Item 7. Management’s Discussion and Analysis
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes included elsewhere in this Form 10-K (collectively referred to as the "consolidated financial statements"). Further, you should read the following discussion and analysis of our financial condition and results of operations together with “Item 1A. Risk Factors” included elsewhere in this Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. See also “Forward-Looking Statements.”
Company Overview
We are a neurotechnology company focused on neurological wellness. Our purpose is to develop, license or acquire non-implantable technologies targeted at reducing symptoms of neurological disease or trauma.
Our product, known as the Portable Neuromodulation Stimulator, or PoNS®, is an innovative non-implantable medical device, inclusive of a controller and mouthpiece, which delivers mild electrical stimulation to the surface of the tongue to provide treatment of gait deficit and chronic balance deficit. PoNS Therapy® is integral to the overall PoNS solution and is the physical therapy applied by patients during use of the PoNS neuromodulation stimulator. PoNS has marketing clearance in the U.S. for use in the U.S. as a short-term treatment of gait deficit due to mild-to-moderate symptoms for MS and is to be used as an adjunct to a supervised therapeutic exercise program in patients 22 years of age and over by prescription only. We began accepting prescriptions for PoNS in the U.S. in March 2022, and commercial sales of PoNS commenced in April 2022. PoNS is authorized for sale in Canada for three indications: (i) as a short term treatment (14 weeks) of chronic balance deficit due to mild-to-moderate traumatic brain injury, or mmTBI, and is to be used in conjunction with physical therapy; (ii) as a short term treatment (14 weeks) of gait deficit due to mild and moderate symptoms from MS and it is to be used in conjunction with physical therapy; and (iii) as a short term treatment (14 weeks) of gait deficit due to mild and moderate symptoms from stroke, to be used in conjunction with physical therapy. It has been commercially available in Canada since March 2019. PoNS is authorized for sale as a Class IIa medical device in Australia and we have been seeking a business partner to commercialize and distribute PoNS in Australia.
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Recent Developments
Corporate Updates
On August 9, 2024, we received written notice (the “Notification Letter”) from The Nasdaq Stock Market LLC (“Nasdaq”) notifying us that the Company was not in compliance with the minimum bid price requirements set forth in Nasdaq Listing Rule 5550(a)(2) for continued listing on the Nasdaq Capital Market. Nasdaq Listing Rule 5550(a)(2) requires listed securities maintain a minimum closing bid price of $1.00 per share, and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the minimum closing bid price requirement exists if the deficiency continues for a period of 30 consecutive business days. Based on the closing bid price of the Company’s Class A common stock (“Common Stock”) for the 30 consecutive business days prior to the date of the Notification Letter, the Company did not meet the minimum closing bid price requirement. To regain compliance, the closing bid price of the Company’s Common Stock must be at least $1.00 per share for a minimum of 10 consecutive business days at any time prior to February 5, 2025. There can be no assurance that we will be able to regain compliance with the minimum bid price requirement and other Nasdaq listing criteria. If we fail to meet the applicable continued listing requirements for the Nasdaq Capital Market, Nasdaq may delist our Common Stock. If such delisting should occur, it would likely have a negative effect on the price of our Common Stock and would impair an investor’s ability to sell or purchase our Common Stock when desired. In the event of a delisting, we can provide no assurance that any action taken by us to restore compliance with listing requirements would allow our Common Stock to become listed again, stabilize the market price or improve the liquidity of our Common Stock, prevent our Common Stock from dropping below the Nasdaq minimum bid price requirement, or prevent future non-compliance with Nasdaq’s listing requirements. Additionally, Nasdaq rules allow an expedited delisting of securities of companies that have had one or more reverse stock splits with a cumulative ratio of one for 250 or more shares over the prior two-year period. Under these rules, if a company falls out of compliance with the $1.00 minimum bid price after completing reverse stock splits over the immediately preceding two years that cumulatively result in a ratio one for 250 shares, the company will not be able to avail itself of any compliance periods and Nasdaq will instead require the issuance of a Staff delisting determination, which is appealable to a hearings panel. Our ability to remain listed on Nasdaq may be negatively impacted by this Nasdaq rule.
On February 7, 2025, we received a determination letter from Nasdaq notifying us that because we did not comply with the $5 million minimum stockholders’ equity initial listing requirement for The Nasdaq Capital Market, we were not eligible for a second 180-day period. On February 14, 2025, we requested an appeal of this determination and will submit a plan to regain compliance. The Company had a hearing with the Nasdaq Hearing Panel on March 18, 2025. At the hearing, we presented our plan for regaining compliance with the Minimum Bid Price Requirement and requested a further extension so that we may complete the execution of our plan. Although we believe our plan will be sufficient to enable us to regain compliance, no assurance can be provided that Nasdaq will ultimately accept our plan or that we will ultimately regain compliance with the Minimum Bid Price Requirement. As of the date of this report, we have not received a determination from the hearings panel. Our common stock will remain listed and eligible for trading on Nasdaq pending the ultimate conclusion of the hearing process.
On March 11, 2025, we established Revelation Neuro to pursue the development of a new gold standard of care for personalized neurorehabilitation using a non-implantable AI powered brain computer interface combining our newly developed intellectual property with Helius’ existing intellectual property.
On January 21, 2025, the Company entered into warrant exercise inducement offer letters with certain holders of existing Series A warrants and Series B warrants generating gross proceeds of $3.7 million as discussed further in Note 15 in our consolidated financial statements.
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Presently, PoNS Therapy is not reimbursed under contract by any third-party payers in the U.S. We are pursuing commercial insurance coverage for PoNS within the Durable Medical Equipment benefit category. On February 29, 2024, CMS assigned HCPCS Level II codes to the PoNS controller and PoNS mouthpiece, effective April 1, 2024. On May 2, 2024, CMS published a proposed fee schedule payment rates for the PoNS controller and PoNS mouthpiece to be discussed at CMS' bi-annual Healthcare Common Procedure Coding System (“HCPCS”) public meeting to be held on May 29, 2024. For the PoNS Controller (HCPCS Code A4593), CMS preliminarily set pricing by mapping reimbursement to existing code E0745, (Neuromuscular stimulator, electronic shock unit), resulting in a capped fee of $1,206.53. For the PoNS Mouthpiece (HCPCS code A4594), CMS based pricing on the previously offered, temporary, cash pay price of $4,500, resulting in a total capped payment of $3,075.53.
The Company subsequently provided CMS additional information to support reimbursement economics and presented that information at the public meeting with CMS on May 29, 2024 for consideration by CMS for determination of the final reimbursement amount for each of the PoNS controller and mouthpiece.
On October 7, 2024, CMS posted the final payment rate for the PoNS Mouthpiece (HCPCS code A4594) at $2,963.30, which will be effective January 1, 2025 and deferred final national determination of the payment rate for the PoNS Controller (HCPCS Code A4593) to the next payment cycle. At the Company’s request, Company management subsequently met with CMS in December 2024 prior to PoNS Mouthpiece pricing taking effect on January 1, 2025 to request that they revisit the starting point for the gap filling process to more appropriately use the market pricing established through negotiation with the VA and an insurance carrier.
On October 8, 2024, CMS published the preliminary rate for the PoNS Controller (HCPCS Code A4593) at the capped total payment of $519.80, based on its view that the product is comparable to devices reported with HCPCS code E0730 (transcutaneous electrical nerve stimulation (TENS) device, four or more leads, for multiple nerve stimulation) to be effective April 1, 2025.
On January 13, 2025, CMS posted final Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies fee schedule payment rates for the PoNS Controller (HCPCS Code A4593) at the capped total payment of $532.27 and no changes to the previous final determination for the PoNS Mouthpiece (HCPCS code A4594) were made.
During the first quarter of 2024, the Company partnered with Lovell Government Services (“Lovell”), an SBA-certified Service-Disabled Veteran-Owned Small Business, to make the PoNS device available to federal healthcare systems. In May 2024, PoNS became available on the Veteran Affairs Federal Supply Schedule and General Services Administration Advantage Contracts at $23,843.72 for the PoNS device and $7,344.97 for the PoNS mouthpiece. In July 2024, PoNS became available to the Department of Defense and U.S. Military facilities on the Distribution and Pricing Agreement at $23,724.50 for the PoNS device and $7,308.25 for the PoNS mouthpiece. In December 2024, the first PoNS System sale to the VA Healthcare System through Lovell was delivered at the contracted price of $23,844, comprised of $16,499 for the PoNS Controller and $7,345 for the PoNS Mouthpiece.
As discussed further in Note 8 to our consolidated financial statements, in May 2024, the Company closed on a registered public offering of its Common Stock and warrants and received net proceeds of approximately $5.5 million.
On April 4, 2024, the Company received written notice from Nasdaq stating that the Company no longer complied with the minimum stockholders’ equity requirement under Nasdaq Listing Rule 5550(b)(1) for continued listing on Nasdaq because the Company’s stockholders' equity, as reported in our 2023 10-K, had fallen below $2.5 million. The notice also indicated that the Company did not meet the alternative compliance standards. Under applicable Nasdaq rules, the Company had 45 calendar days from the date of the notice, or until May 20, 2024, to submit a plan to regain compliance. On May 31, 2024, the Company received formal notification from Nasdaq confirming that, following the consummation of a registered public offering on May 9, 2024, the Company regained compliance with the minimum stockholders’ equity requirement, and that the Company satisfied all other applicable criteria for continued listing on Nasdaq.
During the second quarter of 2024, the Company received the first third-party reimbursement from a major insurance carrier at a 7% rebate, which resulted in pricing of $23,900 for the PoNS device, comprised of $16,554 for the PoNS controller and $7,347 for the PoNS mouthpiece, exclusive of rounding.
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In June 2024, the Company began establishing sales representative agreements with organizations and individuals to sell PoNS devices to Veterans Affairs (“VA”) facilities in the U.S. The Company has since established agreements with representatives covering facilities in Texas and east of the Mississippi with plans to expand west.
During the first quarter of 2024, leveraging the Breakthrough Designation, the Company reached alignment with the FDA on the registrational program to evaluate the therapeutic benefit of PoNS on gait and balance deficits in chronic stroke subjects, which originally included two initial studies. The first was an investigator-initiated randomized placebo-controlled trial (“MUSC-RCT”) in approximately 60 subjects, led by Dr. Steven Kautz at the Medical University of South Carolina (“MUSC”) and Dr. Mark Bowden at Brooks Rehabilitation. The second study was a company-sponsored open-label study (“HMI-OLS”), in approximately 30 subjects. Following guidance from FDA, Helius added, in May 2024, a third company-sponsored randomized placebo-controlled trial (“HMI-RCT”) in approximately 60 subjects, as the pivotal study, along with the OLS, for the registrational program. All three studies shared the same design and endpoints, including primary outcomes on gait and balance improvement, as well as key secondary endpoints with Type 1 error of reduced risk of falling and maintenance of effect at 12 weeks post-treatment.
Enrollment of the stroke registrational studies started at MUSC for the MUSC-RCT in August 2023 and, at Brooks Rehabilitation, in August 2024. In June 2024, Helius started enrollment of the HMI-OLS at five U.S. Centers of Excellence for Neurorehabilitation including Shepherd Center, MGH-IHP, REHABOLOGYM, Brooks Rehabilitation and New England Neurological Center. Enrollment continued, with the HMI-RCT, in July 2024 at Neuro-Concept Rehabilitation Center, Neuphysio, Synaptic Health, Bergin Motion in Canada and REHABOLOGYM in the U.S.
The Company has completed and far exceeded the initial 90-subject target enrollment for its stroke registrational program enrolling 128 participants by December 31, 2024. With maximum enrollment of over 150 participants achieved at the end of January 2025, the Company is on track to submit for FDA authorization for stroke in the second quarter of 2025, with the plan to achieve FDA authorization by the end of 2025.
During the fourth quarter of 2024, the Company completed the transition of the manufacturing of PoNS device controllers and mouthpieces to Minnetronix, Inc. from its previous contract manufacturer, Key Tronic Corporation.
We also intend to provide broad access and reimbursement for the PoNS Therapy over time through commercial insurers. Prior to broad commercial payer coverage, we anticipate the primary source of sales will be self-pay and VA patients. We expect to support the cost of the PoNS Therapy by working with advocacy groups and charitable organizations to help self-pay patients access our technology. In general, we anticipate that it will take at least 24 months to obtain broad coverage and reimbursement among government and private payers from the date that the HCPCS codes became effective.
Material Trends and Uncertainties
Global Economic Conditions
Generally, worldwide economic conditions remain uncertain, in part due to supply chain disruptions, labor shortages, global conflicts, increased inflation and unpredictable trade policies, including tariffs, customs regulations and other trade restriction. The general economic and capital market conditions both in the U.S. and worldwide, have been volatile in recent years and at times have adversely affected our access to capital and have 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 continue to remain volatile or decline, our future cost of equity or debt capital and access to the capital markets could be adversely affected.
Our 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, global conflicts such as the conflicts in Ukraine and in the Middle East, and steps taken by governments and central banks as well as other stimulus and spending programs have led to higher inflation, which has led to an increase in costs and has caused changes in fiscal and monetary policy, including increased interest rates. Although we may take measures to
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mitigate these impacts, if these measures are not effective, our business, financial condition, results of operations, and liquidity could be materially adversely affected.
Other Trends and Uncertainties
To successfully commercialize, we need to continue to build infrastructure necessary to grow our business including adding headcount and implementing or upgrading business systems. Competition for talent in today’s labor market may impact our ability to add headcount and to recruit talent with the expertise we need to develop our commercial infrastructure.
Results of Operations
The following table summarizes our results of operations for the years ended December 31, 2024 and 2023 (in thousands):
Years Ended December 31,
2024
2023
Change
Revenue:
Product sales, net:
United States
$
181
$
324
$
(143)
Canada
295
281
14
Total product sales, net
476
605
(129)
Other revenue
44
39
5
Total revenue
520
644
(124)
Cost of revenue
582
583
(1)
Gross (loss) profit
(62)
61
(123)
Operating expenses:
Selling, general and administrative expenses
10,118
9,271
847
Research and development expenses
3,659
2,942
717
Amortization expense
24
117
(93)
Fixed asset impairment
40
159
(119)
Total operating expenses
13,841
12,489
1,352
Loss from operations
(13,903)
(12,428)
(1,475)
Nonoperating income
Interest (expense) income, net
(17)
257
(274)
Change in fair value of derivative liability
2,981
2,966
15
Foreign exchange (loss) gain
(1,006)
275
(1,281)
Other income, net
203
80
123
Nonoperating income, net
2,161
3,578
(1,417)
Loss before provision for income taxes
(11,742)
(8,850)
(2,892)
Provision for income taxes
—
—
—
Net loss
$
(11,742)
$
(8,850)
$
(2,892)
Year Ended December 31, 2024 Compared to Year Ended December 31, 2023
Revenue
The decrease in total net product sales was primarily attributable to a decrease in unit volumes for U.S. sales of PoNS systems due to the termination of our Patient Therapy Access Program (“PTAP”) on June 30, 2023 as well as the termination of the previously offered temporary cash pay pricing in May 2024.
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Cost of Revenue
The cost of revenue for 2024 as compared to the same period in the prior year remained relatively flat year to year due to decreased unit volumes sold offset by increases in certain inventory reserve adjustments, warranty and fixed employee costs.
Gross (Loss) Profit
Gross loss for the year ended December 31, 2024 was $62,000 compared to gross profit of $61,000 for the same period in the prior year. Decreased revenues in 2024 with cost of revenues remaining flat from the prior year were the primary reasons for the year-to-year variance.
Selling, General and Administrative Expenses
The increase in selling, general and administrative expenses was primarily from a $0.7 million increase in non-cash stock-based compensation expense, a $0.3 million in increased legal costs partially offset by a $0.2 million decrease in insurance costs and a $0.1 million decrease in franchise taxes. Refer to Note 9 to our consolidated financial statements for detailed information about stock-based compensation.
Research and Development Expenses
The increase in research and development expenses was primarily from increases in clinical trial related costs of $0.4 million, an increase in non-cash employee stock compensation expense of $0.2 million and product development costs of $0.1 million. Refer to Note 9 to our consolidated financial statements for detailed information about stock-based compensation.
Amortization Expense
Amortization expense is primarily comprised of the amortization of acquired finite-lived intangible assets. The decrease in amortization expense is primarily due to the remaining unamortized intangible assets becoming fully amortized during the year ended December 31, 2024. Refer to Note 6 to our consolidated financial statements for additional information about the composition of intangible assets.
Fixed Asset Impairment
During the fourth quarter of 2024, we recorded an impairment of $40,000 for certain software used with our enterprise resource planning system. Refer to Note 3 to our consolidated financial statements for additional information.
Nonoperating Income
Interest (Expense) Income, Net
Net interest expense for the year ended December 31, 2024 was primarily attributable to interest expense related to the Company’s insurance premium financing and lower interest income earned on investments of excess cash in an unrestricted money market savings account year to year due to lower current year cash balances and a shift to excess cash being primarily invested in money market mutual funds earning dividend income in the current year, versus interest bearing securities in the prior year.
Change in Fair Value of Derivative Liability
As discussed in more detail in Note 8 to our consolidated financial statements, the warrants issued in connection with the August 2022 Public Offering are being accounted for as a derivative liability instrument. The change in fair value of derivative liability for the year ended December 31, 2024 of $3.0 million is the result of the decrease in our stock price offset partially by reduced outstanding warrant exposure due to warrant exercises during the year.
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Foreign Exchange (Loss) Gain
The foreign exchange loss for the year ended December 31, 2024 was primarily due to higher Canadian to U.S. dollar exchange rates in 2024.
Other Income, Net
Other income was primarily attributable to dividend income earned on investments of excess cash in a money market mutual fund.
Liquidity and Capital Resources
The following table summarizes our cash and cash equivalents and working capital as of December 31, 2024 and 2023 (in thousands):
December 31,
December 31,
2024
2023
Cash and cash equivalents
$
1,088
$
5,182
Working capital
1,261
5,559
Our available capital resources have been primarily used to expand our U.S. commercialization efforts, fund manufacturing activities for the PoNS device, conduct clinical trials and for working capital and general corporate purposes. Our primary sources of cash and cash equivalents have been proceeds from public and private offerings of our common stock which most recently included $5.5 million in net proceeds we received from a public offering of our common stock and warrants completed in May 2024 (“May 2024 Public Offering”) as discussed in more detail in Note 8 to our consolidated financial statements.
As discussed in more detail in Note 8 to our consolidated financial statements, the Company entered into a sales agreement related to our at-the-market offering program (“ATM”) under which we may offer and sell shares having gross proceeds up to $2.0 million. During the year ended December 31, 2024, the Company issued and sold shares with gross proceeds of $1.3 million under the ATM. In addition, the Company received gross proceeds of $0.2 million from the issuance of shares upon the exercise of warrants for the year ended December 31, 2024. On January 21, 2025, the Company entered into warrant exercise inducement offer letters and new warrant issuance which generated $3.4 million in net proceeds as discussed in more detail in Note 15 to our consolidated financial statements.
Statement of Cash Flows
The following table summarizes our cash flows for the years ended December 31, 2024 and 2023 (in thousands):
Years Ended December 31,
2024
2023
Change
Net cash used in operating activities
$
(11,041)
$
(10,416)
$
(625)
Net cash used in investing activities
(5)
(29)
24
Net cash provided by financing activities
6,954
1,077
5,877
Effect of foreign exchange rate changes on cash
(2)
1
(3)
Net decrease in cash and cash equivalents
$
(4,094)
$
(9,367)
$
5,273
Net Cash used in Operating Activities
The higher level of cash used in operating activities in 2024 primarily resulted from increases in selling, general and administrative expenses and research and development expenses as compared to 2023.
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Net Cash Used in Investing Activities
Our investing activities are primarily related to the purchase of property and equipment.
Net Cash Provided by Financing Activities
During the year ended December 31, 2024, we received net proceeds of $1.3 million from the issuance and sale of shares under the ATM. In addition, we received $0.2 million in net proceeds from the exercise of warrants. During the year ended December 31, 2024, we received net proceeds of $5.5 million from the sale of shares primarily from our May 2024 Public Offering, as described in Note 8 to our consolidated financial statements.
Cash Requirements
Our ability to generate product revenues sufficient to achieve profitability will depend heavily on the successful commercialization of PoNS Therapy in the U.S. Our net loss was $11.7 million and $8.9 million for the years ended December 31, 2024 and 2023, respectively. As of December 31, 2024, we had an accumulated deficit of $171.7 million. We expect to continue to incur significant expenses and operating losses for the foreseeable future. These and other factors indicate substantial doubt about our ability to continue as a going concern. Refer to Note 1 to our consolidated financial statements for additional discussion about our going concern uncertainty.
We intend to use our available capital resources primarily to expand our U.S. commercialization efforts, fund manufacturing activities for the PoNS device, conduct clinical trials and for working capital and general corporate purposes. We believe that our existing capital resources, including the $0.1 million of additional net proceeds from the ATM and $3.4 million in net proceeds from warrant inducements in 2025 through the date of this filing, will be sufficient to fund our operations into the second quarter of 2025, but we will be required to seek additional funding through the sale of equity or debt financing to continue to fund our operations thereafter. We will need additional funding for our ongoing clinical trials for stroke. The amount required to fund operations thereafter will depend on various factors, including timing of approval of clinical trials, duration and result of clinical trials and other factors that affect the cost of the clinical trial, manufacturing costs of product, development of our product for new indications and demand for our authorized products in the market.
There can be no assurance that we will be successful in raising additional capital or that such capital, if available, will be on terms that are acceptable to us. If we are unable to raise sufficient additional capital, we may be compelled to reduce the scope of our operations and planned capital expenditure or sell certain assets, including intellectual property, and we may be forced to cease or wind down operations, seek protection under the provisions of the U.S. Bankruptcy Code, or liquidate and dissolve our company.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our financial statements that have been prepared in accordance with U.S. GAAP. This preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities. U.S. GAAP provides the framework from which to make these estimates, assumption and disclosures. We choose accounting policies within U.S. GAAP that management believes are appropriate to accurately and fairly report our operating results and financial position in a consistent manner. Management regularly assesses these policies in light of current and forecasted economic conditions. Actual results could differ from those estimates made by management. While there are a number of significant accounting policies affecting our financial statements, we believe the critical accounting policies involving the most complex, difficult and subjective estimates and judgments are: revenue recognition, stock-based compensation, derivative financial instruments and accounting for warrants.
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Revenue Recognition
The Company generates nearly all of its revenue from product sales directly to patients, its e-commerce partner in the United States and to clinics in Canada. Revenue from product sales is recognized at a point in time as the performance obligation is satisfied and when the customer obtains control at the established transaction price. Taxes that the Company collects concurrent with revenue-producing activities are excluded from revenue.
The Company requires some 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.
Accounting and Valuation of Warrants
We have issued and may continue to issue warrants to purchase shares of common stock through our public and private offerings. We account for such warrants in accordance with ASC 480 Distinguishing Liabilities from Equity, which identifies three categories of freestanding financial instruments that are required to be accounted for as a liability. If determined to be classified as a liability, we will remeasure the fair value of the warrants at each balance sheet date. If determined to be classified as equity, the fair value of the warrants will be measured as of the date of issuance and will not be subject to remeasurement at each balance sheet date.
We evaluate our financial instruments and other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815, Derivatives and Hedging. 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. Upon settlement of a derivative financial instrument, the instrument is re-measured at the settlement date and then that fair value of the underlying instrument is reclassified to equity.
The classification of derivative financial instruments, including whether such instruments should be recorded as liabilities/assets or as equity, is reassessed at the end of each reporting period. Derivative financial instruments that become subject to reclassification are reclassified at the fair value of the instrument on the reclassification date. Derivative financial instrument liabilities are classified in the consolidated balance sheet as current if the right to exercise or settle the derivative financial instrument lies with the holder.
We use the Monte Carlo and Black-Scholes option-pricing models to value derivative financial instrument liabilities. This model uses Level 3 inputs in the fair value hierarchy established by ASC 820 - Fair Value Measurement.
As of December 31, 2024, our derivative financial instruments accounted for in accordance with ASC 815 were comprised of warrants issued in connection with our August 2022 public offering as discussed in more detail in Note 8 to our Consolidated Financial Statements.
Income Taxes
We account for income taxes using the asset and liability method. The asset and liability method provide that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Going Concern
Because we have generated limited revenues from commercialization, our operations to date have been principally financed through public and private offerings of our common stock and convertible debt and exercises of options and
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warrants. There are a number of conditions that we must satisfy before we will be able to generate sufficient revenue to fund our operations, including but not limited to the successful commercialization of the PoNS device in the U.S.
These factors raise substantial doubt about our ability to continue as a going concern through at least 12 months from the date of this Form 10-K. While we had $1.1 million of cash as of December 31, 2024, we do not currently have sufficient resources to accomplish all of the above conditions necessary for us to generate sufficient revenues to achieve profitability, and we expect that we will require additional financing to continue to fund our operations. There is no guarantee that such funding will be available at all or in sufficient amounts to satisfy our required expenditures. In reviewing this filing, you should carefully consider this uncertainty, the risks described in the section entitled “Item 1A. Risk Factors” and other risks described throughout this Form 10-K.
Recently Issued Accounting Pronouncements
Information regarding recently issued accounting pronouncements is included in Note 2 to the consolidated financial statements.
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this item is included in this Form 10-K beginning on page F-1 and is incorporated herein by reference.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.