Helius Medical Technologies(HSDT) - 2020 Q3 - Quarterly Report

Part I. Financial Information Item 1. Condensed Consolidated Financial Statements The unaudited condensed consolidated financial statements as of September 30, 2020, reflect a $6.0 million asset base, a $11.6 million net loss, and $2.7 million cash, raising substantial doubt about the company's ability to continue as a going concern Unaudited Condensed Consolidated Balance Sheets As of September 30, 2020, total assets decreased to $6.0 million from $10.3 million at year-end 2019, driven by a reduction in cash to $2.7 million, with total liabilities and stockholders' equity also declining Condensed Consolidated Balance Sheet Data (in thousands) | Account | Sep 30, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash | $2,680 | $5,459 | | Total current assets | $4,136 | $7,241 | | TOTAL ASSETS | $6,026 | $10,347 | | Liabilities & Equity | | | | Total current liabilities | $2,565 | $3,802 | | TOTAL LIABILITIES | $2,829 | $4,512 | | TOTAL STOCKHOLDERS' EQUITY | $3,197 | $5,835 | Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss For the nine months ended September 30, 2020, total operating revenue was $0.47 million, resulting in an $11.4 million operating loss and a $11.6 million net loss, compared to a $4.5 million net loss in 2019 Statement of Operations Highlights (in thousands) | Metric | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Total operating revenue | $470 | $1,344 | | Gross profit | $283 | $806 | | Total operating expenses | $11,667 | $19,177 | | Operating loss | $(11,384) | $(18,371) | | Net loss | $(11,595) | $(4,450) | | Net loss per share (Basic & Diluted) | $(0.30) | $(0.17) | Unaudited Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2020, net cash used in operating activities was $9.6 million, with $6.7 million provided by financing activities, resulting in a $2.8 million net decrease in cash and an ending balance of $2.7 million Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2019 | | :--- | :--- | :--- | | Net cash used in operating activities | $(9,567) | $(16,460) | | Net cash provided by (used in) investing activities | $40 | $(260) | | Net cash provided by financing activities | $6,727 | $163 | | Net decrease in cash | $(2,779) | $(16,564) | | Cash at end of period | $2,680 | $9,019 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's business, accounting policies, and financial items, highlighting a 'Going Concern' uncertainty, COVID-19 impact, Nasdaq delisting notice, and a subsequent $3.2 million private placement - The company is a neurotech firm focused on neurological wellness, with its first product being the Portable Neuromodulation Stimulator (PoNS™). The device is authorized for sale in Canada for treating gait deficit in MS and balance deficit in mmTBI, but remains investigational in the U.S., EU, and Australia[15][16] - There is substantial doubt about the company's ability to continue as a going concern. As of September 30, 2020, cash was $2.7 million, with an operating loss of $11.4 million for the nine-month period and an accumulated deficit of $116.4 million[18] - The COVID-19 pandemic has adversely impacted business by causing the closure and reduced capacity of PoNS clinics in Canada, impacting commercial activities and potentially delaying clinical programs and regulatory approvals[20] - The company received a delisting notice from Nasdaq for failing to meet the minimum $1.00 bid price requirement. The compliance period was extended to December 3, 2020, with a potential further 180-day extension[23][24] - Subsequent to the quarter end, on October 26, 2020, the company closed a private placement raising gross proceeds of approximately $3.4 million ($3.2 million net), increasing pro forma stockholders' equity to $6.5 million[128][130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the PoNS™ device's regulatory status, expanded Canadian approval, U.S. de novo request for MS, and the impact of COVID-19 on commercialization, noting that existing capital will fund operations only through most of the first quarter of 2021 Regulatory Status and Commercialization The PoNS device received expanded Canadian marketing authorization for MS gait deficit, while a U.S. de novo request for MS was submitted after a prior mmTBI denial, with Canadian commercialization impacted by COVID-19 - Received expanded Canadian marketing authorization for PoNS to treat gait deficit in patients with mild and moderate MS symptoms in March 2020[138] - Submitted a request to the FDA for de novo classification and clearance of the PoNS device for treating gait deficit in MS patients on August 4, 2020. The device previously received Breakthrough Designation for this indication[141][144] - The FDA denied the initial U.S. request for de novo classification for mmTBI in April 2019. A new clinical trial (TBI-002) intended to support a resubmission has been temporarily suspended[147][152] - Canadian commercialization efforts were impacted by COVID-19, which led to clinic closures and operations at reduced capacity. As of September 30, 2020, the company had 22 authorized clinic locations[159][164] Results of Operations For the nine months ended September 30, 2020, revenue decreased to $0.5 million from $1.3 million, while operating expenses significantly fell to $11.7 million due to reduced R&D and SG&A costs following the 2019 U.S. regulatory denial Comparison of Operations for the Nine Months Ended September 30 (in thousands) | Metric | 2020 | 2019 | Change | | :--- | :--- | :--- | :--- | | Total operating revenue | $470 | $1,344 | $(874) | | Gross profit | $283 | $806 | $(523) | | Research and development | $3,755 | $6,462 | $(2,707) | | Selling, general and administrative | $7,625 | $12,715 | $(5,090) | | Operating loss | $(11,384) | $(18,371) | $6,987 | | Net loss | $(11,595) | $(4,450) | $(7,145) | - The year-over-year decrease in revenue was primarily due to pent-up demand positively impacting sales in the first half of 2019, the negative impact of the COVID-19 pandemic beginning in March 2020, and the impact of pricing changes[188] - The decrease in R&D expenses was mainly due to the completion of PoNS device development in 2019 and reduced medical affairs and professional services costs[190] - The decrease in SG&A expenses was primarily due to lower headcount, a reduction in commercial operations expense after the 2019 FDA denial, and lower stock-based compensation[192][193] Liquidity and Capital Resources The company's cash balance was $2.7 million as of September 30, 2020, with a subsequent $3.2 million private placement, but existing capital is only sufficient through most of the first quarter of 2021, reinforcing significant going concern risk - The company's cash balance was $2.7 million as of September 30, 2020[205] - In October 2020, the company raised approximately $3.2 million in net proceeds from a private placement of common stock and warrants[204][205] - Management believes existing capital resources, including the October financing, will only be sufficient to fund operations throughout most of the first quarter of 2021[207] - The company will require additional funding to support ongoing activities. Failure to raise sufficient capital may compel the company to reduce operations, sell assets, or cease operations entirely[207] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable - Not applicable[216] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the quarter - The Interim Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of the end of the period[217] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[218] Part II. Other Information Item 1. Legal Proceedings The company is not a party to any material legal proceedings, as a previously disclosed shareholder class action lawsuit was voluntarily dismissed by plaintiffs on July 1, 2020 - A putative shareholder class action lawsuit, Caramahai v. Helius Medical Technologies, Inc. et al., was voluntarily dismissed by the plaintiffs, and the final order dismissing the litigation was signed on July 1, 2020[123][126] Item 1A. Risk Factors Updated risk factors highlight the adverse impact of the COVID-19 pandemic on commercial activities and clinical programs, alongside a Nasdaq delisting notice for failing to meet the minimum bid price requirement - The COVID-19 pandemic has adversely impacted business by causing clinic closures and reduced capacity, delaying clinical programs, and creating potential supply chain disruptions[221][222][223] - The company received a delisting notice from Nasdaq for its stock price falling below the $1.00 minimum bid requirement. The compliance period ends December 3, 2020, though an additional 180-day extension may be possible[226][227][228] - A potential delisting from Nasdaq could seriously harm the liquidity of the company's stock and its ability to raise capital[229] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, material agreements, and certifications by the CEO and CFO