UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
Commission file number 001-35312
(Exact Name of Registrant as Specified in its Charter)
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No.
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(State or Other Jurisdiction of
Incorporation or Organization)
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(I.R.S. Employer
Identification No.)
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(Address of Principal Executive Offices) (Zip Code)
(952 ) 345-4200
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading Symbol(s)
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Name of each exchange on which registered
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter
period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer ☐
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Accelerated filer ☐
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Smaller reporting company
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Emerging growth company
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes ☐ No ☒
The number of outstanding shares of the registrant’s common stock, $0.0001 par value, as of November 5, 2021 was 10,537,606 .
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Page Number
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PART I—FINANCIAL INFORMATION
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Item 1
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3 |
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3
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4
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5
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6
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7
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Item 2
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14
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Item 3
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20
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Item 4
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20
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PART II—OTHER INFORMATION
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Item 1
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20
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Item 1A
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21
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Item 2
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21 | |
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Item 3
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21 | |
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Item 4
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21 | |
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Item 5
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21 | |
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Item 6
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21 | |
PART I—FINANCIAL INFORMATION
NUWELLIS, INC. AND SUBSIDIARY
(In thousands, except share and per share amounts)
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September 30,
2021
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December 31,
2020
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|||||||
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ASSETS
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(unaudited)
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|||||||
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Current assets
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||||||||
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Cash and cash equivalents
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$
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$
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||||
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Accounts receivable
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||||||
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Inventories
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||||||
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Other current assets
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Total current assets
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||||||
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Property, plant and equipment, net
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Operating lease right-of-use asset
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Other assets
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||||||
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TOTAL ASSETS
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$
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$
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||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY
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||||||||
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Current liabilities
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||||||||
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Accounts payable
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$
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$
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||||
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Accrued compensation
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||||||
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Current portion of operating lease liability
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Current portion of finance lease liability
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Other current liabilities
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||||||
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Total current liabilities
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Operating lease liability
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Finance lease liability
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Other Long-term liability
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Total liabilities
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||||||
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Commitments and contingencies
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||||||||
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Stockholders’ equity
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||||||||
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Series A junior participating preferred stock as of September 30,
2021 and December 31,
2020, par value $
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||||||
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Series F convertible preferred stock as of both September 30,
2021 and December 31,
2020, par value $
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||||||
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Preferred stock as of both September 30, 2021 and December 31, 2020, par value $
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||||||
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Common stock as of September 30, 2021 and December 31, 2020, par value $
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||||||
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Additional paid‑in capital
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||||||
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Accumulated other comprehensive loss:
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||||||||
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Foreign currency translation adjustment
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(
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)
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(
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)
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||||
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Accumulated deficit
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(
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)
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(
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)
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||||
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Total stockholders’ equity
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||||||
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TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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$
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$
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||||
See notes to the condensed consolidated financial statements.
NUWELLIS, INC. AND SUBSIDIARY
(Unaudited)
(In thousands, except per share amounts)
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Three months ended
September 30,
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Nine months ended
September 30,
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|||||||||||||||
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2021
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2020
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2021 | 2020 | |||||||||||||
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Net sales
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$
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$
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$ | $ | ||||||||||
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Cost of goods sold
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||||||||||||||
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Gross profit
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Operating expenses:
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||||||||||||||||
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Selling, general and administrative
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||||||||||||||
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Research and development
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||||||||||||||
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Total operating expenses
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||||||||||||||
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Loss from operations
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(
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)
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(
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)
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( |
) | ( |
) | ||||||||
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Other income (expense), net
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(
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)
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( |
) | |||||||||||
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Loss before income taxes
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(
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)
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(
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)
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( |
) | ( |
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Income tax expense
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(
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)
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(
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)
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( |
) | ( |
) | ||||||||
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Net loss
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$
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(
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)
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$
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(
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)
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$ | ( |
) | $ | ( |
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Basic and diluted loss per share
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$
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(
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)
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$
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(
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)
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$ | ( |
) | $ | ( |
) | ||||
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Weighted average shares outstanding – basic and diluted
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||||||||||||||
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Other comprehensive loss:
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||||||||||||||||
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Foreign currency translation adjustments
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$
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$
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(
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)
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$ | ( |
) | $ | ( |
) | |||||
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Total comprehensive loss
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$
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(
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)
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$
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(
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)
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$ | ( |
) | $ | ( |
) | ||||
See notes to the condensed consolidated financial statements.
NUWELLIS, INC. AND SUBSIDIARY
(Unaudited)
(In thousands, except share amounts)
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Outstanding
Shares of Common Stock
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Common
Stock
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Additional
Paid in
Capital
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Accumulated
Other
Comprehensive
Income
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Accumulated
Deficit
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Stockholders’
Equity
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|||||||||||||||||||
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Balance December 31, 2019
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$
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$
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$
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$
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(
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)
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$
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||||||||||||
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Net loss
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—
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(
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)
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(
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)
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||||||||||||||||
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Foreign currency translation adjustment
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—
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(
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)
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(
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)
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||||||||||||||||
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Stock-based compensation, net
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Issuance of common and preferred stock, net
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Exercise of warrants
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Conversion of preferred stock into common stock
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||||||||||||||||||
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Balance March 31, 2020
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$
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$
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$
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$
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(
|
)
|
$
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||||||||||||
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Net loss
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— |
( |
) | ( |
) | |||||||||||||||||||
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Foreign currency translation adjustment
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— |
( |
) | ( |
) | |||||||||||||||||||
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Stock-based compensation, net
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||||||||||||||||||||||||
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Issuance of common stock, net
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||||||||||||||||||||||||
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Exercise of warrants
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||||||||||||||||||||||||
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Conversion of preferred stock into common stock
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||||||||||||||||||||||||
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Balance June 30, 2020
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
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Net loss
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— | ( |
) | ( |
) | |||||||||||||||||||
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Foreign currency translation adjustment
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— | ( |
) | ( |
) | |||||||||||||||||||
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Stock-based compensation, net
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||||||||||||||||||||||||
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Issuance of common stock, net
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||||||||||||||||||||||||
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Exercise of warrants
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||||||||||||||||||||||||
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Conversion of preferred stock into common stock
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||||||||||||||||||||||||
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Balance September 30, 2020
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$ | $ | $ | $ | ( |
) | $ | |||||||||||||||||
|
Outstanding
Shares of Common Stock
|
Common
Stock
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Additional
Paid in
Capital
|
Accumulated
Other
Comprehensive
Loss
|
Accumulated
Deficit
|
Stockholders’
Equity
|
|||||||||||||||||||
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Balance December 31, 2020
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
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Net loss
|
—
|
|
|
|
(
|
)
|
(
|
)
|
||||||||||||||||
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Foreign currency translation adjustment
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—
|
|
|
(
|
)
|
|
(
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)
|
||||||||||||||||
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Stock-based compensation, net
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|
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|
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||||||||||||||||||
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Issuance of common stock, net
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|
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||||||||||||||||||
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Exercise of warrants
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|
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|
||||||||||||||||||
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Balance March 31, 2021
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
$
|
|
|||||||||||
|
Net loss
|
— |
( |
) | ( |
) | |||||||||||||||||||
|
Foreign currency translation adjustment
|
— |
|||||||||||||||||||||||
|
Stock-based compensation, net
|
||||||||||||||||||||||||
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Issuance costs related to common stock offerings
|
— | ( |
) | ( |
) | |||||||||||||||||||
|
Exercise of warrants
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||||||||||||||||||||||||
|
Balance June 30, 2021
|
$ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
|
Net loss
|
— | ( |
) | ( |
) | |||||||||||||||||||
|
Foreign currency translation adjustment
|
— | |||||||||||||||||||||||
|
Stock-based compensation, net
|
||||||||||||||||||||||||
|
Issuance of common stock, net
|
||||||||||||||||||||||||
|
Balance September 30, 2021
|
$ |
$ |
$ | ( |
) | $ |
( |
) | $ |
|||||||||||||||
See notes to the condensed consolidated financial statements
NUWELLIS, INC. AND SUBSIDIARY
(Unaudited)
(in thousands)
|
Nine months ended
September 30,
|
||||||||
|
2021
|
2020
|
|||||||
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Operating Activities:
|
||||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
||
|
Adjustments to reconcile net loss to cash flows used in operating activities:
|
||||||||
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Depreciation and amortization
|
|
|
||||||
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Stock-based compensation expense, net
|
|
|
||||||
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Loss on disposal of property and equipment
|
|
|
||||||
|
Changes in operating assets and liabilities:
|
||||||||
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Accounts receivable
|
(
|
)
|
(
|
)
|
||||
|
Inventory
|
(
|
)
|
(
|
)
|
||||
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Other current assets
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(
|
)
|
(
|
)
|
||||
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Other assets and liabilities
|
|
|
||||||
|
Accounts payable and accrued expenses
|
|
(
|
)
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|||||
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Net cash used in operating activities
|
(
|
)
|
(
|
)
|
||||
|
Investing Activities:
|
||||||||
|
Purchases of property and equipment
|
(
|
)
|
(
|
)
|
||||
|
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
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Financing Activities:
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||||||||
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Proceeds from public stock offerings, net
|
|
|
||||||
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Proceeds from warrant exercises
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|
|
||||||
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Payments on finance lease liability
|
(
|
)
|
(
|
)
|
||||
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Net cash provided by financing activities
|
|
|
||||||
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Effect of exchange rate changes on cash
|
(
|
)
|
(
|
)
|
||||
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Net increase in cash and cash equivalents
|
|
|
||||||
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Cash and cash equivalents - beginning of period
|
|
|
||||||
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Cash and cash equivalents - end of period
|
$
|
|
$
|
|
||||
|
Supplemental cash flow information
|
||||||||
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Inventory transferred to property, plant and equipment
|
$
|
|
$
|
|
||||
|
Equipment acquired through finance lease liability
|
$ | $ | ||||||
See notes to the condensed consolidated financial statements.
NUWELLIS, INC. AND SUBSIDIARY
(Unaudited)
Note 1 – Nature of Business and Basis of Presentation
Nature of Business: Nuwellis, Inc. (the “Company”) is a medical device company focused on developing, manufacturing and commercializing the Aquadex FlexFlow® and Aquadex SmartFlow®
systems (collectively, the “Aquadex System”) for ultrafiltration therapy. The Aquadex System is indicated for temporary (up to eight hours) or extended (longer than 8 hours in patients who require hospitalization) use in adult and pediatric
patients weighing 20kg or more whose fluid overload is unresponsive to medical management, including diuretics. Nuwellis, Inc. is a Delaware corporation headquartered in Minneapolis with a wholly owned subsidiary in Ireland. The Company’s common
stock began trading on the Nasdaq Capital Market in February 2012.
In August 2016, the Company acquired the business associated with the Aquadex System (the “Aquadex
Business”) from a subsidiary of Baxter International, Inc., and refocused its strategy to fully devote its resources to the Aquadex Business.
On April 27, 2021, the Company announced that it was changing its name from CHF Solutions, Inc. to
Nuwellis, Inc. to more appropriately reflect the direction of its business.
Principles of Consolidation: The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Certain information and note disclosures normally
included in the audited annual consolidated financial statements have been condensed or omitted pursuant to those rules and regulations. Accordingly, they do not include all of the information necessary for a fair presentation of results of
operations, comprehensive loss, financial condition, and cash flows in conformity with U.S. GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation of the results of the Company for the periods presented. Operating results for interim periods are not necessarily indicative of results that may be expected for the year as a whole. The preparation of
the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the financial
statements and during the reporting period. Actual results could materially differ from these estimates.
For further information, refer to the consolidated financial statements and notes thereto included in
the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
Going Concern: The Company’s financial statements have been prepared and presented on a basis assuming it continues as a going concern. During the years ended December 31, 2020 and 2019 and through September 30,
2021, the Company incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. As of September 30, 2021, the Company had an accumulated
deficit of $248.6 million and it expects to incur losses for the immediate future. To date, the Company has been funded by debt and
equity financings, and although the Company believes that it will be able to successfully fund its operations, there can be no assurance that it will be able to do so or that it will ever operate profitably.
The Company became a revenue generating company after acquiring the Aquadex Business in August 2016.
The Company expects to incur additional losses in the near-term as it grows the Aquadex Business, including investments in expanding its sales and marketing capabilities, purchasing inventory, manufacturing components, and complying with the
requirements related to being a U.S. public company. To become and remain profitable, the Company must succeed in expanding the adoption and market acceptance of the Aquadex System. This will require the Company to succeed in effectively training
personnel at hospitals and efficiently manufacturing, marketing and distributing the Aquadex System and related components. There can be no assurance that the Company will succeed in these activities, and it may never generate revenues sufficient
to achieve profitability.
During 2019, 2020 and through September 17, 2021, we closed on underwritten public and other equity
offerings for aggregate net proceeds of approximately $66.6 million after deducting the underwriting discounts and commissions or placement agents’ fees and offering expenses, as applicable, and
other costs associated with the offerings. In addition, during 2020 we received $4.1 million in proceeds from the exercise of investor
warrants. See Note 3 – Stockholders’ Equity for additional related disclosure. The Company will require additional funding to grow its business, which may not be available on terms favorable to the Company, or at all. The Company may receive
those funds from the proceeds from future warrant exercises, issuances of equity securities, or other financing transactions.
The Company believes that its existing capital resources will be sufficient to
support its operating plan through March 31, 2023. However, the Company may seek to raise additional capital to support its growth or other strategic initiatives through debt, equity or a combination thereof.
Revenue Recognition: The
Company recognizes revenue in accordance with Accounting
Standards Codification, Topic 606, Revenue from Contracts with Customers, which the Company adopted effective January 1, 2018. Accordingly, the Company recognizes revenue when its customers obtain control of its products or services, in an amount
that reflects the consideration that the Company expects to receive in exchange for those goods and services. See Note 2 – Revenue Recognition below for additional disclosures. For the three months ended September 30, 2021 two customers represented 14 % and 12 % of net sales. For the nine months ended September 30, 2021, two customers represented 12 % and 11 % of net sales. For the three months and nine months ended September 30, 2020, there were no
Accounts Receivable: Accounts receivable are unsecured, are recorded at net realizable value, and do not bear interest. The Company makes judgments as to its ability to collect
outstanding receivables based upon significant patterns of collectability, historical experience, and management’s evaluation of specific
accounts and will provide an allowance for credit losses when collection becomes doubtful. The Company performs credit evaluations of its customers’ financial condition on an as-needed basis. Payment is generally due 30 days from the invoice date and accounts past 30
days are individually analyzed for collectability. When all collection efforts have been exhausted, the account is written off against any related allowance. To date the Company has not experienced any write-offs or significant deterioration of
the aging of its accounts receivable, and therefore, no one customer represented 15 % of the accounts receivable balance. As of December 31, 2020, no
customer represented over 10% of the accounts receivable balance.
Inventories: Inventories represent finished goods purchased from the Company’s supplier and are recorded at the lower of cost or net realizable value using the first-in-first out method.
Overhead is allocated to manufactured finished goods inventory based on the normal capacity of the Company’s production facilities. Abnormal amounts of overhead, if any, are expensed as incurred. Inventories consisted of the following:
|
( in thousands)
|
September 30,
2021
|
December 31, 2020
|
||||||
|
Finished Goods
|
$
|
|
$
|
|
||||
|
Work in Process
|
|
|
||||||
|
Raw Materials
|
|
|
||||||
|
Total
|
$
|
|
$
|
|
||||
Loss per share: Basic loss per share is computed based on the net loss for each period divided by the weighted average number of common shares
outstanding. The net loss allocable to common stockholders for the nine months ended September 30, 2020, reflects a $1.8 million increase for the net deemed dividend to preferred stockholders provided in connection with the close of the public offering of Series H Convertible Preferred Stock on
January 28, 2020. The deemed dividends represent the intrinsic value of the preferred shares at the time of issuance and includes $0.2
million that resulted from the subsequent change in the exercise price of the warrants as a result of the March 2020 offering. See Note 3 – Stockholders’ Equity below for additional disclosures. The net loss allocable to common stockholders for
the nine months ended September 30, 2021 includes a deemed dividend of $75,000 that resulted from the change in the exercise price of
warrants as a result of the March 2021 and September 2021 offerings.
Diluted earnings per share is computed based on the net loss allocable to common stockholders for each
period divided by the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares
the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include shares underlying outstanding convertible preferred stock, warrants, stock options and other
stock-based awards granted under stock-based compensation plans.
The following table sets forth the potential shares of common stock that are not included in the
calculation of diluted net loss per share because to do so would be anti-dilutive as of the end of each period presented:
|
September 30
|
||||||||
|
2021
|
2020
|
|||||||
|
Warrants to purchase common stock
|
|
|
||||||
|
Series F convertible preferred stock
|
|
|
||||||
|
Stock options
|
|
|
||||||
|
Total
|
|
|
||||||
The following table reconciles reported net loss with reported net loss per share for each of the nine
months ended September 30:
|
(in thousands, except per share amounts)
|
2021
|
2020
|
||||||
|
Net loss
|
$
|
(
|
)
|
$
|
(
|
)
|
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Deemed dividend to preferred shareholders (see Note 3)
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(
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)
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(
|
)
|
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Net loss after deemed dividend
|
(
|
)
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(
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)
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Weighted average shares outstanding
|
|
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|
Basic and diluted loss per share
|
$
|
(
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)
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$
|
(
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)
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Recent accounting pronouncements: In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance,
an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to
Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the condensed consolidated financial statements of the Company.
The Company evaluates events through the date the consolidated financial statements are filed for
events requiring adjustment to or disclosure in the consolidated financial statements.
Note 2 – Revenue Recognition
Net Sales: The Company sells its products in the United States primarily through a direct sales force. Customers who purchase the Company’s
products include hospitals and clinics throughout the United States. In countries outside the United States, the Company sells its products through a limited number of specialty healthcare distributors in Austria, Brazil, Germany, Greece, Hong
Kong, India, Israel, Italy, Romania, Singapore, Slovakia (including the Czech Republic)
Spain, Switzerland, Thailand, United Arab Emirates, and the United Kingdom. These distributors resell the Company’s products to hospitals and clinics in their respective geographies.
Revenue from product sales are recognized when the customer or distributor obtains control of the
product, which occurs at a point in time, most frequently upon shipment of the product or receipt of the product, depending on shipment terms. The Company’s standard shipping terms are FOB shipping point unless the customer requests that control
and title to the inventory transfer upon delivery.
Revenue is measured as the amount of consideration we expect to receive, adjusted for any applicable
estimates of variable consideration and other factors affecting the transaction price, which is based on the invoiced price, in exchange for transferring products. All revenue is recognized when the Company satisfies its performance obligations
under the contract. The majority of the Company’s contracts have a single performance obligation and are short term in nature. The Company has entered into extended service plans with customers which are recognized over time. This revenue
represents less than 1 one year .
Sales taxes and value added taxes in foreign jurisdictions that are collected from customers and
remitted to governmental authorities are accounted for on a net basis and therefore are excluded from net sales. Revenue includes shipment and handling fees charged to customers. Shipping and handling costs associated with outbound freight after
control over a product has transferred to a customer are accounted for as a fulfillment cost and are included in cost of goods sold.
Product Returns: The Company offers customers a limited right of return for its product in case of non-conformity or performance issues. The Company estimates the amount of its
product sales that may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is recognized. The Company currently estimates product return liabilities using available industry
data and its own historical sales and returns information. The Company has not received any returns to date and believes that future returns of its products will be minimal. Therefore, revenue recognized is not currently impacted by variable
consideration related to product returns.
Note 3 – Stockholders’ Equity
Series F Convertible Preferred Stock: On November 27, 2017, the Company closed on an underwritten
public offering Series F convertible preferred stock and warrants to purchase shares of common stock for gross proceeds of $18.0
million. Net proceeds totaled approximately $16.2 million after deducting the underwriting discounts and commissions and other costs
associated with the offering.
The offering was comprised of Series F
convertible preferred stock, convertible into shares of the Company’s common stock at an initial conversion price of $1,890.00 per share.
Each share of Series F convertible preferred stock was accompanied by a Series 1 warrant, which expired on the first anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise price of $1,890.00 per share, and a Series 2
warrant, which expires on the seventh anniversary of its issuance, to purchase 16 shares of the Company’s common stock at an exercise
price of $1,890.00 per share. The Series F convertible preferred stock has full ratchet price based anti-dilution protection, subject to
customary carve outs, in the event of a down-round financing at a price per share below the conversion price of the Series F convertible preferred stock (which protection will expire if, during any 20 of 30 consecutive trading days, the volume weighted average
price of the Company’s common stock exceeds 300 % of the then-effective conversion price of the Series F convertible preferred stock and
the daily dollar trading volume for each trading day during such period exceeds $200,000 ). The exercise price of the warrants is fixed
and does not contain any variable pricing features, nor any price-based anti-dilutive features, apart from customary adjustments for stock splits, combinations, reclassifications, stock dividends or fundamental transactions. A total of 18,000 shares of Series F convertible preferred stock initially convertible into 9,557 shares of common stock and warrants to purchase 19,122
shares of common stock were issued in the offering.
Effective March 12, 2019, the conversion
price of the Series F convertible preferred stock was reduced from $890.40 to $157.50 , the per share price to the public of the Series G convertible preferred stock issued in the March 2019 Offering, described below. Effective October 25, 2019, the
conversion price of the Series F convertible preferred stock was reduced from $157.50 to $42.30 , and on November 6, 2019 from $42.30 to $29.83 , the per share price to the public in the October and November 2019 transactions, respectively, described below. Effective January 28, 2020, the
conversion price of the Series F convertible preferred stock was reduced from $29.83 to $16.50 , the per share price to the public of the Series H convertible preferred stock which closed in an underwritten public offering on January 28, 2020, described below.
Effective March 23, 2020, the conversion price of the Series F convertible preferred stock was reduced from $16.50 to $9.00 , the per share price to the public in the March 2020 offering, described below. In connection with the March 2021 offering, the conversion price of
the Series F convertible preferred stock was reduced from $9.00 to $5.50 , the per share price to the public in the March 2021 offering, described below. In connection with the September 2021 offering, the conversion price of the Series F
convertible preferred stock was reduced from $5.50 to $2.50 , the per share price to the public in the September 2021 offering, described below.
As of September 30, 2021, and December 31,
2020, 127
Series G Convertible Preferred Stock
and March 2019 Offering: On
March 12, 2019, the Company closed on an underwritten public offering of common stock, Series G convertible preferred stock and warrants to purchase shares of common stock for gross proceeds of $12.4 million (“March 2019 Offering”). Net proceeds totaled approximately $11.0
million after deducting the underwriting discounts and commissions and other costs associated with the offering. The Series G convertible preferred stock included a beneficial conversion amount of $4.5 million, representing the intrinsic value of the shares at the time of issuance. This amount was reflected as an increase to the loss per share allocable to common
stockholders in the year ended December 31, 2019.
The March 2019 Offering was comprised of 15,173 shares of common stock priced at $157.50
per share and 1,910,536 shares of Series G convertible preferred stock, convertible into common stock at $157.50 per share. Each share of Series G convertible preferred stock and each share of common stock was accompanied by a Series 1 warrant and a Series 2
warrant. The Series 1 warrants are exercisable into 78,863 shares of common stock and the Series 2 warrants are exercisable into 78,863 shares of common stock. Series 1 warrants expire on the fifth anniversary of the date of issuance and are exercisable at $157.50 to purchase one share of common stock. Series 2 warrants expire on the earlier of: (i) the eighteen-month anniversary of the date of issuance and
(ii) the 30 th trading day following the public announcement of the receipt from the U.S. Food and Drug Administration (FDA) of clearance
or approval of a modification to the product label for the Aquadex System to include pediatric patients. Series 2 warrants are exercisable at $157.50
per share of common stock. The Company announced it had received FDA clearance for use of its Aquadex System in pediatric patients on February 26, 2020, effectively setting the date of expiration of these warrants for April 8, 2020 at which time
they expired. The conversion price of the Series G convertible preferred stock as well as the exercise price of the warrants are fixed and do not contain any variable pricing features, nor any price based anti-dilutive features apart from customary
adjustments for splits and reverse splits of common stock. The Series G convertible preferred stock included a beneficial ownership limitation of 4.99 %
but had no dividend preference (except to extent dividends are also paid on the common stock), liquidation preference or other preferences over common stock. The securities comprising the units were immediately separable and were issued separately.
As of December 31, 2019, all 63,685 shares of the Series G convertible preferred stock had been converted into common stock and none remained outstanding.
October and November 2019 Offerings: On October 25, 2019, the Company closed on a registered direct
offering of 19,195 shares of common stock at a price of $34.50 per share, for gross proceeds of approximately $660,000 ,
prior to deducting commissions and expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering unregistered warrants to purchase up to 19,196 shares of its common stock at an exercise price of $42.30 per share, which became exercisable six months from the date of issuance and will expire five years from the initial exercise date. On November 6, 2019, the Company closed on a registered direct offering of 40,637 shares of common stock, or common equivalents, at a price of $33.60 per share, for gross proceeds of approximately $1.36 million prior to deduction of commissions
and offering expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering warrants to purchase up to 40,638 shares of our common stock at an exercise price of $29.83
per share, which were exercisable upon the date of issuance, and will expire five years from the initial exercise date.
Series H Convertible
Preferred Stock and January 2020 Offering: On
January 28, 2020, the Company closed on an underwritten public offering of common stock, Series H convertible preferred stock and warrants to purchase shares of common stock for gross proceeds of $9.7 million (“January 2020 Offering”). Net proceeds totaled approximately $8.6
million after deducting the underwriting discounts and commissions and other costs associated with the offering. The Series H convertible preferred stock included a beneficial conversion amount of $1.6 million, representing the intrinsic value of the shares at the time of issuance, and $0.2 million of down-round protection in connection with the re-pricing of the warrants following the March 2020 offering described below. This amount is reflected as an increase to the loss per share allocable to
common stockholders in the nine months ended September 30, 2020.
The January 2020 Offering was comprised of 201,546 shares of common stock priced at $16.50
per share and 11,517,269 shares of Series H convertible preferred stock, convertible into common stock at $16.50 per share. Each share of Series H convertible preferred stock and each share of common stock was accompanied by a warrant to purchase common
stock. The warrants are exercisable into 585,460 shares of common stock. The conversion price of the preferred stock issued in the
transaction is fixed and does not contain any variable pricing feature or any price based anti-dilutive feature. The preferred stock issued in this transaction includes a beneficial ownership blocker but has no dividend rights (except to the extent
that dividends are also paid on the common stock) or liquidation preference, and, subject to limited exceptions, has no voting rights. The securities comprising the units were immediately separable and were issued separately. The warrants were
exercisable beginning on the closing date and expire on the fifth anniversary of the closing date and had an initial exercise price per share equal to $16.50
per share, subject to appropriate adjustment in the event of subsequent equity sales of common stock or securities convertible into common stock for an exercise price per share less than the exercise price per share of the warrants then in effect
(but in no event lower than 10 % of the applicable Unit offering price), or in the event of recapitalization events, stock dividends,
stock splits, stock combinations, reclassifications, reorganizations or similar events affecting our common stock. Effective March 23, 2020, the exercise price of these warrants was reduced from $16.50 to $9.00 , the per share price to the public in the March
2020 offering described below. Effective with the March 19, 2021 financing, the exercise price for the unexercised warrants from the January 2020 offering were further reduced to $5.50 per share. Effective with the September 17, 2021 financing, the exercise price for the unexercised warrants from the January 2020 offering were further reduced to $2.50 per share. The net loss allocable to common stockholders for the nine months ended September 30, 2021 includes a deemed dividend of $75,000 that resulted from the change in the exercise price of warrants as a result of the March 2021 and the September 2021 offerings.
As of December 31, 2020, all 11,517,269 shares of the Series H convertible preferred stock had been converted into common stock and none remained outstanding. As of September 30, 2021, warrants to purchase 130,170
shares of common stock remain exercisable.
March 2020 Offering:
On March 23, 2020, the Company closed on a registered
direct offering of 138,715 shares of its common stock at a price to the public of $9.00 per share, for gross proceeds of approximately $1.2
million, or $1.0 million net after deducting commissions and offering expenses. In a concurrent private placement, the Company agreed
to issue to the investors in the registered direct offering warrants to purchase up to 138,715 shares of the Company’s common stock.
The warrants to purchase up to 138,715 shares of common stock have an exercise price of $11.18 per share, were exercisable six months from the date of
issuance, and will expire from the date of issuance.
April 2020 Offering: On April 1, 2020, the Company closed on a registered direct offering of 171,008 shares of its common stock at a price to the public of $13.02 per share, for gross proceeds of approximately $2.2 million, prior to deduction of commissions
and offering expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering warrants to purchase up to 85,506 shares of the Company’s common stock. The warrants have an exercise price of $11.15 per share, were exercisable immediately, and will expire from the date
of issuance.
May 2020 Offering: On May 5, 2020, the Company closed on a registered direct offering of 119,930 shares of its common stock at a price to the public of $14.18 per share, for gross proceeds of approximately $1.7 million, prior to deduction of commissions
and offering expenses related to the transaction. In a concurrent private placement, the Company agreed to issue to the investors in the registered direct offering warrants to purchase up to 59,966 shares of the Company’s common stock. The warrants have an exercise price of $12.30 per share, were exercisable immediately, and will expire from the date
of issuance.
August 2020 Offering: On August 21, 2020, the Company closed on an underwritten public offering of common stock
and warrants to purchase shares of common stock for gross proceeds of approximately $14.4 million (“August 2020 Offering”). Net
proceeds totaled approximately $13.0 million after deducting the underwriting discounts and commissions and other costs associated with
the offering. The August 2020 Offering was comprised of 1,064,678 shares of common stock priced at $13.50 per share. Each share of common stock was accompanied by a warrant to purchase common stock. The warrants are exercisable into 1,064,678 shares of common stock. The securities comprising the units were immediately separable and were issued separately. The warrants were
exercisable beginning on the effective date of our stockholders’ approval of a reverse stock split in an amount sufficient to permit the exercise in full of the warrants, which occurred on October 6, 2020, and will expire on the five-year anniversary of the closing date.
March 2021 Offering: On March 19, 2021, the Company closed on an underwritten public offering of 3,795,816 shares of common stock, for gross proceeds of approximately $20.9 million (the “March 2021 Offering”). Net proceeds totaled approximately $18.9 million after
deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
In connection with the March 2021 Offering, the conversion price
of the Series F convertible preferred stock was reduced from $9.00 to $5.50 , the per share price to the public in the March 2021 Offering. In addition, the exercise price of the common stock warrants issued in connection with the January 2020
Offering was reduced from $9.00 to $5.50 ,
the per share price to the public in the March 2021 Offering.
September 2021 Offering: On September 17, 2021, the Company closed on an underwritten
public offering of 4,005,588 shares of common stock, for gross proceeds of approximately $10 million (the “September 2021 Offering”). Net proceeds totaled approximately $9.0
million after deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
In connection with the September 2021 Offering, the conversion
price of the Series F convertible preferred stock was reduced from $5.50 to $2.50 , the per share price to the public in the September 2021 Offering. In addition, the exercise price of the common stock warrants issued in connection with the January 2020 Offering was
reduced from $5.50 to $2.50 ,
the per share price to the public in the September 2021 Offering.
Placement Agent Fees: In connection with the offerings described above, the Company paid the placement agent an
aggregate cash placement fee equal to 8 % of the aggregate gross proceeds raised in each of the offerings.
Market-Based Warrants: On May 30, 2019, the Company granted a market-based warrant to a consultant in exchange
for investor relations services. The warrant represents the right to acquire up to 3,334 shares of the Company’s common stock at an
exercise price of $95.40 per share, the closing stock price of the Company’s common shares on May 30, 2019. The warrant is subject to a
vesting schedule based on the Company achieving certain market stock prices within a specified period of time. The warrant expires on May 30, 2024 .
The warrant was valued at $57.90 per share using the Monte Carlo valuation methodology and was expensed over the term of the consulting
engagement which was twelve months. Significant inputs used for the Monte Carlo valuation were the expected stock price volatility of 136.21 %,
and management’s expectations regarding the timing of regulatory clearance for an expanded label in pediatrics. None of these warrants
had vested as of September 30, 2021.
Note 4 - Stock-Based
Compensation
Under the fair value recognition provisions of
U.S. GAAP for accounting for stock-based compensation, the Company measures stock-based compensation expense at the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is
generally the vesting period.
The following table presents the classification
of stock-based compensation expense recognized for the periods below:
|
Three months ended
September 30,
|
Nine
months ended
September 30,
|
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|
(in thousands)
|
2021
|
2020
|
2021
|
2020
|
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|
Selling, general and administrative expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
Research and development expense
|
|
|
|
|
||||||||||||
|
Total stock-based compensation expense
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Note 5 – Income Taxes
The Company provides for a valuation allowance when it is more
likely than not that it will not realize a portion of its deferred tax assets. The Company has established a full valuation allowance for U.S. and foreign deferred tax assets due to the uncertainty that enough taxable income will be generated in
those taxing jurisdictions to utilize the assets. Therefore, the Company has not reflected any benefit of such deferred tax assets in the accompanying condensed consolidated financial statements.
As of September 30, 2021, there were no material changes to what
the Company disclosed regarding tax uncertainties or penalties in its Annual Report on Form 10-K for the year ended December 31, 2020.
Note 6—Finance Lease Liability
In 2020, the Company entered into lease agreements to finance
equipment valued at $97,000 . The equipment consisted of computer hardware and audio-visual equipment and is included in Property, Plant
and Equipment in the accompanying consolidated financial statements. The principal amount under the lease agreements was $93,000 at the
date the leases commenced, the implied interest rate is 7.5 %, and the term of the leases is 39 months.
Note 7—Commitments and Contingencies
Employee Retirement Plan: The Company has a 401(k)-profit sharing plan that provides
retirement benefits to substantially all full-time U.S. employees. Eligible employees may contribute a percentage of their annual compensation, subject to Internal Revenue Service (“IRS”) limitations, with the Company matching a portion of the
employee’s contributions at the discretion of the Company, but subject to a predetermined vesting schedule. The employee is always fully funded in their own contributions.
Non-refundable Technology License Fee: On June 24, 2021, the Company entered into a
research and development collaboration agreement with Koronis Biomedical Corporation (KBT) to design and develop an integrated continuous renal replacement therapy device. This agreement became effective on August 5, 2021, when KBT received
approval of a $1.7 million grant from the National Institutes of Health (NIH) to support this project. As part of this agreement,
the Company will pay KBT a non-refundable technology license fee of $428,160 , payable in twelve equal monthly installments commencing in June 2022. The Company has recorded a liability for the non-refundable technology license fee with $142,720 included in Current Accounts Payable and $285,440
included in Other Long-term Liabilities. The full amount of $428,160
| ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial
statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of
Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those
anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our subsequent filings
with the Securities and Exchange Commission (the “SEC”).
Unless otherwise specified or indicated by the context, Nuwellis, Company, we, us and our, refer to Nuwellis, Inc. and its subsidiary.
OVERVIEW
About Nuwellis
We are a medical device company focused on developing, manufacturing and commercializing the Aquadex FlexFlow® and Aquadex SmartFlow® systems (collectively, the “Aquadex System”) for
ultrafiltration therapy. The Aquadex System delivers clinically proven therapy using a simple, flexible and smart method of removing excess fluid from patients suffering from hypervolemia (fluid overload). The Aquadex SmartFlow system is indicated
for temporary (up to 8 hours) or extended (longer than 8 hours in patients who require hospitalization) use in adult and pediatric patients weighing 20 kg or more whose fluid overload is unresponsive to medical management, including diuretics.
Previously, the Company was focused on developing the C-Pulse® Heart Assist System for treatment of Class III and ambulatory Class IV heart failure. In August 2016, the Company acquired the
business associated with the Aquadex System (the “Aquadex Business”) from a subsidiary of Baxter International, Inc. (“Baxter”) and refocused its strategy to fully devote its resources to the Aquadex Business.
Impact of COVID-19 Pandemic
During the first nine months of 2021, we continue to be subject to challenging social and economic conditions created as a result of the outbreak of the novel strain of
coronavirus, SARS-CoV-2, and the resulting coronavirus disease 2019 (“COVID-19”) pandemic. The COVID-19 pandemic continues to affect our operations and has required us to continue the changes that were made to keep our customers, their patients,
and our employees safe. These changes continue to include restrictions on hospital access imposed on our field employees by customers dealing on the front lines of COVID-19 and managing the spread of the virus, changes to employee work practices by
continuing to allow employees to work remotely and increased protocols to ensure the safety of those employees who are required to work on site. The ongoing impact of the COVID-19 pandemic on our operational and financial performance will depend
on certain future developments, including the duration and spread of the outbreak, the ongoing impact on our customers and hospital access restrictions imposed on our field employees, and effect on our vendors, all of which remain uncertain and
cannot be predicted.
We may experience curtailed customer demand or constrained supply that could materially adversely impact our business, results of operations and overall financial
performance in future periods. Specifically, we may experience negative impacts from changes in how we conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, production delays,
warehouses and staffing disruptions and shortages, decreases or delays in customer demand and spending, and difficulties or changes to our sales process and customer support.
Several hospitals in the U.S. originally included the Aquadex System into their treatment protocol for fluid management of COVID-19, especially when dialysis equipment and
staff are limited. In March 2020, we increased production of the Aquadex System to meet anticipated demand due to its use in treatment protocols for COVID-19. We estimate that approximately 14% of our U.S. revenue for the year ended December 31,
2020, was driven by hospitals treating patients with COVID-19. However, treatment protocols have evolved such that fewer patients are now being treated with fluid resuscitation, so we have seen little revenue in the nine months ended September 30,
2021 for treating patients with COVID-19. However, we have also seen changes to our sales practices due to restrictions on hospital access and believe that revenue in other areas was negatively impacted by these restrictions. In addition, the
disruption created by COVID-19 has created significant uncertainty about our ability to access the capital markets in future periods. As of the filing date of this Quarterly Report on Form 10-Q, the extent to which the COVID-19 pandemic may
continue to impact our financial condition or results of operations or guidance is uncertain and cannot be reasonably estimated, but could be material and last for an extended period of time. The effect of the COVID-19 pandemic may not be fully
reflected in our results of operations and overall financial performance until future periods.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have adopted various accounting policies to prepare the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. (U.S.
GAAP). Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
The preparation of the condensed consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the
condensed consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to stock-based compensation, valuation of equity and debt securities, and income tax reserves are updated as appropriate,
which in most cases is quarterly. We base our estimates on historical experience, valuations, or various assumptions that are believed to be reasonable under the circumstances. There have been no material changes to our critical accounting policies
and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year
ended December 31, 2020.
Revenue Recognition: We recognize revenue in accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with
Customers, which we adopted effective January 1, 2018. Accordingly, we recognize revenue when our customers obtain control of our products or services, in an amount that reflects the consideration that we expect to receive in exchange for those
goods and services. See Note 2 – Revenue Recognition, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional disclosures.
Accounts Receivable: Our accounts receivable have terms that generally require payment in 30 days. We did not establish an allowance for doubtful
accounts as of September 30, 2021 as we have not had any write offs or experienced a deterioration in the aging of our receivables, and do not expect to experience in the future.
Inventories: Inventories consist of finished goods, raw materials and subassemblies and are recorded at the lower of cost or net realizable value
using the first, in-first out method.
Stock-Based Compensation: We recognize all share-based payments to employees and directors, including grants of stock options, warrants and common
stock awards in the consolidated statement of operations and comprehensive loss as an operating expense based on their fair values as established at the grant date. Equity instruments issued to non-employees include common stock awards or warrants
to purchase shares of our common stock. These common stock awards or warrants either are fully vested and exercisable at the date of grant or vest over a certain period during which services are provided. We expense the fair market value of fully
vested awards at the time of grant, and of unvested awards over the period in which the related services are received. In accordance with Accounting Standards Update 2018-07, unvested awards are no longer remeasured to fair value until vesting and
rather the fair value is established at the grant date consistent with the treatment of employee and director awards.
We compute the estimated fair values of stock options and warrants using the Black-Scholes option pricing model and market-based warrants using a Monte Carlo valuation model. Market price at
the date of grant is used to calculate the fair value of restricted stock units and common stock awards.
Stock-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures except for market-based warrants which are expensed based on the grant
date fair value regardless of whether the award vests. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Loss per share: Basic loss per share is computed based on the net loss for each period divided by the weighted average number of common shares
outstanding. The net loss allocable to common stockholders for the nine months ended September 30, 2020, reflects a $1.8 million increase for the deemed dividend to preferred stockholders provided in connection with the close of the public offering
of Series H convertible preferred stock on January 28, 2020. This deemed dividend includes $0.2 million that resulted from the subsequent reduction in the exercise of price of the warrants as a result of the March 2020 offering. The net loss
allocable to common stockholders for the nine months ended September 30, 2021 includes a deemed dividend of $75,000 that resulted from the change in the exercise price of the warrants as a result of the March 2021 and September 2021 offerings.
Diluted earnings per share is computed based on the net loss allocable to common stockholders for each period divided by the weighted average number of common shares outstanding, increased by
the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially
dilutive shares. Potentially dilutive shares of common stock include shares underlying outstanding convertible preferred stock, warrants, stock options and other stock-based awards granted under stock-based compensation plans.
Impairment of Long-Lived Assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. If the impairment tests indicate that the carrying value of the asset, or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group,
further analysis is performed to determine the fair value of the asset or asset group. To the extent the fair value of the asset or asset group is less than its carrying value, an impairment loss is recognized equal to the amount the fair value of
the asset or asset group is exceeded by its carrying amount. Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell. Considerable management judgment is necessary to estimate the fair value of
assets or asset groups, and accordingly, actual results could vary significantly from such estimates.
The Company continues to report operating losses and negative cash flows from operations, both of which it considers to be indicators of potential impairment. Therefore, the Company evaluates
its long-lived assets for potential impairment at each reporting period. The Company has concluded that its cash flows from the various long-lived assets are highly interrelated and, as a result, the Company consists of a single asset group. As the
Company expects to continue incurring losses in the foreseeable future, the undiscounted cash flow step was bypassed, and the Company proceeded to fair value the asset group. The Company has determined the fair value of the asset group using
expected cash flows associated with its loaner units by considering sales prices for similar assets and by estimating future discounted cash flows expected from the units. For recently acquired assets within the asset group, primarily equipment,
the Company determined the fair value based on the replacement cost. There have been no impairment losses recognized for the year ended December 31, 2020 or the nine months ended September 30, 2021.
Going Concern: Our financial statements have been prepared and presented on a basis assuming we continue as a going concern. During the years ended
December 31, 2020 and 2019 and through September 30, 2021, we incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. At September 30,
2021, we had an accumulated deficit of $248.6 million and we expect to incur losses for the foreseeable future. To date, we have been funded by debt and equity financings, and although we believe that we will be able to successfully fund our
operations, there can be no assurance that we will be able to do so or that we will ever operate profitably.
We became a revenue generating company after acquiring the Aquadex Business in August 2016. We expect to incur additional losses in the near-term as we grow the Aquadex Business, including
investments in expanding our sales and marketing capabilities, purchasing inventory, manufacturing components, and complying with the requirements related to being a U.S. public company. To become and remain profitable, we must succeed in
expanding the adoption and market acceptance of the Aquadex System. This will require the Company to succeed in effectively training personnel at hospitals and efficiently manufacturing, marketing and distributing the Aquadex System and related
components. There can be no assurance that we will succeed in these activities, and we may never generate revenues sufficient to achieve profitability.
During 2019, 2020 and through September 17, 2021, we closed on underwritten public and other equity offerings for aggregate net proceeds of approximately $66.6 million after deducting the
underwriting discounts and commissions or placement agents’ fees and offering expenses, as applicable, and other costs associated with the offerings. In addition, during 2020 we received $4.1 million in proceeds from the exercise of investor
warrants. See Note 3 –Stockholders’ Equity for additional related disclosure. The Company will require additional funding to grow its business, which may not be available on terms favorable to the Company, or at all. The Company may receive those
funds from the proceeds from future warrant exercises, issuances of equity securities, or other financing transactions.
We believe that our existing capital resources will be sufficient to support our operating plan through March 31, 2023. However, we may seek to raise additional capital to support our growth
or other strategic initiatives through debt, equity or a combination thereof.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, “Financial
Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an
allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the condensed consolidated financial statements of the Company.
FINANCIAL OVERVIEW
We are a medical device company focused on commercializing the Aquadex system for ultrafiltration treatment of patients with fluid overload who have failed
diuretic therapy. Activities since inception have consisted principally of raising capital, performing research and development and conducting preclinical and clinical studies. During 2016, we acquired the Aquadex Business and announced
that we were halting all clinical evaluations of our prior technology, the C-Pulse System. Since then, our activities have consisted mainly of expanding our sales and marketing capabilities and transferring manufacturing capabilities from Baxter to
our facilities in Eden Prairie, Minnesota. As of September 30, 2021, we had an accumulated deficit of $248.6 million and we expect to incur losses for the foreseeable future. To date, we have been funded by public and private equity financings and
debt. Although we believe that we will be able to successfully fund our operations, there can be no assurance that we will be able to do so or that we will ever operate profitably.
Results of Operations
Comparison of Three Months Ended September 30, 2021 to Three Months Ended September 30, 2020
Net Sales
(in thousands)
|
Three Months Ended
September 30, 2021
|
Three Months Ended
September 30, 2020
|
Increase (Decrease)
|
% Change
|
|||||||||||
|
$
|
1,853
|
$
|
1,904
|
$
|
(51
|
)
|
(2.7
|
)%
|
||||||
Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with the Aquadex System consoles. We sell primarily in the United States to hospitals
and clinics through our direct salesforce. We sell outside of the United States to independent specialty distributors who in turn sell to hospitals and clinics in their geographic regions. Sales during the three months ended September 30, 2021
were negatively affected by the COVID-19 pandemic’s impact on hospital access and procedural volumes, both in the US and internationally. Pediatric patient volumes were also lower.
Costs and Expenses
Our costs and expenses were as follows:
|
(in thousands)
|
Three Months Ended
September 30, 2021 |
Three Months Ended
September 30, 2020 |
Increase (Decrease)
|
% Change
|
||||||||||||
|
Cost of goods sold
|
$
|
733
|
$
|
1,026
|
$
|
(293
|
)
|
(28.6
|
)%
|
|||||||
|
Selling, general and administrative
|
$
|
4,645
|
$
|
4,264
|
$
|
381
|
8.9
|
%
|
||||||||
|
Research and development
|
$
|
1,726
|
$
|
871
|
$
|
855
|
98.2
|
%
|
||||||||
Cost of Goods Sold
The increase in gross margin percent for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was due to favorable geographic and product mix.
Selling, General and Administrative
The increase in selling, general and administrative expense reflects our continued investment in sales and marketing activities, along with administrative costs.
Research and Development
Research and development (“R&D”) expenses in the third quarter of 2021 were $1.7 million, an increase of 98% compared to the prior year period. The increase in R&D expenses was driven
primarily by investments in new products, especially the new pediatric system, along with increased clinical, regulatory and reimbursement activity. R&D expense included $428,160 for a non-refundable technology license fee, as discussed in
Note 7 – Commitments and Contingencies.
Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2010
Net Sales
(in thousands)
|
Nine Months Ended
September 30, 2021 |
Nine Months Ended
September 30, 2020
|
Increase (Decrease)
|
% Change
|
|||||||||||
|
$
|
6,279
|
$
|
5,397
|
$
|
882
|
16.3
|
%
|
|||||||
Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with the Aquadex system consoles. We sell primarily in the United States to hospitals
and clinics through our direct salesforce. We sell outside of the United States to independent specialty distributors who in turn sell to hospitals and clinics in their geographic regions. The increase in sales is driven by execution of our
commercialization strategy which includes continued expansion of our commercial footprint by the hiring of new sales representatives, clinical education specialists, and marketing personnel.
Costs and Expenses
Our costs and expenses were as follows:
|
(in thousands)
|
Nine Months Ended
September 30, 2021 |
Nine Months Ended
September 30, 2020 |
Increase (Decrease)
|
% Change
|
||||||||||||
|
Cost of goods sold
|
$
|
2,682
|
$
|
2,486
|
$
|
196
|
7.9
|
%
|
||||||||
|
Selling, general and administrative
|
$
|
14,945
|
$
|
13,034
|
$
|
1,911
|
14.7
|
%
|
||||||||
|
Research and development
|
$
|
3,847
|
$
|
2,620
|
$
|
1,227
|
46.8
|
%
|
||||||||
Cost of Goods Sold
The increase in gross margin percent for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was due to the timing of production costs and favorable
geographic mix.
Selling, General and Administrative
The increase in selling, general and administrative expense reflects our continued investment in sales and marketing activities, along with nonrecurring leadership transition costs.
Research and Development
The increase in R&D expenses over the prior year were primarily driven by investments in new products, along with increased clinical, regulatory and reimbursement activity.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through cash on hand and a series of equity and debt issuances.
On January 28, 2020, we closed on an underwritten public offering of 201,546 shares of common stock, 383,909 shares of Series H Preferred Stock and warrants to purchase 585,460 shares of
common stock, for gross proceeds of approximately $9.7 million. Net proceeds totaled approximately $8.6 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
On March 23, 2020, we closed on a registered direct offering of 138,715 shares of common stock for gross proceeds of approximately $1.2 million, prior to deduction of commissions and offering
expenses related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 138,715 shares of the Company’s common stock.
On April 1, 2020, we closed on a registered direct offering of 171,008 shares of common stock for gross proceeds of approximately $2.2 million, prior to deduction of commissions and offering
expenses payable related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 85,506 shares of the Company’s common stock. The warrants are
exercisable immediately and expire five and a half years from the date of issuance.
On May 5, 2020, we closed on a registered direct offering of 119,930 shares of common stock for gross proceeds of approximately $1.7 million, prior to deduction of commissions and offering
related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 59,966 shares of the Company’s common stock. The warrants are exercisable immediately
and will expire five and a half years from the date of issuance.
On August 21, 2020, we closed on an underwritten public offering of 1,064,678 shares of common stock and warrants to purchase 1,064,678 shares of common stock, for gross proceeds of
approximately $14.4 million. Net proceeds totaled approximately $13.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
On March 19, 2021, we closed on an underwritten public offering of 3,795,816 shares of common stock, for gross proceeds of approximately $20.9 million. Net proceeds totaled approximately
$18.9 million after deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
On September 17, 2021, we closed on an underwritten public offering of 4,005,588 shares of common stock, for gross proceeds of approximately $10 million. Net proceeds totaled approximately
$9.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
As of September 30, 2021 and December 31, 2020, cash and cash equivalents were $28.4 million and $14.4 million, respectively. Our business strategy and ability to fund our operations in the
future depends in part on our ability to grow the Aquadex Business by establishing a sales force, selling our products to hospitals and other healthcare facilities and controlling costs. While we expect to continue to receive proceeds from the
exercise of warrants, we will likely need to seek additional financing in the future, which, to date, has been through offerings of our equity. The disruption created by COVID-19 in our operations, our sales outlook, and the capital markets where
we would seek such financing, have created uncertainty about our ability to access the capital markets in future periods.
Cash Flows from Operating Activities
Net cash used in operating activities was $13.7 and $13.2 million for the nine months ended September 30, 2021 and 2020, respectively. The net cash used in each of these periods primarily
reflects the net loss for those periods, offset in part by stock-based compensation, depreciation and amortization, and the effects of changes in operating assets and liabilities, including working capital.
Cash Flows from Investing Activities
Net cash used in investing activities was $191,000 and $207,000 for the nine months ended September 30, 2021 and September 31, 2020, respectively. The cash used in investing activities was
primarily for the purchase of manufacturing, laboratory and office equipment.
Cash Flows from Financing Activities
As described above, net cash provided by financing activities was $27.9 and $30.1 million for the nine months ended September 30, 2021 and 2020, respectively.
Capital Resource Requirements
As of September 30, 2021, we did not have any material commitments for capital expenditures.
Off-Balance Sheet Arrangements
We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may
have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
Forward-Looking Statements and Risk Factors
Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are based on management’s beliefs, assumptions and expectations and information currently available to management. All statements that address
future operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation, our expectations regarding the potential impacts
of the COVID-19 pandemic on our business operations, cash flow, business development, and employees, our ability to execute on our commercial strategy and to grow our Aquadex® Business, our post-market clinical data collection activities,
benefits of our products to patients, our expectations with respect to product development and commercialization efforts, our ability to increase market and physician acceptance of our products, potentially competitive product offerings, the
possibility that we may be unable to raise sufficient funds necessary for our anticipated operations, intellectual property protection, our ability to integrate acquired businesses, our expectations regarding anticipated synergies with and benefits
of the Aquadex business, our business strategy, market size, potential growth opportunities and other risks and uncertainties described in our filings with the SEC. In some cases, you can identify forward-looking statements by the following words:
“anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all
forward-looking statements contain these words. Management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the
date when made. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that might subsequently arise. Forward-looking statements are subject to a number of risks and uncertainties that could
cause actual events to adversely differ from the expectations indicated in these forward-looking statements, including without limitation, the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December
31, 2020, in other reports filed thereafter with the SEC, which risk factors may by updated from time to time, and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021. We operate in an evolving environment. New risk
factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and
actual results, developments or events could differ materially from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including without limitation, the possibility that
regulatory authorities do not accept our application or approve the marketing of our products, the possibility we may be unable to raise the funds necessary for the development and commercialization of our products, and those described in our
filings with the SEC.
.
| ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
Not applicable.
| ITEM 4. |
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and
reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer (together, the “Certifying
Officers”), as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable,
not absolute, assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the
inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These
inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the
likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of September 30, 2021, the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of management, including the Certifying
Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable
assurance of achieving their stated objectives. Based on their evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of
September 30, 2021.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
We are not currently subject to any legal proceedings.
| ITEM 1A. |
RISK FACTORS
|
You should carefully consider the risks and uncertainties we describe in our Annual
Report on Form 10-K for the year ended December 31, 2020, and in other reports filed thereafter with the SEC, before deciding to invest in or retain shares of our common stock. There have been no material changes from our risk factors
previously disclosed in response to Item 1A. Risk Factors of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
| ITEM 2. |
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
Not applicable.
| ITEM 3. |
DEFAULTS UPON SENIOR SECURITIES
|
Not applicable.
| ITEM 4. |
MINE SAFETY DISCLOSURES
|
Not applicable.
| ITEM 5. |
OTHER INFORMATION
|
None.
| ITEM 6. |
EXHIBITS
|
The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index below.
Exhibit Index
Nuwellis, Inc.
Form 10-Q for the Quarterly Period Ended September 30, 2021
|
Incorporated By Reference
|
|||||||||||||
|
Exhibit
Number
|
Exhibit Description
|
Form
|
File
Number
|
Date of First Filing
|
Exhibit
Number |
Filed
Herewith
|
Furnished
Herewith
|
||||||
|
Fourth Amended and Restated Certificate of Incorporation
|
10
|
001-35312
|
February 1, 2012
|
3.1
|
|||||||||
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K
|
001-35312
|
January 13, 2017
|
3.1
|
|||||||||
|
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K
|
001-35312
|
May 23, 2017
|
3.1
|
||||||||
|
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K
|
001-35312
|
October 12, 2017
|
3.1
|
||||||||
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K
|
001-35312
|
January 2, 2019
|
3.1
|
|||||||||
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K/A
|
001-35312
|
October 16, 2020
|
3.1
|
|||||||||
|
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation
|
8-K
|
001-35312
|
April 27, 2021
|
3.1
|
|||||||||
|
Certificate of Designation of Series A Junior Participating Preferred Stock
|
8-K
|
001-35312
|
June 14, 2013
|
3.1
|
|||||||||
|
Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock
|
S-1/A
|
333-221010
|
November 6, 2017
|
3.7
|
|||||||||
|
|
Certificate of Designation of Preferences, Rights and Limitations of Series G Convertible Preferred Stock
|
8-K
|
001-35312
|
March 13, 2019
|
3.1
|
||||||||
|
Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock
|
8-K
|
001-35312
|
January 29, 2020
|
3.1
|
|||||||||
|
Second Amended and Restated Bylaws
|
8-K
|
001-35312
|
April 27, 2021
|
3.2
|
|||||||||
|
Underwriting Agreement, dated September 15, 2021, between Nuwellis, Inc. and Ladenburg Thalmann & Co. Inc., as the Representative of the several underwriters
named in Schedule I thereto
|
8-K
|
001-35312
|
September 17, 2021
|
1.1
|
|||||||||
|
Incorporated By Reference
|
|||||||||||||
|
Exhibit
Number
|
Exhibit Description
|
Form |
File
Number
|
Date of First Filing
|
Exhibit Number |
Filed
Herewith
|
Furnished
Herewith
|
||||||
|
Nuwellis, Inc. Non-Employee Director Compensation Policy (effective August 18, 2021)
|
X
|
||||||||||||
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||||||||||
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
|
X
|
||||||||||||
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X |
||||||||||||
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
|
X |
||||||||||||
|
101.INS
|
Inline XBRL Instance Document
|
X
|
|
||||||||||
|
|
|||||||||||||
|
101.SCH
|
Inline XBRL Taxonomy Extension Schema Document
|
X
|
|||||||||||
|
101.CAL
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
X
|
|||||||||||
|
101.DEF
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
X
|
|||||||||||
|
101.LAB
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
X
|
|||||||||||
|
101.PRE
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
X
|
|||||||||||
|
104
|
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
|
X
|
|||||||||||
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
Nuwellis, Inc.
|
|||
|
Date: November 10, 2021
|
By:
|
/s/ Nestor Jaramillo, Jr.
|
|
|
Nestor Jaramillo, Jr.
|
|||
|
President, Chief Executive Officer
|
|||
|
(principal executive officer)
|
|||
|
Date: November 10, 2021
|
By:
|
/s/ George Montague
|
|
|
George Montague
|
|||
|
Chief Financial Officer
|
|||
|
(principal financial officer)
|
|||
24
Exhibit 10.2
NUWELLIS, INC.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
(Effective August 18, 2021)
On August 18, 2021, upon the recommendation of the Compensation Committee (the “Compensation Committee”) of the Board of Directors (the “Board”)
of Nuwellis, Inc. a Delaware corporation (the “Company”), the Board approved the following compensation policy (this “Policy”) for Non-Employee Directors, effective as of August 18, 2021 (the “Effective Date”). For purposes of this Policy, a “Non-Employee Director” is (i) a director of the Company who has not served as an employee or executive officer of the Company or
its affiliates or otherwise provided services to the Company or its affiliates in a capacity other than as a director of the Company or its affiliates during the preceding year or (ii) a director of the Company who has previously served, but does not
currently serve, as an employee or executive officer of the Company or its affiliates and whom the Board (disregarding the director of the Company referred to in this clause (ii)) has determined is a Non-Employee Director under this Policy.
Annual Cash Compensation
The annual cash compensation amount set forth below is payable in equal quarterly installments, payable in arrears on the last day of
each fiscal quarter in which the service occurred. If a Non-Employee Director joins the Board or a committee of the Board at a time other than effective as of the first day of a fiscal quarter, each annual retainer and fee set forth below will be
pro-rated based on days served in the applicable fiscal year, with the pro-rated amount paid for the first fiscal quarter in which the Non-Employee Director provides the service, and regular full quarterly payments thereafter. All annual cash fees
are vested upon payment.
| • |
Base Annual Retainer for Non-Employee Directors: $45,000
|
| • |
Additional Base Annual Retainer for additional positions and committee membership:
|
| • |
Chair of the Board: $15,000
|
| • |
Lead Independent Director: $10,000
|
| • |
Chair Audit Committee: $10,000
|
| • |
Chair Compensation Committee: $5,000
|
| • |
Chair Nominating and Governance Committee: $5,000
|
| • |
Member Audit Committee: $5,000
|
| • |
Member Compensation Committee: $2,000
|
| • |
Member Nominating and Governance Committee: $2,000
|
Annual Equity Award
Each Non-Employee Director will be eligible to receive compensatory equity awards under the Company’s 2013 Non-Employee Directors’
Equity Incentive Plan (the “Plan”) as consideration for service on the Board. All grants under this Policy will be made
automatically in accordance with the terms of this Policy and the Plan, without the need for any additional corporate action by the Board or the Compensation Committee. Vesting of all equity awards granted under this Policy is subject to a
Non-Employee Director’s Continuous Service (as defined in the Plan) from the date of grant through each applicable vesting date. All equity awards granted under this Policy will be subject to the Company’s standard forms of award agreements, as most
recently adopted by the Board for use under this Policy.
1
Each year on the date of the first regular annual meeting of the Company’s stockholders (the “Annual Meeting”), the Company will automatically grant each newly-elected and each continuing Non-Employee Director, an annual equity award with an aggregate value on
the date of grant equal to 0.15% of the fully diluted shares of the Company as of December 31 of the prior year (the “Annual Equity
Award”). Subject to a Non-Employee Director’s Continuous Service, the Annual Equity Award will vest 1/12 of the shares each month, commencing on the one-month anniversary of the date of grant, so that all of the shares will be vested on the
one-year anniversary of the date of grant.
Pro-Rata Annual Equity Award
If an individual first becomes a Non-Employee Director other than at the Annual Meeting, the Company will automatically grant such new
Non-Employee Director, on the date that he or she is first elected or appointed to the Board, an annual equity award with an aggregate value on the date of grant equal to the pro rata portion of the Annual Equity Award, which pro rata portion
reflects a reduction for each month prior to the date of grant that has elapsed since the preceding Annual Meeting (the “Pro-Rated
Annual Equity Award”). Subject to a Non-Employee Director’s Continuous Service, the Pro-Rated Annual Equity Award will vest 1/12 of the shares each month, commencing on the one-month anniversary of the date of grant, so that all of the
shares will be vested on the one-year anniversary of the date of grant.
One-Time Option Award for Board Chair on Effective Date
As of the Effective Date, the Company will automatically grant the Chair of the Board an Option award under the Plan. The number of
shares of the Company’s common stock underlying the Option awarded to the Chair of the Board as of the Effective Date will equal the quotient of (i) $40,000 divided by (ii) the closing price of the Company’s common stock on the Nasdaq Stock Market on
the Effective Date (or, if the Effective Date is not a trading day, on the trading day immediately preceding the Effective Date), rounded to the nearest whole share. The Options awarded to the Chair of the Board as of the Effective Date will have an
exercise price equal to the closing price of the Company’s common stock on the Nasdaq Stock Market on the Effective Date (or, if the Effective Date is not a trading day, on the trading day immediately preceding the Effective Date).
Expense Reimbursement
All Non-Employee Directors will be entitled to reimbursement from the Company for their reasonable travel (including airfare and ground
transportation), lodging and meal expenses incident to meetings of the Board or committees thereof. The Company will also reimburse directors for attendance at director continuing education programs that are relevant to their service on the Board and
which attendance is pre-approved by the Chair of the Governance and Nominating Committee or the Chair of the Board. The Company will make reimbursement to a Non-Employee Director within a reasonable amount of time following submission by such
Non-Employee Director of reasonable written substantiation for the expenses.
2
Exhibit 31.1
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of Nuwellis, Inc. for the quarterly period ended September 30, 2021;
|
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of
operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
|
| d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| 5. |
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
| a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
|
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
/s/ Nestor Jaramillo
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|
|
Nestor Jaramillo
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|
|
President, Chief Executive Officer
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Exhibit 31.2
| 1. |
I have reviewed this Quarterly Report on Form 10-Q of Nuwellis, Inc. for the quarterly period ended September 30, 2021.
|
| 3. |
| 4. |
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
| a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating
to the registrant, including its consolidated subsidiary, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
| b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
| c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
| d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter
(the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
| b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
|
|
/s/ George Montague
|
|
|
George Montague
|
|
|
Chief Financial Officer
|
Exhibit 32.1
In connection with the Quarterly Report of Nuwellis, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, Nestor Jaramillo, Jr., Chief Executive Officer of the Company, certify,
pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ Nestor Jaramillo
|
|
|
Nestor Jaramillo
|
|
|
President, Chief Executive Officer
|
Exhibit 32.2
In connection with the Quarterly Report of Nuwellis, Inc. (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2021, as filed with the Securities and Exchange Commission on the date hereof
(the “Report”), I, George Montague, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted
pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
| (1) |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
| (2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
/s/ George Montague
|
||
|
George Montague
|
||
|
Chief Financial Officer
|