Nuwellis(NUWE) - 2019 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements For the six months ended June 30, 2019, CHF Solutions reported a net loss of $9.2 million on net sales of $2.9 million, with a 'going concern' uncertainty due to a history of losses and an accumulated deficit of $208.5 million Condensed Consolidated Balance Sheets As of June 30, 2019, total assets increased to $11.4 million from $8.8 million at year-end 2018, primarily due to a rise in cash and cash equivalents, while stockholders' equity grew to $8.4 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $7,402 | $5,480 | | Total current assets | $10,302 | $8,127 | | Total Assets | $11,428 | $8,776 | | Liabilities & Equity | | | | Total current liabilities | $2,637 | $2,840 | | Total liabilities | $2,994 | $2,840 | | Total stockholders' equity | $8,434 | $5,936 | | Total Liabilities and Stockholders' Equity | $11,428 | $8,776 | Condensed Consolidated Statements of Operations and Comprehensive Loss The company's net sales grew to $1.7 million for Q2 2019 and $2.9 million for the first six months of 2019, but net loss widened to $4.4 million for the quarter and $9.2 million for the six-month period, driven by increased research and development expenses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2019 | Q2 2018 | H1 2019 | H1 2018 | | :--- | :--- | :--- | :--- | :--- | | Net sales | $1,677 | $1,099 | $2,892 | $2,136 | | Loss from operations | $(4,428) | $(4,179) | $(9,153) | $(8,533) | | Net loss | $(4,430) | $(4,181) | $(9,157) | $(8,535) | | Basic and diluted loss per share | $(1.93) | $(13.03) | $(8.82) | $(28.03) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $5.9 million at the end of 2018 to $8.4 million by June 30, 2019, primarily driven by $11.0 million from common and preferred stock issuance, offsetting the net loss - The primary driver for the increase in stockholders' equity during the first half of 2019 was the issuance of common and preferred stock, which provided $10,959 thousand in capital, net of costs[19] Condensed Consolidated Statements of Cash Flows For the six months ended June 30, 2019, net cash used in operating activities was $8.9 million, offset by $11.0 million from financing activities, resulting in a $1.9 million increase in cash and cash equivalents Cash Flow Summary for the Six Months Ended June 30 (in thousands) | Cash Flow Activity | 2019 | 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | $(8,874) | $(8,478) | | Net cash used in investing activities | $(158) | $(121) | | Net cash provided by financing activities | $10,959 | $0 | | Net increase (decrease) in cash | $1,922 | $(8,600) | | Cash and cash equivalents - end of period | $7,402 | $6,995 | Notes to Condensed Consolidated Financial Statements The notes detail the company's focus on the Aquadex FlexFlow® system and disclose a significant 'going concern' risk due to an accumulated deficit of $208.5 million and recurring losses, alongside a March 2019 public offering that raised $12.4 million - The company is a medical device firm focused on the Aquadex FlexFlow® system for aquapheresis therapy, having acquired the business from Baxter in 2016[23][24] - The financial statements were prepared on a going concern basis, but the company's accumulated deficit of $208.5 million and history of losses raise substantial doubt about its ability to continue as a going concern for the next twelve months[28] - In March 2019, the company closed a public offering of common stock, Series G convertible preferred stock, and warrants, raising gross proceeds of $12.4 million[49] - A contingent consideration liability from the Aquadex acquisition, valued at $126,000 at the end of 2018, was reduced to $0 as of June 30, 2019, as the likelihood of payment was deemed remote[33][58] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 52.6% year-over-year revenue growth for Q2 2019 to commercialization strategy and in-house manufacturing, while operating expenses increased, and liquidity improved by an $11.0 million capital raise, though 'going concern' risk remains Results of Operations For Q2 2019, net sales increased 52.6% to $1.7 million, and gross margin improved due to in-house manufacturing, but operating expenses, particularly R&D, rose significantly due to product enhancement initiatives Net Sales Comparison (in thousands) | Period | 2019 | 2018 | Increase | % Change | | :--- | :--- | :--- | :--- | :--- | | Three Months Ended June 30 | $1,677 | $1,099 | $578 | 52.6% | | Six Months Ended June 30 | $2,892 | $2,136 | $756 | 35.4% | - Gross margins improved in 2019 due to the transition to selling internally manufactured inventory, moving away from higher-cost inventory purchased from Baxter under a previous manufacturing agreement[98][106] - Research and development expenses more than doubled in Q2 2019 versus Q2 2018, reflecting investments to improve the Aquadex system, including software updates and catheter enhancements[96][101] Liquidity and Capital Resources The company's liquidity is primarily sourced from a March 2019 public offering that provided $11.0 million in net proceeds, resulting in $7.4 million in cash and cash equivalents as of June 30, 2019, with management acknowledging potential future financing needs - The company closed a public offering on March 12, 2019, for net proceeds of approximately $11.0 million, which is a primary source of its current liquidity[112] - As of June 30, 2019, the company had cash and cash equivalents of $7.4 million, compared to $5.5 million at the end of 2018[114] - Net cash used in operating activities was $8.9 million for the first six months of 2019, reflecting the company's net loss for the period[115] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company has determined that this section is not applicable, indicating it does not have material exposure to market risks such as interest rate or foreign currency fluctuations - Not applicable[122] Item 4. Controls and Procedures As of June 30, 2019, the company's CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2019[125] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[126] PART II—OTHER INFORMATION Item 1. Legal Proceedings The company reports that it is not currently involved in any material legal proceedings - The company is not currently subject to any material legal proceedings[128] Item 1A. Risk Factors The company states there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - There are no material changes to the risk factors discussed in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018[129] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds On May 30, 2019, the company granted a market-based warrant to a consultant for investor relations services, allowing the purchase of up to 100,000 shares of common stock at an exercise price of $3.18 per share under a registration exemption - On May 30, 2019, the company granted a market-based warrant to a consultant to acquire up to 100,000 shares of common stock at an exercise price of $3.18 per share in exchange for investor relations services[131] Item 5. Other Information On May 23, 2019, the board of directors amended the New-Hire Equity Incentive Plan, increasing the aggregate number of shares available for issuance from 38,836 to 288,836 to aid in attracting qualified employees - The company amended its New-Hire Equity Incentive Plan to increase the number of shares of common stock available for issuance from 38,836 to 288,836[134] Item 6. Exhibits This section provides an index of all exhibits filed with the Form 10-Q, including corporate governance documents, warrants, certifications by the CEO and CFO, and XBRL data files - The report includes a list of filed exhibits, such as the Common Stock Purchase Warrant dated May 30, 2019, the Sixth Amendment to the New-Hire Equity Incentive Plan, and officer certifications required by the Sarbanes-Oxley Act[135][138]