value at each balance sheet date) expired in April 2021 and had been valueless during the period. This compared to a gain of $1 thousand for the three months ended September 30, 2020 compared to a gain of $0.2 million for the three months ended September 30, 2019.2020.
The change in fair value of our derivative financial instruments for the three months ended September 30, 2020 was primarily attributable to the change in 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 Gain (Loss)
Foreign exchange loss was $0.3 million for the three months ended September 30, 2021, compared to a gain wasof $0.2 million for the three months ended September 30, 2020, compared to a loss of $0.1 million for the three months ended September 30, 2019.2020. 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, 20202021 compared to the Nine Months Ended September 30, 2019
2020
The following table summarizes our results of operations for the nine months ended September 30, 20202021 and 20192020 (amounts in thousands):
|
| Nine Months Ended |
|
|
|
|
|
| Nine Months Ended |
|
|
|
|
| ||||||||||
|
| September 30, |
|
|
|
|
|
| September 30, |
|
|
|
|
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
|
| 2021 |
|
| 2020 |
|
| Change |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales, net |
| $ | 441 |
|
| $ | 1,295 |
|
| $ | (854 | ) | ||||||||||||
Product sales |
| $ | 242 |
|
| $ | 441 |
|
| $ | (199 | ) | ||||||||||||
Fee revenue |
|
| 9 |
|
|
| 49 |
|
| $ | (40 | ) |
|
| — |
|
|
| 9 |
|
| $ | (9 | ) |
License revenue |
|
| 20 |
|
|
| — |
|
|
| 20 |
|
|
| 22 |
|
|
| 20 |
|
|
| 2 |
|
Total operating revenue |
|
| 470 |
|
|
| 1,344 |
|
|
| (874 | ) |
|
| 264 |
|
|
| 470 |
|
|
| (206 | ) |
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
| 187 |
|
|
| 538 |
|
|
| (351 | ) |
|
| 169 |
|
|
| 187 |
|
|
| (18 | ) |
Gross profit |
|
| 283 |
|
|
| 806 |
|
|
| (523 | ) |
|
| 95 |
|
|
| 283 |
|
|
| (188 | ) |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 3,755 |
|
|
| 6,462 |
|
|
| (2,707 | ) |
|
| 4,182 |
|
|
| 3,755 |
|
|
| 427 |
|
Selling, general and administrative |
|
| 7,625 |
|
|
| 12,715 |
|
|
| (5,090 | ) |
|
| 9,800 |
|
|
| 7,625 |
|
|
| 2,175 |
|
Amortization expense |
|
| 287 |
|
|
| — |
|
|
| 287 |
|
|
| 153 |
|
|
| 287 |
|
|
| (134 | ) |
Total operating expenses |
|
| 11,667 |
|
|
| 19,177 |
|
|
| (7,510 | ) |
|
| 14,135 |
|
|
| 11,667 |
|
|
| 2,468 |
|
Operating loss |
|
| (11,384 | ) |
|
| (18,371 | ) |
|
| 6,987 |
|
|
| (14,040 | ) |
|
| (11,384 | ) |
|
| (2,656 | ) |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Other income |
|
| 63 |
|
|
| 35 |
|
|
| 28 |
|
|
| — |
|
|
| 63 |
|
|
| (63 | ) |
Change in fair value of derivative financial instruments |
|
| 4 |
|
|
| 14,033 |
|
|
| (14,029 | ) |
|
| — |
|
|
| 4 |
|
|
| (4 | ) |
Foreign exchange loss |
|
| (278 | ) |
|
| (147 | ) |
|
| (131 | ) | ||||||||||||
Total other (expense) income |
|
| (211 | ) |
|
| 13,921 |
|
|
| (14,132 | ) | ||||||||||||
Foreign exchange gain (loss) |
|
| 10 |
|
|
| (278 | ) |
|
| 288 |
| ||||||||||||
Total other income (expense) |
|
| 10 |
|
|
| (211 | ) |
|
| 221 |
| ||||||||||||
Net loss |
| $ | (11,595 | ) |
| $ | (4,450 | ) |
| $ | (7,145 | ) |
| $ | (14,030 | ) |
| $ | (11,595 | ) |
| $ | (2,435 | ) |
Revenue
Revenue
For the nine months ended September 30, 2021, we recognized revenue of $0.3 million, of which $0.2 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $22 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. For the nine months ended September 30, 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 $20 thousand was generated from license fee revenue related to our co-promotion agreementCo-Promotion Agreement with HTC. For the nine months ended September 30, 2019, we 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 monthsresult 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.treatment.
Cost of Sales
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, 2020,2021, we incurred $0.2 million in our cost of sales. For the nine months ended September 30, 2019,2020, we incurred $0.5$0.2 million in our cost of sales, which also included certain support services provided by Heuro on our behalf. sales.
Research and Development Expense
Research and development, or R&D, expenses were $4.2 million for the nine months ended September 30, 2021, compared to $3.8 million for the nine months ended September 30, 2020, an increase of $0.4 million. The increase was primarily attributable to a $0.6 million increase in product development expenses and a $0.2 million increase in professional expenses. These increases were partially offset by a $0.2 million decrease in stock-based compensation expense coupled with a $0.2 million decrease in legal expenses compared to $6.5those incurred during 2020 as a result of the submission of 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.
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expenses were $9.8 million for the nine months ended September 30, 2019, a decrease of $2.7 million. The decrease was attributable2021, compared 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 Expense
Selling, general and administrative, or SG&A, expenses were $7.6 million for the nine months ended September 30, 2020, comparedan increase of approximately $2.2 million. The increase was primarily due to $12.7a $2.1 million forincrease in our stock-based compensation expense and a $0.4 million increase in salaries and wages, both resulting primarily from the addition of key management and sales executives in the second and third quarters of 2021. Approximately $1.0 million of the stock-based compensation expense during the nine months ended September 30, 2019,2021 related to the June 2021 one-time fully vested stock option grant to our then Interim President and Chief Executive Officer in recognition of his service since August 2020 and election to take no additional compensation and continue to be compensated as a decreasenon-employee director of approximately $5.1 million. The decrease was primarily due to $1.7 million
the Company while serving 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.that capacity. These decreasesincreases were partially offset by a $0.3 million decrease in other operating expenses primarily as a result of the $0.2 million impairment loss related toof customer relationship intangible assets in the first quarter of 2020. Severance expense for cash-based severance payments of $0.4 million related to the departure of our former chief operating officer and $0.5 million related to the departure of our former chief executive officer was incurred during the nine months ended September 30, 2021 and 2020, respectively. Additionally, stock-based compensation expense increased $0.5 million and adecreased $0.1 million lossduring the nine months ended September 30, 2021 and 2020, respectively as the result of the disposal of property and equipment.aforementioned departures.
Amortization Expense
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, 2021, amortization expense was $0.2 million. For the nine months ended September 30, 2020, amortization expense was $0.3 million. No amortization expense was recordedThe decrease is primarily the result of the customer relationships becoming fully amortized during the nine months ended September 30, 2019.first quarter of 2021.
Change in Fair Value of Derivative Financial Instruments
TheThere was no change in fair value of derivative financial instruments wasfor the nine months ended September 30, 2021 because the warrants that qualified as derivatives required to be accounted for in accordance with ASC 815 (requiring the re-measurement of fair value at each balance sheet date) expired in April 2021 and had been valueless during the period. This compared to a gain of $4 thousand for the nine months ended September 30, 2020 compared to a gain of $14.0 million for the nine months ended September 30, 2019.2020.
The change in fair value of our derivative financial instruments for the nine months ended September 30, 2020 was primarily attributable to the change in 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 LossGain (Loss)
Foreign exchange gain was $10 thousand for the nine months ended September 30, 2021, compared to a loss wasof $0.3 million for the nine months ended September 30, 2020, compared to a loss of $0.1 million for the nine months ended September 30, 2019.2020. 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.
Statement of Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 20202021 and 20192020 (amounts in thousands):
|
| Nine Months Ended September 30, |
|
|
|
|
|
| Nine Months Ended September 30, |
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|
|
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| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Change |
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| 2021 |
|
| 2020 |
|
| Change |
| ||||||
Net cash used in operating activities |
| $ | (9,567 | ) |
| $ | (16,460 | ) |
| $ | 6,893 |
|
| $ | (9,925 | ) |
| $ | (9,567 | ) |
| $ | (358 | ) |
Net cash provided by (used in) investing activities |
|
| 40 |
|
|
| (260 | ) |
|
| 300 |
| ||||||||||||
Net cash (used in) provided by investing activities |
|
| (51 | ) |
|
| 40 |
|
|
| (91 | ) | ||||||||||||
Net cash provided by financing activities |
|
| 6,727 |
|
|
| 163 |
|
|
| 6,564 |
|
|
| 11,353 |
|
|
| 6,727 |
|
|
| 4,626 |
|
Effect of exchange rate changes on cash |
|
| 21 |
|
|
| (7 | ) |
|
| 28 |
|
|
| (8 | ) |
|
| 21 |
|
|
| (29 | ) |
Net decrease in cash |
| $ | (2,779 | ) |
| $ | (16,564 | ) |
| $ | 13,785 |
| ||||||||||||
Net increase (decrease) in cash |
| $ | 1,369 |
|
| $ | (2,779 | ) |
| $ | 4,148 |
|
Net Cash Used in Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2021 was $9.9 million. This was comprised of net loss of $14.0 million, unrealized foreign exchange gains of $26 thousand, recovery of doubtful accounts of $19 thousand and $29 thousand net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items of $4.2 million comprised mainly of stock-based compensation of $3.9 million, depreciation and amortization of $0.2 million and non-cash lease expense of $0.1 million.
Net cash used in operating activities during the nine months ended September 30, 2020 was $9.6 million. This was comprised of anet loss from operations of $11.6 million, gain on lease modification of $0.1 million and $1.0$1.2 million net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items of $3.0$3.3 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, non-cash lease expense of $0.2 million, impairment loss on intangible assets of $0.2 million, provision for doubtful accounts of $0.2 million, and loss on disposal of office furniture of $0.1 million and gain on lease modification of $0.1 million.
Net Cash Used in Investing Activities
Net cash used in operatinginvesting activities during the nine months ended September 30, 20192021 was $16.5 million. This$51 thousand, which was comprisedprimarily related to the purchase of a loss from operations of $18.4 millionequipment and $1.6 million net cash used resulting from changes in operating assetscomputer software and liabilities, partially offset by certain adjustments for non-cash items comprised of stock-based compensation of $3.3 million and unrealized foreign exchange losses of $0.2 million.
Net Cash Provided by (Used in) Investing Activitieshardware.
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, partially offset partially by the purchase of equipment.
Net Cash Provided by Financing Activities
Net cash used in investingprovided by financing activities during the nine months ended September 30, 20192021 was $0.3$11.4 million, which was primarily related toconsisted of proceeds from the purchaseissuance of computer software, furniturecommon stock in the February 2021 Offering and fixtures for our office.
Net Cash Provided by Financing Activitiesunder the LPC Purchase Agreement, net of share issuance costs, and proceeds from the exercise of warrants and stock options.
Net cash provided by financing activities during the nine months ended September 30, 2020 was $6.7 million, which consisted of proceeds from the issuance of common stock from the 2020 ATM and March 2020 Offering, net of share issuance costs.
Net cash provided by financing activities during the nine months ended September 30, 2019 was $0.2 million, which consisted primarily of proceeds from the exercise of our April 2016 warrants.
Liquidity and Capital Resources
Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.Our 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, 2020,2021, we raised approximately $103.2$119.5 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,
LPC Purchase Agreement
On September 1, 2021, we closedentered into the LPC Purchase Agreement and a private placementregistration rights agreement with Lincoln Park, pursuant to which, under the terms and subject to the conditions of the LPC Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15.0 million of our common stock. Such sales of common stock by us, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing September 15, 2021, subject to satisfaction of certain conditions.
Actual sales of shares of common stock to Lincoln Park will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the common stock and warrantsdeterminations by us as to the appropriate sources of funding for total grossus and our operations. The net proceeds under the LPC Purchase Agreement will depend on the frequency and prices at which we sell shares of our common stock to Lincoln Park. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes.
Under the LPC Purchase Agreement, on any business day on which the closing sale price of the common stock is not below the “floor price” stated in the LPC Purchase Agreement, we may, by written notice delivered by us to Lincoln Park, direct Lincoln Park to purchase up to 20,000 shares of common stock on such business day, at a purchase price per share that will be determined and fixed in accordance with the Purchase Agreement at the time we deliver such written notice to Lincoln Park (each, a “Regular Purchase”), provided that the maximum number of shares we may sell to Lincoln Park in a Regular Purchase may be increased to (i) up to 25,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $20.00 and (ii) up to 30,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $25.00, in each case, subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the LPC Purchase Agreement and provided that Lincoln Park’s maximum purchase commitment in any single Regular Purchase may not exceed $2.0 million. The purchase price per share of common stock sold in each such Regular Purchase, if any, will be based on prevailing market prices of the common stock immediately preceding the time of sale as computed under the LPC Purchase Agreement. In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the LPC Purchase Agreement.
We have agreed with Lincoln Park that we will not enter into an additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with us to purchase securities over a period of time from us at a price based on the market price of the common stock at the time of such purchase for a period defined in the LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.
As part of the LPC Purchase Agreement, we issued 31,958 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the LPC Purchase Agreement. During the quarter ended September 30, 2021, we issued 40,000 shares, excluding the 31,958 shares issued as the commitment fee, under the LPC Purchase Agreement for net proceeds of approximately $3.4$0.6 million.See Note 3 “Common Stock and Warrants” to our unaudited condensed consolidated financial statements under Part I, Item 1, “Condensed Consolidated Financial Statements” in this this Quarterly Report on Form 10-Q.
We currently have limited working capital and liquid assets. The following table summarizes our cash and working capital (which we define as current assets less current liabilities excluding derivative financial instruments) as of September 30, 20202021 and December 31, 20192020 (amounts in thousands):
|
| September 30, 2020 |
|
| December 31, 2019 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Cash |
| $ | 2,680 |
|
| $ | 5,459 |
|
| $ | 4,700 |
|
| $ | 3,331 |
|
Working capital |
| $ | 1,571 |
|
| $ | 3,444 |
|
| $ | 3,596 |
|
| $ | 2,261 |
|
We currently have limited working capital and liquid assets. Our cash as of September 30, 2020 was approximately $2.7 million. 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 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 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 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.
While we have started generating revenue from the commercial sale of our PoNS device in Canada, we expect to incur significant losses until any such time as our revenue exceeds our expenses and during this time, we will require additional funding to fund. Based on our ongoing activities. We believe thatcash burn rate during the first nine months of 2021, our existing capital resources, including the net proceeds from the October 2020 private placement, willresources would be sufficient to fund our operations throughout mostinto the first quarter of 2022. However, in light of the first quarterreceipt of marketing authorization from the FDA for the PoNS device in March 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 timethroughout the remainder of 2021 in connection with our ongoingpre-commercialization activities, particularly if and as we: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 design, and add additional personnel. We also expect our expenses to increase if and as we decide to conduct other trials of the PoNS device; device without nondilutive funding, such as the TEP, or if and as we decide to pursue further regulatory approvals;approvals, or maintain, expand and protect our intellectual property portfolio; and add additional personnel. portfolio. 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.
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.
Off-Balance Sheet Arrangements
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.
Critical Accounting Policies and Estimates
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 20192020 Annual Report. There have been no changes in critical accounting policies in the current year from those described in our 20192020 Annual Report.
Recently Issued Accounting Pronouncements
The information set forth in Note 2 “Summary of Significant Accounting Policies” to our unaudited condensed consolidated financial statements under Part I, Item 1, “Condensed Consolidated Financial Statements” is incorporated herein by reference.
JOBS Act
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.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
ITEM 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the direction of our Interim Chief Executive Officer and our Chief Financial Officer, we have evaluated our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Interim Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. Our management has concluded that the financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
PART II – OTHEROTHER INFORMATION
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.
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. ExceptDuring the nine months ended September 30, 2021, except for the updated risk factors set forth immediately below, our risk factors have not changed materially from those risk factors previously disclosed in our 20192020 Annual Report. You should carefully consider the risk factors discussed below and in Part I, “Item 1A. Risk Factors” in our 20192020 Annual Report. The risks described below and in our 20192020 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Raising additional capital by issuing securities or through debt financings or licensing arrangements may cause dilution to our existing stockholders, restrict our operations, negatively affect our stock price or require us to relinquish rights to our technologies or product candidate on terms unfavorable to us.
Our operations to date have principally been financed by public and private offerings of our common stock and convertible debt and exercises of options and warrants and, since inception, we have raised $119.5 million in gross proceeds from equity financings. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidate, future revenue streams, research programs or product candidate, or otherwise grant licenses on terms that are not favorable to us. If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our product candidate or our preclinical product candidates, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves. Any of these events could adversely affect our ability to achieve our product development and commercialization goals and have a material adverse effect on our business, financial condition and results of operations.
In addition, on September 1, 2021, we entered into the LPC Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares of our common stock subject to the terms and conditions therein. We filed a registration statement covering the resale of shares of common stock that are issued to Lincoln Park under the LPC Purchase Agreement, which was declared effective on September 14, 2021. We generally have the right to control the timing and amount of any future sales of shares of our common stock to Lincoln Park. Sales of shares of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. The purchase price for the shares of our common stock that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the public trading price of our common stock. If and when we do sell shares of our common stock to Lincoln Park, after Lincoln Park has acquired the shares of common stock, Lincoln Park may resell all, some or none of those shares of common stock at any time or in its discretion. Depending on market liquidity at the time, sales of such shares of our common stock may cause the public trading price of our common stock to decrease, and sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
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 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 limitsduring the third quarter of 2021 limited 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. This was especially
true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders, and business shutdowns were imposed. However, the rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions.
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 runningcurrent and planned clinical experience programs and clinical trials in Canada and have experienced or could experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff, 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.staff.
The COVID-19 pandemic and other outbreaks may cause delays in or 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 the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in theour product development and manufacturing of our product.activities. Such diversion of suppliers’ resources may occur again in the future, and the pandemic could limit our suppliers’ ability to travel or ship materials or force temporary closure of facilities that we rely upon. Manufacturing delays have been caused and may be caused by labor shortages. Disruptions in business operations or governmental operations due to COVID-19 may delay the timing for the submission and approval of the Company’sour 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:
Diversion of healthcare resources away from the conduct on clinical trials, including the diversion of hospitals serving as clinical trial sites and hospital staff supporting the conduct of clinical trials;
• | Changes in local regulations as part of a response to the COVID-19 pandemic may require us to change the way PoNS Authorized clinic locations operate or our clinical experience programs or clinical trials are conducted and may result in unexpected costs; |
Interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitation on travel imposed or recommended by federal or state governments, employers and others;
• | Some patients may be unable, or continue to be unwilling, to visit or return to our PoNS Authorized clinic locations; |
Delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
• | Necessary interactions with local regulators, ethics committees and other important agencies and contractors may be delayed due to limitations in employee resources or forced furlough of government employees; |
Changes in local regulations as part of a response to the COVID-19 pandemic which may require us to change the way in which clinical trials are conducted and may result in unexpected costs;
• | The timing of our interactions with the FDA may be delayed due to absenteeism by federal employees or the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; |
Delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and
• | Our ability to complete necessary pre-commercialization activities may be impeded, which could delay our commercial launch in the U.S.; |
Delay in the timing of our interactions with the FDA due to absenteeism by federal employees or the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19.
• | Healthcare resources may be diverted away from PoNS Authorized clinic locations, our clinical experience programs and the conduct of clinical trials; |
• | We may experience delays in receiving approval from local regulatory authorities to initiate future clinical trials; and |
• | Future key clinical trial activities may be delayed, such as clinical trial site monitoring, due to limitation on travel imposed or recommended by federal or state governments, employers and others. |
In addition to the risks specifically described above, the COVID-19 pandemic has exacerbated and precipitated the other risks described in our 20192020 Annual Report, and may continue to do so. The extent to which the COVID-19 pandemic will continue to impact the Company’sour business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The Company doesWe do not know yet the full extent of the impact of COVID-19 on itsour business, operations or the global economy as a whole.
We depend on third parties for the manufacture and distribution of our product and the loss of our third-party manufacturer and distributor could be delisted from Nasdaq,harm our business.
We depend on our third-party contract manufacturing partner to manufacture and supply our PoNS device for clinical and commercial purposes, and this contract manufacturer manufactured the units for our engineering and device verification testing and is building the launch quantities for commercialization. Additionally, we depend on a different third-party distribution partner to warehouse and ship our products to customers. Our reliance on a third-party manufacturer and a distribution provider to supply us with our PoNS device and to provide such other distribution services exposes us to risks that could delay our sales or result in higher costs or lost product revenues. In addition, our manufacturers have experienced and could continue to experience difficulties, including, but not limited to, those caused by the COVID-19 pandemic, in securing long-lead time components, achieving volume production, quality control and quality assurance or suffer shortages of qualified personnel, or fail to follow and remain in compliance with the FDA-mandated Quality System Regulations, or QSR, compliance which is required for all medical devices, or fail to document their compliance to QSRs, any of which could seriously harm the liquidityresult in their inability to manufacture sufficient quantities of our stockcommercially available product to meet market demand or lead to significant delays in the availability of materials for our product and/or FDA enforcement actions against them and/or us.
If we are unable to obtain adequate supplies of our product that meet our specifications and quality standards, it will be difficult for us to compete effectively. While we have supply and quality agreements in place with our manufacturer, they may change the terms of our future orders or choose not to supply us with products in the future. Furthermore, if such manufacturer fails to perform its obligations, we may be forced to purchase our product from other third-party manufacturers, which we may not be able to do on reasonable terms or in sufficient time, if at all. In addition, if we are required to change manufacturers for any reason, we will be required to verify that the new manufacturer maintains facilities
and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer or the reverification of an existing manufacturer could negatively affect our ability to produce and distribute our product in a timely manner.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. We may be unable to operate without the threat of liquidation for the foreseeable future.
In connection with our management’s assessment, our report from our independent registered public accounting firm for the fiscal year ended December 31, 2020 includes an explanatory paragraph stating that our recurring losses from operations and net capital deficiency raise capital.
On March 23, 2020,substantial doubt about our ability to continue as a going concern. We will require additional funding and, if we receivedare unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a Noticegoing concern. Future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. Based on our cash burn rate during the first nine months of 2021, our existing capital resources would be sufficient to fund our operations into the first quarter of 2022. However, in light of the receipt of marketing authorization from the Listing Qualifications staffFDA for the PoNS device in March 2021, we expect our expenses to increase throughout the remainder of Nasdaq indicating that, based on the closing bid price2021 in connection with our pre-commercialization activities, particularly as we invest in marketing and distribution capabilities, make improvements to our manufacturing process and product design, and add additional personnel. We also expect our expenses to increase if and as we decide to conduct trials of the common stock forPoNS device without nondilutive funding, such as the 30 consecutive business days preceding the Notice,TEP, or if and as we no longer meet the Minimum Bid Price Requirement. The Notice does not result in the immediate delistingdecide to pursue further regulatory approvals, or maintain, expand and protect our intellectual property portfolio. Other than our right to cause Lincoln Park to purchase shares 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 inunder the LPC Purchase Agreement, which is subject 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 thatcertain limitations and conditions, we do not regain compliance by December 3, 2020,have any committed external source of funds. 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 continue as a going concern, we may be eligiblehave to obtain an additional compliance periodliquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors will likely lose all or a part 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.their investment. 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, 2021seek additional financing to fund our business activities in the event a second compliance period is requestedfuture 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.
If our common stock is delisted from Nasdaq,there remains substantial doubt about our ability to raise capital through public offerings of our securities and to finance our operations could be adversely affected. We also believe that delisting would likely result in decreased liquidity and/continue as a going concern, investors 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 the common stock and itother financing sources may be more difficult for stockholdersunwilling to buy or sell our common stock at competitive market prices,provide additional funding on commercially reasonable terms or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not applicable.Except for sales pursuant to the LPC Purchase Agreement, which was previously disclosed on a Current Report on Form 8-K filed with the SEC on September 2, 2021, we did not sell or issue any equity securities during the three months ended September 30, 2021 that were not registered under the Securities Act.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Not applicable.
Exhibit No. | Description of Exhibit |
3.1 | |
3.2 | |
3.3 | |
3.4 | |
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10.2 | |
10.3 | |
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10.5 | |
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31.1# | |
31.2# | |
32.1#* | |
32.2#* | |
101.INS# | Inline XBRL Instance Document |
101.SCH# | Inline XBRL Taxonomy Extension Schema Document |
101.CAL# | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB# | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE# | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF# | Inline XBRL Taxonomy Extension Definition Linkbase Document |
104# | Coverage Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
# Filed herewith.
† Indicates a management contract or compensatory plan.
* 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 the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| HELIUS MEDICAL TECHNOLOGIES, INC. | |
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Dated: November | By: | /s/ Dane C. Andreeff |
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| Dane C. Andreeff |
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Dated: November | By: | /s/ |
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| Chief Financial Officer (Principal Financial |
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| Officer and Principal Accounting Officer) |
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