NEPHROS INC

Previous wording

Our commercial water filters improve the taste and odor of water and reduce biofilm, cysts, particulates, and scale build-up in downstream equipment. Our products are marketed primarily to the food service, hospitality, convenience store, and health care markets, and also sold to medical institutions to supplement our medical filters.

Current wording

Our commercial water filters improve the taste and odor of water and reduce biofilm, cysts, particulates, and scale build-up in downstream equipment. Our products are marketed primarily to the food service, hospitality, convenience store, and health care markets, and also sold into medical institutions to supplement our medical filters.

Previous wording

For the six-month period ended June 30, 2024, there were no significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2023.

Current wording

For the nine-month period ended September 30, 2024, there were no significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2023.

Previous wording

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 in the foreseeable future by several factors, including market acceptance of our products, expense management, and progress to achieve 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.

Current wording

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 to achieve 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.

Previous wording

Depreciation and amortization expenses were approximately $34,000 and $54,000, respectively, for the three months ended June 30, 2024, and 2023.

Current wording

Depreciation and amortization expenses were approximately $34,000 and $55,000, respectively, for the three months ended September 30, 2024, and 2023.

Previous wording

Other income of approximately $7,000 for the three months ended June 30, 2024, is primarily a result of a sale of a fully depreciated asset. Other expense of approximately $11,000 for the three months ended June 30, 2023 is primarily a result of losses on foreign currency transactions.

Current wording

Other expense of approximately $43,000 for the three months ended September 30, 2024 is primarily a result of losses on foreign currency transactions. Other income of approximately $10,000 for the three months ended September 30, 2023 is primarily a result of gains on foreign currency transactions.

Previous wording

The following table sets forth our summarized, consolidated results of operations for the six months ended June 30, 2024 and 2023 (in thousands, except percentages):

Current wording

The following table sets forth our summarized, consolidated results of operations for the nine months ended September 30, 2024 and 2023 (in thousands, except percentages):

Previous wording

Overall, net revenues decreased by $0.5 million, or 6% for the six months ended June 30, 2024, compared to the same period in 2023. This decrease was primarily driven by decreased revenue from emergency response orders, which were unusually large in the first half of 2023 but not repeated to the same degree in the comparable 2024 period. We believe that one contributor to this decline is the reduced stringency of waterborne risk response in territories previously committed to both proactive filtration measures and robust corrective actions. Consequently, we experienced the effects of a relaxation of requirements for emergency relief and remediation. However, the decrease in emergency response orders was partially offset by increased revenue from programmatic or recurring sales, which were 10% more than the same period in 2023. This increase in programmatic sales was due to the development of our newer sales personnel hired in 2023.

Current wording

Overall, net revenues decreased by $0.7 million, or 6% for the nine months ended September 30, 2024, compared to the same period in 2023. This decrease was primarily driven by decreased revenue from emergency response orders, which were unusually large in the first nine months of 2023 but not repeated to the same degree in the comparable 2024 period. We believe that one contributor to this decline is the reduced stringency of waterborne risk response in territories previously committed to both proactive filtration measures and robust corrective actions. Consequently, we experienced the effects of a relaxation of requirements for emergency relief and remediation. However, the decrease in emergency response orders was partially offset by increased revenue from programmatic or recurring sales, which were 3% more than the same period in 2023. This increase in programmatic sales was due to the development of our newer sales personnel hired in 2023.

Previous wording

Consolidated gross margin was approximately 61% for the six months ended June 30, 2024, compared to approximately 58% for the six months ended June 30, 2023. The increase of approximately 3 percentage points, was driven by more favorable pricing terms with our largest supplier and reduced shipping expenses in the first quarter of 2024.

Current wording

Consolidated gross margin was approximately 61% for the nine months ended September 30, 2024, compared to approximately 58% for the nine months ended September 30, 2023. The increase of approximately 3 percentage points was driven by more favorable pricing terms with our largest supplier and reduced shipping expenses in the first quarter of 2024.

Previous wording

Consolidated selling, general and administrative expenses decreased $280,000 or 6% primarily due to a decrease in bonus accrual, sales commission expense, stock compensation expense, and professional fees offset in part by an increase in salary expense.

Current wording

Consolidated selling, general and administrative expenses decreased $696,000 or 11% primarily due to a decrease in bonus accrual, sales commission expense, stock compensation expense, and travel expenses offset in part by an increase in salary expense.

Previous wording

Consolidated research and development expenses increased $6,000 primarily due to an increase in headcount offset by the wind down of our SRP division.

Current wording

Consolidated research and development expenses decreased $11,000 primarily due to the wind down of our SRP division offset by an increase in headcount.

Previous wording

Depreciation and amortization expenses were approximately $67,000 and $108,000, respectively, for the six months ended June 30, 2024, and 2023.

Current wording

Depreciation and amortization expenses were approximately $101,000 and $163,000, respectively, for the nine months ended September 30, 2024 and 2023.

Previous wording

Interest expense was approximately $1,000 for the six months ended June 30, 2024 and June 30, 2023.

Current wording

Interest expense was approximately $1,000 for the nine months ended September 30, 2024 and September 30, 2023.

Previous wording

Other income was approximately $14,000 for the six months ended June 30, 2024, andis primarily a result of losses on foreign currency transactions and a sale of a fully depreciated asset. Other expense was approximately $22,000 for the six months ended June 30, 2023 and is primarily a result of losses on foreign currency transactions.

Current wording

Other expense was approximately $29,000 and $12,000 respectively for the nine months ended September 30, 2024 and September 30, 2023 and is primarily a result of losses on foreign currency transactions.

Previous wording

At June 30, 2024, we had an accumulated deficit of $144.9 million and we may incur additional operating losses from operations until such time, if ever, that we are able to increase product sales and/or licensing revenue to achieve profitability.

Current wording

At September 30, 2024, we had an accumulated deficit of $144.7 million and we may incur additional operating losses from operations until such time, if ever, that we are able to increase product sales and/or licensing revenue to achieve profitability.

Previous wording

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 six months ended June 30, 2023. Net cash used in operating activities in 2024 was primarily due to the net loss of approximately $0.5 million, an increase in inventory of approximately $0.5 million, an increase in accounts receivable of approximately $0.4 million and a decrease in accrued expenses of approximately $0.4 million, offset by an increase in accounts payable of approximately $0.3 million, and an increase in inventory impairments and write offs of approximately $0.2 million. Net cash provided by operating activities in 2023 was primarily due to a decline in inventory of approximately $0.9 million, an increase in accrued expenses of approximately $0.3 million offset by a decrease in accounts payable of approximately $0.4 million and an increase in accounts receivable of approximately $0.3 million.

Current wording

Net cash used in operating activities was $1.8 million for the nine months ended September 30, 2024, compared to net cash provided by operating activities of approximately $1.1 million for the nine months ended September 30, 2023. Net cash used in operating activities in 2024 was primarily due to an increase in inventory of approximately $0.8 million, a decrease in accounts payable and accrued expenses of approximately $0.5 million each, and a net loss of approximately $0.3 million, offset by an increase in inventory impairments and write-offs of approximately $0.2 million. Net cash provided by operating activities in 2023 was primarily due to a decline in inventory of approximately $0.8 million, an increase in accrued expenses of approximately $0.4 million, partially offset by an increase in accounts receivable of approximately $0.2 million.

Previous wording

Net cash used in investing activities was approximately $55,000 in the six months ended June 30, 2024, due to purchases of property and equipment. We had no investing activities for the six months ended June 30, 2023.

Current wording

Net cash used in investing activities was approximately $50,000 in the nine months ended September 30, 2024, due primarily to purchases of property and equipment. We had no investing activities for the nine months ended September 30, 2023.

Previous wording

Net cash used in financing activities was approximately $4,000 for the six months ended June 30, 2024, primarily due to payments on finance lease. Net cash used in financing activities was approximately $0.1 million for the six months ended June 30, 2023, primarily due to principal payments on debt.

Current wording

Net cash used in financing activities was approximately $4,000 for the nine months ended September 30, 2024, primarily due to payments on finance leases. Net cash used in financing activities was approximately $0.1 million for the nine months ended September 30, 2023, primarily due to final principal payments on since-retired debt.