Workflow
Nephros(NEPH) - 2025 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents Nephros, Inc.'s unaudited condensed interim financial statements and notes for Q2 and H1 2025 and 2024 Condensed Balance Sheets | ASSETS (in thousands) | June 30, 2025 | December 31, 2024 | | :---------------------- | :------------ | :------------------ | | Cash and cash equivalents | $5,074 | $3,760 | | Accounts receivable, net | $2,040 | $1,781 | | Inventory | $2,237 | $2,615 | | Total current assets | $9,578 | $8,298 | | TOTAL ASSETS | $12,243 | $11,210 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :------------------ | | Accounts payable | $632 | $649 | | Accrued expenses | $771 | $565 | | Total current liabilities | $1,772 | $1,562 | | TOTAL LIABILITIES | $2,644 | $2,625 | | TOTAL STOCKHOLDERS' EQUITY | $9,599 | $8,585 | | TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $12,243 | $11,210 | Condensed Statements of Operations | (in thousands, except per share) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total net revenues | $4,419 | $3,252 | $9,296 | $6,774 | | Gross margin | $2,795 | $1,912 | $5,949 | $4,099 | | Operating income (loss) | $248 | $(317) | $814 | $(517) | | Net income (loss) | $237 | $(289) | $795 | $(458) | | Net income (loss) per common share, basic | $0.02 | $(0.03) | $0.07 | $(0.04) | | Net income (loss) per common share, diluted | $0.02 | $(0.03) | $0.07 | $(0.04) | Condensed Statements of Changes in Stockholders' Equity | (in thousands, except share amounts) | Balance, Dec 31, 2024 | Net Income (Q1 2025) | Issuance of vested restricted stock | Stock-based compensation | Balance, Mar 31, 2025 | Net Income (Q2 2025) | Cashless stock option exercises | Stock-based compensation | Balance, Jun 30, 2025 | | :----------------------------------- | :-------------------- | :------------------- | :---------------------------------- | :----------------------- | :-------------------- | :------------------- | :------------------------------ | :----------------------- | :-------------------- | | Common Stock Shares | 10,544,691 | - | 55,659 | - | 10,600,350 | - | 254 | - | 10,600,604 | | Common Stock Amount | $11 | - | - | - | $11 | - | - | - | $11 | | Additional Paid-in Capital | $152,906 | - | $82 | $66 | $153,054 | - | - | $71 | $153,125 | | Accumulated Deficit | $(144,332) | $558 | - | - | $(143,774) | $237 | - | - | $(143,537) | | Total Stockholders' Equity | $8,585 | $558 | $82 | $66 | $9,291 | $237 | - | $71 | $9,599 | Condensed Statements of Cash Flows | (in thousands) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $795 | $(458) | | Net cash provided by (used in) operating activities | $1,316 | $(1,173) | | Net cash used in investing activities | $- | $(50) | | Net cash used in financing activities | $(2) | $(4) | | Net increase (decrease) in cash and cash equivalents | $1,314 | $(1,227) | | Cash and cash equivalents, end of period | $5,074 | $3,080 | Notes to Condensed Interim Financial Statements Note 1 – Organization and Nature of Operations Nephros, Inc., founded in 1997, transitioned from ESRD therapy to high-performance liquid purification filters for medical and commercial markets - Nephros, Inc. was incorporated on April 3, 1997, initially focusing on advanced end-stage renal disease (ESRD) therapy technology18 - Since 2009, the Company's primary business shifted to high-performance liquid purification filters for hospital infection prevention and dialysis centers19 - Nephros also sells water filtration products for commercial applications, targeting the hospitality and food service markets19 Note 2 – Basis of Presentation and Liquidity Interim financial statements are unaudited and GAAP-compliant, with Nephros operating as a single segment, achieving positive net income and cash flow despite an accumulated deficit - Unaudited condensed interim financial statements are prepared in accordance with GAAP for interim financial information and Form 10-Q instructions21 - The Company operates in one business segment23 - Nephros generated net income and positive cash from operations for Q2 and H1 2025, with current cash balances deemed sufficient for the next 12 months, despite an accumulated deficit of $143.5 million25 Major Customer Revenue Concentration | Customer | Q2 2025 Revenue % | Q2 2024 Revenue % | H1 2025 Revenue % | H1 2024 Revenue % | | :------- | :---------------- | :---------------- | :---------------- | :---------------- | | A | 25% | 22% | 22% | 27% | | B | 14% | 8% | 12% | 7% | | Total | 39% | 30% | 34% | 34% | Note 3 – Revenue Recognition Product sales revenue is recognized at shipment, while other revenues follow ASC 606's five-step model, allocating revenue for multiple deliverables based on standalone selling prices - Revenue from product sales is recognized at a point-in-time upon shipment, net of variable consideration32 - Royalty, service, and other revenues are recognized using the ASC 606 five-step model when sales occur or performance obligations are satisfied33 - For multiple deliverables, revenue is allocated based on relative standalone selling price, prioritizing observable inputs34 Service, Royalty, and Other Revenues | (in thousands) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenues | $108 | $44 | $279 | $60 | Note 4 – Fair Value Measurements Financial instruments are measured at fair value using a three-level hierarchy, with cash equivalents as Level 1 and other short-term instruments approximating fair value - The Company uses a three-level fair value hierarchy, prioritizing observable inputs38394041 - Cash equivalents, primarily money market funds, are classified as Level 1 due to valuation using quoted prices in active markets43 - Carrying amounts of short-term financial instruments approximate fair value due to their maturity or market-rate interest4445 Note 5 – Inventory Inventory is valued at the lower of cost or net realizable value using FIFO, decreasing from $2,615 thousand to $2,237 thousand by June 30, 2025 - Inventory is valued at the lower of cost or net realizable value using the first-in, first-out (FIFO) method46 Inventory Components (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------- | :------------ | :---------------- | | Finished goods | $1,979 | $2,261 | | Raw materials | $258 | $354 | | Total inventory | $2,237 | $2,615 | Note 6 – Intangible Assets and Goodwill Intangible assets, mainly customer relationships, totaled $334 thousand with $8 thousand amortization, while goodwill remained at $0.8 million with no impairment Intangible Assets (in thousands) | Category | June 30, 2025 Net | December 31, 2024 Net | | :------------------- | :---------------- | :-------------------- | | Customer relationships | $334 | $349 | | Total intangible assets | $334 | $349 | - Amortization expense for intangible assets was approximately $8 thousand for both Q2 2025 and Q2 202447 - Goodwill maintained a carrying value of approximately $0.8 million at June 30, 2025, and December 31, 2024, with no impairment recorded3149 Note 7 – License and Supply Agreement, net Nephros holds an exclusive License and Supply Agreement with Medica S.p.A. until 2028, with a net intangible asset value of $0.2 million and $14 thousand quarterly amortization - The Company holds an exclusive License and Supply Agreement with Medica S.p.A. for filtration products, extended until December 31, 202850 Minimum Annual Purchase Commitments to Medica S.p.A. | Year | Minimum Purchase (Euros) | | :--- | :----------------------- | | 2025 | €4,629,000 | | 2026 | €4,976,000 | | 2027 | €5,349,000 | | 2028 | €5,750,000 | - The capitalized intangible asset for the license had a gross value of $2.3 million, a net value of $0.2 million, and accumulated amortization of $2.1 million as of June 30, 202552 - Amortization expense for the license and supply agreement was approximately $14 thousand for both Q2 2025 and 202452 Note 8 – Leases Nephros holds operating leases for offices and equipment, with total lease costs decreasing to $114 thousand in Q2 2025 and operating lease liabilities at $1.222 million - The Company holds operating leases for corporate offices and equipment with remaining terms of 2.4 to 3.4 years54 Total Lease Costs (in thousands) | Period | June 30, 2025 | June 30, 2024 | | :----------------------- | :------------ | :------------ | | Three months ended | $114 | $144 | | Six months ended | $233 | $283 | Lease Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------------------- | :------------ | :---------------- | | Total operating lease liabilities | $1,222 | $1,389 | | Total finance lease liabilities | $19 | $22 | Note 9 – Stock Plans and Share-Based Payments Stock-based compensation expense significantly increased to $71 thousand in Q2 2025, with 205,075 stock options granted and $481 thousand unrecognized expense remaining - The Company granted 205,075 stock options in H1 2025 with a fair value of approximately $0.2 million5859 Stock-Based Compensation Expense (Stock Options, in thousands) | Period | June 30, 2025 | June 30, 2024 | | :----------------------- | :------------ | :------------ | | Three months ended | $71 | $28 | | Six months ended | $137 | $11 | - As of June 30, 2025, $481 thousand of unrecognized compensation expense for unvested awards remains, to be amortized over 2.3 years62 Note 10 – Segment Information Nephros operates as a single operating segment, with the CEO managing activities and using net income (loss) for performance measurement and resource allocation - The Company operates in one operating segment, focused on high-performance water solutions for medical and commercial markets66 - The Chief Executive Officer (CODM) manages the business as a single segment, using net income (loss) to measure performance and allocate resources67 Note 11 – Net Income (Loss) per Common Share Basic and diluted net income per common share improved to $0.02 in Q2 2025 and $0.07 in H1 2025, reversing prior year losses Net Income (Loss) per Common Share | (In thousands, except share and per share data) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $237 | $(289) | $795 | $(458) | | Basic weighted average common shares outstanding | 10,600,409 | 10,509,937 | 10,600,379 | 10,505,833 | | Diluted weighted average common shares outstanding | 10,813,028 | 10,509,937 | 10,691,881 | 10,505,833 | | Income (loss) per common share: Basic | $0.02 | $(0.03) | $0.07 | $(0.04) | | Income (loss) per common share: Diluted | $0.02 | $(0.03) | $0.07 | $(0.04) | - As of June 30, 2025, 1,333,896 shares underlying options were excluded from diluted EPS as they were antidilutive70 Note 12 – Subsequent Events The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, with its financial impact expected to be immaterial - The One Big Beautiful Bill Act (OBBBA) was enacted on July 4, 2025, extending certain Tax Cuts and Jobs Act provisions and modifying international tax frameworks71 - The Company is assessing the OBBBA's impact on its financial statements, expecting it to be immaterial71 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Nephros, Inc.'s financial condition and operational results for Q2 and H1 2025, highlighting significant improvements in profitability and cash flow Business Overview Nephros is a commercial-stage company specializing in FDA 510(k)-cleared medical-grade and commercial high-performance water filtration solutions - Nephros is a commercial-stage company focused on developing and marketing high-performance water filtration solutions, primarily medical-grade73 - The company's portfolio includes FDA 510(k)-cleared Class II medical devices for infection control and dialysis water, targeting waterborne pathogens and biological contaminants73 - Nephros also offers commercial water filters to improve taste, reduce biofilm, scale, and remove contaminants for hospitality and food service74 Our Products Nephros's medical products use polysulfone hollow fiber for pathogen elimination, while commercial products use carbon-based absorption for water quality improvement - In medical markets, Nephros's filtration uses polysulfone hollow fiber technology, effectively eliminating waterborne pathogens and viruses with high flow rates76 - Medical market sales are primarily conducted through distributors (VARs) and a direct salesforce targeting hospitals and dialysis markets77 - Commercial market filters use carbon-based absorption to improve water quality for food service and hospitality, sold via direct and indirect channels7879 Target Markets Nephros targets medical markets for infection control and dialysis, with a growing focus on commercial markets, anticipating future revenue growth and expanded water safety management programs - Nephros filters are used in hospitals and healthcare facilities for protection against waterborne pathogens, with FDA 510(k) clearance for medical device products808384 - CMS regulations, updated in January 2022, require healthcare facilities to implement formal water management plans (WMPs), expected to boost HAI-inhibiting ultrafilter sales82 - Nephros ultrafiltration products are critical in the dialysis water market for filtering water and bicarbonate concentrate, protecting against bacteria, viruses, and endotoxins868892 - The Company ended its exclusive distribution with Donastar in September 2024 to expand commercial market distribution, anticipating significant future revenue growth potentially surpassing infection control revenue8991 Critical Accounting Policies No significant changes occurred in critical accounting policies for H1 2025, with revenue recognition for product sales and other agreements remaining consistent with ASC 606 - No significant changes to critical accounting policies occurred for the six months ended June 30, 202594 - A majority of revenue from product sales is recognized at a point-in-time upon shipment, net of variable consideration95 - Revenue from royalty, service, and other agreements follows the ASC 606 five-step model, allocating transaction prices for multiple deliverables based on relative standalone selling prices9698 Results of Operations Nephros achieved significant improvements in Q2 and H1 2025 operating results, with revenue growth of 36-37%, improved gross margins, and a shift to positive operating and net income - Operating results have fluctuated significantly and period-to-period comparisons are not necessarily indicative of future performance101 Three Months Ended June 30, 2025 vs. 2024 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase (Decrease) | % Increase (Decrease) | | :-------------------------------- | :----- | :----- | :------------------ | :-------------------- | | Total net revenues | $4,419 | $3,252 | $1,167 | 36% | | Gross margin | $2,795 | $1,912 | $883 | 46% | | Gross margin % | 63% | 59% | - | 4% | | Selling, general and administrative expense | $2,201 | $1,941 | $260 | 13% | | Research and development expense | $311 | $254 | $57 | 22% | | Operating income (loss) | $248 | $(317) | $565 | 178% | | Net income (loss) | $237 | $(289) | $526 | 182% | Six Months Ended June 30, 2025 vs. 2024 (in thousands, except percentages) | Metric | 2025 | 2024 | Increase (Decrease) | % Increase (Decrease) | | :-------------------------------- | :----- | :----- | :------------------ | :-------------------- | | Total net revenues | $9,296 | $6,774 | $2,522 | 37% | | Gross margin | $5,949 | $4,099 | $1,850 | 45% | | Gross margin % | 64% | 61% | - | 3% | | Selling, general and administrative expense | $4,455 | $4,083 | $372 | 9% | | Research and development expense | $606 | $466 | $140 | 30% | | Operating income (loss) | $814 | $(517) | $1,331 | 257% | | Net income (loss) | $795 | $(458) | $1,253 | 274% | - Other income (expense), net, shifted from income in 2024 to expense in 2025 for both periods, primarily due to foreign currency transaction losses109117 Liquidity and Capital Resources As of June 30, 2025, Nephros had $5.074 million in cash and $7.806 million in working capital, generating $1.3 million in operating cash flow for H1 2025 Liquidity and Capital Resources (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $5,074 | $3,760 | | Other current assets | $4,504 | $4,538 | | Working capital | $7,806 | $6,736 | | Stockholders' equity | $9,599 | $8,585 | - Net cash provided by operating activities was $1.3 million for H1 2025, a significant improvement from $1.2 million cash used in H1 2024122 - Current cash balances are deemed sufficient for the next 12 months, though discretionary expenditures may be reduced if operating results fall short120 Off-Balance Sheet Arrangements As of June 30, 2025, the Company had no off-balance sheet arrangements - The Company had no off-balance sheet arrangements as of June 30, 2025123 Forward-Looking Statements Forward-looking statements are subject to various risks and uncertainties, with actual results potentially differing materially due to market, regulatory, and operational factors - Forward-looking statements are subject to various known and unknown risks and uncertainties, with actual results potentially differing materially from expectations124 - Key risk factors include market acceptance, product liabilities, regulatory compliance, funding, marketing effectiveness, competitive pricing, supplier issues, supply chain disruptions, internal control deficiencies, regulatory approvals, patent protection, and sales growth125126133 - Investors should consult the Company's SEC filings, including the Annual Report on Form 10-K for December 31, 2024, for detailed risk factors127 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Nephros is not required to provide quantitative and qualitative market risk disclosures - The Company is not required to provide disclosure for this item as it is a smaller reporting company128 Item 4. Controls and Procedures Management maintains disclosure controls, actively remediating a material weakness in internal control over financial reporting related to ASC 606 revenue recognition for multiple deliverables - The Company maintains disclosure controls and procedures to ensure timely communication of required information to management129 - A material weakness in internal control over financial reporting was identified, related to ASC 606 revenue recognition for contracts with multiple deliverables and transaction price allocation130 - Remediation efforts include new controls, processes for standalone pricing, and sales team training; the material weakness did not result in any material misstatement130131 PART II - OTHER INFORMATION Item 1A. Risk Factors As a smaller reporting company, Nephros is not required to provide new risk factor disclosures, directing investors to prior Form 10-K and 10-Q filings - As a smaller reporting company, Nephros is not required to provide disclosure for this item135 - Investors should consult the Annual Report on Form 10-K for December 31, 2024, and the Quarterly Report on Form 10-Q for March 31, 2025, for detailed risk factors135 Item 5. Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during Q2 2025 - None of the Company's directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during Q2 2025136 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including SOX 302 and 906 certifications and Inline XBRL documents - Exhibits include CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002138 - The filing also includes various Inline XBRL documents, such as Instance, Taxonomy Extension Schema, and Linkbase documents138 Signatures The report was signed on August 7, 2025, by Robert Banks, President and CEO, and Judy Krandel, CFO, per the Securities Exchange Act of 1934 - The report was signed on August 7, 2025, by Robert Banks, President and CEO, and Judy Krandel, CFO141