UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-35312

NUWELLIS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		No. 68-0533453
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

12988 Valley View Road, Eden Prairie, MN 55344

(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:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.0001 per share	NUWE	Nasdaq Capital Market

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.

Yes ☒ No ☐

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).

Yes ☒ No ☐

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:

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated Filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

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 4, 2022 was 31,531,650

TABLE OF CONTENTS

		Page Number
PART I—FINANCIAL INFORMATION

Item 1	Financial Statements	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4	Controls and Procedures	21
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	22
Item 1A	Risk Factors	22
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3	Defaults Upon Senior Securities	23
Item 4	Mine Safety Disclosures	23
Item 5	Other Information	23
Item 6	Exhibits	23

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PART I—FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NUWELLIS, INC. AND SUBSIDIARY

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

	September 30, 2022			December 31, 2021
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	12,053		$	24,205
Accounts receivable		1,100			750
Inventories		2,919			2,843
Other current assets		368			328
Total current assets		16,440			28,126
Property, plant and equipment, net		1,027			1,188
Operating lease right-of-use asset		949			1,082
Other assets		21			21
TOTAL ASSETS	$	18,437		$	30,417

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable	$	1,561		$	1,414
Accrued compensation		1,751			1,664
Current portion of operating lease liability		191			167
Current portion of finance lease liability		35			26
Other current liabilities		73			36
Total current liabilities		3,611			3,307
Operating lease liability		810			956
Finance lease liability		—			28
Other long-term liability		—			179
Total liabilities		4,421			4,470

Commitments and contingencies

Stockholders’ equity
Series A junior participating preferred stock as of September 30, 2022 and December 31, 2021, par value $0.0001 per share; authorized 30,000 shares, none outstanding		—			—
Series F convertible preferred stock as of both September 30, 2022 and December 31, 2021, par value $0.0001 per share; authorized 127 shares, issued and outstanding 127 shares		—			—
Preferred stock as of both September 30, 2022 and December 31, 2021, par value $0.0001 per share; authorized 39,969,873 shares, none outstanding		—			—
Common stock as of September 30, 2022 and December 31, 2021, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 10,537,606 shares		1			1
Additional paid-in capital		279,570			278,873
Accumulated other comprehensive income:
Foreign currency translation adjustment		(10	)		(11	)
Accumulated deficit		(265,545	)		(252,916	)
Total stockholders’ equity		14,016			25,947
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	18,437		$	30,417

See notes to the condensed consolidated financial statements.

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NUWELLIS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
Net sales	$	2,065		$	1,853		$	6,204		$	6,279
Cost of goods sold		806			733			2,780			2,682
Gross profit		1,259			1,120			3,424			3,597
Operating expenses:
Selling, general and administrative		4,251			4,645			12,920			14,945
Research and development		928			1,726			3,141			3,847
Total operating expenses		5,179			6,371			16,061			18,792
Loss from operations		(3,920	)		(5,251	)		(12,637	)		(15,195	)
Other income (expense), net		52			(19	)		14			(22	)
Loss before income taxes		(3,868	)		(5,270	)		(12,623	)		(15,217	)
Income tax expense		(2	)		(2	)		(6	)		(7	)
Net loss	$	(3,870	)	$	(5,272	)	$	(12,629	)	$	(15,224	)

Basic and diluted loss per share	$	(0.37	)	$	(0.75	)	$	(1.20	)	$	(2.72	)

Weighted average shares outstanding – basic and diluted		10,538			7,098			10,538			5,624

Other comprehensive loss:
Foreign currency translation adjustments	$	2		$	—		$	1		$	(3	)
Total comprehensive loss	$	(3,868	)	$	(5,272	)	$	(12,628	)	$	(15,227	)

See notes to the condensed consolidated financial statements.

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NUWELLIS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share amounts)

	Outstanding Shares of Common Stock		Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Stockholders’ Equity
Balance December 31, 2020		2,736,060	$	—	$	249,663		$	(7	)	$	(233,338	)	$	16,318
Net loss		—		—		—			—			(5,221	)		(5,221	)
Foreign currency translation adjustment		—		—		—			(3	)		—			(3	)
Stock-based compensation, net		—		—		355			—			—			355
Issuance of common, net		3,795,816		—		18,902			—			—			18,902
Exercise of warrants		66		—		1			—			—			1
Balance March 31, 2021		6,531,942	$	—	$	268,921		$	(10	)	$	(238,559	)	$	30,352
Net loss		—		—		—			—			(4,731	)		(4,731	)
Foreign currency translation adjustment		—		—		—			—			—			—
Stock-based compensation, net		—		—		381			—			—			381
Issuance costs related to common stock offering		—		—		(6	)		—			—			(6	)
Exercise of warrants		76		—		—			—			—			—
Balance June 30, 2021		6,532,018	$	—	$	269,296		$	(10	)	$	(243,290	)	$	25,996
Net loss		—		—		—			—			(5,272	)		(5,272	)
Foreign currency translation adjustment		—		—		—			—			—			—
Stock-based compensation, net		—		—		257			—			—			257
Issuance of common stock, net		4,005,588		1		8,999			—			—			9,000
Balance September 30, 2021		10,537,606	$	1	$	278,552		$	(10	)	$	(248,562	)	$	29,981

	Outstanding Shares of Common Stock		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Loss			Accumulated Deficit			Stockholders’ Equity
Balance December 31, 2021		10,537,606	$	1	$	278,873	$	(11	)	$	(252,916	)	$	25,947
Net loss		—		—		—		—			(4,473	)		(4,473	)
Foreign currency translation adjustment		—		—		—		(2	)		—			(2	)
Stock-based compensation, net		—		—		241		—			—			241
Balance March 31, 2022		10,537,606	$	1	$	279,114	$	(13	)	$	(257,389	)	$	21,713
Net loss		—		—		—		—			(4,286	)		(4,286	)
Foreign currency translation adjustment		—		—		—		1			—			1
Stock-based compensation, net		—		—		236		—			—			236
Balance June 30, 2022		10,537,606	$	1	$	279,350	$	(12	)	$	(261,675	)	$	17,664
Net loss		—		—		—		—			(3,870	)		(3,870	)
Foreign currency translation adjustment		—		—		—		2			—			2
Stock-based compensation, net		—		—		220		—			—			220
Balance September 30, 2022		10,537,606	$	1	$	279,570	$	(10	)	$	(265,545	)	$	14,016

See notes to the condensed consolidated financial statements

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NUWELLIS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Nine months ended September 30,
	2022			2021
Operating Activities:
Net loss	$	(12,629	)	$	(15,224	)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation and amortization		301			383
Stock-based compensation expense, net		697			993
Changes in operating assets and liabilities:
Accounts receivable		(350	)		(164	)
Inventory		(113	)		(105	)
Other current assets		(40	)		(183	)
Other assets and liabilities		(142	)		279
Accounts payable and accrued expenses		254			333
Net cash used in operating activities		(12,022	)		(13,688	)

Investing Activities:
Purchases of property and equipment		(103	)		(191	)
Net cash used in investing activities		(103	)		(191	)

Financing Activities:
Proceeds from public stock offerings, net		—			27,896
Proceeds from warrant exercises		—			1
Payments on finance lease liability		(28	)		(21	)
Net cash (used in) provided by financing activities		(28	)		27,876

Effect of exchange rate changes on cash		1			(3	)
Net increase (decrease) in cash and cash equivalents		(12,152	)		13,994
Cash and cash equivalents - beginning of period		24,205			14,437
Cash and cash equivalents - end of period	$	12,053		$	28,431

Supplemental cash flow information
Inventory transferred to property, plant and equipment	$	37		$	257

See notes to the condensed consolidated financial statements.

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NUWELLIS, INC. AND SUBSIDIARY

Notes to Condensed Consolidated Financial Statements

(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 20 kg 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 Stock 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. (“Baxter”) 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 reflect the expansion of its customer base from treating fluid imbalance resulting from congestive heart failure to also include critical care and pediatric applications.

Principles of Consolidation: The accompanying condensed consolidated balance sheet as of September 30, 2022, which has been derived from the consolidated audited financial statements and the unaudited condensed consolidated financial statements has 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 consolidated 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 consolidated financial statements and during the reporting period. Actual results could differ materially from these estimates.

These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Liquidity: The Company’s consolidated financial statements have been prepared and presented on a basis assuming it continues as a going concern. During the years ended December 31, 2021, and 2020 and through September 30, 2022, 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, 2022, the Company had an accumulated deficit of $265.5 million and it expects to incur losses in the immediate future. To date, the Company has been funded by 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 training personnel at hospitals and in outpatient care settings and in effectively 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 2021, the Company closed on underwritten public equity offerings for aggregate net proceeds of approximately $27.9 million after deducting the underwriting discounts and commissions and other costs associated with the offerings. In addition, during 2021 we received approximately $1,300 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 Aquadex 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. Should warrant exercises not materialize or future capital raising be unsuccessful, the Company may not be able to continue as a going concern. No adjustments have been made relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company not continue as a going concern.

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The Company believes that its existing capital resources will be sufficient to support its operating plan through December 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. There can be no assurance the Company will be successful in raising additional capital.

Revenue Recognition: The Company recognizes revenue in accordance with Accounting Standards Codification, Topic 606, Revenue from Contracts with Customers. 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, 2022, one customer represented 12% of net sales. For the nine months ended September 30, 2022, two customers each represented 13% and 10% of net sales. 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.

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 the 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 allowance for doubtful accounts was considered necessary as of September 30, 2022, or December 31, 2021. As of September 30, 2022, one customer represented 19% of the accounts receivable balance. As of December 31, 2021, two customers represented 12% and 11% of the accounts receivable balance.

Inventories: Inventories represent finished goods purchased from the Company’s suppliers and are recorded as 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, 2022		December 31, 2021
Finished Goods	$	1,180	$	1,409
Work in Process		223		276
Raw Materials		1,516		1,158
Total	$	2,919	$	2,843

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, 2021 includes a deemed dividend of $33,000 that resulted from the change in the exercise price of warrants as a result of the March 2021 offering. See Note 3 – Stockholders’ Equity below for additional disclosures.

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.

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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,
	2022		2021

Stock options		1,200,259		738,946
Warrants to purchase common stock		1,630,627		1,631,801
Series F convertible preferred stock		50,800		50,800
Total		2,881,686		2,421,547

The following table reconciles reported net loss with reported net loss per share for each of the three and nine months ended September 30:

	Three months ended September 30,						Nine months ended September 30,
	2022			2021			2022			2021
(in thousands, except per share amounts)
Net loss	$	(3,870	)	$	(5,272	)	$	(12,629	)	$	(15,224	)
Deemed dividend to preferred shareholders (see note 3)		—			—			—			(75	)
Net loss after deemed dividend		(3,870	)		(5,272	)		(12,629	)		(15,299	)
Weighted average shares outstanding		10,538			7,098			10,538			5,624
Basic and diluted loss per share	$	(0.37	)	$	(0.75	)	$	(1.20	)	$	(2.72	)

Subsequent events: The Company evaluates events through the date the condensed consolidated financial statements are filed for events requiring adjustment to or disclosure in the condensed 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, Colombia, The Czech Republic, Germany, Greece, Hong Kong, India, Israel, Italy, Panama, Romania, Singapore, Slovakia, 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 is 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 whose related revenue is recognized over time. This revenue represents less than 1% of net sales for the three and nine months ended September 30, 2022, and 2021. The unfulfilled performance obligations related to these extended service plans are included in deferred revenue, which is included in other current liabilities on the consolidated balance sheets. The majority of the deferred revenue is expected to be recognized within 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.

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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

SEC Form 10-Q filed by Nuwellis Inc.