Nuwellis(NUWE) - 2022 Q1 - Quarterly Report

PART I—FINANCIAL INFORMATION This section presents Nuwellis, Inc.'s comprehensive financial information, including statements and detailed notes, for the period ended March 31, 2022 ITEM 1. FINANCIAL STATEMENTS This section presents Nuwellis, Inc.'s 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 financial position for the period ended March 31, 2022 Condensed Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and equity as of March 31, 2022, and December 31, 2021 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2022 | December 31, 2021 | Change | | :------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $19,300 | $24,205 | $(4,905) | | Total current assets | $23,895 | $28,126 | $(4,231) | | TOTAL ASSETS | $26,107 | $30,417 | $(4,310) | | Total current liabilities | $3,392 | $3,307 | $85 | | Total liabilities | $4,394 | $4,470 | $(76) | | Total stockholders' equity | $21,713 | $25,947 | $(4,234) | Condensed Consolidated Statements of Operations This section outlines the company's financial performance, including net sales, expenses, and net loss for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share amounts) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | YoY % Change | | :--------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :----------- | | Net sales | $1,926 | $1,918 | $8 | 0.4% | | Cost of goods sold | $824 | $952 | $(128) | (13.4)% | | Gross profit | $1,102 | $966 | $136 | 14.1% | | Total operating expenses | $5,518 | $6,184 | $(666) | (10.8)% | | Loss from operations | $(4,416) | $(5,218) | $802 | (15.4)% | | Net loss | $(4,473) | $(5,221) | $748 | (14.3)% | | Basic and diluted loss per share | $(0.42) | $(1.62) | $1.20 | (74.1)% | Condensed Consolidated Statements of Stockholders' Equity This section details changes in stockholders' equity, including additional paid-in capital and accumulated deficit, for the three months ended March 31, 2022 Stockholders' Equity Changes (in thousands) | Metric | December 31, 2021 | March 31, 2022 | Change | | :------------------------- | :---------------- | :------------- | :----- | | Additional Paid-in Capital | $278,873 | $279,114 | $241 | | Accumulated Deficit | $(252,916) | $(257,389) | $(4,473) | | Total Stockholders' Equity | $25,947 | $21,713 | $(4,234) | - The net loss for the three months ended March 31, 2022, was $(4,473) thousand, contributing to the accumulated deficit. Stock-based compensation added $241 thousand to additional paid-in capital[14] Condensed Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2022 and 2021 Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in operating activities | $(4,827) | $(5,382) | $555 | | Net cash used in investing activities | $(70) | $(56) | $(14) | | Net cash provided (used in) by financing activities | $(6) | $18,897 | $(18,903) | | Net increase (decrease) in cash and cash equivalents | $(4,905) | $13,456 | $(18,361) | | Cash and cash equivalents - end of period | $19,300 | $27,893 | $(8,593) | Notes to Condensed Consolidated Financial Statements These notes provide detailed disclosures on the company's business, accounting policies, financial instruments, equity transactions, and commitments, highlighting the company's focus on the Aquadex System, its ongoing liquidity challenges, and the impact of past equity offerings Note 1 – Nature of Business and Basis of Presentation This note describes Nuwellis, Inc.'s core business, product focus, and financial condition, including its accumulated deficit and future funding needs - Nuwellis, Inc. develops, manufactures, and commercializes the Aquadex FlexFlow® and Aquadex SmartFlow® systems for ultrafiltration therapy, indicated for fluid overload unresponsive to medical management in adult and pediatric patients (20kg+)[18] - The company changed its name from CHF Solutions, Inc. to Nuwellis, Inc. on April 27, 2021, to reflect the expansion of its customer base beyond congestive heart failure to include critical care and pediatric applications[19] - As of March 31, 2022, the company had an accumulated deficit of $257.4 million and expects to incur losses for the immediate future, relying on equity financings for funding[22] - The company believes existing capital resources will support operations through June 30, 2023, but may seek additional funding through debt, equity, or a combination[25] Note 2 – Revenue Recognition This note details the company's revenue recognition policies, primary revenue sources, and customer concentration - Revenue is primarily from the sale of disposable blood filters and catheters for the Aquadex System, recognized when the customer or distributor obtains control of the product[32][33] - For the three months ended March 31, 2022, two customers represented 14% and 10% of net sales, indicating customer concentration[26] - The company has not experienced any product returns to date and expects future returns to be minimal, thus not impacting recognized revenue[36] Note 3 – Stockholders' Equity This note outlines changes in stockholders' equity, including preferred stock, public offerings, and a reverse stock split - As of March 31, 2022, and December 31, 2021, 127 shares of Series F convertible preferred stock remained outstanding[41] - The conversion price of Series F convertible preferred stock was reduced from $9.00 to $5.50 in March 2021 and further to $2.50 in September 2021 due to subsequent public offerings[43][45] Public Equity Offerings in 2021 (Net Proceeds in millions) | Offering Date | Shares of Common Stock | Gross Proceeds | Net Proceeds | | :------------ | :--------------------- | :------------- | :----------- | | March 19, 2021 | 3,795,816 | ~$20.9 | ~$18.9 | | September 17, 2021 | 4,005,588 | ~$10.0 | ~$9.0 | - A 1-for-30 reverse stock split became effective on October 16, 2020, retroactively adjusted for all periods presented[48] Note 4 – Stock-Based Compensation This note details the stock-based compensation expense recognized across different categories for the reported periods Stock-Based Compensation Expense (in thousands) | Expense Category | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Selling, general and administrative | $214 | $327 | $(113) | | Research and development | $27 | $28 | $(1) | | Total stock-based compensation expense | $241 | $355 | $(114) | Note 5 – Income Taxes This note explains the company's income tax position, including the valuation allowance for deferred tax assets - A full valuation allowance is maintained for U.S. and foreign deferred tax assets due to uncertainty of future taxable income[51] Note 6—Operating Leases This note describes the company's operating lease for its facility in Eden Prairie, MN, including terms and rent details - The company's 23,000 sq ft facility lease in Eden Prairie, MN, was extended to March 2027, with annual base rent starting at $10.50 per square foot from April 1, 2022, subject to annual increases[53] Note 7—Finance Lease Liability This note details the company's finance lease liability for equipment, including its value, principal, interest rate, and term - Equipment valued at $98,000 was financed in 2020 via lease agreements, with a principal of $93,000, a 7.5% implied interest rate, and a 39-month term[54] Note 8—Commitments and Contingencies This note outlines the company's commitments, including its 401(k) plan and a research and development collaboration agreement - The company has a 401(k) plan with discretionary matching contributions for U.S. employees[55] - A research and development collaboration with Koronis Biomedical Corporation (KBT) for an integrated continuous renal replacement therapy device includes a non-refundable technology license fee of $428,160, payable in monthly installments starting June 2022[56] 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 performance, liquidity, and operational challenges, including the impact of the COVID-19 pandemic and strategies for future growth Overview This overview introduces Nuwellis's core business, recent name change, and the operational impacts of the COVID-19 pandemic - Nuwellis is a medical device company focused on developing, manufacturing, and commercializing the Aquadex System for ultrafiltration therapy for fluid overload[59] - The company changed its name to Nuwellis, Inc. in April 2021 to reflect the expansion of its customer base to include critical care and pediatric applications, in addition to congestive heart failure[60] - The COVID-19 pandemic has caused disruptions in operations, including restrictions on hospital access for field employees, remote work requirements, and uncertainty regarding future customer demand, supply chains, and access to capital markets[61][62][63] Critical Accounting Policies and Estimates This section confirms no material changes to the company's critical accounting policies and estimates from the prior annual report - No material changes to critical accounting policies and estimates (revenue recognition, accounts receivable, inventories, stock-based compensation, loss per share, impairment of long-lived assets, going concern) from the prior Annual Report on Form 10-K[65] Financial Overview This overview highlights Nuwellis's focus on the Aquadex system and its accumulated deficit, indicating reliance on equity financings - Nuwellis is focused on commercializing the Aquadex system for ultrafiltration treatment of patients with fluid overload[80] - As of March 31, 2022, the company had an accumulated deficit of $257.4 million and expects to incur losses for the foreseeable future, having been funded primarily by public and private equity financings and debt[80] Results of Operations For the three months ended March 31, 2022, net sales saw a slight increase, while operating expenses decreased, leading to a reduced net loss compared to the prior year Net Sales This section details the company's net sales performance, including the slight increase and contributing factors for the reported period Net Sales (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Increase (Decrease) | % Change | | :------- | :-------------------------------- | :-------------------------------- | :------------------ | :------- | | Net Sales | $1,926 | $1,918 | $8 | 0.4% | - The slight increase in sales is attributed to increased utilization and order timing of disposable blood filters and catheters[81] Costs and Expenses Total costs and expenses decreased by 10.8% year-over-year, driven by a significant reduction in selling, general, and administrative expenses and a decrease in cost of goods sold, partially offset by an increase in research and development expenses Costs and Expenses (in thousands) | Expense Category | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Increase (Decrease) | % Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :------------------ | :------- | | Cost of goods sold | $824 | $952 | $(128) | (13.4)% | | Selling, general and administrative | $4,412 | $5,237 | $(825) | (15.8)% | | Research and development | $1,106 | $947 | $159 | 16.8% | Cost of Goods Sold This section explains the changes in cost of goods sold and the factors influencing gross margin percentage - Gross margin percent increased due to favorable product mix and reduced inventory revaluation expense[83] Selling, General and Administrative This section details the decrease in selling, general, and administrative expenses due to cost optimization and lower nonrecurring costs - SG&A expenses decreased by 15.8% primarily due to cost optimization efforts and lower nonrecurring prior-period costs[84] Research and Development This section outlines the increase in research and development expenses, driven by new product investments and regulatory activities - R&D expenses increased by 16.8% driven by investments in new products and increased regulatory activity[85] Liquidity and Capital Resources The company's cash and cash equivalents decreased to $19.3 million as of March 31, 2022, from $24.2 million at December 31, 2021. Operations are funded primarily through equity issuances, with significant proceeds from public offerings in 2021. The company anticipates needing additional financing to grow its Aquadex Business and believes current resources will last through June 30, 2023 Sources of Liquidity This section identifies cash on hand and equity issuances as the primary funding sources for the company's operations - Operations are funded primarily through cash on hand and equity issuances[86] Net Proceeds from Public Offerings (in millions) | Offering Date | Net Proceeds | | :------------ | :----------- | | March 19, 2021 | ~$18.9 | | September 17, 2021 | ~$9.0 | | Total (2021) | ~$27.9 | Cash Flows from Operating Activities This section details the net cash used in operating activities for the three months ended March 31, 2022 and 2021 Net Cash Used in Operating Activities (in thousands) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in operating activities | $(4,827) | $(5,382) | $555 | Cash Flows from Investing Activities This section outlines the net cash used in investing activities for the three months ended March 31, 2022 and 2021 Net Cash Used in Investing Activities (in thousands) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | | :-------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash used in investing activities | $(70) | $(56) | $(14) | Cash Flows from (used in) Financing Activities This section presents the net cash provided by or used in financing activities for the three months ended March 31, 2022 and 2021 Net Cash Provided (Used in) by Financing Activities (in thousands) | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | YoY Change | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | | Net cash provided (used in) by financing activities | $(6) | $18,897 | $(18,903) | Capital Resource Requirements This section confirms the absence of material commitments for capital expenditures as of March 31, 2022 - No material commitments for capital expenditures as of March 31, 2022[93] Off-Balance Sheet Arrangements This section states that the company has no material off-balance sheet arrangements - The company has no material off-balance sheet arrangements[94] Forward-Looking Statements and Risk Factors This section highlights the presence of forward-looking statements and advises readers to consult the Annual Report for comprehensive risk factors - The report contains forward-looking statements subject to risks and uncertainties, including impacts of COVID-19, ability to raise funds, and product commercialization efforts[94] - Readers should refer to the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and subsequent SEC filings for a comprehensive list of risk factors[94] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This item is not applicable to the company - This item is not applicable[96] ITEM 4. CONTROLS AND PROCEDURES Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022, and there were no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures as of March 31, 2022 - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022, providing reasonable assurance of achieving objectives[99] Changes in Internal Controls over Financial Reporting This section reports no material changes in internal control over financial reporting during the quarter ended March 31, 2022 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2022[100] PART II—OTHER INFORMATION This section provides additional information, including legal proceedings, risk factors, equity sales, and exhibits ITEM 1. LEGAL PROCEEDINGS The company is not currently subject to any legal proceedings - The company is not currently subject to any legal proceedings[102] ITEM 1A. RISK FACTORS There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[103] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS There were no unregistered sales of equity securities or use of proceeds to report - None to report[105] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This item is not applicable to the company - Not applicable[106] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the company - Not applicable[107] ITEM 5. OTHER INFORMATION There is no other information to report under this item - None to report[108] ITEM 6. EXHIBITS This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including corporate documents, certifications, and XBRL data files - The exhibit index includes corporate documents (e.g., Certificate of Incorporation amendments, Bylaws), certifications (CEO/CFO pursuant to Sarbanes-Oxley Act), and Inline XBRL data files[112][113]