Note 2 — Revenue Recognition

Net Sales: The Company sells its products in the United States primarily through a direct salesforce. Customers who purchase the Company’s products include hospitals and clinics throughout the United States. In ~~May 2014, August 2015, March 2016, April 2016~~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, Indonesia, Israel, Italy, Panama, Romania, Singapore, Slovakia, Spain, Switzerland, Thailand, United Arab Emirates, and ~~May 2016,~~ the ~~FASB issued amended revenue recognition guidance~~United Kingdom. These distributors resell the Company’s products to ~~clarify~~hospitals and clinics in their respective geographies.

Revenue from product sales is recognized when the ~~principles for recognizing revenue from contracts with customers.~~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 ~~guidance requires an entity to recognize revenue to depict~~Company’s standard shipping terms are FOB shipping point unless the ~~transfer of goods or services to customers in an amount~~customer requests that ~~reflects the consideration to which an entity expects to be entitled in exchange for those goods or services. The guidance also requires expanded disclosures relating~~control and title to the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The standard allows the Company to transition to the new model using either a full or modified retrospective approach. ~~This guidance will be effective for the Company’s interim and annual periods beginning January 1, 2018. Although the assessment~~inventory transfer upon delivery.

Revenue is ~~not complete, the~~ Company believes that this standard will not have a material impact on its business practices, financial condition, results of operations and disclosures. The Company expects to complete the assessment in the fourth quarter of 2017.

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In November 2015, the FASB issued amended guidance concerning the classification of deferred taxes on the balance sheet to require that deferred tax assets and deferred tax liabilities be presented as noncurrent in a classified balance sheet. The amendment was effective for our annual and interim reporting periods beginning January 1, 2017, with early adoption permitted. The Company adopted this standard in the first quarter of 2017 with no impact on the Company’s consolidated financial statements as all net deferred tax assets are fully reserved.

In February 2016, the FASB issued updated guidance to improve financial reporting about leasing transactions. This guidance will require organizations that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. This guidance is effective for the Company’s annual and quarterly reporting periods beginning January 1, 2019. The Company is evaluating the impact that the adoption of this standard will have on its consolidated financial statements and disclosures.

~~In January 2017, the FASB issued amended guidance to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. A goodwill impairment will now be~~ measured as the amount byof 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 ~~reporting unit’s carrying~~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 six months ended June 30, 2023 and 2022. 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 ~~exceeds~~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 ~~fair value, limited to~~products in case of non-conformity or performance issues. The Company estimates the amount of ~~goodwill allocated to~~its product sales that ~~reporting unit. This guidance~~may be returned by its customers and records this estimate as a reduction of revenue in the period the related product revenue is to be applied on a prospective basis effective for the Company’s interim and annual periods beginning after January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017.recognized. The Company is currently ~~evaluating the effect of this update on~~estimates product return liabilities using available industry data and its ~~consolidated financial statements~~.

~~Note 2 – Aquadex Acquisition~~

~~On August 5, 2016, the Company completed the acquisition of certain assets used in the production~~own historical sales and ~~sale of the Aquadex product line from Baxter. The acquisition of these assets meets the criteria for the purchase of a business, and~~ ~~has been accounted for in accordance with Accounting Standards Codification (ASC) 805,~~ ~~Business Combinations~~, with identifiable assets acquired and liabilities assumed recorded at their estimated fair values on the acquisition date. A valuation of the assets and liabilities from the business acquisition was performed utilizing cost, income and market approaches resulting in $5.1 million allocated to identifiable net assets.

In connection with the acquisition of the Aquadex Business, the Company entered into a manufacturing and supply agreement with Baxter whereby Baxter agreed to manufacture and supply all of the Company’s finished goods for a period of up to 18 months from the close of the transaction.returns information. The Company ~~completed the acquisition in order~~has not received any returns to ~~strengthen~~date and believes that future returns of its ~~presence in the heart failure market.~~products will be minimal. Therefore, revenue recognized is not currently impacted by variable consideration related to product returns.

~~Purchase Consideration:~~ ~~Total purchase consideration for the Aquadex Business was as follows:~~

(in thousands)
Cash consideration $ 4,000
Common stock consideration 950
Fair value of contingent consideration 126
Total purchase consideration $ 5,076

~~Common Stock Consideration:~~ ~~The common stock consideration consisted of 1,666 shares of the Company’s common stock, worth $0.95 million based on the closing market value of $570.00 per share on August 5, 2016.~~

~~Contingent Consideration:~~ In connection with the acquisition of the Aquadex product line, the Company agreed to pay Baxter 40% of any proceeds in excess of $4.0 million related to the sale or disposal of the Aquadex assets within three years of the close of the transaction. The fair value of this contingent consideration was calculated based on the estimated likelihood of occurrence of this event in the timeframe provided by the agreement.

~~Purchase price consideration does not include expenses of $0.9 million for accounting, audit, legal, and valuation services that were incurred as part of the transaction and were expensed as incurred.~~

The acquisition was recorded by recognizing the assets acquired at their estimated fair value at the acquisition date. The excess of the cost of the acquisition over the fair value of the assets acquired was recorded as goodwill. The fair values were based on management’s analysis, including work performed by third-party valuation specialists. The following presents the amounts recognized for the assets acquired on August 5, 2016 (in thousands):

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Capital lease asset $ 307
Intangible assets 4,580
Total identifiable assets acquired 4,887
Goodwill 189
Total purchase consideration $ 5,076

The goodwill is primarily attributable to new and/or future customer relationships that were not acquired in the transaction. The fair value of the capital lease asset utilized a combination of the cost and market approaches, depending on the characteristics of the asset classification. Of the $4.6 million of acquired intangible assets, $3.1 million was assigned to customer relationships, $1.1 million was assigned to developed technology, and $0.4 million was assigned to trademarks and tradename. All intangible assets are estimated to have a useful life of 7 years.

~~Pro Forma Condensed Combined Financial Information (Unaudited)~~

The following unaudited pro forma combined financial information summarizes the results of operations for three months and nine months ended September 30, 2016 as if the acquisition of Aquadex had been completed on of January 1, 2016. Pro forma information reflects adjustments that are expected to have a continuing impact on our results of operations and are directly attributable to the acquisition. The unaudited pro forma results include adjustments to reflect, among other things, direct transaction costs relating to the acquisition, the difference in intangible asset amortization to be incurred based on the preliminary values of each identifiable intangible asset, and the difference in depreciation expense to be incurred based on preliminary value of the capital lease asset. The pro forma amounts do not purport to be indicative of the results that would have actually been obtained if the acquisition had occurred as of January 1, 2016 or that may be obtained in the future, and do not reflect future synergies, integration costs, or other such costs or savings.

($ in thousands, except per share amounts) Three Months Ended Nine Months Ended
September 30, September 30,
2017 2016 2017 2016
Pro forma net sales $ 957 $ 791 $ 2,722 $ 2,414
Pro forma net loss from operations (2,863 ) (3,146 ) (7,670 ) (12,519 )
Pro forma basic and diluted net loss per share $ (4.55 ) $ (94.50 ) $ (25.36 ) $ (397.21 )

Note 3 ~~- Debt~~— Stockholders’ Equity

~~Prior Loan Agreement~~: On February 18, 2015, the Company entered into a loan and security agreement with Silicon Valley Bank (the Bank) for proceeds of up to $10.0 million at an annual interest rate of 7.0%. Under this agreement, a $6.0 million term loan was funded at closing and an additional term loan in the amount of $2.0 million was funded on June 26, 2015. The proceeds from the term loans were used for general corporate and working capital purposes. Commencing on January 1, 2016, the Company began repaying the advances made in twenty-four consecutive equal monthly installments. On August 4, 2016, the Company repaid all remaining amounts outstanding under the agreement, and incurred a $0.5 million loss on early extinguishment of debt, including the accelerated write-off all unamortized warrants and debt issuance costs. ~~There were no borrowings outstanding under this facility as of September 30, 2017 or December 31, 2016.~~

~~Warrants:~~ In connection with the funding of these term loans, the Company issued 115 warrants at an exercise price of $3,132 per share and 55 warrants at an exercise price of $2,208 per share to the Bank and one of its affiliates. The Company valued these warrants at $2,316 per share and $1,626 per share, respectively, utilizing the Black Scholes valuation model and the following assumptions: an expected dividend yield of 0%, an expected stock price volatility of 88.07% and 87.04%, a risk-free interest rate of 1.86% and 2.20%, and an expected life of 6.25 years. The warrants have a life of ten years and were fully vested at the date of grant.

~~New Loan Agreement:~~ On August 5, 2016, the Company entered into a new loan and security agreement with the Bank (the “New Loan Agreement”). Under the New Loan Agreement, the Bank agreed to provide the Company with up to $5.0 million in debt financing, consisting of a term loan in an aggregate original principal amount not to exceed $4.0 million (the “Term Loan”) and a revolving line of credit in an aggregate principal amount not to exceed $1.0 million outstanding at any time (the “Revolving Line”). Proceeds from the loans were to be used for general corporate and working capital purposes. Advances under the Term Loan were available to the Company until November 30, 2016 and were subject to the Company’s compliance with liquidity covenants. The Term Loan expired unused on November 30, 2016 and the Term Loan is no longer available to be drawn. Advances under the Revolving Line are available to the Company until March 31, 2020 and accrue interest at a floating annual rate equal to 1.75% or 1.0% above the prime rate, depending on liquidity factors. Advances under the revolving line are subject to various conditions precedent, including compliance with financial covenants relating to net liquidity relative to monthly cash burn, which the Company does not currently meet. Outstanding borrowings, if any, are collateralized by all of the Company’s assets, excluding intellectual property which is subject to a negative pledge. There were no borrowings outstanding under this facility as of September 30, 2017 or December 31, 2016.

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~~Note 4 - Equity~~

Series ~~B/B-1~~F Convertible Preferred Stock: On July 20, 2016, the Company entered into a securities purchase agreement with an institutional investor for an offering of shares of convertible preferred stock and warrants with gross proceeds of approximately $3.5 million in a registered direct offering. The transaction closed on July 26, 2016, and the Company issued 3,468 shares of Series B Convertible Preferred Stock. The Series B Convertible Preferred Stock is non-voting and was convertible into a total of 6,149 shares of common stock at the holder’s election at any time at a conversion price of $564.0 per share. Approximately $1.6 million of the proceeds were allocated to the preferred stock, representing the residual proceeds after the warrants (described below) were recorded at fair value.

On October 30, 2016, the Company entered into an exchange agreement with the holders of its Series B Convertible Preferred Stock and agreed to issue such holders 2,227.2 shares of the Company’s Series B-1 Convertible Preferred Stock in exchange for the cancellation of all shares of Series B Convertible Preferred Stock held by such holders. The Series B-1 Convertible Preferred Stock had similar terms as the Series B Convertible Preferred Stock, except that the initial conversion price of the Series B-1 Convertible Preferred Stock was $102.0 per share. As of December 31, 2016, 402.8 shares of the Series B-1 Convertible Preferred Stock had been converted into 3,948 shares of common stock, and 1,824.4 shares of Series B-1 Convertible Preferred Stock remained outstanding. As of September 30, 2017, all remaining Series B-1 Convertible Preferred Stock had been converted into an additional 17,866 shares of common stock and none remained outstanding.

~~Series C and D Convertible Preferred Stock~~: Also, on October 30, 2016, the Company entered into a securities purchase agreement with an institutional investor for shares of convertible preferred stock and warrants with an aggregate purchase price of $3.8 million in a registered direct offering and simultaneous private placement. The first closing of the transaction occurred on November 3, 2016, whereby the Company received $3.6 million in gross proceeds and issued and sold 2,900 shares of Series C Convertible Preferred Stock, and 700 shares of Series D Convertible Preferred Stock, both with conversion prices of $102.0 per share. At the second closing, on January 10, 2017, the Company issued and sold 200 shares of Series D Convertible Preferred Stock with a conversion price of $102.0 per share for gross proceeds of $0.2 million. The Series C and D Convertible Preferred Stock included a contingent beneficial conversion amount of $1.3 million and $0.5 million, respectively, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the first quarter of 2017 when the contingency for the conversion was resolved with the shareholder approval allowing for the conversion of the preferred stock into common stock. As of December 31, 2016, 2,900 shares of Series C Convertible Preferred Stock and 700 shares of Series D Convertible Preferred Stock were outstanding and none had been converted. As of September 30, 2017, all shares of the Series C and D Convertible Preferred Stock had been converted into an aggregate of 55,712 shares of common stock and none remained outstanding.

The Series D Convertible Preferred Stock with a carrying value of $0.5 million was classified as temporary equity in the consolidated balance sheet as of December 31, 2016 because the Company could not control the settlement of its redemption in common stock. The temporary equity was not remeasured to fair value each period through earnings because the events that could trigger its redemption were not probable of occurrence. There were no shares of the Series D Convertible Preferred Stock outstanding as of September 30, 2017.

~~Series E Convertible Preferred Stock: On April 24,~~27, 2017, the Company closed on an underwritten public offering of ~~common~~Series F convertible preferred stock ~~Series E Convertible Preferred Stock~~ and warrants to purchase shares of common stock for gross proceeds of ~~$9.2 million, which included the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants.~~$18.0 million. Net proceeds totaled approximately ~~$8.0~~$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 a conversion price of $189,000 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 $189,000 per share, and a Series 2 warrant, which expires on the seventh anniversary of its issuance, to purchase 4 shares of the Company’s common stock at an exercise price of $189,000 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 convertible into 96 shares of common stock and warrants to purchase 191 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 $89,040 to $15,750, the per share price to the public of the Series G convertible preferred stock issued in the March 2019 Offering. Effective October 25, 2019, the conversion price of the Series F convertible preferred stock was reduced from $15,750 to $4,230, and on November 6, 2019, from $4,230 to $2,983, the per share price to the public in the October and November 2019 transactions, respectively. Effective January 28, 2020, the conversion price of the Series F convertible preferred stock was reduced from $2,983 to $1,650, 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 $1,650 to $900, the per share price to the public in the March 2020 transaction, described below. In connection with the March 2021 Offering, the conversion price of the Series F convertible preferred stock was reduced from $900 to $550, 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 offering consummated by the Company on January 28, 2020 (the “January 2020 Offering”) was reduced from $900 to $550, the per share price to the public in the March 2021 Offering. In connection with the September 2021 offering, the conversion price of the Series F convertible preferred stock was reduced from $550 to $250, the per share price to the public in the September 2021 offering, described below. In connection with the October 2022 offering, the conversion price of the Series F convertible preferred stock was reduced from $250 to $25, the per share price to the public in the October 2022 offering, described below.

As of June 30, 2023 and December 31, 2022, 127 shares of the Series F convertible preferred stock remained outstanding.

March 2021 Offering: On March 19, 2021, the Company closed on an underwritten public offering of 37,958 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.

September 2021 Offering: On September 17, 2021, the Company closed on an underwritten public offering of 40,056 shares of common stock, for gross proceeds of approximately $10.0 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 $550 to $250, 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 $550 to $250, the per share price to the public in the September 2021 Offering.

October 2022 Offering: On October 18, 2022, the Company closed on an underwritten public offering of 209,940 shares of common stock and 23,157,124 shares of Series I convertible preferred stock, for gross proceeds of approximately $11.0 million (the “October 2022 Offering”). Net proceeds totaled approximately $9.4 million after deducting underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.

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The offering was comprised of (1) 209,940 Class A Units, priced at a public offering price of ~~$20.00~~$25 per ~~unit,~~Class A Unit, with each ~~unit~~Class A Unit consisting of one share of common stock and ~~one five-year warrant~~1.5 warrants to purchase one share of common stock ~~with~~at an exercise price of ~~$22.0~~$25 per share, and (2) 23,157,124 Class B Units, priced at a public offering price of ~~$1,000~~$0.25 per ~~unit,~~Class B Unit, with each ~~unit comprised~~Class B Unit consisting of one share of Series I convertible preferred stock, ~~which was~~ convertible into 50one share of common stock for every one hundred shares of Series I convertible preferred stock, and 1.5 warrants to purchase one share of common stock for every one hundred shares of Series I convertible preferred stock. The warrants included a cashless exercise provision that upon becoming exercisable, the warrant holders could exercise the warrants for common stock at a zero-dollar exercise price.

The warrants became exercisable beginning on the effective date of a reverse stock split in an amount sufficient to permit the exercise in full of the warrants, contingent upon stockholder approval of (i) such reverse stock split and (ii) of the exercisability of the warrants under Nasdaq rules, and they expire on the sixth anniversary of the initial exercise date.

On December 8, 2022, following a special meeting of stockholders, the Company’s board of directors approved a one-for-one hundred reverse stock split of the Company’s issued and outstanding shares of common stock (the “Reverse Stock Split”). On December 9, 2022, the Company filed with the Secretary of State of the State of Delaware a Certificate of Amendment to its Certificate of Incorporation to effect the Reverse Stock Split. The Reverse Stock Split became effective as of 5:00 p.m. Eastern Time on December 9, 2022, and ~~warrants to purchase 50 shares of~~the Company’s common stock ~~also with an exercise price of $22.0 per share.~~began trading on a split-adjusted basis when the market opened on December 12, 2022. The conversion price of the preferred stock issued in the October 2022 offering was 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 are immediately separable and were issued separately. This reverse stock split did not change the par value of the Company’s common stock or the number of common or preferred shares authorized by the Company’s Fourth Amended and Restated Certificate of Incorporation, as amended. All share and per-share amounts in this quarterly report have been retroactively adjusted to reflect the reverse stock splits for all periods presented.

On January 4, 2023, the Company secured stockholder approval for the exercisability of the common stock warrants issued in the October 2022 Offering. Upon stockholder approval, the warrants were determined to be equity-classified warrants. Concurrent with stockholder approval, the warrants were marked to market, then reclassified to the equity section of the balance sheet. Through June 30, 2023, 660,046 common stock warrants had converted into 660,046 shares of common stock at a zero-dollar exercise price, with no proceeds received by the Company.

In connection with the October 2022 Offering, the conversion price of the Series ~~E Convertible Preferred Stock as well as~~F convertible preferred stock was reduced from $250 to $25, the per share price to the public in the October 2022 Offering. In addition, the exercise price of the common stock warrants ~~are fixed~~issued in connection with the January 2020 Offering was reduced from $250 to $25, the per share price to the public in the October 2022 Offering.

2023 At-the-Market Program: In March 2023, the Company filed a Prospectus Supplement to its Registration Statement on Form S-3 with the SEC in connection with a proposed At-the-Market Securities offering (the “At-the-Market Program”). In May 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. A total of 140,000~~June 2023, the Company issued 657,333 shares of common stock ~~6,400 shares~~under the At-the-Market Program for gross proceeds of ~~Series E Convertible Preferred Stock convertible into 320,000 shares of common stock,~~approximately $2.3 million. Net proceeds totaled approximately $2.1 million after deducting the underwriting discounts and ~~warrants to purchase 640,000 shares of common stock were issued in~~commissions and other costs associated with the offering including the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants. The Series E Convertible Preferred Stock included a beneficial conversion amount of $1.0 million, representing the intrinsic value of the shares at the time of issuance. This amount is reflected as an increase to the loss per share allocable to common stockholders in the nine months ended September 30, 2017. ~~As of September 30, 2017, all shares of the Series E Convertible Preferred Stock had been converted into an aggregate of 320,000 shares of common stock and none remained outstanding.~~offering.

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Placement Agent Fees: In connection with the ~~issuance of the Series B, C and D Convertible Preferred Shares,~~offerings described above, the Company paid the placement agent an aggregate cash placement fee equal to 6%8% of the aggregate gross proceeds raised in ~~the offering and issued warrants as described below. In connection with the issuance~~each of the ~~Series E Convertible Preferred Shares,~~offerings, except with respect to the ~~Company paid~~issuances made in each of May and June 2023 pursuant to the At-the-Market Program, for which the placement ~~agent an aggregate cash placement~~ fee was equal to 9%3% of the aggregate gross ~~proceeds raised~~proceeds.

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 ~~offering. There were no warrants issued~~right to ~~the placement agent as part of this financing.~~

~~Investor Warrants: In connection with the issuance~~acquire up to 33 shares of the ~~Series B Convertible Preferred Stock in July 2016, the Company issued the investor at no additional cost warrants to purchase 6,149 shares of~~Company’s common stock at an exercise price of ~~$564.0~~$9,540 per ~~share. The warrants were exercisable for 36 months commencing six months from~~share, based on the closing ~~date and were~~stock price of the Company’s common shares on May 30, 2019. The warrant is subject to a ~~reduction~~vesting schedule based on the Company achieving certain market stock prices within a specified period of time. The warrant expires on May 30, 2024. None of these warrants had vested as of June 30, 2023.

Supply Agreement Warrants: On June 19, 2023, we entered into a Supply and Collaboration Agreement (the “Supply Agreement”) with DaVita Inc., a Delaware corporation (“DaVita”), pursuant to which DaVita will pilot the Aquadex ultrafiltration therapy system to treat adult patients with congestive heart failure and related conditions within select U.S. markets. The pilot program is expected to launch by the end of fourth quarter 2023 and extend through May 31, 2024 (the “Pilot”). Through the Pilot, ultrafiltration therapy using Aquadex will be offered at a combination of DaVita’s hospital customer and outpatient center locations, with both companies collaborating on the roll-out of the ~~exercise price if~~therapy, clinician training, and patient support. At the conclusion of the Pilot, DaVita has the option, in its sole discretion, to extend the Supply Agreement with the Company ~~subsequently issued common stock or equivalents at an effective price less than the current exercise price~~for continued provision of ~~such warrants. Concurrently~~both inpatient and outpatient ultrafiltration services for up to 10 years (“Ultrafiltration Services Approval”).

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In conjunction with the ~~closing of the Series C and D Convertible Preferred Stock and warrant financing on November 3, 2016, the exercise price for these warrants was adjusted to $102.0 per share.~~

~~In connection with the issuance of the Series C and D Convertible Preferred Stock in November 2016,~~Supply Agreement, the Company issued ~~the investor at no additional cost warrants~~DaVita a warrant to purchase ~~35,295~~up to an aggregate of 1,289,081 shares of common stock of the Company, par value $0.0001 per share, at an exercise price of ~~$108.0~~$3.2996 per ~~share. In connection with~~share (the “DaVita Warrant”), provided that at no time can the ~~issuance~~DaVita Warrant be exercised for an amount of ~~the Series D Convertible Preferred Stock at the second closing~~shares that would represent greater than 19.9% ownership in ~~January 2017,~~ the Company ~~issued the investor at no additional cost warrants~~subject to ~~purchase 1,961 shares of common stock at an exercise price of $108.0 per share.~~certain vesting milestones. The ~~warrants were exercisable for 60 months commencing on the earlier of the day of the~~DaVita Warrant is expected to vest in four tranches as follows: (i) 25% upon receipt of ~~approval of~~notice to extend the ~~Company’s stockholders~~Supply Agreement past the initial pilot-term; (ii) 25% upon the attainment by the Company of a ~~proposal~~net revenue achievement from DaVita’s efforts pursuant to ~~approve~~ the ~~issuance~~Supply Agreement within twelve months of Ultrafiltration Services Approval; (iii) 25% upon the ~~shares of common stock underlying the warrants, or the six-month anniversary of the date of issuance. These warrants were subject to a reduction of the exercise price if~~attainment by the Company ~~subsequently issued common stock or equivalents at an effective price less than~~of a net revenue achievement from DaVita’s efforts pursuant to the ~~current exercise price~~Supply Agreement within twenty-four months of ~~such warrants.~~

~~Warrant Exercise Agreement:~~ ~~On February 15, 2017,~~Ultrafiltration Services Approval; and (iv) 25% upon the attainment by the Company ~~entered into~~of a ~~letter agreement with~~net revenue achievement from DaVita’s efforts pursuant to the ~~institutional investors that held the majority~~Supply Agreement within thirty-six months of ~~its outstanding warrants (the ‘‘Original Warrants’’), to incent the cash exercise~~Ultrafiltration Services Approval. None of these warrants had vested as of June 30, 2023.

The Company evaluated the accounting treatment for the DaVita Warrant pursuant to ASC 718, “Stock Compensation,” and ASC 480, “Distinguishing Liabilities from Equity,” and concluded the DaVita Warrant should be classified as an equity instrument on ~~or before March 31, 2017.~~the balance sheet as of June 30, 2023. In exchange for any such exercise, the Company agreed to provide the investors a replacement warrant (the ‘‘Replacement Warrants’’) to purchase the same number of shares of common stock as were issued upon exerciseaccordance with this treatment, Management concluded none of the ~~Original Warrants,~~performance-based vesting conditions of the DaVita warrant had been met as of June 30, 2023, and therefore, no expense associated with ~~an exercise price equal to~~ the ~~consolidated closing bid price of its common stock on the date of issuance. The Replacement Warrants were issued~~DaVita Warrant was recognized in the same form as the Original Warrants except the exercise prices are not subject to reduction for subsequent equity issuances and the Replacement Warrants do not allow the investor to demand that the Company purchase the Replacement Warrants in the event of a fundamental transaction involving the Company. In connection with this agreement, between February and March 2017, the investors exercised all of the Original Warrants for gross cash proceeds to the Company of $2.0 million, and the Company issued 43,396 Replacement Warrants with exercise prices ranging from $34.6 per share to $99.8 per share.

The Company entered into the letter agreement with the investors to incent the exercise of the Original Warrants in order to receive the cash proceeds from the exercise of the Original Warrants and because the exercise of the Original Warrants would allow the Company to remove the warrant liability from its balance sheet and avoid future fair value adjustments and associated volatility in its consolidatedCompany’s financial statements as of that date. The Company will continue to evaluate the ~~Replacement Warrants are not accounted for as liabilities~~probability of achieving the performance milestones associated with the DaVita Supply Agreement and will record the related equity-based expense in its financial statements based on ~~their terms. As of September 30, 2017, there were no Original Warrants outstanding and all Replacement Warrants under~~ the ~~letter agreement had been issued.~~

~~Placement Agent Warrant:~~ In connection with the issuance of the Series B, C and D Convertible Preferred Stock, the Company issued warrants to the placement agent to purchase an aggregate of 2,602 shares of common at exercise prices ranging from $127.6 per share to $810.0 per share. These warrants were issued at no additional cost, were exercisable immediately and expire five years from the closing of the offerings. These warrants do not contain repricing provisions.

~~Warrant Valuation: Both the Original Warrants and placement agent warrants were accounted for as liabilities and were recorded at fair value on the~~grant date of issuance. These warrants must be measured and recorded at fair value for each subsequent reporting period that the warrants remain outstanding, and any changes in fair value must be recognized in the consolidated statement of operations and comprehensive loss. In connection with the warrant exchange agreement described above, the Company remeasured each Original Warrant as of the date of exercise and recorded $1.4 million for the change in fair value of these warrants as an unrealized gain in the accompanying consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2017. Warrant liability totaled $1.8 million as of December 31, 2016, and $6,000 as of September 30, 2017.

The Replacement Warrants were valued at $0.5 million using the Black Scholes valuation model with the following assumptions: an expected dividend yield of 0%, expected stock price volatility of 49.65%-50.38%, risk-free interest rates of 1.95%-1.97% and an expected life of 5 years. The warrants have a five-year life and were fully vested at the date of grant. The terms of the Replacement Warrants do not require them to be accounted for as liabilities and are therefore recorded in equity. As in incentive to early exercise the Original Warrants, the fair value provided to investors through the Replacement Warrants exceeded the fair value of the ~~Original Warrants~~DaVita Warrant when management deems it is probable that ~~was relinquished by~~ the ~~warrant holders by approximately $0.1 million, which has been reflected as an expense in the consolidated statement of operations and comprehensive loss for the nine months ended September 30, 2017.~~performance-based vesting conditions will be achieved.

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Note ~~5 -~~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:

	Nine months ended September 30,				Three months ended June 30				Six months ended June 30
(in thousands)	2017		2016		2023		2022		2023		2022
Selling, general and administrative expense	$	351	$	506	$	179	$	211	$	351	$	425
Research and development expense		43		314		18		25		27		52
Total stock-based compensation expense	$	394	$	820	$	197	$	236	$	378	$	477

During the three months ended June 30, 2023 and 2022, under the 2017 Equity Incentive Plan, the 2021 Inducement Plan, and the 2013 Non-Employee Directors’ Equity Incentive Plan, the Company granted 11,654 and 900 stock options, respectively, to its directors, officers and employees. During the six months ended June 30, 2023 and 2022, the Company granted 106,767 and 5,208, respectively, to its directors, officers, employees and consultants. Vesting generally occurs over an immediate to 48-month period based on a time-of-service condition, although vesting acceleration is provided under one grant in the event that a certain milestone is met. The weighted-average grant date fair value of the stock-options issued during the three months ended June 30, 2023 and 2022 was $2.69 and $55.71 per share, respectively. The weighted-average grant date fair value of the stock options issued during the six months ended June 30, 2023 and 2022 was $6.97 and $80.39 per share, respectively.

The total number of stock options outstanding as of June 30, 2023 and June 30, 2022 was 114,004 and 11,979, respectively.

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The weighted-average assumptions used in the Black-Scholes option-pricing model are as follows for the stock options granted during the three and six months ended June 30, 2023 and 2022:

	Three months ended						Six months ended
	June 30						June 30
	2023			2022			2023			2022
Expected volatility		132.13	%		132.38	%		156.35	%		132.29	%
Expected Life of options (years)		6.08			5.59			6.23			6.14
Expected dividend yield		0	%		0	%		0	%		0	%
Risk-free interest rate		3.75	%		2.75	%		4.13	%		1.98	%

During the three months ended June 30, 2023 and 2022, 1,178 and 1,620 stock options vested, respectively, and 2,946 and 664 stock options were forfeited or expired during these periods, respectively. During the six months ended June 30, 2023 and 2022, 5,921 and 1,907 stock options vested, respectively, and 3,248 and 805 stock options were forfeited or expired during these periods, respectively. During the three and six months ended June 30, 2023 and 2022, no options were exercised.

Note ~~6 -~~5 — Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, ~~warrants,~~marketable securities, and ~~contingent consideration.~~warrants.

Pursuant to the requirements of ~~ASC~~Accounting Standards Codification (“ASC”) Topic 820 ~~“Fair~~“Fair Value Measurement,” the Company’s financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

·●	Level 1 - — Financial instruments with unadjusted quoted prices listed on active market exchanges.

·●

Level 2 - — Financial instruments lacking unadjusted, quoted prices from active market exchanges, including ~~over the counter~~over-the-counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

·●	Level 3 - — Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

All cash equivalents and marketable securities are considered Level 1 measurements for all periods presented.

The available-for-sale marketable securities primarily consist of investment-grade, U.S.-dollar-denominated fixed and floating rate debt, measured at fair value on a recurring basis.

	June 30, 2023				December 31, 2022
(in thousands)	Fair Value		Level 1		Fair Value		Level 1

Marketable securities	$	0	$	0	$	569	$	569

The fair value of the Company’s common stock warrant liability related to the ~~Original Warrants~~investor warrants issued in the October 2022 Offering was calculated using a Monte Carlo valuation model and was classified as Level 3 in the fair value hierarchy. The common stock warrants issued July 26, 2016 had a fair value of $226,000 on December 31, 2016 and $46,000 as of their dates of exercise. The common stock warrants issued November 3, 2016 had a fair value of $1.5 million on December 31, 2016 and $0.4 million as of their exercise dates. The common stock warrants issued January 12, 2017 had a fair value $72,000 on the date of issuance and $18,000 as of the date of exercise. All Original Warrants were classified as a warrant liability and were exercised during the nine months ended September 30, 2017.

The ~~fair value~~following is a roll-forward of ~~the Company’s common stock warrant liability related to the placement agent warrants is calculated using a Black Scholes valuation model and is classified as Level 3 in the fair value hierarchy.~~

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~~Fair values were calculated using the following assumptions:~~

		~~As of Dec. 31, 2016~~			~~As of date of exercise~~
~~Risk-free interest rates, adjusted for continuous compounding~~		~~1.47/1.96~~	%		~~1.45-1.99~~	%
~~Term (years)~~		~~3.1/5.3~~			~~2.84-5.50~~
~~Expected volatility~~		~~55.3/49.8~~	%		~~49.9-58.5~~	%
~~Dates and probability of future equity raises~~	~~various~~			~~various~~

The fair value of the Company's contingent consideration, as described in Note 2, was initially measured based on the consideration expected to be transferred (probability-weighted), discounted back to present value, and it is considered a Level 3 instrument. The discount rate used was determined at the time of measurement in accordance with accepted valuation methods. The Company measures the liability on a recurring basis using Level 3 inputs including probabilities of payment and projected payment dates. Changes to any of the inputs may result in significantly higher or lower fair value measurements. There were no changes in the fair value of the ~~contingent consideration subsequent to the initial measurement.~~

~~All cash equivalents are considered Level 1 measurements for all periods presented. The Company does not have any financial instruments classified as Level 2 or any other classified as~~ Level 3 ~~and there were no movements between these categories during the periods ended September 30, 2017 and December 31, 2016. The Company believes that the carrying amounts~~warrants:

(in thousands)
Balance at December 31, 2022	$	6,868
Change in fair value		755
Balance at January 4, 2023 (revaluation date)		7,623
Warrants reclassified to equity		(7,623	)
Balance at June 30, 2023	$	—

Table of ~~all remaining financial instruments approximate their fair value due to their relatively short maturities.~~Contents

Note ~~7 –~~6 — Income Taxes

The Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of ~~the net~~its deferred tax assets. The Company has established a full valuation allowance for its 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 ~~net~~ deferred tax assets in the accompanying condensed consolidated financial statements.

During 2017, the Company experienced an ownership change as defined in Section 382 of the Internal Revenue Code which will limit the ability to utilize the Company’s net operating losses (NOLs). The Company may have experienced additional ownership changes in earlier years further limiting the NOL carry-forwards that may be utilized. The Company has not yet completed a formal Section 382 analysis. The general limitation rules allow the Company to utilize its NOLs subject to an annual limitation that is determined by multiplying the federal long-term tax-exempt rate by the Company’s value immediately before the ownership change.

As of ~~September~~June 30, ~~2017,~~2023, 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, ~~2016.~~2022.

Note 7 — Operating Leases

The Company leases a 23,000 square foot facility located in Eden Prairie, Minnesota for office and manufacturing space under a non-cancelable operating lease that expires in March 2027. In November 2021, the Company entered into a fourth amendment to the lease, extending the term of the lease from March 31, 2022 to March 31, 2027. This facility serves as our corporate headquarters and houses substantially all our functional departments. Monthly rent and common area maintenance charges, including estimated property tax for our headquarters, total approximately $31,000. The lease contains provisions for annual inflationary adjustments. Rent expense is being recorded on a straight-line basis over the term of the lease. Beginning on April 1, 2022, the annual base rent is $10.50 per square foot, subject to future annual increases of $0.32 to $0.34 per square foot.

Note 8 — Finance Lease Liability

In 2020, the Company entered into lease agreements to finance equipment valued at $98,000. 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 lease commenced, the implied interest rate is 7.5%, and the term of the lease is 39 months.

Note 9 — Commitments and Contingencies

Employee Retirement Plan: The Company has a 401(k) retirement 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 limitations, with the Company matching a portion of the employees’ contributions at the discretion of the Company.

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 to support this project. As part of this agreement, the Company paid KBT a non-refundable technology license fee of $428,160, payable in twelve equal monthly installments commencing on June 1, 2022. The full amount of $428,160 was expensed and included in Research and Development Expense for the year ended December 31, 2021, and the Company fully paid the license fee in the second quarter of 2023.

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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, ~~2016.~~2022. 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, ~~2016~~2022 and in our subsequent filings with the Securities and Exchange Commission (~~SEC~~(the “SEC”).

Unless otherwise specified or indicated by the context, ~~CHF Solutions, Company, we, us~~“Nuwellis,” “Company,” “we,” “us,” and ~~our,~~“our” refer to ~~CHF Solutions,~~Nuwellis, Inc. and its ~~subsidiaries.~~subsidiary.

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OVERVIEW

About ~~CHF Solutions~~Nuwellis

We are a medical ~~device~~technology companydedicated to transforming the lives of patients suffering from fluid overload through science, collaboration, and innovation. The Company is focused on commercializing the Aquadex ~~FlexFlow System~~SmartFlow system for ~~Aquapheresis~~ultrafiltration therapy. The Aquadex ~~FlexFlow System~~SmartFlow system is indicated for temporary (up to eight hours) ~~ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy, and~~or extended (longer than 8 ~~hours) ultrafiltration treatment of~~hours in patients ~~with~~who require hospitalization) use in adult and pediatric patients weighing 20 kg or more whose fluid overload ~~who have failed diuretic therapy and require hospitalization.~~is unresponsive to medical management, including diuretics.

Prior to July 2016, we were focused on developing the C-Pulse ~~Heart Assist~~ System for treatment of Class III and ambulatory Class IV heart failure. The C-Pulse System utilized the known concept of counterpulsation applied to the aorta. In March 2016, we announced that we were no longer enrolling patients into our two clinical studies for the C-Pulse System and that we planned to pursue a new strategic direction. In July 2016, we announced that we were moving forward with a therapeutic strategy utilizing neuromodulation rather than counterpulsation.

In August 2016, we acquired the Aquadex Business from a subsidiary of Baxter, ~~International, Inc. (“Baxter”),~~ a global leader in the hospital products and dialysis markets.

On In September ~~29,~~ 2016, we announced a ~~strategic~~ refocus of our ~~near-term~~ strategy that ~~includes~~included halting all clinical evaluations of ~~our neuromodulation~~the C-Pulse System related technology to fully focus our resources on our recently acquired Aquadex ~~Business, taking actions to reduce our cash burn in connection with such strategic refocus, and reviewing potential strategic alliances and financing alternatives.~~

Business. On May 23, 2017, we announced that we were changing our name from Sunshine Heart, Inc. to CHF Solutions, Inc. to more appropriately reflect the direction of our business.

~~Reverse Stock Splits~~

~~During 2017, our board of directors and stockholders approved two reverse stock splits. Neither reverse stock split changed~~ On April 27, 2021, the ~~par value of our common stock or the number of common or preferred shares authorized by the Company’s Fourth Amended and Restated Certificate of Incorporation. The first reverse stock split~~Company announced that it was a 1-for-30 reverse split of our outstanding common stock that became effective after trading on January 12, 2017. The second reverse stock split was a 1-for-20 reverse split of our outstanding common stock that became effective after trading on October 12, 2017. All share and per share amounts in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017 and 2016, including the consolidated financial statements and notes thereto, have been retroactively adjustedchanging its name from CHF Solutions, Inc. to Nuwellis, Inc. to reflect the ~~reverse stock splits for all periods presented.~~

~~Warrant Exercise Agreement~~

~~On February 15, 2017, we entered into a letter agreement with the institutional investors that held the majority~~expansion of ~~our outstanding warrants,~~its customer base from treating fluid imbalance resulting from congestive heart failure to incent the cash exercise of these warrants on or before March 31, 2017. In exchange for any such exercise, we agreed to provide the Investors a replacement warrant (the “Replacement Warrants”) to purchase the same number of shares of common stock as were issued upon exercise of the exercised warrants, with an exercise price equal to the consolidated closing bid price of our common stock on the date of issuance. The Replacement Warrants are in the same form as the exercised warrants except the exercise prices are not subject to reduction for subsequent equity issuancesalso include critical care and the Replacement Warrants do not allow the investor to demand that we purchase the Replacement Warrants in the event of a fundamental transaction involving the Company. In connection with this agreement, the investors exercised all of the Original Warrants for gross cash proceeds to us of $2.0 million, and we issued 43,396 Replacement Warrants with exercise prices ranging from $34.6 per share to $99.8 per share.

We entered into the letter agreement with the investors to incent the exercise of the Original Warrants in order to receive the cash proceeds from the exercise of the Original Warrants and because the exercise of the Original Warrants would allow us to remove the warrant liability from our balance sheet and avoid future fair value adjustments and associated volatility in our consolidated financial statements. As of September 30, 2017, we had no Original Warrants outstanding and we had issued all Replacement Warrants under the letter agreement.

~~Public Offering~~

On April 24, 2017, we closed on an underwritten public offering of 140,000 shares of common stock, 6,400 shares of Series E Convertible Preferred Stock and warrants to purchase 460,000 shares of common stock, which includes the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants, for gross proceeds of $9.2 million. Net proceeds totaled approximately $8.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering. See Note 4 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.pediatrics applications.

16Impact of COVID-19 Pandemic

During 2021 and 2022, we were subject to challenging social and economic conditions created as a result of the outbreak of the novel strain of coronavirus, SARS-CoV-2. The resulting impact of the COVID-19 pandemic created disruptions in our operations resulting from rapid and evolving changes implemented to keep our customers, their patients, and our employees safe. These changes included 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 work practices by requiring employees to work remotely, and increased protocols to ensure the safety of those employees that remained on site. The ongoing impact of the COVID-19 outbreak on our operational and financial performance has diminished, but we may still experience downstream effects that will depend on certain future developments, including the ongoing impact on our customers, hospital access restrictions imposed on our field employees, and effects on our vendors, all of which remain uncertain and cannot be predicted.

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~~Nasdaq Compliance~~Recent Developments

On ~~September 21, 2016, we received notice from the Listing Qualifications Staff~~August 4, 2023, Lynn Blake notified Nuwellis, Inc., a Delaware corporation (the ~~“Staff”~~“Company”) of ~~The Nasdaq Stock Market LLC (“Nasdaq”) indicating that~~her decision to resign as the ~~Staff had determined to delist our securities from The Nasdaq Capital Market due to our then continued non-compliance~~Chief Financial Officer of the Company, as set forth in the Company’s Form 8-K filing, dated as of August 8, 2023. Ms. Blake’s last date with the ~~minimum bid price requirement. We timely requested a hearing before~~Company is expected to be September 1, 2023 (the “Separation Date”). Ms. Blake’s resignation is not the ~~Nasdaq Hearings Panel (the “Panel”), which occurred~~result of any disagreement with the Company on ~~November 10, 2016. On November 11, 2016, we received notice from the Staff that we no longer satisfied Nasdaq Listing Rule 5550(b) insofar as we did not expect~~any matter relating to report stockholders’ equity of at least $2.5 million upon the filing of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2017 and that the deficiency could serve as an additional basis for the delisting of the Company’s ~~common stock from~~operations, policies, or procedures. The ~~Nasdaq Capital Market. On November 21, 2016, Nasdaq informed us that~~Company intends to appoint Rob Scott, the Panel had granted us continued listing on The Nasdaq Capital Market while we implemented our plan to regain compliance with the minimum bid price and minimum stockholders’ equity requirements. The Panel granted us until January 30, 2017 to evidence a closing bid price of $1.00 or more for a minimum of ten prior consecutive trading days. After implementing the reverse stock split described above, we received confirmation from Nasdaq on February 9, 2017 that we regained compliance with the minimum bid price rule. The Panel had granted us until March 20, 2017 to evidence compliance with the $2.5 million stockholder’s equity requirement. On March 28, 2017, we announced that the Panel had granted us an extension through May 10, 2017 to evidence compliance with the minimum shareholder’s equity requirement. On May 4, 2017, we were formally notified by Nasdaq that we had regained compliance with the minimum stockholders’ equity requirement and we were in compliance with all other applicable requirements for listing on The Nasdaq Capital Market.Company’s current Senior Finance Director, as its new Chief Financial Officer, effective September 2, 2023.

On June 1, 2017, we received a subsequent notification from Nasdaq informing us that we were no longer in compliance with the minimum bid price requirement, as the bid price of our shares of common stock (“Common Stock”) closed below the minimum $1.00 per share for the 30 consecutive business days prior to the date of the notice. Nasdaq also notified us that we were provided 180 calendar days, or until November 28, 2017, to regain compliance with the minimum bid price requirement. We effected a 1-for-20 reverse split of our outstanding common stock that became effective after trading on October 12, 2017, After implementing the reverse stock split described above, we received confirmation from Nasdaq on October 27, 2017, that we had regained compliance with the minimum bid price rule and the listing matter was closed.

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)~~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, ~~2016.~~2022.

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. ~~Other than new estimates made in connection with the valuation of our warrant liability, there~~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, ~~2016.~~2022.

Revenue ~~Recognition:~~ Recognition: We recognize revenue in accordance with ASC Topic 606, Revenue from ~~product sales~~Contracts with Customers. Accordingly, we recognize revenue when ~~earned. Specifically, revenue is recognized when persuasive evidence~~our customers obtain control of their products or services, in an ~~arrangement exists, delivery has occurred,~~amount that reflects the price is fixed or determinable, and collectability is reasonably assured. Revenue is not recognized until title and risk of loss have transferred to the customer. The shipping terms for our revenue arrangements are FOB shipping point.

~~Accounts Receivable: Our accounts receivable have terms~~consideration that ~~require payment in 30 days. We did not establish an allowance for doubtful accounts at September 30, 2017 as~~ we ~~have not experienced any write offs or a deterioration in the aging of our receivables to date and do not~~ expect to ~~experience~~receive in ~~the future.~~

~~Inventories: Inventories represent finished~~exchange for those goods ~~purchased from our supplier~~ and ~~are recorded as the lower of cost or market using the first-in-first out method.~~

~~Intangible assets~~: Our intangible assets consist of $3.1 million for customer relationships, $1.1 million for developed technology, and $0.4 million for trademarks and tradenames. All intangible assets are estimated to have a useful life of 7 years. We review our definite-lived intangible assets for impairment when impairment indicators exist. When impairment indicators exist, we determine if the carrying value of the intangible assets exceeds the related undiscounted cash flows. In cases where the carrying value exceeds the undiscounted cash flows, the carrying value is written down to its fair value, generally using a discounted cash flow analysis. No impairments have been identified or recorded in the periods presented.

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~~Goodwill:~~ Goodwill is the cost of an acquisition in excess of the fair value of acquired assets and liabilities and is recorded as an asset on our balance sheet. Goodwill is not subject to amortization but must be tested for impairment at least annually. This test requires us to assign goodwill to an appropriate reporting unit and to determine if the implied fair value of the reporting unit’s goodwill is less than its carrying amount.

~~We evaluate goodwill for impairment annually on November 1~~^st of each calendar year, or to the extent events or conditions indicate a risk of possible impairment during the interim periods prior to our annual impairment test. Generally, the evaluation of goodwill for impairment involves a two-step test, although under certain circumstance an initial qualitative evaluation may be sufficient to conclude that goodwill is not impaired without conducting the quantitative test.

Step 1 involves comparing the estimated fair value of each respective reporting unit to its carrying value, including goodwill. If the estimated fair value exceeds the carrying value, the reporting unit’s goodwill is not considered impaired. If the carrying value exceeds the estimated fair value, step 2 must be performed to determine whether goodwill is impaired and, if so, the amount of the impairment. Step 2 involves calculating an implied fair value of goodwill by performing a hypothetical allocation of the estimated fair value of the reporting unit determined in step 1 to the respective tangible and intangible net assets of the reporting unit. The remaining implied goodwill is then compared to the actual carrying amount of the goodwill for the reporting unit. To the extent the carrying amount of goodwill exceeds the implied goodwill, the difference is the amount of the goodwill impairment. No impairments have been identified or recorded in the periods presented.

In January 2017, the FASB issued amended guidance to simplify the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test. A goodwill impairment will now be measured as the amount by which a reporting unit’s carrying value exceeds its fair value, limited to the amount of goodwill allocated to that reporting unit. This guidance is to be applied on a prospective basis effective for our interim and annual periods beginning after January 1, 2020, with early adoption permitted for any impairment tests performed after January 1, 2017. We are currently evaluating the timing of adoption and the effect, if any, of this guidance on our consolidated financial statements.

~~Contingent consideration~~: In connection with the purchase of Aquadex, we have an obligation to pay additional consideration that is contingent upon the occurrence of certain future events. Contingent consideration was recognized at the acquisition date at the estimated fair value of the contingent milestone payments. The fair value of the contingent consideration is remeasured to its estimated fair value at the end of each reporting period, with changes recorded to earnings.

~~Common stock warrant liability: We record the common stock warrant liability at fair value at the date of issuance using primarily a Monte Carlo valuation model~~ (services. See Note ~~6 to the condensed consolidated financial statements~~2 – Revenue Recognition, included in Part I, Item 1 of this Quarterly Report on Form ~~10-Q). The fair value is remeasured~~10-Q, for additional disclosures.

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Accounts Receivable: Our accounts receivables generally have terms that require payment within 30 days. We did not establish an allowance for doubtful accounts as of June 30, 2023, as we have not incurred any write-offs or experienced a deterioration in the aging of our receivables, and we do not expect to ~~its estimated fair value~~experience write-offs in the future.

Inventories: Inventories consist of finished goods, raw materials and subassemblies and are recorded at the ~~end~~lower of ~~each reporting period with changes recorded to earnings.~~cost or net realizable value using the first-in, first-out method.

Stock-Based Compensation: We recognize all share-based payments to employees, directors, and ~~directors,~~consultants, including grants of stock options ~~restricted stock units (RSUs), warrants~~ and common stock awards, in the consolidated statement of operations and comprehensive loss as an operating expense based on their fair values ~~over the requisite service period.~~

~~We compute the estimated fair values of stock options and warrants using the Black-Scholes option pricing model. Market price~~as established 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. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

~~Equity~~date. Other equity instruments issued to non-employees ~~include RSUs,~~consist of warrants ~~or options~~ to purchase shares of our common stock. These ~~RSUs,~~ warrants ~~or options~~ are either ~~fully-vested~~fully vested and exercisable at the date of grant or vest over a certain period during which services are provided.

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 any restricted stock units and common stock awards.

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. ~~Unvested~~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 ~~remeasured to~~expensed based on the grant date fair value ~~until they vest.~~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.

~~Earnings~~The stock-based compensation expense associated with the DaVita Warrant will be recognized when the Company determines it is probable that the performance-based vesting conditions underlying the warrant are probable of achievement and at that time, expense will be recognized based on the grant-date fair value of the DaVita Warrant.

Accounting for Warrants: We have issued and may continue to issue warrants to purchase shares of common stock through our public and private offerings and in conjunction with the Supply Agreement executed with DaVita in June 2023. We account for such warrants in accordance with ASC 480, Distinguishing Liabilities from Equity, which identifies three categories of freestanding financial instruments that are required to be accounted for as a liability. If determined to be classified as a liability, we will remeasure the fair value of the warrants at each balance sheet date. If determined to be classified as equity, the fair value of the warrants will be measured as of the date of issuance and will not be subject to remeasurement at each subsequent balance sheet date.

Loss per ~~share:~~ ~~We compute basic earnings~~Share: Basic loss 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. ~~The net loss allocable to common stockholders~~See Note 3 — Stockholders’ Equity below for the nine months ended September 30, 2017, reflects a $1.0 million increase for the net deemed dividend to preferred stockholders provided in connection with the close of the public offering of Series E Convertible Preferred Stock in April of 2017, representing the intrinsic value of the shares at the time of issuance. In addition, the net loss allocable to common stockholders reflects an increase for net deemed dividends of $1.8 million to preferred stockholders provided in connection with the shareholder approval of the Series C and D Convertible Preferred Stock transactions in January of 2017, representing the intrinsic value of the shares at the time of issuance. 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. ~~These potentially dilutive shares were excluded~~

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 ~~computation~~various long-lived assets are highly interrelated and, as a result, the Company consists of ~~loss per share as their effect~~a single asset group. As the Company expects to continue incurring losses in the foreseeable future, the undiscounted cash flow step was ~~antidilutive due~~bypassed, and the Company proceeded to ~~our net loss in each~~measure fair value of ~~those periods.~~the asset group. The Company has determined the fair value of the asset group associated with its loaner units by using expected cash flows estimating future discounted cash flows expected from the rental of these 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 six months ended June 30, 2023 or the year ended December 31, 2022.

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Going Concern:Our consolidated financial statements have been prepared and presented on a basis assuming we continue as a going concern. During the years ended December 31, ~~2016~~2022 and ~~2015,~~2021, and through ~~September~~June 30, ~~2017,~~2023, we incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and ~~comprehensive loss and~~ cash flows, respectively. As of June 30, 2023, we had an accumulated deficit of $278.7 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 into the future, there can be no assurance that we will be able to do so or that we will ever operate profitably. These factors raise substantial doubt about the Company’s ability to continue as a going concern through at least twelve months from the report date.

We became a ~~revenue generating~~revenue-generating company ~~only~~ 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, product development, purchasing inventory and 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, we must succeed in expanding the adoption and market acceptance of the Aquadex ~~FlexFlow.~~System. This will require us to succeed in training personnel at hospitals and effectively and efficiently manufacturing, marketing, and distributing the Aquadex ~~FlexFlow~~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.

~~We may be required~~ During 2022, we closed on an underwritten public offering for aggregate net proceeds of approximately $9.4 million after deducting the underwriting discounts and commissions and offering expenses. See Note 4 — Stockholders’ Equity, to ~~seek~~the consolidated financial statements included in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2022. The Company will require additional funding to grow ~~our Aquadex Business,~~its business, which may not be available on terms favorable to ~~us,~~the Company, or at all. ~~In addition,~~The Company may receive those funds from the ~~risk that we may not be able to continue as a going concern may make it more difficult to obtain necessary additional funding on terms favorable to us,~~issuance of equity securities or ~~at all. Furthermore, our ability to continue as a going concern is subject to our ability to achieve commercial milestones.~~other financing transactions. Should future capital raising be unsuccessful, wethe Company may not be able to continue as a going concern. On April 24, 2017, we closed on an underwritten public equity offering for net proceeds of approximately $8.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering (See Note 4 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q). WeNo adjustments have been made ~~no adjustments~~ relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should wethe Company not continue as a going concern.

We believe that our existing capital resources will be sufficient to support our operating plan through December 31, 2023; however, there can be no assurance of this. We will likely seek to raise additional capital to support our 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.

NEW ACCOUNTING PRONOUNCEMENTS

~~Information regarding~~In June 2016, the FASB issued Accounting Standards Update (ASU) 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new ~~accounting pronouncements is included in Note 1 to~~impairment model (known as the current ~~period’s condensed~~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 became effective for the Company on January 1, 2023. The adoption of ASU 2016-13 did not have any impact on the Company’s consolidated financial statements.

FINANCIAL OVERVIEW

We are a medical ~~device~~technology company focused on commercializing the Aquadex ~~FlexFlow system~~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~~pre-clinical 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, performing clinical research, and ~~transferring manufacturing capabilities from Baxter to our facilities~~engaging in ~~Eden Prairie, Minnesota. At September~~new product development. As of June 30, ~~2017,~~2023, we had an accumulated deficit of ~~$175~~$278.7 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 continue to successfully fund our operations, ~~in the future,~~ there can be no assurance that we will be able to do so or that we will ever operate profitably.

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Results of Operations

Comparison of ~~Three Months Ended September~~three months ended June 30, ~~2017~~2023 to ~~Three Months Ended September~~three months ended June 30, ~~2016~~2022

Net Sales

(~~dollars~~ in thousands)

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Increase % Change
$ 957 $ 543 $ 414 76.2 %

Three months ended June 30, 2023				Three months ended June 30, 2022				Increase (Decrease)				% Change
$	2,075			$	2,213			$	(138	)			(6.2	)%

~~We generated revenues of $1.0 million for the three months ended September 30, 2017, compared to $0.5 million for the same period in 2016.~~ Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with ~~our~~the Aquadex System consoles. We ~~had no commercial sales prior~~sell primarily in the United States to ~~the acquisition~~hospitals and clinics through our direct salesforce. We sell outside of the ~~Aquadex Business, which we acquired from Baxter on August 5, 2016.~~

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~~On March 3, 2016, we announced that we were no longer enrolling patients~~United States to independent specialty distributors, who in ~~our two clinical studies for our now discontinued C-Pulse System. Prior to this announcement, all of our revenue was generated by sales of the C-Pulse System~~turn sell to hospitals and clinics in ~~conjunction with our U.S. clinical study.~~their geographic regions. The ~~C-Pulse System was not approved for commercial sale, however,~~decrease in sales in the ~~FDA had assigned it~~current year period is due to a ~~Category B designation, making it eligible for reimbursement at certain U.S. sites when implanted~~decrease in ~~connection with our clinical studies. During the three months ended September 30, 2016, we received reimbursement and recognized $59,000~~console sales offset partially by an increase in ~~revenue for one implant that was performed before the announcement that we were no longer enrolling patients in the study.~~ ~~Since we terminated enrollment in our OPTIONS HF and COUNTER HF clinical trials, we do not expect to generate revenue from~~ ~~those clinical trials~~ ~~in the foreseeable future.~~circuit sales.

Costs and Expenses

Our costs and expenses were as follows:

(dollars in thousands)	Three Months Ended September 30, 2017		Three Months Ended September 30, 2016		Increase (Decrease)			% Change
(in thousands)											Three months ended June 30, 2023		Three months ended June 30, 2022		Increase (Decrease)			% Change
Cost of goods sold	$	782	$	187	$	595			318.2	%	$	928	$	1,150	$	(222	)		(19.3	)%
Selling, general and administrative	$	2,671	$	2,683	$	(12	)		(0.4	)%	$	4,664	$	4,257	$	407			9.6	%
Research and development	$	367	$	1,735	$	(1,368	)		(78.8	)%	$	1,505	$	1,107	$	398			36.0	%

Cost of Goods Sold

~~In connection with the acquisition~~The decrease in cost of the Aquadex product line, we entered into a manufacturing and supply agreement with Baxter. Cost of sales reflects the agreed-upon price paid to Baxter for the manufacturing of the disposables and consoles. The acquisition closed on August 5, 2016. Prior to that date, we did not have commercial sales or related product costs.

In May 2017, we provided notice to Baxter to cease the manufacturing of the Aquadex product line as of June 30, 2017, and we began transitioning activities in house. We expect to begin manufacturing our products in house in the fourth quarter of 2017. We will continue to purchase materials and finished goods ~~from Baxter into the first quarter of 2018.~~

~~Cost of sales~~sold for the three months ended ~~September~~June 30, ~~2017, include startup costs for~~2023, compared to the ~~planning and preparation associated with~~three months ended June 30, 2022, was due primarily to lower sales volume in the ~~transfer~~current year period as well as a one-time, non-cash inventory write-off of ~~these manufacturing activities~~$0.1 million in the prior-year period related to ~~our facilities in Eden Prairie, Minnesota. In 2018, we expect our gross margins to improve as volumes increase and we achieve larger efficiencies~~the discontinuation of ~~scale.~~a distribution agreement.

Selling, General and Administrative

~~Our~~The increase in selling, general and administrative expense primarily reflects increased staffing expenses ~~for the three months ended September 30, 2017 have remained consistent~~and increased professional fees related to consulting, marketing initiatives, and accounting and legal expenses associated with the ~~same period a year ago. Expenditures during the three months ended September 30, 2017, reflect approximately $0.9 million of incremental expenses related to the commercialization~~negotiation and execution of the Aquadex FlexFlow, which we acquired from Baxter in August of 2016. Expenditures during the three months ended September 30, 2016, reflect approximately $0.9 million in transaction fees (accounting, audit, valuation, and legal fees) incurred in connection with the acquisition of the Aquadex product line.DaVita Supply Agreement.

As we continue to ramp up our sales organization we expect that our selling expenses will continue to increase in future quarters, and that general and administrative expenses will either remain constant or decrease as we continue to streamline activities.

Research and Development

The ~~decrease~~increase in ~~research and~~R&D expenses was primarily driven by increased spending on new product development ~~expense resulted primarily from~~associated with our decision to stop enrollment in our two clinical studies for our now discontinued C-Pulse System, which was announced on March 3, 2016. In July 2016, we announced that we were moving forward with a therapeutic strategy utilizing neuromodulation rather than counterpulsation. Further, on September 29, 2016, we announced a strategic refocus of our near-term strategy that includes halting all clinical evaluations of the neuromodulation technology to fully focus the Company’s resources on our recently acquired Aquadex system. We expect to make modest future investments in research and development related to our Aquadex system, and as a result, we expect that our research and development expenditures will increase modestly in future quarters, subject to future decisions on clinical studies.pediatric dedicated device.

~~Other Income (Expense)~~

~~The following is a summary of other income (expense)~~

(dollars in thousands)

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016

Decrease
% Change
Interest expense $ - $ (68 ) $ (68 ) N/A
Loss on early retirement of long-term debt $ - $ (500 ) (500 ) N/A
Change in fair value of warrant liability $ 4 $ 646 $ (642 ) (99.4 )%

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~~Interest Expense~~

The decrease in interest expense is related to the repayment of borrowings outstanding under our prior term loan with Silicon Valley Bank. On August 4, 2016, we repaid all amounts outstanding under this loan facility, totaling $5.5 million.

~~Loss on Early Retirement of Long-Term Debt~~

On August 4, 2016, we repaid all amounts outstanding under our prior term loan with Silicon Valley Bank, totaling $5.5 million. In connection with the repayment of this debt, we incurred a $0.5 million loss, including the accelerated write-off of unamortized warrants and debt issuance costs.

~~Change in Fair Value of Warrant Liability~~

The gain recognized for the change in fair value of warrant liability relates to the decrease in value of the warrants issued to the investors and placement agent in connection with financings completed on July 26, 2016, November 3, 2016 and January 10, 2017. These warrants were classified as liabilities on our balance sheet as of September 30, 2017 and December 31, 2016 and required to be marked to market at each reporting period, with the changes in fair value recorded on our consolidated statement of operations and comprehensive loss.

~~Income Tax Benefit (Expense), net~~

(dollars in thousands)

Three Months Ended
September 30, 2017

Three Months Ended
September 30, 2016
Decrease % Change
Income tax benefit (expense), net $ (5 ) $ 65 $ (70 ) (107.7 )%

Our income tax benefit for the three months ended September 30, 2016 resulted primarily from a research and development tax credit in Australia. We have substantially reduced research and development expenditures in Australia, so future research and development tax credits refunds, if any, are expected to decrease.

~~We generate minimal amounts of income tax expense in connection with activities incurred by our Irish subsidiary.~~

Comparison of ~~Nine Months Ended September~~six months ended June 30, ~~2017~~2023 to ~~Nine Months Ended September~~six months ended June 30, ~~2016~~2022

Net Sales

(~~dollars~~ in thousands)

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Increase % Change
$ 2,722 $ 543 $ 2,179 401.3 %

Six months ended June 30, 2023				Six months ended June 30, 2022				Increase (Decrease)				% Change
$	3,901			$	4,139			$	(238	)			(5.8	)%

~~We generated revenues of $2.7 million for the nine months ended September 30, 2017, compared to $0.5 million in the same period in 2016.~~ Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with ~~our~~the Aquadex system consoles. We ~~had no commercial sales prior~~sell primarily in the United States to ~~the acquisition~~hospitals and clinics through our direct salesforce. We sell outside of the ~~Aquadex Business, which we acquired from Baxter on August 5, 2016.~~

~~On March 3, 2016, we announced that we were no longer enrolling patients~~United States to independent specialty distributors who in ~~our two clinical studies for our now discontinued C-Pulse System. Prior to this announcement, all of our revenue was generated by sales of the C-Pulse System~~turn sell to hospitals and clinics in ~~conjunction with our~~their geographic regions. The decrease in sales is primarily attributable to decreased U.S. clinical study. The C-Pulse System was not approved for commercial sale, however, the FDA had assigned it to a Category B designation, making it eligible for reimbursement at certain U.S. sites when implanted in connection with our clinical studies. One C-Pulse System was implanted for which we recognized $59,000 in revenue during the nine months ended September 30, 2016. ~~Since we terminated enrollment in these clinical studies, we do not expect to generate revenue from~~ ~~these clinical studies~~ ~~in the foreseeable future.~~sales of consoles.

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Costs and Expenses

Our costs and expenses were as follows:

(dollars in thousands)	Nine Months Ended September 30, 2017		Nine Months Ended September 30, 2016		Increase (Decrease)			% Change
(in thousands)											Six months ended June 30, 2023		Six months ended June 30, 2022		Increase (Decrease)			% Change
Cost of goods sold	$	1,912	$	187	$	1,725			922.5	%	$	1,687	$	1,974	$	(287	)		(14.5)	%
Selling, general and administrative	$	7,478	$	5,444	$	2,034			37.4	%	$	10,154	$	8,669	$	1,485			17.1	%
Research and development	$	1,002	$	7,511	$	(6,509	)		(86.7	)%	$	2,933	$	2,213	$	720			32.5	%

Cost of Goods Sold

~~In connection with the acquisition~~The decrease in cost of ~~the Aquadex product line, we entered into a manufacturing and supply agreement with Baxter. Cost of sales reflects the agreed-upon price paid to Baxter~~goods sold for the ~~manufacturing of the disposables and consoles. The acquisition closed on August 5, 2016. Prior to that date, we did not have commercial sales or related product costs.~~

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~~In May 2017, we provided notice to Baxter to cease the manufacturing of the Aquadex product line as of~~six months ended June 30, ~~2017, and we began transitioning activities in house. We expect~~2023, compared to ~~begin manufacturing our products in house~~the six months ended June 30, 2022, was primarily due to decreased sales in the ~~fourth quarter~~current year period, as well as a one-time, non-cash inventory write-off of ~~2017. We will continue~~$0.1 million in the prior-year period related to ~~purchase materials and finished goods from Baxter into~~ the ~~first quarter~~discontinuation of ~~2018.~~a distribution agreement.

Cost of sales for the nine months ended September 30, 2017, include startup costs for the planning and preparation associated with the transfer of these manufacturing activities to our facilities in Eden Prairie, Minnesota. In 2018, we expect our gross margins to improve as volumes increase and we achieve larger efficiencies of scale.

Selling, General and Administrative

The increase in selling, general, and administrative expense ~~reflect~~ primarily ~~the impact of our transition from a research~~reflects increased staffing expenses and ~~development stage company to a commercially focused organization. As a result, during the nine months ended September 30, 2017, we incurred approximately $2.6 million of incremental expenses~~increased professional fees related to ~~the commercialization of the Aquadex FlexFlow, compared to the same period a year ago.~~

~~Expenditures for the nine months ended September 30, 2016, reflect approximately $0.9 million in transaction fees (accounting, audit, valuation,~~consulting, marketing initiatives, and accounting and legal ~~fees) incurred in connection~~expenses associated with the ~~acquisition of~~Company’s year-end audit, 2023 At-the-Market Offering, and the ~~Aquadex product line, which we acquired from Baxter in August of 2016.~~DaVita Supply Agreement.

Research and Development

The ~~decrease~~increase in ~~research and~~R&D expense over the prior year was primarily driven by spending related to ongoing development expense resulted primarily from our decision to stop enrollment in our two clinical studies for our now discontinued C-Pulse System, which was announced on March 3, 2016. In July 2016, we announced that we were moving forward with a therapeutic strategy utilizing neuromodulation rather than counterpulsation. Further, on September 29, 2016, we announced a strategic refocus of our near-term strategy that includes halting clinical evaluations of the neuromodulation technology to fully focus the Company’s resources on our recently acquired Aquadex system. We expect to make modest future investments in research and development related to our Aquadex system, and as a result, we expect that our research and development expenditures will increase modestly in future quarters, subject to future decisions on clinical studies.pediatric continuous renal replacement therapy device.

~~Other Income (Expense)~~

~~The following is a summary of other income (expense)~~

(dollars in thousands)

Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016

Increase
(Decrease)
% Change
Interest expense $ - $ (504 ) $ (504 ) N/A
Loss on early retirement of long-term debt $ - $ (500 ) $ (500 ) N/A
Change in fair value of warrant liability $ 1,470 $ 646 $ 824 127.6 %
Warrant valuation expense $ (67 ) $ - $ (67 ) N/A

~~Interest Expense~~

The decrease in interest expense is related to the repayment of borrowings outstanding under our prior term loan with Silicon Valley Bank. Beginning January 1, 2016, we began repaying the principal due on this loan, and on August 4, 2016, we repaid all amounts outstanding under this loan facility, totaling $5.5 million.

~~Loss on Early Retirement of Long-Term Debt~~

~~Change in Fair Value of Warrant Liability~~

The gain recognized for the change in fair value of warrant liability relates to the decrease in value of the warrants issued in connection with financings completed on July 26, 2016, November 3, 2016 and January 10, 2017. These warrants were classified as liabilities on our balance sheet as of December 31, 2016 and required to be marked to market at each reporting period, with the changes in fair value recorded on our consolidated statement of operations and comprehensive loss. All Original Warrants were exercised during the period ended September 30, 2017 pursuant to the warrant exercise agreement described above. Accordingly, we remeasured each of these warrants as of the date of exercise, and recorded $1.5 million as an unrealized gain on our statement of operations and comprehensive loss. Although we issued Replacement Warrants under the warrant exercise agreement, the Replacement Warrants are not accounted for as liabilities based on their terms.

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~~Income Tax Benefit (expense), net~~

(dollars in thousands)
Nine Months Ended
September 30, 2017

Nine Months Ended
September 30, 2016
Decrease % Change
Income tax benefit (expense), net $ (6 ) $ 64 $ (70 ) (109.4 )%

Our income tax benefit for the nine months ended September 30, 2016 resulted primarily from a research and development tax credit in Australia. We have substantially reduced research and development expenditures in Australia, so future research and development tax credits refunds, if any, are expected to decrease.

~~We generate minimal amounts of income tax expense in connection with activities incurred by our Irish subsidiary.~~

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 July 26, 2016, pursuant to a Securities Purchase Agreement dated July 20, 2016, we completed an equity financing with an institutional investor of shares of Series B Convertible Preferred Stock and warrants for gross cash proceeds of approximately $3.5 million in a registered direct offering and simultaneous private placement. Also, on October 30, 2016, we entered into securities purchase agreement with an institutional investor pursuant to which we agreed to issue shares of Series C Convertible Preferred Stock, Series D Convertible Preferred Stock and warrants with an aggregate purchase price of $3.8 million in a registered direct offering and simultaneous private placement. The first closing occurred on November 3, 2016, whereby we received $3.6 million in gross proceeds and issued and sold shares of Series C Convertible Preferred Stock, shares of Series D Convertible Preferred Stock and warrants. At the second closing in January 2017, which was subject to receipt of shareholder approval of the transactions, we received $0.2 million in gross proceeds and issued and sold shares of Series D Convertible Preferred Stock and warrants.

In February 2017, we entered into an agreement with the holder of the majority of our outstanding warrants to incent their exercise of warrants for cash on or before March 31, 2017. In exchange for any such exercise, we agreed to provide the investors a replacement warrant to purchase the same number of shares of common stock as were issued upon exercise of each exercised warrants with an exercise price equal to the consolidated closing bid price of our common stock on the date of issuance. In connection with this agreement, the investors exercised all of the original warrants for gross cash proceeds to us of $2.0 million, and we issued 43,396 replacement warrants with exercise prices ranging from $34.6 per share to $99.8 per share.

On August 5, 2016, we entered into a loan agreement with Silicon Valley Bank for proceeds of up to $5.0 million, including a $1.0 million revolving line of credit and a $4.0 million term loan. The term loan expired unused on November 30, 2016 andOctober 18, 2022, the term loan is no longer available to be drawn. Under the revolving line, we may borrow the lesser of $1 million or 80% of our eligible accounts (subject to customary exclusions), minus the outstanding principal balance of any advances under the revolving line. Advances under the revolving line, if any, will accrue interest at a floating per annum rate equal to 1.75% or 1.0% above the prime rate, depending on whether we have maintained net liquidity in an amount equal to or greater than six times our monthly cash burn amount for the period specified. Interest on the principal amount outstanding under the revolving line, if any, is payable monthly on the last calendar day of the month until March 31, 2020, at which time all outstanding principal and unpaid interest with respect to any advances under the revolving line are due and payable in full. Advances under the revolving line are subject to various conditions precedent, including our compliance with financial covenants relating to net liquidity relative to monthly cash burn, which we do not currently meet. The revolving line of credit expires on March 31, 2020. We had no borrowings outstanding under the Silicon Valley Bank facility as of September 30, 2017 or December 31, 2016.

The new loan agreement contains customary representations, as well as customary affirmative and negative covenants. Among other restrictions, the negative covenants, subject to exceptions, prohibit or limit our ability to declare dividends or redeem or purchase equity interests; incur additional liens; make loans and investments; incur additional indebtedness; engage in mergers, acquisitions, and asset sales; transact with affiliates; undergo a change in control; add or change business locations; and engage in businesses that are not related to its existing business. The new loan agreement also requires us to maintain at all times upon the funding date of the initial advance under the revolving line, tested on the last day of each month: (i) net liquidity in an amount equal to or greater than four times our monthly cash burn amount and (ii) unrestricted cash and cash equivalents in accounts with the Bank or its affiliates equal to or greater than 1.25 of the amount of all of our outstanding obligations to the Bank.

Our obligations under the new loan agreement are secured by a security interest in our assets, excluding intellectual property and certain other exceptions. We are subject to a negative pledge covenant with respect to our intellectual property.

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~~In 2014, we entered into a sales agreement with Cowen and~~ Company ~~LLC (“Cowen”), allowing Cowen to sell from time to time, shares of our common stock having an aggregate offering price of up to $40.0 million, through an “at the market” equity offering program (the~~ ~~“Sales Agreement”~~). We pay Cowen a commission of up to 3.0% of the gross proceeds from the sale of any shares pursuant to the Sales Agreement. There were no issuances of common stock under this facility during the nine months ended September 30, 2017 or 2016. As of September 30, 2017, we had a total of $32.6 million remaining for future sales under the Sales Agreement.

~~On April 24, 2017, we~~ closed on an underwritten public offering of 209,940 shares of common stock and 23,157,124 shares of Series I convertible preferred stock, for ~~net~~gross proceeds of approximately ~~$8.0~~$11.0 million (the “October 2022 Offering”). Net proceeds totaled approximately $9.4 million after deducting underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.

During May and June 2023, the Company issued 657,333 shares of common stock under the 2023 At-the-Market Program for gross proceeds of approximately $2.3 million. Net proceeds totaled approximately $2.1 million after deducting the underwriting discounts and commissions and other costs associated with the offering, which included the full exercise of the underwriter’s over-allotment option to purchase additional shares and warrants. In connection with this offering, we issued a total of 140,000 shares of common stock, 6,400 shares of Series E Convertible Preferred Stock (which were convertible into 320,000 shares of common stock), and warrants to purchase 460,000 shares of common stock. See Note 4 to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.offering.

As of ~~September~~June 30, ~~2017,~~2023 and December 31, ~~2016,~~2022, cash and cash equivalents were ~~$2.5~~$8.9 million and ~~$1.3~~$17.7 million, respectively. Prior to our acquisition of the Aquadex FlexFlow in August 2016, we did not have a product approved for commercial sale and focused our resources on developing, manufacturing, and commercializing our C-Pulse System. In September 2016, we announced a strategic refocus of our near-term strategy that includes halting all clinical evaluations to fully focus our resources on our recently acquired Aquadex Business, taking actions to reduce our cash burn in connection with such strategic refocus and reviewing potential strategic alliances and financing alternatives. Our business strategy and ability to fund our operations in the future ~~depends~~depend in part on our ability to grow ~~our~~the Aquadex Business by ~~establishing a sales force,~~expanding our salesforce, selling our products to hospitals and other healthcare facilities, and controlling costs. We ~~believe we~~ will need to seek additional ~~funds to finance our operations~~financing in the ~~fourth quarter~~future, which, to date, has been primarily through offerings of ~~2017 or first quarter of 2018. We may receive those funds from the proceeds from future warrant exercises, issuances of~~our equity ~~securities, or other financing transactions.~~securities.

Cash Flows ~~from~~used in Operating Activities

Net cash used in operating activities was ~~$8.8~~$11.4 million and ~~$13.6~~$8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~June 30, 2022, respectively. The net cash used in each of these periods primarily reflects the net loss for those periods, ~~as well as investments in working capital necessary to run our new commercial operations,~~partially offset ~~in part~~ by non-cash charges for stock-based compensation, depreciation and amortization, and revaluation of ~~debt discount~~the warrant liability (in the current year period), and ~~financing fees.~~the effects of changes in operating assets and liabilities, including working capital.

Cash Flows ~~from~~provided by (used in) Investing Activities

Net cash provided by and used in investing activities was $415,000 and ($81,000) for the six months ended June 30, 2023 and 2022, respectively. The cash provided by investing activities was from the sale of marketable securities and the cash used in investing activities was ~~$0.2 million~~for legal costs related to new patent applications and ~~$4.1 million for the nine months ended September 30, 2017 and 2016, respectively. The majority of cash used in investing activities in 2017 was~~ for the purchase of manufacturing, laboratory, and office ~~equipment. In 2016, we paid $4.0 million for the acquisition of the Aquadex Business.~~equipment, respectively, in those periods.

Cash Flows ~~from~~provided by (used in) Financing Activities

Net cash provided by ~~(used in)~~and used in financing activities was ~~$10.2~~$2.1 million and ~~$(4.6) million~~($13,000) for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, respectively. ~~Net~~The cash provided by financing activities in the current year period was ~~attributable to~~the result of proceeds received from the ~~public stock offering completed~~Company’s 2023 At-the-Market Program, net of financing costs. The use of cash in ~~April 2017, net proceeds from~~ the ~~exercise~~prior year period related to lease payment expense.

Table of warrants, and from the second closing of the Series D Convertible Preferred Stock. Net cash used in financing activities was attributable to repayments of the principal amounts outstanding on our debt facility with Silicon Valley Bank, offset by net proceeds from the issuance of preferred stock in July 2016.Contents

Capital Resource Requirements

As of ~~September~~June 30, ~~2017,~~2023, we did not have any material commitments for capital expenditures.

~~Off-Balance Sheet Arrangements~~Forward-Looking Statements and Risk Factors

In April 2015, we amended our lease agreement for our office space leased in Eden Prairie, Minnesota, to extend it for an additional thirty-six months beyond its original expiration date. This amended lease agreement expires March 31, 2019.

On August 5, 2016, we entered into an asset purchase agreement for the Aquadex Business with Baxter, whereby we agreed that if we dispose of any of the acquired assets for a price that exceeds $4.0 million within three years of the closing, we will pay Baxter 40% of the amount of such excess; and if shares of our common stock cease to be publicly traded on the Nasdaq Capital Market, Baxter has the option to require us to repurchase, in cash, all or any part of the common shares held by Baxter at a price equal to their fair market value, as determined by a third-party appraiser.

~~Table of Contents~~

In connection with the acquisition of the Aquadex Business, we entered into a manufacturing and supply agreement with Baxter that will expire within a period not to exceed 18 months from the close of the transaction. In May 2017, we notified Baxter to cease the manufacturing of the Aquadex product line by Baxter as of June 30, 2017. In connection with this notification, we agreed to purchase the remaining Aquadex inventory, which consists mainly of raw materials priced at cost, through February 2018, for a total of $2.4 million. As of September 30, 2017, we had purchased and paid $0.8 million of this inventory and $1.6 million remained to be purchased.

Except as disclosed above, 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

~~Cautionary Statement Pursuant to the Private Securities Litigation Reform Act of 1995~~

~~The Private Securities Litigation Reform Act of 1995 (the Act) provides a “safe harbor” for forward-looking~~Certain statements to encourage companies to provide prospective information about their business, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those discussed in the statement. We desire to take advantage of the safe harbor provisions with respect to any forward-looking statements we may make in this filing, other filings with the Securities and Exchange Commission and any public oral statements or written releases. The words or phrases “will,” “may,” “is expected,” “is anticipated,” “believe,” “estimate,” “projected,” “forecast,” or similar expressionsQuarterly Report on Form 10-Q are ~~intended to identify~~ forward-looking statements within the meaning of the ~~Act. Forward-looking statements such~~safe harbor provisions of Section 27A of the Securities Act of 1933, as ~~these~~amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are based on management’s ~~current~~beliefs, assumptions and expectations asand 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 ~~date of this report but involve risks, uncertainties~~COVID-19 pandemic on our business operations, cash flow, business development, and other factors which may cause actual results to differ materially from those contemplated by such forward-looking statements. We caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. In accordance with the Act, we identify the following important general factors which, if altered from the current status, could cause our actual results to differ from those described in any forward-looking statements: tour ability to general substantial revenue and become profitable, employees, our ability to ~~continue as a going concern, our ability to raise funds, variability in quarterly results, risk associated with executing~~execute on our strategic ~~imperatives, including~~realignments, our post-market clinical data collection activities, ~~our ability to demonstrate the~~ benefits of our products to patients, our ~~reliance on a single~~expectations with respect to product ~~family, our ability to~~ development and ~~commercialize product improvements or new products,~~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 ~~ability to protect our~~anticipated operations, intellectual property protection, 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 ~~third-party suppliers,~~forward-looking statements because they speak only as of the impact over significant government regulation on our business, our ability to integrate acquired businesses and our realization of anticipated synergies with and benefits from acquired businesses, risks related to international business, and those factors set forth under the heading “Risk Factors” in our Registration Statement on Form S-1 filed with the Securities and Exchange Commission on October 18, 2017. This list is not exhaustive, and we may supplement this list in any future filing with the Securities and Exchange Commission or in connection with the making of any specific forward-looking statement.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, 2022, 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 June 30, 2023. 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 ~~intend~~accept our application or approve the marketing of our products, the possibility we may be unable to ~~revise or update publicly any forward-looking statement~~raise the funds necessary for ~~any reason.~~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 ~~Chief~~Principal Financial Officer (together, the ~~“Certifying~~“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.

~~Table of Contents~~

As of ~~September~~June 30, ~~2017,~~2023, 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 ~~Securities~~ Exchange ~~Act of 1934, as amended (the~~ ~~“Exchange Act”~~).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 Chief Financial Officer concluded that our disclosure controls and procedures were effective ~~at a reasonable assurance level~~ as of ~~September~~June 30, ~~2017.~~2023.

Table of Contents

Changes in Internal Controls over Financial Reporting

There ~~were~~was no ~~changes~~change in ~~the Company’s~~our internal control over financial reporting ~~(as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)~~ during ~~the three months ended September 30, 2017,~~our most recently completed fiscal quarter that ~~have~~has materially affected, or ~~are~~is reasonably likely to materially affect, our internal control over financial reporting. On August 5, 2016, the Company completed the acquisition of certain assets used in the production and sale of the Aquadex product line from an indirect subsidiary of Baxter International Inc. We are in the process of integrating Aquadex’s operations into the Company. We are in the process of implementing our internal control structure over the acquired operations, and we expect to complete this effort during fiscal 2017.

PART II—OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We are not currently subject to any ~~material~~ 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 ~~fiscal~~ year ended December 31, ~~2016,~~2022, 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 to the Risk Factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.

ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

~~Not applicable~~

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.

OTHER INFORMATION

None.

~~Table of Contents~~

ITEM 6.

EXHIBITS

The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index below.

Table of Contents

Exhibit Index

~~CHF Solutions,~~Nuwellis, Inc.

Form 10-Q for the Quarterly Period Ended ~~September~~June 30, ~~2017~~2023

Incorporated By Reference
Exhibit
Number
Exhibit Description Form
File
Number

Date of First
Filing

Exhibit
Number

Filed
Herewith
Furnished
Herewith
3.1
Fourth Amended and Restated Certificate of Incorporation 10 001-35312 February 1, 2012 3.1

3.2
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation 8-K 001-35312 January 13, 2017 3.1

3.3
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation 8-K 001-35312 May 23, 2017 3.1

3.4
Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation 8-K 001-35312 October 12, 2017 3.1

3.5
Second Amended and Restated Bylaws 8-K 001-35312 May 23, 2017 3.2

4.1
Form of Common Stock Purchase Warrant issued pursuant to the Letter Agreement dated February 15, 2017 8-K 001-35312 February 16, 2017 4.1

4.2
Form of Warrant to purchase shares of common stock S-1/A 333-216841 April 4, 2017 4.8

15.1 Letter regarding unaudited interim information X

31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X

31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 X

32.1
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X

32.2
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 X

		Incorporated By Reference
Exhibit Number	Exhibit Description	Form	File Number	Date of First Filing	Exhibit Number	Filed Herewith	Furnished Herewith
3.1	Fourth Amended and Restated Certificate of Incorporation	10	001-35312	February 1, 2012	3.1

3.2	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	January 13, 2017	3.1

3.3	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	May 23, 2017	3.1

3.4	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	October 12, 2017	3.1

3.5	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K/A	001-35312	October 16, 2020	3.1

3.6	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	January 2, 2019	3.1

3.7	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	April 27, 2021	3.1

3.8	Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation	8-K	001-35312	December 9, 2022	3.1

3.9	Form of Certificate of Designation of Series A Junior Participating Preferred Stock	8-K	001-35312	June 14, 2013	3.1

3.10	Form of Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock	S-1/A	333-221010	November 17, 2017	3.7

3.11	Form of Certificate of Designation of Preferences, Rights and Limitations of Series I Convertible Preferred Stock	8-K	001-35312	October 18, 2022	3.1

3.12	Third Amended and Restated Bylaws	8-K	001-35312	April 27, 2021	3.2

~~101.INS~~

~~XBRL Instance Document~~

~~101.SCH~~

~~XBRL Taxonomy Extension Schema Document~~

~~101.CAL~~

~~XBRL Taxonomy Extension Calculation Linkbase Document~~

2722

Table of Contents

Incorporated By Reference

Exhibit

Number

Exhibit Description

Form

File

Number

Date of First

Filing

Exhibit

Number

Filed

Herewith

Furnished

Herewith

3.13

Amendment to Third Amended and Restated Bylaws

8-K

001-35312

October 5, 2022

3.1

10.2

Supply and Collaboration Agreement, dated as of June 19, 2023, by and between the Company and DaVita Inc.

8-K

001-35312

June 21, 2023

10.1

10.3

Registration Rights Agreement, dated

as of June 19, 2023, by and between the Company and DaVita Inc.

8-K

001-35312

June 21, 2023

10.2

10.4

DaVita Inc. Common Stock Warrant Agreement

8-K

001-35312

June 21, 2023

4.1

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS

Inline XBRL Instance Document

101.SCH

Inline XBRL Taxonomy Extension Schema Document

101.CAL

Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB

Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE

Inline XBRL Taxonomy Extension Presentation Linkbase Document

~~101.DEF~~104

Cover Page Interactive Data File (formatted as Inline XBRL ~~Taxonomy Extension Definition Linkbase Document~~

and contained in Exhibit 101)

~~101.LAB~~

~~XBRL Taxonomy Extension Label Linkbase Document~~

~~101.PRE~~

~~XBRL Taxonomy Extension Presentation Linkbase Document~~

2823

Table of Contents

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.

	~~CHF Solutions,~~Nuwellis, Inc.

Date: ~~November 2, 2017~~August 8, 2023	By:	/s/ ~~John L. Erb~~Nestor Jaramillo, Jr.
		~~John L. Erb~~ Nestor Jaramillo, Jr.
		President and Chief Executive Officer

Date: August 8, 2023	By:	/s/ Lynn Blake
		~~Chief Executive Officer and Chairman of the Board~~
		~~(principal executive officer)~~

~~Date: November 2, 2017~~	~~By:~~	~~/s/ Claudia Drayton~~
		~~Claudia Drayton~~	Lynn Blake
		Chief Financial Officer
		~~(principal financial officer)~~

2924

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

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

	Large accelerated filer ☐	Accelerated filer ☐
	Non-accelerated filer ~~☐ (Do not check if a smaller reporting company)~~☒	Smaller reporting company ☒
	Emerging growth company ☒☐

		Page Number
PART I—FINANCIAL INFORMATION
Item 1	Financial Statements	43
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of ~~Operations and Comprehensive Loss~~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	2520
Item 4	Controls and Procedures	2520
PART II—OTHER INFORMATION
Item 1	Legal Proceedings	2621
Item 1A	Risk Factors	2621
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	2621
Item 3	Defaults Upon Senior Securities	2621
Item 4	Mine Safety Disclosures	2621
Item 5	Other Information	2621
Item 6	Exhibits	2721

(In thousands, except share and per share amounts)	September 30, 2017 (unaudited)			December 31, 2016
ASSETS
Current assets
Cash and cash equivalents	$	2,513		$	1,323
Accounts receivable		780			282
Inventory		1,337			677
Other current assets		108			137
Total current assets		4,738			2,419
Property, plant and equipment, net		575			540
Intangible assets, net		3,817			4,302
Goodwill		189			189
Other assets		21			21
TOTAL ASSETS	$	9,340		$	7,471

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Accounts payable and accrued expenses	$	1,412		$	2,351
Accrued compensation		815			909
Total current liabilities		2,227			3,260
Common stock warrant liability		6			1,843
Other liabilities		126			126
Total liabilities		2,359			5,229
Commitments and contingencies		—			—

Temporary Stockholders’ Equity
Series D convertible preferred stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 0 and 900 shares, respectively, issued and outstanding 0 and 700, respectively		—			485

Stockholders’ equity
Series A junior participating preferred stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 30,000 shares, none outstanding		—			—
Series B-1 convertible preferred stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 0 and 1,824.4 shares, respectively, issued and outstanding 0 and 1,824.4, respectively		—			—
Series C convertible preferred stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 0 and 2,900 shares, respectively, issued and outstanding 0 and 2,900, respectively		—			—
Preferred stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 39,970,000 and 39,964,375.6 shares, respectively, none outstanding		—			—
Common stock as of September 30, 2017 and December 31, 2016, par value $0.0001 per share; authorized 100,000,000 shares, issued and outstanding 625,844 and 38,862, respectively		—			—
Additional paid‑in capital		180,972			169,496
Accumulated other comprehensive income:
Foreign currency translation adjustment		1,228			1,235
Accumulated deficit		(175,219	)		(168,974	)
Total stockholders’ equity		6,981			1,757
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	9,340		$	7,471

	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

	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

(In thousands, except per share amounts)	Three months ended September 30,						Nine months ended September 30,
	2017			2016			2017			2016
Net sales	$	957		$	543		$	2,722		$	543
Costs and expenses:
Cost of goods sold		782			187			1,912			187
Selling, general and administrative		2,671			2,683			7,478			5,444
Research and development		367			1,735			1,002			7,511
Total costs and expenses		3,820			4,605			10,392			13,142
Loss from operations		(2,863	)		(4,062	)		(7,670	)		(12,599	)
Other income (expense):
Interest expense		-			(68	)		-			(504	)
Loss on early retirement of long-term debt		-			(500	)		-			(500	)
Other income, net		17			2			28			2
Warrant valuation expense		-			-			(67	)		-
Change in fair value of warrant liability		4			646			1,470			646
Total other income (expense)		21			80			1,431			(356	)
Loss before income taxes		(2,842	)		(3,982	)		(6,239	)		(12,955	)
Income tax benefit (expense), net		(5	)		65			(6	)		64
Net loss	$	(2,847	)	$	(3,917	)	$	(6,245	)	$	(12,891	)

Basic and diluted loss per share	$	(4.55	)	$	(117.66	)	$	(25.36	)	$	(409.02	)

Weighted average shares outstanding – basic and diluted		626			33			359			32

Other comprehensive loss:
Foreign currency translation adjustments	$	(1	)	$	(6	)	$	(7	)	$	(12	)
Total comprehensive loss	$	(2,848	)	$	(3,923	)	$	(6,252	)	$	(12,903	)

			June 30
	September 30		2023		2022
	2017	2016
Stock options	36,874	4,816		114,004		11,979
Restricted stock units	324	731
Warrants to purchase common stock	496,629	6,885		1,308,271		16,306
Series B Convertible Preferred Stock	-	3,948
Series F convertible preferred stock				5,080		508
Total	533,827	16,380		1,427,355		28,793

(in thousands)
Cash consideration	$	4,000
Common stock consideration		950
Fair value of contingent consideration		126
Total purchase consideration	$	5,076

Capital lease asset	$	307
Intangible assets		4,580
Total identifiable assets acquired		4,887
Goodwill		189
Total purchase consideration	$	5,076

($ in thousands, except per share amounts)	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Pro forma net sales	$	957		$	791		$	2,722		$	2,414
Pro forma net loss from operations		(2,863	)		(3,146	)		(7,670	)		(12,519	)
Pro forma basic and diluted net loss per share	$	(4.55	)	$	(94.50	)	$	(25.36	)	$	(397.21	)

		Three Months Ended September 30, 2017				Three Months Ended September 30, 2016				Increase				% Change
	$	957			$	543			$	414				76.2	%

(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