Solana Co quarterly report, Q2 FY2017

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Business context and reporting period

The supplied filing is Helius Medical Technologies, Inc.’s unaudited Form 10-Q for the quarter ended June 30, 2017—not a filing for Solana Co. Helius develops neurological medical technology, including its PoNS device and therapy platform; it had not generated product revenue.

Financial performance and position

Amounts below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.

  • Revenue: $0 for the three and six months ended June 30, 2017 and 2016. Gross margin is not meaningful.
  • Quarterly results: Q2 2017 operating expenses were $5.98 million, including $4.29 million of R&D and $1.69 million of G&A. Operating loss was $5.98 million and net loss was $5.68 million, versus $2.10 million and $3.08 million, respectively, in Q2 2016.
  • Six-month results: Operating expenses were $11.01 million, operating loss $11.01 million, and net loss $11.36 million, compared with $5.02 million, $5.02 million, and $6.92 million in the first half of 2016. The filing reports loss per share of $0.06 for Q2 2017 and $0.13 for the six-month period; its table omits parentheses around those per-share figures.
  • Cash flow: First-half operating cash use was $9.30 million (versus $4.05 million in 2016); investing cash use was $0.12 million. Financing provided $13.76 million, principally from equity offerings. Cash increased $4.19 million to $6.86 million.
  • Liquidity and liabilities: June 30 current assets were $8.50 million and current liabilities $8.19 million; reported working capital was $4.28 million, excluding non-cash items. Total liabilities were $8.19 million, including $3.97 million of derivative liabilities. The filing reports no interest-bearing debt.
  • Equity and dilution: Stockholders’ equity was $0.44 million, versus a $3.44 million deficit at December 31, 2016. Shares outstanding increased to 95.89 million from 84.63 million, primarily following 2017 equity financings.

Changes versus the prior comparable period

  • First-half R&D expense rose $5.68 million, mainly from clinical-trial activity and device manufacturing, design, and verification testing; U.S. Army reimbursements partly offset the increase.
  • First-half G&A rose $0.32 million. Management cited increased legal fees, partly offset by lower professional-services costs.
  • First-half net loss increased $4.44 million. Higher operating expenses were partly offset by a $0.51 million derivative fair-value gain, compared with a $1.34 million loss in 2016.
  • Operating cash use more than doubled year over year, while financing proceeds increased and supported the higher ending cash balance.

Outlook, risks, contingencies, and unusual items

  • Going concern: Management stated that substantial doubt exists about the company’s ability to continue as a going concern over the next 12 months. The company expected continued losses and cash outflows and said substantial additional financing was needed; no assurance was given that funding would be available on acceptable terms. Failure to raise funds could require reduced operations or asset sales.
  • PoNS development outlook: After quarter-end, the company announced the registrational TBI trial was fully enrolled and expected completion in Q3 2017. It anticipated completing requirements for regulatory submissions in the second half of 2017 and, subject to FDA review, possible clearance as early as the first half of 2018. These are expectations, not assured outcomes.
  • Funding and reimbursement: First-half equity financings included a February public offering and a June private placement. The U.S. Army cost-sharing agreement could reimburse up to $3.0 million; by June 30, the company had received $1.8 million and recorded a $0.7 million receivable for milestones. The agreement was extended through December 31, 2017.
  • Contingencies and commitments: A potential $2.0 million contractual penalty related to FDA authorization or U.S. Government availability by December 31, 2017 was assessed by management as remote. The company also disclosed a Newtown office lease with future minimum payments totaling $1.20 million. A Mackie Research Capital claim was settled in April 2017 for an amount described as insignificant.
  • Non-cash and currency effects: Derivative fair-value changes generated a $0.51 million first-half gain and remain sensitive to valuation assumptions. First-half foreign-exchange loss was $0.85 million. Both currency movements and derivative remeasurement affected reported results.
  • The company reported no material change to previously disclosed risk factors, no other legal proceedings, and effective disclosure controls as of period-end.

Important facts for investors to verify

  1. Confirm the issuer: the provided filing is for Helius Medical Technologies, Inc., not Solana Co.
  2. Assess cash runway and the amount, timing, and terms of financing needed to address the stated going-concern doubt.
  3. Check the TBI trial results and the timing and status of FDA, Health Canada, and European regulatory submissions and reviews.
  4. Verify collection of the U.S. Army milestone receivable and any further reimbursements under the extended agreement.
  5. Review potential dilution from outstanding options and warrants, future equity needs, and the valuation of derivative liabilities.
  6. Monitor the December 31, 2017 contractual milestone associated with the potential $2.0 million penalty and the company’s assessment of its likelihood.