UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


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

For the quarterly period ended March 31, 2023


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

For the transition period from to

Commission File No. 001-38445

HELIUS MEDICAL TECHNOLOGIES, INC.

(Exact name of Registrant as specified in its charter)

Delaware

36-4787690

(State or other jurisdiction of
incorporation or organization)

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

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

18940

(Zip Code)

(215) 944-6100

(Registrant’s telephone number, including area code)

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



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

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

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

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



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

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

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

As of May 3, 2023, the registrant had 28,215,394 shares of Class A common stock, $0.001 par value per share, outstanding.

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HELIUS MEDICAL TECHNOLOGIES, INC.

INDEX


Part I.	Financial Information

Item 1.	Condensed Consolidated Financial Statements

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

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

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

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

	Notes to Unaudited Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	20

Item 4.	Controls and Procedures	20

Part II.	Other Information	20

Item 1.	Legal Proceedings	20

Item 1A.	Risk Factors	21

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21

Item 3.	Defaults Upon Senior Securities	21

Item 4.	Mine Safety Disclosures	21

Item 5.	Other Information	21

Item 6.	Exhibits	22

Signatures		23

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share data)


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

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss

(in thousands, except share and per share data)


	Three Months Ended
	March 31,
	2023		2022

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

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)


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


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

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

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Helius Medical Technologies, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Three Months Ended
	March 31,
	2023		2022

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

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

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Helius Medical Technologies, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. BASIS OF PRESENTATION

The accompanying interim Unaudited Condensed Consolidated Financial Statements of Helius Medical Technologies, Inc. (together with its wholly owned subsidiaries the “Company”) have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission ("SEC") and should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 that was filed with the Securities and Exchange Commission on March 9, 2023 (“2022 10-K”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted.

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

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

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

Going Concern Uncertainty

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

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

Global Economic Conditions

Generally, worldwide economic conditions remain uncertain, particularly due to the conflict between Russia and Ukraine, disruptions in the banking system and financial markets, lingering effects of the COVID-19 pandemic and increased inflation. The general economic and capital market conditions both in the United States and worldwide, have been volatile in the past and at times have adversely affected the Company’s access to capital and increased the cost of capital. The capital and credit markets may not be available to support future capital raising activity on favorable terms. If economic conditions decline, the Company’s future cost of equity or debt capital and access to the capital markets could be adversely affected.

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The COVID-19 pandemic that began in late 2019 introduced significant volatility to the global economy, disrupted supply chains and had a widespread adverse effect on the financial markets. Additionally, the Company’s operating results could be materially impacted by changes in the overall macroeconomic environment and other economic factors. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the conflict in Ukraine, disruptions in the banking system and financial markets, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to high inflation, which has increased costs and has caused changes in fiscal and monetary policy, including an increase in interest rates. Although the Company may take measures to mitigate these impacts, if these measures are not effective, the Company’s business, financial condition, results of operations, and liquidity could be materially adversely affected.

In the opinion of management, the interim unaudited condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the results for the interim periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full year.

2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held and requires enhanced disclosures regarding significant estimates and judgments used in estimating credit losses. As the Company meets the SEC definition of a Smaller Reporting Company filer, the guidance was effective for fiscal years beginning after December 15, 2022. The adoption of this guidance on January 1, 2023 did not have a material impact on the Company's unaudited condensed consolidated financial statements.

3. SUPPLEMENTAL BALANCE SHEET DISCLOSURES

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

Accounts receivable, net

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

Inventory, net (in thousands)


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

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

Prepaid expenses and other current assets (in thousands)


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

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Accrued and other current liabilities (in thousands)


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

Deferred revenue

Exclusive Distribution Agreement

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

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

4. LEASES

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

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


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

5. FAIR VALUE MEASUREMENTS

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

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

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

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

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

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

6. COMMON STOCK, PREFERRED STOCK AND WARRANTS

Series B Preferred Stock

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

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

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

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

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

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

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

Warrants

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

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Warrants did not meet the guidance for being classified as an equity instrument due to a potential price reset prompted by a change in an unrelated instrument’s conversion rate or, in the event of a fundamental transaction, settlement rights that differ from those of the underlying common stockholders. Accordingly, the Public Warrants are being accounted for as a derivative liability instrument. The fair value of the derivative liability as of March 31, 2023 and December 31, 2022 was $5.7 million and $6.9 million, respectively. The change in the fair value of the derivative liability was recognized as a component of nonoperating income (expense) in the Company’s Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.

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


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

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

The Company has outstanding equity-classified warrants to purchase 593,924 shares of Class A common stock at a weighted average exercise price of $16.32, with expiration dates ranging from October 2023 to February 2026. During the three months ended March 31, 2023, no warrants were exercised or cancelled.

7. STOCK-BASED COMPENSATION

The Company may issue stock-based compensation awards under The Helius Medical Technologies, Inc. 2022 Equity Incentive Plan (“2022 Plan”) or the Helius Medical Technologies, Inc. 2021 Inducement Plan (as amended, the “Inducement Plan”), as described more fully in the 2022 10-K. On January 1, 2023, pursuant to the automatic increase provision of the 2022 Plan, the number of shares authorized for issuance increased from the initial 1,121,272 to 13,215,973. As of March 31, 2023, the remaining shares available for grant were 2,195,103 under the 2022 Plan and 474,375 under the Inducement Plan.

During the three months ended March 31, 2023, the Company granted 9,949,000 stock options out of the 2022 Plan at a weighted average exercise price of $0.31 per share. The options vest over three years and expire ten years after the grant date. As of March 31, 2023, there were an aggregate of 11,122,299 stock options outstanding with a weighted average exercise price of $1.70 per share and 2,016 unvested restricted stock units outstanding with a weighted average grant date fair value of $1.40 per share.

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

SEC Form 10-Q filed by Helius Medical Technologies Inc.