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What changed in NEPHROS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NEPHROS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+144 added−154 removedSource: 10-K (2024-03-15) vs 10-K (2023-03-23)

Top changes in NEPHROS INC's 2023 10-K

144 paragraphs added · 154 removed · 117 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

47 edited+10 added−22 removed64 unchanged
Biggest changeMajor Customers For the years ended December 31, 2022 and 2021, the following customers accounted for the following percentages of our revenues, respectively: Customer 2022 2021 A 25 % 17 % B 10 % 9 % C 7 % 11 % Total 42 % 37 % 9 As of December 31, 2022 and 2021, the following customers accounted for the following percentages of our accounts receivable, respectively: Customer 2022 2021 A 21 % 8 % B 10 % 11 % D 10 % 7 % C 0 % 19 % Total 41 % 45 % Competition With respect to the water filtration market, we compete with companies that are well-entrenched in the water filtration domain.
Biggest changeFor the ultrafiltration systems business, we are continually working with existing and potential distributors of ultrafilter products to develop solutions to meet customer needs. 8 Major Customers For the years ended December 31, 2023 and 2022, the following customers accounted for the following percentages of our revenues, respectively: Customer 2023 2022 A 23 % 26 % B 11 % 10 % Total 34 % 36 % As of December 31, 2023 and 2022, the following customers accounted for the following percentages of our accounts receivable, respectively: Customer 2023 2022 A 12 % 21 % B 6 % 10 % C 3 % 10 % Total 21 % 41 % Competition With respect to the water filtration market, we compete with companies that are well-entrenched in the water filtration domain.
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 with limited sales staff expansion.
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 rapidly expand our access to target customers with limited sales staff expansion.
Under the License and Supply Agreement, as amended, Medica granted to us an exclusive license, with right of sublicense, to market, promote, distribute, offer for sale and sell the filtration products worldwide, with certain limitations on territory, during the term of the License and Supply Agreement.
Under the License and Supply Agreement, as amended, Medica granted us an exclusive license, with right of sublicense, to market, promote, distribute, offer for sale and sell the filtration products worldwide, with certain limitations on territory, during the term of the License and Supply Agreement.
In addition to the requirements described above, the FDC Act requires that: ● all medical device manufacturers and distributors register with the FDA annually and provide the FDA with a list of those medical devices which they distribute commercially; ● information be provided to the FDA on death or serious injuries alleged to have been associated with the use of the products, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur; and 12 ● certain medical devices not cleared with the FDA for marketing in the United States meet specific requirements before they are exported.
In addition to the requirements described above, the FDC Act requires that: ● all medical device manufacturers and distributors register with the FDA annually and provide the FDA with a list of those medical devices which they distribute commercially; ● information be provided to the FDA on death or serious injuries alleged to have been associated with the use of the products, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur; and ● certain medical devices not cleared with the FDA for marketing in the United States meet specific requirements before they are exported.
Accordingly, if we do obtain Section 510(k) clearance for any of our ESRD therapy and/or filtration products, we will need to submit another Section 510(k) notification if we significantly affect that product’s safety or effectiveness through subsequent modifications or enhancements. 11 All of our products have been cleared by the FDA as Class II devices, such as: ● DSU Dual Stage UltraFilter: In June 2009, we received FDA 510(k) clearance of the DSU to be used to filter biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures. ● SSU-D/DSU-D Dual Stage UltraFilter: In July 2011, we received FDA 510(k) clearance of the SSU/DSU to be used to filter water or bicarbonate concentrate used in hemodialysis procedures. ● OLpūr H2H Module and OLpūr MD 220 Hemodiafilter : In April 2012, we received FDA 510(k) clearance of the OLpūr H2H Module and OLpūr MD 220 Hemodiafilter for use with a UF controlled hemodialysis machine that provides ultrapure dialysate in accordance with current ANSI/AAMI/ISO standards, for the treatment of patients with chronic renal failure in the United States. ● DSU-H/SSU-H: In October 2014, we received FDA 510(k) clearance of the DSU-H and SSU-H ultrafilters to be used to filter EPA quality drinking water.
Accordingly, if we do obtain Section 510(k) clearance for any of our ESRD therapy and/or filtration products, we will need to submit another Section 510(k) notification if we significantly affect that product’s safety or effectiveness through subsequent modifications or enhancements. 10 All of our products have been cleared by the FDA as Class II devices, such as. ● DSU Dual Stage UltraFilter: In June 2009, we received FDA 510(k) clearance of the DSU to be used to filter biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures. ● SSU-D/DSU-D Dual Stage UltraFilter: In July 2011, we received FDA 510(k) clearance of the SSU/DSU to be used to filter water or bicarbonate concentrate used in hemodialysis procedures. ● OLpūr H2H Module and OLpūr MD 220 Hemodiafilter: In April 2012, we received FDA 510(k) clearance of the OLpūr H2H Module and OLpūr MD 220 Hemodiafilter for use with a UF controlled hemodialysis machine that provides ultrapure dialysate in accordance with current ANSI/AAMI/ISO standards, for the treatment of patients with chronic renal failure in the United States. ● DSU-H/SSU-H: In October 2014, we received FDA 510(k) clearance of the DSU-H and SSU-H ultrafilters to be used to filter EPA quality drinking water.
Medical Devices sold in Europe/ anticipated to be sold in Europe, shall be examined, and classified as: ● Class I: Provided non-sterile or do not have a measuring function; Low Risk ● Class I: Provided sterile and/or have a measuring function; Low/medium risk ● Class IIa: Medium risk ● Class IIb: Medium/high risk ● Class III: High risk 13 Currently we are in the process to seek approval for CE certification under EU Medical Device Regulation (Council Regulations 2017/745).
Medical Devices sold in Europe/ anticipated to be sold in Europe, shall be examined, and classified as: ● Class I: Provided non-sterile or do not have a measuring function; Low Risk ● Class I: Provided sterile and/or have a measuring function; Low/medium risk ● Class IIa: Medium risk ● Class IIb: Medium/high risk ● Class III: High risk Currently we are in the process to seek approval for CE certification under EU Medical Device Regulation (Council Regulations 2017/745).
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. 5 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.
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.
Clinical experience and literature demonstrate that HDF’s benefits, among other factors, include enhanced clearance of middle and large molecular weight toxins, improved patient survival, reduced incidence of dialysis-related amyloidosis, improved patient quality of life and reduced hospitalizations and overall length of stays. 7 Our original HDF device (“HDF1”) was cleared by the U.S.
Clinical experience and literature demonstrate that HDF’s benefits, among other factors, include enhanced clearance of middle and large molecular weight toxins, improved patient survival, reduced incidence of dialysis-related amyloidosis, improved patient quality of life and reduced hospitalizations and overall length of stays. Our original HDF device (“HDF1”) was cleared by the U.S.
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, and point-of-use can be viewed on our website at https://www.nephros.com/infection-control/ .
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 . 5 Our complete hospital infection control product line, including in-line, and point-of-use can be viewed on our website at https://www.nephros.com/infection-control/ .
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.
These ultrafilters are primarily used in the water lines and bicarbonate concentrate lines leading into dialysis mach ines, 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.
Under the FDC Act, medical devices are classified in one of three classes, namely Class I, II or III, on the basis of the controls deemed necessary by the FDA to reasonably ensure their safety and effectiveness. ● Class I devices are medical devices for which general controls are deemed sufficient to ensure their safety and effectiveness.
Under the FDC Act, medical devices are classified into one of three classes, namely Class I, II or III, on the basis of the controls deemed necessary by the FDA to reasonably ensure their safety and effectiveness. ● Class I devices are medical devices for which general controls are deemed sufficient to ensure their safety and effectiveness.
The Exchange Act requires us to file periodic reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov. 14
The Exchange Act requires us to file periodic reports, proxy statements and other information with the SEC. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. These materials may be obtained electronically by accessing the SEC’s website at http://www.sec.gov. 13
Included in the NanoGuard product line are both conventional and flushable filters . ● The Nephros line of commercial filters provide a variety of technology solutions that improve water quality in food service, convenience store, hospitality, and industrial applications.
Included in the NanoGuard product line are both conventional and flushable filters. ● The Nephros line of commercial filters provides a variety of technology solutions that improve water quality in food service, convenience store, hospitality, and industrial applications.
The term of the License and Supply Agreement with Medica expires on December 31, 2025, unless earlier terminated by either party in accordance with the terms of the License and Supply Agreement.
The term of the License and Supply Agreement with Medica expires on December 31, 2028, unless earlier terminated by either party in accordance with the terms of the License and Supply Agreement.
In the UK, we secured registrations for the trademark H2H, NANOGUARD, NEPHROS HYDRAGUARD, OLPUR, and PATHOGUARD. 10 Governmental Regulation The research and development, manufacturing, promotion, marketing, and distribution of our ESRD therapy products in the United States, Europe and other regions of the world are subject to regulation by numerous governmental authorities, including the FDA, the European Union and analogous agencies.
In the UK, we secured registrations for the trademarks NANOGUARD, NEPHROS HYDRAGUARD, and PATHOGUARD. Governmental Regulation The research and development, manufacturing, promotion, marketing, and distribution of our ESRD therapy products in the United States, Europe and other regions of the world are subject to regulation by numerous governmental authorities, including the FDA, the European Union and analogous agencies.
The current standard of care in the United States for patients with chronic renal failure is hemodialysis (“HD”), a process in which toxins are cleared via diffusion. Patients typically receive HD treatments at least 3 times weekly for 3-4 hours per treatment. HD is most effective in removing smaller, easily diffusible toxins.
Hemodiafiltration (HDF) Systems and Specialty Renal Products, Inc. The current standard of care in the United States for patients with chronic renal failure is hemodialysis (“HD”), a process in which toxins are cleared via diffusion. Patients typically receive HD treatments at least 3 times weekly for 3-4 hours per treatment. HD is most effective in removing smaller, easily diffusible toxins.
These commercial products are also sold into medical markets, as supplemental filtration to our medical filters. 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.
These commercial products are also sold into medical markets, as supplemental filtration to our medical filters. In commercial markets, our model combines both direct and indirect sales. Through our employee sales staff, we have sold products directly to a number of convenience stores, hotels, casinos, and restaurants.
We have extended our filtration technologies to meet the demand for liquid purification in other areas, in particular, water purification. Our Products Water Filtration Products We develop and sell water filtration products used in both medical and commercial applications.
We have extended our filtration technologies to meet the demand for liquid purification in other areas, in particular, water purification. 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.
A successful claim in excess of our insurance coverage could materially deplete our assets. Moreover, any claim against us could generate negative publicity, which could decrease the demand for our products, our ability to generate revenues and our profitability.
We have acquired product liability insurance for our products in the amount of $3 million. A successful claim in excess of our insurance coverage could materially deplete our assets. Moreover, any claim against us could generate negative publicity, which could decrease the demand for our products, our ability to generate revenues and our profitability.
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 American Journal of Kidney Diseases, there are approximately 6,500 dialysis clinics in the United States servicing approximately 468,000 patients annually.
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 National Institute of Health, there are approximately 7,100 dialysis clinics in the United States servicing approximately 500,000 patients annually.
As of 2022, according to the American Hospital Association, there are approximately 6,100 hospitals in the U.S., with approximately 921,000 beds. Over 33 million patients were admitted to these hospitals. The U.S.
As of 2023, according to the American Hospital Association, there are approximately 6,129 hospitals in the U.S., with approximately 920,000 beds. Over 34 million patients were admitted to these hospitals. The U.S.
Centers for Disease Control and Prevention (“CDC”) estimates that healthcare associated infections (“HAI”) occur in approximately 1 out of every 31 hospital patients, which calculates to over one million patients in 2022. HAIs affect patients in hospitals or other healthcare facilities and are not present or incubating at the time of admission.
Department of Health and Human Services estimates that healthcare associated infections (“HAI”) occur in approximately 1 out of every 31 hospital patients, which calculates to over one million patients in 2023. HAIs affect patients in hospitals or other healthcare facilities and are not present or incubating at the time of admission.
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.
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.
None of our employees are currently represented by a labor union or covered by a collective bargaining agreement and we believe that our relations with our employees are good. During 2022, we laid-off 7 employees (approximately 15% of our staff), and experienced limited voluntary turnover.
None of our employees are currently represented by a labor union or covered by a collective bargaining agreement and we believe that our relations with our employees are good. During 2023, we had limited voluntary turnover.
Employees As of December 31, 2022, we employed a total of 27 full-time employees, including 9 employed in sales/marketing/customer support, 14 in logistics, general, and administrative, and 4 in research and development.
Employees As of December 31, 2023, we employed a total of 31 full-time employees, including 11 employed in sales/marketing/customer support, 15 in logistics, general, and administrative, and 4 in research and development and 1 in manufacturing.
In addition, we have one pending patent application in the United States. Our pending US patent application relates to filter technologies, including liquid purification filter systems that are particularly suited for use in harsh environments. Trademarks As of December 31, 2022, in the United States, we secured registrations of the trademarks AETHER, ENDOPUR, HYDRAGUARD, and NANOGUARD.
Our pending US patent application relates to filter technologies, including liquid purification filter systems that are particularly suited for use in harsh environments. 9 Trademarks As of December 31, 2023, in the United States, we secured registrations of the trademarks ENDOPUR, HYDRAGUARD, NANOGUARD, and NEPHROS. In the US, we filed two trademark applications for BECAUSE WATER MATTERS.
We have issued patents on our water filtration products and applications in process to cover various applications in residential, commercial, and remote environments. As of December 31, 2022, we had four U.S. patents, one Canadian patent, one Chinese patent, one French patent, one German patent, one Italian patent, one United Kingdom patent, and one European patent.
We have issued patents on our water filtration products and applications in process to cover various applications in residential, commercial, and remote environments. As of December 31, 2023, we had four U.S. patents and one Canadian patent. In addition, we have one pending patent application in the United States.
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.
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. 6 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.
Our U.S. patents for the “Method and Apparatus for Efficient Hemodiafiltration” and for the “Dual-Stage Filtration Cartridge” have claims that cover the OLpūr MDHDF filter series and the method of hemodiafiltration employed in the operation of the products. Technological developments in ESRD therapy could reduce the value of our intellectual property. Any such reduction could be rapid and unanticipated.
Our U.S. patent for the “Method and Apparatus for a Hemodiafiltration Module for use with a Dialysis Machine,” has claims that cover the OLpūr MDHDF filter series and the method of hemodiafiltration employed in the operation of the products. Technological developments in ESRD therapy could reduce the value of our intellectual property. Any such reduction could be rapid and unanticipated.
Many HAIs are caused by waterborne bacteria and viruses that can thrive in aging or complex plumbing systems often found in healthcare facilities. 4 In January 2022, the Center for Clinical Standards and Quality at the Centers for Medicare and Medicaid Services (“CMS”) expanded its requirements – originally implemented in 2017 – for facilities to develop policies and procedures that inhibit the growth and spread of legionella and other opportunistic pathogens in building water systems.
In January 2022, the Center for Clinical Standards and Quality at the Centers for Medicare and Medicaid Services (“CMS”) expanded its requirements – originally implemented in 2017 – for facilities to develop policies and procedures that inhibit the growth and spread of legionella and other opportunistic pathogens in building water systems.
We estimate that there are over 100,000 hemodialysis machines in operation in the United States. Medicare is the main payer for dialysis treatment in the United States.
We estimate that there are over 100,000 hemodialysis machines in operation in the United States.
Food and Drug Administration (“FDA”) for the treatment of patients with chronic renal failure in 2012, but did not gain market acceptance due to, among other reasons, the feeling that it was too difficult to use. Accordingly, since 2018, we have undertaken to redesign and dramatically simplify our HDF device.
Food and Drug Administration (“FDA”) for the treatment of patients with chronic renal failure in 2012, but did not gain market acceptance due to, among other reasons, the feeling that it was too difficult to use. We previously held a majority stake in Specialty Renal Products, Inc.
We do manufacture some of our commercial filtration products in our facility in Las Vegas, Nevada. On April 23, 2012, we entered into a License and Supply Agreement (the “License and Supply Agreement”) with Medica S.p.A.
Manufacturing and Suppliers We do not, and do not intend to in the near future, manufacture any of our medical device filtration products. We do manufacture some of our commercial filtration products in our facility in South Orange, New Jersey. On April 23, 2012, we entered into a License and Supply Agreement (the “License and Supply Agreement”) with Medica S.p.A.
Once approved, the following products will have certification from BSI America for CE marking and adherence to ISO13485 standards as Class IIa (Rule 3) medical devices: ● SSU-D/DSU-D/SSUmini Ultrafilters : Intended to be used to filter water or bicarbonate concentrate used in hemodialysis procedures.
Once approved, the following products will have certification from BSI America for CE marking and adherence to ISO13485 standards as Class IIa (Rule 3) medical devices: ● SSU-D/DSU-D/SSUmini Ultrafilters: Intended to be used to filter water or bicarbonate concentrate used in hemodialysis procedures. 12 Regulatory Authorities in Regions Outside of the United States and the European Union In November 2007 and May 2011, the Therapeutic Products Directorate of Health Canada, the Canadian health regulatory agency, approved our OLpūr MD220 Hemodiafilter and our DSU, respectively, for marketing in Canada.
For other prospective markets for our ultrafilter products, we are pursuing alliance opportunities for joint product development and/or distribution. Our ultrafilter manufacturer in Europe shares certain intellectual property rights with us for one of our dual stage ultrafilter designs. Research and Development Our research and development efforts continue on several fronts directly related to our current product lines.
For the food service and hospitality markets, we have contracted with Donastar LLC as our master distributor. For other prospective markets for our ultrafilter products, we are pursuing alliance opportunities for joint product development and/or distribution. Our ultrafilter manufacturer in Europe shares certain intellectual property rights with us for one of our dual stage ultrafilter designs.
Corporate Information We were incorporated under the laws of the State of Delaware in April 1997. Our principal executive offices are located at 380 Lackawanna Place, South Orange, New Jersey 07079, and our telephone number is (201) 343-5202. We also have an office in Las Vegas, Nevada. For more information about Nephros, please visit our website at www.nephros.com .
Although we have no current plans to do so, we may re-evaluate opportunities for HDF in the future. 7 Corporate Information We were incorporated under the laws of the State of Delaware in April 1997. Our principal executive offices are located at 380 Lackawanna Place, South Orange, New Jersey 07079, and our telephone number is (201) 343-5202.
We currently have an understanding with Medica whereby we have agreed to pay interest to Medica at a 12% annual rate calculated on the principal amount of any outstanding invoices that are not paid pursuant to the original payment terms.
We currently have an understanding with Medica whereby we have agreed to pay interest per month at the EURIBOR 360-day rate plus 500 basis points calculated on the principal amount of any outstanding invoices that are overdue by more than 15 days beyond the original payment terms.
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.
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.
Product Liability and Insurance The production, marketing and sale of our products have an inherent risk of liability in the event of product failure or claim of harm caused by product operation. We have acquired product liability insurance for our products in the amount of $3 million.
Therefore, it must be used in conjunction with other water treatment equipment (Reverse Osmosis, Deionization, etc.). Product Liability and Insurance The production, marketing and sale of our products have an inherent risk of liability in the event of product failure or claim of harm caused by product operation.
Nephros 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.
Nephros 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. Nephros commercial 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.
They also include infections acquired by patients in the hospital or facility, but appearing after discharge, and occupational infections among staff.
They also include infections acquired by patients in the hospital or facility, but appearing after discharge, and occupational infections among staff. Many HAIs are caused by waterborne bacteria and viruses that can thrive in aging or complex plumbing systems often found in healthcare facilities.
The FDA evaluates compliance with the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. If the FDA believes that we or any of our contract manufacturers, or regulated suppliers, are not in compliance with these requirements, there may be a material adverse effect on our manufacturing operations, effecting our ability to sell.
If the FDA believes that we or any of our contract manufacturers, or regulated suppliers, are not in compliance with these requirements, there may be a material adverse effect on our manufacturing operations, effecting our ability to sell. 11 European Union The European Union began to harmonize national regulations comprehensively for the control of medical devices in member nations in 1993, when it adopted its Medical Devices Directive 93/42/EEC.
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.
We have also signed an agreement with a partner to be the exclusive distributor to resell select water filters and related products to customers in the commercial food and beverage markets subject to meeting certain minimum thresholds. 4 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.
Sales and Marketing Our New Jersey headquarters oversees global sales and marketing activity of our ultrafilter products. We work with multiple distributors for our ultrafilter products in the hospital and dialysis water markets. For the food service and hospitality markets, we have contracted with Donastar LLC as our master distributor.
In exchange for the rights granted, we agreed to make minimum annual aggregate purchases from Medica throughout the term of the License and Supply Agreement. Sales and Marketing Our New Jersey headquarters oversees global sales and marketing activity of our ultrafilter products. We work with multiple distributors for our ultrafilter products in the hospital and dialysis water markets.
Accordingly, we expect that SRP will assign all of its remaining assets, including its intellectual property rights in the HDF2 device, to us in partial satisfaction of its outstanding loan balance of approximately $1.4 million. Although we have no current plans to do so, we may re-evaluate opportunities for the HDF2 device in the future.
Accordingly, SRP assigned to us all of its remaining assets, including its intellectual property rights in the HDF2 device, in satisfaction of its outstanding loan balance.
We are not including the information on our website as a part of, nor incorporating it by reference into, this Annual Report on Form 10-K. 8 Manufacturing and Suppliers We do not, and do not intend to in the near future, manufacture any of our medical device filtration products.
We also have an office in Whippany, New Jersey. For more information about Nephros, please visit our website at www.nephros.com . We are not including the information on our website as a part of, nor incorporating it by reference into, this Annual Report on Form 10-K.
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.
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.
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Our water filtration products employ multiple filtration technologies, as described below. 3 In medical markets, our primary filtration mechanism is to pass liquids through the pores of polysulfone hollow fiber.
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In March 2022, we entered into an agreement to provide water filtration systems to an organization that services approximately 3,000 Quick Service Restaurants (“QSR”). Effective January 1, 2023, we entered into a new supply agreement with this commercial partner, which superseded the March 2022 agreement.
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To be eligible for Medicare reimbursement, dialysis centers must meet the minimum standards for water and bicarbonate concentrate quality set by the Association for the Advancement of Medical Instrumentation (“AAMI”), the American National Standards Institute (“ANSI”) and the International Standards Organization (“ISO”).
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Under the January 2023 agreement, we engaged this commercial partner to be our exclusive distributor to the food, beverage and hospitality industries. We continue to pursue other national accounts, which, over time, may result in step-change increases in commercial market revenue.
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We anticipate that the stricter standards approved by these organizations in 2009 will be adopted by Medicare in the future.
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(“SRP”), a development-stage medical device company that was focused primarily on the development of the second-generation HDF device (“HDF2”). SRP undertook efforts to redesign and dramatically simplify our HDF device. We believe those updates made the system significantly easier to use.
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In March 2022, we closed a contract to provide water filtration systems to an organization of approximately 3,000 Quick Service Restaurants (“QSR”). We continue to pursue other national accounts, which may result in step-change increases in commercial market revenue. Over time, we believe that the same water safety management programs currently underway at medical facilities may migrate to commercial markets.
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On May 13, 2022, the FDA gave 510(k) clearance to SRP’s second-generation model of the OLpūrH2H Hemodiafiltration System, which enables nephrologists to provide HDF treatment to patients with end stage renal disease. In January 2023, SRP management began exploring strategic partnerships to support a commercial launch of the HDF product but was unsuccessful in identifying a partner.
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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.
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By late February 2023, SRP had nearly exhausted its capital resources and, due to its limited capital and lack of prospects for securing a strategic partnership or additional financing, the board of directors of SRP adopted a plan on March 6, 2023 to wind down SRP operations, liquidate its remaining assets and dissolve the company.
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Nephros commercial 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. 6 Pathogen Detection Systems In 2019, we expanded our portfolio of water solutions with the introduction of pathogen detection system (“PDS”) products and services, including our PluraPath pathogen detection system, which we developed to provide real-time data regarding the existence of a broad array of waterborne pathogens to the infection control teams responsible executing a building or other facility’s water management plans.
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That plan was approved by SRP’s stockholders on March 9, 2023, and on April 13, 2023, SRP filed a certificate of dissolution with the State of Delaware. SRP’s cash resources were sufficient to satisfy all of its outstanding liabilities other than its obligations to us under a loan with an outstanding balance of approximately $1.5 million.
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In the third quarter of 2021, we acquired the business of GenArraytion, Inc. (“GenArraytion” ), including GenArraytion’s many proprietary assays, multiplexing technology, and selection methods for detecting waterborne pathogens and other microorganisms using Polymerase Chain Reaction technology. GenArraytion’s assets was integrated into our PDS segment.
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Research and Development Our research and development efforts continue on several fronts directly related to our current product lines.
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In November 2022, we sold substantially all of our assets used in our PDS business to BWSI, LLC pursuant to the terms of an Agreement for Purchase and Sale of Assets with BWSI (the “PDS Purchase Agreement”).
Added
The FDA evaluates compliance with the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors.
Removed
Under the terms of the PDS Purchase Agreement, BWSI made a nominal cash payment at the closing of the transaction and assumed certain continuing liabilities of the PDS business.
Added
In November 2023, we received approval for expansion of our MDSAP certification to include Brazil.
Removed
Additionally, for a period of seven years commencing January 1, 2023, and ending December 31, 2029, BWSI will pay us an annual royalty equal to a specified percentage of gross margin received by BWSI from each of the sale and licensing of products developed by the PDS Business. Hemodiafiltration (HDF) Systems and Specialty Renal Products, Inc.
Added
This expansion provides Nephros the approval to sell the following medical devices in Brazil: ● SSSUmini Ultrafilters: Intended to be used to filter water or bicarbonate concentrate used in hemodialysis procedures. ● EndoPur Filters: The device is not a complete water treatment system but serves to remove biological contaminants.
Removed
We believe our updates have made the system significantly easier to use. In 2018, we spun-off the development of the second-generation HDF device (“HDF2”) into a newly-formed subsidiary, Specialty Renal Products, Inc. (“SRP”) and shortly thereafter SRP raised $3 million of outside equity capital directly to fund the second-generation development described above. We maintain a 62.5% ownership stake in SRP.
Removed
In February 2022, SRP raised an additional $0.5 million of equity capital, including an investment by Nephros of $0.3 million, which was sufficient to maintain our 62.5% ownership stake in SRP. In addition to the equity capital raised by SRP, in December 2020, we entered into a loan agreement with SRP under which we loaned $1.3 million to SRP.
Removed
As of December 31, 2022, the outstanding balance of this loan, including accrued interest, was approximately $1.4 million. In May 2022, the FDA cleared HDF2 for patient use, which enables nephrologists to provide HDF treatment to patients with end stage renal disease. To date, our and SRP’s HDF1 and HDF2 systems are the only HDF systems cleared by the FDA.
Removed
Following FDA clearance of HDF2, SRP’s management began exploring strategic partnerships and/or potential additional sources of financing to support a commercial launch of the HDF2 device but has been unsuccessful in identifying any interested strategic partner or investor. By late February 2023, SRP had nearly exhausted its capital resources.
Removed
In March 2023, SRP’s board of directors and stockholders determined to wind down SRP operations and liquidate its remaining assets, due to capital constraints. SRP’s cash resources are sufficient to satisfy all of its outstanding liabilities other than its outstanding loan to us.
Removed
In exchange for the rights granted, we agreed to make minimum annual aggregate purchases from Medica throughout the term of the License and Supply Agreement. As part of the License and Supply Agreement, we granted to Medica a 10-year option to purchase 300,000 shares of our common stock. Such options expired in April 2022.
Removed
For the ultrafiltration systems business, we are continually working with existing and potential distributors of ultrafilter products to develop solutions to meet customer needs.
Removed
In the US, we filed trademark application for NEPHROS and BECAUSE WATER MATTERS.
Removed
European Union The European Union began to harmonize national regulations comprehensively for the control of medical devices in member nations in 1993, when it adopted its Medical Devices Directive 93/42/EEC.
Removed
Regulatory Authorities in Regions Outside of the United States and the European Union In November 2007 and May 2011, the Therapeutic Products Directorate of Health Canada, the Canadian health regulatory agency, approved our OLpūr MD220 Hemodiafilter and our DSU, respectively, for marketing in Canada.
Removed
Currently, we are in the process of expanding our MDSAP certification to include Brazil. Following the expansion of our MDSAP certificate, we will be allowed to sell our products in the United States, Canada, Brazil, and other territories around the world, while maintaining our current approvals.
Removed
The time and cost of obtaining new, and maintaining existing, market authorizations from countries outside of North America, and the requirements for licensing products in these countries may differ significantly from FDA and/or MDR (European Union) requirements.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeThese include, but are not limited to: ● achievement or rejection of regulatory approvals by our competitors or us; ● publicity regarding actual or potential clinical or regulatory results relating to products under development by our competitors or us; ● delays or failures in initiating, completing, or analyzing clinical trials or the unsatisfactory design or results of these trials; ● announcements of technological innovations or new commercial products by our competitors or us; 21 ● developments concerning proprietary rights, including patents; ● regulatory developments in the United States and foreign countries; ● economic or other crises and other external factors; ● period-to-period fluctuations in our results of operations; ● threatened or actual litigation; ● changes in financial estimates by securities analysts; and ● sales of our common stock.
Biggest changeThese include, but are not limited to: ● period-to-period fluctuations in our results of operations; ● sales of our common stock or other financing transactions; ● announcements of technological innovations or new commercial products by our competitors or us; ● developments concerning proprietary rights, including patents; ● achievement or rejection of regulatory approvals by our competitors or us; ● regulatory developments in the United States and foreign countries; ● economic or other crises and other external factors; ● threatened or actual litigation; and ● changes in financial estimates by securities analysts.
These provisions include: ● authorizing our board of directors to issue “blank check” preferred stock without stockholder approval; ● providing for a classified board of directors with staggered, three-year terms; ● prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain provisions are met; ● prohibiting cumulative voting in the election of directors; ● limiting the persons who may call special meetings of stockholders; and ● establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
These provisions include: ● authorizing our board of directors to issue “blank check” preferred stock without stockholder approval; ● providing for a classified board of directors with staggered, three-year terms; 20 ● prohibiting us from engaging in a “business combination” with an “interested stockholder” for a period of three years after the date of the transaction in which the person became an interested stockholder unless certain provisions are met; ● prohibiting cumulative voting in the election of directors; ● limiting the persons who may call special meetings of stockholders; and ● establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings.
Any supply interruption from our suppliers or failure to obtain additional suppliers for any of the components used in our products, or price increases of these supplies, could have a material adverse effect on our business, financial condition and results of operations. We operate with a limited senior management team and are dependent on our sales and marketing personnel.
Any supply interruption from our suppliers or failure to obtain additional suppliers for any of the components used in our products, or price increases of these supplies, could have a material adverse effect on our business, financial condition and results of operations. We operate with a limited senior management team and are highly dependent on our sales and marketing personnel.
As a result, investors in our common stock may not be able to resell their shares at or above their purchase price and could lose all of their investment. 22 Securities class action litigation is often brought against public companies following periods of volatility in the market price of such company’s securities.
As a result, investors in our common stock may not be able to resell their shares at or above their purchase price and could lose all of their investment. Securities class action litigation is often brought against public companies following periods of volatility in the market price of such company’s securities.
However, we will need to continue developing new products in the future to continue to compete in our industry, and such new products may require obtaining regulatory approvals in the U.S. and other jurisdictions in which we intend to market them. We cannot ensure that any new products developed by us in the future, will be approved for marketing.
However, we will need to continue developing new products in the future to continue to compete in our industry, and such new products may require obtaining regulatory approvals in the U.S. and other jurisdictions in which we intend to market them. 17 We cannot ensure that any new products developed by us in the future, will be approved for marketing.
These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common stock. Future sales of our common stock by stockholders could depress the market price of our common stock. 23
These sales could also make it more difficult or impossible for us to sell equity securities in the future at a time and price that we deem appropriate to raise funds through future offerings of common stock. Future sales of our common stock by stockholders could depress the market price of our common stock.
If we cannot sell our products in a particular region, then the size of our potential market could be reduced, which would limit our potential sales and revenues. 18 Significant additional governmental regulation could subject us to unanticipated delays that would adversely affect our sales and revenues.
If we cannot sell our products in a particular region, then the size of our potential market could be reduced, which would limit our potential sales and revenues. Significant additional governmental regulation could subject us to unanticipated delays that would adversely affect our sales and revenues.
If violations of applicable requirements are noted during periodic inspections of the manufacturing facilities of our manufacturers, then we may not be able to continue to market the products manufactured in such facilities and our revenues may be materially adversely affected. 19 Risks Related to our Intellectual Property Protecting our intellectual property in our technology through patents may be costly and ineffective.
If violations of applicable requirements are noted during periodic inspections of the manufacturing facilities of our manufacturers, then we may not be able to continue to market the products manufactured in such facilities and our revenues may be materially adversely affected. 18 Risks Related to our Intellectual Property Protecting our intellectual property in our technology through patents may be costly and ineffective.
We will only be able to protect our products and methods from unauthorized use by third parties to the extent that our products and methods are covered by valid and enforceable patents or are effectively maintained as trade secrets. Our 4 granted U.S. patents will expire at various times from 2023 to 2039, assuming they are properly maintained.
We will only be able to protect our products and methods from unauthorized use by third parties to the extent that our products and methods are covered by valid and enforceable patents or are effectively maintained as trade secrets. Our 4 granted U.S. patents will expire at various times from 2029 to 2039, assuming they are properly maintained.
Our agreement with that supplier will expire in 2025 and although our relationship with this supplier is good, there can be no assurance that our current agreement will guarantee uninterrupted supply or that we will be able to renew the agreement on favorable terms, or at all.
Our agreement with that supplier will expire in 2028 and although our relationship with this supplier is good, there can be no assurance that our current agreement will guarantee uninterrupted supply or that we will be able to renew the agreement on favorable terms, or at all.
Our dependence on a single officer to perform multiple functions exposes us to various risks, including the risk that one officer may be unable to devote sufficient or timely attention to all aspects of operating our business and that in the event of a sudden departure of such officer we may not be able to promptly identify a successor.
Our dependence on two officers to perform multiple functions exposes us to various risks, including the risk that two officers may be unable to devote sufficient or timely attention to all aspects of operating our business and that in the event of a sudden departure of one officer, we may not be able to promptly identify a successor.
Our directors, executive officers, and Wexford Capital LP (“Wexford”) control a significant portion of our stock and, if they choose to vote together, could have sufficient voting power to control the vote on substantially all corporate matters. As of March 1, 2023, Wexford, our largest stockholder, beneficially owned approximately 36% of our outstanding common stock.
Our directors, executive officers, and Wexford Capital LP (“Wexford”) control a significant portion of our stock and, if they choose to vote together, could have sufficient voting power to control the vote on substantially all corporate matters. As of March 1, 2024, Wexford, our largest stockholder, beneficially owned approximately 35% of our outstanding common stock.
Collectively, Wexford, our directors and our executive officers beneficially owned approximately 40% of our outstanding common stock. As a result of this ownership, Wexford has the ability to exert significant influence over our policies and affairs, including the election of directors.
Collectively, Wexford, our directors and our executive officers beneficially owned approximately 37.5% of our outstanding common stock. As a result of this ownership, Wexford has the ability to exert significant influence over our policies and affairs, including the election of directors.
During the two years ended December 31, 2022, our common stock has traded at prices ranging from a high of $5.14 to a low of $0.91 per share. Due to the lack of an active trading market for our common stock, we expect the prices at which our common stock might trade to continue to be highly volatile.
During the two years ended December 31, 2023, our common stock has traded at prices ranging from a high of $6.19 to a low of $0.91 per share. Due to the lack of an active trading market for our common stock, we expect the prices at which our common stock might trade to continue to be highly volatile.
If we achieve our goal to increase our product revenue, we will need to also increase our supply requirements However, our contracted manufacturers could experience manufacturing and control problems in connection with their manufacture of our products, which could disrupt their ability to timely and adequately supply us with product.
If we are successful in continuing to increase our product revenue, we will need to also increase our supply requirements. However, our contracted manufacturers could experience manufacturing and control problems in connection with their manufacture of our products, which could disrupt their ability to timely and adequately supply us with product.
Item 1A. Risk Factors Risks Related to Our Overall Business and Operations We have a history of operating losses and a significant accumulated deficit, and we may not achieve or maintain profitability in the future. As of December 31, 2022, we had an accumulated deficit of $142.8 million as a result of historical operating losses.
Item 1A. Risk Factors Risks Related to Our Overall Business and Operations We have a history of operating losses and a significant accumulated deficit, and we may not achieve or maintain profitability in the future. As of December 31, 2023, we had an accumulated deficit of $144.4 million as a result of historical operating losses.
In order to successfully commercialize our products, we need to be able to produce them in a cost-effective way on a large scale to meet commercial demand, while maintaining extremely high standards for quality and reliability.
In order to successfully commercialize our products, we need to be able to produce them in a cost-effective way on a large scale to meet commercial demand, while maintaining extremely high standards for quality and reliability. The extent to which we fail to successfully commercialize our products will limit our ability to be profitable.
If we experience any of these problems with respect to our manufacturers’ scale-ups of manufacturing operations, then we may not be able to have our products manufactured and delivered in a timely manner. Our products are new and evolving, and our manufacturers may encounter unforeseen difficulties in manufacturing them in commercial quantities or at all.
If we experience any of these problems with respect to our manufacturers’ scale-ups of manufacturing operations, then we may not be able to have our products manufactured and delivered in a timely manner.
In addition, our need to significantly increase our revenue is also dependent on the personnel in our sales and marketing organization. Although we have recently added a number of new sales and marketing professionals, our success will depend on their ability to quickly integrate into our business and our ability to develop and retain them as employees.
Although we have recently added a number of new sales and marketing professionals, our success will depend on their ability to quickly integrate into our business and our ability to develop and retain them as employees. Our ability to increase our sales revenue may be materially impaired if we experience attrition in our sales and marketing organization.
Our strategy requires us to distribute our products and provide a significant amount of customer service and maintenance and other technical service. To provide these services, we have begun, and will need to continue, to develop a network of distribution and a staff of employees and independent contractors in each of the areas in which we intend to operate.
To provide these services, we have begun, and will need to continue, to develop a network of distribution and a staff of employees and independent contractors in each of the areas in which we intend to operate.
Our ability to increase our sales revenue may be materially impaired if we experience attrition in our sales and marketing organization. Product liability associated with the production, marketing, and sale of our products, and/or the expense of defending against claims of product liability, could materially deplete our assets and generate negative publicity which could impair our reputation.
Product liability associated with the production, marketing, and sale of our products, and/or the expense of defending against claims of product liability, could materially deplete our assets and generate negative publicity which could impair our reputation.
Furthermore, the issuance of any additional shares of our common stock or securities convertible into our common stock could be substantially dilutive to holders of our common stock if they do not invest in future offerings. The prices at which shares of the common stock trade have been and will likely continue to be volatile.
Furthermore, the issuance of any additional shares of our common stock or securities convertible into our common stock could be substantially dilutive to holders of our common stock if they do not invest in future offerings. We have never paid dividends and do not intend to pay cash dividends.
We have also issued stock options and restricted stock as compensation for services and incentive compensation for our employees, directors, and consultants. We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future.
We have shares of common stock reserved for issuance upon the exercise of certain of these securities and may increase the shares reserved for these purposes in the future.
Many non-U.S. jurisdictions, for example, prohibit patent claims covering methods of medical treatment of humans, although this prohibition may not include devices used for such treatment.
Moreover, patent protection in foreign countries may be different from patent protection under U.S. laws and may not be as favorable to us. Many non-U.S. jurisdictions, for example, prohibit patent claims covering methods of medical treatment of humans, although this prohibition may not include devices used for such treatment.
Our manufacturers’ systems and procedures may not be adequate to support our operations and may not be able to achieve the rapid execution necessary to exploit the market for our products.
We rely on, and for the foreseeable future expect to continue to rely on, a limited number of independent manufacturers to produce our products. Our manufacturers’ systems and procedures may not be adequate to support our operations and may not be able to achieve the rapid execution necessary to exploit the market for our products.
If we cannot develop adequate distribution, customer service and technical support networks, then we may not be able to market and distribute our products effectively and/or customers may decide not to order our products. In either case, our sales and revenues will suffer.
Our products are new and evolving, and our manufacturers may encounter unforeseen difficulties in manufacturing them in commercial quantities or at all. 14 If we cannot develop adequate distribution, customer service and technical support networks, then we may not be able to market and distribute our products effectively and/or customers may decide not to order our products.
Policing unauthorized use of our trade secrets is difficult and expensive and, in the event we further expand our operations, the laws of other countries may not adequately protect our trade secrets.
Policing unauthorized use of our trade secrets is difficult and expensive and, in the event we further expand our operations, the laws of other countries may not adequately protect our trade secrets. 19 Risks Related to Owning Our Common Stock The prices at which shares of the common stock trade have been and will likely continue to be volatile.
Our business could be harmed if we are unable to attract and retain personnel necessary for our success. We operate our business with only one person in senior management, which individual serves as our President & Chief Executive Officer, as well as our Chief Financial Officer.
Our business could be harmed if we are unable to attract and retain personnel necessary for our success. We operate our business with a two-person senior management team. We have a Chief Executive Officer and a Chief Financial Officer, who together directly oversee operations, sales and finances.
We do not carry key person life insurance on any of our employees. If we are unable to recruit and retain qualified personnel to our senior management teams, we will be unlikely to achieve our objectives of continuing to grow our company and our business may otherwise be harmed.
If we are unable to recruit and retain qualified personnel to our senior management teams, we will be unlikely to achieve our objectives of continuing to grow our company and our business may otherwise be harmed. 15 In addition, our need to significantly increase our revenue is also dependent on the personnel in our sales and marketing organization.
If we do not obtain these licenses, we could encounter delays in, or be prevented entirely from using, importing, developing, manufacturing, offering, or selling any products or practicing any methods, or delivering any services requiring such licenses. 20 If we file for or obtain additional patents in foreign countries, we will be subject to laws and procedures that differ from those in the United States.
We may not be able to obtain licenses under any of these patents on terms acceptable to us, if at all. If we do not obtain these licenses, we could encounter delays in, or be prevented entirely from using, importing, developing, manufacturing, offering, or selling any products or practicing any methods, or delivering any services requiring such licenses.
We are not able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance. We have never paid dividends and do not intend to pay cash dividends.
We are not able to control many of these factors, and we believe that period-to-period comparisons of our financial results will not necessarily be indicative of our future performance. Our common stock could be further diluted as a result of the issuance of additional shares of common stock, warrants or options.
If these decreases in demand were to recur, and we are unable to achieve our revenue plan, we may cut budgeted expenditures as appropriate to preserve our available capital resources, which could slow our revenue growth plans. 17 Risks Related to Government Regulation If we violate any provisions of the FDC Act or any other statutes or regulations, then we could be subject to enforcement actions by the FDA or other governmental agencies.
Risks Related to Government Regulation If we violate any provisions of the FDC Act or any other statutes or regulations, then we could be subject to enforcement actions by the FDA or other governmental agencies.
Such differences could create additional uncertainty about the level and extent of our patent protection. Moreover, patent protection in foreign countries may be different from patent protection under U.S. laws and may not be as favorable to us.
If we file for or obtain additional patents in foreign countries, we will be subject to laws and procedures that differ from those in the United States. Such differences could create additional uncertainty about the level and extent of our patent protection.
Risks Related to Owning Our Common Stock Our common stock could be further diluted as a result of the issuance of additional shares of common stock, warrants or options. In the past we have issued common stock and warrants in order to raise capital to help fund our business.
In the past we have issued common stock and warrants in order to raise capital to help fund our business. We have also issued stock options and restricted stock as compensation for services and incentive compensation for our employees, directors, and consultants.
Our sales from water filters was slightly less in fiscal 2022 compared to fiscal 2021 and there is no assurance that we will be able to improve our sales in future periods. If we cannot achieve significant revenue growth for an extended period, our financial results will be adversely affected, and our stock price may decline.
Our ability to increase our revenues in future periods will depend on our ability to significantly grow our customer base and then consistently obtaining product reorders from those customers. If we cannot sustain significant revenue growth for an extended period, our financial results will be adversely affected, and our stock price may decline.
We cannot assure that we will be able to organize and manage this network on a cost-effective basis.
In particular, our ability to grow sales in our commercial business depends largely on the efforts of a distribution partner with respect to which we have given exclusive distribution rights to our products in the food, beverage and hospitality markets. We cannot assure that we will be able to organize and manage this network on a cost-effective basis.
Any one or more of these factors could increase our costs, reduce our revenues, or disrupt our operations, which could have a material adverse effect on our business, financial condition, and results of operations. The COVID-19 pandemic may continue to adversely impact our sales and revenues.
The failure of our information technology systems to perform as we anticipate or our failure to effectively implement new systems could disrupt our operations and could result in decreased sales, increased overhead costs, excess inventory and product shortages, all of which could have a material adverse effect on our reputation, business, results of operations and financial condition.
We may be unable to achieve or sustain revenue growth. Our business is substantially dependent upon sales of the water filter products.
We may be unable to achieve or sustain revenue growth. Our business and future prospects are substantially dependent upon our ability to significantly grow our product revenue. Although our sales were approximately 43% higher in 2023 compared to 2022, there is no assurance that we will be able to continue our sales growth in future periods.
Removed
Our ability to increase our revenues in future periods will depend on our ability to increase sales of our water filter and other products we introduce in the future, which will, in turn, depend in part on our success in growing our customer base and reorders from those customers.
Added
In either case, our sales and revenues will suffer. Our strategy requires us to distribute our products and provide a significant amount of customer service and maintenance and other technical service.
Removed
The extent to which we fail to successfully commercialize our products will limit our ability to be profitable. 15 We rely on, and for the foreseeable future expect to continue to rely on, a limited number of independent manufacturers to produce our products.
Added
We do not carry key person life insurance on any of our employees.
Removed
We may face significant risks associated with international operations, which could have a material adverse effect on our business, financial condition, and results of operations. We expect to manufacture and to market our products globally.
Added
We rely on information technology systems and network infrastructure to operate and manage our business. If we experience a breach, cyber attack or other disruption to these systems or data, our business, results of operations and financial condition could be adversely affected.
Removed
Our international operations are subject to a number of risks, including the following: ● fluctuations in exchange rates of the U.S. dollar could adversely affect our results of operations; ● we may face difficulties in enforcing and collecting accounts receivable under some countries’ legal systems; ● local regulations may restrict our ability to sell our products, have our products manufactured or conduct other operations; ● political instability could disrupt our operations; ● some governments and customers may have longer payment cycles, with resulting adverse effects on our cash flow; and ● some countries could impose additional taxes or restrict the import of our products.
Added
We are increasingly dependent on sophisticated information technology systems to operate our business, including to process, transmit and store sensitive data. Specifically, we rely on our information technology systems to effectively manage sales and marketing, accounting and financial functions, inventory management, and our research and development data.
Removed
There is uncertainty with respect to our projections regarding the availability of sufficient cash resources in the event that the COVID-19 pandemic resurges. During the pandemic, we saw decreased demand for our hospital filtration products. In addition, sales to new customers were hindered by pandemic-related travel restrictions.
Added
Our business therefore depends on the continuous, effective, reliable, and secure operation of our computer hardware, software, networks, Internet servers, and related infrastructure.
Removed
Also, our commercial filtration products, which are primarily targeted at the hospitality and food service markets, saw a decrease in demand, due to the closure or reduced occupancy of many hotels and restaurants.
Added
Although we believe our computer and communications hardware is protected by reasonable physical, technical, and administrative safeguards, it is still vulnerable to system malfunction, computer viruses, and cybersecurity breaches – including ransomware, phishing, malware, brute force, insider threats, and other cyber attacks and security incidents.
Removed
We may not be able to obtain licenses under any of these patents on terms acceptable to us, if at all.
Added
These events could lead to the unauthorized access to information systems maintained by us or our service providers or customers and result in the misappropriation or unauthorized disclosure of confidential information belonging to us, our employees, customers, distributors or our suppliers.
Added
The techniques used by criminal elements to attack computer systems are sophisticated, change frequently and may originate from less regulated and remote areas of the world, including countries that engage in state-sponsored cyber attacks. As a result, we may not be able to address these techniques proactively or implement adequate preventative measures.
Added
Additionally, the regulatory environment governing information, security and privacy laws is increasingly demanding and continues to evolve. If our information technology systems are compromised, we could be subject to fines, damages, litigation and enforcement actions and we could lose trade secrets or other confidential information, the occurrence of which could harm our reputation, business, results of operations and financial condition.
Added
Our information systems, and those of third parties with whom we contract, also require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information technology.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our U.S. facilities are located at 380 Lackawanna Place, South Orange, New Jersey 07079 and 3221 Polaris Avenue, Las Vegas, Nevada 89102. We use these facilities to house our corporate headquarters, research, manufacturing, and distribution facilities. The operations of our commercial filtration division are based in our Las Vegas facility.
Biggest changeItem 2. Properties Our U.S. facilities are located at 380 Lackawanna Place, South Orange, New Jersey 07079 and 30 Leslie Court, Whippany, NJ 07981. We use these facilities to house our corporate headquarters, research, manufacturing, and distribution facilities. We believe our current facilities are adequate to meet our needs, although we may consolidate facilities in the future.
We believe our current facilities are adequate to meet our needs, although we may consolidate facilities in the future. We do not own any real property for use in our operation or otherwise.
We do not own any real property for use in our operation or otherwise.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeItem 3. Legal Proceedings There are no currently material pending legal proceedings and, as far as we are aware, no governmental authority is contemplating any material proceeding to which we are a party or to which any of our properties is subject.
Biggest changeItem 3. Legal Proceedings There are currently no material pending legal proceedings and, as far as we are aware, no governmental authority is contemplating any material proceeding to which we are a party or to which any of our properties is subject.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeIssuer Repurchases of Equity Securities There were no repurchases of our common stock during the fourth quarter of 2022. Equity Compensation Plan Information See Part III, Item 12, under the heading “Equity Compensation Plan Information,” which is incorporated by reference herein.
Biggest changeIssuer Repurchases of Equity Securities There were no repurchases of our common stock during the fourth quarter of 2023. Equity Compensation Plan Information See Part III, Item 12, under the heading “Equity Compensation Plan Information,” which is incorporated by reference herein. Item 6. Reserved
Recent Sales of Unregistered Securities Except as previously reported in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, we have not sold any equity securities during the year ended December 31, 2022, that were not registered under the Securities Act of 1933, as amended.
Recent Sales of Unregistered Securities Except as previously reported in our Quarterly Reports on Form 10-Q and our Current Reports on Form 8-K, we have not sold any equity securities during the year ended December 31, 2023, that were not registered under the Securities Act of 1933, as amended.
As of December 31, 2022, there were approximately 44 holders of record and approximately 1,600 beneficial holders of our common stock.
As of December 31, 2023, there were approximately 44 holders of record and approximately 1,300 beneficial holders of our common stock.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

26 edited+7 added−8 removed17 unchanged
Biggest changeDue to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance. 27 Fiscal Year Ended December 31, 2022, Compared to the Fiscal Year Ended December 31, 2021 The following table sets forth our summarized, consolidated results of operations for the years ended December 31, 2022 and 2021 (in thousands except percentages): Years Ended December 31, $ Increase % Increase 2022 2021 (Decrease) (Decrease) Total net revenues $ 9,975 $ 10,217 $ (242 ) (2 )% Cost of goods sold 5,244 4,584 660 14 % Gross margin 4,731 5,633 (902 ) (16 )% Gross margin % 47 % 55 % - (8 ) % Research and development expenses 1,255 1,498 (243 ) (16 ) % Depreciation and amortization expenses 218 192 26 14 % Selling, general and administrative expenses 7,593 7,195 398 6 % Operating loss from continuing operations (4,335 ) (3,252 ) (1,083 ) 33 % Interest expense (20 ) (41 ) 21 ( 51 )% Interest income 14 10 4 40 % Forgiveness of PPP Loan - 482 (482 ) (100 ) % Other income, net 64 17 47 276 % Net loss from continuing operations (4,277 ) (2,784 ) (1,493 ) 54 % Net loss from discontinued operations (2,829 ) (1,083 ) (1,746 ) 161 % Net Loss (7,106 ) (3,867 ) (3,239 ) 84 % Less: undeclared deemed dividend attributable to continuing noncontrolling interest (276 ) (240 ) (36 ) 15 % Net loss attributable to Nephros, Inc. shareholders $ (7,382 ) $ (4,107 ) (3,275 ) 80 % Net Revenues.
Biggest changeDue to these fluctuations, we believe that the period-to-period comparisons of our operating results are not a good indication of our future performance. 25 Fiscal Year Ended December 31, 2023, Compared to the Fiscal Year Ended December 31, 2022 The following table sets forth our summarized, consolidated results of operations for the years ended December 31, 2023 and 2022 (in thousands except percentages): Years Ended December 31, $ Increase % Increase 2023 2022 (Decrease) (Decrease) Total net revenues $ 14,238 $ 9,975 $ 4,263 43 % Cost of goods sold 5,833 5,244 589 11 % Gross margin 8,405 4,731 3,674 78 % Gross margin % 59 % 47 % - Research and development expenses 873 1,255 (382 ) (30 )% Depreciation and amortization expenses 214 218 (4 ) (2 )% Selling, general and administrative expenses 8,911 7,593 1,318 17 % Operating loss from continuing operations (1,593 ) (4,335 ) 2,742 (63 )% Interest expense (2 ) (20 ) 18 (90 )% Interest income 64 14 50 357 % Other (expense) income, net (44 ) 64 (108 ) (169 )% Net loss from continuing operations (1,575 ) (4,277 ) 2,702 (63 )% Net loss from discontinued operations - (2,829 ) 2,829 100 % Net Loss (1,575 ) (7,106 ) 5,531 (78 )% Less: undeclared deemed dividend attributable to continuing noncontrolling interest - (276 ) 276 (100 )% Net loss attributable to Nephros, Inc. shareholders $ (1,575 ) $ (7,382 ) 5,807 (79 )% Net Revenues.
By late February 2023, SRP had nearly exhausted its capital resources. Due to its limited capital and lack of prospects for securing a strategic partnership or additional financing, the board of directors of SRP adopted a plan on March 6, 2023 to wind down SRP operations, liquidate its remaining assets and dissolve the company.
By late February 2023, SRP had nearly exhausted its capital resources and, due to its limited capital and lack of prospects for securing a strategic partnership or additional financing, the board of directors of SRP adopted a plan on March 6, 2023 to wind down SRP operations, liquidate its remaining assets and dissolve the company.
This was primarily from proceeds from the exercise of warrants of $0.2 million and from the sale to Nephros of SRP preferred shares of $0.2 million, offset partially by payments of $0.3 million on our secured note, payments of employee taxes on restricted stock of approximately $31,000, principal payments of approximately $3,000 on our finance lease obligation and principal payments of approximately $3,000 on our equipment financing debt.
This was primarily from proceeds from the exercise of warrants of $0.2 million and from the sale to Nephros of SRP preferred shares of $0.2 million, offset partially by payments of $0.3 million on our secured note, payments of employee taxes on restricted stock of approximately $31,000, principal payments of approximately $12,000 on our finance lease obligation and principal payments of approximately $3,000 on our equipment financing debt.
On May 13, 2022, the FDA gave 510(k) clearance to SRP’s second-generation model of the OLpūrH2H Hemodiafiltration System, which enables nephrologists to provide HDF treatment to patients with end stage renal disease. In January 2023, SRP management began exploring strategic partnerships to support a commercial launch of the HDF product but was successful in identifying a partner.
On May 13, 2022, the FDA gave 510(k) clearance to SRP’s second-generation model of the OLpūrH2H Hemodiafiltration System, which enables nephrologists to provide HDF treatment to patients with end stage renal disease. In January 2023, SRP management began exploring strategic partnerships to support a commercial launch of the HDF product but was unsuccessful in identifying a partner.
Purchase Commitments In exchange for the rights granted under the License and Supply Agreement with Medica (see Note 10 – License and Supply Agreement, net), the Company agreed to make certain minimum annual aggregate purchases from Medica over the term of the License and Supply Agreement.
Purchase Commitments In exchange for the rights granted under the License and Supply Agreement with Medica (see Note 9 – License and Supply Agreement, net), the Company agreed to make certain minimum annual aggregate purchases from Medica over the term of the License and Supply Agreement.
Liquidity and Capital Resources The following table summarizes our liquidity and capital resources as of December 31, 2022 and 2021 and is intended to supplement the more detailed discussion that follows. The amounts stated are expressed in thousands.
Liquidity and Capital Resources The following table summarizes our liquidity and capital resources as of December 31, 2023 and 2022 and is intended to supplement the more detailed discussion that follows. The amounts stated are expressed in thousands.
Depreciation and Amortization Expense Depreciation and amortization expenses were $0.2 million for each of the years ended December 31, 2022 and 2021.
Depreciation and Amortization Expense Depreciation and amortization expenses were $0.2 million for each of the years ended December 31, 2023 and 2022.
Loss from discontinued operations Loss from discontinued operations was approximately $2.8 million for the year ended December 31, 2022, compared to approximately $1.1 million for the year ended December 31, 2021. The discontinued operations are related to the company’s former PDS operating segment.
Loss from discontinued operations Loss from discontinued operations was approximately $2.8 million for the year ended December 31, 2022. The discontinued operations are related to the company’s former PDS operating segment.
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.
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 continuing to achieve positive operating cash flow.
Our products are marketed primarily to the food service, hospitality, convenience store, and health care markets, and also sold into medical institutions to supplement. We also own a majority stake in Specialty Renal Products, Inc. (“SRP”), a development-stage medical device company that is focused primarily on developing hemodiafiltration (“HDF”) technology.
Our products are marketed primarily to the food service, hospitality, convenience store, and health care markets, and are also sold into medical institutions to supplement our medical filters. We previously held a majority stake in Specialty Renal Products, Inc. (“SRP”), a development-stage medical device company that was focused primarily on developing hemodiafiltration (“HDF”) technology.
We expect to put our current capital resources toward the development, marketing, and sales of our water filtration products and working capital purposes. Net cash used in operating activities was $3.2 million for the year ended December 31, 2022 compared to $1.4 million for the year ended December 31, 2021, an increase of $1.8 million.
We expect to put our current capital resources toward the development, marketing, and sales of our water filtration products and working capital purposes. 27 Net cash provided by operating activities was $0.8 million for the year ended December 31, 2023 compared to net cash used in operating activities of approximately $3.2 million for the year ended December 31, 2022, an increase of $4.1 million.
December 31, Liquidity and Capital Resources 2022 2021 Cash and cash equivalents $ 3,634 $ 6,973 Other current assets 4,627 6,661 Working capital 6,849 11,244 Stockholders’ equity 8,881 14,749 We operate under an Investment, Risk Management and Accounting Policy adopted by our Board of Directors.
As of December 31, Liquidity and Capital Resources 2023 2022 Cash and cash equivalents $ 4,307 $ 3,634 Other current assets 4,098 4,627 Working capital 6,292 6,849 Stockholders’ equity 8,358 8,881 We operate under an Investment, Risk Management and Accounting Policy adopted by our Board of Directors.
This increase is primarily related to the release of the cumulative translation adjustment from accumulated other comprehensive income (loss) on the liquidation of a foreign entity , related to the closure in the second quarter of 2022, of Nephros International, a wholly owned subsidiary of Nephros, Inc.
For the year ended December 31, 2022, other income related to the release of the cumulative translation adjustment from accumulated other comprehensive income (loss) on the liquidation of a foreign entity , related to the closure in the second quarter of 2022 of Nephros International, our wholly-owned subsidiary.
Future purchase commitments under the License and Supply Agreement with Medica are as follows: ● 2023: €3,625,000 ● 2024: €3,825,000 ● 2025: €4,000,000
Future purchase commitments under the License and Supply Agreement with Medica are as follows: ● 2024: €4,208,000 ● 2025: €4,629,000 ● 2026: €4,976,000
That plan was approved by SRP’s stockholders on March 9, 2023. We anticipate that SRP’s cash resources will be sufficient to satisfy all of its outstanding liabilities other than its obligations to us under a loan with an outstanding balance of approximately $1.4 million.
That plan was approved by SRP’s stockholders on March 9, 2023, and on April 13, 2023, SRP filed a certificate of dissolution with the State of Delaware. SRP’s cash resources were sufficient to satisfy all of its outstanding liabilities other than its obligations to us under a loan with an outstanding balance of approximately $1.5 million.
Net cash used in investing activities was $0.1 million for the year ended December 31, 2022 compared to $0.1 million for the year ended December 31, 2021. Net cash provided by financing activities was approximately $43,000 for the year ended December 31, 2022.
Net cash used in investing activities was $0.1 million for the years ended December 31, 2023 and 2022 Net cash used in financing activities was approximately $79,000 for the year ended December 31, 2023.
This increase of $1.8 million is due primarily to an increase in the net loss incurred of $3.2 million, partially offset by approximately $1.4 million in non-cash charges for impairment of assets held for sale.
This increase of $4.1 million is due primarily to a decrease in the net loss incurred of $5.5 million, in addition there was approximately $1.4 million in non-cash charges for impairment of assets held for sale in 2022.
For a description of these new accounting standards, see “Note 2 – Summary of Significant Accounting Policies,” to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K. 26 Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
For a description of these new accounting standards, see “Note 2 – Summary of Significant Accounting Policies,” to our consolidated financial statements included in Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K.
This reduction is primarily related to a lower principal balance of the company’s secured note payable. Interest Income Interest income was approximately $14,000 for the year ended December 31, 2022 compared to approximately $10,000 for the ended December 31, 2021. The increase in interest income is due to higher interest rates earned on invested cash balances.
Interest Expense Interest expense was approximately $2,000 for the year ended December 31, 2023 compared to $20,000 for the year ended December 31, 2022. This reduction is primarily related to a lower principal balance of the company’s secured note payable.
At December 31, 2022, we had an accumulated deficit of $142.8 million and we expect to 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. 30 Based on cash that is available for our operations and projections of our future operations, as well as our significantly reduced cash burn rates over the past 6 months, 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 consolidated financial statements in this Annual Report on Form 10-K.
Based on cash that is available for our operations and projections of our future operations, as well as the fact that we generated $0.7 million in cash flow in 2023, 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 consolidated financial statements in this Annual Report on Form 10-K.
For the year ended December 31, 2022, the Company has agreed to make minimum annual aggregate purchases from Medica of €3.5 million (approximately $3.7 million). For the year ended December 31, 2022, aggregate purchase commitments totaled €3.2 million (approximately $3.4 million). The company has agreed with Medica that it will make-up the €0.3 purchase shortfall based on anticipated future revenues.
For the year ended December 31, 2023, the Company had agreed to make minimum annual aggregate purchases from Medica of €3.8 million (approximately $4.1 million). For the year ended December 31, 2023, aggregate purchase commitments totaled €4.9 million (approximately $5.3 million). All purchase agreements were met.
Accordingly, we expect that SRP will assign all of its remaining assets, including its intellectual property rights in the HDF2 device, to us in partial satisfaction of its outstanding loan balance. Although we have no current plans to do so, we may re-evaluate opportunities for HDF in the future.
Accordingly, SRP assigned to Nephros all of its remaining assets, including its intellectual property rights in the HDF2 device, in satisfaction of its outstanding loan balance.
Recent Accounting Pronouncements We are subject to recently issued accounting standards, accounting guidance and disclosure requirements.
Although we have no current plans to do so, we may re-evaluate opportunities for HDF in the future. 24 Recent Accounting Pronouncements We are subject to recently issued accounting standards, accounting guidance and disclosure requirements.
Extinguishment of PPP loan Our outstanding PPP loan was forgiven in January 2021 resulting in an extinguishment gain of approximately $482,000. Other Income (Expense), net Other income was approximately $64,000 for the year ended December 31, 2022, compared to $17,000 for the year ended December 31, 2021.
Interest Income Interest income was approximately $64,000 for the year ended December 31, 2023 compared to approximately $14,000 for the ended December 31, 2022.
Net cash provided by financing activities of $0.2 million for the year ended December 31, 2021 resulted from proceeds from the exercise of warrants and stock options of $0.5 million partially offset by payments on our secured note payable of $0.3 million.
This was primarily from payments of $71,000 on our secured note, principal payments of approximately $7,000 on our finance lease obligation and principal payments of approximately $1,000 on our equipment financing debt. Net cash provided by financing activities was $34,000 for the year ended December 31, 2022.
Our gross margins returned to 59% in the quarter ended December 31, 2022, well within our target range of 55-60%.
Gross Profit Margin Gross profit margin was approximately 59% for the year ended December 31, 2023, compared to approximately 47% for the year ended December 31, 2022. The increase of approximately 12 percentage points reflects a return to target gross margins of 55%-60%.
Removed
As a result of our November 2022 sale of substantially all of the assets used in our PDS business, we completely exited the PDS business, which we had previously been reporting as a separate reportable operating segment for financial reporting purposes.
Added
Critical Accounting Policies and Estimates Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).
Removed
As a result, we determined that our PDS business had met the criteria for discontinued operations as of September 30, 2022. We no longer separately report the PDS business as a separate reportable segment in our financial statements including in this Annual Report on Form 10-K for any of the periods presented.
Added
Total net revenues increased 43% in the year ended December 31, 2023, driven by investments in our executive and sales organizations, as well as partnering with a master distributor for much of our commercial business.
Removed
Our business is reported in two reportable segments: Water Filtration and Renal Products.
Added
Lower gross margins in 2022 were primarily driven by large inventory write-downs due to expired product, and higher shipping expense from supply chain disruptions.
Removed
Our net revenues in each of these segments for the year ended December 31, 2022 and 2021 (in thousands, except percentages) were as follows: 2022 2021 $ Increase % Increase Water Filtration $ 9,975 $ 10,217 $ (242 ) (2 )% Renal Products - - - - Total $ 9,975 $ 10,217 $ (242 ) (2 )% Total net revenues in the Water Filtration segment decreased 2% in the year ended December 31, 2022. 28 Gross Profit Margin 2022 2021 % Increase (Decrease) Water Filtration 47 % 55 % (8 )% Renal Products - % - % - Total 47 % 55 % (8 )% Consolidated gross profit margin was approximately 47% for the year ended December 31, 2022, compared to approximately 55% for the year ended December 31, 2021.
Added
Research and Development Expenses Research and development expenses decreased 30% primarily due to the wind down of SRP in 2023 and consequently a reduction in SRP-related research and development expense of $0 in 2023 versus $376,000 in 2022, and slightly decreased investment in 2023 in water filter research and development.
Removed
The decrease of approximately 8% was driven by increased shipping costs, as well as inventory reserve increases charged to expense, for expirations, certain product obsolescence and adjustments to inventory counts. Responding to supply chain cost increases, we implemented a broad price increase beginning June 1, 2022, which helped to offset these expense increases.
Added
Selling, General and Administrative Expenses Selling, general and administrative expenses increased $1.3 million or 17%, primarily due to increased bonus and sales commission expense associated with higher sales, the hiring of a new CEO and CFO to replace one person acting in both positions, and increased hires to support the sales organization.
Removed
Research and Development Expenses Research and development expenses by segment for the year ended December 31, 2022 and 2021 (in thousands, except percentages) were as follows: 2022 2021 $ Increase (Decrease) % Increase (Decrease) Water Filtration $ 879 $ 1,251 $ (372 ) (30 )% Renal Products 376 247 129 52 % Total $ 1,255 $ 1,498 $ (243 ) (16 )% Consolidated research and development expenses decreased 16% primarily due to decreased R&D investment in the Water Filtration segment.
Added
The increase in interest income is due to higher interest rates earned on invested cash balances. 26 Other Income (Expense), net Other expense was approximately $44,000 for the year ended December 31, 2023, compared to other income of $64,000 for the year ended December 31, 2022. This decrease is primarily a result of losses on foreign currency transactions in 2023.
Removed
Selling, General and Administrative Expenses Selling, general and administrative expenses by segment for the year ended December 31, 2022 and 2021 (in thousands, except percentages) were as follows: 2022 2021 $ Increase (Decrease) % Increase (Decrease) Water Filtration $ 7,328 $ 7,124 $ 204 3 % Renal Products 265 71 194 273 % Total $ 7,593 $ 7,195 $ 398 6 % Consolidated selling, general and administrative expenses increased $0.4 million or 6%, primarily due to increased sales headcount and associated travel and recruiting costs. 29 Interest Expense Interest expense was approximately $20,000 for the year ended December 31, 2022 compared to $41,000 for the year ended December 31, 2021.
Added
At December 31, 2023, we had an accumulated deficit of $144.4 million and we expect to 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.
Removed
The increased loss is primarily due to the impairment of the net assets of PDS that was sold, and reported in the third quarter of 2022 that totaled approximately $1.4 million.

Other NEPH 10-K year-over-year comparisons