| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our interim condensed consolidated financial statements and related notes included in Part I, Item 1 of this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors, including those discussed in Part I, Item 1A “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2020 and in our subsequent filings with the Securities and Exchange Commission (the “SEC”).
Unless otherwise specified or indicated by the context, Nuwellis, Company, we, us and our, refer to Nuwellis, Inc. and its subsidiary.
OVERVIEW
About Nuwellis
We are a medical device company focused on developing, manufacturing and commercializing the Aquadex FlexFlow® and Aquadex SmartFlow® systems (collectively, the “Aquadex System”) for ultrafiltration therapy. The Aquadex System delivers clinically proven therapy using a simple, flexible and smart method of removing excess fluid from patients suffering from hypervolemia (fluid overload). The Aquadex SmartFlow system is indicated for temporary (up to 8 hours) or extended (longer than 8 hours in patients who require hospitalization) use in adult and pediatric patients weighing 20 kg or more whose fluid overload is unresponsive to medical management, including diuretics.
Previously, the Company was focused on developing the C-Pulse® Heart Assist System for treatment of Class III and ambulatory Class IV heart failure. In August 2016, the Company acquired the business associated with the Aquadex System (the “Aquadex Business”) from a subsidiary of Baxter International, Inc. (“Baxter”) and refocused its strategy to fully devote its resources to the Aquadex Business.
Impact of COVID-19 Pandemic
During the first nine months of 2021, we continue to be subject to challenging social and economic conditions created as a result of the outbreak of the novel strain of coronavirus, SARS-CoV-2, and the resulting coronavirus disease 2019 (“COVID-19”) pandemic. The COVID-19 pandemic continues to affect our operations and has required us to continue the changes that were made to keep our customers, their patients, and our employees safe. These changes continue to include restrictions on hospital access imposed on our field employees by customers dealing on the front lines of COVID-19 and managing the spread of the virus, changes to employee work practices by continuing to allow employees to work remotely and increased protocols to ensure the safety of those employees who are required to work on site. The ongoing impact of the COVID-19 pandemic on our operational and financial performance will depend on certain future developments, including the duration and spread of the outbreak, the ongoing impact on our customers and hospital access restrictions imposed on our field employees, and effect on our vendors, all of which remain uncertain and cannot be predicted.
We may experience curtailed customer demand or constrained supply that could materially adversely impact our business, results of operations and overall financial performance in future periods. Specifically, we may experience negative impacts from changes in how we conduct business due to the COVID-19 pandemic, including but not limited to restrictions on travel and in-person meetings, production delays, warehouses and staffing disruptions and shortages, decreases or delays in customer demand and spending, and difficulties or changes to our sales process and customer support.
Several hospitals in the U.S. originally included the Aquadex System into their treatment protocol for fluid management of COVID-19, especially when dialysis equipment and staff are limited. In March 2020, we increased production of the Aquadex System to meet anticipated demand due to its use in treatment protocols for COVID-19. We estimate that approximately 14% of our U.S. revenue for the year ended December 31, 2020, was driven by hospitals treating patients with COVID-19. However, treatment protocols have evolved such that fewer patients are now being treated with fluid resuscitation, so we have seen little revenue in the nine months ended September 30, 2021 for treating patients with COVID-19. However, we have also seen changes to our sales practices due to restrictions on hospital access and believe that revenue in other areas was negatively impacted by these restrictions. In addition, the disruption created by COVID-19 has created significant uncertainty about our ability to access the capital markets in future periods. As of the filing date of this Quarterly Report on Form 10-Q, the extent to which the COVID-19 pandemic may continue to impact our financial condition or results of operations or guidance is uncertain and cannot be reasonably estimated, but could be material and last for an extended period of time. The effect of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial performance until future periods.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
We have adopted various accounting policies to prepare the condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States. (U.S. GAAP). Our most significant accounting policies are disclosed in Note 1 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
The preparation of the condensed consolidated financial statements, in conformity with U.S. GAAP, requires us to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Our estimates and assumptions, including those related to stock-based compensation, valuation of equity and debt securities, and income tax reserves are updated as appropriate, which in most cases is quarterly. We base our estimates on historical experience, valuations, or various assumptions that are believed to be reasonable under the circumstances. There have been no material changes to our critical accounting policies and estimates from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Revenue Recognition: We recognize revenue in accordance with Accounting Standards Codification (“ASC”), Topic 606, Revenue from Contracts with Customers, which we adopted effective January 1, 2018. Accordingly, we recognize revenue when our customers obtain control of our products or services, in an amount that reflects the consideration that we expect to receive in exchange for those goods and services. See Note 2 – Revenue Recognition, included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional disclosures.
Accounts Receivable: Our accounts receivable have terms that generally require payment in 30 days. We did not establish an allowance for doubtful accounts as of September 30, 2021 as we have not had any write offs or experienced a deterioration in the aging of our receivables, and do not expect to experience in the future.
Inventories: Inventories consist of finished goods, raw materials and subassemblies and are recorded at the lower of cost or net realizable value using the first, in-first out method.
Stock-Based Compensation: We recognize all share-based payments to employees and directors, including grants of stock options, warrants and common stock awards in the consolidated statement of operations and comprehensive loss as an operating expense based on their fair values as established at the grant date. Equity instruments issued to non-employees include common stock awards or warrants to purchase shares of our common stock. These common stock awards or warrants either are fully vested and exercisable at the date of grant or vest over a certain period during which services are provided. We expense the fair market value of fully vested awards at the time of grant, and of unvested awards over the period in which the related services are received. In accordance with Accounting Standards Update 2018-07, unvested awards are no longer remeasured to fair value until vesting and rather the fair value is established at the grant date consistent with the treatment of employee and director awards.
We compute the estimated fair values of stock options and warrants using the Black-Scholes option pricing model and market-based warrants using a Monte Carlo valuation model. Market price at the date of grant is used to calculate the fair value of restricted stock units and common stock awards.
Stock-based compensation expense is based on awards ultimately expected to vest and is reduced for estimated forfeitures except for market-based warrants which are expensed based on the grant date fair value regardless of whether the award vests. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.
Loss per share: Basic loss per share is computed based on the net loss for each period divided by the weighted average number of common shares outstanding. The net loss allocable to common stockholders for the nine months ended September 30, 2020, reflects a $1.8 million increase for the deemed dividend to preferred stockholders provided in connection with the close of the public offering of Series H convertible preferred stock on January 28, 2020. This deemed dividend includes $0.2 million that resulted from the subsequent reduction in the exercise of price of the warrants as a result of the March 2020 offering. The net loss allocable to common stockholders for the nine months ended September 30, 2021 includes a deemed dividend of $75,000 that resulted from the change in the exercise price of the warrants as a result of the March 2021 and September 2021 offerings.
Diluted earnings per share is computed based on the net loss allocable to common stockholders for each period divided by the weighted average number of common shares outstanding, increased by the number of additional shares that would have been outstanding had the potentially dilutive common shares been issued, and reduced by the number of shares the Company could have repurchased from the proceeds from issuance of the potentially dilutive shares. Potentially dilutive shares of common stock include shares underlying outstanding convertible preferred stock, warrants, stock options and other stock-based awards granted under stock-based compensation plans.
Impairment of Long-Lived Assets: Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. If the impairment tests indicate that the carrying value of the asset, or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, further analysis is performed to determine the fair value of the asset or asset group. To the extent the fair value of the asset or asset group is less than its carrying value, an impairment loss is recognized equal to the amount the fair value of the asset or asset group is exceeded by its carrying amount. Assets to be disposed of are carried at the lower of their carrying value or fair value less costs to sell. Considerable management judgment is necessary to estimate the fair value of assets or asset groups, and accordingly, actual results could vary significantly from such estimates.
The Company continues to report operating losses and negative cash flows from operations, both of which it considers to be indicators of potential impairment. Therefore, the Company evaluates its long-lived assets for potential impairment at each reporting period. The Company has concluded that its cash flows from the various long-lived assets are highly interrelated and, as a result, the Company consists of a single asset group. As the Company expects to continue incurring losses in the foreseeable future, the undiscounted cash flow step was bypassed, and the Company proceeded to fair value the asset group. The Company has determined the fair value of the asset group using expected cash flows associated with its loaner units by considering sales prices for similar assets and by estimating future discounted cash flows expected from the units. For recently acquired assets within the asset group, primarily equipment, the Company determined the fair value based on the replacement cost. There have been no impairment losses recognized for the year ended December 31, 2020 or the nine months ended September 30, 2021.
Going Concern: Our financial statements have been prepared and presented on a basis assuming we continue as a going concern. During the years ended December 31, 2020 and 2019 and through September 30, 2021, we incurred losses from operations and net cash outflows from operating activities as disclosed in the consolidated statements of operations and cash flows, respectively. At September 30, 2021, we had an accumulated deficit of $248.6 million and we expect to incur losses for the foreseeable future. To date, we have been funded by debt and equity financings, and although we believe that we will be able to successfully fund our operations, there can be no assurance that we will be able to do so or that we will ever operate profitably.
We became a revenue generating company after acquiring the Aquadex Business in August 2016. We expect to incur additional losses in the near-term as we grow the Aquadex Business, including investments in expanding our sales and marketing capabilities, purchasing inventory, manufacturing components, and complying with the requirements related to being a U.S. public company. To become and remain profitable, we must succeed in expanding the adoption and market acceptance of the Aquadex System. This will require the Company to succeed in effectively training personnel at hospitals and efficiently manufacturing, marketing and distributing the Aquadex System and related components. There can be no assurance that we will succeed in these activities, and we may never generate revenues sufficient to achieve profitability.
During 2019, 2020 and through September 17, 2021, we closed on underwritten public and other equity offerings for aggregate net proceeds of approximately $66.6 million after deducting the underwriting discounts and commissions or placement agents’ fees and offering expenses, as applicable, and other costs associated with the offerings. In addition, during 2020 we received $4.1 million in proceeds from the exercise of investor warrants. See Note 3 –Stockholders’ Equity for additional related disclosure. The Company will require additional funding to grow its business, which may not be available on terms favorable to the Company, or at all. The Company may receive those funds from the proceeds from future warrant exercises, issuances of equity securities, or other financing transactions.
We believe that our existing capital resources will be sufficient to support our operating plan through March 31, 2023. However, we may seek to raise additional capital to support our growth or other strategic initiatives through debt, equity or a combination thereof.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses.” This ASU added a new impairment model (known as the current expected credit loss (“CECL”) model) that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses. The CECL model applies to most debt instruments, trade receivables, lease receivables, financial guarantee contracts, and other loan commitments. The CECL model does not have a minimum threshold for recognition of impairment losses and entities will need to measure expected credit losses on assets that have a low risk of loss. As a smaller reporting company pursuant to Rule 12b-2 of the Securities Exchange Act of 1934, as amended, these changes become effective for the Company on January 1, 2023. Management is currently evaluating the potential impact of these changes on the condensed consolidated financial statements of the Company.
FINANCIAL OVERVIEW
We are a medical device company focused on commercializing the Aquadex system for ultrafiltration treatment of patients with fluid overload who have failed diuretic therapy. Activities since inception have consisted principally of raising capital, performing research and development and conducting preclinical and clinical studies. During 2016, we acquired the Aquadex Business and announced that we were halting all clinical evaluations of our prior technology, the C-Pulse System. Since then, our activities have consisted mainly of expanding our sales and marketing capabilities and transferring manufacturing capabilities from Baxter to our facilities in Eden Prairie, Minnesota. As of September 30, 2021, we had an accumulated deficit of $248.6 million and we expect to incur losses for the foreseeable future. To date, we have been funded by public and private equity financings and debt. Although we believe that we will be able to successfully fund our operations, there can be no assurance that we will be able to do so or that we will ever operate profitably.
Results of Operations
Comparison of Three Months Ended September 30, 2021 to Three Months Ended September 30, 2020
Net Sales
(in thousands)
Three Months Ended September 30, 2021 | | | Three Months Ended September 30, 2020 | | | Increase (Decrease) | | | % Change | |
| $ | 1,853 | | | $ | 1,904 | | | $ | (51 | ) | | | (2.7 | )% |
Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with the Aquadex System consoles. We sell primarily in the United States to hospitals and clinics through our direct salesforce. We sell outside of the United States to independent specialty distributors who in turn sell to hospitals and clinics in their geographic regions. Sales during the three months ended September 30, 2021 were negatively affected by the COVID-19 pandemic’s impact on hospital access and procedural volumes, both in the US and internationally. Pediatric patient volumes were also lower.
Costs and Expenses
Our costs and expenses were as follows:
| (in thousands) | | Three Months Ended
September 30, 2021 | | | Three Months Ended
September 30, 2020 | | | Increase (Decrease) | | | % Change | |
| Cost of goods sold | | $ | 733 | | | $ | 1,026 | | | $ | (293 | ) | | | (28.6 | )% |
| Selling, general and administrative | | $ | 4,645 | | | $ | 4,264 | | | $ | 381 | | | | 8.9 | % |
| Research and development | | $ | 1,726 | | | $ | 871 | | | $ | 855 | | | | 98.2 | % |
Cost of Goods Sold
The increase in gross margin percent for the third quarter of fiscal 2021 compared to the third quarter of fiscal 2020 was due to favorable geographic and product mix.
Selling, General and Administrative
The increase in selling, general and administrative expense reflects our continued investment in sales and marketing activities, along with administrative costs.
Research and Development
Research and development (“R&D”) expenses in the third quarter of 2021 were $1.7 million, an increase of 98% compared to the prior year period. The increase in R&D expenses was driven primarily by investments in new products, especially the new pediatric system, along with increased clinical, regulatory and reimbursement activity. R&D expense included $428,160 for a non-refundable technology license fee, as discussed in Note 7 – Commitments and Contingencies.
Comparison of Nine Months Ended September 30, 2021 to Nine Months Ended September 30, 2010
Net Sales
(in thousands)
Nine Months Ended
September 30, 2021 | | | Nine Months Ended September 30, 2020 | | | Increase (Decrease) | | | % Change | |
| $ | 6,279 | | | $ | 5,397 | | | $ | 882 | | | | 16.3 | % |
Revenue is generated mainly from the sale of disposable blood filters and catheters used in conjunction with the Aquadex system consoles. We sell primarily in the United States to hospitals and clinics through our direct salesforce. We sell outside of the United States to independent specialty distributors who in turn sell to hospitals and clinics in their geographic regions. The increase in sales is driven by execution of our commercialization strategy which includes continued expansion of our commercial footprint by the hiring of new sales representatives, clinical education specialists, and marketing personnel.
Costs and Expenses
Our costs and expenses were as follows:
| (in thousands) | | Nine Months Ended
September 30, 2021 | | | Nine Months Ended
September 30, 2020 | | | Increase (Decrease) | | | % Change | |
| Cost of goods sold | | $ | 2,682 | | | $ | 2,486 | | | $ | 196 | | | | 7.9 | % |
| Selling, general and administrative | | $ | 14,945 | | | $ | 13,034 | | | $ | 1,911 | | | | 14.7 | % |
| Research and development | | $ | 3,847 | | | $ | 2,620 | | | $ | 1,227 | | | | 46.8 | % |
Cost of Goods Sold
The increase in gross margin percent for the first nine months of fiscal 2021 compared to the first nine months of fiscal 2020 was due to the timing of production costs and favorable geographic mix.
Selling, General and Administrative
The increase in selling, general and administrative expense reflects our continued investment in sales and marketing activities, along with nonrecurring leadership transition costs.
Research and Development
The increase in R&D expenses over the prior year were primarily driven by investments in new products, along with increased clinical, regulatory and reimbursement activity.
Liquidity and Capital Resources
Sources of Liquidity
We have funded our operations primarily through cash on hand and a series of equity and debt issuances.
On January 28, 2020, we closed on an underwritten public offering of 201,546 shares of common stock, 383,909 shares of Series H Preferred Stock and warrants to purchase 585,460 shares of common stock, for gross proceeds of approximately $9.7 million. Net proceeds totaled approximately $8.6 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
On March 23, 2020, we closed on a registered direct offering of 138,715 shares of common stock for gross proceeds of approximately $1.2 million, prior to deduction of commissions and offering expenses related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 138,715 shares of the Company’s common stock.
On April 1, 2020, we closed on a registered direct offering of 171,008 shares of common stock for gross proceeds of approximately $2.2 million, prior to deduction of commissions and offering expenses payable related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 85,506 shares of the Company’s common stock. The warrants are exercisable immediately and expire five and a half years from the date of issuance.
On May 5, 2020, we closed on a registered direct offering of 119,930 shares of common stock for gross proceeds of approximately $1.7 million, prior to deduction of commissions and offering related to the transaction. In a concurrent private placement, we agreed to issue to the investors in the registered direct offering warrants to purchase up to 59,966 shares of the Company’s common stock. The warrants are exercisable immediately and will expire five and a half years from the date of issuance.
On August 21, 2020, we closed on an underwritten public offering of 1,064,678 shares of common stock and warrants to purchase 1,064,678 shares of common stock, for gross proceeds of approximately $14.4 million. Net proceeds totaled approximately $13.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering.
On March 19, 2021, we closed on an underwritten public offering of 3,795,816 shares of common stock, for gross proceeds of approximately $20.9 million. Net proceeds totaled approximately $18.9 million after deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
On September 17, 2021, we closed on an underwritten public offering of 4,005,588 shares of common stock, for gross proceeds of approximately $10 million. Net proceeds totaled approximately $9.0 million after deducting the underwriting discounts and commissions and other costs associated with the offering and after giving effect to the underwriters’ full exercise of their overallotment option.
As of September 30, 2021 and December 31, 2020, cash and cash equivalents were $28.4 million and $14.4 million, respectively. Our business strategy and ability to fund our operations in the future depends in part on our ability to grow the Aquadex Business by establishing a sales force, selling our products to hospitals and other healthcare facilities and controlling costs. While we expect to continue to receive proceeds from the exercise of warrants, we will likely need to seek additional financing in the future, which, to date, has been through offerings of our equity. The disruption created by COVID-19 in our operations, our sales outlook, and the capital markets where we would seek such financing, have created uncertainty about our ability to access the capital markets in future periods.
Cash Flows from Operating Activities
Net cash used in operating activities was $13.7 and $13.2 million for the nine months ended September 30, 2021 and 2020, respectively. The net cash used in each of these periods primarily reflects the net loss for those periods, offset in part by stock-based compensation, depreciation and amortization, and the effects of changes in operating assets and liabilities, including working capital.
Cash Flows from Investing Activities
Net cash used in investing activities was $191,000 and $207,000 for the nine months ended September 30, 2021 and September 31, 2020, respectively. The cash used in investing activities was primarily for the purchase of manufacturing, laboratory and office equipment.
Cash Flows from Financing Activities
As described above, net cash provided by financing activities was $27.9 and $30.1 million for the nine months ended September 30, 2021 and 2020, respectively.
Capital Resource Requirements
As of September 30, 2021, we did not have any material commitments for capital expenditures.
Off-Balance Sheet Arrangements
We have no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources
Forward-Looking Statements and Risk Factors
Certain statements in this Quarterly Report on Form 10-Q are forward-looking statements within the meaning of the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), that are based on management’s beliefs, assumptions and expectations and information currently available to management. All statements that address future operating performance, events or developments that we expect or anticipate will occur in the future are forward-looking statements, including without limitation, our expectations regarding the potential impacts of the COVID-19 pandemic on our business operations, cash flow, business development, and employees, our ability to execute on our commercial strategy and to grow our Aquadex® Business, our post-market clinical data collection activities, benefits of our products to patients, our expectations with respect to product development and commercialization efforts, our ability to increase market and physician acceptance of our products, potentially competitive product offerings, the possibility that we may be unable to raise sufficient funds necessary for our anticipated operations, intellectual property protection, our ability to integrate acquired businesses, our expectations regarding anticipated synergies with and benefits of the Aquadex business, our business strategy, market size, potential growth opportunities and other risks and uncertainties described in our filings with the SEC. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Management believes that these forward-looking statements are reasonable as and when made. However, you should not place undue reliance on forward-looking statements because they speak only as of the date when made. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that might subsequently arise. Forward-looking statements are subject to a number of risks and uncertainties that could cause actual events to adversely differ from the expectations indicated in these forward-looking statements, including without limitation, the risks and uncertainties described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, in other reports filed thereafter with the SEC, which risk factors may by updated from time to time, and in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021. We operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for us to predict all risk factors and uncertainties. We may not actually achieve the plans, projections or expectations disclosed in forward-looking statements, and actual results, developments or events could differ materially from those disclosed in the forward-looking statements. Forward-looking statements are subject to a number of risks and uncertainties, including without limitation, the possibility that regulatory authorities do not accept our application or approve the marketing of our products, the possibility we may be unable to raise the funds necessary for the development and commercialization of our products, and those described in our filings with the SEC.
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| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not applicable.
| ITEM 4. | CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer (together, the “Certifying Officers”), as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired objectives. Also, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
As of September 30, 2021, the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of management, including the Certifying Officers, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives. Based on their evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2021.
Changes in Internal Controls over Financial Reporting
There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
We are not currently subject to any legal proceedings.
You should carefully consider the risks and uncertainties we describe in our Annual Report on Form 10-K for the year ended December 31, 2020, and in other reports filed thereafter with the SEC, before deciding to invest in or retain shares of our common stock. There have been no material changes from our risk factors previously disclosed in response to Item 1A. Risk Factors of Part I of our Annual Report on Form 10-K for the year ended December 31, 2020.
| ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Not applicable.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
Not applicable.
| ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
None.
The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index below.
Exhibit Index
Nuwellis, Inc.
Form 10-Q for the Quarterly Period Ended September 30, 2021
| | | | | Incorporated By Reference | | |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Date of First Filing | | Exhibit
Number | | Filed Herewith | Furnished Herewith |
| | Fourth Amended and Restated Certificate of Incorporation | | 10 | | 001-35312 | | February 1, 2012 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K | | 001-35312 | | January 13, 2017 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K | | 001-35312 | | May 23, 2017 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K | | 001-35312 | | October 12, 2017 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K | | 001-35312 | | January 2, 2019 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K/A | | 001-35312 | | October 16, 2020 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Amendment to the Fourth Amended and Restated Certificate of Incorporation | | 8-K | | 001-35312 | | April 27, 2021 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Designation of Series A Junior Participating Preferred Stock | | 8-K | | 001-35312 | | June 14, 2013 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Designation of Preferences, Rights and Limitations of Series F Convertible Preferred Stock | | S-1/A | | 333-221010 | | November 6, 2017 | | 3.7 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Designation of Preferences, Rights and Limitations of Series G Convertible Preferred Stock | | 8-K | | 001-35312 | | March 13, 2019 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Certificate of Designation of Preferences, Rights and Limitations of Series H Convertible Preferred Stock | | 8-K | | 001-35312 | | January 29, 2020 | | 3.1 | | | |
| | | | | | | | | | | | | | |
| | Second Amended and Restated Bylaws | | 8-K | | 001-35312 | | April 27, 2021 | | 3.2 | | | |
| | | | | | | | | | | | | | |
| | Underwriting Agreement, dated September 15, 2021, between Nuwellis, Inc. and Ladenburg Thalmann & Co. Inc., as the Representative of the several underwriters named in Schedule I thereto | | 8-K | | 001-35312 | | September 17, 2021 | | 1.1 | | | |
| | | | | Incorporated By Reference | | | | | |
Exhibit Number | | Exhibit Description | | Form | | File Number | | Date of First Filing | | Exhibit
Number | | Filed Herewith | Furnished Herewith |
| | Nuwellis, Inc. Non-Employee Director Compensation Policy (effective August 18, 2021) | | | | | | | | | | X | |
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| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X | |
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| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | X | |
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| | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | | X
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| | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | | | | | | | | | | | X
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| 101.INS | | Inline XBRL Instance Document | | | | | | | | | | X |
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| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | | | | | | | | | X | |
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| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | | | | | | | | | X | |
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| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | | | | | | | | | X | |
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| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | | | | | | | | | X | |
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| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | | | | | | | | | X | |
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| 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | | | | | | | | | | X | |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | Nuwellis, Inc. |
| | | | |
| Date: November 10, 2021 | By: | /s/ Nestor Jaramillo, Jr. | |
| | | Nestor Jaramillo, Jr. |
| | | President, Chief Executive Officer |
| | | (principal executive officer) |
| Date: November 10, 2021 | By: | /s/ George Montague | |
| | | George Montague |
| | | Chief Financial Officer |
| | | (principal financial officer) |
