UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No.
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of
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(I.R.S. Employer (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 4, 2021, the registrant had
HELIUS MEDICAL TECHNOLOGIES, INC.
INDEX
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Part I. |
Financial Information |
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Item 1. |
Condensed Consolidated Financial Statements |
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Unaudited Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020 |
3 |
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4 |
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5 |
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7 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
8 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
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Item 3. |
33 |
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Item 4. |
33 |
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Part II. |
34 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 2. |
36 |
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Item 3. |
36 |
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Item 4. |
36 |
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Item 5. |
36 |
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Item 6. |
37 |
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38 |
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2
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
(Except for share data, amounts in thousands)
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September 30, 2021 |
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December 31, 2020 |
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ASSETS |
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Current assets |
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Cash |
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$ |
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$ |
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Accounts receivable, net |
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Other receivables |
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Inventory, net |
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Prepaid expenses |
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Total current assets |
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Property and equipment, net |
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Other assets |
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Goodwill |
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Intangible assets, net |
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Operating lease right-of-use asset, net |
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Total other assets |
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TOTAL ASSETS |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS' EQUITY |
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Current liabilities |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Operating lease liability |
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Deferred revenue |
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Total current liabilities |
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Non-current liabilities |
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Operating lease liability |
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— |
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Deferred revenue |
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TOTAL LIABILITIES |
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Commitments and contingencies (Note 6) |
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STOCKHOLDERS’ EQUITY |
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Preferred stock, $ |
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Class A common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive loss |
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( |
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( |
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Accumulated deficit |
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( |
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( |
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TOTAL STOCKHOLDERS’ EQUITY |
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
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$ |
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$ |
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(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
3
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss
(Amounts in thousands except shares and per share data)
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Revenue: |
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Product sales |
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$ |
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$ |
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$ |
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$ |
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Fee revenue |
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— |
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— |
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— |
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License revenue |
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Total operating revenue |
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Cost of sales: |
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Cost of product sales |
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Gross profit |
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Operating expenses: |
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Research and development |
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Selling, general and administrative |
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Amortization expense |
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Total operating expenses |
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Operating loss |
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( |
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( |
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( |
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( |
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Other (expense) income: |
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Other income |
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— |
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— |
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— |
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Change in fair value of derivative financial instruments |
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— |
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— |
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Foreign exchange (loss) gain |
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( |
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( |
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Total other (expense) income |
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( |
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( |
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Net loss |
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( |
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( |
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( |
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( |
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Other comprehensive income (loss): |
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Foreign currency translation adjustments |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Net loss per share |
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Basic |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
( |
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Weighted average shares outstanding |
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Basic |
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Diluted |
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(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
4
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended September 30, 2021 and 2020
(Except share data, amounts in thousands)
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Common Stock, $0.001 par value |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Total |
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Balance as of June 30, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Settlement of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of September 30, 2020 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Common Stock, $0.001 par value |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Total |
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Balance as of June 30, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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Proceeds from the issuance of common stock pursuant to the LPC Purchase Agreement |
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— |
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— |
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— |
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Share issuance costs |
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— |
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( |
) |
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— |
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— |
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( |
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Settlement of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Balance as of September 30, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
( |
) |
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$ |
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(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
5
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Nine Months Ended September 30, 2021 and 2020
(Except share data, amounts in thousands)
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Common Stock, $0.001 par value |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Total |
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Balance as of December 31, 2019 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Proceeds from the issuance of common stock from At-the-Market program |
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— |
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— |
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— |
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Proceeds from issuance of common stock from the March 2020 Offering |
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— |
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— |
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— |
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Warrant issuance from the March 2020 Offering |
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— |
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— |
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— |
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— |
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Share issuance costs |
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— |
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— |
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( |
) |
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— |
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— |
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( |
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Settlement of restricted stock units |
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— |
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— |
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— |
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— |
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— |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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Foreign currency translation adjustments |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
|
Balance as of September 30, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Common Stock, $0.001 par value |
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Additional Paid-In |
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Accumulated Other Comprehensive |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Loss |
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Deficit |
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Total |
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||||||
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Balance as of December 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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|
Proceeds from the issuance of common stock from the February 2021 Offering |
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— |
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— |
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Warrant issuance from the February 2021 Offering |
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— |
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— |
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— |
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— |
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Proceeds from the issuance of common stock pursuant to the LPC Purchase Agreement |
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— |
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— |
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— |
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Share issuance costs |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Proceeds from the exercise of warrants |
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— |
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— |
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— |
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Proceeds from the exercise of stock options |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Settlement of restricted stock units |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Stock-based compensation |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance as of September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
6
Helius Medical Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Amounts in thousands)
|
|
|
Nine Months Ended |
|
|||||
|
|
|
September 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Change in fair value of derivative financial instruments |
|
|
— |
|
|
|
( |
) |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
|
Unrealized foreign exchange (gain) loss |
|
|
( |
) |
|
|
|
|
|
Depreciation expense |
|
|
|
|
|
|
|
|
|
Amortization expense |
|
|
|
|
|
|
|
|
|
(Recovery of) provision for doubtful accounts |
|
|
( |
) |
|
|
|
|
|
Non-cash lease expense |
|
|
|
|
|
|
|
|
|
Intangible asset impairment |
|
|
— |
|
|
|
|
|
|
Loss from disposal of property and equipment |
|
|
— |
|
|
|
|
|
|
Gain on lease modification |
|
|
— |
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
|
|
|
|
( |
) |
|
Other receivables |
|
|
( |
) |
|
|
|
|
|
Inventory |
|
|
( |
) |
|
|
|
|
|
Prepaid expenses |
|
|
( |
) |
|
|
( |
) |
|
Operating lease liability |
|
|
( |
) |
|
|
( |
) |
|
Accounts payable |
|
|
|
|
|
|
( |
) |
|
Accrued liabilities |
|
|
( |
) |
|
|
( |
) |
|
Deferred revenue |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from sale of property and equipment |
|
|
— |
|
|
|
|
|
|
Internally developed software |
|
|
( |
) |
|
|
( |
) |
|
Net cash (used in) provided by investing activities |
|
|
( |
) |
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
Proceeds from the issuances of common stock and warrants |
|
|
|
|
|
|
|
|
|
Share issuance costs |
|
|
( |
) |
|
|
( |
) |
|
Proceeds from the exercise of warrants and stock options |
|
|
|
|
|
|
— |
|
|
Proceeds from Paycheck Protection Program Loan |
|
|
— |
|
|
|
|
|
|
Repayment of Paycheck Protection Program Loan |
|
|
— |
|
|
|
( |
) |
|
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
|
Effect of foreign exchange rate changes on cash |
|
|
( |
) |
|
|
|
|
|
Net increase (decrease) in cash |
|
|
|
|
|
|
( |
) |
|
Cash at beginning of period |
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
|
|
|
$ |
|
|
|
Supplemental schedule of non-cash financing activities |
|
|
|
|
|
|
|
|
|
Non-cash share issuance costs |
|
|
|
|
|
|
— |
|
|
Share issuance costs included in accounts payable and accrued liabilities |
|
|
|
|
|
|
— |
|
(The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.)
7
Helius Medical Technologies, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
Helius Medical Technologies, Inc. (the “Company”), is a neurotech company focused on neurological wellness. The Company’s purpose is to develop, license or acquire unique and non-invasive technologies targeted at reducing symptoms of neurological disease or trauma.
The Company’s first product, known as the Portable Neuromodulation Stimulator (“PoNS®”), is an innovative non-surgical medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and is indicated for use in the United States as a short term treatment of gait deficit due to mild-to-moderate symptoms from multiple sclerosis (“MS”), and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. It is not expected to be commercially available in the United States until the first quarter of 2022. PoNS is authorized for sale in Canada 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”) and is to be used in conjunction with physical therapy (“PoNS Treatment®”); and (ii) PoNS is authorized for use as a short term treatment (14 weeks) of gait deficit due to mild 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.
The Company was incorporated in British Columbia, Canada on
Reverse Stock Split
Effective after the close of business on December 31, 2020, the Company completed a
Going Concern Uncertainty
As of September 30, 2021, the Company had cash of $
The Company intends to fund ongoing activities by utilizing its current cash on hand, cash received from the sale of its PoNS™ device in Canada and by raising additional capital through equity or debt financings as 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. There can be no assurance that the Company will be successful in raising that additional capital or that such capital, if available, will be on terms that are acceptable to the Company. If the Company is unable to raise sufficient additional capital, the Company may be compelled to reduce the scope of its operations and planned capital expenditures.
Risks and Uncertainties
COVID-19
On March 11, 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a global pandemic, which continues to spread throughout the United States and around the world. The Company’s business, results of operations and financial condition have been and may continue to be adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 has significantly increased economic uncertainty. Authorities implemented, and continue to implement, numerous measures to try to contain COVID-19, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. The COVID-19 pandemic initially led to the closure of PoNS Authorized clinic locations across Canada. While all clinics have re-opened, they are all currently operating at reduced capacity, and patients have been and may continue to be less willing to return to these clinics, impacting our commercial activities and our customer engagement efforts. In addition, the resurgence of COVID-19 cases across Canada in the fourth quarter of 2020 and first half of
8
2021 led to further restrictions on clinic activities. However, the rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions during the third quarter of 2021. Moreover, the Company’s ability to conduct its ongoing clinical experience programs and clinical trials in Canada 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. Disruptions in business or governmental operations due to COVID-19 may delay the timing for the submission and approval of the Company’s marketing applications with regulatory agencies. Further, the economic impact of the COVID-19 pandemic could affect the Company’s ability to access the public markets and obtain necessary capital in order to properly capitalize and continue its operations.
To the extent the COVID-19 pandemic impacts the Company’s ability to complete the necessary pre-commercialization activities, the Company’s commercial launch in the U.S. could be impeded or delayed. The extent to which the COVID-19 pandemic will continue to impact the Company’s business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. The Company does not know yet the full extent of the impact of COVID-19 on its future business, operations or the global economy as a whole.
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, 2020, included in its Annual Report on Form 10-K that was filed with the Securities and Exchange Commission on March 10, 2021. The information furnished in the consolidated condensed financial statements include all adjustments (consisting of only normal, recurring adjustments), considered necessary to present fairly the results of operations, financial position and cash flows of the Company. The Company’s reporting currency is the U.S. Dollar (“USD$”).
Use of Estimates
The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and disclosure of contingent assets and liabilities. Significant estimates include the assumptions used in the fair value pricing model for stock-based compensation, derivative financial instruments and deferred income tax asset valuation allowance. Financial statements include estimates which, by their nature, are uncertain. Actual outcomes could differ from these estimates.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements reflect the operations of Helius Medical Technologies, Inc. and its wholly owned subsidiaries. The usual condition for a controlling financial interest is ownership of a majority of the voting interests of an entity. However, a controlling financial interest may also exist through arrangements that do not involve controlling voting interests. As such, the Company applies the guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810 – Consolidation (“ASC 810”), to determine when an entity that is insufficiently capitalized or not controlled through its voting interests, referred to as a variable interest entity should be consolidated. All intercompany balances and transactions have been eliminated.
Concentrations of Credit Risk
The Company is subject to credit risk with respect to its cash. Amounts invested in such instruments are limited by credit rating, maturity, industry group, investment type and issuer. The Company is not currently exposed to any significant concentrations of credit risk from these financial instruments. The Company seeks to maintain safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements and a competitive after-tax rate of return.
Receivables
Accounts receivables are stated at their net realizable value. In determining the appropriate allowance for doubtful accounts, the Company considers a combination of factors, such as the aging of trade receivables, its customers’ financial strength, and payment history. Changes in these factors, among others, may lead to adjustments in the Company’s allowance for doubtful accounts. The calculation of the allowance required judgment by Company management. As of September 30, 2021, the Company’s accounts receivable of $
Other receivables as of September 30, 2021 and December 31, 2020 included refunds from research and development (“R&D”) tax credits of $
9
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.
As of September 30, 2021 and December 31, 2020, inventory consisted of the following (amounts in thousands):
|
|
|
As of |
|
|
As of |
|
||
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Raw materials |
|
$ |
|
|
|
$ |
|
|
|
Work-in-process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Inventory |
|
$ |
|
|
|
$ |
|
|
|
Inventory reserve |
|
|
( |
) |
|
|
( |
) |
|
Total inventory, net of reserve |
|
$ |
|
|
|
$ |
|
|
Property and Equipment
Property and equipment are carried at cost, less accumulated depreciation. Depreciation is recognized using the straight-line method over the useful lives of the related asset or the term of the related lease. Expenditures for maintenance and repairs, which do not improve or extend the expected useful life of the assets, are expensed to operations while major repairs are capitalized. The estimated useful life of the Company’s leasehold improvements is over the shorter of its lease term or useful life of
As of September 30, 2021 and December 31, 2020, property and equipment consisted of the following (amounts in thousands):
|
|
|
As of |
|
|
As of |
|
||
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Leasehold improvement |
|
$ |
|
|
|
$ |
|
|
|
Furniture and fixtures |
|
|
|
|
|
|
|
|
|
Equipment |
|
|
|
|
|
|
|
|
|
Computer software and hardware |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
|
|
|
|
|
|
|
Less accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Property and equipment, net |
|
$ |
|
|
|
$ |
|
|
Depreciation expense was $
Goodwill and Other Intangible Assets
Goodwill represents the excess of purchase price over the fair values underlying net assets acquired in an acquisition. All of the Company’s goodwill as of September 30, 2021 is the result of the Heuro acquisition completed in October 2019. Goodwill is not amortized, but rather will be tested annually for impairment or more frequently if events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Company will test goodwill for impairment annually in the fourth quarter of each year using data as of October 1 of that year.
Goodwill is allocated to and evaluated for impairment at the Company’s one identified reporting unit. Goodwill is tested for impairment by either performing a qualitative evaluation or a quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. The Company may elect not to perform the qualitative assessment for its reporting unit and perform the quantitative impairment test. The quantitative goodwill impairment test requires the Company to compare the carrying value of the reporting unit’s net assets to the estimated fair value of the reporting unit.
If the estimated fair value exceeds the carrying value, no further evaluation is required, and
10
The following is a summary of the activity for the period ended September 30, 2021 for goodwill:
|
Carrying amount at December 31, 2020 |
|
$ |
|
|
|
Foreign currency translation |
|
|
|
|
|
Carrying amount at September 30, 2021 |
|
$ |
|
|
Definite-lived intangibles consist principally of acquired customer relationships, proprietary software and reacquired rights as well as internally developed software. All are amortized straight-line over their estimated useful lives. Amortization expense related to intangible assets was $
Intangible assets as of September 30, 2021 and December 31, 2020 consist of the following:
|
|
|
|
|
As of September 30, 2021 |
|
|
As of December 31, 2020 |
|
||||||||||||||||||
|
|
|
Useful Life |
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Value |
|
||||||
|
Customer relationships (1) |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Acquired proprietary software |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Reacquired rights |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Internally developed software |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total intangible assets |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
(1) |
During the nine months ended September 30, 2021, the Company wrote off $ |
Amortization expense is anticipated to be as follows in future years:
|
For the Year Ending December 31, |
|
|
|
|
|
2021 (remaining 3 months) |
|
$ |
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
|
|
$ |
|
|
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
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
11
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. For the three and nine12
months ended September 30, 2020, the Company recorded $
Fee Revenue
During the three and nine months ended September 30, 2020, the Company recognized $
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$
As of September 30, 2021 and December 31, 2020, the Company had
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 than
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was signed into law. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations, increased limitations on qualified charitable contributions, and technical corrections to tax depreciation methods for qualified improvement property. We continue to examine the impact that the CARES Act may have on our business. The CARES Act has not had a material impact on our accounting for income taxes.
13
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
Derivative Financial Instruments
The Company evaluates its financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815, Derivatives and Hedging (“ASC 815”). The result of this accounting treatment is that the fair value of the derivative is re-measured at each balance sheet date and recorded as a liability or asset and the change in fair value is recorded in the condensed consolidated statements of operations and comprehensive loss. As of December 31, 2020, the Company’s derivative financial instruments accounted for in accordance with ASC 815 were comprised of warrants issued in connection with both public and/or private securities offerings. Upon settlement of a derivative financial instrument, the instrument is re-measured at the settlement date and the fair value of the underlying instrument is reclassified to equity.
The classification of derivative financial instruments, including whether such instruments should be recorded as liabilities/assets or as equity, is reassessed at the end of each reporting period. Derivative financial instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative financial instruments will be classified in the condensed consolidated balance sheet as current if the right to exercise or settle the derivative financial instrument lies with the holder.
The last of the warrants accounted for in accordance with ASC 815 expired in and as such, as of September 30, 2021, the Company does not hold any derivative financial instruments accounted for in accordance with ASC 815.
Fair Value Measurements
The Company accounts for financial instruments in accordance with ASC 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under ASC 820 are described below:
Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly; and
Level 3 – Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.
The Company’s financial instruments recorded in its condensed consolidated balance sheets consist primarily of cash, accounts receivable, other current receivables, operating lease ROU asset, accounts payable, accrued liabilities, operating lease liability and derivative financial instruments. The book values of these instruments, with the exception of derivative financial instruments, non-current lease liability and operating lease ROU asset approximate their fair values due to the immediate or short-term nature of these instruments.
The Company’s derivative financial instruments are classified as Level 3 within the fair value hierarchy. Unobservable inputs used in the valuation of these financial instruments include volatility of the underlying share price and the expected term. See Note 3 for the inputs used in the Black-Scholes option pricing model as of December 31, 2020 and the roll forward of the Company’s derivative financial instruments. The Company’s derivative financial instruments were comprised of warrants classified as liabilities. The fair value of the derivative financial instruments as of December 31, 2020 was
14
There were no transfers between any levels for any of the periods presented.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company's assets and liabilities are also subject to nonrecurring fair value measurements. Generally, assets are recorded at fair value on a nonrecurring basis as a result of impairment charges. Due to the COVID-19 pandemic and the related risks and uncertainties, the Company’s customer relationship intangible asset incurred an impairment loss during the nine months ended September 30, 2020 of $
Basic and Diluted Net Loss per Share
Earnings or loss per share (“EPS”) is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income (loss) by the weighted average of all potentially dilutive shares of common stock that were outstanding during the periods presented.
The treasury stock method is used in calculating diluted EPS for potentially dilutive stock options and share purchase warrants, which assumes that any proceeds received from the exercise of in-the-money stock options and share purchase warrants, would be used to purchase common shares at the average market price for the period, unless including the effects of these potentially dilutive securities would be anti-dilutive.
The basic and diluted loss per share for the periods noted below is as follows (amounts in thousands except shares and per share data):
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Three Months Ended |
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Nine Months Ended |
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September 30, |
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September 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Basic and Diluted |
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Numerator: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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$ |
( |
) |
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Denominator: |
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Weighted average common shares outstanding |
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Basic and diluted net loss per share |
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$ |
( |
) |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815) and Leases (Topic 842): Effective Dates, which amends the effective date of ASU 2016-13. Public business entities that meeting the definition of an SEC filer, excluding entities eligible to be a Smaller Reporting Company (“SRC”) as defined by the SEC, are required to adopt the standard for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. All other entities are required to adopt the standard for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The Company meets the definition of an SRC and therefore the standard will not be effective until the beginning of 2023. The Company is evaluating the effect that ASU 2016-13 will have on its condensed consolidated financial statements.
In August 2020, FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The guidance is effective for interim and annual periods beginning after December 15, 2021. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. FASB has specified that an entity should adopt the guidance as of the beginning of its annual fiscal year. The guidance is to be applied using either a full retrospective or modified retrospective method. In applying the full retrospective method, the cumulative effect of the accounting change should be recognized as an adjustment to the opening balance of retained earnings in the first comparative period presented. In applying the modified retrospective method, the cumulative effect of the accounting change should be recognized as an adjustment to the opening balance of retained earnings at the date of adoption. The Company early adopted ASU
15
2020-06 effective
3. COMMON STOCK AND WARRANTS
The Company’s authorized capital stock pursuant to its Delaware charter consists of
2020 At the Market Offering
On January 27, 2020, the Company filed a Form S-3 shelf registration under the Securities Act which was declared effective by the SEC on February 6, 2020 (the “2020 Shelf”). In conjunction with the 2020 Shelf, on January 27, 2020, the Company entered into an At The Market Offering Agreement (the “2020 ATM”) with H.C. Wainwright & Co., LLC (“Wainwright”) under which the Company may offer and sell, from time to time at its sole discretion, to or through Wainwright, acting as agent and/or principal, shares of its common stock having an aggregate offering price of up to $
March 2020 Offering
On March 20, 2020, the Company, in a registered direct offering, issued an aggregate of
Each warrant issued in connection with the March 2020 Offering entitles the holder to acquire
The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the March 2020 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on March 20, 2020.
|
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March 20, 2020 |
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Stock price |
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$ |
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|
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Exercise price |
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$ |
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Warrant term |
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|
Expected volatility |
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% |
|
Risk-free interest rate |
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|
|
% |
|
Dividend rate |
|
|
|
% |
October 2020 Offering
On October 26, 2020, the Company issued units consisting of
Pursuant to the securities purchase agreement for the October 2020 Offering, if the Company issues any shares of common stock or common stock equivalents for cash consideration, indebtedness or a combination thereof, with certain exceptions, within twelve months of the closing of the October 2020 Offering, each purchaser who subscribed for at least $
16
portion of
Pursuant to the guidance of ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging, the Company has determined that warrants issued in connection with the October 2020 Offering should be classified as equity as partial cash settlement under certain circumstances did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $
The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the October 2020 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on October 26, 2020.
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|
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October 26, 2020 |
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Stock price |
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$ |
|
|
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Exercise price |
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$ |
|
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Warrant term |
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|
|
Expected volatility |
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% |
|
Risk-free interest rate |
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|
% |
|
Dividend rate |
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|
% |
February 2021 Offering
On February 1, 2021, in an underwritten public offering (the “February 2021 Offering”), the Company issued
Pursuant to the guidance of ASC 480 Distinguishing Liabilities from Equity and ASC 815 Derivatives and Hedging, the Company has determined that warrants issued in connection with the February 2021 Offering should be classified as equity as partial cash settlement under certain circumstances and provisions related to market volatility did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $
The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants granted in the February 2021 Offering using the Black-Scholes option pricing model as of the date of the closing of the offering on February 1, 2021.
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February 1, 2021 |
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Stock price |
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$ |
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Exercise price |
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$ |
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Warrant term |
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Expected volatility |
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% |
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Risk-free interest rate |
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% |
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Dividend rate |
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% |
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 $
Lincoln Park has no right to require the Company to sell any shares of common stock to Lincoln Park, but Lincoln Park is obligated to make purchases as the Company directs, subject to certain conditions.
The number of shares the Company may sell to Lincoln Park on any single business day (provided that the closing sale price of the common stock is not below the “floor price” stated in the LPC Purchase Agreement) in a regular purchase is
17
to a maximum limit of $
Under applicable rules of the Nasdaq Capital Market, the Company may not issue or sell to Lincoln Park under the LPC Purchase Agreement more than
In all instances, the LPC Purchase Agreement prohibits the Company from directing Lincoln Park to purchase any shares of its common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by Lincoln Park, would result in Lincoln Park beneficially owning more than
The Company has agreed with Lincoln Park that it will not enter into an additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with the Company to purchase securities over a period of time from the Company at a price based on the market price of the common stock at the time of such purchase for a period defined in the LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares.
Actual sales of common stock to Lincoln Park will depend on a variety of factors to be determined by the Company from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. The net proceeds under the LPC Purchase Agreement to the Company will depend on the frequency and prices at which the Company sells shares of its common stock to Lincoln Park.
During the nine months ended September 30, 2021, all of which occurred during the third quarter of 2021, the Company sold and issued
Warrants
The following is a summary of the Company’s warrant activity during the nine months ended September 30, 2021:
|
|
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Number of Warrants |
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|
Weighted Average Exercise Price |
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CAD |
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US |
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CAD$ |
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USD$ |
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||||
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Outstanding as of December 31, 2020 |
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$ |
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$ |
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Granted |
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— |
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— |
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Cancelled/Expired |
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( |
) |
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— |
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— |
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Exercised |
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— |
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( |
) |
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— |
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|
|
Outstanding as of September 30, 2021 |
|
|
— |
|
|
|
|
|
|
$ |
— |
|
|
$ |
|
|
The Company’s warrants outstanding and exercisable as of September 30, 2021 were as follows:
|
Number of Warrants Outstanding |
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|
Exercise Price |
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Expiration Date |
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18
4. STOCK-BASED PAYMENTS
2018 Omnibus Incentive Plan
On May 15, 2018, the Company’s Board of Directors authorized and approved the adoption of the 2018 Omnibus Incentive Plan, (as amended, the “2018 Plan”), which was effective upon approval by the stockholders of the Company on June 28, 2018 and under which an aggregate of
As of September 30, 2021, there was an aggregate of
2021 Inducement Plan
On July 2, 2021, the Company adopted the Helius Medical Technologies, Inc. 2021 Inducement Plan (the “Inducement Plan”), pursuant to which the Company reserved
The Inducement Plan permits the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and cash awards, and other share‑based awards.
As of September 30, 2021, there was an aggregate of
Stock Options
For the nine months ended September 30, 2021, the Company issued
The following is a summary of the Company’s stock option activity during the nine months ended September 30, 2021:
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Weighted Average |
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|
|
Aggregate |
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||
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Remaining |
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Weighted |
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Intrinsic |
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|||
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Number of |
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Contractual |
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Average |
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Value |
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||||
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Stock Options |
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Life (in years) |
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Exercise Price |
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(in thousands) |
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||||
|
Outstanding as of December 31, 2020 |
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$ |
|
|
|
$ |
— |
|
|
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Granted |
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|
|
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|
|
|
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— |
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Forfeited/Cancelled |
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( |
) |
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|
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|
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— |
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Exercised |
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( |
) |
|
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|
|
Outstanding as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
|
Exercisable as of September 30, 2021 |
|
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
— |
|
Employee and Director Stock Options As of September 30, 2021, the unrecognized compensation cost related to non-vested time-based stock options outstanding for employees and directors, was $
19
The weighted average grant date fair value of employee and director stock options granted for the nine months ended September 30, 2021 was $
|
|
|
Nine Months Ended September 30, 2021 |
|
|
|
Stock price |
|
$ |
|
|
|
Exercise price |
|
$ |
|
|
|
Expected term |
|
|
|
|
|
Expected volatility |
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|
|
% |
|
Risk-free interest rate |
|
|
|
% |
|
Dividend rate |
|
|
|
% |
Consultant Stock Options
As of September 30, 2021, the unrecognized compensation cost related to non-vested stock options outstanding for non-employees was $
Restricted Stock Units
Beginning in the fourth quarter of 2019, certain members of the Company’s executive management team elected to receive RSUs in lieu of cash compensation under the 2018 Plan that vest upon issuance. The fair value of the RSUs was based on the closing price of the Company’s common stock on the day of the grant. Subsequent to the March 31, 2021 pay period, no members of the Company’s executive management team continued to elect to receive RSUs in lieu of cash compensation.
During the second quarter of 2021, the Company granted
During the nine months ended September 30, 2021, the Company granted
The following is a summary of the Company’s RSU award activity for the nine months ended September 30, 2021:
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|
|
Number of RSUs |
|
|
Weighted Average Grant Date Fair Value per Unit |
|
||
|
Outstanding as of December 31, 2020 |
|
|
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
( |
) |
|
|
|
|
|
Settled |
|
|
( |
) |
|
|
|
|
|
Outstanding as of September 30, 2021 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrestricted Stock
On April 1, 2021, the Company granted
Stock-Based Compensation Expense
Stock-based compensation expense is classified in the Company’s condensed consolidated statements of operations and comprehensive loss as follows (amounts in thousands):
|
|
|
Three Months Ended September 30, |
|
|
Nine Months Ended September 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Research and development |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Selling, general and administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
20
Stock-based compensation expense for the three and nine months ended September 30, 2020 was reduced by $
|
5. |
ACCRUED EXPENSES |
|
Accrued expenses consisted of the following (amounts in thousands): |
|
|
|
As of |
|
|||||
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Employees benefits |
|
$ |
|
|
|
$ |
|
|
|
Professional services |
|
|
|
|
|
|
|
|
|
Legal fees |
|
|
|
|
|
|
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|
|
Royalty fees |
|
|
|
|
|
|
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|
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Severance |
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|
|
|
|
|
|
|
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Other |
|
|
|
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
Accrued severance expense as of September 30, 2021 included $
6. COMMITMENTS AND CONTINGENCIES
|
(a) |
On January 22, 2013, the Company entered into a license agreement with Advanced NeuroRehabilitation, LLC (“ANR”) for an exclusive right to ANR’s patent pending technology, claims and knowhow. In addition to the issuance of |
|
(b) |
In March 2017, the Company entered into a lease for office space in Newtown, Pennsylvania. The initial term of the lease was from |
21
The following table summarizes the Company’s operating lease information including future minimum lease payments under a non-cancellable lease as of September 30, 2021 (amounts in thousands).
|
For the Nine Months Ended September 30, 2021 |
|
|
|
|
|
Operating lease cost |
|
$ |
|
|
|
Operating lease - operating cash flows |
|
$ |
|
|
|
Weighted average remaining lease term |
|
|
|
|
|
Weighted average discount rate |
|
|
|
% |
|
|
|
|
|
|
|
Future minimum lease payments under non-cancellable lease as of September 30, 2021 were as follows: |
|
|
|
|
|
For the Period Ending December 31, |
|
|
|
|
|
2021 (remaining three months) |
|
$ |
|
|
|
2022 |
|
|
|
|
|
Total future minimum lease payments |
|
|
|
|
|
Less imputed interest |
|
|
( |
) |
|
Total liability |
|
$ |
|
|
|
Reported as of September 30, 2021 |
|
|
|
|
|
Current operating lease liability |
|
|
|
|
|
Non-current operating lease liability |
|
|
— |
|
|
Total |
|
$ |
|
|
|
(c) |
|
7. RELATED PARTY TRANSACTIONS
During the three and nine months ended September 30, 2020, the Company paid approximately $
An officer of the Company and affiliates of an officer and director subscribed for units in the Company’s October 2020 Offering.
Affiliates of an officer and director participated in the February 2021 Offering.
22
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Unless otherwise specified or the context otherwise requires, references to “we”, “us” or “our” mean Helius Medical Technologies, Inc. and its wholly owned subsidiaries, Helius Medical, Inc., or HMI, Helius Medical Technologies (Canada), Inc., or HMC, Helius Canada Acquisition Ltd., or HCA, and Helius NeuroRehab, Inc., or HNR. The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2020, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in the our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the Securities and Exchange Commission, or the SEC, on March 10, 2021, or our 2020 Annual Report. All financial information is stated in U.S. dollars unless otherwise specified. Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP.
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties, including statements regarding our market, strategy, competition, capital needs, business plans and expectations. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may”, “will”, “should”, “expect”, “plan”, “intend”, “anticipate”, “believe”, “estimate”, “predict”, “potential” or “continue”, the negative of such terms or other comparable terminology. Forward-looking statements are made, without limitation, in relation to operating plans, including expected enrollment, patient participation and other details of the TEP study, sufficiency of cash, availability of funds and operating costs. Such forward-looking statements involve risks and uncertainties, known and unknown, including capital requirements to achieve our business objectives, the COVID-19 pandemic, including its impact on the Company, the success of our business plan, including our ability to complete pre-commercialization activities, secure contracts with rehabilitation clinics, obtain national Medicare coverage and a reimbursement code so that the PoNS device is covered by Medicare and Medicaid, to build internal commercial infrastructure, secure state distribution licenses, build a commercial team and build relationships with Key Opinion Leaders, neurology experts and neurorehabilitation centers, market awareness of the PoNS device, availability of funds, including our ability to fully access our equity line with Lincoln Park, manufacturing, labor shortage and supply chain risks, our ability to maintain and enforce our intellectual property rights, 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 2020 Annual Report 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.
Overview
We are a neurotechnology company focused on neurological wellness. Our purpose is to develop, license or acquire non-invasive technologies targeted at reducing symptoms of neurological disease or trauma.
Our first product, known as the Portable Neuromodulation Stimulator (PoNS®), is an innovative non-surgical medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and is indicated for use in the United States as a short term treatment of gait deficit due to mild-to-moderate symptoms for multiple sclerosis (MS) and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. It is not expected to be commercially available in the United States until the first quarter of 2022. PoNS is authorized for sale in Canada 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) and is to be used in conjunction with physical therapy (PoNS Treatment®); and (ii) PoNS is authorized 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. It has been commercially available in Canada since March 2019.
Recent Developments
Our common stock was previously listed on the TSX under the symbol “HSM”, but we voluntarily delisted from the TSX effective as of the close of trading on September 9, 2021. Following such delisting, our common stock continues to trade on The Nasdaq Capital Market under the symbol “HSDT”.
On September 1, 2021, we entered into a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement pursuant to which Lincoln Park Capital Fund, LLC (“Lincoln Park”) has committed to purchase up to $15.0 million of our common stock, subject to the terms
23
and conditions therein. See “Liquidity and Capital Resources” below for additional details on the LPC Purchase Agreement. During the third quarter of 2021, we issued 40,000 shares, excluding the 31,958 shares issued as the commitment fee, under the LPC Purchase Agreement for net proceeds of approximately $0.6 million.
Regulatory Status Worldwide
Canadian Regulatory Status: mmTBI and MS
On October 17, 2018, we received our Canadian marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for use as a short-term treatment (14 weeks) of chronic balance deficit due to mmTBI.
On March 18, 2020, we received marketing authorization from Health Canada allowing us to commercialize the PoNS device in Canada for the treatment of gait deficit in patients with mild and moderate MS symptoms. Our market authorization application comprised objective statistical evidence as well as independently reviewed clinical research analysis. This label expansion expanded our addressable market in Canada to include a patient population seeking treatment options that may resolve or delay the progression of MS gait deficit symptoms.
US Regulatory Status: MS
On May 7, 2020, we received Breakthrough Designation for the PoNS device as a potential treatment for gait deficit due 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. A 30-day comment period was included in the proposal with all comments due by October 15, 2021. While we will continue to monitor this, we also remain focused on building out our reimbursement strategy for 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 Excellenceacross the United States, with an estimated four PoNS devices per site. Enrollment is expected to begin late in the fourth quarter of 2021 and continue through mid-2022. A total of fifty to sixty patients with MS are expected to take part in the program.
US Regulatory Status: mmTBI
Our U.S. regulatory strategy initially focused on pursuing de novo classification and clearance of the PoNS device from the FDA for the treatment of 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.
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In April 2019, we announced the FDA had completed its review and had denied our request for de novo classification and clearance of the PoNS device for the treatment of chronic balance deficit due to mmTBI. In reaching its conclusion, the FDA noted, via a denial letter, that although the safety profile of the PoNS device is acceptable, the FDA did not have sufficient information to discern the relative independent contributions of the PoNS device and physical therapy on the improvements from baseline. The FDA noted that we could generate additional data to address its concerns and resubmit our application.
In October 2019, we had a pre-submission meeting where the FDA provided feedback needed to help complete the design of a new clinical trial intended to address the FDA’s request for a trial that demonstrates the benefit of the PoNS Treatment compared to physical therapy alone. In January 2020, we received the FDA’s feedback on the minutes from the October 2019 pre-submission meeting. In its feedback, the FDA provided post-meeting notes with specific recommendations regarding the trial design that were not discussed in the October 2019 pre-submission meeting.
Based on the receipt of the FDA’s final minutes from the pre-submission meeting, we are assessing the feasibility of a clinical program to advance the development of a study aimed to obtain clearance for gait and balance deficits in mmTBI.
US Regulatory Status: Stroke
In August 2021, we received Breakthrough Designation for the PoNS™ device as a 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 pivotal trial of PoNS therapy in stroke patients is planned to commence in the second quarter of 2022.
European Regulatory Status
In December 2018, we submitted an application for a CE Mark, which, if approved, would allow us to market the PoNS device in the EU. During the second quarter of 2019, we engaged with regulators in Europe to answer questions that we received from them as part of their review of our PoNS device for CE marking. In August 2019, we withdrew our application from the EU marketing process due to uncertainty in Europe caused by the switch from the Medical Device Directive, or MDD, to the Medical Device Regulation, or MDR, Brexit, and the withdrawal of Lloyd’s Register Quality Assurance, our notified body, from the EU notified body business. We have engaged G-MED NA (North America) as our new ISO registrar and 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. Our representative in Australia is working with the TGA to finalize the exact scope of the authorization, which is expected to cover the use of PoNS to improve balance and gait when used as an adjunct to a therapeutic exercise program.
Canada Commercialization Efforts
From a real-world results perspective, in Canada thus far, the collective experience of our patients that have completed the 14-week PoNS Treatment have been encouraging. Consistent with what we saw in our two clinical trials, one for 5 weeks and the other for 14 weeks, commercial MS and mmTBI patients are demonstrating improvements in balance and gait within the first two weeks followed by continued improvement over the following twelve weeks. The majority of patients have a mean patient adherence to treatment of over 90% and showed significant improvement in their balance and gait with a meaningful clinical difference at the end of their treatment. The consistency of the patient results from our initial commercial experience supports our plans to expand access to the PoNS Treatment in Canada.
March 2019 marked the commercialization of our PoNS Treatment in Canada, where PoNS became the first and only device authorized by Health Canada for the treatment of balance deficit due to mmTBI. Throughout 2019 we made important progress in advancing and refining our commercialization strategy in Canada building access, awareness and credibility for the PoNS Treatment. These efforts, which were led by our local Canadian commercial team, included the establishment of our authorized clinic network throughout Canada, launching digital marketing campaigns, and building key opinion leader and advocacy networks.
During the third quarter of 2019, we made the strategic decision to change our business model in Canada in order to accelerate the adoption of our novel technology. On October 30, 2019, we acquired the Heuro Canada operating entity from HTC which allowed us to streamline the decision-making process and increase our ability to react to evolving market factors as the market for the PoNS Treatment is being developed.
On March 18, 2020, the Company received notification that its Canadian Class II license amendment application for the treatment of gait deficit in patients with mild and moderate symptoms from MS, when used in conjunction with physical therapy, was successful and received marketing authorization for PoNS from Health Canada.
Following in-depth market analysis and field intelligence, our Canadian commercial team began an expansion plan to increase the number of authorized PoNS clinics. During the year ended December 31, 2020, we authorized 24 new clinical locations to have 31 clinic locations as of December 31, 2020. As of September 30, 2021, we have 36 authorized PoNS clinic locations across Canada. In addition to continuing to increase
25
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 the Toronto Rehabilitation Institute (part of University Health Network), we are continuing our clinical experience program, the results of which we look to publish in 2022.
We continue to refine our go-to-market pricing model based on market feedback. Our modified pricing approach is focused on reducing the need for clinics and patients to pay large, upfront costs at the start of treatment. We have also experimented with various promotional pricing programs resulting in lower unit prices for both PoNS system purchases and mouthpieces in order to increase access to the PoNS Treatment and drive market awareness which we believe resulted in an increase in the volume of units sold, beginning in the second half of 2020. We intend to keep the promotional pricing in place through the end of 2021.
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 Treatment 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 accident insurance and workers’ compensation 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 Treatment strategy, we are also gathering comprehensive health economic assessments of treatment outcomes. These data will, in-turn, be used to support our applications for workers’ compensation, auto insurance and commercial insurance reimbursement initiatives in Canada, the United States and other markets around the world. The Canadian commercial experience will be extremely valuable to prepare us for our launches in the United States and internationally.
US Pre-Commercialization Efforts
As noted above, on March 26, 2021, we received marketing authorization from the FDA for the PoNS device. The PoNS device is indicated for use as a short term treatment of gait deficit due to mild-to-moderate symptoms of MS and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. Despite the marketing authorization, the PoNS device is not currently commercially available in the United States, and we expect it will not be commercially available until the first quarter of 2022.
In this pre-commercial phase, we are working on the development of our commercial strategy. This includes a focus on payer strategy, both government and commercial, attaining distribution licenses and beginning to build relationships with key large neurorehabilitation centers, which focus on treatment of MS patients. We continue to generate data on outcomes of the PoNS Treatment generated from treatment of patients in Canada and ensuring that our scientific data is presented at many of the key national and international neurology and neuromodulation meetings. We believe this scientific dissemination may begin to pave the way to establishing the PoNS Treatment as the standard of care for the treatment of MS-related gait deficit.
To commercialize the PoNS Treatment in the United States, we plan to target specific Key Opinion Leaders (neurologists and physiatrists) and their associated neurorehabilitation centers (physical therapists). PoNS certified neurorehabilitation centers will be trained to deliver the PoNS Treatment. Importantly, this focused strategy will also allow us to inspect whether we are generating patient outcomes similar to those seen in our clinical trials. To further develop and implement the PoNS commercialization strategy, we have hired a Vice President of Sales and Marketing and have identified the initial launch areas within the US. We continue to build out our commercial team, including field sales, reimbursement specialists and operational support.
We are pursuing coverage for PoNS with commercial and government payers within the Durable Medical Equipment, or DME, benefit category. While there are no currently applicable Healthcare Common Procedure Coding System, or HCPCS, codes to describe the PoNS system or Mouthpiece, our expectation is that we will use miscellaneous codes – E1399 (Miscellaneous durable medical equipment) and A9999 (Miscellaneous DME supply or accessory, not otherwise specified) until specific HCPCS codes are created. We applied for unique HCPCS codes during the third quarter of 2021, which is a nine month process from application until coding would be effective. We also intend to provide broad access and reimbursement for the PoNS Treatment over time through Commercial insurers. At launch, prior to the initiation of CMS or broad payer coverage, we anticipate the primary source of sales will be self-pay patients. We will support the cost of the PoNS Treatment by collaborating with third parties to provide self-pay patients with financing options as well as working with advocacy groups and charitable organizations to help self-pay patients access our technology. In general, we anticipate at least a 24-month window to obtain broad coverage and reimbursement among government and private payers.
COVID-19 Pandemic
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The Company’s business, results of operations and financial condition have been and may continue to be adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 has
26
significantly increased economic uncertainty. Authorities implemented, and continue to implement, numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. The COVID-19 pandemic initially led to the closure of PoNS Authorized clinic locations across Canada from March until June 2020. Patients who completed their initial training in the clinics prior to the closures have been able to continue working independently in the at-home portion of the treatment, with remote check-ins with their certified therapists. While all clinics have re-opened, they are all currently operating at reduced capacity within provincial guidelines, which during the third quarter of 2021 limited operations to 50% capacity. Some patients have begun to return to these clinics for treatment, but patients have been and may continue to be less willing to return to the clinics due to COVID-19, impacting our commercial activities and our customer engagement efforts. This was especially true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders, and business shutdowns were imposed. The rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions.
We have expanded our services to include remote training and treatment, but the long-term viability of these remote programs is still being assessed. Additionally, current and planned clinical experience programs and clinical trials in Canada have experienced or could experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff.
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, and in the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in 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. Disruptions in business operations or governmental operations due to COVID-19 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.
To the extent the COVID-19 pandemic impacts our ability to complete necessary pre-commercialization activities, our commercial launch in the U.S. could be impeded or delayed. The extent to which the COVID-19 pandemic will continue to impact our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. We do not know yet the full extent of the impact of COVID-19 on our business, operations or the global economy as a whole.
Share Purchase Agreement and Co-Promotion Agreement
On October 30, 2019, we and HTC entered into a Share Purchase Agreement, or the SPA, whereby we, through our wholly owned subsidiary, acquired Heuro from HTC. Under the terms of the SPA, total consideration of approximately $1.6 million was transferred to HTC, which included (1) the repayment to HTC for their investment in the set-up of Heuro’s initial commercial infrastructure including, the establishment of five authorized PoNS clinics across Canada, (2) the current market value of 55 PoNS devices which we also provided to HTC under the SPA, (3) the forgiveness of the CAD$750,000 receivable from the September 2018 strategic alliance agreement and (4) the exclusivity rights granted to HTC in the Co-Promotion Agreement, as defined below, to provide PoNS Treatment in the Fraser Valley and Vancouver metro regions of British Columbia.
In connection with the Share Purchase Agreement, on October 30, 2019, we entered into a Clinical Research and Co-Promotion Agreement with HTC, or the Co-Promotion Agreement, whereby each company agreed to promote the sales of the PoNS Treatment and the NeuroCatchTM 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.
27
Results of Operations
Three Months Ended September 30, 2021 compared to the Three Months Ended September 30, 2020
The following table summarizes our results of operations for the three months ended September 30, 2021 and 2020 (amounts in thousands):
|
|
|
Three Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
|
|
|||||
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
102 |
|
|
$ |
124 |
|
|
$ |
(22 |
) |
|
Fee revenue |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
License revenue |
|
|
7 |
|
|
|
7 |
|
|
|
— |
|
|
Total operating revenue |
|
|
109 |
|
|
|
131 |
|
|
|
(22 |
) |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
86 |
|
|
|
22 |
|
|
|
64 |
|
|
Gross profit |
|
|
23 |
|
|
|
109 |
|
|
|
(86 |
) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
1,489 |
|
|
|
1,327 |
|
|
|
162 |
|
|
Selling, general and administrative |
|
|
2,859 |
|
|
|
2,370 |
|
|
|
489 |
|
|
Amortization expense |
|
|
48 |
|
|
|
72 |
|
|
|
(24 |
) |
|
Total operating expenses |
|
|
4,396 |
|
|
|
3,769 |
|
|
|
627 |
|
|
Operating loss |
|
|
(4,373 |
) |
|
|
(3,660 |
) |
|
|
(713 |
) |
|
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Change in fair value of derivative financial instruments |
|
|
— |
|
|
|
1 |
|
|
|
(1 |
) |
|
Foreign exchange (loss) gain |
|
|
(314 |
) |
|
|
182 |
|
|
|
(496 |
) |
|
Total other (expense) income |
|
|
(314 |
) |
|
|
183 |
|
|
|
(497 |
) |
|
Net loss |
|
$ |
(4,687 |
) |
|
$ |
(3,477 |
) |
|
$ |
(1,210 |
) |
Revenue
For the three months ended September 30, 2021, we recognized revenue of $109 thousand, of which $102 thousand was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $7 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. For the three months ended September 30, 2020 we recognized revenue of $131 thousand, of which $124 thousand was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $7 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC.
Cost of Sales
Cost of product sales includes the cost to manufacture the PoNS device, royalty expense, freight charges, customs duties as well as wages and salaries of employees involved in the management of the supply chain and logistics of fulfilling our sales orders. For the three months ended September 30, 2021, we incurred $86 thousand in cost of sales. For the three months ended September 30, 2020, we incurred $22 thousand in cost of sales. The increase was primarily attributable to overhead costs including wages and salaries of employees involved in the management of the supply chain.
Research and Development Expense
Research and development, or R&D, expenses were $1.5 million for the three months ended September 30, 2021 compared to $1.3 million for the three months ended September 30, 2020, an increase of $0.2 million. The increase was primarily attributable to a $0.2 million increase in product development expenses and a $0.2 million increase in professional services expenses. These increases were partially offset by a $0.1 million decrease in stock-based compensation expense coupled with a $0.2 million decrease in legal expenses compared to those incurred during 2020 as a result of the submission of our request to the FDA for de novo classification and clearance of the PoNS device for the treatment of gait deficit due to symptoms from MS.
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expenses were $2.9 million for the three months ended September 30, 2021 compared to $2.4 million for the three months ended September 30, 2020, an increase of approximately $0.5 million. The increase was primarily due to a $0.4
28
million increase in our stock-based compensation expense, as well as a $0.1 million increase in salaries and wages, which were both primarily the result of the addition of key management and sales executives in the second and third quarters of 2021. Severance expense for cash-based severance payments of $0.4 million related to the departure of our former chief operating officer and $0.5 million related to the departure of our former chief executive officer was incurred during the three months ended September 30, 2021 and 2020, respectively. Additionally, stock-based compensation expense increased $0.5 million and decreased $0.1 million during the three months ended September 30, 2021 and 2020, respectively as the result of the aforementioned departures.
Amortization Expense
Amortization expense consists of the periodic amortization of intangible assets, including customer relationships, proprietary software and reacquired rights recognized in connection with the acquisition of Heuro on October 30, 2019 and internally developed software. For the three months ended September 30, 2021, amortization expense was $48 thousand. For the three months ended September 30, 2020, amortization expense was $0.1 million. The decrease is primarily the result of the customer relationships becoming fully amortized during the first quarter of 2021.
Change in Fair Value of Derivative Financial Instruments
There was no change in fair value of derivative financial instruments for the three months ended September 30, 2021 because the warrants that qualified as derivatives required to be accounted for in accordance with ASC 815 (requiring the re-measurement of fair value at each balance sheet date) expired in April 2021 and had been valueless during the period. This compared to a gain of $1 thousand for the three months ended September 30, 2020.
The change in fair value of our derivative financial instruments for the three months ended September 30, 2020 was primarily attributable to the change in our stock price, volatility and the number of derivative financial instruments being measured during the period. The change in the fair value of derivative financial instruments is a non-cash item.
Foreign Exchange Gain (Loss)
Foreign exchange loss was $0.3 million for the three months ended September 30, 2021, compared to a gain of $0.2 million for the three months ended September 30, 2020. This was primarily due to fluctuations in the foreign exchange rate as it relates to the amount of Canadian dollars held at the end of each reporting period.
Nine Months Ended September 30, 2021 compared to the Nine Months Ended September 30, 2020
The following table summarizes our results of operations for the nine months ended September 30, 2021 and 2020 (amounts in thousands):
|
|
|
Nine Months Ended |
|
|
|
|
|
|||||
|
|
|
September 30, |
|
|
|
|
|
|||||
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales |
|
$ |
242 |
|
|
$ |
441 |
|
|
$ |
(199 |
) |
|
Fee revenue |
|
|
— |
|
|
|
9 |
|
|
$ |
(9 |
) |
|
License revenue |
|
|
22 |
|
|
|
20 |
|
|
|
2 |
|
|
Total operating revenue |
|
|
264 |
|
|
|
470 |
|
|
|
(206 |
) |
|
Cost of sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales |
|
|
169 |
|
|
|
187 |
|
|
|
(18 |
) |
|
Gross profit |
|
|
95 |
|
|
|
283 |
|
|
|
(188 |
) |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
4,182 |
|
|
|
3,755 |
|
|
|
427 |
|
|
Selling, general and administrative |
|
|
9,800 |
|
|
|
7,625 |
|
|
|
2,175 |
|
|
Amortization expense |
|
|
153 |
|
|
|
287 |
|
|
|
(134 |
) |
|
Total operating expenses |
|
|
14,135 |
|
|
|
11,667 |
|
|
|
2,468 |
|
|
Operating loss |
|
|
(14,040 |
) |
|
|
(11,384 |
) |
|
|
(2,656 |
) |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
— |
|
|
|
63 |
|
|
|
(63 |
) |
|
Change in fair value of derivative financial instruments |
|
|
— |
|
|
|
4 |
|
|
|
(4 |
) |
|
Foreign exchange gain (loss) |
|
|
10 |
|
|
|
(278 |
) |
|
|
288 |
|
|
Total other income (expense) |
|
|
10 |
|
|
|
(211 |
) |
|
|
221 |
|
|
Net loss |
|
$ |
(14,030 |
) |
|
$ |
(11,595 |
) |
|
$ |
(2,435 |
) |
29
Revenue
For the nine months ended September 30, 2021, we recognized revenue of $0.3 million, of which $0.2 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada and $22 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. For the nine months ended September 30, 2020, we recognized revenue of $0.5 million, of which $0.4 million was generated through product sales of our PoNS device in Canada pursuant to our executed supply agreements with neuroplasticity clinics in Canada, $9 thousand was generated from fee revenue related to engaging new PoNS authorized clinics and $20 thousand was generated from license fee revenue related to our Co-Promotion Agreement with HTC. The decrease year-over-year in revenue generated through product sales of our PoNS device in Canada is the result of the COVID-19 pandemic negatively impacting our product sales beginning in March 2020 and the impact of price changes focused on reducing the need for clinics and patients to pay large, upfront costs at the start of treatment.
Cost of Sales
Cost of product sales includes the cost to manufacture the PoNS device, royalty expense, freight charges, customs duties as well as wages and salaries of employees involved in the management of the supply chain and logistics of fulfilling our sales orders. For the nine months ended September 30, 2021, we incurred $0.2 million in cost of sales. For the nine months ended September 30, 2020, we incurred $0.2 million in cost of sales.
Research and Development Expense
Research and development, or R&D, expenses were $4.2 million for the nine months ended September 30, 2021, compared to $3.8 million for the nine months ended September 30, 2020, an increase of $0.4 million. The increase was primarily attributable to a $0.6 million increase in product development expenses and a $0.2 million increase in professional expenses. These increases were partially offset by a $0.2 million decrease in stock-based compensation expense coupled with a $0.2 million decrease in legal expenses compared to those incurred during 2020 as a result of the submission of our request to the FDA for de novo classification and clearance of the PoNS device for the treatment of gait deficit due to symptoms from MS.
Selling, General and Administrative Expense
Selling, general and administrative, or SG&A, expenses were $9.8 million for the nine months ended September 30, 2021, compared to $7.6 million for the nine months ended September 30, 2020, an increase of approximately $2.2 million. The increase was primarily due to a $2.1 million increase in our stock-based compensation expense and a $0.4 million increase in salaries and wages, both resulting primarily from the addition of key management and sales executives in the second and third quarters of 2021. Approximately $1.0 million of the stock-based compensation expense during the nine months ended September 30, 2021 related to the June 2021 one-time fully vested stock option grant to our then Interim President and Chief Executive Officer in recognition of his service since August 2020 and election to take no additional compensation and continue to be compensated as a non-employee director of the Company while serving in that capacity. These increases were partially offset by a $0.3 million decrease in other operating expenses primarily as a result of the $0.2 million impairment of customer relationship intangible assets in the first quarter of 2020. Severance expense for cash-based severance payments of $0.4 million related to the departure of our former chief operating officer and $0.5 million related to the departure of our former chief executive officer was incurred during the nine months ended September 30, 2021 and 2020, respectively. Additionally, stock-based compensation expense increased $0.5 million and decreased $0.1 million during the nine months ended September 30, 2021 and 2020, respectively as the result of the aforementioned departures.
Amortization Expense
Amortization expense consists of the periodic amortization of intangible assets, including customer relationships, proprietary software and reacquired rights recognized in connection with the acquisition of Heuro on October 30, 2019 and internally developed software. For the nine months ended September 30, 2021, amortization expense was $0.2 million. For the nine months ended September 30, 2020, amortization expense was $0.3 million. The decrease is primarily the result of the customer relationships becoming fully amortized during the first quarter of 2021.
Change in Fair Value of Derivative Financial Instruments
There was no change in fair value of derivative financial instruments for the nine months ended September 30, 2021 because the warrants that qualified as derivatives required to be accounted for in accordance with ASC 815 (requiring the re-measurement of fair value at each balance sheet date) expired in April 2021 and had been valueless during the period. This compared to a gain of $4 thousand for the nine months ended September 30, 2020.
The change in fair value of our derivative financial instruments for the nine months ended September 30, 2020 was primarily attributable to the change in our stock price, volatility and the number of derivative financial instruments being measured during the period. The change in the fair value of derivative financial instruments is a non-cash item.
30
Foreign Exchange Gain (Loss)
Foreign exchange gain was $10 thousand for the nine months ended September 30, 2021, compared to a loss of $0.3 million for the nine months ended September 30, 2020. This was primarily due to fluctuations in the foreign exchange rate as it relates to the amount of Canadian dollars held at the end of each reporting period.
Statement of Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2021 and 2020 (amounts in thousands):
|
|
|
Nine Months Ended September 30, |
|
|
|
|
|
|||||
|
|
|
2021 |
|
|
2020 |
|
|
Change |
|
|||
|
Net cash used in operating activities |
|
$ |
(9,925 |
) |
|
$ |
(9,567 |
) |
|
$ |
(358 |
) |
|
Net cash (used in) provided by investing activities |
|
|
(51 |
) |
|
|
40 |
|
|
|
(91 |
) |
|
Net cash provided by financing activities |
|
|
11,353 |
|
|
|
6,727 |
|
|
|
4,626 |
|
|
Effect of exchange rate changes on cash |
|
|
(8 |
) |
|
|
21 |
|
|
|
(29 |
) |
|
Net increase (decrease) in cash |
|
$ |
1,369 |
|
|
$ |
(2,779 |
) |
|
$ |
4,148 |
|
Net Cash Used in Operating Activities
Net cash used in operating activities during the nine months ended September 30, 2021 was $9.9 million. This was comprised of net loss of $14.0 million, unrealized foreign exchange gains of $26 thousand, recovery of doubtful accounts of $19 thousand and $29 thousand net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items of $4.2 million comprised mainly of stock-based compensation of $3.9 million, depreciation and amortization of $0.2 million and non-cash lease expense of $0.1 million.
Net cash used in operating activities during the nine months ended September 30, 2020 was $9.6 million. This was comprised of net loss of $11.6 million, gain on lease modification of $0.1 million and $1.2 million net cash used resulting from changes in operating assets and liabilities, partially offset by certain adjustments for non-cash items of $3.3 million comprised mainly of stock-based compensation of $2.0 million, unrealized foreign exchange losses of $0.2 million, depreciation and amortization of $0.4 million, non-cash lease expense of $0.2 million, impairment loss on intangible assets of $0.2 million, provision for doubtful accounts of $0.2 million, and loss on disposal of office furniture of $0.1 million.
Net Cash Used in Investing Activities
Net cash used in investing activities during the nine months ended September 30, 2021 was $51 thousand, which was primarily related to the purchase of equipment and computer software and hardware.
Net cash provided by investing activities during the nine months ended September 30, 2020 was $40 thousand, which was primarily related to the sale of office furniture, partially offset by the purchase of equipment.
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the nine months ended September 30, 2021 was $11.4 million, which consisted of proceeds from the issuance of common stock in the February 2021 Offering and under the LPC Purchase Agreement, net of share issuance costs, and proceeds from the exercise of warrants and stock options.
Net cash provided by financing activities during the nine months ended September 30, 2020 was $6.7 million, which consisted of proceeds from the issuance of common stock from the 2020 ATM and March 2020 Offering, net of share issuance costs.
Liquidity and Capital Resources
Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation. Our major sources of cash have been proceeds from various public and private offerings of our common stock and exercises of stock options and warrants. From June 2014 through September 30, 2021, we raised approximately $119.5 million in gross proceeds from various public and private offerings of our common stock as well as the exercise of stock options and warrants.
LPC Purchase Agreement
On September 1, 2021, we entered into the LPC Purchase Agreement and a registration rights agreement with Lincoln Park, pursuant to which, under the terms and subject to the conditions of the LPC Purchase Agreement, we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park is obligated to purchase, up to $15.0 million of our common stock. Such sales of common stock by us, if any, will be subject to certain limitations, and may occur from time to time, at our sole discretion, over the 36-month period commencing September 15, 2021, subject to satisfaction of certain conditions.
31
Actual sales of shares of common stock to Lincoln Park will depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the common stock and determinations by us as to the appropriate sources of funding for us and our operations. The net proceeds under the LPC Purchase Agreement will depend on the frequency and prices at which we sell shares of our common stock to Lincoln Park. We expect that any proceeds received from such sales to Lincoln Park will be used for working capital and general corporate purposes.
Under the LPC Purchase Agreement, on any business day on which the closing sale price of the common stock is not below the “floor price” stated in the LPC Purchase Agreement, we may, by written notice delivered by us to Lincoln Park, direct Lincoln Park to purchase up to 20,000 shares of common stock on such business day, at a purchase price per share that will be determined and fixed in accordance with the Purchase Agreement at the time we deliver such written notice to Lincoln Park (each, a “Regular Purchase”), provided that the maximum number of shares we may sell to Lincoln Park in a Regular Purchase may be increased to (i) up to 25,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $20.00 and (ii) up to 30,000 shares, provided that the closing sale price of the common stock on the applicable purchase date is not below $25.00, in each case, subject to adjustment for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction as provided in the LPC Purchase Agreement and provided that Lincoln Park’s maximum purchase commitment in any single Regular Purchase may not exceed $2.0 million. The purchase price per share of common stock sold in each such Regular Purchase, if any, will be based on prevailing market prices of the common stock immediately preceding the time of sale as computed under the LPC Purchase Agreement. In addition to Regular Purchases, we may also direct Lincoln Park to purchase other amounts as accelerated purchases or as additional accelerated purchases on the terms and subject to the conditions set forth in the LPC Purchase Agreement.
We have agreed with Lincoln Park that we will not enter into an additional “equity line” or a substantially similar transaction whereby a specific investor is irrevocably bound pursuant to an agreement with us to purchase securities over a period of time from us at a price based on the market price of the common stock at the time of such purchase for a period defined in the LPC Purchase Agreement. Lincoln Park has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of our shares.
As part of the LPC Purchase Agreement, we issued 31,958 shares of our common stock to Lincoln Park as consideration for its commitment to purchase shares of our common stock under the LPC Purchase Agreement. During the quarter ended September 30, 2021, we issued 40,000 shares, excluding the 31,958 shares issued as the commitment fee, under the LPC Purchase Agreement for net proceeds of approximately $0.6 million. See Note 3 “Common Stock and Warrants” to our unaudited condensed consolidated financial statements under Part I, Item 1, “Condensed Consolidated Financial Statements” in this this Quarterly Report on Form 10-Q.
We currently have limited working capital and liquid assets. The following table summarizes our cash and working capital (which we define as current assets less current liabilities excluding derivative financial instruments) as of September 30, 2021 and December 31, 2020 (amounts in thousands):
|
|
|
September 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Cash |
|
$ |
4,700 |
|
|
$ |
3,331 |
|
|
Working capital |
|
$ |
3,596 |
|
|
$ |
2,261 |
|
While we have started generating revenue from the commercial sale of our PoNS device in Canada, we expect to incur significant losses until any such time as our revenue exceeds our expenses and will require additional funding. Based on our cash burn rate during the first nine months of 2021, our existing capital resources would be sufficient to fund our operations into the first quarter of 2022. However, in light of the receipt of marketing authorization from the FDA for the PoNS device in March 2021, we expect our expenses to increase throughout the remainder of 2021 in connection with our pre-commercialization activities, particularly as we invest in marketing and distribution capabilities, make improvements to our manufacturing process and product design, and add additional personnel. We also expect our expenses to increase if and as we decide to conduct trials of the PoNS device without nondilutive funding, such as the TEP, or if and as we decide to pursue further regulatory approvals, or maintain, expand and protect our intellectual property portfolio. There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital expenditure or sell certain assets, including intellectual property, and we may be forced to cease or wind down operations, seek protection under the provisions of the U.S. Bankruptcy Code, or liquidate and dissolve our Company.
Our ability to raise additional capital may be adversely impacted by global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets in the United States and worldwide resulting from the ongoing COVID-19 pandemic.
Off-Balance Sheet Arrangements
To the best of management’s knowledge, there are no off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our results of operations or financial condition.
32
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements that have been prepared in accordance with U.S. GAAP. This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities.
Our critical accounting policies and estimates are described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” of our 2020 Annual Report. There have been no changes in critical accounting policies in the current year from those described in our 2020 Annual Report.
Recently Issued Accounting Pronouncements
The information set forth in Note 2 “Summary of Significant Accounting Policies” to our unaudited condensed consolidated financial statements under Part I, Item 1, “Condensed Consolidated Financial Statements” is incorporated herein by reference.
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. Our management has concluded that the financial statements included elsewhere in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with generally accepted accounting principles.
Changes in Internal Control over Financial Reporting
There has not been any change in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
33
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we are subject to litigation and claims arising in the ordinary course of business. We are not currently a party to any material legal proceedings, and we are not aware of any pending or threatened legal proceeding against us that we believe could have a material adverse effect on our business, operating results or financial condition.
Item 1A. Risk Factors
Our business is subject to risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. During the nine months ended September 30, 2021, except for the updated risk factors set forth immediately below, our risk factors have not changed materially from those risk factors previously disclosed in our 2020 Annual Report. You should carefully consider the risk factors discussed below and in Part I, “Item 1A. Risk Factors” in our 2020 Annual Report. The risks described below and in our 2020 Annual Report are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Raising additional capital by issuing securities or through debt financings or licensing arrangements may cause dilution to our existing stockholders, restrict our operations, negatively affect our stock price or require us to relinquish rights to our technologies or product candidate on terms unfavorable to us.
Our operations to date have principally been financed by public and private offerings of our common stock and convertible debt and exercises of options and warrants and, since inception, we have raised $119.5 million in gross proceeds from equity financings. Until we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings, or other capital sources, including potential collaborations with other companies or other strategic transactions. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of such securities may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through strategic partnerships with third parties, we may have to relinquish valuable rights to our technologies or product candidate, future revenue streams, research programs or product candidate, or otherwise grant licenses on terms that are not favorable to us. If we are unable to raise additional capital when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our product candidate or our preclinical product candidates, or grant rights to develop and market potential future product candidates that we would otherwise prefer to develop and market ourselves. Any of these events could adversely affect our ability to achieve our product development and commercialization goals and have a material adverse effect on our business, financial condition and results of operations.
In addition, on September 1, 2021, we entered into the LPC Purchase Agreement with Lincoln Park pursuant to which Lincoln Park has committed to purchase up to $15.0 million of shares of our common stock subject to the terms and conditions therein. We filed a registration statement covering the resale of shares of common stock that are issued to Lincoln Park under the LPC Purchase Agreement, which was declared effective on September 14, 2021. We generally have the right to control the timing and amount of any future sales of shares of our common stock to Lincoln Park. Sales of shares of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. The purchase price for the shares of our common stock that we may sell to Lincoln Park under the Purchase Agreement will fluctuate based on the public trading price of our common stock. If and when we do sell shares of our common stock to Lincoln Park, after Lincoln Park has acquired the shares of common stock, Lincoln Park may resell all, some or none of those shares of common stock at any time or in its discretion. Depending on market liquidity at the time, sales of such shares of our common stock may cause the public trading price of our common stock to decrease, and sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.
The COVID-19 pandemic has adversely impacted, and may continue to materially and adversely impact, our business, financial condition and results of operations.
On March 11, 2020, the World Health Organization declared the outbreak of COVID-19 as a global pandemic, which continues to spread throughout the United States and around the world. The Company’s business, results of operations and financial condition have been adversely impacted by the COVID-19 pandemic and global economic conditions. The outbreak and spread of COVID-19 has significantly increased economic uncertainty. Authorities implemented numerous measures to try to contain the virus, such as travel bans and restrictions, quarantines, shelter in place orders, and business shutdowns. The COVID-19 pandemic initially led to the closure of PoNS Authorized clinic locations across Canada from March until June 2020. Patients who completed their initial training in the clinics prior to the closures have been able to continue working independently in the at-home portion of the treatment, with remote check-ins with their certified therapists. While all clinics have re-opened, they are all currently operating at reduced capacity within provincial guidelines, which during the third quarter of 2021 limited operations to 50% capacity. Some patients have begun to return to these clinics for treatment, but patients have been and may continue to be less willing to return to the clinics due to COVID-19, impacting our commercial activities and our customer engagement efforts. This was especially
34
true in the first half of 2021, as cases of COVID-19 increased significantly in Canada and additional restrictions, shelter in place orders, and business shutdowns were imposed. However, the rate of vaccination continues to increase throughout all provinces facilitating the lifting of some of the previously imposed restrictions.
We have expanded our services to include remote training and treatment, but the long-term viability of these remote programs is still being assessed. Additionally, current and planned clinical experience programs and clinical trials in Canada have experienced or could experience delays in the programs as trial participant attendance has generally decreased as a result of the pandemic, and clinics and clinical research sites have experienced delays and difficulties in recruiting and re-hiring clinical site staff.
The COVID-19 pandemic and other outbreaks may cause delays in or the suspension of our business partners manufacturing operations, our research and product development activities, our regulatory workstreams, our research and development activities and other important commercial functions. We are also dependent upon our suppliers for the manufacture of our PoNS device, and in the second quarter of 2020, two of our business partners diverted resources towards other activities related to COVID-19, resulting in delays in 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 been caused and may be caused by labor shortages. Disruptions in business operations or governmental operations due to COVID-19 may delay the timing for the submission and approval of the 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.
As the COVID-19 pandemic continues, we may experience additional disruptions that could severely impact our business, including:
|
|
• |
Changes in local regulations as part of a response to the COVID-19 pandemic may require us to change the way PoNS Authorized clinic locations operate or our clinical experience programs or clinical trials are conducted and may result in unexpected costs; |
|
|
• |
Some patients may be unable, or continue to be unwilling, to visit or return to our PoNS Authorized clinic locations; |
|
|
• |
Necessary interactions with local regulators, ethics committees and other important agencies and contractors may be delayed due to limitations in employee resources or forced furlough of government employees; |
|
|
• |
The timing of our interactions with the FDA may be delayed due to absenteeism by federal employees or the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; |
|
|
• |
Our ability to complete necessary pre-commercialization activities may be impeded, which could delay our commercial launch in the U.S.; |
|
|
• |
Healthcare resources may be diverted away from PoNS Authorized clinic locations, our clinical experience programs and the conduct of clinical trials; |
|
|
• |
We may experience delays in receiving approval from local regulatory authorities to initiate future clinical trials; and |
|
|
• |
Future key clinical trial activities may be delayed, such as clinical trial site monitoring, due to limitation on travel imposed or recommended by federal or state governments, employers and others. |
In addition to the risks specifically described above, the COVID-19 pandemic has exacerbated and precipitated the other risks described in our 2020 Annual Report, and may continue to do so. The extent to which the COVID-19 pandemic will continue to impact the our business, results of operations and financial condition will depend on future developments, which are highly uncertain and cannot be predicted. We do not know yet the full extent of the impact of COVID-19 on our business, operations or the global economy as a whole.
We depend on third parties for the manufacture and distribution of our product and the loss of our third-party manufacturer and distributor could 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
35
and procedures that comply with quality standards and with all applicable regulations and guidelines. The delays associated with the verification of a new manufacturer or the reverification of an existing manufacturer could negatively affect our ability to produce and distribute our product in a timely manner.
Our independent registered public accounting firm has included an explanatory paragraph relating to our ability to continue as a going concern in its report on our audited financial statements. We may be unable to operate without the threat of liquidation for the foreseeable future.
In connection with our management’s assessment, our report from our independent registered public accounting firm for the fiscal year ended December 31, 2020 includes an explanatory paragraph stating that our recurring losses from operations and net capital deficiency raise substantial doubt about our ability to continue as a going concern. We will require additional funding and, if we are unable to obtain sufficient funding, our business, prospects, financial condition and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. Future reports from our independent registered public accounting firm may also contain statements expressing substantial doubt about our ability to continue as a going concern. Based on our cash burn rate during the first nine months of 2021, our existing capital resources would be sufficient to fund our operations into the first quarter of 2022. However, in light of the receipt of marketing authorization from the FDA for the PoNS device in March 2021, we expect our expenses to increase throughout the remainder of 2021 in connection with our pre-commercialization activities, particularly as we invest in marketing and distribution capabilities, make improvements to our manufacturing process and product design, and add additional personnel. We also expect our expenses to increase if and as we decide to conduct trials of the PoNS device without nondilutive funding, such as the TEP, or if and as we decide to pursue further regulatory approvals, or maintain, expand and protect our intellectual property portfolio. Other than our right to cause Lincoln Park to purchase shares of our common stock under the LPC Purchase Agreement, which is subject to certain limitations and conditions, we do not have any committed external source of funds. There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and investors will likely lose all or a part of their investment. If we seek additional financing to fund our business activities in the future and there remains substantial doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Except for sales pursuant to the LPC Purchase Agreement, which was previously disclosed on a Current Report on Form 8-K filed with the SEC on September 2, 2021, we did not sell or issue any equity securities during the three months ended September 30, 2021 that were not registered under the Securities Act.
Item 3. Defaults upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Not applicable.
36
Item 6. Exhibits
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Exhibit No. |
Description of Exhibit |
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3.1 |
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3.2 |
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3.3 |
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3.4 |
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10.1† |
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10.2 |
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10.3 |
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10.4† |
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10.5 |
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31.1# |
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31.2# |
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32.1#* |
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32.2#* |
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101.INS# |
Inline XBRL Instance Document |
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101.SCH# |
Inline XBRL Taxonomy Extension Schema Document |
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101.CAL# |
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.LAB# |
Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE# |
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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101.DEF# |
Inline XBRL Taxonomy Extension Definition Linkbase Document |
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104# |
Coverage Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
# Filed herewith.
† Indicates a management contract or compensatory plan.
* These certifications are being furnished solely to accompany this quarterly report pursuant to 18 U.S.C. Section 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the registrant, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
37
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.
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HELIUS MEDICAL TECHNOLOGIES, INC. |
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Dated: November 9, 2021 |
By: |
/s/ Dane C. Andreeff |
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Dane C. Andreeff |
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President, Chief Executive Officer and a Director |
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Dated: November 9, 2021 |
By: |
/s/ Jeffrey S. Mathiesen |
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Jeffrey S. Mathiesen |
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Chief Financial Officer and Treasurer (Principal Financial |
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Officer and Principal Accounting Officer) |
38
CERTIFICATIONS
I, Dane C. Andreeff, certify that:
1) I have reviewed this report on Form 10-Q of Helius Medical Technologies, Inc.
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: November 9, 2021 |
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/s/ Dane C. Andreeff |
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Dane C. Andreeff |
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Chief Executive Officer and Director |
(Principal Executive Officer)
CERTIFICATIONS
I, Jeffrey S. Mathiesen, certify that:
1) I have reviewed this report on Form 10-Q of Helius Medical Technologies, Inc.
2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4) The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5) The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: November 9, 2021 |
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/s/ Jeffrey S. Mathiesen |
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Jeffrey S. Mathiesen |
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Chief Financial Officer |
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(Principal Financial Officer) |
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
HELIUS MEDICAL TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I am the Chief Executive Officer of Helius Medical Technologies, Inc., a Delaware corporation (the “Company”). I am delivering this certificate in connection with the Form 10-Q of the Company for the quarter ended September 30, 2021 and filed with the Securities and Exchange Commission (“Form 10-Q”).
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I hereby certify that, to the best of my knowledge, the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 9, 2021 |
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/s/ Dane C. Andreeff |
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Dane C. Andreeff |
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Chief Executive Officer and Director |
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CERTIFICATION OF CHIEF FINANCIAL OFFICER
HELIUS MEDICAL TECHNOLOGIES, INC.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I am the Chief Financial Officer of Helius Medical Technologies, Inc., a Delaware corporation (the “Company”). I am delivering this certificate in connection with the Form 10-Q of the Company for the quarter ended September 30, 2021 and filed with the Securities and Exchange Commission (“Form 10-Q”).
Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, I hereby certify that, to the best of my knowledge, the Form 10-Q fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: November 9, 2021 |
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/s/ Jeffrey S. Mathiesen |
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Jeffrey S. Mathiesen |
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Chief Financial Officer |
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