HELIUS MEDICAL TECHNOLOGIES, INC.

INDEX


Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements

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

	Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, ~~2022~~2023 and ~~2021~~ 2022	4

	Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, ~~2022~~2023 and ~~2021~~ 2022	5

	Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022	6

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2014

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2820

Item 4.	Controls and Procedures	2820

Part II.	Other Information	2820

Item 1.	Legal Proceedings	2820

Item 1A.	Risk Factors	2821

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2921

Item 3.	Defaults Upon Senior Securities	2921

Item 4.	Mine Safety Disclosures	2921

Item 5.	Other Information	2921

Item 6.	Exhibits	3022

Signatures		3123

Table of Contents

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

(~~Except for~~in thousands, except share ~~data, amounts in thousands)~~data)

March 31, 2022

December 31, 2021

ASSETS

Current assets

Cash

$
6,310

$
11,005

Accounts receivable, net

60

66

Other receivables

185

185

Inventory, net

520

476

Prepaid expenses

951

862

Total current assets

8,026

12,594

Property and equipment, net

380

409

Other assets

Goodwill

777

763

Intangible assets, net

291

333

Other non-current assets

4

—

Operating lease right-of-use asset, net

140

3

Total other assets

1,212

1,099

TOTAL ASSETS

$
9,618

$
14,102

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accounts payable

$
1,111

$
1,069

Accrued liabilities

1,008

1,433

Operating lease liability

51

3

Deferred revenue

29

148

Total current liabilities

2,199

2,653

Non-current liabilities

Operating lease liability

99

—

Deferred revenue

190

193

TOTAL LIABILITIES

2,488

2,846

Commitments and contingencies (Note 6)

STOCKHOLDERS’ EQUITY

Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021

—

—

Class A common stock, $0.001 par value; 150,000,000 shares authorized; 3,794,797 and 3,780,674 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

4

4

Additional paid-in capital

149,834

149,412

Accumulated deficit

(141,381
)

(137,035
)
Accumulated other comprehensive loss

(1,327
)

(1,125
)
TOTAL STOCKHOLDERS’ EQUITY

7,130

11,256

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
9,618

$
14,102


	March 31, 2023		December 31, 2022
ASSETS
Current assets
Cash and cash equivalents	$	11,340	$	14,549
Accounts receivable, net		11		71
Other receivables		156		272
Inventory, net		617		589
Prepaid expenses and other current assets		1,085		1,216
Total current assets		13,209		16,697
Property and equipment, net		354		347
Intangible assets, net		101		140
Operating lease right-of-use asset, net		91		103
Total assets	$	13,755	$	17,287
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	840	$	627
Accrued and other current liabilities		856		1,280
Operating lease liabilities		51		54
Deferred revenue		42		27
Total current liabilities		1,789		1,988
Operating lease liabilities		46		56
Deferred revenue		157		175
Derivative liability		5,696		6,917
Total liabilities		7,688		9,136
Commitments and contingencies (Note 9)
Stockholders' equity
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 28,213,378 and 28,207,330 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		28		28
Additional paid-in capital		160,023		159,618
Accumulated deficit		(153,601)		(151,107)
Accumulated other comprehensive loss		(383)		(388)
Total stockholders' equity		6,067		8,151
Total liabilities and stockholders' equity	$	13,755	$	17,287

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

Table of Contents

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(~~Amounts~~ in thousands, except ~~shares~~share and per share data)

Three Months Ended

March 31,

2022

2021

Revenue:

Product sales

$
183

$
77

License revenue

7

7

Total operating revenue

190

84

Cost of sales:

Cost of product sales

124

15

Gross profit

66

69

Operating expenses:

Research and development

1,764

1,316

Selling, general and administrative

2,819

2,197

Amortization expense

47

57

Total operating expenses

4,630

3,570

Operating loss

(4,564
)

(3,501
)
Other income:

Other income

1

—

Foreign exchange gain

217

139

Total other income

218

139

Net loss

(4,346
)

(3,362
)
Other comprehensive income:

Foreign currency translation adjustments

(202)

(128
)
Comprehensive loss

$
(4,548
)

$
(3,490
)
Net loss per share

Basic

$
(1.15
)

$
(1.65
)
Diluted

$
(1.15
)

$
(1.65
)
Weighted average shares outstanding

Basic

3,787,871

2,040,839

Diluted

3,787,871

2,040,839


	Three Months Ended
	March 31,
	2023		2022

Revenue
Product sales, net	$	106	$	183
Other revenue		5		7
Total revenue		111		190
Cost of revenue		122		124
Gross profit (loss)		(11)		66
Operating expenses
Selling, general and administrative expenses		2,874		2,819
Research and development expenses		886		1,764
Amortization expense		39		47
Total operating expenses		3,799		4,630
Loss from operations		(3,810)		(4,564)
Nonoperating income (expense)
Interest income (expense), net		100		—
Change in fair value of derivative liability		1,221		—
Foreign exchange (loss) gain		(5)		217
Other income (expense), net		—		1
Nonoperating income (expense), net		1,316		218
Loss before provision for income taxes		(2,494)		(4,346)
Provision for income taxes		—		—
Net loss		(2,494)		(4,346)
Other comprehensive income (loss)
Foreign currency translation adjustments		5		(202)
Comprehensive loss	$	(2,489)	$	(4,548)
Loss per share
Basic	$	(0.09)	$	(1.15)
Diluted	$	(0.09)	$	(1.15)
Weighted average number of common shares outstanding
Basic		28,209,346		3,787,871
Diluted		28,209,346		3,787,871

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

Table of Contents

Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity ~~for the Three Months Ended March 31, 2022 and 2021~~

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

Common Stock, $0.001 par value

Additional Paid-In

Accumulated

Accumulated Other Comprehensive

Shares

Amount

Capital

Deficit

Loss

Total

Balance as of December 31, 2020

1,484,362

$
1

$
123,872

$
(118,903
)

$
(1,099
)

$
3,871

Proceeds from the issuance of common stock from the February 2021 Offering

744,936

1

8,398

—

—

8,399

Warrants issuance from the February 2021 Offering

—

—

2,638

—

—

2,638

Share issuance costs

—

—

(1,361
)

—

—

(1,361
)
Proceeds from the exercise of warrants

81,633

—

1,314

—

—

1,314

Settlement of restricted stock units

937

—

—

—

—

—

Stock-based compensation

—

—

527

—

—

527

Foreign currency translation adjustments

—

—

—

—

(128
)

(128
)
Net loss

—

—

—

(3,362
)

—

(3,362
)
Balance as of March 31, 2021

2,311,868

$
2

$
135,388

$
(122,265
)

$
(1,227
)

$
11,898

Common Stock, $0.001 par value

Additional Paid-In

Accumulated

Accumulated Other Comprehensive

Shares

Amount

Capital

Deficit

Loss

Total

Balance as of December 31, 2021

3,780,674

$
4

$
149,412

$
(137,035
)

$
(1,125
)

$
11,256

Settlement of restricted stock units

1,584

—

—

—

—

—

Issuance of shares to a consultant for services

4,528

—

20

—

—

20

Stock-based compensation

8,011

—

402

—

—

402

Foreign currency translation adjustments

—

—

—

—

(202
)

(202
)
Net loss

—

—

—

(4,346
)

—

(4,346
)
Balance as of March 31, 2022

3,794,797

$
4

$
149,834

$
(141,381
)

$
(1,327
)

$
7,130


								Accumulated
				Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of December 31, 2022	28,207,330	$	28	$	159,618	$	(151,107)	$	(388)	$	8,151
Settlement of restricted stock units	6,048		—		—		—		—		—
Stock-based compensation	—		—		405		—		—		405
Other comprehensive income	—		—		—		—		5		5
Net loss	—		—		—		(2,494)		—		(2,494)
Balance as of March 31, 2023	28,213,378	$	28	$	160,023	$	(153,601)	$	(383)	$	6,067

(


								Accumulated
				Additional				Other
	Class A Common Stock			Paid-In		Accumulated		Comprehensive
	Shares	Amount		Capital		Deficit		Loss		Total
Balance as of December 31, 2021	3,780,674	$	4	$	149,412	$	(137,035)	$	(1,125)	$	11,256
Settlement of restricted stock units	1,584		—		—		—		—		—
Common stock issued for services	4,528		—		20		—		—		20
Stock-based compensation	8,011		—		402		—		—		402
Other comprehensive loss	—		—		—		—		(202)		(202)
Net loss	—		—		—		(4,346)		—		(4,346)
Balance as of March 31, 2022	3,794,797	$	4	$	149,834	$	(141,381)	$	(1,327)	$	7,130

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(~~Amounts~~ in thousands)

Three Months Ended

March 31,

2022

2021

Cash flows from operating activities:

Net loss

$
(4,346
)

$
(3,362
)
Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense

402

527

Common shares issued to a consultant for services

20

—

Unrealized foreign exchange gain

(217
)

(132
)
Depreciation expense

25

28

Amortization expense

47

57

Provision for doubtful accounts

(23
)

(11
)
Non-cash lease expense

13

15

Changes in operating assets and liabilities:

Accounts receivable

27

36

Other receivables

1

2

Inventory, net

(45
)

(95
)
Prepaid expenses

(88
)

(44
)
Operating lease liability

(3
)

(15
)
Accounts payable

72

234

Accrued liabilities

(425
)

(160
)
Deferred revenue

(142
)

(1
)
Net cash used in operating activities

(4,682
)

(2,921
)
Cash flows from investing activities:

Purchase of property and equipment

(2
)

(19
)
Proceeds from sale of property and equipment

6

—

Internally developed software

—

(2
)
Net cash provided by (used in) investing activities

4

(21
)
Cash flows from financing activities:

Proceeds from the issuances of common stock and warrants

—

11,037

Share issuance costs

(17
)

(1,331
)
Proceeds from the exercise of warrants and stock options

—

1,314

Net cash (used in) provided by financing activities

(17
)

11,020

Effect of foreign exchange rate changes on cash

(12
)
Net (decrease) increase in cash

(4,695
)

8,066

Cash at beginning of period

11,005

3,331

Cash at end of period

$
6,310

$
11,397

Supplemental schedule of non-cash financing activities

Share issuance costs included in accounts payable and accrued liabilities

—

192


	Three Months Ended
	March 31,
	2023		2022

Cash flows from operating activities:
Net loss	$	(2,494)	$	(4,346)
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative liability		(1,221)		—
Stock-based compensation expense		405		402
Common stock issued for services		—		20
Foreign exchange loss (gain)		5		(217)
Depreciation expense		12		25
Amortization expense		39		47
Non-cash operating lease expense		12		13
Changes in operating assets and liabilities:
Accounts receivable		60		7
Other receivables		116		4
Inventory, net		(28)		(45)
Prepaid expense and other current assets		131		(88)
Operating lease liability		(13)		(6)
Accounts payable		213		54
Accrued and other current liabilities		(424)		(425)
Deferred revenue		(3)		(127)
Net cash used in operating activities		(3,190)		(4,682)
Cash flows from investing activities:
Purchase of property and equipment		(19)		(2)
Proceeds from sale of property and equipment		—		6
Net cash (used in) provided by investing activities		(19)		4
Cash flows from financing activities:
Share issuance costs		—		(17)
Net cash used in financing activities		—		(17)
Effect of currency exchange rate changes on cash and cash equivalents		—		—
Net decrease in cash and cash equivalents		(3,209)		(4,695)
Cash and cash equivalents at beginning of period		14,549		11,005
Cash and cash equivalents at end of period	$	11,340	$	6,310
Supplemental cash flow information
Non-cash investing and financing transactions:
Right-of-use assets obtained in exchange for new lease liabilities	$	—	$	151

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

Table of Contents

Helius Medical Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. ~~DESCRIPTION~~BASIS OF ~~BUSINESS~~PRESENTATION

The accompanying interim Unaudited Condensed Consolidated Financial Statements of Helius Medical Technologies, Inc. ~~(the~~(together with its wholly owned subsidiaries the “Company”), is a neurotech company focused on neurological wellness. The Company’s purpose is to develop, license or acquire non-implanted technologies targeted at reducing symptoms of neurological disease or trauma.

~~The Company’s product, known as~~ have been prepared in accordance with the ~~Portable Neuromodulation Stimulator (“PoNS®”), is an innovative non-surgical medical device, inclusive of a controller~~rules and ~~mouthpiece, which delivers mild electrical stimulation to the surface~~regulations of the ~~tongue to provide treatment of gait deficit~~Securities and ~~is indicated for use in the~~ ~~U.S.~~ 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. The Company began accept~~ing prescriptions for PoNS in the U.S., in the first quarter of 2022, and the first commercial sales began in April 2022. PoNS~~ ~~is authorized for sale in Canada for two indications: (i) PoNS is authorized as a short term treatment (14 weeks) of chronic balance deficit due to mild-to-moderate traumatic brain injury (“mmTBI”~~Exchange Commission ("SEC") and ~~is to~~should be ~~used~~read in conjunction with ~~physical therapy (“PoNS Therapy~~^TM~~”);~~the audited consolidated financial statements and ~~(ii) PoNS is authorized~~notes included in the Company’s Annual Report on Form 10-K for ~~use as a short term treatment (14 weeks) of gait deficit due to mild~~the year ended December 31, 2022 that was filed with the Securities and moderate symptoms from MS and is to be used in conjunction with physical therapy. It has been commercially available in Canada since March 2019. PoNS is authorized for sale as a Class IIa medical device in Australia. The Company is working to establish a distribution partner for Australia but currently does not expect to have commercial sales of PoNS in Australia in 2022.

~~The Company was incorporated in British Columbia, Canada~~Exchange Commission on March ~~13, 2014.~~ 9, 2023 (“2022 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

There have been no material changes to the Company's significant accounting policies from those described in the 2022 10-K. Certain prior period amounts have been reclassified to conform to the current period presentation.

On ~~May 28, 2014,~~April 21, 2023, the Company ~~was reincorporated~~filed a definitive proxy statement seeking stockholder approval for a reverse stock split of our outstanding Class A common stock at a ratio in the range of 1-for-10 to 1-for-80. Refer to Note 6 for additional information.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements. Actual results could differ from British Columbia to the State of Wyoming, and on July 20, 2018, it was reincorporated from the State of Wyoming to the State of Delaware. The 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.those estimates.

Going Concern Uncertainty

As of March 31, ~~2022,~~2023, the Company had cash and cash equivalents of ~~$6.3~~$11.3 million. For the three months ended March 31, ~~2022,~~2023, the Company had an operating loss of $ ~~4.3~~$3.8 million, and as of March 31, ~~2022,~~2023, its accumulated deficit was ~~$141.4~~$153.6 million. For the three months ended March 31, ~~2022,~~2023, the Company had ~~$0.2~~$0.1 million of net revenue from the commercial sale of ~~products or services.~~products. The Company expects to continue to incur operating losses and net cash outflows until such time as it generates a level of revenue to support its cost structure. There is no assurance that the Company will achieve profitable operations, and, if achieved, whether it will be sustained on a continued basis. These factors indicate substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are filed. The Company’s ~~condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements have been prepared on the basis of continuity of operations, realization of assets and satisfaction of liabilities in the ordinary course of business; no adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

The Company intends to fund ongoing activities by utilizing its current cash and cash equivalents on hand, cash received from the sale of its PoNS device in ~~Canada~~the U.S. and ~~the U.S.~~Canada and by raising additional capital through equity or debt financings as well as by using its equity line facility entered into on September 1, 2021 with Lincoln Park Capital Fund, LLC (“Lincoln Park”), which is subject to certain limitations and conditions.financings. 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.~~operations.

~~Risks and Uncertainties~~

~~COVID-19 and Worldwide~~Global Economic Conditions

~~On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which has spread throughout the~~ ~~U.S.~~ and around the world. The Company’s business, results of operations and financial condition have been and may continue to be adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 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 had re-opened, as of December 31, 2021, many were operating at reduced capacity well into the first quarter 2022, and patients have been and may continue to be less willing to return to these clinics, impacting our commercial activities and our customer engagement efforts. ~~. Moreover, the Company’s ability to conduct its ongoing clinical experience programs and clinical trials has been and may be impaired~~

due to trial participants’ attendance being adversely affected by 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 as well as manufacturing delays as the result of labor shortages. Two of the Company’s suppliers experienced significant labor shortages as a result of COVID-19 from the end of November 2021 through early January 2022 which reduced the available resources needed to build and test product resulting in production delays of the PoNS devices. During March 2022, an increase in COVID-19 related cases in certain parts of China resulted in the re-imposition of widespread shutdowns and restrictions in China and resulted in additional supply chain disruptions. It is currently unclear how long this latest series of shutdowns will continue and we may experience future manufacturing delays, which could place constraints on our ability to produce or deliver our products and meet customer demand or increase our costs.

Generally, worldwide economic conditions remain uncertain, particularly due to the ~~COVID-19 pandemic. Access to capital markets is critical to our ability to operate. Declines~~conflict between Russia and ~~uncertainties in these markets~~Ukraine, disruptions in the ~~past have severely restricted raising new capital~~banking system and ~~have affected companies’ ability to continue to expand or find existing development, manufacturing, regulatory~~financial markets, lingering effects of the COVID-19 pandemic and ~~commercialization efforts. We require significant capital for our current and expected operations.~~increased inflation. The general economic and capital market conditions both in the ~~U.S.~~United States and worldwide, have been volatile in the past and at times have adversely affected ~~our~~the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, ~~our~~the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.

~~Disruptions~~7

Table of Contents

The COVID-19 pandemic that began in ~~business or governmental operations due~~late 2019 introduced significant volatility to ~~COVID-19 may delay~~ the ~~timing for~~global economy, disrupted supply chains and had a widespread adverse effect on the ~~submission and approval of~~financial markets. Additionally, the Company’s ~~marketing applications with regulatory agencies. Further,~~operating results could be materially impacted by changes in the overall macroeconomic environment and other economic ~~impact of~~factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, disruptions in the banking system and financial markets, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic ~~could affect~~as well as other stimulus and spending programs, have led to high inflation, which has increased costs and has caused changes in fiscal and monetary policy, including an increase in interest rates. Although the ~~Company’s ability~~Company may take measures to ~~access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.~~

~~The extent to which the COVID-19 pandemic~~ ~~will continue to~~ ~~impact~~mitigate these impacts, if these measures are not effective, the Company’s business, ~~including its U.S. commercial launch and sales in Canada, as well as the Company’s~~financial condition, results of operations, and ~~its financial condition will depend on future developments, which are highly uncertain and cannot~~liquidity could be ~~predicted.~~ ~~The Company does not yet know~~materially adversely affected.

In the ~~full extent~~opinion of management, the ~~impact of COVID-19 on its future business, operations or the global economy as a whole.~~

~~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, 2021, included in its Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 14, 2022. 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~~interim unaudited condensed consolidated financial statements reflect ~~the operations of Helius Medical Technologies, Inc. and its wholly owned subsidiaries. The usual condition~~all adjustments necessary for a ~~controlling financial interest is ownership~~fair statement of the results for the interim periods presented. All such adjustments, unless otherwise noted herein, are of a ~~majority~~normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the ~~voting interests~~results 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”)~~,operations 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 maintains cash in excess of federally insured limits in certain banks. However, the Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk related to cash. 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 March 31, 2022, 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, 2021, 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.~~

~~Other receivables totaling $0.2 million as of both~~ ~~March 31, 2022 and~~ ~~December 31, 2021, respectively included refunds from research and development (“R&D”) tax credits,and Goods and Services Tax (“GST”) and Quebec Sales Tax (“QST”) refundsrelated to the Company’s Canadian expenditures.~~

~~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.~~NaN~~ inventory markdowns to net realizable value were recorded during the three month periods ended March 31, 2022 and March 31, 2021 During the three months ended March 31, 2022 existing reserves of $127 thousand were charged against work-in-process inventory. There were 0 existing reserves charged against inventory during 2021.

~~As of March 31, 2022 and December 31, 2021, inventory consisted of the following (amounts in thousands):~~

As of

As of

March 31, 2022

December 31, 2021

Raw materials

$
185

$
171

Work-in-process

410

528

Finished goods

53

32

Inventory

$
648

$
731

Inventory reserve

(128
)

(255
)
Total inventory, net of reserve

$
520

$
476

~~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~~ for the ~~Company’s furniture and fixtures is 7 years. Equipment has an estimated useful life of 15 years, while computer software and hardware has an estimated useful life of 3 to 5 years.~~full year.

~~As of March 31, 2022 and December 31, 2021, property and equipment consisted of the following (amounts in thousands):~~

As of

As of

March 31, 2022

December 31, 2021

Furniture and fixtures

$
59

$
65

Equipment

374

373

Computer software and hardware

213

212

Property and equipment

646

650

Less accumulated depreciation

(266)

(241
)
Property and equipment, net

$
380

$
409

~~Depreciation expense was $25 thousand and $28 thousand for the three months ended March 31, 2022 and 2021, respectively.~~

~~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 March 31, 2022 is the result of the Heuro acquisition completed in October 2019. Goodwill is not amortized, but rather is 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 tests 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 0 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 following is a summary of the activity for the period ended March 31, 2022 for goodwill:~~

Carrying amount at December 31, 2021

$
763

Foreign currency translation

14

Carrying amount at March 31, 2022

$
777

Definite-lived intangibles consist principally of acquired 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 $47 thousand for the three months ended March 31, 2022 and $0.1 million during the three months ended March 31, 2021.

~~Intangible assets as of March 31, 2022 and December 31, 2021 consist of the following:~~

As of March 31, 2022

As of December 31, 2021

Useful Life

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Gross Carrying Amount

Accumulated Amortization

Net Carrying Value

Acquired proprietary software

5 years

154

(75)

79

151

(66
)

85

Reacquired rights

3.87 years

514

(321)

193

505

(283
)

222

Internally developed software

3 years

84

(65)

19

84

(58
)

26

Total intangible assets

$
752

$
(461)

$
291

$
740

$
(407
)

$
333

~~Amortization expense is anticipated to be as follows in future years:~~

For the Year Ending December 31,

2022 (remaining 9 months)

140

2023

125

2024

26

$
291

~~Leases~~

~~The Company accounts for its leases under ASU No. 2016-02,~~ ~~Leases.~~ The Company does not record an operating lease right 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. ~~As of~~ ~~March 31, 2022, the Company had 2 operating leases, one for its headquarters office in Newtown, Pennsylvania and one for additional office space in Ewing, New Jersey.~~ Operating lease ROU assets and operating lease liabilities are recognized 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 arrangements do 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).

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), 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~~

Product sales are derived from the sale of the PoNS device to 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. The Company’s payment terms are defined within each customers’ supply agreement and are all 30 days or less. For the three months ended March 31, 2021, the Company recorded $77 thousand, in product sales. For the three months ended March 31,2022, the Company recorded $183 thousand in product sales. There were 16 PoNS devices, included as consideration in the Heuro acquisition, transferred during the three months ended March 31, 2022 resulting in revenue of $0.1 million being recognized which is included in the aforementioned $183 thousand in product sales for the three months ended March 31, 2022. There were 0 PoNS devices, included as consideration in the Heuro acquisition, transferred during the three-month period ended March 31, 2021.~~As of March 31, 2022, all~~ 55 devices had been transferred. Any product returns during the three months ended March 31, 2022 were the result of warranty returns for defective products and were insignificant. Any future replacements are expected to be insignificant.

~~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 each of the three months ended March 31, 2022 and March 31, 2021, the Company recognized revenues of $7 thousand 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 as of March 31, 2022. On January 31, 2022, we notified HTC of its material breaches under the Co-Promotion Agreement which HTC failed to cure under the terms of the Co-Promotion Agreement and as such it is our position that this exclusivity right is no longer in effect. The Company and HTC are currently discussing opportunities to work together moving forward.

~~As of March 31, 2022, and December 31, 2021, 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.

~~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.

~~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 1 operating and reportable segment. Accordingly, the Company reports the accompanying condensed consolidated financial statements in the aggregate in 1 reportable segment.

~~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, and operating lease liability. The book values of these instruments, with the exception of non-current lease liability and operating lease ROU asset approximate their fair values due to the immediate or short-term nature of these instruments.

~~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.

~~Basic and Diluted Net Loss per Share~~

Earnings or loss per share (“EPS”) is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net 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):~~

Three Months Ended

March 31,

2022

2021

Basic and Diluted

Numerator:

Net loss

$
(4,346
)

$
(3,362
)
Denominator:

Weighted average common shares outstanding

3,787,871

2,040,839

Basic and diluted net loss per share

$
(1.15
)

$
(1.65
)

NaN incremental common stock equivalents, consisting of outstanding stock options, warrants and restricted stock units, were included in calculating diluted loss per share because such inclusion would be anti-dilutive due to the Company’s losses for the three months ended March 31, 2022 and 2021. Common stock equivalents excluded from the computation of diluted weighted average shares outstanding were 1,379,927 and 812,173 for the three months ended March 31, 2022 and the three months ended March 31, 2021, respectively.

~~Recent Accounting Pronouncements~~2. RECENT ACCOUNTING PRONOUNCEMENTS

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

3. SUPPLEMENTAL BALANCE SHEET DISCLOSURES

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

Accounts receivable, net

Accounts receivable from product sales are net of allowance for credit losses of less than $1 thousand as of both March 31, 2023 and December 31, 2022.

Inventory, net (in thousands)


	March 31,		December 31,
	2023		2022
Raw materials	$	334	$	344
Work-in-process		272		284
Finished goods		75		39
Inventory, gross		681		667
Inventory reserve		(64)		(78)
Inventory, net	$	617	$	589

During the three months ended March 31, 2023, $14 thousand of inventory was written off to the inventory reserve.

Prepaid expenses and other current assets (in thousands)


	March 31,		December 31,
	2023		2022
Prepaid expenses	$	687	$	817
Inventory related		398		399
Total prepaid expenses and other current assets	$	1,085	$	1,216

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Accrued and other current liabilities (in thousands)


	March 31,		December 31,
	2023		2022
Insurance payable	$	373	$	592
Employees benefits		331		509
Professional services		106		119
Other		46		60
Total accrued and other current liabilities	$	856	$	1,280

Deferred revenue

Exclusive Distribution Agreement

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

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

4. LEASES

The Company has two operating leases for office space with lease terms expiring in January 2024 and March 2025. The leases do not contain any options to extend. Operating lease costs for the three months ended March 31, 2023 and 2022 were $14 thousand and $15 thousand, respectively.

Maturities of operating lease liabilities as of March 31, 2023 were as follows (in thousands):


2023 (remaining)	$	43
2024		46
2025		12
Total lease payments		101
Less: imputed interest		(4)
Total lease liabilities	$	97

5. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

6. COMMON STOCK, PREFERRED STOCK AND WARRANTS

Series B Preferred Stock

On March 23, 2023, the Board of Directors declared a dividend of one one-thousandth of a share of Series B Preferred Stock (“Series B Preferred Stock”) for ~~fiscal years beginning after December 15, 2022, including interim periods~~each outstanding share of Class A common stock held of record on April 3, 2023 (the “Record Date”). The value of the Series B Preferred Stock issued in connection with the stock dividend was immaterial.

The outstanding shares of Series B Preferred Stock will vote together with the outstanding shares of the Company’s Class A common stock, as a single class, exclusively with respect to a proposal giving the Board of Directors the authority, as it determines appropriate, to implement a reverse stock split within ~~those fiscal years.~~twelve months following the approval of such proposal by the Company’s stockholders (the “Reverse Stock Split Proposal”), as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters (the “Adjournment Proposal”).

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

Each share of Series B Preferred Stock will entitle the holder to 1,000,000 votes per share and each fraction of a share of Series B Preferred Stock will have a ratable number of votes. The

~~Company meets the definition~~ holder of ~~an SRC and therefore the standard~~Series B Preferred Stock, as such, will not be entitled to receive dividends.

All shares of Series B Preferred Stock that are not present in person or by proxy at any meeting of stockholders held to vote on the Reverse Stock Split Proposal and the Adjournment Proposal as of immediately prior to the opening of the polls at such meeting (the “Initial Redemption Time”) will automatically be redeemed in whole, but not in part, by the Company at the Initial Redemption Time without further action on the part of the Company or the holder of shares of Series B Preferred Stock (the “Initial Redemption”).

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

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

Warrants

The Company ~~is evaluating~~issued warrants to purchase an aggregate of 36,000,000 shares of Class A common stock (“Public Warrants”) in connection with the ~~effect~~August 2022 Public Offering, as more fully described in the 2022 10-K. The Public

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Warrants did not meet the guidance for being classified as an equity instrument due to a potential price reset prompted by a change in an unrelated instrument’s conversion rate or, in the event of a fundamental transaction, settlement rights that ~~ASU 2016-13 will have on its condensed consolidated financial statements.~~

~~3. COMMON STOCK AND WARRANTS~~differ from those of the underlying common stockholders. Accordingly, the Public Warrants are being accounted for as a derivative liability instrument. The fair value of the derivative liability as of March 31, 2023 and December 31, 2022 was $5.7 million and $6.9 million, respectively. The change in the fair value of the derivative liability was recognized as a component of nonoperating income (expense) in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

The ~~Company’s authorized capital stock pursuant~~fair value of the Public Warrants as of March 31, 2023 and December 31, 2022 was determined using both a Monte Carlo simulation model, which uses multiple input variables to ~~its Delaware charter consists~~determine the probability of ~~150,000,000 authorized~~the occurrence of a price reset or a fundamental transaction and the Black-Scholes option pricing model. The following table includes the share price and the inputs used to estimate the fair value of the warrants:


	March 31,			December 31,
	2023			2022
Stock price	$	0.25		$	0.31
Warrant term (in years)		4.36			4.61
Expected volatility		83.70	%		80.90	%
Risk-free interest rate		3.67	%		4.04	%
Dividend rate		0.00	%		0.00	%

The 36,000,000 of outstanding liability classified Public Warrants have an exercise price of $0.75 per share, are exercisable upon issuance and will expire five years following the date of issuance. No Public Warrants were exercised or cancelled during the three months ended March 31, 2023.

The Company has outstanding equity-classified warrants to purchase 593,924 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. NaN dividends have been declared since inception of the Company through March 31, 2022. 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.

~~March 2020 Offering~~

On March 20, 2020, the Company, in a registered direct offering, issued an aggregate of 178,776 shares of its common stock at a price of $12.25 per share for gross proceeds of approximately $2.2 million. Additionally, the Company issued unregistered warrants in a concurrent private placement to purchase up to 178,776 shares of its common stock at anweighted average exercise price of ~~$16.10 per share.The underwriting discounts and commissions and offering expenses of $0.3 million were recorded~~$16.32, with expiration dates ranging from October 2023 to ~~share issuance costs. As of March 31, 2022, 81,633 warrants had been exercised all during the first quarter of 2021, for gross proceeds of $1.3 million.~~

~~October 2020 Offering~~

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.

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 all other purchasers.

~~The relative fair value of these warrants at issuance was approximately $2.6 million and was included in additional paid-in capital. As of~~ ~~March 31, 2022, 262 warrants had been exercised, all during the second quarter of 2021, for gross proceeds of $4 thousand.~~

~~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 share 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.

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.

~~NaN~~ ~~shares were sold under the LPC Purchase Agreement during the first quarter of 2022 and approximately $14.4 million remained available for sale under the agreement at March 31,2022.~~

~~November 2021 Offering~~

On November 12, 2021, in an underwritten public offering (the “November 2021 Offering”), the Company issued 1,385,031 shares of common stock at a purchase price of $8.00 per share. Net proceeds from the November 2021 Offering after underwriter’s discounts and commission and offering expenses paid by us were approximately $9.9 million. Affiliates of an officer and director participated in the November 2021 Offering on the same terms and conditions as all other purchasers.

~~Warrants~~

~~The following is a summary of the Company’s warrant activity during~~2026. During the three months ended March 31, ~~2022:~~2023, no warrants were exercised or cancelled.

Number of Warrants

Weighted-Average Exercise Price

Outstanding as of December 31, 2021

593,924

$
16.32

Granted

—

—

Cancelled/Expired

—

—

Exercised

—

—

Outstanding as of March 31, 2022

593,924

$
16.32

7. STOCK-BASED COMPENSATION

The ~~Company’s warrants outstanding and exercisable as of March 31,~~Company may issue stock-based compensation awards under The Helius Medical Technologies, Inc. 2022 ~~were as follows:~~

~~Number of Warrants Outstanding~~		~~Exercise Price~~	~~Expiration Date~~
	~~97,143~~	~~USD$16.10~~	~~March 20, 2025~~
	~~17,431~~	~~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~~

~~4. STOCK-BASED PAYMENTS~~

~~2018 Omnibus~~Equity 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~~ (“2022 Plan”), which was effective upon approval by the stockholders of the Company on June 28, 2018 and under which an aggregate of 153,031 shares of common stock could be issued. This share reserve was the sum of 85,714 new shares, plus the 67,317 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~~ ~~March 31, 2022, there was an aggregate of 8,595 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~~(as amended, the “Inducement Plan”), as described more fully in the 2022 10-K. On January 1, 2023, 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~~automatic increase provision of the ~~Company, as an inducement material~~2022 Plan, the number of shares authorized for issuance increased from the initial 1,121,272 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.

13,215,973. As of March 31, ~~2022, there was an aggregate of 52,000~~2023, the remaining shares ~~of common stock remaining~~ available for grant were 2,195,103 under the ~~Company’s~~2022 Plan and 474,375 under the Inducement Plan.

~~Stock Options~~

~~For~~During the three months ended March 31, ~~2022,~~2023, the Company ~~issued 123,750~~granted 9,949,000 stock options ~~to employees and directors of which NaN were forfeited. The Company issued 0 stock options to consultants during the three months ended March 31, 2022.~~

~~The following is a summary~~out of the ~~Company’s stock option activity during~~2022 Plan at a weighted average exercise price of $0.31 per share. The options vest over three years and expire ten years after the ~~three months ended March 31, 2022:~~

Weighted Average

Aggregate

Remaining

Weighted

Intrinsic

Number of

Contractual

Average

Value

Stock Options

Life (in years)

Exercise Price

(in thousands)

Outstanding as of December 31, 2021

669,117

9.03

$
37.36

$
—

Granted

123,750

4.68

—

Forfeited/Cancelled

(7,639
)

82.37

—

Exercised

—

—

—

Outstanding as of March 31, 2022

785,228

8.96

$
31.77

$
—

Exercisable as of March 31, 2022

301,630

8.34

$
60.64

$
—

~~Employee and Director Stock Options~~

grant date. As of March 31, ~~2022, the unrecognized compensation cost related to non-vested time-based~~2023, there were an aggregate of 11,122,299 stock options outstanding ~~for employees~~with a weighted average exercise price of $1.70 per share and ~~directors, was $2.9 million which will be recognized over~~2,016 unvested restricted stock units outstanding with a weighted-average remaining vesting period of approximately 3.0 years. As of March 31, 2022, 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~~$1.40 per share.

Table of Contents

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


	Three Months Ended March 31,
	2023			2022
Risk-free interest rate		3.95	%		1.95	%
Expected volatility		79.47	%		73.53	%
Expected term (years)		5.75			5.75
Expected dividend yield		0.00	%		0.00	%
Fair value, per share	$	0.22		$	3.01

Total stock-based compensation expense was as follows (in thousands):


	Three Months Ended
	March 31,
	2023		2022
Cost of sales	$	4	$	3
Selling, general and administrative		320		246
Research and development		81		153
Total stock-based compensation expense	$	405	$	402

As of March 31, 2023, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock units was $3.6 million which will be amortized over the weighted-average remaining requisite service period of 2.7 years.

8. BASIC AND DILUTED LOSS PER SHARE

The table below presents the computation of basic and diluted loss per share (in thousands, except share and per share information):


	Three Months Ended
	March 31,
	2023		2022
Basic:
Net loss available to common stockholders - basic	$	(2,494)	$	(4,346)
Weighted average common shares outstanding - basic		28,209,346		3,787,871
Loss per share - basic	$	(0.09)	$	(1.15)

Diluted:
Net loss available to common stockholders - diluted ⁽¹⁾	$	(2,494)	$	(4,346)
Weighted average common shares outstanding - diluted ⁽¹⁾		28,209,346		3,787,871
Loss per share - diluted	$	(0.09)	$	(1.15)

(1)

For the three months ended March 31, 2023, no adjustment was made to the numerator and no incremental shares were added to the denominator for the Public Warrants being accounted for as a derivative liability, as the Public Warrants were out-of-the-money during the period. Refer to Note 6 for additional information about the Public Warrants.

Table of Contents

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


	Three Months Ended
	March 31,
	2023	2022
Stock options	11,122,299	785,228
Restricted stock units	2,016	775
Warrants	36,593,924	593,924

9. COMMITMENTS AND CONTINGENCIES

The Company is obligated under a license agreement with Advanced NeuroRehabilitation, LLC (“ANR”) to pay a 4% royalty on net revenue collected from the sale of devices covered by the patent-pending technology. During the three months ended March 31, 2023 and 2022, the Company recorded royalty expense from the sale of devices of approximately $4 thousand and $7 thousand, respectively, in its Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

10. ENTERPRISE-WIDE DISCLOSURES

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

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


	March 31,
	2023		2022
Product sales, net:
United States	$	75	$	—
Canada		31		183
Total product sales, net		106		183
Other revenue		5		7
Total revenue	$	111	$	190

A single customer accounted for 14% of net product sales for the three months ended March 31, 2023 and 67% of accounts receivable, net as of March 31, 2023. A single customer accounted for 68% of net product sales for the three months ended March 31, 2022 ~~was $3.01 per option~~ and ~~the grant date fair values~~89% of ~~these stock options were estimated using the Black-Scholes option pricing model using the following weighted average assumptions:~~

Three Months Ended March 31, 2022

Stock price

$
4.68

Exercise price

$
4.68

Expected term

5.75

Expected volatility

73.53%

Risk-free interest rate

1.95%

Dividend rate

0.00
%

~~Consultant Stock Options~~

~~As of~~ ~~March 31, 2022, the unrecognized compensation cost related to non-vested stock options outstanding for non-employees was $~~7 thousand which will be recognized over a weighted-average remaining vesting period of approximately 0.6 years. Compensation cost is not adjusted for estimated forfeitures, but instead is adjusted upon an actual forfeiture of a stock option.

~~Restricted Stock Units~~

During the second quarter ended June 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 Nasdaq Capital Market on the day of the grant.

~~The following is a summary of the Company’s RSU award activity for the three months ended March 31, 2022:~~

Number of RSUs

Weighted Average Grant Date Fair Value per Unit

Outstanding as of December 31, 2021

2,359

$
15.76

Granted

—

—

Forfeited

—

—

Settled

(1,584
)

15.89

Outstanding as of March 31, 2022

775

$
15.53

~~Unrestricted Stock~~

On February 16, 2022, the Company granted 8,011 shares of unrestricted common stock valued at $34 thousand to an officer of the Company under the 2018 Plan and have been recorded as stock based compensation expense.

~~During the three months ended March 31, 2022, the Company granted 4,258 shares of unrestricted common stock to a consultant 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 March 31,

2022

2021

Research and development

$
153

$
222

Cost of sales

3

—

Selling, general and administrative

212

305

Total

$
368

$
527

5.	~~ACCRUED EXPENSES~~

~~Accrued expenses consisted of the following (amounts in thousands):~~

As of

March 31, 2022

December 31, 2021

Employees benefits

$
378

$
712

Professional services

123

174

Legal fees

72

23

Royalty fees

17

10

Franchise fees

50

193

Severance

147

258

Other

221

63

Total

$
1,008

$
1,433

~~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 91,628 shares of common stock to ANR, the Company agreed to pay a 4% royalty onaccounts receivable, net revenue on the sales of devices covered by the patent-pending technology and services related to the therapy or use of devices covered by the patent-pending technology. For the three months ended March 31, 2022, the Company recorded approximately $7 thousand, in royalty expenses in its condensed consolidated statement of operations and comprehensive loss. For the three months ended March 31, 2021, the Company recorded approximately $3 thousand, in royalty expenses in its condensed consolidated statement of operations and comprehensive loss.

~~(b)~~

In November 2021, the Company entered into a new lease (the “Lease Agreement”) for 1,780 square feet of dedicated office space to serve as the Company’s headquarters in Newtown, Pennsylvania. The term for the lease is from January 1, 2022 through March 31, 2025. Monthly rent plus utilities is approximately $4 thousand per month with a 3% annual increase. There is no option to extend. On February 1, 2022, the Company entered into a new lease for 750 square feet of dedicated office space in Ewing, New Jersey. The term for the lease is from February 1, 2022 through January 31, 2024. Monthly rent plus utilities is $985 per month for the first year increasing to $1,015 per month beginning February 1, 2023. There is no option to extend.

~~The following table summarizes the Company’s operating lease information including~~ ~~future minimum lease payments under a non-cancellable lease~~ as of ~~March~~December 31, ~~2022 (amounts in thousands).~~2022.

For the Three Months Ended March 31, 2022

Operating lease cost

$
—

Operating lease - operating cash flows

$
3.00

Weighted average remaining lease term

3.0 years

Weighted average discount rate

4.4
%

Future minimum lease payments under non-cancellable leases as of March 31, 2022 were as follows:

For the Period Ending December 31,

2022 (remaining nine months)

$
42.00

2023

58

2024

48

2025

12

Total future minimum lease payments

160

Less imputed interest

(10
)
Total liability

$
150

Reported as of March 31, 2022

Current operating lease liability

$
51.00

Non-current operating lease liability

99

Total

$
150

~~(c)~~

On December 29, 2017, HMI (formerly known as NeuroHabilitation Corporation) entered into a Manufacturing and Supply Agreement (“MSA”) with KeyTronic Corporation (“KeyTronic”), for the manufacture and supply of the Company’s PoNS device based upon the Company’s product specifications as set forth in the MSA. Per the agreement, the Company shall provide to KeyTronic a rolling forecast for the procurement of parts and material and within normal lead times based on estimated delivery

dates for the manufacture of the PoNS device. The term of the agreement is for three years and will automatically renew for additional consecutive terms of one year, unless cancelled by either party upon 180-day written notice to the other party prior to the end of the then current term. On June 1, 2020, HMI extended the existing manufacturing agreement with KeyTronic for a second three year term from December 29, 2020 until December 31, 2023. As of March 31, 2022, the Company did 0t have any outstanding commitments to KeyTronic to complete the Company’s forecasts for the procurement of materials necessary for the delivery of PoNS devices.

~~7. RELATED PARTY TRANSACTIONS~~

~~Affiliates~~Table of ~~an officer and director participated in the February 2021 Offering and the November 2021 Offering on the same terms and conditions as all other purchasers.~~Contents

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

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

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements regarding our market, strategy, competition, capital needs, business plans and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Forward-looking statements are made, without limitation, in relation to operating plans, including expected enrollment, the issuance by CMS of rules regarding coverage of emerging technologies, patient participation and other details of the ~~TEP~~PoNSTEP study, sufficiency of cash, availability of funds and operating costs. Such forward-looking statements involve risks and uncertainties, known and unknown, including capital requirements to achieve our business objectives, disruptions in the ~~COVID-19~~banking system and financial markets, the COVID 19 pandemic, including its impact on our Company, the ~~Company,~~effect of inflation and increased interest rates on our ability to operate our business and access capital markets, the success of our business plan, including our ability to ~~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, clinical trials and the clinical development process, the product development process, the regulatory submission review and approval process, our operating costs and use of cash, and our ability to achieve significant revenues and other factors discussed in the section entitled “Item 1A. Risk Factors” in this Quarterly Report on Form 10-Q and in our ~~2021 Annual Report~~2022 10-K and those described from time to time in our future reports filed with the SEC. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith, based on information available to us as of the date hereof, and reflect our current judgment regarding our business plans, we cannot guarantee future results, events, levels of activity, performance or achievement and our actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. We do not intend, and undertake no obligation, to update or revise any of the forward-looking statements as a result of new information, future events or otherwise or to conform these statements to actual results, except as required by applicable law, including the securities laws of the United States.

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

Table of Contents

Company Overview

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

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

Recent Developments

Corporate Updates

~~The Company began accepting prescriptions~~On April 21, 2023, we filed a definitive proxy statement seeking stockholder approval for ~~PoNS~~a reverse stock split of our outstanding Class A common stock at a ratio in the ~~U.S. in the first quarter~~range of ~~2022, and the first commercial sales began in April.~~

~~Regulatory Status Worldwide~~

~~Canadian Regulatory Status: mmTBI and MS~~1-for-10 to 1-for-80.

On ~~October 17, 2018,~~March 23, 2023, our Board of Directors declared a dividend of one one-thousandth of a share of our Series B Preferred Stock, par value $0.001 per share (“Series B Preferred Stock”), on each outstanding share of our Class A common stock, to stockholders of record on April 3, 2023. Refer to Note 6 to our Unaudited Condensed Consolidated Financial Statements for additional information.

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

On March 8, 2023, we received marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for use as a short-term treatment ~~(14 weeks)~~ of ~~balance~~gait 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.~~symptoms from stroke. This ~~label expansion expanded~~expands our addressable market in Canada to include a patient population seeking treatment options that may resolve ~~or delay the progression of MS~~stroke gait deficit symptoms.

~~US Regulatory Status: MS~~

~~On May 7, 2020,~~Pursuant to an Exclusive Distribution Agreement with Health Tech Connex Inc. (“HTC”) (“Exclusivity Agreement”), subject to certain terms and conditions, we ~~received Breakthrough Designation for~~granted to HTC the ~~PoNS device as a potential treatment for gait deficit due~~exclusive right to ~~symptoms of 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.

On March 26, 2021, we received marketing authorization from the FDA of 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.

On January 14, 2021, the Centers for Medicare & 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 market authorization for breakthrough devices and coverage would last for four years. To be eligible for coverage through MCIT, the breakthrough device must be used for the FDA approved or cleared indication(s) for use. Manufacturers will be able to opt in to MCIT and choose a start date for coverage anytime within two years from the 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 can 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 an 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. Following a 30-day comment period included in the proposal, CMS announced on November 12, 2021 that it was repealing MCIT to address concerns that the provisions in the final rule may have not been sufficient to protect Medicare patients. CMS is expected to issue rules regarding coverage of emerging technologies; however, no specific information is available about the content of the expected rules and we cannot provide any assurance that any new rules regarding emerging technologies would be applicable to us. While we will continue to monitor this, we also remain focused on building out our reimbursement strategy for both 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 Therapeutic 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 with physical therapy, to better understand the relationship between adherence to the treatment regimen and therapeutic functional outcome. The primary 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 global impression of change. The study will be conducted at ten to twelve Centers of Excellence~~across the~~ U.S., with an estimated average of four PoNS devices per site. Enrollment is expected to commence in first half of 2022 and continue throughout the year. Approximately forty to fifty patients with MS are expected to participate in the study.

~~US Regulatory Status: Stroke~~

In August 2021, we received Breakthrough Designation for the PoNS™ device as a potential treatment for dynamic gait and balance deficits due to symptoms from stroke, to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over. With Breakthrough Designation received, a clinical trial of PoNS therapy in stroke patients in collaboration with the Medical University of South Carolina is planned to commence in the second half of 2022 with initial patient enrollments beginning late in the second half of 2022.

~~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 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 that 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 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 Therapy 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~~Fraser Valley and Vancouver metro regions of British Columbia. HTC is to purchase the PoNS devices for use in these regions exclusively from us and on terms no less favorable than the ~~receipt~~then-current standard terms and conditions. The initial term of the ~~FDA’s final minutes from the pre-submission meeting, we are assessing the feasibility~~Exclusivity Agreement expires on December 31, 2027, and is renewable by HTC for one additional five-year term. Refer to Note 3 to our Unaudited Condensed Consolidated Financial Statements for additional information.

Table of ~~a clinical program to advance the development of a study aimed to obtain clearance for gait and balance deficits in mmTBI if nondilutive financing to fund the program becomes available.~~Contents

~~European Regulatory Status~~

~~In December 2018, we submitted an application for a CE Mark, which, if approved, would allow us to market the~~Presently, 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 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. In November 2021, we received market authorization from the TGA for the sale of PoNS as a Class IIa medical device. In Australia, PoNS is intended for short term use by healthcare professionals as an adjunct to a therapeutic exercise program to improve balance and gait. PoNSTherapy is not ~~intended to be used alone without an exercise program. We are working to establish a distribution partner~~covered by Center for ~~Australia but currently do not expect to have commercial sales of PoNS in Australia in 2022.~~

~~Canadian Commercialization Activities~~

~~In March 2019, we commenced the commercialization of our PoNS Therapy in Canada, where PoNS became the first~~Medicare and ~~only device authorized~~Medicaid (“CMS”) or reimbursed 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 Therapy, including the acquisition of the Heuro Canada operating entity of HTC. 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.

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. During the year ended December 31, 2021, we authorized 6 new clinical locations to have 37 clinic

locations as of December 31, 2021. As of March 31, 2022, we have 41 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 patients and therapists.

~~In collaboration with Toronto Rehabilitation Institute (part of University Health Network), we are continuing our clinical experience program, the results of which we will look to publish in 2022.~~

We continue to refine our go-to-market pricing model. In 2020, we implemented a modified pricing approach which 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 Therapy and drive market awareness which we believe resulted in an increase in the volume of units sold, beginning in the second half of 2020. We extended the promotional pricing through the end of 2021 including any ~~order placed and accepted, but not fulfilled before December 31, 2021. The promotional pricing was discontinued in 2022 when new pricing was established.~~

The value dossiers for mmTBI and MS that were created in mid-2020 to fully demonstrate in both scientific and financial terms, the merits of PoNS Therapy for claimants are now being utilized along with submissions from clinics on behalf of their patients. The dossiers 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 on the auto collision insurance and workers’ compensation, or WC, market as well as long-term disability cases. Our reimbursement strategy for MS is focused on commercial insurers/extended health benefits.

As part of our overall PoNS Therapy strategy, we are also gathering comprehensive health economic assessments of treatment outcomes. These data will, in-turn, be used to support our applications for WC, auto insurance and commercial insurance reimbursement initiatives in Canada, the ~~U.S.~~ ~~and other markets around the world. We believe the Canadian commercial experience will be extremely valuable to prepare us for our launches in the~~ ~~U.S.~~ ~~and internationally.~~

The real-world results from the collective experience of our patients that have completed the 14-week PoNS Therapy, in Canada thus far, have been encouraging. Consistent with what we observed in our two clinical trials, one for 5 weeks and the other for 14 weeks, commercial MS and mmTBI patients demonstrated improvements in balance and gait within the first two weeks followed by continued improvement over the following twelve weeks. The majority of patients had 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 PoNS Therapy in Canada.

~~U.S. Commercialization Activities~~

As previously stated, 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.

Throughout the pre-commercial phase during 2021, we developed and refined our commercial strategy including a focus on payer strategy, both government and commercial, securing distribution licenses in various states 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 Therapy 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 Therapy as the standard of care for the treatment of MS-related gait deficit.

~~We began accepting prescriptions for PoNS~~third-party payors in the U.S. in the first quarter of 2022, and our first commercial sales began in April 2022. We have targeted specific Key Opinion Leaders (i.e. neurologists and physiatrists) and their associated neurorehabilitation centers, where selected physical therapists will be trained to deliver the PoNS Therapy. To further develop and implement the PoNS commercialization strategy, we have hired a Vice President of Sales and Marketing, North America, have identified the initial launch areas within the U.S., and we have and expect to continue to build out our commercial team, including field sales, reimbursement specialists, and marketing and operational support commensurate with PoNS sales activity.

During 2021, we contracted with an industry consultant to conduct a health economic study of PoNS. Based upon the results of this study and comparing PoNS to other medical devices utilizing similar patented technologies we established a U.S. list price for the PoNS device of $25,000, comprised of $17,800 for the controller and $7,900 for the mouthpiece. We are pursuing commercial insurance coverage and Medicare reimbursement for PoNS within the Durable Medical Equipment, or DME, benefit category. While there are currently no applicable Healthcare Common Procedure Coding System, or HCPCS, codes to describe the PoNS device or mouthpiece, we intend to use miscellaneous codes – E1399 (Miscellaneous durable medical equipment) and A9999 (Miscellaneous DME supply or accessory, not otherwise specified) until specific HCPCS codes are created. We ~~have~~initially applied for unique HCPCS codes during the third quarter of ~~2021,~~2021. In order to address CMS’s request for additional information to “further understand the PoNS device indication for use,” we decided to move forward and collect additional clinical and real-world data. As such, through our ongoing PoNSTEP study and ongoing registry program, we plan to resubmit for unique HCPCS codes upon availability of a body of evidence that we consider adequate and sufficient to address CMS’s questions. We expect to re-engage with CMS in mid 2023.

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

We also intend to provide broad access and reimbursement for the PoNS Therapy over time through commercial insurers. Prior to the initiation of CMS or broad commercial payer coverage, we anticipate the primary source of sales will be self-pay patients. We expect to support the cost of the PoNS Therapy by offering a cash pay discount, collaborating with third parties to provide self-pay patients with financing options as

well as working with advocacy groups and charitable organizations to help self-pay patients access our technology. In general, we anticipate that it will take at least 24 months to obtain broad coverage and reimbursement among government and private payers.

We launched an e-commerce site in the U.S. in December 2022 and began processing orders in January 2023. Accessed via ponstherapy.com, the site is powered through a new partnership with UpScriptHealth, a leading telehealth company focused on making medications and devices available direct-to-consumer. UpScriptHealth’s platform provides for (1) online health evaluations with qualified medical providers; (2) fulfillment of prescriptions required for PoNS Therapy; and (3) shipping of PoNS devices directly to the homes of eligible patients in the United States. The UpScriptHealth platform makes it possible for people with MS to have a PoNS device delivered directly to their doorstep.

~~Share Purchase Agreement~~Our Patient Therapy Access Program (“PTAP”), launched in June 2022 and ~~Co-Promotion Agreement~~

~~On October 30, 2019,~~ weexpected to run through June 2023, provides qualifying patients access to PoNS therapy at a significantly reduced price. To qualify for the PTAP pricing, the patient must provide a letter of medical necessity and ~~HTC entered into a Share Purchase Agreement, or~~consent to the ~~SPA, whereby we, through our wholly owned subsidiary, acquired Heuro from HTC. Under~~release of their medical records for the ~~terms~~last two years. Because of the ~~SPA, total consideration of approximately $1.6 million was transferred~~significantly reduced price, the patient must also sign a document that prohibits him/her from submitting a reimbursement claim to ~~HTC,~~third-party payers. PTAP participants will also be invited to join the Company’s registry program, which ~~included (1)~~is designed to collect important health information to establish 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~~on key therapeutic outcomes and will supplement the ~~SPA, (3) the forgiveness of the CAD$750,000 receivable from the September 2018 strategic alliance agreement~~data collected through clinical trials 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.~~real-world data.

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 agreed to promote the sales of the PoNS Treatment and the NeuroCatch^TM device throughout Canada. The co-promotion provisions within the Co-Promotion Agreement terminated on December 31, 2020, 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. On January 31, 2022, we notified HTC of its material breaches under the Co-Promotion Agreement, which HTC failed to cure under the terms of the Co-Promotion Agreement, and as such, it is our position that this exclusivity right is no longer in effect. We are currently in discussions with HTC to explore opportunities to work together moving forward.

Material Trends and Uncertainties

Global Economic Conditions

Generally, worldwide economic conditions remain uncertain, particularly due to the conflict between Russia and Ukraine, disruptions in the banking system and financial markets, the lingering effects of the COVID-19 ~~Pandemic~~

~~On March 11, 2020, the~~ ~~World Health Organization declared the outbreak of COVID-19 as a global~~ pandemic ~~which has spread throughout~~and increased inflation. The general economic and capital market conditions both in the U.S. and ~~around~~worldwide, have been volatile in the ~~world.~~ past and at times have adversely affected our access to capital and increased the cost of capital. The ~~Company’s~~capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected.

The COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. Additionally, our operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in

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economic conditions, supply chain constraints, logistics challenges, labor shortages, disruptions in the banking system and financial markets, the conflict in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Although we may take measures to mitigate these impacts, if these measures are not effective, our business, financial condition, results of operations, and ~~financial condition have been and may continue to~~liquidity could be materially 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 were able to continue working independently in the at-home portion of the treatment, with remote check-ins with their certified therapists. While all clinics have re-opened, as of December 31, 2021, they were all operating at reduced capacity, which limited operations to 50% capacity during the second half of 2021. Some patients 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 increased throughout all provinces throughout 2021, facilitating the lifting of some of the previously imposed restrictions. As of April 2022, capacity has returned to 100%. We continue to monitor the impact of COVID-19 and adjust our operations as the circumstances change.

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

The COVID-19 pandemic has and may continue to cause delays in or the suspension of our business partners manufacturing operations, our research and product development activities, our regulatory workstreams, our research and development activities and other important commercial functions. We are also dependent upon our suppliers for the manufacture of our PoNS device. In the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in our product development activities. Such diversion of suppliers’ resources may occur again in the future, and the pandemic could limit our suppliers’ ability to travel or ship materials or force temporary closure of facilities that we rely upon. Manufacturing delays have occurred and may also occur as the result of labor shortages. Two of our suppliers experienced significant labor shortages as a result of COVID-19 from the end of November 2021 through early January 2022 which reduced the available resources needed to build and test product which may delay the timing for the submission and approval of our marketing applications with regulatory agencies. Further, the economic impact of the COVID-19 pandemic could affect our ability to access the public markets and obtain necessary capital in order to properly capitalize and continue our operations.

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

~~Other Trends and Uncertainties~~

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

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

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

Results of Operations

Three Months Ended March 31, ~~2022~~2023 compared to the Three Months Ended March 31, ~~2021~~2022

The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022 ~~and 2021 (amounts in~~(in thousands):

Three Months Ended

March 31,

2022

2021

Change

Revenue:

Product sales

$
183

$
77

$
106

License revenue

7

7

—

Total operating revenue

190

84

106

Cost of sales:

Cost of product sales

124

15

109

Gross profit

66

69

(3
)
Operating expenses:

Research and development

1,764

1,316

448

Selling, general and administrative

2,819

2,197

622

Amortization expense

47

57

(10
)
Total operating expenses

4,630

3,570

1,060

Operating loss

(4,564
)

(3,501
)

(1,063
)
Other income:

Other income

1

—

1

Foreign exchange gain

217

139

78

Total other income

218

139

79

Net loss

$
(4,346
)

$
(3,362
)

$
(984
)


	Three Months Ended March 31,
	2023		2022		Change
Revenue:
Product sales, net:
United States	$	75	$	—	$	75
Canada		31		183		(152)
Total product sales, net		106		183		(77)
Other revenue		5		7		(2)
Total revenue		111		190		(79)
Cost of revenue		122		124		(2)
Gross profit (loss)		(11)		66		(77)
Operating expenses:
Selling, general and administrative		2,874		2,819		55
Research and development		886		1,764		(878)
Amortization expense		39		47		(8)
Total operating expenses		3,799		4,630		(831)
Loss from operations		(3,810)		(4,564)		754
Nonoperating income (expense)
Interest income (expense), net		100		—		100
Change in fair value of derivative liability		1,221		—		1,221
Foreign exchange (loss) gain		(5)		217		(222)
Other income (expense), net		—		1		(1)
Nonoperating income (expense), net		1,316		218		1,098
Loss before provision for income taxes		(2,494)		(4,346)		1,852
Provision for income taxes		—		—		—
Net loss	$	(2,494)	$	(4,346)	$	1,852

~~Revenue~~

~~For the three months ended March 31, 2022, we recognized revenue of $190 thousand, of which $183 thousand was generated through~~Revenue

The decrease in net product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and included approximately $120 thousand of PoNS devices delivered pursuant to the Co-Promotion Agreement with HTC. We recognized revenue of $77 thousand for the three months ended March 31, ~~2021, through~~2023 as compared with the same period in the prior year was primarily attributable to lower Canada product sales, ~~of our PoNS device~~partially offset by net product sales in the United States. Commercial product sales in the United States commenced in April 2022. Canada ~~pursuant to our executed supply agreements with neuroplasticity clinics in Canada. License fee revenue related to our C-Promotion Agreement with HTC was $7 thousand~~product sales for the three months ended March 31, 2022 ~~and March 31, 2021 respectively.~~included approximately $120 thousand of revenue recognized in connection with the delivery of the remaining 16 PoNS devices that had been included as noncash consideration in the Company’s acquisition of Heuro Canada, Inc.

Cost of ~~Sales~~Revenue

~~Cost~~The cost of ~~product sales includes the cost~~revenue remained relatively unchanged period over period primarily due to ~~manufacture the PoNS device, royalty expense, freight charges, customs duties as well as wages~~fixed overhead costs, which are primarily comprised of salaries and ~~salaries~~benefits of employees involved in ~~the~~ management of the supply ~~chain~~chain.

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Selling, General and ~~logistics~~Administrative Expense

The net increase in selling, general and administrative expenses was the result of ~~fulfilling our sales orders. For~~a $0.4 million net increase in professional fees incurred primarily in connection with certain registration statement filings with the ~~three months ended March 31, 2022, we incurred $124 thousand~~Securities and Exchange Commission, which was largely offset by a $0.3 million decrease in ~~cost of sales. For the three months ended March 31, 2021, we~~

incurred $15 thousand in cost of sales. The increase was primarily attributable to overhead costs including wages and salaries of employees and contractors involved in the management of the supply chain and the production ramp to meet anticipated demandpersonnel related ~~to the U.S. launch.~~costs.

Research and Development Expense

~~Research~~The decrease in research and development ~~or R&D,~~ expenses ~~were $1.8 million~~was driven primarily by a decrease in product development expenses and clinical trial activities as we transitioned our focus from product development and clinical trials to U.S. commercialization activities.

Amortization Expense

Amortization expense is primarily comprised of the amortization of acquired finite-lived intangible assets. The change in amortization expense period over period is primarily due to certain intangible assets becoming fully amortized.

Nonoperating income (expense)

Interest Income (Expense), Net

Net interest income for the three months ended March 31, 2023 was primarily attributable to interest income earned on investments of excess cash in an unrestricted money market savings account and a certificate of deposit.

Change in Fair Value of Derivative Liability

As discussed in more detail in Note 6 to our Unaudited Condensed Consolidated Financial Statements, the warrants issued in connection with the public offering completed on August 9, 2022 ~~compared to $1.3 million~~are being accounted for as a derivative liability instrument. The change in fair value of derivative liability for the three months ended March 31, ~~2021, an increase~~2023 of ~~$0.5 million. The increase was primarily attributable to cost related to on-going product improvement in the PoNS device and increased personnel expenses to support clinical development activities.~~

~~Selling, General and Administrative Expense~~

~~Selling, general and administrative, or SG&A, expenses were $2.8~~$1.2 million ~~for the three months ended March 31, 2022 compared to $2.2 million for the three months ended March 31, 2021, an increase of approximately $0.6 million. The increase was primarily~~is due to ~~increased compensation expenses related to personnel additions~~a decrease in ~~late 2021 and the first quarter 2022 to support the U.S. commercial launch.~~our stock price.

~~Amortization Expense~~

Amortization expense consists of the periodic amortization of intangible assets, including 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 March 31, 2022, amortization expense was $47 thousand compared to $57 thousand for the comparable period in 2021.

Foreign Exchange (Loss) Gain

~~Foreign~~The change in foreign exchange (loss) gain ~~was $0.2million for the three months ended March 31, 2022, compared to a gain of $0.1 million for the three months ended March 31, 2021. This~~ was primarily due to fluctuations in the ~~foreign~~Canadian to U.S. dollar exchange ~~rate~~rates.

Liquidity and Capital Resources

The following table summarizes our cash and cash equivalents and working capital as of December 31, 2022 and 2021 (in thousands):


	March 31,		December 31,
	2023		2022
Cash and cash equivalents	$	11,340	$	14,549
Working capital		11,420		14,709

Our available capital resources have been primarily used to expand our U.S. commercialization efforts, fund manufacturing activities for the PoNS device, conduct clinical trials and for working capital and general corporate purposes. Our primary sources of cash and cash equivalents have been proceeds from public and private offerings of our Class A common stock, which most recently included $16.3 million in net proceeds we received from a public offering of our Class A common stock and warrants completed in August 2022 (“August 2022 Public Offering”) as discussed in more detail in Note 8 to our Consolidated Financial Statements included our 2022 10-K.

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

Statement of Cash Flows

The following table summarizes our cash flows for the three months ended March 31, 2023 and 2022 ~~and 2021 (amounts in~~(in thousands):

Three Months Ended March 31,

2022

2021

Change

Net cash used in operating activities

$
(4,682
)

$
(2,921
)

$
(1,761
)
Net cash provided by (used in) investing activities

4

(21
)

25

Net cash (used in) provided by financing activities

(17
)

11,020

(11,037
)
Effect of exchange rate changes on cash

—

(12
)

12

Net (decrease) increase in cash

$
(4,695)

$
8,066

$
(12,761
)


	Three Months Ended March 31,
	2023		2022		Change
Net cash used in operating activities	$	(3,190)	$	(4,682)	$	1,492
Net cash (used in) provided by investing activities		(19)		4		(23)
Net cash used in financing activities		—		(17)		17
Effect of foreign exchange rate changes on cash		—		—		—
Net increase in cash and cash equivalents	$	(3,209)	$	(4,695)	$	1,486

Net Cash Used in Operating Activities

~~Net~~The lower level of cash used in operating activities in the three months ended March 31, 2023 primarily resulted from the decrease in net loss for the three months ended March 31, 2023 as compared with the same period in the prior year.

Net Cash Used in Investing Activities

Our investing activities are primarily related to the purchases of property and equipment.

Net Cash Provided by Financing Activities

We did not complete any public or private offerings of our Class A common stock during the three months ended March 31, ~~2022 was $4.7 million. This was comprised primarily of net loss of $4.3 million, the reduction of accrued liabilities for annual bonus payments~~2023 and ~~the reduction for deferred revenue related to product sales in the first quarter 2022, offset by $0.4 million of stock-based compensation payments and unrealized foreign exchange gain of $0.2 million.~~

Net cash used in operating activities during the three months ended March 31, 2021 was $2.9 million. This was comprised of net loss of $3.4 million, offset primarily by $0.5 million of stock-based compensation payments.

~~Net Cash Provided by (Used in) Investing Activities~~

~~Net cash provided by investing activities was $4 thousand for~~2022. During the three months ended March 31, 2022, compared to net cash used in investing activities of $21 thousand during the three months ended March 31, 2021 and were primarily related to the sales and purchase of furniture and equipment in each of the respective periods.

~~Net Cash (Used in) Provided by Financing Activities~~

~~Net cash used in financing activities was~~we paid $17 thousand ~~during the three months ended March 31, 2022 for payment~~ of ~~issuance costs for common stock issued in November 2021.~~

Net cash provided by financing activities during the three months ended March 31, 2021 was $11.0 million, which consisted of proceeds from the issuance of common stock from the February 2021 Offering, net ofaccrued share issuance costs ~~and proceeds from the exercise~~related to a public offering of ~~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~~Class A common stock ~~and exercises of stock options and warrants. From June 2014 through March 31, 2022, we raised approximately $130.6 million~~completed in ~~gross proceeds from various public and private offerings of our common stock as well as the exercise of stock options and warrants.~~November 2021.

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

March 31, 2022

December 31, 2021

Cash

$
6,310

$
11,005

Working capital

$
5,827

$
9,941

Cash ~~Requirements~~

~~Funding~~ Requirements

Our ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful commercialization of PoNS Therapy in the U.S. Our net loss was ~~$4.3~~$2.5 million and ~~$3.4~~$4.3 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively. As of March 31, ~~2022,~~2023, we had an accumulated deficit of ~~$141.4~~$153.6 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. These and other factors indicate substantial doubt about our ability to continue as a going concern. Refer to Note 1 to our Unaudited Condensed Consolidated Financial Statements for additional discussion about our going concern uncertainty.

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

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

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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.

~~Contractual and Other Obligations~~

We have entered into arrangements that contractually obligate us to make payments that will affect our liquidity and cash flows in future periods. Such arrangements include those related to our lease commitments.

~~Lease Commitments~~

Our cash requirements greater than twelve months from various contractual obligations and commitments include operating lease liabilities. Our lease commitments reflect payments due for our lease arrangement for office space at our head office located in Newtown, Pennsylvania. As of March 31, 2022, our contractual commitment for our leases was $0.2 million. The amount of lease commitments reflects payments due for the new lease in Newtown, Pennsylvania that commenced on January 1, 2022 and is contracted to terminate on March 31, 2025 as well as the lease in Ewing, New Jersey that commenced on February 1, 2022 and is contracted to terminate on January 31, 2024. See Note 6 “Commitments and Contingencies” 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.

~~Other Obligations~~

We enter into contracts in the normal course of business with various third parties for clinical trials, testing and manufacturing, and other services and products for operating purposes. These contracts provide for termination upon notice. Payments due upon cancellation generally consist only of payments for services provided or expenses incurred, including non-cancellable obligations of our service

~~providers, up to the date of cancellation. These payments have not been separately included within these contractual and other obligations disclosures.~~

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~~Unaudited Condensed Consolidated Financial Statements that have been prepared in accordance with U.S. GAAP. This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.

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

Recently Issued Accounting Pronouncements

The information set forth in Note 2 ~~“Summary of Significant Accounting Policies”~~ to our ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements under Part I, Item 1, “Condensed Consolidated Financial Statements” is incorporated herein by reference.

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 Chief Executive Officer and our Chief Financial Officer, we have evaluated our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report. OurOur 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 – OTHER INFORMATION

Item 1. Legal Proceedings

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

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Item 1A. Risk Factors

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

~~We depend on third parties for the manufacture and distribution of our product and the loss of our third-party manufacturer and distributor could 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 result in their inability to manufacture sufficient quantities of our commercially 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.

~~The market price of our common stock has been and may be volatile and fluctuate substantially, which could result in substantial losses for our common stock~~.

Securities of microcap and small-cap companies, including biotechnology companies in particular, have experienced substantial volatility in the recent past, often based on factors unrelated to the companies’ financial performance or prospects. We believe that trading in our stock has been and will likely continue to be subject to significant volatility.

These factors include macroeconomic developments in North America and globally and market perceptions of the attractiveness of particular industries. Factors unrelated to our performance that may affect the price of our common stock include the following: the extent of analytical coverage available to investors concerning our business may be limited if investment banks with research capabilities do not follow us, a reduction in trading volume and general market interest in our common stock may affect an investor’s ability to trade significant numbers of shares of our common stock: the size of our public float may limit the ability of some institutions to invest in our common stock. As a result of any of these factors, the market price of our common stock at any given point in time may not accurately reflect our long-term value. The price of our common stock may increase or decrease in response to a number of events and factors, including changes in financial estimates, our acquisitions and financings, quarterly variations in our operating results, the operating and share price performance of other companies that investors may deem comparable and purchase or sale of blocks of our common stock. These factors, or any of them, may materially adversely affect the prices of our common shares regardless of our operating performance.

The market price of our common stock is affected by many other variables which are not directly related to our success and are, therefore, not within our control. These include other developments that affect the breadth of the public market for shares of our common stock and the attractiveness of alternative investments. The effect of these and other factors on the market price of our common stock is expected to make our common stock price volatile in the future, which may result in losses to investors.

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

None.

Item 3. Defaults upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

~~Not applicable.~~None.

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Item 6. Exhibits


Exhibit No.		Description of Exhibit
3.1		Certificate of Conversion filed with the Delaware Secretary of State on July 18, 2018 (incorporated by reference to Exhibit 3.1 to the Form 10-Q filed August 9, 2018)
3.2		Certificate of Incorporation, as corrected (incorporated by reference to Exhibit 3.1 to the Form 8-K filed October 30, 2018)
3.3		Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 31, 2020)
3.4		Certificate of Designation of the Series B Preferred Stock of the Registrant (incorporated by reference to Exhibit 3.1(a) to the Registrant’s Registration Statement on Form 8-A, filed with the Securities and Exchange Commission on March 24, 2023)
3.5		Bylaws as amended and restated (incorporated by reference to Exhibit 3.3 to the Form 10-Q filed August 9, 2018)
31.1#		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2#		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), as adopted pursuant to ~~Section302~~Section 302 of the Sarbanes-Oxley Act of 2002
32.1#*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2#*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS#		Inline XBRL Instance Document
101.SCH#		Inline XBRL Taxonomy Extension Schema Document
101.CAL#		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB#		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE#		Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF#		Inline XBRL Taxonomy Extension Definition Linkbase Document
104#		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

#	Filed herewith.

~~# 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.

Table 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.Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	HELIUS MEDICAL TECHNOLOGIES, INC.

Dated: May ~~12, 2022~~11, 2023	By:	/s/ Dane C. Andreeff
		Dane C. Andreeff
		President and Chief Executive Officer ~~and a Director~~

Dated: May ~~12, 2022~~11, 2023	By:	/s/ Jeffrey S. Mathiesen
		Jeffrey S. Mathiesen
		Chief Financial Officer, Treasurer and ~~Treasurer~~ Secretary (Principal Financial
		Officer and Principal Accounting Officer)



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


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


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

	March 31, 2022			December 31, 2021
ASSETS
Current assets
Cash	$	6,310		$	11,005
Accounts receivable, net		60			66
Other receivables		185			185
Inventory, net		520			476
Prepaid expenses		951			862
Total current assets		8,026			12,594
Property and equipment, net		380			409
Other assets
Goodwill		777			763
Intangible assets, net		291			333
Other non-current assets		4			—
Operating lease right-of-use asset, net		140			3
Total other assets		1,212			1,099
TOTAL ASSETS	$	9,618		$	14,102
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	1,111		$	1,069
Accrued liabilities		1,008			1,433
Operating lease liability		51			3
Deferred revenue		29			148
Total current liabilities		2,199			2,653
Non-current liabilities
Operating lease liability		99			—
Deferred revenue		190			193
TOTAL LIABILITIES		2,488			2,846
Commitments and contingencies (Note 6)
STOCKHOLDERS’ EQUITY
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Class A common stock, $0.001 par value; 150,000,000 shares authorized; 3,794,797 and 3,780,674 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		4			4
Additional paid-in capital		149,834			149,412
Accumulated deficit		(141,381	)		(137,035	)
Accumulated other comprehensive loss		(1,327	)		(1,125	)
TOTAL STOCKHOLDERS’ EQUITY		7,130			11,256
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,618		$	14,102

	Three Months Ended
	March 31,
	2022			2021
Revenue:
Product sales	$	183		$	77
License revenue		7			7
Total operating revenue		190			84
Cost of sales:
Cost of product sales		124			15
Gross profit		66			69
Operating expenses:
Research and development		1,764			1,316
Selling, general and administrative		2,819			2,197
Amortization expense		47			57
Total operating expenses		4,630			3,570
Operating loss		(4,564	)		(3,501	)
Other income:
Other income		1			—
Foreign exchange gain		217			139
Total other income		218			139
Net loss		(4,346	)		(3,362	)
Other comprehensive income:
Foreign currency translation adjustments		(202)			(128	)
Comprehensive loss	$	(4,548	)	$	(3,490	)
Net loss per share
Basic	$	(1.15	)	$	(1.65	)
Diluted	$	(1.15	)	$	(1.65	)
Weighted average shares outstanding
Basic		3,787,871			2,040,839
Diluted		3,787,871			2,040,839

	Common Stock, $0.001 par value				Additional Paid-In			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital			Deficit			Loss			Total
Balance as of December 31, 2020		1,484,362	$	1	$	123,872		$	(118,903	)	$	(1,099	)	$	3,871
Proceeds from the issuance of common stock from the February 2021 Offering		744,936		1		8,398			—			—			8,399
Warrants issuance from the February 2021 Offering		—		—		2,638			—			—			2,638
Share issuance costs		—		—		(1,361	)		—			—			(1,361	)
Proceeds from the exercise of warrants		81,633		—		1,314			—			—			1,314
Settlement of restricted stock units		937		—		—			—			—			—
Stock-based compensation		—		—		527			—			—			527
Foreign currency translation adjustments		—		—		—			—			(128	)		(128	)
Net loss		—		—		—			(3,362	)		—			(3,362	)
Balance as of March 31, 2021		2,311,868	$	2	$	135,388		$	(122,265	)	$	(1,227	)	$	11,898

	Common Stock, $0.001 par value				Additional Paid-In			Accumulated			Accumulated Other Comprehensive
	Shares		Amount		Capital			Deficit			Loss			Total
Balance as of December 31, 2021		3,780,674	$	4	$	149,412		$	(137,035	)	$	(1,125	)	$	11,256
Settlement of restricted stock units		1,584		—		—			—			—			—
Issuance of shares to a consultant for services		4,528		—		20			—			—			20
Stock-based compensation		8,011		—		402			—			—			402
Foreign currency translation adjustments		—		—		—			—			(202	)		(202	)
Net loss		—		—		—			(4,346	)		—			(4,346	)
Balance as of March 31, 2022		3,794,797	$	4	$	149,834		$	(141,381	)	$	(1,327	)	$	7,130

	As of			As of
	March 31, 2022			December 31, 2021
Raw materials	$	185		$	171
Work-in-process		410			528
Finished goods		53			32
Inventory	$	648		$	731
Inventory reserve		(128	)		(255	)
Total inventory, net of reserve	$	520		$	476

Carrying amount at December 31, 2021	$	763
Foreign currency translation		14
Carrying amount at March 31, 2022	$	777

		As of March 31, 2022						As of December 31, 2021
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization			Net Carrying Value
Acquired proprietary software	5 years		154		(75)		79		151		(66	)		85
Reacquired rights	3.87 years		514		(321)		193		505		(283	)		222
Internally developed software	3 years		84		(65)		19		84		(58	)		26
Total intangible assets		$	752	$	(461)	$	291	$	740	$	(407	)	$	333

For the Year Ending December 31,
2022 (remaining 9 months)		140
2023		125
2024		26
	$	291

	Number of Warrants		Weighted-Average Exercise Price

Outstanding as of December 31, 2021		593,924	$	16.32
Granted		—		—
Cancelled/Expired		—		—
Exercised		—		—
Outstanding as of March 31, 2022		593,924	$	16.32

				Weighted Average				Aggregate
				Remaining		Weighted		Intrinsic
	Number of			Contractual		Average		Value
	Stock Options			Life (in years)		Exercise Price		(in thousands)
Outstanding as of December 31, 2021		669,117		9.03		$	37.36	$	—
Granted		123,750					4.68		—
Forfeited/Cancelled		(7,639	)				82.37		—
Exercised		—					—		—
Outstanding as of March 31, 2022		785,228			8.96	$	31.77	$	—
Exercisable as of March 31, 2022		301,630			8.34	$	60.64	$	—

	Three Months Ended March 31, 2022
Stock price	$	4.68
Exercise price	$	4.68
Expected term	5.75
Expected volatility		73.53%
Risk-free interest rate		1.95%
Dividend rate		0.00	%

	Number of RSUs			Weighted Average Grant Date Fair Value per Unit
Outstanding as of December 31, 2021		2,359		$	15.76
Granted		—			—
Forfeited		—			—
Settled		(1,584	)		15.89
Outstanding as of March 31, 2022		775		$	15.53

	Three Months Ended March 31,
	2022		2021
Research and development	$	153	$	222
Cost of sales		3		—
Selling, general and administrative		212		305
Total	$	368	$	527

For the Three Months Ended March 31, 2022
Operating lease cost	$	—
Operating lease - operating cash flows	$	3.00
Weighted average remaining lease term	3.0 years
Weighted average discount rate		4.4	%

Future minimum lease payments under non-cancellable leases as of March 31, 2022 were as follows:
For the Period Ending December 31,
2022 (remaining nine months)	$	42.00
2023		58
2024		48
2025		12
Total future minimum lease payments		160
Less imputed interest		(10	)
Total liability	$	150
Reported as of March 31, 2022
Current operating lease liability	$	51.00
Non-current operating lease liability		99
Total	$	150

Title of each class

Trading Symbol(s)

~~Trading Symbol(s)~~

Name of each exchange on which registered

Class A Common Stock, $0.001 par value per share

The Nasdaq Stock Market LLC