NEPHROS, INC. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements about our business, financial condition and results of operations including discussions about management's expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and these statements should not be construed either as assurances of performances or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management's actions to vary, and the results of these variances may be both material and adverse.
Business Overview
We are a commercial-stage company that develops and sells high performance water solutions to the medical and commercial markets.
In medical markets, we sell water filtration products and waterborne pathogen detection products. Our medical water filters, mostly classified as ultrafilters, are used primarily by hospitals for the prevention of infection from waterborne pathogens, such as legionella and pseudomonas, and in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate. Because our ultrafilters capture contaminants as small as 0.005 microns in size, they minimize exposure to a wide variety of bacteria, viruses, fungi, parasites, and endotoxins.
In commercial markets, we manufacture and sell water filters that improve the taste and odor of water and reduce biofilm, bacteria, and scale build-up in downstream equipment. Marketed under both the Nephros and AETHER brands, our products are marketed primarily to the food service, hospitality, convenience store, and health care markets.
Our pathogen detection systems are portable, near real-time systems designed to provide actionable data for testing laboratories, infection control teams, biomedical engineers in dialysis clinics, and water quality teams in building management organizations.
We also have a subsidiary,
We were founded in 1997 by healthcare professionals affiliated with
COVID-19 Pandemic
Most customers and prospects - including healthcare, hospitality, and food and beverage - have re-opened to our sales activity as the country has progressed through the COVID-19 pandemic. In addition, our filter emergency response business has normalized. We expect the pandemic to continue its overall trend toward abatement in the coming months, but recent infection increases from new viral variants may interrupt that abatement from time to time, as has occurred with the Delta and Omicron variants.
During the pandemic, we maintained full operations, supporting our customers and strategic partners, with no significant interruptions in supply chain or service capabilities.
We believe that, as the COVID-19 pandemic subsides, we may experience a net positive impact on demand for our products, due especially to increased global awareness of infectious pathogens and the serious problems they cause. Specifically, we expect that:
? Purchase decisions for infection control filtration that had been deferred,
both in new and existing customer organizations, may be re-prioritized.
? Demand for our pathogen detection products may increase as unoccupied
buildings, including office buildings and hotels, are readied for
re-occupation. Extended periods of low, or no, water flow through building
piping creates opportunities for biofilm propagation - a problem our strategic
partners are trained to eradicate.
? Demand for our commercial filtration products may increase as business returns
to hotels, casinos, and restaurants.
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Our Products Water Filtration Products
We develop and sell water filtration products used in both medical and commercial applications. Our water filtration products employ multiple filtration technologies, as described below.
In medical markets, our primary filtration mechanism is to pass liquids through the pores of polysulfone hollow fiber. Our filters' pores are significantly smaller than those of competing products, resulting in highly effective elimination of waterborne pathogens, including legionella bacteria (the cause of Legionnaires disease) and viruses, which are not eliminated by most other microbiological filters on the market. Additionally, the fiber structure and pore density in our hollow fiber enables significantly higher flow rates than in other polysulfone hollow fiber.
Our primary sales strategy in medical markets is to sell through value-added resellers ("VARs"). Leveraging VARs has enabled us to expand rapidly our access to target customers without significant sales staff expansion. In addition, while we are currently focused on medical markets, the VARs that support these customers also support a wide variety of commercial and industrial customers. We believe that our VAR relationships will facilitate growth in filter sales outside of the medical industry.
In commercial markets, we develop and sell our Nephros- and AETHER-branded filters, for which carbon-based absorption is the primary filtration mechanism. Aether products allow us to improve water's odor and taste, to reduce scale and heavy metals, and to reduce other water contaminants for customers who are primarily in the food service, convenience store, and hospitality industries.
Our Aether filter offerings have the potential to generate accretive revenue growth in at least three ways. First, we expect the business to continue its organic growth. Second, cross-selling opportunities are generated by offering taste/odor-focused products to the medical markets, as well as pathogen-focused filtration to the commercial markets. Finally, as part of the more substantial Nephros organization, Aether may be able to compete for larger filtration contracts than may have been available to it as a smaller, independent firm.
In commercial markets, our model combines both direct and indirect sales. Our sales staff have sold products directly to a number of convenience stores, hotels, casinos, and restaurants. We are also pursuing large corporate contracts through partnerships.
Target Markets
Our ultrafiltration products currently target the following markets:
? Hospitals and Other Healthcare Facilities: Filtration of water for washing and
drinking as an aid in infection control. The filters produce water that is
suitable for wound cleansing, cleaning of equipment used in medical
procedures, and washing of surgeons' hands.
? Dialysis Centers and Home/Portable Dialysis Machines: Filtration of water or
bicarbonate concentrate used in hemodialysis.
? Commercial Facilities: Filtration and purification of water for consumption,
including for use in ice machines and soft drink dispensers.
? Military and Outdoor Recreation: Individual water purification devices used by
soldiers and backpackers to produce drinking water in the field, as well as
filters customized to remote water processing systems.
Hospitals and Other Healthcare Facilities. Nephros filters are a leading tool used to provide proactive protection to patients in high-risk areas (e.g., ice machines, surgical rooms, NICUs) and reactive protection to patients in broader areas during periods of water pathogen outbreaks. Our products are used in hundreds of medical facilities to aid in infection control, both proactively and reactively.
As of 2019, according to the
In
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We currently have FDA 510(k) clearance on the following portfolio of medical device products for use in the hospital setting to aid in infection control:
? The DSU-H and SSU-H are in-line, 0.005-micron ultrafilters that provide dual-
and single-stage protection, respectively, from waterborne pathogens. They are
primarily used to filter potable water feeding ice machines, sinks, and
medical equipment, such as endoscope washers and surgical room humidifiers.
The DSU-H has an up to 6-month product life in a typical hospital setting,
while the SSU-H has an up to 3-month product life.
? The S100 is a point-of-use, 0.01-micron microfilter that provides protection
from waterborne pathogens. The S100 is primarily used to filter potable water
feeding sinks and showers. The S100 has an up to 3-month product life when
used in a hospital setting.
? The HydraGuardTM and HydraGuardTM - Flush are 0.005-micron cartridge
ultrafilters that provide single-stage protection from waterborne pathogens.
The HydraGuard ultrafilters are primarily used to filter potable water feeding
ice machines and medical equipment, such as endoscope washers and surgical
room humidifiers. The HydraGuard has an up to 6-month product life and the
HydraGuard - Flush has an up to 12-month product life when used in a hospital
setting.
Our complete hospital infection control product line, including in-line, point-of-use, and cartridge filters, can be viewed on our website at http://www.nephros.com/infection-control/. We are not including the information on our website as a part of, nor incorporating it by reference into, this Quarterly Report on Form 10-Q.
Dialysis Centers - Water/Bicarbonate. In the dialysis water market, Nephros ultrafiltration products are among the highest performing products on the market. The DSU-D, SSU-D and the SSUmini have become the standard endotoxin filter in many portable reverse osmosis systems. The EndoPur®, our large-format ultrafilter targeted at dialysis clinic water systems, provides the smallest pore size available. Following a long pilot project at a major dialysis provider, we are now seeing growth in the use of this product. In addition, we aim to expand EndoPur's usage into heat-disinfected water systems, which we anticipate will further open the market for this product.
To perform hemodialysis, all dialysis clinics have dedicated water purification
systems to produce water and bicarbonate concentrate, two essential ingredients
for making dialysate, the liquid that removes waste material from the blood.
According to the
Medicare is the main payer for dialysis treatment in
We currently have FDA 510(k) clearance on the following portfolio of medical device products for use in the dialysis setting to aid in bacteria, virus, and endotoxin retention:
? The DSU-D, SSU-D and SSUmini are in-line, 0.005-micron ultrafilters that
provide protection from bacteria, viruses, and endotoxins. All of these
products have an up to 12-month product life in the dialysis setting and are
used to filter water following treatment with a reverse osmosis ("RO") system,
and to filter bicarbonate concentrate. These ultrafilters are primarily used
in the water lines and bicarbonate concentrate lines leading into dialysis
machines, and as a polish filter for portable RO machines.
? The EndoPur is a 0.005-micron cartridge ultrafilter that provides single-stage
protection from bacteria, viruses, and endotoxins. The EndoPur has an up to
12-month product life in the dialysis setting and is used to filter water
following treatment with an RO system. More specifically, the EndoPur is used
primarily to filter water in large RO systems designed to provide ultrapure
water to an entire dialysis clinic. The EndoPur is a cartridge-based, "plug
and play" market entry that requires no plumbing at installation or
replacement. The EndoPur is available in 10", 20", and 30" configuration.
Commercial and Industrial Facilities. Our commercial NanoGuard® product line accomplishes ultrafiltration via small pore size (0.005 micron) technology, filtering bacteria and viruses from water. In addition, the AETHER brand expanded our product line to include water filtration and purification technologies that are primarily focused on improving odor and taste and on reducing scale and heavy metals from filtered water.
We purchased the AETHER brand to expedite our access to commercial markets and
to expand our filtration expertise and capabilities. Our commercial market focus
is on the hotel, restaurant, and convenience store markets. In the first-year
post-acquisition, we upgraded Aether facilities to increase production and
logistics capacity, integrated Aether products into the Nephros infection
control product portfolio, and initiated sales efforts with several large
commercial customers. In
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Over time, we believe that the same water safety management programs currently underway at medical facilities may migrate to commercial markets. As the epidemiology of waterborne pathogens expands, links to contamination sources will become more efficient and the data more readily available. In cases where those sources are linked to restaurants, hotels, office buildings and residential complexes, the corporate owners of those facilities will likely face increasing liability exposure. We expect that building owners will come to understand ASHRAE-188, which outlines risk factors for buildings and their occupants, and provides water safety management guidelines. We believe, in time, most commercial buildings will need to follow the basic requirements of ASHRAE-188: create a water management plan, perform routine testing, and establish a plan to treat the building in the event of a positive test.
As demand for water testing and microbiological filtration grows, we will be ready to deploy our expertise and solutions based on years of experience servicing the medical market. We believe that we have an opportunity to offer unique expertise and products to the commercial market, and that our future revenue from the commercial market could even surpass our infection control revenue.
We currently market the following portfolio of proprietary products for use in the commercial, industrial, and food service settings:
? The NanoGuard set of products are in-line, 0.005-micron ultrafilter that
provides dual-stage retention of any organic or inorganic particle larger than
15,000 Daltons. NanoGuard products are designed to fit a variety of existing
plumbing configurations, including 10" and 20" standard housings, and AETHER
and Everpure® manifolds. Included in the NanoGuard product line are both
conventional and flushable filters.
? The AETHER line of commercial filters, which are also sold under the Nephros
brand, provide a variety of technology solutions that improve water quality in
food service, convenience store, hospitality, and industrial applications.
AETHER filters improve water taste and odor, and reduce sediment, dirt, rust
particles and other solids, chlorine and heavy minerals, lime scale build-up,
and both particulate lead and soluble lead.
AETHER products combine effectively with NanoGuard ultrafiltration technologies to offer full-featured solutions to the commercial water market, including to existing users of Everpure filter manifolds.
Military and Outdoor Recreation. We developed our individual water treatment
device ("IWTD") in both in-line and point-of-use configurations. Our IWTD allows
a soldier in the field to derive drinking water from any freshwater source. This
enables the soldier to remain hydrated, to help maintain mission effectiveness
and unit readiness, and to extend mission reach. Our IWTD has been validated by
the military to meet the NSF Protocol P248 standard. It has also been approved
by the
In
Pathogen Detection Systems ("PDS")
Pathogen Detection in Infection Control. We recently expanded our portfolio of solutions with the introduction of our PluraPath™ pathogen detection system, which we believe represents a significant growth opportunity for Nephros.
We developed the PluraPath pathogen detection system to provide real-time data to infection control teams executing their water management plans. We integrated our ultrafilter technology with emerging, quantitative polymerase chain reaction (qPCR) technology and real-time analytics. We chose a portable, open-source qPCR platform that allows us to parallel-process up to 15 different bacteria and virus assays. We worked with industry experts to select and develop DNA- and RNA-based assays that could meet our goals of providing quantitative precision within one hour. We also developed a mobile application to extract and process the data real-time. Furthermore, we designed the system so that anyone can perform qPCR testing, not just someone with training in microbiological laboratory techniques.
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With the PluraPath system, it will be possible to map and track the changes to levels of multiple bacterial and viral pathogens in a building's water system on a real-time basis, at cost levels equivalent to assays that currently take 24-72 hours or more and typically provide data on only a single pathogen. Using PluraPath, we expect that infection control teams will be able to quickly assess approximate levels of a broad array of pathogens in their water systems, and optimally focus their secondary disinfection efforts and point-of-use filtration; services and products offered by our strategic partners.
The PluraPath system does not replace culture-based assays, which are the current regulatory requirements for confirmation in testing for waterborne pathogens. Rather, we believe PluraPath will become a valuable tool in the arsenal of defense, permitting faster decision making about a larger target population of pathogens. Our objective is to provide our customers and strategic partners with a user-friendly system that delivers dependable, actionable data to infection control teams in less than an hour.
Pathogen Detection in
Pathogen Detection in Dialysis Facilities. We have also been investigating pathogen detection efforts in the dialysis space. The LAL (limulus amebocyte lysate) test is a dialysis industry standard assay that identifies the presence of potential endotoxins, agnostic to the source species. The source of endotoxins are gram-negative bacteria. LAL testing routinely takes 48-72 hours to provide results from the time of shipping the sample to a central laboratory. When dialysis clinics have urgent contamination or severely elevated endotoxin issues, they may have to shut down for extended periods of time creating enormous logistical issues for patients and increasing the cost of care.
To provide a real-time solution for this testing paradigm, we developed the DialyPath™ pathogen detection and endotoxin estimation system. The DialyPath system mirrors our PluraPath but includes a gram-negative DNA marker test and test for six different gram-negative bacteria. The DialyPath system is designed to provide data on two test samples in one run in less than one hour. The system will provide an estimate of the overall endotoxin in the sample, as well as estimated levels of six specific endotoxin-generating bacteria known to be frequent invaders of dialysis clinic water systems.
Facility-Wide Pathogen Detection. Bacterial contaminants in water systems can
originate from thousands of different bacterial families. The technology now
exists to map the water system biome in real-time, on-site, using an enhanced
form of the portable PluraPath system and a bioinformatics database. The
SequaPath system provides the capability to screen water for over 20,000
different bacterial genera (families), including genera of the 40+ pathogenic
bacteria listed by the
The SequaPath technology was used in 2020 to perform an academic study that found far more bacteria in buildings unoccupied during the COVID-19 pandemic than in occupied buildings. The potential for building biome mapping is enormous. We are developing the technology, processes, and procedures to perform as many as 96 tests in a single run. SequaPath is currently available as a service offering.
While this service could be of value to the management of any water system in any building in any part of the world, we will first focus on the hospital customers of our strategic partners. Once proven in the hospital space, we believe that SequaPath has the potential to shift the building water testing paradigm across multiple markets and geographies.
Our Pathogen Detection Systems laboratories facility in
Additional Pathogen Detection Markets. On
Due primarily to the intellectual property acquired in the GenArraytion acquisition, including proprietary techniques of rapid assay development, we are exploring additional pathogen detection market opportunities, including additional waterborne pathogen detection markets as well as non-waterborne areas, such as mosquito- and tick-borne illness and women's health panels.
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Introduction to HDF
The current standard of care in
Hemodiafiltration ("HDF") is an alternative dialysis modality that combines the
benefits of HD and HF into a single therapy by clearing toxins using both
diffusion and convection. Though not widely used in
? Enhanced clearance of middle and large molecular weight toxins ? Improved survival - up to a 35% reduction in mortality risk ? Reduction in the occurrence of dialysis-related amyloidosis ? Reduction in inflammation ? Reduction in medication such as EPO and phosphate binders ? Improved patient quality of life ? Reduction in number of hospitalizations and overall length of stay
However, like HD, HDF can be resource-intensive and can require a significant amount of time to deliver one course of treatment.
Nephros and First-Generation HDF
In the early 2000's, Nephros developed a medical device that enabled a standard
HD machine to perform HDF. This first-generation device ("HDF1") was cleared by
the
We refer to our approach as an on-line mid-dilution hemodiafiltration ("mid-dilution HDF") system. Our HDF1 solution included an OLp?r H2H Hemodiafiltration Module ("H2H Module"), an OLp?r MD 220 Hemodiafilter ("HDF Filter") and an H2H Substitution Filter ("Dialysate Filter").
Our H2H Module attaches to a standard HD machine to perform on-line HDF therapy. The HD machine controls and monitors the basic treatment functions, as it would normally when providing HD therapy. The H2H Module is a free-standing, movable device that is placed next to either side of an HD machine. The H2H Module connects to the clinic's water supply, drain, and electricity.
The H2H Module utilizes the HDF Filter, which is similar to a typical hollow fiber dialyzer assembled with a single hollow fiber bundle made with a high-flux (or high-permeability) membrane. With the HDF Filter, however, the fiber bundle is separated into two discrete, but serially connected, blood paths. Dialysate flows in one direction that is counter-current to blood flow in Stage 1 and co-current to blood flow in Stage 2.
In addition to the HDF Filter, the H2H Module also utilizes a Dialysate Filter during patient treatment. The Dialysate Filter is a hollow fiber, ultrafilter device that consists of two sequential (redundant) ultrafiltration stages in a single housing. During on-line HDF with the H2H Module, fresh dialysate is redirected by the H2H Module's hydraulic (substitution) pump and passed through this dual-stage ultrafilter before being infused as substitution fluid into the extracorporeal circuit. Providing ultrapure dialysate is crucial for the success of on-line HDF treatment.
In the years following the HDF1 product's FDA clearance,
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Specialty Renal Products and Second-Generation HDF
In 2017 and 2018, we dramatically simplified and redesigned our HDF1 device into a second-generation device (HDF2). Our updates made the system significantly easier to use. By shifting from a reusable substitution ultrafilter to a disposable substitution ultrafilter, we simplified the set-up process and substantially reduced the time required between patient treatments - two of the key complaints from users of our first-generation system. We used real-time user feedback to aid in the fine-tuning of our changes to the system that impacted usability. We believe our second-generation HDF system will meet the needs of both clinicians and patients.
In
On
In late 2022, we plan to launch the HDF2 system at 1-3 clinics to establish clinical experience. SRP is currently manufacturing devices and supplies for its commercial launch. We have also hired a Director of Operations to lead the commercial launch and select initial clinics.
In 2023, we plan to expand our efforts on a measured basis, to clinics that wish
to provide HDF therapy to their patients. We believe this measured launch
approach is more likely to be successful than a broader push into the market.
Nephrologists in
While several studies have been performed in
Critical Accounting Policies
For the six-month period ended
Recent Accounting Pronouncements
We are subject to recently issued accounting standards, accounting guidance and disclosure requirements. For a description of these new accounting standards, see Note 2, "Basis of Presentation and Liquidity," of the Notes to our Unaudited Condensed Consolidated Interim Financial Statements contained in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Results of Operations
Fluctuations in Operating Results
Our results of operations have fluctuated significantly from period to period in the past, including recently, and are likely to continue to do so in the future. We anticipate that our annual results of operations will be impacted for the foreseeable future by several factors, including market acceptance of our products, expense management, and progress in achieving positive operating cash flow. Due to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance.
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Three Months Ended
The following table sets forth our summarized, consolidated results of operations for the three months endedJune 30, 2022 and 2021 (in thousands, except percentages): $ % Increase Increase 2022 2021 (Decrease) (Decrease) Total net revenues$ 2,884 $ 2,266 $ 618 27 % Cost of goods sold 1,523 991 532 54 % Gross margin 1,361 1,275 86 7 % Gross margin % 47 % 56 % - (9 )% Research and development expenses 431 487 (56 ) (11 )% Depreciation and amortization expense 64 51 13 25 % Selling, general and administrative expenses 2,070 1,854 216 12 % Loss from operations (1,204 ) (1,117 ) (87 ) (8 )% Interest expense (6 ) (11 ) 5 45 % Interest income 1 3 (2 ) (67 )% Other income (expense), net 72 (1 ) 73 7300 % Net loss (1,137 ) (1,126 ) (11 ) (1 )% Less: Undeclared deemed dividend attributable to noncontrolling interest (66 ) (60 ) (6 ) (10 )% Net loss attributable to Nephros, Inc.$ (1,203 ) $ (1,186 ) $ (17 ) (1 )%
Net Revenues. Our business is reported in three reportable segments: Water
Filtration, Pathogen Detection and Renal Products. Our net revenues in each of
these segments for the three months ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 2,849 $ 2,190 $ 659 30 %
Pathogen Detection 35 76 (41 ) (54 )%
Renal Products - - - - %
Total $ 2,884 $ 2,266 $ 618 27 %
Total net revenues in the Water Filtration segment increased 30% due to increased sales in all 3 of our filtration target markets: Hospitals, Dialysis, and Commercial. We believe these sales increases reflect growing market acceptance of our products.
Total net revenues in the Pathogen Detection segment decreased 54% due to lower-than-expected service and testing revenues.
Gross Profit Margin
%
Increase
2022 2021 (Decrease)
Water Filtration 49 % 55 % (6 )%
Pathogen Detection (131 )% 79 % (210 )%
Renal Products - % - % - %
Total 47 % 56 % (9 )%
Consolidated gross margin was approximately 47% for the three months ended
Research and Development Expenses
Research and development expenses by segment for the three months ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 205 $ 305 $ (100 ) (33 )%
Pathogen Detection 159 149 10 7 %
Renal Products 67 33 34 103 %
Total $ 431 $ 487 $ (56 ) (11 )%
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Consolidated research and development expenses decreased
Selling, General and Administrative Expenses
Selling, general and administrative expenses by segment for the three months
ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 1,804 $ 1,735 $ 69 4 %
Pathogen Detection 184 96 88 92 %
Renal Products 82 23 59 257 %
Total $ 2,070 $ 1,854 $ 216 12 %
Consolidated selling, general and administrative expenses increased
Interest Expense
Interest expense was approximately
Other Income (Expense), net
Other income of approximately
Six Months Ended
The following table sets forth our summarized, consolidated results of operations for the six months endedJune 30, 2022 and 2021 (in thousands, except percentages): $ % Increase Increase 2022 2021 (Decrease) (Decrease) Total net revenues$ 5,071 $ 5,002 $ 69 1 % Cost of goods sold 2,685 2,140 545 25 % Gross margin 2,386 2,862 (476 ) (17 )% Gross margin % 47 % 57 % - (10 )% Research and development expenses 1,009 1,043 (34 ) (3 )% Depreciation and amortization expense 116 101 15 15 % Selling, general and administrative expenses 4,418 3,853 565 15 % Loss from operations (3,157 ) (2,135 ) (1,022 ) (48 )% Interest expense (13 ) (24 ) 11 (46 )% Interest income 3 6 (3 ) (50 )% Forgiveness of PPP Loan - 482 (482 ) (100 )% Other income (expense), net 63 8 55 688 % Net loss (3,104 ) (1,663 ) (1,441 ) (87 )% Less: Undeclared deemed dividend attributable to noncontrolling interest (129 ) (119 ) (10 ) (8 )% Net loss attributable to Nephros, Inc.$ (3,233 ) $ (1,782 ) $ (1,451 ) (81 )% 28
Net Revenues. Our business is reported in three reportable segments: Water
Filtration, Pathogen Detection and Renal Products. Our net revenues in each of
these segments for the six months ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 5,008 $ 4,926 $ 82 2 %
Pathogen Detection 63 76 (13 ) (17 )%
Renal Products - - - - %
Total $ 5,071 $ 5,002 $ 69 1 %
Total net revenues in the Water Filtration segment increased 2%.
Total net revenues in the Pathogen Detection segment decreased 17% in the six
months ended
Gross Profit Margin
%
Increase
2022 2021 (Decrease)
Water Filtration 49 % 57 % (8 )%
Pathogen Detection (118 )% 79 % (197 )%
Renal Products - % - % - %
Total 47 % 57 % (10 )%
Consolidated gross margin was approximately 47% for the six months ended
Research and Development Expenses
Research and development expenses by segment for the six months ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 460 $ 598 $ (138 ) (23 )%
Pathogen Detection 365 268 97 36 %
Renal Products 184 177 7 4 %
Total $ 1,009 $ 1,043 $ (34 ) (3 )%
Consolidated research and development expenses decreased
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Selling, General and Administrative Expenses
Selling, general and administrative expenses by segment for the six months ended
$ %
Increase Increase
2022 2021 (Decrease) (Decrease)
Water Filtration $ 3,953 $ 3,612 $ 341 9 %
Pathogen Detection 356 196 160 82 %
Renal Products 109 45 64 142 %
Total $ 4,418 $ 3,853 $ 565 15 %
Consolidated selling, general and administrative expenses increased
Interest Expense
Interest expense was approximately
Extinguishment of PPP loan
Our outstanding PPP loan was forgiven in January of 2021 resulting in an
extinguishment of approximately
Other Income (Expense), net
Other income was approximately
Liquidity and Capital Resources
The following table summarizes our liquidity and capital resources as of
June 30, December 31,
Liquidity and Capital Resources 2022 2021
Cash and cash equivalents $ 4,179 $ 6,973
Other current assets 6,943 6,661
Working capital 9,011 11,244
Stockholders' equity 12,481 14,749
At
Based on cash that is available for our operations and projections of our future operations, we believe that our existing cash resources together with our anticipated revenue, will be sufficient to fund our current operating plan through at least the next 12 months from the date of issuance of the condensed consolidated financial statements in this Quarterly Report on Form 10-Q. Additionally, our operating plans are designed to help control operating costs, to increase revenue and to raise additional capital until such time as we generate sufficient cash flows to fund operations. If there were a decrease in the demand for our products due to either economic or competitive conditions, or if we are otherwise unable to achieve our plan or achieve our anticipated operating results, there could be a significant reduction in liquidity due to our possible inability to cut costs sufficiently. In such event, the Company may need to take further actions to reduce its discretionary expenditures, including further reducing headcount, reducing spending on R&D projects and reducing other variable costs.
Our future liquidity sources and requirements will depend on many other factors, including:
? the market acceptance of our products, and our ability to effectively and
efficiently produce, market and sell our products;
? the costs involved in filing and enforcing patent claims and the status of
competitive products; and
? the cost of litigation, including potential patent litigation and any other
actual or threatened litigation.
We expect to put our current capital resources to the following uses:
? the development, marketing, and sales of our water filtration and pathogen
detection products;
? the commercial roll-out of our second-generation HDF product; and
? working capital purposes.
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Net cash used in operating activities was
Net cash used in investing activities was approximately
Net cash provided by financing activities was approximately
Net cash provided by financing activities of
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. This Quarterly Report on Form 10-Q contains such "forward-looking" information, which includes all statements herein that are based on future expectations. 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. Forward-looking statements are only predictions and are not guarantees of performance. These statements are based on our management's beliefs and assumptions, which in turn are based on their interpretation of currently available information. The forward-looking statements contained in this report include, but are not limited to, statements regarding the following:
? our expectations regarding the impact of the COVID-19 pandemic on our results
of operations and financial condition;
? our expectation that demand for our water filtration products will increase as
business returns to the hospitality industry and commercial buildings return
to full occupancy;
? the adoption of our second generation HDF system by physicians and clinics;
? anticipated future revenues from the sale of our products;
? our expectations regarding the use of our current capital resources;
? the expected future volatility of our results of operations;
? the progress and timing of our research and development efforts;
? our expectation that we will reduce our selling, general and administrative
expenses in future periods;
? our belief that our existing cash resources will be sufficient to fund our
current operating plan through at least the next 12 months;
? our plans to further reduce cash expenditures in the event we do not achieve
our anticipated results from operations; and
? the anticipated impact of adoption of recent accounting pronouncements on our
financial statements.
These statements involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by these forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks that:
? we face significant challenges in obtaining market acceptance of our products,
which, if not obtained, could adversely affect our potential sales and
revenues;
? inflationary pressures and supply chain challenges across most industries
could negatively impact our revenues, margins, and customer satisfaction;
? we face potential liability associated with the production, marketing and sale
of our products, and the expense of defending against claims of product
liability could materially deplete our assets and generate negative publicity,
which could impair our reputation;
? to the extent our products or marketing materials are found to violate any
provisions of the U.S. Food, Drug and Cosmetic Act (the "FDC Act") or any
other statutes or regulations, we could be subject to enforcement actions by
the U.S. Food and Drug Administration (the "FDA") or other governmental
agencies;
? we may not be able to obtain funding when needed or on terms favorable to us
in order to continue operations;
? we may not have sufficient capital to successfully implement our business
plan;
? we may not be able to effectively market our products;
? we may not be able to sell our water filtration products, pathogen detection
system products or chronic renal failure therapy products at competitive
prices or profitably;
? we may encounter problems with our suppliers, manufacturers, and distributors;
? we may encounter unanticipated internal control deficiencies or weaknesses or
ineffective disclosure controls and procedures;
31
? we may not be able to obtain appropriate or necessary regulatory approvals to
achieve our business plan;
? products that appeared promising to us in research or clinical trials may not
demonstrate anticipated efficacy, safety or cost savings in subsequent
preclinical or clinical trials;
? we may not be able to secure or enforce adequate legal protection, including
patent protection, for our products;
? we may not be able to achieve sales growth in key geographic markets; and
? the ongoing COVID-19 pandemic, including the effect that future waves of
COVID-19 infections may cause disruptions to our business, including reduced
product sales and supply chain disruptions.
These and additional risks and uncertainties are described more fully in our
Annual Report on Form 10-K for the year ended
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