Good evening, ladies and gentlemen, and welcome to the Second Quarter of Fiscal Year 2020 Earnings Conference Call for Helius Medical Technologies. At this time, all participants have been placed on a listen-only mode. Please note that this conference call is being recorded and that the recording will be made available on the company's website for replay shortly. Before we begin, I would like to remind everyone that our remarks and responses to your questions today may contain forward-looking statements that are based on the current expectations of management, including statements regarding the impact of the COVID-19 pandemic on the company's operations, the success of the company's planned studies and submissions, the future commercialization of the PoNS treatment, expected future clinical and regulatory timelines, the potential receipt of regulatory clearance of the PoNS device in the United States and projected financial results.

Thank you very much, operator. And welcome, everyone, to Helius Medical's second quarter of 2020 earnings conference call. I'm joined the call this evening as per usual by my partner, Joyce LaViscount, our Chief Financial Officer and Chief Operating Officer. Before we start, let me provide you with a quick agenda for today's call. I'll begin by discussing our regulatory strategy in the U.S. and the progress we've made in recent months. Following this discussion, I'll review our second quarter revenue results and update you on our commercial activities in Canada, including a summary of the disruption that we've seen as a result of the COVID-19 pandemic. Joyce will then discuss our second quarter financial results in detail and expand on the recent progress we've made to secure additional capital and enhance our balance sheet condition. Following Joyce's remarks, I'll conclude by sharing some thoughts on our near-term and longer-term outlook before we open the call for questions. So with that, let's get started with a review of our U.S. regulatory strategy and the progress we've made in recent months. By way of background, during Q1 of this year, we made important strategic decisions to prioritize the pursuit of an indication in multiple sclerosis or MS as the pathway for obtaining our first U.S. clearance for the PoNS device. This strategic decision was based on the quality of the data that was included in our MS submission package to Health Canada for label expansion that led to its clearance there. Specifically, our Health Canada submission included data from two peer-reviewed clinical trials, which we have outlined in prior calls. In addition to these two trials, we also generated evidence based on real-world data gathered in our validated database in Canada, which showed statistically significant improvements from baseline in functional gait assessment. In aggregate, we believe the existing clinical data and real-world evidence are sufficient to demonstrate a favorable risk-benefit profile as required by the de novo regulatory pathway in the U.S.

Thank you, Phil. We reported revenue of $133,000 for the second quarter of 2020 compared to $518,000 in the prior year period. Product sales represented approximately 95% of total revenue in the second quarter of 2020, compared to 91% of total revenue in the second quarter of 2019. Product sales in both periods were generated through sales of the PoNS devices and mouthpieces to PoNS authorized neuroplasticity clinics in Canada. As Phil mentioned, our operational and financial results in the second quarter were significantly impacted due to the disruption caused by the COVID-19 pandemic, including the closure and reduced productivity of PoNS authorized clinic locations across Canada. During the second quarter of 2020, our product sales benefited from a large order from one of our clinics during the month of June, along with payments received from existing clinic patients under the revised pricing model that we implemented at the beginning of this year, which was designed to reduce upfront patient costs. Our gross profit for the second quarter of 2020 was $69,000 compared to $306,000 in the prior year period. Operating expenses for the second quarter of 2020 decreased $2.3 million, or 38% year-over-year to $3.8 million, reflecting the continued benefit of the cost reduction initiatives that we implemented during the past year. By line item, the change in operating expenses was driven by selling, general and administrative expenses, which decreased $1.5 million or 38% year-over-year, and research and development expenses which decreased $1 million or 43% year-over-year. The decrease in SG&A expenses was primarily due to reduced commercial operations expense associated with the U.S. launch planning activities that were terminated following the FDA denial in the second quarter of 2019, and reduced wages and salaries due to lower headcount. The decrease in research and development expenses was primarily due to lower medical affairs expenses, as well as reduced product development costs due to the completion of the PoNS device development in 2019.

Thank you, Joyce. Joyce just mentioned the duration and impact of COVID-19 on our performance remains uncertain, and that's very, very frustrating. Given the uncertainty, we're continuing to monitor our business trends and to obtain feedback from our clinic customers to assess the ongoing impact of the pandemic. And while it's not our typical practice to provide details on current quarter trends, we appreciate the investment community's focus on how companies are faring in this time. So in the interest of transparency, we felt it would be appropriate to provide an updated view on what we've seen in recent weeks. By the end of July, we were pleased to see that all of the PoNS authorized clinics had, in fact, reopened to outside non-emergency patients. But despite this positive trend, clinics continue to be impacted by the federal and provincial requirements limiting their capacity to 50% of normal services. Their overall productivity remains below normal levels due to the factors that I just mentioned. While the level of productivity varies from clinic to clinic, at present, we estimate that the average clinic across our network is operating at about 30% capacity. With this as a backdrop, we believe we continue to remain in the very early days of recovery and are unlikely to see material improvements in business trends until the federal and provincial requirements are lifted and the clinic productivity increases. While our outlook in the near term remains uncertain, we're incredibly proud of the performance of both our regulatory and commercial teams in their ability to execute our regulatory strategy and to pivot quickly in Canada in response to the challenging circumstances, ultimately to do everything we can to position the company for success in the future. As we enter the second half of 2020, we remain focused on continuing to pursue our commercial and regulatory strategies as efficiently and effectively as possible for the benefit of both our patients and shareholders. Most importantly, we remain convinced that our PoNS technology represents a truly revolutionary approach to the treatment of neurological disease and trauma, with the ability to improve the lives of patients suffering from the effects of MS, TBI, and possibly other conditions in the future. What's particularly exciting is the research on neuromodulation effects through electrical stimulation of the surface of the tongue continues to significantly progress. The cascade of neuromodulation of trigeminal nerve activity may enable changes to the brain, which continue to show promise in treating other kinds of neurological conditions. This work produced through clinical studies sponsored by Helius and through independent research has been submitted for publication, and after peer review, it would potentially eliminate the true breadth of our PoNS technology. So we look forward to those publications. Before we open up the call to questions, I'd like to close by thanking our employees for their important contributions to our recent progress, our customers, and of course, our shareholders for their support and everyone on tonight's call for your interest in Helius Medical Technologies. Joyce and I are happy to take questions from the phone.

Thank you. Our first question comes from Steven Lichtman with Oppenheimer & Company. Please state your question.

Thank you. Hi, Phil, hi, Joyce. So just on the Canadian centers that you have open, obviously, the volumes today are not reflective of what they could be, but just trying to get a sense of the size of the clinics you're in and what sort of the patient run rate you think those centers that you're in have on a monthly or annual basis, just trying to get a sense of the size of centers that you're currently in?

Yes. So Steve, these clinics are all private neurological centers. As we mentioned, we pivoted in late fall, specifically in January, to focus on these types of clinics. They vary in size, and our aim is to provide access in specific regions, particularly in Southern Ontario. I would need to review each clinic to provide details on their locations. The main challenge these clinics are encountering, and they are eager to resume full operations, is that physical therapy typically involves intensive engagement where patients are exerting effort, which is problematic when wearing masks. These circumstances can be quite difficult. Additionally, many patients, especially those with multiple sclerosis who may be on medication and have compromised health, are hesitant to visit clinics. Despite these challenges, we are working with them to develop remote tools. We have successfully transitioned our authorization process to be fully virtual, and we are exploring ways to implement aspects of that program to enhance patient capacity. Currently, everyone is trying to increase patient numbers while addressing the ongoing situation. I am in Canada now and will be in the Toronto area tomorrow, where I plan to visit several clinics. Maybe we could catch up next week, and I can provide a more detailed insight into what’s happening on the ground. All of this information is based on the overall reports we are receiving from our team.

Thanks, Phil. And just on FDA, about when do you think you'll hear back on the first review here? And will you alert investors of that or no?

Yes. So the first review is really an administrative review, and FDA has their own checklist. We have worked with very sophisticated attorneys to help us prepare for this. I assure you that from an administrative standpoint, every element of the requirement for the de novo submission has been completed. We were able to kick off the same checklist. We fully expect that this is going to be a formality. In fact, in our TBI work, FDA didn't even notify us when they were going forward. So, this first step is really an administrative one. And you can be sure, Steve, that we will report on any material feedback that FDA gives us one way or the other. From my perspective, hopefully the next feedback we give you is clearance.

And then, can you provide some insights on the cash burn for the second half of the year, particularly in relation to the second quarter levels?

Yes. So we have previously communicated, Steve, about $1.2 million a month as our expected burn. We have been able to identify opportunities to further reduce that burn and we're looking more like closer to about $1 million a month.

Our next question comes from Ben Haynor with Alliance Global Partners. Please state your question.

Congrats on the submission to the FDA and nicely done on getting five clinics during a pretty rough quarter. Just kind of curious about the five clinics that you've added. How quickly do they start treating patients? You mentioned that these clinics are eager to get going and ramp capacity back up. But how would you characterize their enthusiasm for getting into their first PoNS treatments?

Neurological conditions are difficult to treat, and patients face significant challenges. Physical therapists rarely achieve complete recovery, as the focus is often on managing symptoms and slowing their decline. However, our data excites us as it indicates that we can improve patients' gait quality. When we connect with leading neurological clinics, they express interest in reviewing our findings. We present our data, and they are eager to use their expertise to help patients improve. For more information, please visit our website, where you can see testimonials that illustrate this excitement. The clinics approach this cautiously, thoroughly reviewing data and consulting with referring physicians. Our team is committed to raising awareness in the virtual space to drive patient engagement. Once we establish all necessary connections, clinics are enthusiastic about participation. We’ve created a virtual training program that replaces the previous in-clinic training process. Once clinics receive approval, they begin reaching out to their patients. For example, a clinic could treat three patients every half hour, totaling about 50 patients daily. However, current limitations reduce this capacity to one and a half patients per hour, prompting clinics to strategize on patient selection to maintain efficient scheduling. The desire to become authorized clinics is strong, but physical constraints pose the main challenge. I apologize for the lengthy response, Ben, but I wanted to provide a comprehensive overview of the situation.

That color is very helpful and makes a lot of sense when you consider it. Their interest level is definitely there. Do you know if these clinics are operating at 30% capacity right now? Do they need to reach 70% capacity before you really start to see patient flow through the clinic for the treatment?

Yes, so it’s a great question. To give you more context on the Canadian reopening strategy, as of last week, I believe last Thursday, there was one more district in Toronto that was still in phase two. Now the entire country is in phase three. Phase three is the new normal until there's a vaccine or significant treatment, which we expect to be the future for the foreseeable future. These restrictions will remain in place for the foreseeable future. We hope that with time, as I said, necessity is the mother of invention, there is a lot of interest in our treatments. So we hope to think that even with those restrictions, we'll be able to get patients through, but the reality is that this will be a tough environment until something happens with respect to COVID's treatment front.

Thank you. Our next question comes from an unidentified analyst. Please state your question.

Just a couple of quick questions. The first is, can you give us an idea of how many shares are currently outstanding on a fully diluted basis?

On a fully diluted basis, that number is roughly 58 million.

Alright. And can you tell me how many warrants are currently outstanding and what's the strike on the warrants?

I have that information. The strike on the warrants is available.

$0.46, I think it's $0.46.

Actually, they are earlier warrants, so they are much higher than I think prior, just going through that sheet, alright?

While you're getting that, why don’t I ask Phil a quick question? Phil, it's great that we've got our application, and the clock is ticking on that. So since this is a priority fast-track situation, are there any historical timelines we need to consider? What would be the short end to the long end? I mean, we're burning $1.2 million a month. Obviously, every month translates to significant dilution for shareholders. Hence, getting to that point as quickly as possible is beneficial for all of us, just wondering about your expectations regarding the timeline.

Sure. The expectations are really based on guidance from the FDA. The de novo process is a 150-day process for 60% of the files that they review; that's their goal. In FDA's own words, they commit to trying to expedite Breakthrough Designation products. There’s no definition of what expedite means. Therefore, it’s tricky to evaluate. Your question is one we ask our attorneys all the time, and they give us the same answer that I'm sharing with you now: it truly depends on the individual submission. We’re hopeful that we can go through the process within that 150-day period.

Yes. It seems that they are already familiar with the application for TBI, so you would think they would not need nearly that amount of time, but that's never a guarantee. We haven't experienced this kind of breakthrough in the past.

I'd like to think we're going to get a break at some point here.

Yes. At some point, it seems like maybe we'll get a break. I guess my next question, if you don't mind, is about Canada. If we do get the clearance, it’s not like we can declare victory here. There appears to be a lot of work still needed to start attracting customers, worrying about the reimbursability of the product, since it is quite expensive. The end result we are looking at is the stock price, and many of us have been holding for years and years at a very high average cost. Now with the application filed, we're trying to determine if we should buy more shares, considering the stock may continue drifting lower while we wait. Because realistically, there shouldn’t be any significant news until we hear more about the clearance.

Look, as I mentioned in my prepared remarks, we are continuing to do research, and there is enormous interest in our product. We're collaborating with hospital systems to further research, and it’s exciting. We have some upcoming research submissions that once published will enhance the scientific credibility for the investment community. While we can’t predict what kind of market reaction the news will incite, rest assured this isn't the only thing we have going. To answer your other question regarding U.S. commercialization, we have already started that effort. It's a tough balance; on one hand, we want to begin driving our U.S. commercialization, but we also have a responsibility to approach this correctly. As Joyce mentioned, we've managed to cut expenditure from $1.2 million down to $1 million, and we’re aiming to do even better. Once things become clearer from the FDA’s side, we may start to evolve our strategies further.

Okay, super, thanks.

Joyce, did you want to answer the last question? I apologize, Randy.

Yes, so in response to your earlier question, there's about 9.3 million warrants outstanding. About 646,000 expire on December 28, 2020, and these are priced at $12.25. About 2.4 million expire in April 2021, and they are also at $12.25. The most recent warrants from the registered direct we did in March total about 6.3 million at $0.46 a share. Those can be exercised beginning September 20, 2020, and they last until March of 2025.

Our next question comes from an unidentified analyst. Please state your question.

Hi, excuse me if I misunderstood earlier. Did you say that the cost of the PoNS to the user decreased this year?

Yes. Joyce, do you want to describe it?

Yes. The cost of the PoNS to the user has been adjusted. A program was established allowing patients to pay over time. This program means that a patient will find out within the first month if they are a responder. Under this initiative, there's an upfront payment for the first month, and an evaluation at the four-week mark will determine if they continue with treatment.

Okay. So for the patient to continue after the initial 14 weeks, the continuing usage of the PoNS has not been reduced?

Yes. The continuing use of the PoNS involves essentially renewing the mouthpiece. The decision is ultimately made by the patient and the doctor. Currently, patients until the end of September can benefit from a reduced price for the PoNS. Since we provide the PoNS mouthpieces to the clinics, there are different prices that the clinics charge in the free market. So I can't tell you exactly what it is, but now is a particularly good time for anyone interested in treatment to visit the clinics and sign up.

Well, actually, besides being a stockholder, I’m also a PoNS user, and I expect to use it for the rest of my life. I went to BC last year and began using it, and it's not cheap.

Yes. I appreciate that.

For someone who has to afford it privately, it would be nice if you could reduce the fee considerably. I wasn't aware that each clinic set their own pricing; I thought it was solely dictated by headquarters.

No, essentially we, like most manufacturers, deliver the product to the clinics, which purchase it from us and then resell it to their customers.

Okay. Well, I have more information than I had before. Thank you.

You're very welcome. Good luck to you.

Thank you. We are currently showing no additional participants in the queue. That does conclude our conference call for today. Thank you all for your participation.

You bet. Thank you very much.

Thank you very much.

Thank you. Have a good day.