Item 9A. Controls and Procedures
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, under the direction of the Chief Executive Officer and the Chief Financial Officer, we have evaluated our disclosure controls and procedures as defined in Rule 13a-15(e) or 15d-15(e) as of the end of the period covered by this Form 10-K. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Form 10-K.
Management’s Annual Report on Internal Control over Financial Reporting
We are responsible for establishing and maintaining adequate internal controls over financial reporting. Our management assessed the effectiveness of our internal controls over financial reporting as of December 31, 2022. In making this assessment, our management used the criteria described in Internal Control—Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission and assessed the applicability of the principles within each component of internal control and determined whether or not they have been adequately addressed within the current system of internal control and adequately documented. Based on this assessment, management, under the supervision and with the participation of our principal executive officer and our principal financial officer, concluded that, as of December 31, 2022, our internal control over financial reporting was effective.
This Form 10-K does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting as required by Section 404(b) of the Sarbanes Oxley Act of 2002. As a non-accelerated filer, our management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this Form 10-K.
Changes in Internal Control over Financial Reporting
We monitor our internal control over financial reporting on a continuous basis. There has not been any change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) under the Exchange Act that occurred during the quarter ended December 31, 2022 which has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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PART III
We will file a definitive Proxy Statement for our 2023 Annual Meeting of Stockholders (the “2023 Proxy Statement”) with the SEC, pursuant to Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the 2022 Proxy Statement that specifically address the items set forth herein are incorporated by reference.
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 is hereby incorporated by reference to the sections of the 2023 Proxy Statement under the captions “Information Regarding the Board of Directors and Corporate Governance,” “Proposal 1 - Election of Directors,” “Executive Officers”, and “Delinquent Section 16(a) Reports”.
ITEM 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is hereby incorporated by reference to the sections of the 2023 Proxy Statement under the captions “Executive Compensation” and “Information Regarding the Board of Directors and Corporate Governance– Non-Employee Director Compensation.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by Item 12 is hereby incorporated by reference to the sections of the 2023 Proxy Statement under the captions “Security Ownership of Certain Beneficial Owners and Management" and "Executive Compensation.”
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item 13 is hereby incorporated by reference to the sections of the 2023 Proxy Statement under the captions “Certain Relationships and Related Transactions” and “Information Regarding the Board of Directors and Corporate Governance - Independence of the Board of Directors.”
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 is hereby incorporated by reference to the sections of the 2023 Proxy Statement under the caption “Proposal 2 - Ratification of Appointment of Independent Registered Public Accounting Firm.”
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PART IV
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following documents are filed as part of this Form 10-K:
1. Financial Statements—See the Index to Consolidated Financial Statements on Page F-1.
2. Financial Statement Schedules—None. We have omitted financial statement schedules because they are not required or are not applicable, or the required information is shown in the consolidated financial statements or notes to the consolidated financial statements.
3. Exhibits.
Exhibit
Number
Exhibit
3.1
Certificate of Conversion filed with the Delaware Secretary of State on July 18, 2018 (incorporated by reference to Exhibit 3.1 to the Form 10-Q filed August 9, 2018)
3.2
Certificate of Incorporation, as corrected (incorporated by reference to Exhibit 3.1 to the Form 8-K filed October 30, 2018)
3.3
Certificate of Amendment to Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Form 8-K filed on December 31, 2020)
3.4
Bylaws as amended and restated (incorporated by reference to Exhibit 3.3 to the Form 10-Q filed August 9, 2018)
4.1
Form of Warrant (incorporated by reference to Exhibit 4.1 to the Form 8-K filed October 26, 2020)
4.2
Form of Warrant (incorporated by reference to Exhibit 4.1 to the Form S-1/A filed January 20, 2021)
4.3
Warrant Agency Agreement (incorporated by reference to Exhibit 4.2 to the Form S-1/A filed January 20, 2021)
4.4
Description of Registrant’s Securities (incorporated by reference to Exhibit 4.7 to the Form 10-K filed March 14, 2021)
4.5
Warrant Agency Agreement dated as of February 1, 2021 by and between Helius Medical Technologies, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to the Form 8-K filed February 1, 2021)
4.6
Form of Warrant to purchase shares of common stock (incorporated by reference to Exhibit 4.1 to the Form 8-K filed August 9, 2022)
4.7
Warrant Agency Agreement dated as of August 9, 2022 by and between Helius Medical Technologies, Inc. and American Stock Transfer & Trust Company, LLC (incorporated by reference to Exhibit 4.2 to the Form 8-K filed August 9, 2022)
10.1
License Agreement between Advanced NeuroRehabilitation, LLC and Yuri Danilov, Mitchell Tyler, Kurt Kaczmarek and John Klus, dated June 29, 2011 (incorporated by reference to Exhibit 10.8 to the Amendment to Form S-1 filed with the SEC on September 23, 2014)
10.2
Amended and Restated Patent Sub-License Agreement between Advanced NeuroRehabilitation, LLC and Helius Medical, Inc, having an effective date of January 22, 2013 (incorporated by reference to Exhibit 10.1 to the Form S-1 filed with the SEC on July 14, 2014)
10.3
Second Amended and Restated Patent Sub-License Agreement between Advanced NeuroRehabilitation, LLC and Helius Medical, Inc, dated June 6, 2014, but having an effective date of January 22, 2013 (incorporated by reference to Exhibit 10.7 to the Form S-1 filed with the SEC on July 14, 2014)
10.4
Design and Manufacturing Consultant Agreement between Helius Medical, Inc and Clinvue, LLC, dated January 30, 2013 (incorporated by reference to Exhibit 10.3 to the Form S-1 filed with the SEC on July 14, 2014)
10.5
Commercial Development-to-Supply Program between Helius Medical, Inc and Ximedica, dated October 25, 2013 (incorporated by reference to Exhibit 10.4 to the Form S-1 filed with the SEC on July 14, 2014)
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Table of Contents
Exhibit
Number
Exhibit
10.6‡
Asset Purchase Agreement between the Company and A&B (HK) Company Limited, dated as of October 9, 2015 (incorporated by reference to Exhibit 2.1 to the Form 8-K filed with the SEC on October 16, 2015)
10.6.1
Amendment to Asset Purchase Agreement between the Company and A&B (HK) Company Limited, dated as of October 30, 2017 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the SEC on November 2, 2017)
10.6.2
Supplemental Agreement to Asset Purchase Agreement dated October 9, 2015, between Helius Medical, Inc. and A&B (HK) Company Limited, dated as of August 15, 2018 (incorporated by reference to Exhibit 10.27 to the Form 10-K filed March 14, 2019)
10.7†
Amended and Restated June 2014 Equity Incentive Plan (incorporated by reference to Exhibit 4.3 to the Form 10-Q filed with the SEC on November 9, 2017)
10.7.1†
2014 Stock Incentive Plan Form of Option Grant Agreement (incorporated by reference to Exhibit 10.23.1 to the Transition Report on Form 10-K filed with the SEC on April 3, 2017)
10.8†
2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.25 to the Transition Report on Form 10-K filed with the SEC on April 3, 2017)
10.8.1†
Amendment Number 1 to the 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.25.1 to the Transition Report on Form 10-K filed with the SEC on April 3, 2017)
10.8.2†
Amendment Number 2 to the 2016 Omnibus Incentive Plan (incorporated by reference to Exhibit 4.7 to the Registration Statement on Form S-8 filed with the SEC on May 18, 2017)
10.8.3†
2016 Omnibus Incentive Plan Form of U.S. Option Grant Agreement (incorporated by reference to Exhibit 4.8 to the Registration Statement on Form S-8 filed with the SEC on May 18, 2017)
10.8.4†
2016 Omnibus Incentive Plan Form of Canada Option Grant Agreement (incorporated by reference to Exhibit 4.9 to the Registration Statement on Form S-8 filed with the SEC on May 18, 2017)
10.9†
2018 Omnibus Incentive Plan, as amended (incorporated by reference to Exhibit 10.2 to the Form 10-Q filed November 8, 2018)
10.9.1†
2018 Omnibus Incentive Plan Form of Option Grant Agreement (incorporated by reference to Exhibit 10.3 to the Form 10-Q filed November 8, 2018)
10.9.2†
2018 Omnibus Incentive Plan Form of Restricted Stock Unit Grant Agreement (incorporated by reference to Exhibit 10.4 to the Form 10 Q filed November 8, 2018)
10.9.3†
2018 Omnibus Incentive Plan Form of Option Grant Agreement – 2020 Retention Grant (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on October 7, 2020)
10.9.4†
2018 Omnibus Incentive Plan Form of Stock Grant Notice and Award Agreement (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on April 7, 2021)
10.9.5†
Amendment to the Helius Medical Technologies, Inc. 2018 Omnibus Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on May 27, 2021)
10.9.6†
2018 Omnibus Incentive Plan Form of Option Grant Agreement – Initial Grants to Dane C. Andreeff and Jeffrey S. Mathiesen (incorporated by reference to Exhibit 10.3 to the Form 8-K filed on June 15, 2021)
10.10†
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.24 to the Form 10-K filed March 10, 2021)
10.11
Non-employee Director Compensation Policy (incorporated by reference to Exhibit 10.7 to the Form 10-Q filed on May 17, 2021)
10.12†
Employment Agreement between Helius Medical Technologies, Inc. and Dane C. Andreeff, dated June 14, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on June 15, 2021)
10.13†
Employment Agreement between Helius Medical Technologies, Inc. and Jeffrey S. Mathiesen, dated June 14, 2021 (incorporated by reference to Exhibit 10.2 to the Form 8-K filed on June 15, 2021)
10.14†
Helius Medical Technologies, Inc. 2021 Inducement Plan (incorporated by reference to Exhibit 4.6 to the Form S-8 filed July 7, 2021)
10.14.1†
Form of Stock Option Grant Notice, Option Agreement and Notice of Exercise under the Helius Medical Technologies, Inc. 2021 Inducement Plan (incorporated by reference to Exhibit 4.5 to the Form S-8 filed July 7, 2021)
10.15
Purchase Agreement between Helius Medical Technologies, Inc. and Lincoln Park Capital Fund, LLC dated September 1, 2021 (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on September 2, 2021)
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Exhibit
Number
Exhibit
10.16†
Employment Agreement between Helius Medical Technologies, Inc. and Antonella Favit-Van Pelt, dated July 7, 2021 (incorporated by reference to Exhibit 10.31 to the Form S-1 filed on September 3, 2021)
10.17†
Helius Medical Technologies, Inc. 2022 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Form 8-K filed on February 18, 2022)
10.17.1†
Helius Medical Technologies, Inc. 2022 Equity Incentive Plan Form of Stock Option Agreement (incorporated by reference to Exhibit 10.3 to the Form 8-K filed on February 18, 2022)
16.1
Letter from BDO USA, LLP (incorporated by reference to Exhibit 16.1 to the Form 8-K filed on September 30, 2022)
21.1*
Subsidiaries of Helius Medical Technologies, Inc.
23.1*
Consent of Baker Tilly US, LLP
23.2*
Consent of BDO USA, LLP
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes – Oxley Act of 2002
32.1*
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes – Oxley Act of 2002
101.INS*
Inline XBRL Instance Document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Definition Linkbase Document
104*
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
Filed herewith.
†
Indicates a management contract or compensatory plan.
‡
Confidential information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been granted with respect to this omitted information.
ITEM 16.
FORM 10-K SUMMARY
None
66
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (BAKER TILLY US, LLP; MINNEAPOLIS, MN; PCAOB ID # 23 )
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (BDO USA, LLP; PHILADELPHIA, PA; PCAOB ID # 243 )
F-3
CONSOLIDATED BALANCE SHEETS
F-4
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
F-5
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
F-6
CONSOLIDATED STATEMENTS OF CASH FLOWS
F-7
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
F-8
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Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the stockholders and the board of directors of Helius Medical Technologies, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Helius Medical Technologies, Inc. (the "Company") as of December 31, 2022, the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows, for the year ended December 31, 2022, and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 of the consolidated financial statements, the Company has recurring losses from operations, an accumulated deficit, expects to incur losses for the foreseeable future and requires additional working capital. These are the reasons that raise substantial doubt about their ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not contain any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
F-1
Table of Contents
Critical Audit Matter Description
Classification and valuation of warrants
As described in Note 8 to the financial statements, the Company completed an equity offering during the year which included the issuance of warrants. Management evaluated the classification of the warrants as either equity or liability presentation by reviewing the terms and conditions of the issued warrants and applying the applicable accounting guidance, including Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity and ASC 815, Derivatives and Hedging. Management concluded the warrants met the criteria for the classification as liabilities. Given the liability treatment, the Company is required to determine the fair value of the warrants at each reporting period.
Due to the complexity in the accounting guidance, the need for management judgment in applying the accounting guidance, and the fact that a slight change in terms can result in significant changes in both the initial accounting and subsequent accounting for the warrants, we identified the evaluation of the classification of the warrants issued during the year as a critical audit matter.
In addition, due to the complexities in determining the fair value, including use of complex valuation techniques and management judgment and estimation in determining assumptions and inputs into the valuation model, we identified the evaluation of the classification of the warrants issued during the year as a critical audit matter.
How We Addressed the Matter in Our Audit
The primary procedures we performed to address this critical audit matter included:
● We obtained the Company’s accounting analysis for the equity offering during the year. We compared the terms described in the Company’s analysis to the terms of the respective agreements to determine the completeness and accuracy of the analysis performed.
● With the assistance of firm personnel having expertise in the accounting for complex equity instruments, we performed a detailed examination of the warrant agreement for the equity offering, with a primary focus on the key terms and conditions and applying the Indexation Guidance. The warrants failed the Indexation Guidance given the impact of potential future changes to pricing/conversion rates unrelated to future equity issuances. We agreed with the conclusion to classify the warrants as a liability.
● With the assistance of firm personnel having expertise in the valuation of derivative instruments, we reviewed the Company’s valuation, including determining the impact of key provisions from the warrant agreement and tying out inputs into the valuation model. We performed an independent analysis validating the Company’s calculation.
/s/ Baker Tilly US, LLP
We have served as the Company’s auditor since 2022.
Minneapolis, Minnesota
March 9, 2023
F-2
Table of Contents
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Helius Medical Technologies, Inc.
Newtown, Pennsylvania
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Helius Medical Technologies, Inc. (the “Company”) as of December 31, 2021, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021, and the results of its operations and its cash flows for the year then ended , in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred substantial net losses since its inception, has an accumulated deficit of $137.0 million as of December 31, 2021 and the Company expects to incur further net losses in the development of its business. These conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company’s auditor from 2017 to 2022.
Philadelphia, Pennsylvania
March 14, 2022
F-3
Table of Contents
Helius Medical Technologies, Inc.
Consolidated Balance Sheets
(in thousands, except share and per share amounts)
December 31,
2022
2021
ASSETS
Current assets
Cash and cash equivalents
$
14,549
$
11,005
Accounts receivable, net
71
66
Other receivables
272
185
Inventory, net
589
476
Prepaid expenses and other current assets
1,216
862
Total current assets
16,697
12,594
Property and equipment, net
347
409
Goodwill
—
763
Intangible assets, net
140
333
Operating lease right-of-use asset, net
103
3
Total assets
$
17,287
$
14,102
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable
$
627
$
1,069
Accrued and other current liabilities
1,280
1,433
Operating lease liabilities
54
3
Deferred revenue
27
148
Total current liabilities
1,988
2,653
Operating lease liabilities
56
—
Deferred revenue
175
193
Derivative liability
6,917
—
Total liabilities
9,136
2,846
Commitments and contingencies (Note 13)
Stockholders' equity
Preferred stock, $ 0.001 par value; 10,000,000 shares authorized; no shares issued and outstanding as of December 31, 2022 and December 31, 2021
—
—
Class A common stock, $ 0.001 par value; 150,000,000 shares authorized; 28,207,330 and 3,780,674 shares issued and outstanding as of December 31, 2022 and December 31, 2021, respectively
28
4
Additional paid-in capital
159,618
149,412
Accumulated deficit
( 151,107 )
( 137,035 )
Accumulated other comprehensive loss
( 388 )
( 1,125 )
Total stockholders' equity
8,151
11,256
Total liabilities and stockholders' equity
$
17,287
$
14,102
The accompanying notes are an integral part of these consolidated financial statements.
F-4
Table of Contents
Helius Medical Technologies, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share amounts)
Years Ended December 31,
2022
2021
Revenue
Product sales, net
$
778
$
493
Other revenue
9
29
Total revenue
787
522
Cost of revenue
463
298
Gross profit
324
224
Operating expenses
Selling, general and administrative expenses
10,640
12,176
Research and development expenses
4,262
5,990
Amortization expense
181
200
Goodwill impairment
757
—
Total operating expenses
15,840
18,366
Loss from operations
( 15,516 )
( 18,142 )
Nonoperating income (expense)
Interest expense, net
( 834 )
—
Change in fair value of derivative liability
3,027
—
Foreign exchange (loss) gain
( 756 )
10
Other income, net
7
—
Nonoperating income (expense), net
1,444
10
Loss before provision for income taxes
( 14,072 )
( 18,132 )
Provision for income taxes
—
—
Net loss
( 14,072 )
( 18,132 )
Other comprehensive income (loss)
Foreign currency translation adjustments
737
( 26 )
Comprehensive loss
$
( 13,335 )
$
( 18,158 )
Loss per share
Basic
$
( 1.04 )
$
( 7.38 )
Diluted
$
( 1.04 )
$
( 7.38 )
Weighted average number of common shares outstanding
Basic
13,497,159
2,456,782
Diluted
13,497,159
2,456,782
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
Helius Medical Technologies, Inc.
Consolidated Statements of Stockholders’ Equity
(in thousands, except share amounts)
Accumulated
Additional
Other
Class A Common Stock
Paid-In
Accumulated
Comprehensive
Shares
Amount
Capital
Deficit
Loss
Total
Balance as of December 31, 2020
1,484,362
$
1
$
123,872
$
( 118,903 )
$
( 1,099 )
$
3,871
Common stock issued under equity line of credit
40,000
—
577
—
—
577
Issuance of common stock in public offering
2,129,967
3
19,477
—
—
19,480
Issuance of warrants in public offering
—
—
2,638
—
—
2,638
Share issuance costs
31,958
—
( 2,744 )
—
—
( 2,744 )
Exercise of warrants
81,895
—
1,318
—
—
1,318
Exercise of stock options
214
—
2
—
—
2
Settlement of restricted stock units
5,012
—
—
—
—
—
Common stock issued for services
1,929
—
20
—
—
20
Stock-based compensation
5,337
—
4,252
—
—
4,252
Other comprehensive loss
—
—
—
—
( 26 )
( 26 )
Net loss
—
—
—
( 18,132 )
—
( 18,132 )
Balance as of December 31, 2021
3,780,674
$
4
$
149,412
$
( 137,035 )
$
( 1,125 )
$
11,256
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
Common stock issued under equity line of credit
391,363
—
644
—
—
644
Issuance of common stock in public offering
24,000,000
24
8,032
—
—
8,056
Share issuance costs
—
—
( 758 )
—
—
( 758 )
Settlement of restricted stock units
18,491
—
—
—
—
—
Common stock issued for services
8,791
—
34
—
—
34
Stock-based compensation
8,011
—
2,254
—
—
2,254
Other comprehensive income
—
—
—
—
737
737
Net loss
—
—
—
( 14,072 )
—
( 14,072 )
Balance as of December 31, 2022
28,207,330
$
28
$
159,618
$
( 151,107 )
$
( 388 )
$
8,151
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
Helius Medical Technologies, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
2022
2021
Cash flows from operating activities:
Net loss
$
( 14,072 )
$
( 18,132 )
Adjustments to reconcile net loss to net cash used in operating activities:
Change in fair value of derivative liability
( 3,027 )
—
Stock-based compensation expense
2,254
4,252
Common stock issued for services
34
20
Foreign exchange loss (gain)
746
( 25 )
Depreciation expense
74
112
Amortization expense
181
200
Goodwill impairment
757
—
Provision (reversal) for doubtful accounts
—
( 22 )
Provision for (reversal of) inventory reserve
( 2 )
—
Non-cash operating lease expense
51
62
Loss from disposal of property and equipment
—
18
Changes in operating assets and liabilities:
Accounts receivable
( 9 )
30
Other receivables
( 94 )
( 29 )
Inventory, net
( 111 )
( 87 )
Prepaid expense and other current assets
( 354 )
( 127 )
Operating lease liability
( 44 )
( 63 )
Accounts payable
( 418 )
369
Accrued and other current liabilities
( 152 )
194
Deferred revenue
( 124 )
( 160 )
Net cash used in operating activities
( 14,310 )
( 13,388 )
Cash flows from investing activities:
Purchase of property and equipment
( 17 )
( 54 )
Proceeds from sale of property and equipment
6
—
Internally developed software
—
( 2 )
Net cash used in investing activities
( 11 )
( 56 )
Cash flows from financing activities:
Proceeds from issuances of common stock and warrants
18,644
22,695
Share issuance costs
( 775 )
( 2,889 )
Proceeds from exercise of warrants and stock options
—
1,320
Net cash provided by financing activities
17,869
21,126
Effect of currency exchange rate changes on cash and cash equivalents
( 4 )
( 8 )
Net increase in cash and cash equivalents
3,544
7,674
Cash and cash equivalents at beginning of period
11,005
3,331
Cash and cash equivalents at end of period
$
14,549
$
11,005
Supplemental cash flow information
Cash paid for interest (share issuance costs allocated to derivative liability)
$
927
$
—
Non-cash investing and financing transactions:
Right-of-use assets obtained in exchange for new lease liabilities
$
151
$
—
Non-cash share issuance costs
—
476
Share issuance costs included in accounts payable
—
17
The accompanying notes are an integral part of these consolidated financial statements.
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Helius Medical Technologies, Inc.
Notes to the Consolidated Financial Statements
1. DESCRIPTION OF BUSINESS
Helius Medical Technologies, Inc. (together with its wholly owned subsidiaries the “Company”) conducts operations in the United States and Canada. The Company’s product, known as the Portable Neuromodulation Stimulator (“PoNS®”) has been commercially available in Canada since March 2019. The Company began accepting prescriptions for its PoNS product in the United States in the first quarter of 2022, and the first commercial sales began in April 2022. PoNS is authorized for sale as a Class IIa medical device in Australia. The Company is working to establish a distribution partner for Australia but has not yet had any commercial sales of PoNS in Australia.
Going Concern Uncertainty
As of December 31, 2022, the Company had cash and cash equivalents of $ 14.5 million. For the year ended December 31, 2022, the Company had an operating loss of $ 15.5 million, and as of December 31, 2022, its accumulated deficit was $ 151.1 million. For the year ended December 31, 2022, the Company had $ 0.8 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 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.
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements reflect the operations of Helius Medical Technologies, Inc. and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of the consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and disclosure of contingent assets and liabilities. Significant estimates include the assumptions used in the valuation of the fair value-pricing model for stock-based compensation, liability classified warrants and deferred income tax asset valuation allowance. Financial statements include estimates, which, by their nature, are uncertain. Actual results could differ from those estimates.
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Table of Contents
Global Economic Conditions
Generally, worldwide economic conditions remain uncertain, particularly due to the 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.
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, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Although 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.
Foreign Currency Translation
The local currency, or CAD$, is the functional currency of the Company’s foreign operating subsidiary, Helius Medical Technologies (Canada), Inc. All assets and liabilities are translated into United States dollars at the rate of exchange in effect at the balance sheet date. Income and expense items are translated at the weighted-average exchange rate prevailing during the period. The effects of foreign currency translation adjustments are deferred and reported in stockholders' equity as a component of “Accumulated Other Comprehensive Loss.” The effects of foreign currency transactions denominated in a currency other than an entity's functional currency are included in “Foreign Exchange (Loss) Gain” in the Consolidated Statements of Operations and Comprehensive Loss.
Revenue Recognition
Revenue is recognized when control of the promised goods is transferred to the customer in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those products.
The Company generates nearly all of its revenue from product sales directly to patients in the United States and to clinics in Canada. Revenue from product sales is recognized at a point in time when the performance obligation is satisfied upon delivery of the product. Taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company requires customers in the United States to prepay the full product selling price, net of cash discount, prior to shipment. The Company records a contract liability for any customer prepayment received for which delivery had not yet occurred as of the end of the period.
Concentration of Credit Risk
The Company deposits its cash and cash equivalents in demand commercial checking and money market savings or certificates of deposit at high-quality credit institutions. At times, such deposits may be in excess of federally insured limits. The Company has not experienced any losses.
Cash Equivalents
The Company considers highly liquid investments with original maturities of three months or less to be cash equivalents. Cash equivalents are valued at cost, which approximates fair value.
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Table of Contents
Accounts Receivable
Accounts receivable arise from product sales in Canada and generally require payment within 30 days. The Company provides reserves against accounts receivable for estimated losses that may result from a customer’s inability to pay based on a combination of factors, such as the aging of accounts receivable, the customer’s financial strength and payment history. Amounts determined to be uncollectible are charged or written off against the reserve.
Inventory
Inventories are stated at the lower of cost (average cost method) or net realizable value. The Company establishes inventory reserves for obsolescence based upon specific identification of expired or unusable units with a corresponding provision included in cost of revenue. 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.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated for financial reporting purposes on the straight-line method over the estimated useful lives of the related assets, which are seven years for furniture and fixtures, 15 years for equipment and three to five years for computer software and hardware. Depreciation expense is recorded in selling, general and administrative expenses. Expenditures for repairs and maintenance, which do not improve or extend the expected useful life of the assets, are expensed as incurred.
Long-Lived Assets
Management reviews the carrying amounts of definite-lived intangible assets and long-lived tangible assets whenever events or circumstances indicate that the carrying amounts of an asset may not be recoverable. For purposes of assessing recoverability, definite-lived intangible assets and long-lived tangible assets are each deemed to be one asset group. The carrying amount of the asset group is compared to the estimated undiscounted future cash flows associated with it. If the sum of the expected future net cash flows is less than the carrying value of the asset group being evaluated, an impairment loss is calculated as the amount by which the carrying value of the asset group exceeds its estimated fair value.
Leases
The Company has operating leases for its corporate offices. The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. The Company's incremental borrowing rate is determined based on the estimated rate of interest for collateralized borrowing over a similar term as the associated lease. The Company’s lease arrangements do not have any lease and non-lease components.
Stock-Based Compensation
The Company measures and recognizes compensation expense for all stock-based awards based on estimated fair values. Stock-based awards consist of stock options and restricted stock units. Stock-based compensation expense is measured at the grant date based on the fair value of the award and is recognized as expense over the requisite service period (vesting period) on a straight-line basis. Forfeitures are not estimated, but instead stock-based compensation expense is adjusted upon an actual forfeiture of a stock option. Upon exercise of stock options or vesting of restricted stock units, the Company issues common stock.
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Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance for deferred income tax assets is recorded when it is more likely than not that some portion or all of the deferred income tax assets will not be realized.
Research and Development Expenses
Research and development costs are charged to expense when incurred.
Segment Information
Operating segments are defined as components of an enterprise for which discrete financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our CODM is the Chief Executive Officer. The Company operates and manages its business within one operating and reportable segment related to the sale of PoNS Devices in the United States and Canada.
Derivatives
The Company does not engage in hedging activities. 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. 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 Consolidated Statements of Operations and Comprehensive Loss. Refer to Note 8 for details about the derivative liability recorded during the year ended December 31, 2022.
Basic and Diluted Loss per Share
Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted loss per share is based on the weighted-average common shares outstanding during the period plus dilutive potential common shares calculated using the treasury stock method. Such potentially dilutive shares are excluded when the effect would be to reduce a net loss per share.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments , which amended the guidance on the measurement of credit losses on financial instruments. The guidance was effective for Smaller Reporting Companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The adoption of this guidance on January 1, 2023 did not have a material impact on the Company's Consolidated Financial Statements.
3. GOODWILL IMPAIRMENT
In September 2022, the Company recorded an impairment charge of $ 757 thousand for the full write-down of the goodwill recorded in connection with its acquisition of Heuro Canada, Inc. (“Heuro”). The significant decline in the price of the Company’s Class A common stock (“common stock”) following the Company’s registered public offering in August 2022 was considered a triggering event for testing whether goodwill was impaired. The Company elected to perform a quantitative impairment test as of September 30, 2022 for its one identified reporting unit, and determined that the carrying value exceeded the estimated fair value based on the closing price of the Company’s common stock on the Nasdaq Capital Market.
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Table of Contents
4 . SUPPLEMENTAL BALANCE SHEET DISCLOSURES
Components of selected captions in the Consolidated Balance Sheets are as follows:
Accounts receivable, net
Accounts receivable are net of allowance for doubtful accounts of less than $ 1 thousand and $ 355 thousand as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, $ 334 thousand of past due accounts receivable from a customer that had been fully reserved prior to 2021 were determined by the Company to be uncollectible and were charged off against the allowance for doubtful accounts.
Inventory, net (in thousands)
December 31,
2022
2021
Raw materials
$
344
$
171
Work-in-process
284
528
Finished goods
39
32
Inventory, gross
667
731
Inventory reserve
( 78 )
( 255 )
Inventory, net
$
589
$
476
During the year ended December 31, 2022, existing reserves of $ 175 thousand were charged against work-in-process inventory.
Prepaid expenses and other current assets (in thousands)
December 31,
2022
2021
Prepaid expenses
$
817
$
236
Inventory related
399
626
Total prepaid expenses and other current assets
$
1,216
$
862
Property and equipment, net (in thousands)
December 31,
2022
2021
Furniture and fixtures
$
59
$
65
Equipment
373
373
Computer software and hardware
229
212
Property and equipment
661
650
Accumulated depreciation
( 314 )
( 241 )
Property and equipment, net
$
347
$
409
Accrued and other current liabilities (in thousands)
December 31,
2022
2021
Insurance payable
$
592
$
—
Employees benefits
509
712
Professional services
119
197
Franchise tax
—
193
Severance
—
258
Other
60
73
Total accrued and other current liabilities
$
1,280
$
1,433
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Table of Contents
Deferred revenue
Collaborative Arrangement
In October 2019, the Company received an up-front payment of CAD$ 360 thousand in connection with a Clinical Research and Co-Promotion Agreement with Health Tech Connex Inc. (“HTC”) (the “Co-Promotion Agreement”). Under the Co-Promotion Agreement, subject to certain terms and conditions, the Company granted to HTC the exclusive right to provide the PoNS Therapy in the Fraser Valley and Vancouver metro regions of British Columbia, where HTC has operated a PoNS authorized clinic since February 2019. This exclusivity right had an initial term of ten years . License revenue was recognized ratably over the ten-year term through the first three months of 2022, at which time the Company and HTC commenced negotiations to enter into a new exclusive distribution agreement.
On March 3, 2023, the Company entered into an Exclusive Distribution Agreement (“Exclusivity Agreement”) with HTC, whereby, subject to certain terms and conditions, the Company granted to HTC the exclusive right to provide the PoNS Therapy in the Fraser Valley and Vancouver metro regions of British Columbia. HTC is to purchase the PoNS devices for use in these regions exclusively from the Company and on terms no less favorable than the then-current standard terms and conditions, This exclusivity right was granted for a value of CAD$ 273 thousand which is represented by the unamortized payment that we received from HTC under the Co-Promotion Agreement and has an initial term of five years , renewable by HTC for one additional five-year term upon sixty days ’ written notice to us.
Deferred revenue as of both December 31, 2022 and 2021 included approximately $ 200 thousand of license fees not yet recognized under the Co-Promotion Agreement. License fee revenue recognized is included in other revenue in the Consolidated Statements of Operations and Comprehensive loss.
Noncash Consideration in Acquisition
Deferred revenue for the remaining noncash consideration to be transferred in connection with the Company’s acquisition of Heuro Canada, Inc. (“Heuro”) in October 2019 was approximately $ 100 thousand as of December 31, 2021. During the year ended December 31, 2022, the remaining 16 PoNS devices were transferred and the remaining $ 100 thousand of deferred revenue was recognized in Product Sales in the Consolidated Statements of Operations and Comprehensive Loss. During the year ended December 31, 2021, there were 18 PoNS devices transferred which resulted in the recognition of $ 100 thousand of deferred revenue in Product Sales in the Consolidated Statements of Operations and Comprehensive Loss.
5. LEASES
The Company has two operating leases for office space with lease terms that commenced in January 2022 and February 2022 and expire in March 2025 and January 2024, respectively. The leases do not contain any options to extend . Operating lease costs for the current and prior leases for the years ended December 31, 2022 and 2021 were $ 56 thousand and $ 63 thousand, respectively.
Maturities of operating lease liabilities at December 31, 2022 were as follows (in thousands):
2023
$
57
2024
46
2025
12
Total lease payments
115
Less: imputed interest
( 5 )
Total lease liabilities
$
110
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Table of Contents
The following table provides information on the lease terms and discount rates for the two operating leases as of December 31, 2022:
Weighted average remaining lease term (in years)
2.13
Weighted average discount rate
4.5
%
6. INTANGIBLE ASSETS
Intangible assets consist of the following (in thousands):
December 31,
2022
2021
Net
Net
Useful Life
Accumulated
Carrying
Accumulated
Carrying
(in years)
Cost
Amortization
Value
Cost
Amortization
Value
Acquired proprietary software
5.00
$
142
$
( 90 )
$
52
$
151
$
( 66 )
$
85
Reacquired rights
3.87
475
( 388 )
87
505
( 283 )
222
Internally developed software
3.00
84
( 83 )
1
84
( 58 )
26
Total intangible assets
$
701
$
( 561 )
$
140
$
740
$
( 407 )
$
333
The acquired proprietary software and reacquired rights intangible assets were recorded in connection with the Company’s acquisition of Heuro.
Estimated amortization expense for each of the years ending December 31 is as follows (in thousands):
2023
$
116
2024
24
$
140
7 . 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.
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 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 December 31, 2022. The Company did not have any cash equivalents as of December 31, 2021. The carrying value of cash equivalents generally approximates fair value due to their short-term nature.
The Company’s derivative liability as of December 31, 2022 is comprised of warrants issued in connection with the registered public offering completed in August 2022 discussed in Note 8. 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 8 for further information on the fair value of the derivative liability.
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Table of Contents
8. COMMON STOCK AND WARRANTS
The Company may issue common stock in connection with underwritten public offerings, registered direct public offerings or other financing transactions. Such issuances of common stock may include the issuance or sale of warrants to purchase common stock.
Equity Transactions
August 2022 Issuance of Common Stock and Warrants
On August 9, 2022, the Company closed on a registered public offering consisting of 18,560,000 shares of common stock, pre-funded warrants to purchase 5,440,000 shares of common stock and accompanying warrants to purchase an aggregate of 36,000,000 shares of common stock (“Public Warrants”) at a combined offering price of $ 0.75 per share and accompanying Public Warrants, or $ 0.749 per pre-funded warrant and accompanying Public Warrants (“August 2022 Public Offering”). The pre-funded warrants had an exercise price of $ 0.001 per share and were all exercised on the closing date. As a result, an aggregate of 24,000,000 shares were issued on the closing date for gross proceeds of $ 18 million. In connection with the August 2022 Public Offering, the Company paid $ 1.7 million of share issuance costs, which consisted of placement agent fees and expenses and other offering costs.
The Company performed an analysis of the provisions of the Public Warrants and concluded that the Public 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. As a result of the derivative liability classification of the Public Warrants, the gross proceeds were first allocated to the fair value of the Public Warrants as of August 9, 2022 of $ 9.9 million and the remaining $ 8.1 million in gross proceeds were allocated to stockholders’ equity. The share issuance costs associated with the August 2022 Public Offering were allocated between the issuance of common stock and Public Warrants on a pro rata basis with the allocation of the gross proceeds, which resulted in $ 0.8 million of share issuance costs being recorded as a reduction of additional paid-in capital and $ 0.9 million of share issuance costs being recorded in interest expense on the Consolidated Statements of Operations and Comprehensive Loss.
The fair value of the derivative liability as of the issuance date on August 9 and December 31, 2022 was $ 9.9 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 Consolidated Statements of Operations and Comprehensive Loss.
The fair value of the Public Warrants as of 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 fair value of the Public Warrants as of the issuance date of August 9, 2022 was calculated using the Black-Scholes option pricing model, as the occurrence of a price reset with regard to the exercise price or pricing disruption with regard to a fundamental transaction were not deemed to be the operative factors contemplated upon issuance of the Public Warrants.
The table below summarizes the inputs used in estimating the fair value of the Public Warrants. The use of different assumptions could have a material effect on the estimated fair value amounts.
December 31,
August 9,
2022
2022
Stock price
$
0.31
$
0.49
Exercise price
$
0.75
$
0.75
Warrant term (in years)
4.61
5.00
Expected volatility
80.90
%
78.27
%
Risk-free interest rate
4.04
%
2.97
%
Dividend rate
0.00
%
0.00
%
Lincoln Park Purchase Agreement
During the years ended December 31, 2022 and 2021, the Company issued 391,363 shares and 40,000 shares, respectively, at an average price per share of $ 1.65 and $ 14.42 , respectively, to Lincoln Park Capital Fund, LLC
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Table of Contents
(“Lincoln Park”) pursuant to a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement with Lincoln Park entered into on September 1, 2021. In addition, in connection with the execution of the LPC Purchase Agreement, the Company issued 31,958 shares of common stock to Lincoln Park as consideration for Lincoln Park’s commitment to purchase shares of the Company’s common stock. The $ 0.5 million fair value of the common stock was recorded as share issuance costs.
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 the provisions of the LPC Purchase Agreement and applicable rules of the Nasdaq Capital Market. The Company does not intend to issue any additional shares under the LPC Purchase Agreement.
November 2021 Issuance of Common Stock
On November 12, 2021, in an underwritten public offering (the “November 2021 Offering”), the Company issued 1,385,031 shares of common stock at a purchase price of $ 8.00 per share. Net proceeds from the November 2021 Offering after underwriter’s discounts and commission and offering expenses were approximately $ 9.9 million. Affiliates of an officer and director participated in the November 2021 Offering on the same terms and conditions as all other purchasers.
February 2021 Issuance of Common Stock and Warrants
On February 1, 2021, in an underwritten public offering (the “February 2021 Offering”), the Company issued 744,936 shares of common stock and warrants to purchase up to an aggregate of 372,468 shares of common stock at a purchase price of $ 14.82 per unit, consisting of one share and a warrant to purchase 0.50 shares of common stock. The warrants have an initial exercise price of $ 16.302 per share and are exercisable for a period of five years from the date of issuance. The Company also issued warrants to the underwriter to purchase 29,797 shares of common stock, with an exercise price of $ 18.525 per share. Net proceeds from the February 2021 Offering after underwriter’s discounts and commission and offering expenses were approximately $ 9.6 million. Affiliates of an officer and director participated in the February 2021 Offering on the same terms and conditions as all other purchasers.
The 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, charges of transfer taxes and fees and provisions related to market volatility did not preclude equity classification. The relative fair value of these warrants at issuance was approximately $ 2.6 million and was included in additional paid-in capital.
The fair value of the warrants as of the issuance date of February 1, 2021 was calculated using the Black-Scholes option pricing model. The following table summarizes the weighted average assumptions used in estimating the fair value of the warrants:
February 1, 2021
Stock price
$
14.82
Exercise price
$
16.47
Warrant term (in years)
5.00
Expected volatility
75.02
%
Risk-free interest rate
0.42
%
Dividend rate
0.00
%
Warrants
The 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 period from the date of issuance through December 31, 2022.
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The Company has outstanding equity-classified warrants to purchase 593,924 shares of common stock at a weighted average exercise price of $ 16.32 , with expiration dates ranging from March 2025 to February 2026. During the year ended December 31, 2022, no warrants were exercised or cancelled.
9 . STOCK-BASED COMPENSATION
The Helius Medical Technologies, Inc. 2022 Equity Incentive Plan (“2022 Plan”) provides for the grant of incentive stock options (“ISOs”), nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of awards to employees, directors and consultants. The maximum number of shares of common stock that may be issued on the exercise of ISOs under the 2022 Plan is 11,212,720 . Options to purchase shares of the Company’s common stock granted under the 2022 Plan are awarded at a price equal to the fair market value at the date of grant based upon the closing price on that date. Options granted under the 2022 Plan generally vest over periods of between one to three years and expire no later than ten years from the date of grant. Effective with the stockholder approval of the 2022 Plan on May 23, 2022, the Company ceased granting awards under the 2018 Omnibus Incentive Plan (as amended, the “2018 Plan”). However, outstanding stock options granted prior to the effective date of the 2022 Plan are still governed by the 2018 Plan or the respective predecessor incentive plan under which they were granted.
The 2022 Plan contains an automatic increase provision which provides for an annual increase to the maximum number of authorized shares on January 1 of each year beginning on January 1, 2023 through January 1, 2027, to an amount equal to (i) 20 % of the fully diluted number of shares of common stock outstanding on December 31 of the fiscal year before the date of each automatic increase, or (ii) a lesser number of shares determined by the board of directors prior to the date of the increase. As of January 1, 2023, the number of shares authorized for issuance increased from the initial 1,121,272 to 13,215,973 and there were 12,129,388 shares of common stock available for issuance under the 2022 Plan.
The Company also maintains the Helius Medical Technologies, Inc. 2021 Inducement Plan (as amended, the “Inducement Plan”) which 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 The Inducement Plan is used exclusively for grants of awards to individuals who were not previously employees or directors of the Company. Options granted under the Inducement Plan generally vest over four years and expire after ten years . The exercise price of each option is equal to the fair market value of the common stock at the date of grant.
The Inducement Plan was approved by the Company’s board of directors without stockholder approval on July 2, 2022 pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules. On December 15, 2022, the Company’s board of directors approved an amendment to the Inducement Plan to increase the number of shares authorized for issuance from the initial 100,000 to 600,000 . As of December 31, 2022, there were 472,500 shares of common stock available for issuance under the Inducement Plan.
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the assumptions noted in the following tables. The risk-free interest rate is estimated using the United States Treasury yield curve and is based on the expected term of the award. Due to the Company’s short trading history and higher volatility relative to its peers, expected volatility is based on an average of a peer group of companies with trading histories of at least ten years . The expected term of stock option awards granted is estimated based on the “simplified” method described in the SEC Staff Accounting Bulletin, Topic 14: Share-Based Payment.
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The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the periods indicated:
Years Ended December 31,
2022
2021
Risk-free interest rate
2.95
%
1.18
%
Expected volatility
74.91
%
78.03
Expected term (years)
5.70
6.99
Expected dividend yield
0.00
%
0.00
%
Fair value, per share
$
1.02
$
10.53
The fair value of restricted stock units granted during the years ended December 31, 2022 and 2021 was based on the closing price of the Company’s common stock on the Nasdaq Capital Market on the day of the grant.
Stock option activity during the year ended December 31, 2022 was as follows:
Weighted Average
Aggregate
Weighted
Remaining
Intrinsic
Average
Contractual
Value
Shares
Exercise Price
Term (in years)
(in thousands)
Outstanding as of December 31, 2021
669,117
$
37.36
9.03
Granted
645,170
2.81
Exercised
—
—
Forfeited
( 124,398 )
87.48
Outstanding as of December 31, 2022
1,189,889
13.39
8.89
$
5
Exercisable as of December 31, 2022
598,841
20.58
8.56
$
—
The following table summarizes nonvested restricted stock unit activity during the year ended December 31, 2022:
Weighted Average
Grant Date
Shares
Fair Value
Nonvested as of December 31, 2021
2,359
$
15.76
Granted
24,196
1.40
Vested
( 18,491 )
3.23
Forfeited
—
—
Nonvested as of December 31, 2022
8,064
1.40
Total stock-based compensation expense was as follows (in thousands):
Years Ended
December 31,
2022
2021
Cost of sales
$
15
$
7
Selling, general and administrative
2,015
3,552
Research and development
224
693
Total stock-based compensation expense
$
2,254
$
4,252
Stock-based compensation expense for the year ended December 31, 2022 included $ 1.2 million of expense associated with the vesting of performance-based stock options upon the achievement of the performance criteria when the public offering in August 2022 was completed. Stock-based compensation expense for the year ended December 31, 2021 included $ 0.5 million of expense related to the accelerated vesting of stock options in connection with the departure of the Company’s former chief operating officer in July 2021.
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As of December 31, 2022, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock units was $ 1.9 million which will be amortized over weighted-average remaining requisite service period of 2.4 years.
10 . BASIC AND DILUTED LOSS PER SHARE
The table below presents the computation of basic and diluted loss per share (in thousands, except share and per share information):
Years Ended December 31,
2022
2021
Basic:
Net loss available to common stockholders - basic
$
( 14,072 )
$
( 18,132 )
Weighted average common shares outstanding - basic
13,497,159
2,456,782
Loss per share - basic
$
( 1.04 )
$
( 7.38 )
Diluted:
Net loss available to common stockholders - diluted (1)
$
( 14,072 )
$
( 18,132 )
Weighted average common shares outstanding - diluted (1)
13,497,159
2,456,782
Loss per share - diluted
$
( 1.04 )
$
( 7.38 )
(1)
For the year ended December 31, 2022, no adjustment was made to the numerator and no incremental shares were added to the denominator for the Public Warrants being accounted for as a derivative liability, as the Public Warrants were out-of-the-money. Refer to Note 8 for additional information about the Public Warrants.
The following outstanding securities, presented based on amounts outstanding as of the end of each period, were not included in the computation of diluted loss per share for the periods indicated, as they would have been anti-dilutive due to the net loss in each period.
Years Ended
December 31,
2022
2021
Stock options
1,189,889
669,117
Restricted stock units
8,064
2,359
Warrants
36,593,924
593,924
11. INCOME TAXES
The Company's loss before provision for income taxes was generated from operations in the United States and outside of the United States as follows (in thousands):
Years Ended December 31,
2022
2021
U.S.
$
12,417
$
16,589
Non-U.S.
1,655
1,543
$
14,072
$
18,132
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A reconciliation of the United States federal statutory income tax rate to the Company's effective income tax rate is as follows (in thousands):
Years Ended December 31,
2022
2021
Income tax benefit at United States federal statutory rate
$
( 2,955 )
$
( 3,808 )
Derivative liability
( 636 )
—
Share based payments
500
810
Goodwill impairment
198
—
Tax credits
( 157 )
( 103 )
Foreign income taxed at foreign rate
( 91 )
( 85 )
Other permanent difference
59
4
Other
164
( 4 )
Increase in valuation allowance
2,918
3,186
Income tax expense
$
—
$
—
The components of deferred tax assets and liabilities are as follows (in thousands):
As of December 31,
2022
2021
Deferred tax assets
Net operating loss carryforwards
$
29,130
$
27,514
Stock-based compensation
1,696
1,715
Research and development
1,642
930
Tax credit carryforwards
1,114
987
Compensation and benefits
108
177
Unrealized foreign currency losses
102
—
Deferred revenue
53
90
Lease liability
25
1
Inventory reserve
18
58
Total deferred tax assets
33,888
31,472
Deferred tax liabilities
Property and equipment
( 57 )
( 68 )
Intangible assets
( 37 )
( 83 )
Right-of-use asset
( 23 )
( 1 )
Unrealized foreign currency gains
—
( 98 )
Total deferred tax liabilities
( 117 )
( 250 )
Valuation allowance
( 33,771 )
( 31,222 )
Net deferred tax assets
$
—
$
—
Net operating loss carryforwards and the related carryforward expiration periods as of December 31, 2022 are summarized as follows (in thousands):
Carryforward
Amount
Expiration
United States federal net operating losses
$
39,500
2033 - 2037
United States federal net operating losses
68,000
Indefinite
United States state net operating losses
68,500
2034 - 2042
United States state net operating losses
500
Indefinite
Canada federal net operating losses
6,500
2034 - 2042
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The gross tax credit carryforwards and the related carryforward expiration periods as of December 31, 2022 are summarized as follows (in thousands):
Carryforward
Amount
Expiration
United States federal research expenditure tax credits
$
655
2035 - 2042
Canada federal research expenditure tax credits
459
2034 - 2037
Under the provisions of the Internal Revenue Code of 1986, as amended (the “Code”), the net operating loss carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Section 382 of the Code, as well as similar state provisions. This could substantially limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the ownership change. Subsequent ownership changes may further affect the limitation in future years. Although a formal Section 382 analysis has not yet been completed, the Company believes it is possible ownership changes have occurred. The annual limitation may result in the expiration of United States net operating losses and credits before utilization; however, due to the valuation allowance against deferred tax assets as of December 31, 2022, the net effect of any limitation will have no impact on results of operations.
The accounting guidance related to uncertain tax positions prescribes a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of both December 31, 2022 and 2021, the Company does no t have an accrual relating to uncertain tax positions. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date.
The Company files income tax returns in the United States and Canada. The Company’s tax returns are subject to tax examinations by United States federal and state tax authorities, or examinations by foreign tax authorities until the expiration of the respective statutes of limitation. The Company currently has no tax years under examination.
12 . DEFINED CONTRIBUTION PLAN
The Company’s employees in the United States are eligible to participate in the Helius Medical Inc. Savings Plan, as amended, a safe harbor 401(k) plan (“401(k) Plan”). The 401(k) Plan allows eligible employees to make contributions through payroll deductions up to IRS limits. Effective January 1, 2022, the Company matches the first 3 % of the participant's annual eligible compensation contributed to the plan on a dollar-for-dollar basis. The Company matches the next 2 % of the participant's annual eligible compensation to the plan on a 50 % basis. Pursuant to the 401(k) safe harbor provisions, the Company’s matching contributions are 100 % vested. For the year ended December 31, 2022, the Company’s defined contribution plan expense was $ 143 thousand.
13 . COMMITMENTS AND CONTINGENCIES
The Company is obligated under a license agreement with Advanced NeuroRehabilitation, LLC (“ANR”) to pay a 4 % royalty on net revenue collected from the sale of devices covered by ANR’s patent pending technology, claims and knowhow. For the years ended December 31, 2022 and 2021, the Company recorded approximately $ 31 thousand and $ 20 thousand, respectively, in Royalty Expenses in the Consolidated Statements of Operations and Comprehensive Loss.
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14 . ENTERPRISE-WIDE DISCLOSURES
The following table presents the Company’s revenue disaggregated by geographic area (in thousands):
Years Ended
2022
2021
Product sales, net:
United States
$
318
$
—
Canada
460
493
Total product sales, net
778
493
Other revenue
9
29
Total revenue
$
787
$
522
A single customer accounted for 35 % and 32 % of net product sales for the years ended December 31, 2022 and 2021, respectively, and 89 % and 3 % of accounts receivable, net as of December 31, 2022 and 2021, respectively. One other customer accounted for 0 % and 40 % of accounts receivable, net as of December 31, 2022 and 2021.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HELIUS MEDICAL TECHNOLOGIES, INC.
Dated: March 9, 2023
By:
/s/ Dane C. Andreeff
Dane C. Andreeff
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By
/s/ Dane C. Andreeff
Date: March 9, 2023
Dane C. Andreeff
President, Chief Executive Officer (Principal Executive Officer) and Director
By
/s/ Jeffrey S. Mathiesen
Date: March 9, 2023
Jeffrey S. Mathiesen
Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer), Treasurer, Secretary and Director
By
/s/ Paul Buckman
Date: March 9 2023
Paul Buckman
Director
By
/s/ Blane Walter
Date: March 9, 2023
Blane Walter
Director
By
/s/ Sherrie Perkins
Date: March 9, 2023
Sherrie Perkins
Director
By
/s/ Edward M. Straw
Date: March 9, 2023
Edward M. Straw
Director
84
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.