Included in the above scheduled maturities of minimum lease payments receivable, approximately $5,000 was due as of September 30, 2018.

Note 12 – License and Supply Agreement, net

On April 23, 2012, the Company entered into a License and Supply Agreement (the “License and Supply Agreement”) with Medica S.p.A. (“Medica”), an Italy-based medical product manufacturing company, for the marketing and sale of certain filtration products based upon Medica’s proprietary Medisulfone ultrafiltration technology in conjunction with the Company’s filtration products, and for an exclusive supply arrangement for the filtration products. Under the License and Supply Agreement, as amended, Medica granted to the Company 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, the Company granted to Medica an exclusive license under the Company’s intellectual property to make the filtration products during the term of the License and Supply Agreement. The filtration covered under the License and Supply Agreement include both certain products based on Medica’s proprietary Versatile microfiber technology and certain filtration products based on Medica’s proprietary Medisulfone ultrafiltration technology. The term of the License 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.

In exchange for the license, the gross value of the intangible asset capitalized was approximately $2,250,000. License and supply agreement, net, on the condensed consolidated balance sheet is approximately $971,000 and $1,072,000 as of September 30, 2018 and December 31, 2017, respectively. Accumulated amortization is approximately $1,279,000 and $1,178,000 as of September 30, 2018 and December 31, 2017, respectively. The intangible asset is being amortized as an expense over the life of the License and Supply Agreement. Approximately $34,000 and $53,000 has been charged to amortization expense for the three months ended September 30, 2018 and 2017, respectively, on the condensed consolidated statement of operations and comprehensive loss. Approximately $101,000 and $157,000 has been charged to amortization expense for the nine months ended September 30, 2018 and 2017, respectively, on the condensed consolidated statement of operations and comprehensive loss.

As of September 2013, the Company has an understanding with Medica whereby the Company has 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. For the three and nine months ended September 30, 2018, approximately $1,000 and $13,000 of interest, respectively, was recognized as interest expense. For the three and nine months ended September 30, 2017, approximately $7,000 and $17,000 of interest, respectively, was recognized as interest expense.

In addition, for the period beginning April 23, 2014 through December 31, 2025, the Company will pay Medica a royalty rate of 3% of net sales of the filtration products sold, subject to reduction as a result of a supply interruption pursuant to the terms of the License and Supply Agreement. Approximately $48,000 and $22,000 for the three months ended September 30, 2018 and 2017, respectively, was recognized as royalty expense and is included in cost of goods sold on the condensed consolidated statement of operations and comprehensive loss. Approximately $113,000 and $64,000 for the nine months ended September 30, 2018 and 2017, respectively, was recognized as royalty expense and is included in cost of goods sold on the condensed consolidated statement of operations and comprehensive loss. Approximately $48,000 and $34,000 in royalties are included in accounts payable as of September 30, 2018 and December 31, 2017, respectively.

Note 1113 – Secured Note Payable

On March 27, 2018, the Company entered into a Secured Promissory Note Agreement (the “Secured Note”) with Tech Capital, LLC (“Tech Capital”) for a principal amount of $1,187,000. As of JuneSeptember 30, 2018, the principal balance of the Secured Note was approximately $1,138,000.$1,088,000. The Company used the proceeds from the Secured Note to repay the Company’s 11% unsecured promissory notes issued in June 2016 pursuant to the Note and Warrant Agreement (see Note 1315 – Unsecured Promissory Notes and Warrants).

The Secured Note has a maturity date of April 1, 2023. The unpaid principal balance accrues interest at a rate of 8% per annum. Principal and interest payments are due on the first day of each month commencing on May 1, 2018. The Secured Note is subject to the terms and conditions of and is secured by security interests granted by the Company in favor of Tech Capital under the Loan and Security Agreement between the Company and Tech Capital, dated August 16, 2017 and all of the riders and amendments thereto (the “Loan Agreement”) (see Note 1214 – Secured Revolving Credit Facility). An event of default under such Loan Agreement shall be an event of default under the Secured Note and vice versa. In the event the principal balance under the Loan Agreement is due, all amounts due under the Secured Note shall also be due.

During the three and nine months ended JuneSeptember 30, 2018, the Company made payments under the Secured Note of approximately $72,000. Approximately $23,000 of$72,000 and $144,000, respectively. Included in the $72,000 wastotal payments made, approximately $22,000 and $45,000, respectively, were recognized as interest expense on the condensed consolidated statement of operations and comprehensive loss for the three and sixnine months ended JuneSeptember 30, 2018. Debt issuance costs of approximately $6,000 were recognized as interest expense on the condensed consolidated statement of operations and comprehensive loss for the three and sixnine months ended JuneSeptember 30, 2018.

As of JuneSeptember 30, 2018, future principal maturities are as follows:

Note 1214 – Secured Revolving Credit Facility

On August 17, 2017, the Company entered into the Loan Agreement with Tech Capital. The Loan Agreement provides for a secured asset-based revolving credit facility of up to $1,000,000, which the Company may draw upon and repay from time to time during the term of the Loan Agreement. The outstanding principal balance of the Loan Agreement was approximately $153,000$163,000 and $711,000 as of JuneSeptember 30, 2018 and December 31, 2017, respectively. The Company is using these proceeds for working capital and general corporate purposes.

The Loan Agreement has a term of 12 months, which was automatically renewed on August 17, 2018 and will automatically renew for successive 12-month periods unless cancelled. Availability under the Loan Agreement will be based upon periodic borrowing base certifications valuing certain of the Company’s accounts receivable and inventory. Outstanding borrowings under the Loan Agreement accrue interest, which shall be payable monthly based on the average daily outstanding balance, at a rate equal to 3.5% plus the prime rate per annum, provided that such prime rate shall not be less than 4.25% per annum. As of JuneSeptember 30, 2018, the current interest rate was 8.50%8.75% per annum.

The Company also granted to Tech Capital a first priority security interest in its assets, including its accounts receivable and inventory, to secure all of its obligations under the Loan Agreement. In addition, Nephros International Limited, the Company’s wholly-owned subsidiary, unconditionally guaranteed the Company’s obligations under the Loan Agreement.

In connection withFor the Loan Agreement, the Company incurred fees of approximately $12,000 related to the issuance of the revolving

credit facility. These debt issuance costs were recognized as interest expense during the three and nine months ended September 30, 2017.

For the three and six months ended June 30, 2018, approximately $3,000$9,000 and $9,000,$18,000, respectively, was recognized as interest expense on the condensed consolidated statement of operations and comprehensive loss. As of JuneSeptember 30, 2018, approximately $1,000 of the $9,000$18,000 of interest expense incurred for the sixnine months ended JuneSeptember 30, 2018 is included in accrued expenses on the condensed consolidated balance sheet.

For the three and nine months ended September 30, 2017, approximately $18,000 was recognized as interest expense on the condensed consolidated statement of operations and comprehensive loss, which includes the debt issuance costs of approximately $12,000 in addition to interest expense incurred of approximately $6,000 on the revolving facility.

Note 1315 – Unsecured Promissory Notes and Warrants

In June 2016, the Company entered into a Note and Warrant Agreement (the “Note and Warrant Agreement”) with new creditors as well as existing stockholders under which the Company issued unsecured promissory notes and warrants resulting in total gross proceeds to the Company during June 2016 of approximately $1,187,000. As of December 31, 2017, the portion of the outstanding notes held by related parties comprised of persons controlled by a member of management and by Lambda Investors LLC (“Lambda”), the majority shareholder, amounted to $30,000 and $300,000, respectively. The outstanding principal under the notes accrued interest at a rate of 11% per annum. The notes required the Company to make interest only payments on a semi-annual basis, with all outstanding principal under the notes being repayable in cash on the third anniversary of the date of issuance. In addition to the notes, the Company issued warrants to purchase approximately 2.4 million shares of the Company’s common stock. The portion of the gross proceeds allocated to the warrants of approximately $393,000 was accounted for as additional paid-in capital resulting in a debt discount. The debt discount, which included approximately $9,000 of debt issuance costs in addition to the fair value of the warrants, was being amortized to interest expense using the effective interest method in accordance with ASC 835 over the term of the Note and Warrant Agreement. As of December 31, 2017, the portion of the outstanding notes held by related parties comprised of persons controlled by a member of management and by Lambda Investors LLC (“Lambda”), a significant shareholder, amounted to $30,000 and $300,000, respectively. On March 30, 2018, using proceeds from the Secured Note, the principal balance of the notes, along with the remaining accrued interest of approximately $43,000, was repaid in full. While the notes were outstanding, approximately $195,000 of interest was paid to noteholders. The remaining debt discount of approximately $199,000 was written off and recorded as loss on extinguishment of debt in the Company’s condensed consolidated statements of operations and comprehensive loss.

For the sixnine months ended JuneSeptember 30, 2018, approximately $34,000 was recognized as amortization of debt discount and is included in interest expense on the condensed consolidated statement of operations and comprehensive loss. For the three and sixnine months ended JuneSeptember 30, 2017, approximately $27,000$30,000 and $54,000,$84,000, respectively, was recognized as amortization of debt discount and is included in interest expense on the condensed consolidated statement of operations and comprehensive loss.

For the sixnine months ended JuneSeptember 30, 2018, approximately $30,000 of interest expense was incurred. For the three and sixnine months ended JuneSeptember 30, 2017, approximately $33,000 and $66,000,$99,000, respectively, of interest expense was incurred.

For the sixnine months ended JuneSeptember 30, 2018, the amount of interest expense recognized related to related parties comprised of entities controlled by a member of management and by Lambda was approximately $1,000 and $8,000, respectively. For the sixnine months ended JuneSeptember 30, 2017, the amount of interest expense recognized related to related parties comprised of entities controlled by a member of management and by Lambda was approximately $2,000$3,000 and $16,000,$24,000, respectively. For the three months ended JuneSeptember 30, 2017, the amount of interest expense recognized related to related parties comprised of entities controlled by a member of management and by Lambda was approximately $1,000 and $8,000, respectively.

Note 16 –Noncontrolling Interest

In July 2018, the Company formed a new, wholly-owned subsidiary, Specialty Renal Products, Inc. (“SRP”), to drive the development of its 2^nd generation HDF system and other products focused on improving therapies for patients with renal disease.

On September 5, 2018, SRP entered into a Series A Preferred Stock Purchase Agreement with certain purchasers pursuant to which SRP sold 600,000 shares of its Series A Preferred Stock (“Series A Preferred”) for $5.00 per share. The aggregate purchase price was $3,000,000. SRP incurred transaction-related expenses of approximately $30,000, which are included in selling, general and administrative expenses on the accompanying condensed consolidated statement of operations and comprehensive loss. The net proceeds from the issuance of the Series A Preferred are restricted to SRP expenses, and may not be used for the benefit of the Company or other affiliated entities, except to reimburse for expenses directly attributable to SRP. Following the Series A Preferred transaction, the Company retained a 62.5% ownership interest in SRP, holding 100% of the outstanding common shares, and holders of Series A Preferred retained a 37.5% interest in SRP on a fully diluted basis, holding 100% of the outstanding preferred shares. Of the 600,000 shares of Series A Preferred issued, the shares purchased by related parties comprised of persons controlled by members of management and by Lambda, a significant stockholder of the Company, amounted to 18,000 and 400,000 shares, respectively.

Each share of Series A Preferred is initially convertible into one share of SRP common stock, subject to adjustment for stock splits and recapitalization events. Subject to customary exempt issuances, in the event SRP issues additional shares of its common stock or securities convertible into common stock at a per share price that is less than the original Series A Preferred price, the conversion price of the Series A Preferred will automatically be reduced to such lower price.

In the event of any voluntary or involuntary liquidation, dissolution or winding up of SRP, the holders of the Series A Preferred are entitled to be paid out of the assets of SRP available for distribution to its stockholders or, in the case of a deemed liquidation event, out of the consideration payable to stockholders in such deemed liquidation event or the available proceeds, before any payment shall be made to the holders of SRP common stock by reason of their ownership thereof, an amount per share equal to one times (1x) the Series A Preferred original issue price, plus any accruing dividends accrued but unpaid thereon, whether or not declared, together with any other dividends declared but unpaid thereon (the “Series A Liquidation Preference”). If upon any such liquidation, dissolution or winding up of SRP or deemed liquidation event, the assets of SRP available for distribution to its stockholders shall be insufficient to pay the Series A Liquidation Preference in full, the holders of Series A Preferred shall share ratably in any distribution of the assets available for distribution in proportion to the respective amounts which would otherwise be payable in respect of the shares held by them upon such distribution if all amounts payable on or with respect to such shares were paid in full. After the full payment of the Series A Liquidation Preference, the holders of the Series A Preferred and the holders of common stock will share ratably in any remaining proceeds available for distribution on an as-converted to common stock basis.

Each share of Series A Preferred accrues dividends at the rate per annum of $0.40 per share. The accruing dividends shall accrue from day to day, whether or not declared, and shall be cumulative and shall be payable only when, as, and if declared by the Board.

Holders of Series A Preferred shall be entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A Preferred held by such holder are convertible as of the record date for determining stockholders entitled to vote. Except as provided by law or by the other provisions, the holders of Series A Preferred vote together with the holders of common stock as a single class. Notwithstanding the foregoing, for as long as at least 150,000 shares of Series A Preferred are outstanding, SRP is required to obtain the affirmative vote or written consent of a majority of the Series A Preferred in order to effect certain corporate transactions, including without limitation, the issuance of any securities senior to or on parity with the Series A Preferred, a liquidation or deemed liquidation of SRP, amendments to SRP’s charter documents, the issuance of indebtedness in excess of $250,000, any annual budget for the Company’s operations, and the hiring or firing of any executive officers of SRP. In addition, the holders of the Series A Preferred are entitled to elect two members of SRP’s board of directors.

The noncontrolling interest in SRP held by the Holders of Series A has been classified as mezzanine equity on the accompanying condensed consolidated interim balance sheet, as the noncontrolling interest is redeemable upon the occurrence of events that are not solely within the control of the Company.

Note 1417 – Stockholders’ Equity

April 2018 Private Placement

On April 10, 2018, the Company entered into a Stock Purchase Agreement with certain accredited investors identified therein pursuant to which the Company issued and sold in a private placement 6,540,669 shares of the Company’s common stock resulting in gross proceeds to the Company of approximately $2,943,000. The purchase price for each share was $0.45. Proceeds, net of equity issuance costs of $19,000, recorded as a result of the private placement were approximately $2,924,000. Of the 6,540,669 shares of the Company’s common stock issued, 219,000 shares, resulting in proceeds of $98,550,$98,000, were sold to members of management, including immediate family members.

March 2017 Private Placement

On March 17, 2017, the Company entered into a Securities Purchase Agreement with certain accredited investors identified therein pursuant to which the Company issued and sold in a private placement 4,059,994 units of its securities resulting in gross proceeds to the Company of approximately $1,218,000. Each unit consisted of one share of the Company’s common stock and a five-year warrant to purchase one additional share of the Company’s common stock. The purchase price for each unit was $0.30. The warrants are exercisable at a price of $0.30 per share and are indexed to the Company’s common stock; therefore, the Company is accounting for the warrants as a component of equity. The portion of the gross proceeds received from certain members of management and existing stockholders amounted to $315,000. Proceeds, net of equity issuance costs of $152,000, recorded as a result of the private placement were approximately $1,066,000. In addition to the equity issuance costs incurred as a result of the private placement, the Company also issued a warrant to purchase 81,199 shares of its common stock to the placement agent engaged in connection with the private placement. The form and terms of the placement agent warrant is substantially the same as the form of warrants issued to the investors under the Securities Purchase Agreement, except that the exercise price is $0.33 per share.

July 2015 Purchase Agreement and Registration Rights Agreement

On July 24, 2015, the Company entered into both a securities purchase agreement and registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”). Under the terms and subject to the conditions of the securities purchase agreement, the Company hashad the right to sell to Lincoln Park, and Lincoln Park iswas obligated to purchase, up to $10.0 million in shares of the Company’s common stock, subject to certain limitations, from time to time, over the 36-month period commencing on September 4, 2015. Pursuant to the securities purchase agreement, during the sixnine months ended JuneSeptember 30, 2018 and 2017, the Company issued and sold 1,900,000 and 300,000 shares of its common stock, respectively, to Lincoln Park. The issuance of the common shares to Lincoln Park resulted in gross proceeds of $854,000 and $113,000 for the sixnine months ended JuneSeptember 30, 2018 and 2017, respectively. The Company did not issue or sell any stock to Lincoln Park during the three months ended JuneSeptember 30, 2018. The securities purchase agreement expired on September 4, 2018.

Note 1518 – Commitments and Contingencies

Manufacturing and SuppliersPurchase Commitments

The Company has not, and does not intend in the near future, to manufacture any of its products and components. With regard to the OLpūr MD190 and MD220, on June 27, 2011, the Company entered into a License Agreement (the “License Agreement”), effective July 1, 2011, with Bellco S.r.l. (“Bellco”), an Italy-based supplier of hemodialysis and intensive care products, for the manufacturing, marketing and sale of our patented mid-dilution dialysis filters (the “Products”). Under the License Agreement, the Company granted Bellco a license to manufacture, market and sell the Products under its own name, label and CE mark in Italy, France, Belgium, Spain and Canada on an exclusive basis, and to do the same on a non-exclusive basis in the United Kingdom and Greece and, upon our written approval, other European countries where the Company does not sell the Products as well as non-European countries (referred to as the “Territory”).

On February 19, 2014, the Company entered into the first amendment to the License Agreement with Bellco, pursuant to which the Company and Bellco agreed to extend the term of the License Agreement from December 31, 2016 to December 31, 2021. The first amendment also expands the Territory covered by the License Agreement to include, on an exclusive basis, Sweden, Denmark, Norway and Finland and on a non-exclusive basis, Korea, Mexico, Brazil, China and the Netherlands. The first amendment further provides new minimum sales targets which, if not satisfied, will, at the discretion of the Company, result in conversion of the license to non-exclusive status. The Company has agreed to reduce the fixed royalty payment payable to the Company for the period beginning on January 1, 2015 through and including December 31, 2021. Beginning on January 1, 2015 through and including December 31, 2021, Bellco will pay the Company a royalty based on the number of units of Products sold per year in the Territory as follows: for the first 125,000 units sold in total, €1.75 (approximately $2.10) per unit; thereafter, €1.25 (approximately $1.50) per unit. In addition, the first amendment provides that, in the event that the Company pursues a transaction to sell, assign or transfer all right, title and interest to the licensed patents to a third party, the Company will provide Bellco with written notice thereof and a right of first offer with respect to the contemplated transaction for a period of 30 days.

In accordance with the adoption of ASC 606, the remaining deferred revenue of approximately $278,000 related to license revenue as of December 31, 2017 was recognized as a cumulative effect adjustment to accumulated deficit as of January 1, 2018. During the three and six months ended June 30, 2017, approximately $18,000 and $35,000, respectively, was recognized as license revenue.

The Company recognized royalty income from Bellco pursuant to the License Agreement of approximately $31,000 for each of the three months ended June 30, 2018 and 2017. The Company recognized royalty income from Bellco pursuant to the License Agreement of approximately $58,000 for each of the six months ended June 30, 2018 and 2017.

License and Supply Agreement

On April 23, 2012, the Company entered into a License and Supply Agreement (the “License and Supply Agreement”) with Medica S.p.A. (“Medica”), an Italy-based medical product manufacturing company, for the marketing and sale of certain filtration products based upon Medica’s proprietary Medisulfone ultrafiltration technology in conjunction with the Company’s filtration products, and for an exclusive supply arrangement for the filtration products. Under the License and Supply Agreement, Medica granted to the Company an exclusive license, with right of sublicense, to market, promote, distribute, offer for sale and sell the filtration products worldwide, excluding Italy for the first three years, during the term of the License and Supply Agreement. In addition, the Company granted to Medica an exclusive license under the Company’s intellectual property to make the filtration products during the term of the License and Supply Agreement.

On May 5, 2017, the Company and Medica entered into a Third Amendment to the License and Supply Agreement (the “Third Amendment”), which expanded the products covered by the original License and Supply Agreement to include both certain filtration products based on Medica’s proprietary Versatile microfiber technology and certain filtration products based on Medica’s proprietary Medisulfone ultrafiltration technology. The Third Amendment also limits the territory in which Medica granted the Company an exclusive license, with right of sublicense, to market, promote, distribute, offer for sale, and sell the filtration products.

On September 26, 2017, the Company and Medica entered into a Fourth Amendment to the License and Supply Agreement (the “Fourth Amendment”), which extended the term of the License and Supply Agreement from December 31, 2022 to December 31, 2025, unless earlier terminated by either party in accordance with the terms of the License and Supply Agreement.

In exchange for the rights granted under the License and Supply Agreement with Medica (see Note 12 – 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. For the year ended December 31, 2018, the Company has agreed to make minimum annual aggregate purchases from Medica of €2,500,000 (approximately $3,000,000). As of JuneSeptember 30, 2018, the Company’s aggregate purchase commitments totaled approximately €949,000€2,254,000 (approximately $1,139,000)$2,706,000).

In exchange for the license, the gross value of the intangible asset capitalized was approximately $2,250,000. License and supply agreement, net, on the condensed consolidated balance sheet is approximately $1,005,000 and $1,072,000 as of June 30, 2018 and December 31, 2017, respectively. Accumulated amortization is approximately $1,245,000 and $1,178,000 as of June 30, 2018 and December 31, 2017, respectively. The intangible asset is being amortized as an expense over the life of the License and Supply Agreement. Approximately $33,000 and $53,000 has been charged to amortization expense for the three months ended June 30, 2018 and 2017, respectively, on the condensed consolidated statement of operations and comprehensive loss. Approximately $67,000 and $105,000 has been charged to amortization expense for the six months ended June 30, 2018 and 2017, respectively, on the condensed consolidated statement of operations and comprehensive loss.

As of September 2013, the Company has an understanding with Medica whereby the Company has 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. For the three and six months ended June 30, 2018, approximately $2,000 and $12,000 of interest, respectively, was recognized as interest expense. For the three and six months ended June 30, 2017, approximately $2,000 and $10,000 of interest, respectively, was recognized as interest expense.

In addition, for the period beginning April 23, 2014 through December 31, 2025, the Company will pay Medica a royalty rate of 3% of net sales of the filtration products sold, subject to reduction as a result of a supply interruption pursuant to the terms of the License and Supply Agreement. Approximately $36,000 and $22,000 for the three months ended June 30, 2018 and 2017, respectively, was recognized as royalty expense and is included in cost of goods sold on the condensed consolidated statement of operations and comprehensive loss. Approximately $65,000 and $41,000 for the six months ended June 30, 2018 and 2017, respectively, was recognized as royalty expense and is included in cost of goods sold on the condensed consolidated statement of operations and comprehensive loss. Approximately $36,000 and $34,000 in royalties are included in accounts payable as of June 30, 2018 and December 31, 2017, respectively.

Contractual Obligations

The Company entered into an operating lease that began in December 2017 for 380 Lackawanna Place, South Orange, New Jersey 07079, which consists of approximately 7,700 square feet of space. The rental agreement expires in November 2022 with a monthly cost of approximately $11,000. Approximately $11,000 related to a security deposit for this U.S. office facility is classified as other assets on the condensed consolidated balance sheet as of JuneSeptember 30, 2018 and December 31, 2017. The Company uses these facilities to house its corporate headquarters and research facilities.

The lease agreement for the office space in Ireland was entered into on August 1, 20172018 and includes a twelve month term.

Rent expense for the three months ended JuneSeptember 30, 2018 and 2017 totaled $37,000 and $28,000,$31,000, respectively. Rent expense for the sixnine months ended JuneSeptember 30, 2018 and 2017 totaled $88,000$125,000 and $59,000,$91,000, respectively.

As of JuneSeptember 30, 2018, minimum lease payments are as follows:

Investment in Lease, netNote 19 – Segment Reporting

On October 8, 2015, the Company entered into an equipment lease agreement with Biocon 1, LLC. The lease commenced on January 1, 2016 with a term of 60 months and monthly rental payments of approximately $1,800 will be paid to the Company. At the completion of the lease term, Biocon 1, LLC will own the equipment provided under the agreement. An investment in lease was established for the direct financing lease receivable at the present value of the future minimum lease payments. Interest income will be recognized monthly over the lease term using the effective-interest method. Cash received will be applied against the direct financing lease receivable and will be presented within changes in operating assets and liabilities in the operating section of the Company’s condensed consolidated statement of cash flows. At lease inception, an investment in lease of approximately $92,000 was recorded, net of unearned interest of approximately $14,000. Approximately $1,000 was recognized in interest income during each ofDuring the three months ended JuneSeptember 30, 2018, the Company began reporting the results of SRP as a new segment as a result of the July 2018 formation of the Company’s new subsidiary, SRP. Prior to the formation of SRP, the Company had only a single operating segment. The Company has reflected these new segment measures beginning in the quarter ended September 30, 2018 and 2017. Approximately $2,000 was recognized in interest income during each of the six months ended June 30, 2018 and 2017. As of June 30, 2018, investment in lease, net-current portion is approximately $31,000, net of unearned interest of $2,000. As of June 30, 2018, investment in lease, net-noncurrent portion is approximately $30,000, net of unearned interest of $2,000.

As of June 30, 2018, scheduled maturities of minimum lease payments receivable were as follows:

Included in the above scheduled maturities of minimum lease payments receivable, approximately $12,000 was due as of June 30, 2018.prior periods have been restated for comparability.

Note 16 – Subsequent Event

On July 2, 2018, theThe Company formed a new, wholly-owned subsidiary, Specialtyhas defined its two reportable segments as Water Filtration and Renal Products. The Water Filtration segment develops and sells high performance liquid purification filters, known as ultrafilters. The Renal Products Inc. (“SRP”), to drivesegment is focused on the development of itsmedical device products for patients with renal disease, including a 2^nd generation HDF system.hemodiafiltration system, for the treatment of patients with ESRD.

The Company’s chief operating decision maker evaluates the financial performance of the Company’s segments based upon segment revenues, gross margin and operating expenses which include research and development and selling, general and administrative expenses.

The accounting policies for the Company’s segments are the same as those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” contained in Item 7 of Part II and Note 2, “Summary of Significant Accounting Policies,” of the Notes to the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.

The tables below present segment information reconciled to total Company loss from operations, with segment operating loss including gross profit less direct research and development expenses and direct selling, general and administrative expenses to the extent specifically identified by segment:

As of September 30, 2018, approximately $3,000,000 of total assets are in the Renal Products segment. The $3,000,000 consists of cash, as a result of the sale of Series A Preferred Stock during the three month ends September 30, 2018. There were no assets allocated to the Renal Products segment as of December 31, 2017.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion should be read in conjunction with our consolidated financial statements included in this Quarterly Report on Form 10-Q and the notes thereto, as well as the other sections of this Quarterly Report on Form 10-Q, including the “Forward-Looking Statements” section hereof, and our Annual Report on Form 10-K for the year ended December 31, 2017, including the “Risk Factors” and “Business” sections thereof. This discussion contains a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2017. Our actual results may differ materially.

Business Overview

We are a commercial stage medical device and commercial products company that develops and sells high performance liquid purification filters and hemodiafiltration (“HDF”) systems.filters. Our filters, which are generally classified as ultrafilters, are primarily used in hospitals for the prevention of infection from water-borne pathogens, such as legionella and pseudomonas, and in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate. Because our ultrafilters capture contaminants as small as 0.005 microns in size, they minimize patient exposure to a wide variety of bacteria, viruses, fungi, parasites, and endotoxins.

Our subsidiary, Specialty Renal Products (“SRP”), is a development stage medical device company focused primarily on developing hemodiafiltration (“HDF”) technology. SRP is developing a second generation of the OLpūr H2H Hemodiafiltration System, used in conjunction with a standard hemodialysis machine, is the only U.S. Food and Drug Administration (“FDA”) 510(k) cleared medical device that enables nephrologists to provide hemodiafiltration treatment to patients with end stage renal disease (“ESRD”). Additionally, we sell hemodiafilters, which serve the same purpose as dialyzers in a hemodialysis treatment, and other disposables used in the hemodiafiltration treatment process.

We were founded in 1997 by healthcare professionals affiliated with Columbia University Medical Center/New York-Presbyterian Hospital to develop and commercialize an alternative method to hemodialysis. We have extended our filtration technologies to meet the demand for liquid purification in other areas, in particular hospital infection control and dialysis center water purification.

Our Products

Presently, we produce two core product lines: waterWe develop and sell ultrafiltration products and HDF systems. Water ultrafiltration is our primary near-term market opportunity, which we expect to continue to grow rapidly as we launch new products and further penetrate the market. HDF is a long-term investment that we expect to grow as we develop a second-generation system and as the U.S. dialysis market reimbursement environment migrates to full capitation.

Ultrafiltration Products

Our ultrafilters are used in both medical and non-medical applications. Like competing filters, they purify by passing 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 water-borne pathogens, including legionella bacteria (the cause of Legionnaires disease). and virus, which is not eliminated by most other microbiological filters on the market. Additionally, the fiber structure and pore density in our hollow fiber enables significantly higher flow rates than in other polysulfone hollow fiber.

During 2016 and 2017, we developed several ultrafilter cartridge products that are designed to fit directly into existing water filtration systems, eliminating the need for plumbing modifications during installation and replacement. These “plug and play” systems are an important part of our strategy to penetrate the water filtration market.

Our sales strategy is a combination of direct selling to end customers and indirect selling through value-added resellers (“VARs”). Leveraging VARs has enabled us to expand rapidly our access to target customers in the medical market without significant sales staff expansion. In addition, while we are currently focused in medical markets, the VARs that support these customers also support a wide variety of commercial and industrial customers. We believe that our VAR relationships will facilitate growth in filter sales outside of the medical industry.

Target Markets

Our ultrafiltration products currently target the following markets:

Hospitals and Other Healthcare Facilities. According to the American Hospital Association, approximately 5,700 hospitals, with approximately 915,000 beds, treated over 35 million patients in the United States in 2013. The U.S. Centers for Disease Control and Prevention estimates that healthcare associated infections (“HAI”) occurred in approximately 1 out of every 25 hospital patients, or about 1.4 million patients in 2013. HAIs affect patients in hospitals or other healthcare facilities and are not present or incubating at the time of admission. 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 Affordable Care Act, passed in March 2010, puts in place comprehensive health insurance reforms that aim to lower costs and enhance quality of care. With its implementation, healthcare providers have substantial incentives to deliver better care or be forced to absorb the expenses associated with repeat medical procedures or complications like HAIs. As a consequence, hospitals and other healthcare facilities are proactively implementing strategies to reduce HAI potential. Our ultrafilters are designed to aid in infection control in the hospital and healthcare setting by treating facility water at the points of delivery, such as ice machines, sinks and showers.

In June 2017, the Center for Clinical Standards and Quality at the Centers for Medicare and Medicaid Services (“CMS”) announced the addition of requirements for facilities to develop policies and procedures that inhibit the growth and spread of legionella and other opportunistic pathogens in building water systems. Going forward, CMS surveyors will review policies, procedures, and reports documenting water management implementation results to verify that facilities are compliant with these requirements. We believe that these CMS regulations may have a positive impact on the sale of our HAI-inhibiting ultrafilters.

We currently have FDA 510(k) clearance on the following portfolio of medical device products for use in the hospital setting to aid in infection control:

We received FDA 510(k) clearance to market the HydraGuard^TM in December 2016 and began shipping it in July 2017. We began shipping the HydraGuard^TM - Flush in September 2017. The DSU-H, SSU-H, and S100 products were 510(k)-cleared in prior years.

The complete hospital infection control product line, including in-line, point-of-use, and cartridge filters, can be viewed on our website athttp://www.nephros.com/infection-control/. We are not including the information on our website as a part of, nor incorporating it by reference, into this Quarterly Report on Form 10-Q.

Dialysis Centers - Water/Bicarbonate. 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 6,300 dialysis clinics in the United States servicing approximately 430,000 patients annually. 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. 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”). We anticipate that the stricter standards approved by these organizations in 2009 will be adopted by Medicare in the future.

We currently have FDA 510(k) clearance on the following portfolio of medical device products for use in the dialysis setting to aid in bacteria, virus, and endotoxin retention:

The EndoPur is a cartridge-based, “plug and play” market entry that requires no plumbing at installation or replacement. In March 2017, we received FDA 510(k) clearance to market the EndoPur filter. We began shipping the EndoPur 10” filter in July 2017 and the 20” and 30” versions in September 2017.

Commercial and Industrial Facilities. We currently market the following portfolio of proprietary products for use in the commercial, industrial, and food service settings:

In the fourth quarter of 2017, we released a lead filtration system that addresses both soluble and particulate lead in potable water, with the ability to treat up to 9,000 gallons of water between filter change-outs. This system is in the early stages of market roll-out.

Military and Outdoor Recreation.We developed our individual water treatment device (“IWTD”) in both in-line and point-of-use configurations. Our IWTD allows a soldier in the field to derive drinking water from any freshwater source. This enables the soldier to remain hydrated, to help maintain mission effectiveness and unit readiness, and to extend mission reach. Our IWTD has been validated by the military to meet the NSF Protocol P248 standard. It has also been approved by the U.S. Army Public Health Command and the U.S. Army Test and Evaluation Command for deployment.

In May 2015, we entered into a Sublicense Agreement with CamelBak Products, LLC (“CamelBak”). Under this Sublicense Agreement, we granted CamelBak an exclusive, non-transferable, worldwide (with the exception of Italy) sublicense and license, in each case solely to market, sell, distribute, import and export the IWTD. In exchange for the rights granted to CamelBak, CamelBak agreed, through December 31, 2022, to pay us a percentage of the gross profit on any sales made to a branch of the U.S. military, subject to certain exceptions, and to pay us a fixed per-unit fee for any other sales made. CamelBak is also required to meet or exceed certain minimum annual fees payable to us, and, if such fees are not met or exceeded, we may convert the exclusive sublicense to a non-exclusive sublicense with respect to non-U.S. military sales.

Specialty Renal Products: HDF SystemsSystem

Introduction to HDF

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. For patients with acute renal failure, the current standard of care in the United States is hemofiltration (“HF”), a process where toxins are cleared via convection. HF offers a much better removal of larger sized toxins when compared to HD. However, HF treatment is more challenging for patients, as it is performed on a daily basis, and typically takes 12-24 hours per treatment.

Hemodiafiltration (“HDF”) is an alternative dialysis modality that combines the benefits of HD and HF into a single therapy by clearing toxins using both diffusion and convection. Though not widely used in the United States, HDF is prevalent in Europe and is performed for a growing number of patients. Clinical experience and literature show the following clinical and patient benefits of HDF:

However, like HD, HDF can be resource-intensive and can require a significant amount of time to deliver one course of treatment.

Nephros HDF Background

Over the course of our history, we developed a medical device that enables a standard HD machine to perform HDF. We refer to our approach as an on-line mid-dilution hemodiafiltration (“mid-dilution HDF”) system. Our original solution included an OLpūr H2H Hemodiafiltration Module (“H2H Module”), a OLpūr MD 220 Hemodiafilter (“HDF Filter”) and a H2H Substitution Filter (“Dialysate Filter”).

Our H2H Module attaches to a standard HD machine to enable on-line HDF therapy. The HD machine controls and monitors the basic treatment functions, as it would normally when providing HD therapy. The H2H Module is a free-standing, movable device that is placed next to either side of an HD machine. The H2H Module connects to the clinic’s water supply, drain, and electricity.

The H2H Module utilizes the HDF Filter and is very similar to a typical hollow fiber dialyzer assembled with a single hollow fiber bundle made with a high-flux (or high-permeability) membrane. The fiber bundle is separated into two discrete, but serially connected, blood paths. Dialysate flows in one direction that is counter-current to blood flow in Stage 1 and co-current to blood flow in Stage 2.

In addition to the HDF Filter, the H2H Module also utilizes a Dialysate Filter during patient treatment. The Dialysate Filter is a hollow fiber, ultrafilter device that consists of two sequential (redundant) ultrafiltration stages in a single housing. During on-line HDF with the H2H Module, fresh dialysate is redirected by the H2H Module’s hydraulic (substitution) pump and passed through this dual-stage ultrafilter before being infused as substitution fluid into the extracorporeal circuit. Providing ultrapure dialysate is crucial for the success of on-line HDF treatment.

Our HDF system conformed with current ANSI/AAMI/ISO standards and was cleared by the FDA for the treatment of patients with chronic renal failure in 2012. To date, our HDF system is the only HDF system cleared by the FDA.

Over the last four years, DaVita Healthcare Partners, the Renal Research Institute (a research division of Fresenius Medical Care), and Vanderbilt University conducted post-market evaluations of our HDF system in their clinics. We gathered direct feedback from these evaluations to develop a better understanding of how our system best fits into the current clinical and economic ESRD treatment paradigm. The ultimate goal of the evaluations was to better understand the potential for HDF, in the U.S. clinical setting, to (a) improve the quality of life for the patient, (b) reduce overall expenditure compared to other dialysis modalities, (c) minimize the impact on nurse work flow at the clinic, and (d) demonstrate the pharmacoeconomic benefit of the HDF technology to the U.S. healthcare system, as has been done in Europe with other HDF systems. The last evaluation was concluded at Vanderbilt in the first quarter of 2018. When practical, we will work with Vanderbilt to publish observational findings.

Specialty Renal Products, Inc.

Leveraging the learnings from our evaluations, we recently completed development of a 2^nd generation HDF machine prototype. We believe that the design changes will enable our HDF machine to better align with clinical work-flow practices, to be highly reliable, to simplify the training required for proficiency, and to have a dramatically lower cost of goods,goods. We have filed for patent protection on key features of our updated design.

We recently formed a new wholly-owned subsidiary, Specialty Renal Products, Inc. (“SRP”), to drive the development of this 2^ndgeneration HDF system. A prototype of the new 2^nd generation HDF system has been constructed. We intend to fund the HDF program primarily with funds directly raised into SRP, but have allocated budget to maintain momentum through the funding process.including a $3 million Series A financing round completed in September, 2018. Pending full funding,FDA clearance, we believe we can return to the market with our HDF system in approximately 1815 months.

Critical Accounting Policies

For the three- and six-monthnine-month periods ended JuneSeptember 30, 2018, other thanin addition to the adoption of Accounting Standards Codification 606, Revenue from Contracts with Customers (see Note 9, “Recent Accounting Pronouncements,” of the Notes to our Unaudited Condensed Consolidated Interim Financial Statements contained in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference), there were nobelow are the significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2017.

Noncontrolling Interest

We present the redeemable noncontrolling interest in SRP held by outside shareholders as mezzanine equity on the accompanying condensed consolidated interim balance sheet, as the noncontrolling interest is redeemable upon the occurrence of events that are not solely within the control of the Company.

Segment Reporting

We have two reportable segments, Water Filtration and Renal Products. The Water Filtration segment develops and sells high performance liquid purification filters, known as ultrafilters. The Renal Products segment is focused on the development of medical device products for patients with renal disease, including a 2^nd generation hemodiafiltration system, for the treatment of patients with ESRD.

Our chief operating decision maker evaluates the financial performance of our segments based upon segment net profit/loss. The accounting policies for our segments are the same as those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies and Estimates” contained in Item 7 of Part II and Note 2, “Summary of Significant Accounting Policies,” of the Notes to our Consolidated Financial Statements contained in Item 8 of Part II of our Annual Report on Form 10-K for the year ended December 31, 2017.

Recent Accounting Pronouncements

We are subject to recently issued accounting standards, accounting guidance and disclosure requirements. For a description of these new accounting standards, see Note 9, “Recent Accounting Pronouncements,” of the Notes to our Unaudited Condensed Consolidated Interim Financial Statements contained in Item 1 of Part I of this Quarterly Report on Form 10-Q, which is incorporated herein by reference.

Results of Operations

Fluctuations in Operating Results

Our results of operations have fluctuated significantly from period to period in the past and are likely to continue to do so in the future. We anticipate that our annual results of operations will be impacted for the foreseeable future by several factors including the progress and timing of expenditures related to our research and development efforts, marketing expenses related to product launches, timing of regulatory approval of our various products and market acceptance of our products. Due to these fluctuations, we believe that the period to period comparisons of our operating results are not a good indication of our future performance.

Three Months Ended JuneSeptember 30, 2018 Compared to the Three Months Ended JuneSeptember 30, 2017

The following table sets forth our summarized, consolidated results of operations for the three months ended September 30, 2018 and 2017:

Water Filtration

The following table sets forth results of operations for the Water Filtration segment for the three months ended September 30, 2018 and 2017:

Net Revenues

Total net revenues for the three months ended JuneSeptember 30, 2018 were approximately $1,366,000$1,724,000 compared to approximately $859,000$916,000 for the three months ended JuneSeptember 30, 2017. The increase of approximately $507,000,$808,000, or 59%88%, was primarily driven by an increase in water filter product revenue in 2018 versus 2017, which we believe indicates the success of our strategysales to provide dialysis-quality water filtration into the water-borne infection control marketnew customers and expansion within the hospital sector.existing customer accounts.

Cost of Goods Sold

Cost of goods sold was approximately $536,000$772,000 for the three months ended JuneSeptember 30, 2018 compared to approximately $342,000$384,000 for the three months ended JuneSeptember 30, 2017. The increase of approximately $194,000,$388,000, or 57%101%, was related to an increase in direct product costs in support of increased sales.revenue. The increase exceeded the 88% increase in revenue largely due to an increase in 2018 of the ratio of product revenue to license, royalty and other revenues.

Gross MarginsMargin

Gross margins weremargin was approximately 61%55% for the three months ended JuneSeptember 30, 2018 compared to approximately 60%58% for the three months ended JuneSeptember 30, 2017. The decrease of approximately 3% is primarily due to an increase in 2018 of the ratio of product revenue to license, royalty and other revenues.

Research and Development Expenses

Research and development expenses were approximately $352,000$147,000 and $277,000$225,000 for the three months ended JuneSeptember 30, 2018 and JuneSeptember 30, 2017, respectively. This increasedecrease of approximately $75,000,$78,000, or 27%35%, reflects an increase due to costs associated with the 2^nd generation HDF development during the three months ended June 30, 2018 compared to the three months ended June 30, 2017.lower expenditures on new filter development.

Depreciation and Amortization Expense

Depreciation and amortization expense was approximately $40,000$42,000 for the three months ended JuneSeptember 30, 2018 compared to approximately $60,000 for the three months ended JuneSeptember 30, 2017. The decrease of approximately $20,000,$18,000, or 33%30%, is due to lower amortization expense for the three months ended JuneSeptember 30, 2018 as a result of an amendment to our License and Supply agreement with Medica in September 2017, which extended the term from December 31, 2022 to December 31, 2025.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $1,091,000$970,000 for the three months ended JuneSeptember 30, 2018 compared to approximately $880,000$749,000 for the three months ended JuneSeptember 30, 2017, representing an increase of $211,000,$221,000, or 24%30%. The increase was primarily due to an increase in personnel-related expenses of approximately $163,000$68,000 due to increased headcount, an increase in stock-based compensation expenses of approximately $42,000$12,000 due to increased headcount, an increase in marketingprofessional service expenses of approximately $56,000$76,000, and an increase in other expenses of approximately $55,000. These increases are partially offset by a decrease in professional services expenses of approximately $79,000 and a decrease in travel expenses of approximately $23,000.$73,000.

Interest Expense

The table below summarizes interest expense for the three months ended JuneSeptember 30, 2018 and 2017:

Interest Income

Interest income of approximately $1,000 for each of the three monthsthree-month periods ended JuneSeptember 30, 2018 and 2017 is as result of interest income recognized on the investment in lease, net.

Other Income/Expense

Other expense for the three months ended JuneSeptember 30, 2018 and 2017 was approximately $2,000$8,000 and $23,000,$27,000, respectively. The decrease of 91%70% is primarily due to improvements in foreign currency exchange rates.

Six

Renal Products

The following table sets forth results of operations for the Renal Products segment for the three months ended September 30, 2018 and 2017:

Research and Development Expenses

Research and development expenses were approximately $205,000 and $12,000 for the three months ended September 30, 2018 and September 30, 2017, respectively, an increase of approximately $193,000 due to increased investment in the 2^nd-generation HDF product.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $99,000 and $4,000 for the three months ended September 30, 2018 and September 30, 2017, respectively, an increase of approximately $95,000 due to increased investment in the 2^nd-generation HDF product.

Nine Months Ended JuneSeptember 30, 2018 Compared to the SixNine Months Ended JuneSeptember 30, 2017

The following table sets forth our summarized, consolidated results of operations for the nine months ended September 30, 2018 and 2017:

Water Filtration

The following table sets forth results of operations for the Water Filtration segment for the nine months ended September 30, 2018 and 2017:

Net Revenues

Total net revenues for the sixnine months ended JuneSeptember 30, 2018 were approximately $2,351,000$4,075,000 compared to approximately $1,593,000$2,509,000 for the sixnine months ended JuneSeptember 30, 2017. The increase of approximately $758,000,$1,566,000, or 48%62%, was primarily driven by an increase in water filter product revenue in 2018 versus 2017, which we believe indicates the success of our strategysales to provide dialysis-quality water filtration into the water-borne infection control marketnew customers and expansion within the hospital sector.existing customer accounts.

Cost of Goods Sold

Cost of goods sold was approximately $1,054,000$1,826,000 for the sixnine months ended JuneSeptember 30, 2018 compared to approximately $621,000$1,005,000 for the sixnine months ended JuneSeptember 30, 2017. The increase of approximately $433,000,$821,000, or 70%82%, was due to approximately $353,000$726,000 in increased direct product costs in support of increased sales, $50,000revenue, approximately $65,000 in inventory reserves for expiring items, and approximately $30,000 in physical count inventory adjustments.

Gross MarginsMargin

Gross margins weremargin was approximately 55% for the sixnine months ended JuneSeptember 30, 2018, compared to approximately 61%60% for the sixnine months ended JuneSeptember 30, 2017. The decrease of approximately 6%5% was due to the higher cost of goods sold reported in the first quarter of 2018 and the lower ratio of product revenue to license, royalty and other revenues in the nine months ended March 31, 2018.September 30, 2018 compared to the nine months ended September 30, 2017.

Research and Development Expenses

Research and development expenses were approximately $641,000$598,000 and $507,000$732,000 for the sixnine months ended JuneSeptember 30, 2018 and JuneSeptember 30, 2017, respectively. This increaserespectively, an decrease of approximately $134,000, or 26%, reflects an increase18% due to costs associated with the 2^nd generation HDF development during the six months ended June 30, 2018 compared to the six months ended June 30, 2017.lower expenditures on new filter development.

Depreciation and Amortization Expense

Depreciation and amortization expense was approximately $81,000$123,000 for the sixnine months ended JuneSeptember 30, 2018 compared to approximately $119,000$178,000 for the sixnine months ended JuneSeptember 30, 2017. The decrease of approximately $38,000,$55,000, or 32%31%, is due to lower amortization expense for the sixnine months ended JuneSeptember 30, 2018 as a result of an amendment to our License and Supply Agreement with Medica in September 2017, which extended the term from December 31, 2022 to December 31, 2025.

Selling, General and Administrative Expenses

Selling, general and administrative expenses were approximately $2,351,000$3,298,000 for the sixnine months ended JuneSeptember 30, 2018 compared to approximately $1,651,000$2,401,000 for the sixnine months ended JuneSeptember 30, 2017, representing an increase of $700,000,$897,000, or 42%37%. The increase was primarily due to an increase in personnel-related expenses of approximately $441,000$509,000 due to increased headcount, an increase in stock-based compensation expenses of approximately $99,000$111,000 due to increased headcount, an increase in marketing expenses of approximately $67,000,$85,000, an increase in office services and rent of approximately $60,000,$133,000, and an increase in other expenses of approximately $69,000.

$57,000.

Loss on Extinguishment of Debt

During the sixnine months ended JuneSeptember 30, 2018, we recorded a loss on extinguishment of debt of approximately $199,000 as a result of the repayment of our outstanding unsecured long-term note payable.

Interest Expense

The table below summarizes interest expense for the sixnine months ended JuneSeptember 30, 2018 and 2017: