NEPHROS INC

Previous wording

The following discussion should be read in conjunction with our financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements about our business, financial condition and results of operations including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and these statements should not be construed either as assurances of performances or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse.

Current wording

The following discussion should be read in conjunction with our condensed financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements about our business, financial condition and results of operations including discussions about management’s expectations for our business. These statements represent projections, beliefs and expectations based on current circumstances and conditions and in light of recent events and trends, and these statements should not be construed either as assurances of performances or as promises of a given course of action. Instead, various known and unknown factors are likely to cause our actual performance and management’s actions to vary, and the results of these variances may be both material and adverse.

Previous wording

For the three-month period ended March 31, 2025, other than noted below, there were no significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2024.

Current wording

For the six-month period ended June 30, 2025, there were no significant changes to our critical accounting policies as identified in our Annual Report on Form 10-K for the year ended December 31, 2024.

Previous wording

Net revenue increased by $1.4 million, or 38%, in the first quarter of 2025 compared to the same period in 2024. This increase was primarily driven by increased revenue in both programmatic and emergency response. The growth in programmatic revenue reflects strong reorders, a number of new active sites, as well as some pre-ordering for the year ahead of a small price increase put through in February 2025. The growth in emergency response sales reflects stronger regulations in a number of markets. Given the change in U.S. presidential administrations in January 2025, we believe that the current elevated levels of emergency response-related sales may not persist throughout the year.

Current wording

Net revenue increased by $1.2 million, or 36%, in the second quarter of 2025 compared to the same period in 2024. This increase was primarily driven by increased revenue in both programmatic and emergency response. The growth in programmatic revenue reflects strong reorders, and a number of new active sites. The growth in emergency response sales reflects increased opportunities in 2025 compared to limited opportunities in the prior-year period.

Previous wording

Research and development expense increased approximately $83,000 primarily due to higher salary expense.

Current wording

Research and development expenses increased approximately $57,000 due to higher salary expense, and higher accrual for employee bonuses.

Previous wording

Depreciation and amortization expenses were approximately $39,000 and $33,000, respectively, for the three months ended March 31, 2025 and 2024.

Current wording

Depreciation and amortization expenses were approximately $35,000 and $34,000, respectively, for the three months ended June 30, 2025, and 2024.

Previous wording

Other expense was approximately $21,000 for the three months ended March 31, 2025, and other income was approximately $7,000 for the three months ended March 31, 2024, primarily as a result of gains and losses on foreign currency transactions.

Current wording

Other expense of approximately $32,000 for the three months ended June 30, 2025 is primarily a result of losses on foreign currency transactions. Other income of approximately $7,000 for the three months ended June 30, 2024, is primarily a result of a sale of a fully depreciated asset.

Previous wording

Gross profit margin was approximately 65% for the three months ended March 31, 2025 compared to approximately 62% for the three months ended March 31, 2024. The increase of approximately 3 percentage points was primarily driven by a more favorable product mix and a price increase implemented during the first quarter of 2025, coupled with lower inventory reserves and write-offs compared to the prior period.

Current wording

Gross margin was approximately 64% for the six months ended June 30, 2025, compared to approximately 61% for the same period in 2024. The increase of approximately 3 percentage points was primarily driven by lower product costs resulting from a more favorable product mix and a reduction in inventory reserve adjustments, both of which contributed to lower cost of goods sold.

Previous wording

As of March 31, 2025, we had an accumulated deficit of $143.8 million. Although we were profitable in the quarter ended March 31, 2025 and the full year ended December 31, 2024, we may incur future operating losses if we are unable to maintain or increase our revenue.

Current wording

As of June 30, 2025, we had an accumulated deficit of $143.5 million. Although we were profitable in the quarter ended June 30, 2025, the six months ended June 30, 2025, and the full year ended December 31, 2024, we may incur future operating losses if we are unable to maintain or increase our revenue.

Previous wording

Net cash provided by operating activities was approximately $0.3 million for the three months ended March 31, 2025 compared to net cash used in operating activities of approximately $0.7 million for the three months ended March 31, 2024. Net cash provided by operating activities in 2025 was primarily due to the net income of approximately $0.6 million, a decrease in inventory of approximately $0.7 million, offset by an increase in accounts receivable of approximately $0.9 million. Net cash used in operating activities in 2024 was primarily due to the net loss of approximately $0.2 million, an increase in inventory of approximately $0.4 million, and a decrease in accrued expenses of approximately $0.4 million, offset by an increase in accounts payable of approximately $0.2 million.

Current wording

Net cash provided by operating activities was $1.3 million for the six months ended June 30, 2025, compared to net cash used by operating activities of approximately $1.2 million for the six months ended June 30, 2024. Net cash provided by operating activities in 2025 was primarily due to the net income of approximately $0.8 million, a decrease in inventory of approximately $0.3 million, offset by an increase in accounts receivable of approximately $0.3 million. Net cash used in operating activities in 2024 was primarily due to the net loss of approximately $0.5 million, an increase in inventory of approximately $0.5 million, an increase in accounts receivable of approximately $0.4 million and a decrease in accrued expenses of approximately $0.4 million, offset by an increase in accounts payable of approximately $0.3 million, and an increase in inventory impairments and write offs of approximately $0.2 million.

Previous wording

More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and our other reports filed with the SEC. We urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.

Current wording

More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this Quarterly Report on Form 10-Q, is set forth in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended December 31, 2024, our Quarterly Report on Form 10-Q for the period ended March 31, 2025 and our other reports filed with the SEC. We urge investors and security holders to read those documents free of charge at the SEC’s web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.