As previously disclosed, Nephros'$3 million rights offering was completed in May. In addition, during the rights offering period, Nephros offered the holders of its 2011 warrants the opportunity to exercise those warrants at a discounted exercise price of $0.30 per share. As a result of the temporarily discounted exercise price, holders of the Company's 2011 warrants exercised 14,879,708 warrants for 687,793 shares of common stock, resulting in gross proceeds of approximately $206,000 to the Company.
Dialysis and Hospital Applications Ultrafilters
For the second quarter of 2013, Nephros recorded approximately $391,000 of sales related to its water and bicarbonate ultrafiltration products, a 196 percent increase over the same period in 2012. Nephros believe that more stringent standards for dialysis water purity from the Association for the Advancement of Medical Instruments (AAMI), bundling of dialysis reimbursement payments, and the Affordable Care Act initiatives which relate hospital reimbursement rates to infection control compliance can provide positive momentum for increased adoption of Nephros ultrafiltration products. Nephros is now offering a full range of point-of-use filters for hospital infection control, including SafeSpout and SafeShower filters. The plastic casing of the Nephros hospital ultrafilters contains BACTiglas. BACTiglas releases silver ions at the surface of the plastic casing such that they are imparted to anything that touches it. Silver ions (through chemical bonding with amino acids) result in the killing of the bacteria that remains on the surface of the plastic. This enables the Nephros hospital ultrafilters to be bactericidal to touch contamination or growth on the surface of the plastic in addition to their water treatment effect. In February 2013, Nephros and Chem-Aqua, Inc. announced that the companies signed a non-exclusive distributor agreement for Chem-Aqua to distribute Nephros's ultrafilters to hospitals in North America.
Military Applications Ultrafilters
In response to a Special Notice Announcement from the U.S. Army, Nephros submitted its Individual Water Purification Device (IWPD) containing the Nephros proprietary ultrafilter technology for consideration as part of a standard issue personal hydration pack for soldiers in the field. Nephros has been informed by the Military Government Review Agency that its IWPD has been validated to meet the military's NSF P248 standard as a microbiological water treatment device for military operations. The IWPD was evaluated by approximately 100 U.S. Marines and a Military Assessment Team. To date, Nephros has shipped approximately 2,000 IWPDs to the U.S. armed forces, equating to approximately $200,000 of sales. In January 2013, the U.S. Army issued a request for proposal (RFP) relating to IWPDs; Nephros submitted its response to this RFP on February 25. On March 29, Nephros received notification from the U.S. Army that the Government has completed the initial evaluation of the Nephros proposal and found Nephros to be within the competitive range to commence negotiations. Nephros received a request for 180 of Nephros IWPDs to be used as test assets during the Limited User Evaluation phase of the source selection. The U.S. Army may award several, one or no contracts as a result of this solicitation. The maximum quantity of all contracts combined is not to exceed 450,000 units or $45,000,000 over a 3 year period. The RFP evaluation period may take up to 6 months before an award is made, if at all. Nephros can provide no assurances that the Nephros RFP proposal will be accepted or that Nephros will sell any products to the U.S. Army or U.S. Marines.
Under the licensing agreement with Bellco, S.r.l., Nephros received the third and final installment payment of EUR 600,000 on January 15. Beginning on January 1, 2015 until December 31, 2016, Nephros will receive royalty payments from Bellco's sales of mid- dilution filters as part of the license agreement. During the license period, Nephros no longer recognizes sales from the licensed territory, but rather licensing revenue and royalty payments.
U.S. On-line Mid-dilution Hemodiafiltration
In April 2012, Nephros received FDA 510(k) clearance to market the Company's online mid-dilution hemodiafiltration (mid HDF) system in the U.S. for the treatment of patients with chronic renal failure when used with a UF controlled hemodialysis machine that provides ultrapure dialysate in accordance with current AAMI/ANSI/ISO standards. Nephros intends to pursue a limited launch of its mid- HDF system prior to expanding into the broader market. Nephros are currently preparing the Nephros mid-HDF system for a scaled market release and expect to have 10 units placed in a select number of dialysis clinics in the third quarter of 2013. In parallel, Nephros continues to explore opportunities to leverage the resources of a strategic partner to most effectively address the market. There are more than half a million patients in the U.S. whose kidneys have failed requiring them to seek treatment. Of these, approximately 370,000 are receiving hemodialysis. In 2009 the total medical care costs for Chronic Renal Failure reached $42.5 billion. The Nephros mid-HDF system is a FDA-cleared online mid-dilution HDF therapy available in the U.S.
Nephros is evaluating a range of additional commercial, industrial, and military opportunities for its ultrafiltration technology.
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