HELIUS MEDICAL TECHNOLOGIES INC

**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, 2023, the Company had cash and cash equivalents of $5.2 million. For the year ended December 31, 2023, the Company had an operating loss of $12.4 million, and as of December 31, 2023, its accumulated deficit was $160.0 million. For the year ended December 31, 2023, the Company had $0.6 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 consolidated 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.

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

The Company generates nearly all 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 of the product 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.

Concentration of Credit Risk

The Company deposits its cash and cash equivalents in demand commercial checking, unrestricted money market savings account, money market mutual funds, treasury bills 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.

Accounts Receivable

Accounts receivable arise primarily from product sales in Canada and generally require payment within 30 days. The Company provides reserves against accounts receivable for estimated credit 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.

Employee Retention Credit

The employee retention credit (“ERC”), as originally enacted through the Coronavirus Aid, Relief, and Economic Security Act, is a refundable credit against certain employment taxes equal to 50% of the qualified wages an eligible employer pays to employees from March 17, 2020 to December 31, 2020. The Disaster Tax Relief Act extended the ERC for qualified wages paid from January 1, 2021 to June 30, 2021 and the credit was increased to 70% of qualified wages an eligible employer pays to employees during the extended period. The American Rescue Plan Act of 2021, enacted on March 11, 2021, further extended the ERC through December 31, 2021.

The Company qualified for the employee retention credit for the period from March 17, 2020 to September 30, 2021. The Company recognizes government credits for which there is a reasonable assurance of compliance with credit conditions and receipt of credits. The Company recorded a credit of $0.5 million against operating expenses on the Consolidated Statement of Operations and Comprehensive Loss and as a current asset on the consolidated balance sheets during the year ended December 31, 2023. The Company expects to receive the credit in the next twelve months.

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 areseven years for furniture and fixtures, five tofifteen years for equipment andthree tofive 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 assets, including right-of-use (“ROU”) assets, property and equipment 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 an operating lease for its corporate office. The Company determines whether a contract is, or contains, a lease at inception. ROU 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. ROU 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 arrangement does 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.

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 withinone operating andreportable 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 additional information about the derivative liability.

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

**3.**GOODWILL AND FIXED ASSETS IMPAIRMENT

Fixed Asset Impairment

The Company identified an impairment indicator associated with its property and equipment and performed interim impairment tests on the long-lived tangible assets as a result of a planned change of the Company’s contract manufacturing partner to be completed in less than one year from September 30, 2023. The interim impairment tests were performed using estimated market prices. The Company has determined that the fair value of certain long-lived tangible assets is lower than the related book values. Additionally, for certain long-lived tangible assets, it is more likely than not that those long-lived assets will be disposed significantly before the end of their previously estimated useful lives. As a result, impairment charges of $159 thousand were recorded in the third quarter of 2023 on its long-lived tangible assets.

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. 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 itsone 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.

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 $0 and less than $1 thousand as of December 31, 2023 and 2022, respectively.

Inventory, net (in thousands)

During the years ended December 31, 2023 and 2022, existing reserves of $16 thousand and $175 thousand were charged against inventory, respectively.

Prepaid expenses and other current assets (in thousands)

Property and equipment, net (in thousands)

Accrued and other current liabilities (in thousands)

Deferred revenue

Exclusive Distribution Agreement

Pursuant to an Exclusive Distribution Agreement with Health Tech Connex Inc. (“HTC”) (“Exclusivity Agreement”) entered into on March 3, 2023, subject to certain terms and conditions, the Company granted to HTC the exclusive right to provide PoNS Therapy® in the Fraser Valley and Vancouver metro regions of British Columbia. HTC 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 Agreement replaced the previous Clinical Research and Co-Promotion Agreement (“Co-Promotion Agreement”) between the parties entered into in October 2019 that included a similar exclusive right provision. The exclusive right under the Exclusivity Agreement was granted for a value of CAD$273 thousand, which is represented by the unamortized up-front payment under the former Co-Promotion Agreement. The initial term of the Exclusivity Agreement expires on December 31, 2027, and is renewable by HTC forone additional five-year term upon sixty days’ written notice to the Company.

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

5. LEASES

The Company hasan operating lease for office space with lease terms that commenced in January 2022 and will expire in March 2025. The lease does not contain anyoptions to extend. Operating lease costs for the years ended December 31, 2023 and 2022 were $54 thousand and $56 thousand, respectively.

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

The following table provides information on the lease terms and discount rates for the operating lease as of December 31, 2023:

**6.**INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

Estimated amortization expense for the year ending December 31, 2024 is $24 thousand.

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 as of December 31, 2023 and 2022 consist of cash equivalents, which were comprised of deposits of excess cash in an unrestricted money market savings account, money market mutual funds, treasury bills and a certificate of deposit. 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, 2023 and 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.

The majority of the Company’s non-financial instruments, which include intangible assets, lease assets, inventories and property and equipment, are not required to be carried at fair value on a recurring basis. However, if certain triggering events occur (or at least annually for indefinite-lived intangible assets), a non-financial instrument is required to be evaluated for impairment. If the Company determines that the non-financial instrument is impaired, the Company would be required to write down the non-financial instrument to its fair value. See Note 3 – Goodwill and Fixed Asset Impairment for further detail.

**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

At-The-Market Offering

On June 23, 2023, the Company entered into a Sales Agreement (the “Sales Agreement”) with Roth Capital Partners, LLC (“Roth”) to create an at-the-market offering program (“ATM”) under which the Company may offer and sell shares having an aggregate offering price of up to $2.0 million. Roth is entitled to a commission at a fixed commission rate equal to up to 3% of the gross proceeds pursuant to the Sales Agreement. As of December 31, 2023,53,010 share issuances of securities have occurred in connection with the ATM generating net proceeds of $0.4 million inclusive of $0.1 million of share issuance costs. On February 8, 2024,148,201 shares were issued with the ATM, generating net proceeds of $1.3 million.

Series B Preferred Stock

On March 23, 2023, the Board of Directors declared a dividend ofone one-thousandth of a share of Series B Preferred Stock (“Series B Preferred Stock”) for each outstanding share of Common Stock held of record on April 3, 2023, and the Certificate of Designation was filed with the Delaware Secretary of State and became effective on March 24, 2023. The value of the Series B Preferred Stock issued in connection with the stock dividend was immaterial.

The Series B Preferred Stock is not transferrable by the holder except in connection with a transfer by such holder of any shares of common stock held by such holder. The Series B Preferred Stock is not convertible into, or exchangeable for, shares of any other class or series of stock or other securities of the Company. The Series B Preferred Stock has no stated maturity and is not subject to any sinking fund. The Series B Preferred Stock is not subject to any restriction on the redemption or repurchase of shares by the Company while there is any arrearage in the payment of dividends or sinking fund installments. The holder of Series B Preferred Stock is not entitled to receive dividends.

Each share of Series B Preferred Stock entitled the holder to 1,000,000 votes per share and each fraction of a share of Series B Preferred Stock had a ratable number of votes. The outstanding shares of Series B Preferred Stock voted together with the outstanding shares of the Company’s common stock, as a single class, exclusively with respect to the proposal giving the Board of Directors the authority, as it would determine appropriate, to implement a reverse stock split within twelve months following the approval of such proposal by the Company’s stockholders (the “Reverse Stock Split Proposal”), as well as any proposal to adjourn any meeting of stockholders called for the purpose of voting on the foregoing matters (the “Adjournment Proposal”).

At the annual meeting of stockholders of the Company held on May 24, 2023, the Company’s stockholders approved an amendment to the Company’s Certificate of Incorporation to effect a reverse stock split of its outstanding common stock. All shares of Series B Preferred Stock that did not vote in person or by proxy were redeemed in whole by the Company. Shares of Series B Preferred Stock that did vote in person or by proxy will need to request redemption from the Company at a rate of $0.001 per share in cash. As of December 31, 2023, no shareholders of Series B Preferred Stock have requested such redemption.

Reverse Stock Split

At the annual meeting of stockholders on May 24, 2023, our stockholders voted to approve a reverse stock split of our outstanding Class A common stock at a ratio in the range of 1-for-10 to 1-for-80 to be determined at the discretion of the Board of Directors. On August 11, 2023, the Board approved a 1-for-50 reverse stock split of the Company’s issued and outstanding Common Stock (the “Reverse Stock Split”) that became effective 5:00 p.m. Eastern Time on August 16, 2023.

All issued and outstanding Common Stock and per share amounts contained in the financial statements have been retroactively adjusted to reflect this Reverse Stock Split for all periods presented. In addition, a proportionate adjustment was made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, restricted stock units and warrants to purchase shares of Common Stock. Per the warrant agreement for the Public Warrants, the exercise price for these warrants was reset to the volume-weighted average price for thefive days following the Reverse Stock Split. A proportionate adjustment was also made to the number of shares reserved for issuance pursuant

to the Company’s equity incentive compensation plans to reflect the Reverse Stock Split. Any fraction of a share of Common Stock that was created as a result of the Reverse Stock Split was rounded down to the next whole share and stockholders received cash settlement equal to the market value of the fractional share, determined by multiplying such fraction by the closing sales price of the Company’s Common Stock as reported on Nasdaq on the last trading day before the Reverse Stock Split effective date. The authorized shares and par value of the Common Stock and preferred stock were not adjusted as a result of the Reverse Stock Split.

August 2022 Issuance of Common Stock and Warrants

On August 9, 2022, the Company closed on a registered public offering (“August 2022 Public Offering”) and issued an aggregate of 480,000 shares of common stock for gross proceeds of $18 million. The Company paid $1.7 million of share issuance costs, which consisted of placement agent fees and expenses and other offering costs.

In connection with the August 2022 Public Offering, the Company issued warrants to purchase an aggregate of 720,000 shares of common stock (“Public Warrants”). 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 December 31, 2023 and 2022 was $3.3 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 was determined using both a Monte Carlo simulation model, which uses multiple input variables to determine the probability of the occurrence of a price reset or a fundamental transaction and the Black-Scholes option pricing model. The following table includes the stock price and the inputs used to estimate the fair value of the warrants:

Lincoln Park Purchase Agreement

During the year ended December 31, 2022 the Company issued 7,827 shares at an average price per share of $82.32 to Lincoln Park Capital Fund, LLC (“Lincoln Park”) pursuant to a purchase agreement (the “LPC Purchase Agreement”) and registration rights agreement with Lincoln Park entered into on September 1, 2021. 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.

Warrants

The 627,090 of outstanding liability classified Public Warrants have an exercise price that was reset to $6.9135 per share as a result of the Company’s Reverse Stock Split on August 16, 2023 are exercisable upon issuance and will expire five years following the date of issuance.92,910 Public Warrants were exercised and the Company received gross proceeds of$0.6 million. No warrants were cancelled during the year ended December 31, 2023.

The Company has outstanding equity-classified warrants to purchase 9,969 shares of common stock at a weighted average exercise price of $819.77, with expiration dates ranging from March 2025 to February 2026. During the year ended December 31, 2023, no warrants were exercised and 1,884 warrants were cancelled due to expiration.

9**.**STOCK-BASED COMPENSATION

The Company may issue stock-based compensation awards under The Helius Medical Technologies, Inc. 2022 Equity Incentive Plan (“2022 Plan”) or the Helius Medical Technologies, Inc. 2021 Inducement Plan (as amended, the “Inducement Plan”). The 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. 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 betweenone tothree years and expire no later thanten years from the date of grant.

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, 2024, the number of shares authorized for issuance increased from 264,319 to 319,941 and there were 74,643 shares of common stock available for issuance under the 2022 Plan.

The Inducement Plan permits the grant of non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units, performance stock and cash awards and other share‑based awards 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 afterten years. The exercise price of each option is equal to the fair market value of the common stock at the date of grant. As of December 31, 2023, there were 9,240 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. 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. Expected volatility is calculated using historical volatility over the expected term.

The Black-Scholes option pricing model was used with the following weighted-average assumptions for options granted during the years ended December 31, 2023 and 2022:

The fair value of restricted stock units granted during the years ended December 31, 2023 and 2022 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, 2023 was as follows:

The following table summarizes nonvested restricted stock unit activity during the year ended December 31, 2023:

Total stock-based compensation expense was as follows (in thousands):

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.

As of December 31, 2023, the total remaining unrecognized compensation expense related to nonvested stock options and restricted stock units was $2.5 million which will be amortized over weighted-average remaining requisite service period of 1.0 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):

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.

**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):

A reconciliation of the United States federal statutory income tax rate to the Company's effective income tax rate is as follows (in thousands):

The components of deferred tax assets and liabilities are as follows (in thousands):

Net operating loss carryforwards and the related carryforward expiration periods as of December 31, 2023 are summarized as follows (in thousands):

The gross tax credit carryforwards and the related carryforward expiration periods as of December 31, 2023 are summarized as follows (in thousands):

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, 2023, 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, 2023 and 2022, the Company doesnot 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. The Company matches the first 3% of the participant's annual eligible compensation contributed to the plan on a dollar-for-dollar basis and 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 years ended December 31, 2023 and 2022, the Company’s defined contribution plan expense was $148 thousand and $143 thousand, respectively.

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, 2023 and 2022, the Company recorded royalty expense from the sale of devices of approximately $24 thousand and $31 thousand, respectively, in its Consolidated Statements of Operations and Comprehensive Loss.

14**.**ENTERPRISE-WIDE DISCLOSURES

The following table presents the Company’s revenue disaggregated by geographic area (in thousands):

Two customers accounted for 65% of net product sales for the year ended December 31, 2023 and a single customer accounted for 35% of net product sales for the year ended December 31, 2022. A single customer accounted for 83% and 89% of accounts receivable, net for the years ended December 31, 2023 and 2022, respectively.