Nephros, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Nephros develops and sells water filtration and pathogen-detection products and, through its majority-owned subsidiary Specialty Renal Products (SRP), is developing a hemodiafiltration system. Financial figures below are in U.S. dollars; amounts are rounded.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net revenue | $2.187 million | $2.736 million |
| Gross profit / margin | $1.025 million / 47% | $1.587 million / 58% |
| Operating expenses | $2.978 million | $2.605 million |
| Operating loss | $1.953 million | $1.018 million |
| Consolidated net loss | $1.967 million | $0.537 million |
| Net loss attributable to Nephros shareholders | $2.030 million | $0.596 million |
| Net cash used in operations | $1.797 million | $0.055 million |
- Revenue declined 20%; Water Filtration revenue fell 21% to $2.159 million, primarily because Q1 2021 had unusually high hospital emergency-response sales. Pathogen Detection contributed $28,000, versus no reported revenue in the prior-year quarter.
- Gross margin fell 11 percentage points. Management cited higher shipping costs, amortization related to the GenArraytion acquisition, one-time charges, and inventory obsolescence.
- SG&A rose 17% to $2.348 million, mainly from increased headcount, travel, and marketing. R&D rose 4% to $578,000, including higher Pathogen Detection investment.
- Cash and cash equivalents were $5.421 million at quarter-end, down from $6.973 million at December 31, 2021. Working capital was $9.907 million. Total liabilities were $2.126 million; secured-note principal was approximately $277,000, with a further $3,000 of equipment financing and lease liabilities reported separately.
- Accumulated deficit was $137.7 million. Management said cash was expected to fund the current operating plan for at least 12 months from issuance of the statements, while noting continued losses and uncertainty if revenue targets are missed.
Material changes and unusual items
- Operating cash use increased substantially year over year, reflecting the larger loss, weaker gross margin, higher operating expenses, and the absence of the prior-year PPP loan forgiveness benefit.
- Q1 2021 included $482,000 of income from PPP loan forgiveness; there was no comparable item in Q1 2022.
- SRP sold $500,015 of preferred shares in February. Nephros purchased its pro rata shares and maintained 62.5% ownership. Nephros also extended its $1.3 million loan to SRP to March 31, 2023; the reported balance, including accrued interest, was $1.3 million.
- Nephros received $163,000 from exercises of its warrants. The filing reports 60,374 shares issued on warrant exercise during the quarter.
Outlook, risks, and commitments
- SRP resubmitted its second-generation HDF device to the FDA on March 30, 2022, addressing requested additional information. Management expected 510(k) clearance in the first half of 2022 and a measured launch in the second half; these were expectations, not confirmed outcomes.
- Management described demand recovery opportunities as pandemic restrictions eased, but noted possible renewed COVID-19 disruption. It also cited inflation, supply-chain constraints, supplier delays, and higher shipping costs as risks to availability, revenue, and margins.
- Three customers accounted for 44% of Q1 revenue. Management also noted that emergency-response sales are inherently uneven and that early-stage pathogen-detection revenue may fluctuate significantly.
- The company had minimum 2022 purchase commitments to Medica of €3.5 million; aggregate purchase commitments were reported at €1.5 million as of March 31, 2022. The Medica license and supply agreement expires December 31, 2025.
- No formal revenue or earnings guidance is provided in the filing. Management cautioned that results vary with product acceptance, regulatory timing, R&D and launch spending, and market conditions.
Most important facts for investors to verify
- Subsequent FDA status and commercialization timing for SRP’s HDF device.
- Whether cash burn moderates and management’s stated 12-month liquidity outlook remains achievable.
- Revenue recovery and gross-margin trends, particularly shipping costs, inventory charges, and variable hospital emergency-response sales.
- Exposure to major customers, Medica purchase commitments, and supply-chain availability.
- Share-count presentation: the balance sheet reports 10,318,818 shares issued and outstanding at March 31, while the equity statement shows 10,259,086 shares for accounting purposes; the filing explains that unvested restricted shares account for the difference. It reports 10,318,818 shares outstanding as of May 2, 2022.