Market Overview - The company develops and sells high-performance water filtration products primarily for medical and commercial markets, focusing on ultrafilters that capture contaminants as small as 0.005 microns [63]. - As of 2023, there are approximately 6,129 hospitals in the U.S. with around 920,000 beds, and over 34 million patients were admitted, highlighting a significant market for infection control solutions [70]. - The dialysis market includes approximately 7,100 clinics servicing around 500,000 patients annually, with the company's ultrafilters being standard in many portable reverse osmosis systems [75]. - The company anticipates that water safety management programs currently in medical facilities will migrate to commercial markets, increasing demand for its filtration solutions [78]. - The company believes future revenue from the commercial market could surpass its infection control revenue as demand for water testing and microbiological filtration grows [80]. Product Offerings - The company has FDA 510(k) clearance for multiple medical device products, including the DSU-H and SSU-H ultrafilters, which have product lives of up to 6 months and 3 months, respectively, in hospital settings [71]. - The NanoGuard product line offers 0.005-micron ultrafiltration technology, designed to filter organic and inorganic particles, and is compatible with various plumbing configurations [80]. - The EndoPur ultrafilter, used in large RO systems for dialysis clinics, has a product life of up to 12 months and is designed for easy installation without plumbing modifications [76]. Financial Performance - Total net revenues decreased by $0.3 million, or 8%, for the three months ended June 30, 2024, primarily due to decreased revenue from emergency response orders [85]. - Consolidated gross margin remained stable at approximately 59% for the three months ended June 30, 2024, compared to the same period in 2023 [86]. - Selling, general and administrative expenses decreased by $298,000, or 13%, primarily due to a reduction in bonus accrual and sales commission expenses [86]. - Research and development expenses increased by approximately $33,000, or 15%, due to an increase in headcount [86]. - Net loss for the three months ended June 30, 2024, was $289,000, a decrease of 33% compared to a net loss of $433,000 in the same period in 2023 [84]. - Total net revenues decreased by $0.5 million, or 6%, for the six months ended June 30, 2024, primarily driven by decreased revenue from emergency response orders [89]. - Consolidated gross margin increased to approximately 61% for the six months ended June 30, 2024, compared to approximately 58% for the same period in 2023 [90]. - Interest income increased to approximately $46,000 for the six months ended June 30, 2024, compared to approximately $25,000 for the same period in 2023 [92]. - Net cash used in operating activities was $1.2 million for the six months ended June 30, 2024, compared to net cash provided by operating activities of approximately $0.5 million for the same period in 2023 [97]. - As of June 30, 2024, the company had an accumulated deficit of $144.9 million and may incur additional operating losses until profitability is achieved [94]. Management and Controls - The company maintains a system of disclosure controls and procedures designed to provide reasonable assurance that required information is communicated to management in a timely manner [105]. - Management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective as of the end of the reporting period [106]. - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected the internal control [107]. Strategic Initiatives - The company entered into a new supply agreement in January 2023 with a partner to be the exclusive distributor for water filtration systems to the food, beverage, and hospitality industries, potentially increasing commercial market revenue [77]. - The company has a strategic focus on expanding its market presence through value-added resellers (VARs), facilitating growth in filter sales outside the medical industry [66].
Nephros(NEPH) - 2024 Q2 - Quarterly Report