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 June 30, 2023

☐

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 August 7, 2023 was 1,864,265.

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	15
Item 3	Quantitative and Qualitative Disclosures About Market Risk	20
Item 4	Controls and Procedures	20
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	21
Item 1A	Risk Factors	21
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 3	Defaults Upon Senior Securities	21
Item 4	Mine Safety Disclosures	21
Item 5	Other Information	21
Item 6	Exhibits	21

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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)

	June 30, 2023			December 31, 2022
ASSETS	(unaudited)
Current assets
Cash and cash equivalents	$	8,896		$	17,737
Marketable securities		—			569
Accounts receivable		1,176			1,406
Inventories, net		2,733			2,661
Other current assets		943			396
Total current assets		13,748			22,769
Property, plant and equipment, net		875			980
Operating lease right-of-use asset		810			903
Other assets		120			21
TOTAL ASSETS	$	15,553		$	24,673

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued liabilities	$	2,311		$	2,245
Accrued compensation		1,234			2,161
Current portion of operating lease liability		206			196
Current portion of finance lease liability		14			28
Other current liabilities		60			58
Total current liabilities		3,825			4,688
Common stock warrant liability		—			6,868
Operating lease liability		654			760
Total liabilities		4,479			12,316

Commitments and contingencies

Stockholders’ equity
Series A junior participating preferred stock as of June 30, 2023 and December 31, 2022, par value $0.0001 per share; authorized 30,000 shares, none outstanding		—			—
Series F convertible preferred stock as of both June 30, 2023 and December 31, 2022, par value $0.0001 per share; authorized 127 shares, issued and outstanding 127 shares		—			—
Series I convertible preferred stock as of June 30, 2023 and December 31, 2022, par value $0.0001; authorized 1,049,280, issued and outstanding none and 1,049,280, respectively		—			—
Preferred stock as of both June 30, 2023 and December 31, 2022, par value $0.0001 per share; authorized 39,969,873 shares, none outstanding		—			—
Common stock as of June 30, 2023 and December 31, 2022, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 1,864,265 and 536,394 shares, respectively		—			—
Additional paid-in capital		289,845			279,736
Accumulated other comprehensive income:
Foreign currency translation adjustment		(24	)		(18	)
Unrealized gain on marketable securities		—			56
Accumulated deficit		(278,747	)		(267,417	)
Total stockholders’ equity		11,074			12,357
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	15,553		$	24,673

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 June 30						Six months ended June 30
	2023			2022			2023			2022
Net sales	$	2,075		$	2,213		$	3,901		$	4,139
Cost of goods sold		928			1,150			1,687			1,974
Gross profit		1,147			1,063			2,214			2,165
Operating expenses:
Selling, general and administrative		4,664			4,257			10,154			8,669
Research and development		1,505			1,107			2,933			2,213
Total operating expenses		6,169			5,364			13,087			10,882
Loss from operations		(5,022	)		(4,301	)		(10,873	)		(8,717	)
Other income (expense), net		179			17			302			(38	)
Change in fair value of warrant liability		—			—			(755	)		—
Loss before income taxes		(4,843	)		(4,284	)		(11,326	)		(8,755	)
Income tax expense		(2	)		(2	)		(4	)		(4	)
Net loss	$	(4,845	)	$	(4,286	)	$	(11,330	)	$	(8,759	)

Basic and diluted loss per share	$	(3.65	)	$	(40.67	)	$	(9.23	)	$	(83.12	)

Weighted average shares outstanding – basic and diluted		1,328			105			1,227			105

Other comprehensive loss:
Foreign currency translation adjustments	$	1		$	1		$	(6	)	$	(1	)
Total comprehensive loss	$	(4,844	)	$	(4,285	)	$	(11,336	)	$	(8,760	)

See notes to the condensed consolidated financial statements.

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NUWELLIS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Stockholders’ Equity

	Outstanding Shares of Common Stock		Common Stock		Additional Paid in Capital		Accumulated Other Comprehensive Income			Accumulated Deficit			Stockholders’ Equity
Balance December 31, 2021		105,376	$	—	$	278,874	$	(35	)	$	(252,892	)	$	25,947
Net loss		—		—		—		—			(4,473	)		(4,473	)
Unrealized foreign currency translation adjustment		—		—		—		(2	)		—			(2	)
Stock-based compensation, net		—		—		241		—			—			241
Balance March 31, 2022		105,376	$	—	$	279,115	$	(37	)	$	(257,365	)	$	21,713
Net loss		—		—		—		—			(4,286	)		(4,286	)
Foreign currency translation adjustment		—		—		—		1			—			1
Stock-based compensation, net		—		—		236		—			—			236
Balance June 30, 2022		105,376	$	—	$	279,351	$	(36	)	$	(261,651	)	$	17,664

	Outstanding Shares of Common Stock		Common Stock		Additional Paid in Capital			Accumulated Other Comprehensive Income			Accumulated Deficit			Stockholders’ Equity
Balance December 31, 2022		536,394	$	—	$	279,736		$	38		$	(267,417	)	$	12,357
Net loss		—		—		—			—			(6,485	)		(6,485	)
Unrealized foreign currency translation adjustment		—		—		—			(7	)		—			(7	)
Unrealized gain on marketable securities		—		—		—			6			—			6
Stock-based compensation, net		—		—		181			—			—			181
Issuance costs related to 2022 common stock offering		—		—		(11	)		—			—			(11	)
Conversion of preferred stock into common stock		10,493		—		—			—			—			—
Reclassification of warrants to equity		—		—		7,623			—			—			7,623
Conversion of warrants into common stock		660,045		—		—			—			—			—
Balance March 31, 2023		1,206,932	$	—	$	287,529		$	37		$	(273,902	)	$	13,664
Net loss		—		—		—			—			(4,845	)		(4,845	)
Unrealized foreign currency translation adjustment		—		—		—			—			—			—
Unrealized gain on marketable securities									(61	)					(61	)
Stock-based compensation, net		—		—		197			—			—			197
Issuance costs related to ATM offering		—		—		(98	)		—			—			(98	)
Issuance of common stock from ATM offering		657,333		—		2,217			—			—			2,217
Balance June 30, 2023		1,864,265	$	—	$	289,845		$	(24	)	$	(278,747	)	$	11,074

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)

	Six months ended June 30
	2023			2022
Operating Activities:
Net loss	$	(11,330	)	$	(8,759	)
Adjustments to reconcile net loss to cash flows used in operating activities:
Depreciation and amortization		169			206
Stock-based compensation expense, net		378			477
Change in fair value of warrant liability		755			—
Net realized gain on marketable securities		(65	)		—
Changes in operating assets and liabilities:
Accounts receivable		230			(563	)
Inventory, net		(72	)		(167	)
Other current assets		(547	)		76
Other assets and liabilities		(20	)		(152	)
Accounts payable and accrued expenses		(856	)		117
Net cash used in operating activities		(11,358	)		(8,765	)

Investing Activities:
Proceeds from sale of marketable securities		578			—
Additions to intangible assets		(99	)		—
Purchases of property and equipment		(64	)		(81	)
Net cash provided by (used in) investing activities		415			(81	)

Financing Activities:
Proceeds from ATM stock offerings, net		2,108			—
Payments on finance lease liability		—			(13	)
Net cash provided by (used in) financing activities		2,108			(13	)

Effect of exchange rate changes on cash		(6	)		(1	)
Net decrease in cash and cash equivalents		(8,841	)		(8,860	)
Cash and cash equivalents - beginning of period		17,737			24,205
Cash and cash equivalents - end of period	$	8,896		$	15,345

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 technology 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 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. (“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 December 31, 2022, which has been derived from the consolidated audited financial statements, and the 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 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, 2022.

Going Concern: 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, 2022 and 2021 and through June 30, 2023, 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 June 30, 2023, the Company had an accumulated deficit of $278.7 million and it expects to incur losses for 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. These factors raise substantial doubt about the Company’s ability to continue as a going concern through the next twelve months.

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 its sales and marketing capabilities, product development, purchasing inventory, manufacturing components, generating additional clinical evidence supporting the efficacy of the Aquadex System, 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 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 2022, the Company closed on an underwritten public equity offering for aggregate net proceeds of approximately $9.4 million after deducting the underwriting discounts and commissions and other costs associated with the offering. See Note 3 — Stockholders’ Equity for additional related disclosures. 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.

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On March 3, 2023, we entered into a Sales Agreement with Ladenburg Thalmann & Co. Inc. (“Ladenburg”) to create an at-the-market offering program under which we could offer and sell shares of our common stock having an aggregate offering price of up to $10.0 million. Ladenburg was entitled to a commission at a fixed rate equal to 3% of the gross proceeds. For the three months ending June 20, 2023, the Company issued shares under the at-the-market program for aggregate net proceeds of approximately $2.1 million after deducting the underwriting discounts and commissions and other costs associated with the offering.

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 we 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, 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 June 30, 2023, two customers represented 16% and 13% of net sales. For the six months ended June 30, 2023, two customers each represented 14% and 13% of net sales. For the three months ended June 30, 2022, three customers represented 14%, 13% and 10% of net sales. For the six months ended June 30, 2022, two customers each represented 14% and 12% 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 June 30, 2023, or December 31, 2022. As of June 30, 2023, one customer represented 20% of the accounts receivable balance. As of December 31, 2022, two customers represented 15% and 10% of the total 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)	June 30, 2023			December 31, 2022
Finished Goods	$	918		$	993
Work in Process		275			204
Raw Materials		1,702			1,609
Inventory Reserves		(162	)		(145	)
Total	$	2,733		$	2,661

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. 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:

	June 30
	2023		2022

Stock options		114,004		11,979
Warrants to purchase common stock		1,308,271		16,306
Series F convertible preferred stock		5,080		508
Total		1,427,355		28,793

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

	Three months ended June 30				Six months ended June 30
	2023			2022	2023	2022
(in thousands, except per share amounts)
Net loss		$	(4,845