Nuwellis(NUWE) - 2025 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION This section provides the company's unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, stockholders' equity, and cash flows, along with detailed notes explaining the company's business, accounting policies, and significant financial events for the reported periods Condensed Consolidated Balance Sheets This statement provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time Condensed Consolidated Balance Sheets | Metric | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :----------------------------- | :----------------------------- | :----------------------------- | | Total Assets | $9,200 | $9,864 | | Total Liabilities | $18,155 | $3,334 | | Warrant Liabilities | $14,074 | $468 | | Total Stockholders' Equity (Deficit) | $(8,960) | $6,528 | - The company's financial position as of June 30, 2025, shows a decrease in total assets and a significant increase in total liabilities, primarily due to warrant liabilities, shifting stockholders' equity from a positive balance to a deficit[13][14][15] Condensed Consolidated Statements of Operations This statement details the company's revenues, expenses, and net loss over specific reporting periods Condensed Consolidated Statements of Operations Three Months Ended June 30: | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (2025 vs 2024) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net Sales | $1,725 | $2,194 | $(469) | (21.4)% | | Gross Profit | $958 | $1,474 | $(516) | (35.0)% | | Total Operating Expenses | $3,864 | $3,794 | $70 | 1.8% | | Loss from Operations | $(2,906) | $(2,320) | $(586) | 25.3% | | Financing Expense | $(10,553) | $(5,607) | $(4,946) | 88.2% | | Change in fair value of warrant liabilities | $900 | $198 | $702 | 354.5% | | Net Loss | $(12,553) | $(7,725) | $(4,828) | 62.5% | | Basic and Diluted Loss per Share | $(60.99) | $(791.82) | $730.83 | (92.3)% | Six Months Ended June 30: | Metric | 2025 (in thousands) | 2024 (in thousands) | Change (2025 vs 2024) | % Change | | :--------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net Sales | $3,629 | $4,051 | $(422) | (10.4)% | | Gross Profit | $2,025 | $2,665 | $(640) | (24.0)% | | Total Operating Expenses | $7,991 | $9,734 | $(1,743) | (17.9)% | | Loss from Operations | $(5,966) | $(7,069) | $1,103 | (15.6)% | | Financing Expense | $(10,553) | $(5,607) | $(4,946) | 88.2% | | Change in fair value of warrant liabilities | $940 | $720 | $220 | 30.6% | | Net Loss | $(15,567) | $(12,055) | $(3,512) | 29.1% | | Basic and Diluted Loss per Share | $(100.44) | $(139.74) | $39.30 | (28.1)% | - The company's financial performance for the three and six months ended June 30, 2025, and 2024, shows a decrease in net sales and gross profit, and an increased net loss, significantly impacted by financing expenses and changes in fair value of warrant liabilities[17] Condensed Consolidated Statements of Stockholders' Equity(Deficit) This statement tracks changes in the company's equity over time, reflecting net income/loss, stock transactions, and other comprehensive income Condensed Consolidated Statements of Stockholders' Equity (Deficit) | Metric | Balance Dec 31, 2024 (in thousands) | Net Loss (in thousands) | Stock-based Compensation (in thousands) | Issuance of Common Stock, net (in thousands) | Balance June 30, 2025 (in thousands) | | :------------------------------------ | :---------------------------------- | :---------------------- | :-------------------------------------- | :------------------------------------------- | :----------------------------------- | | Total Stockholders' Equity (Deficit) | $6,528 | $(15,567) | $84 | $3 | $(8,960) | - The statements outline changes in stockholders' equity (deficit) for the periods ended June 30, 2024, and June 30, 2025, reflecting net losses, stock-based compensation, and significant adjustments related to preferred stock and common stock issuances[20] Condensed Consolidated Statements of Cash Flows This statement summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows Six Months Ended June 30: | Activity | 2025 (in thousands) | 2024 (in thousands) | | :--------------------------------- | :------------------ | :------------------ | | Net Cash Used in Operating Activities | $(4,633) | $(5,616) | | Net Cash Used in Investing Activities | $(4) | $(53) | | Net Cash Provided by Financing Activities | $3,999 | $2,903 | | Net Decrease in Cash and Cash Equivalents | $(645) | $(2,777) | | Cash and Cash Equivalents - End of Period | $4,450 | $1,023 | - The statements provide a breakdown of cash flows from operating, investing, and financing activities for the six months ended June 30, 2025, and 2024, indicating continued cash usage in operations, minimal investing, and reliance on financing activities[22] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the nature of business, accounting policies, significant financial instruments, and recent corporate events - This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering the nature of business, accounting policies, significant financial instruments, and recent corporate events[24][26][27] Note 1 – Nature of Business and Basis of Presentation This note describes the company's core business, its financial condition, and the basis for preparing the financial statements - Nuwellis, Inc. is a medical technology company focused on commercializing the Aquadex SmartFlow system for ultrafiltration therapy for fluid overload[24][25] - The company has an accumulated deficit of $314.4 million as of June 30, 2025, and expects to incur losses, raising substantial doubt about its ability to continue as a going concern[28] - In 2024, the company reduced its monthly cash burn rate by approximately 40% through various cost-cutting measures, but some reductions were restored in late 2024[30] - Existing capital resources are believed to be sufficient into Q4 2025, but additional capital will be sought through debt or equity[31] Note 2 – Revenue Recognition This note outlines the company's policies for recognizing revenue from its product sales - Revenue is primarily generated from the sale of disposable blood filters and catheters for the Aquadex System in the U.S. (direct salesforce) and internationally (specialty distributors)[39] International Revenue as Percentage of Net Sales | Metric | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | International Revenue % of Net Sales | 3% | 3% | 4% | 4% | - One customer represented 20% of net sales for the three months ended June 30, 2025, and 16% for the six months ended June 30, 2025[33] Note 3 – Stockholders' Equity This note details the components of stockholders' equity, including preferred stock, common stock, and related transactions - The Series F convertible preferred stock has full ratchet price-based anti-dilution protection, with its conversion price recalculated to $397.00 as of July 7, 2025[45][46] - In June 2025, the company closed a public offering of common stock and pre-funded warrants, along with Series A and Series B Warrants, raising approximately $5.0 million in gross proceeds[50] - A one-for-forty-two reverse stock split became effective on July 3, 2025, adjusting share and per-share amounts retroactively[53] Note 4 - Stock-Based Compensation This note outlines the accounting for stock-based compensation expenses Total Stock-Based Compensation Expense (in thousands) | Period | 2025 | 2024 | | :------------------- | :--- | :--- | | Three months ended June 30 | $17 | $115 | | Six months ended June 30 | $84 | $273 | - The total number of stock options outstanding as of June 30, 2025, was 4,471, significantly higher than 79 as of June 30, 2024[56] Note 5—Fair Value of Financial Instruments This note describes the valuation methods and fair value measurements for the company's financial instruments, particularly warrant liabilities Warrant Liabilities (in thousands) | Type | June 30, 2025 | December 31, 2024 | | :-------------------- | :-------------- | :---------------- | | Warrant liability Series A | $9,991 | $— | | Warrant liability Series B | $3,674 | $— | | Warrant liability Series J | $409 | $468 | | Total warrant liabilities | $14,074 | $468 | - The Series A and B warrants from the June 2025 offering were classified as a liability, with an initial valuation of $14.5 million, exceeding the $5.0 million gross proceeds, resulting in a 'Financing expense' for the difference[51] Note 6 – Income Taxes This note discusses the company's income tax position, including deferred tax assets and valuation allowances - The company has a full valuation allowance for its U.S. and foreign deferred tax assets due to uncertainty of generating sufficient taxable income[60] - The company is evaluating ASU No. 2023-09, 'Improvements to Income Tax Disclosures,' and anticipates adopting it for the annual period ending December 31, 2025[37][61] Note 7—Operating Leases This note provides information on the company's operating lease commitments - The company leases a 23,000 sq ft facility in Eden Prairie, Minnesota, for its headquarters and manufacturing, with the lease expiring in March 2027[62] Note 8—Commitments and Contingencies This note discloses the company's significant commitments and potential contingent liabilities - The company offers a 401(k) retirement plan to eligible U.S. employees, with discretionary matching contributions[63] Note 9—Segment Reporting This note provides information about the company's operating segments and key expense categories - Nuwellis operates as a single reportable segment focused on fluid overload, with the CEO as the chief operating decision maker[64] Key Expense Categories (in thousands) | Expense Category | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | General and administrative | $1,347 | $1,405 | $3,189 | $3,510 | | Sales and marketing | $1,598 | $1,495 | $3,028 | $3,576 | | Development | $327 | $246 | $533 | $1,116 | | Clinical, Quality, Regulatory | $575 | $533 | $1,157 | $1,259 | Note 10—Subsequent Events This note reports significant events that occurred after the balance sheet date but before the financial statements were issued - The company received a Nasdaq deficiency notice in May 2024 for not meeting the minimum stockholders' equity requirement, but was granted continued listing subject to compliance by Q3 2024[69][70] - A June 2025 offering and subsequent reclassification of Series A and Series B warrants from liability to equity resulted in a pro forma stockholders' equity of $4.507 million as of June 30, 2025, which the company believes maintains Nasdaq compliance[71][72][74] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition, results of operations, and liquidity, discussing recent developments, critical accounting policies, and future outlook, including a detailed comparison of financial performance for the three and six months ended June 30, 2025, versus 2024 OVERVIEW This section introduces the company's business and its primary product, the Aquadex SmartFlow system - Nuwellis is a medical technology company focused on commercializing the Aquadex SmartFlow system for ultrafiltration therapy for fluid overload in adult and pediatric patients weighing 20 kg or more[77] - The company shifted its strategy in 2016 to focus entirely on the Aquadex Business after acquiring it from Baxter, and changed its name to Nuwellis, Inc. in 2021 to reflect expanded applications beyond congestive heart failure[78] Recent Developments This section highlights key corporate actions and strategic shifts impacting the company's operations and financial standing - Nuwellis resolved a Nasdaq bid price deficiency in July 2025, following a 2025 Reverse Stock Split, ensuring continued listing on the Nasdaq Capital Market[79] - The company completed a public offering on June 10, 2025, raising approximately $5.0 million in gross proceeds through the sale of common stock and warrants[80] - The REVERSE-HF clinical trial was terminated on July 17, 2025, to reallocate resources to outpatient heart failure, pediatric, and critical care, expecting to save approximately $4.0 million over 2.5 years[85] - The company decided to exit international operations on August 7, 2025, to focus exclusively on the U.S. market, where it sees the strongest growth and clinical demand[86] CRITICAL ACCOUNTING POLICIES AND ESTIMATES This section discusses the significant accounting policies and estimates that require management's judgment and can materially affect financial reporting - The company's financial statements are prepared assuming it continues as a going concern, despite an accumulated deficit of $314.4 million as of June 30, 2025, and expected future losses[96] - The company accounts for warrants as liabilities or equity based on ASC 480, with liability-classified warrants remeasured at fair value each balance sheet date using a Monte Carlo simulation model[90][91] - Long-lived assets are reviewed for impairment whenever circumstances indicate carrying value may not be recoverable, with fair value determined using expected discounted cash flows or replacement cost[93][95] NEW ACCOUNTING PRONOUNCEMENTS This section outlines recently issued accounting standards and their potential impact on the company's financial statements - The company is evaluating ASU No. 2023-09, 'Income Taxes (Topic 740): Improvements to Income Tax Disclosures,' and plans to adopt it for the annual period ending December 31, 2025[101] FINANCIAL OVERVIEW This section provides a summary of the company's business model and its overall financial position - Nuwellis is a medical technology company commercializing the Aquadex System for ultrafiltration treatment of fluid overload, with activities focused on sales, marketing, R&D, and clinical studies since acquiring the Aquadex business in 2016[103] - As of June 30, 2025, the company had an accumulated deficit of $304.7 million and expects to incur future losses, relying on public and private equity financings for funding[103] Results of Operations This section analyzes the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year, detailing changes in net sales, cost of goods sold, and operating expenses - This section analyzes the company's financial performance for the three and six months ended June 30, 2025, compared to the prior year, detailing changes in net sales, cost of goods sold, and operating expenses[104][105][109][110] Comparison of three months ended June 30, 2025 to three months ended June 30, 2024 This subsection compares the company's financial performance for the three-month periods, highlighting key revenue and expense trends Three Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Increase (Decrease) | % Change | | :-------------------------- | :--- | :--- | :------------------ | :------- | | Net Sales | $1,725 | $2,194 | $(469) | (21.4)% | | Cost of Goods Sold | $767 | $720 | $47 | 6.5% | | Selling, General and Administrative | $3,189 | $3,236 | $(47) | (1.5)% | | Research and Development | $675 | $558 | $117 | 21.0% | - The decrease in net sales was primarily due to a 21% decrease in circuit sales and a temporary backorder of approximately $400,000 in circuit revenue due to an industry-wide sterilization vendor issue[104] - Cost of goods sold increased due to unfavorable manufacturing variances and under-absorption of fixed overhead from lower production volumes[106] Comparison of six months ended June 30, 2025 to six months ended June 30, 2024 This subsection compares the company's financial performance for the six-month periods, detailing changes in sales and operating expenses Six Months Ended June 30 (in thousands) | Metric | 2025 | 2024 | Increase (Decrease) | % Change | | :-------------------------- | :--- | :--- | :------------------ | :------- | | Net Sales | $3,629 | $4,051 | $(422) | (10.4)% | | Cost of Goods Sold | $1,604 | $1,386 | $218 | 15.7% | | Selling, General and Administrative | $6,766 | $7,842 | $(1,076) | (13.7)% | | Research and Development | $1,225 | $1,892 | $(667) | (35.3)% | - The decrease in net sales was primarily due to a 9% decrease in circuit sales, console sales, and International sales[109] - Selling, general and administrative expenses decreased due to reduced headcount, compensation, and professional services fees[112] - Research and development expenses decreased due to reduced headcount, compensation, and R&D project spend[113] Liquidity and Capital Resources This section assesses the company's ability to generate and manage cash flow to meet its financial obligations and fund operations - Cash and cash equivalents were $4.5 million as of June 30, 2025, down from $5.1 million at December 31, 2024[116] - Net cash used in operating activities was $4.6 million for the six months ended June 30, 2025, an improvement from $5.6 million in the prior year period[117] - Net cash provided by financing activities was $4.0 million for the six months ended June 30, 2025, primarily from the June 2025 public offering[119] - The company expects existing capital resources to support operations into Q4 2025 but will seek additional financing to support growth or strategic initiatives[100][116] Forward-Looking Statements and Risk Factors This section cautions readers about forward-looking statements and highlights the inherent risks and uncertainties affecting the company's future performance - The discussion contains forward-looking statements based on management's beliefs and expectations, which are subject to risks and uncertainties that could cause actual results to differ materially[121] - The company operates in an evolving environment, and new risk factors and uncertainties may emerge, making it impossible to predict all potential impacts[121] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section states that quantitative and qualitative disclosures about market risk are not applicable to the company ITEM 4. CONTROLS AND PROCEDURES This section details the evaluation of the company's disclosure controls and procedures, concluding that they were not effective as of June 30, 2025, due to identified material weaknesses in internal controls over financial reporting - Management concluded that the company's disclosure controls and procedures were not effective at a reasonable assurance level as of June 30, 2025, due to two identified material weaknesses in controls over financial reporting[126] - No material changes occurred in internal control over financial reporting during the quarter, but changes are expected as a result of the identified material weaknesses[127] PART II—OTHER INFORMATION This section provides additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits ITEM 1. LEGAL PROCEEDINGS This section states that there are no legal proceedings to report for the company ITEM 1A. RISK FACTORS This section updates the company's risk factors, primarily focusing on the potential delisting of common stock from Nasdaq due to non-compliance with stockholders' equity requirements, risks related to off-label use of products, and potential impacts from changes in trade policies and supply chain disruptions - Nasdaq may delist the company's common stock if it fails to maintain compliance with minimum financial and other requirements, including the stockholders' equity requirement[132][133] - As of June 30, 2025, the company's reported stockholders' equity was below the Nasdaq requirement, but a pro forma adjustment for warrant reclassification results in $4.507 million, which the company believes maintains compliance[139] - The company faces risks related to off-label use of its products, which could lead to substantial civil and criminal penalties, regulatory actions, and lawsuits if communications are deemed impermissible promotion[143][146][147] - Disruptions in supply from sole source suppliers, changes in U.S. tariffs/import/export regulations, and changes in U.S. federal government funding for regulatory agencies could adversely impact the business[150][155] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section reports that there were no unregistered sales of equity securities during the quarter ended June 30, 2025, that were not previously reported on a Current Report on Form 8-K ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there are no defaults upon senior securities to report for the company ITEM 4. MINE SAFETY DISCLOSURES This section states that mine safety disclosures are not applicable to the company ITEM 5. OTHER INFORMATION This section reports that no directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter ended June 30, 2025 ITEM 6. EXHIBITS This section provides a comprehensive list of exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate governance documents, agreements, and certifications - The exhibit index lists various corporate documents, including amendments to the Certificate of Incorporation, Bylaws, Certificates of Designation for preferred stock, supply agreements, employment agreements, and certifications[165][167]