UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: September 30, 2025

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from: _______ to _______

Commission File Number: 001-32288

NEPHROS, INC.

(Exact name of registrant as specified in its charter)

delaware

13-3971809

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

380 Lackawanna Place

South Orange, NJ

07079

(Address of principal executive offices)

(Zip Code)

(201) 343-5202

Registrant’s telephone number, including area code

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading symbol		Name of exchange on which registered
Common stock, par value $0.001 per share		NEPH		The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ YES ☐ NO

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ YES ☐ NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ YES ☒ NO

As of November 3, 2025, 10,626,683 shares of the registrant’s common stock, $0.001 par value per share, were outstanding.

NEPHROS, INC.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION	3

Item 1. Financial Statements (unaudited).	3

CONDENSED BALANCE SHEETS – September 30, 2025 and December 31, 2024	3

CONDENSED STATEMENTS OF OPERATIONS – Three and nine months ended September 30, 2025 and 2024	4

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – Three and nine months ended September 30, 2025 and 2024	5

CONDENSED STATEMENTS OF CASH FLOWS – Nine months ended September 30, 2025 and 2024	6

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS	7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.	17

Item 3. Quantitative and Qualitative Disclosures About Market Risk.	25

Item 4. Controls and Procedures.	25

PART II - OTHER INFORMATION	26

Item 1A. Risk Factors	26

Item 6. Exhibits	27

SIGNATURES	28

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

NEPHROS, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	September 30, 2025			December 31, 2024
ASSETS
Current assets:
Cash and cash equivalents	$	5,171		$	3,760
Accounts receivable, net		2,661			1,781
Inventory		2,738			2,615
Prepaid expenses and other current assets		136			142
Total current assets		10,706			8,298
Property and equipment, net		119			161
Lease right-of-use assets		1,112			1,377
Intangible assets, net		326			349
Goodwill		759			759
License and supply agreement, net		175			216
Other assets		50			50
TOTAL ASSETS	$	13,247		$	11,210

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	936		$	649
Accrued expenses		1,151			565
Current portion of lease liabilities		380			348
Total current liabilities		2,467			1,562
Lease liabilities, net of current portion		774			1,063
TOTAL LIABILITIES		3,241			2,625

STOCKHOLDERS’ EQUITY

Preferred stock, $.001 par value; 5,000,000 shares authorized at September 30, 2025 and December 31, 2024; no shares issued and outstanding at September 30, 2025 and December 31, 2024.		-			-
Common stock, $.001 par value; 40,000,000 shares authorized at September 30, 2025 and December 31, 2024; 10,626,683 and 10,544,691 shares issued and outstanding at September 30, 2025 and December 31, 2024, respectively.		11			11
Additional paid-in capital		153,195			152,906
Accumulated deficit		(143,200	)		(144,332	)
TOTAL STOCKHOLDERS’ EQUITY		10,006			8,585
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,247		$	11,210

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

NEPHROS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)

	2025			2024			2025			2024
	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Net revenue:
Product revenues	$	4,596		$	3,472		$	13,613		$	10,186
Service, royalty and other revenues		168			46			447			106
Total net revenues		4,764			3,518			14,060			10,292
Cost of goods sold		1,849			1,369			5,196			4,044
Gross margin		2,915			2,149			8,864			6,248
Operating expenses:
Selling, general and administrative		2,229			1,721			6,684			5,804
Research and development		338			188			944			654
Depreciation and amortization		34			34			108			101
Total operating expenses		2,601			1,943			7,736			6,559
Operating income (loss)		314			206			1,128			(311	)
Other (expense) income:
Interest expense		-			-			(1	)		(1	)
Interest income		41			20			85			66
Other (expense), net		(15	)		(43	)		(68	)		(29	)
Total other expense (income), net:		26			(23	)		16			36
Income (loss) before income taxes		340			183			1,144			(275	)
Income tax expense		(3	)		-			(12	)		-
Net income (loss)	$	337		$	183		$	1,132		$	(275	)

Net income (loss) per common share, basic	$	0.03		$	0.02		$	0.11		$	(0.03	)
Net income (loss) per common share, diluted	$	0.03		$	0.02		$	0.10		$	(0.03	)
Weighted average common shares outstanding, basic		10,612,012			10,544,139			10,604,300			10,518,742
Weighted average common shares outstanding, diluted		11,040,925			10,580,906			10,846,477			10,518,742

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

NEPHROS, INC.

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


	Three and nine months ended September 30, 2025
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2024		10,544,691	$	11	$	152,906	$	(144,332	)	$	8,585
Net income		-		-		-		558			558
Issuance of vested restricted stock		55,659		-		82		-			82
Stock-based compensation		-		-		66		-			66
Balance, March 31, 2025		10,600,350	$	11	$	153,054	$	(143,774	)	$	9,291

Net income		-	$	-	$	-	$	237		$	237
Cashless stock option exercises		254		-		-		-			-
Stock-based compensation		-		-		71		-			71
Balance, June 30, 2025		10,600,604	$	11	$	153,125	$	(143,537	)	$	9,599

Net income		-		-		-		337			337
Stock option exercises (cashless)		26,079		-		-		-			-
Stock-based compensation		-		-		70		-			70
Balance, September 30, 2025		10,626,683	$	11	$	153,195	$	(143,200	)	$	10,006

	Three and nine months ended September 30, 2024
	Common Stock				Additional Paid-in			Accumulated			Total Stockholders’
	Shares		Amount		Capital			Deficit			Equity
Balance, December 31, 2023		10,501,508	$	10	$	152,754		$	(144,406	)	$	8,358
Net loss		-		-		-			(169	)		(169	)
Stock option exercises		464		-		-			-			-
Stock-based compensation		-		-		(9	)		-			(9	)
Balance, March 31, 2024		10,501,972	$	10	$	152,745		$	(144,575	)	$	8,180

Net loss		-	$	-	$	-		$	(289	)	$	(289	)
Stock-based compensation		-		-		35			-			35
Issuance of vested restricted stock		42,167		1		(1	)		-			-
Balance, June 30, 2024		10,544,139	$	11	$	152,779		$	(144,864	)	$	7,926
Balance		10,544,139	$	11	$	152,779		$	(144,864	)	$	7,926

Net income		-		-		-		$	183			183
Net income (loss)		-		-		-		$	183			183
Stock-based compensation		-		-		65			-			65
Balance, September 30, 2024		10,544,139	$	11		152,844		$	(144,681	)	$	8,174
Balance		10,544,139	$	11		152,844		$	(144,681	)	$	8,174

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

NEPHROS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	2025			2024
	Nine Months Ended September 30,
	2025			2024
OPERATING ACTIVITIES:
Net income (loss)	$	1,132		$	(275	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation of property and equipment		42			34
Amortization of intangible assets, license and supply agreement and finance lease right-of-use asset		65			68
Stock-based compensation		217			91
Inventory impairments and write offs		56			214
Loss (gain) on foreign currency transactions		(1	)		1
Gain on disposal of equipment		-			(5	)
Decrease (increase) in operating assets:
Accounts receivable		(880	)		(195	)
Inventory		(179	)		(843	)
Prepaid expenses and other current assets		6			23
Right-of-use assets		265			364
Other assets		-			36
(Decrease) increase in operating liabilities:
Accounts payable		288			(477	)
Accrued expenses		657			(470	)
Lease liabilities		(253	)		(362	)
Net cash provided by (used in) operating activities		1,415			(1,796	)
INVESTING ACTIVITIES:
Proceeds from sale of equipment		-			5
Purchase of property and equipment		-			(55	)
Net cash used in investing activities		-			(50	)
FINANCING ACTIVITIES:
Principal payments on finance lease liability		(4	)		(4	)
Net cash used in financing activities		(4	)		(4	)
Net increase (decrease) in cash and cash equivalents		1,411			(1,850	)
Cash and cash equivalents, beginning of period		3,760			4,307
Cash and cash equivalents, end of period	$	5,171		$	2,457
Supplemental disclosure of cash flow information
Cash paid for interest	$	1		$	1
Cash paid for income taxes	$	6		$	-
Supplemental disclosure of noncash investing and financing activities
Right-of-use asset obtained in exchange for finance lease liability	$	-		$	22

The accompanying notes are an integral part of these unaudited condensed interim financial statements.

NEPHROS, INC.

NOTES TO CONDENSED INTERIM FINANCIAL STATEMENTS (unaudited)

Note 1 – Organization and Nature of Operations

Nephros, Inc. (“Nephros” or the “Company”) was incorporated under the laws of the State of Delaware on April 3, 1997. The Company was founded by health professionals, scientists and engineers affiliated with Columbia University to develop advanced end stage renal disease (“ESRD”) therapy technology and products.

Beginning in 2009, Nephros introduced high performance liquid purification filters to meet the demand for water purification in certain medical markets. The Company’s filters, generally classified as ultrafilters, are primarily used in hospitals for the prevention of infection from waterborne pathogens, such as legionella and pseudomonas, and in dialysis centers for the removal of biological contaminants from water and bicarbonate concentrate. The Company also develops and sells water filtration products for commercial applications, focusing on the hospitality and food service markets.

The Company’s primary U.S. facility is located at 380 Lackawanna Place, South Orange, New Jersey 07079. This location, along with our Whippany, NJ facility, houses the Company’s corporate headquarters, research, manufacturing, and distribution facilities.

Note 2 – Basis of Presentation and Liquidity and Significant Accounting Policies

Interim Financial Information

The accompanying unaudited condensed interim financial statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 and Article 10 of Regulation S-X. The condensed balance sheet as of December 31, 2024 was derived from the Company’s audited financial statements. Accordingly, they do not include all of the information and footnotes required by GAAP for annual financial statements. Results as of and for the nine months ended September 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

The condensed interim financial statements and notes thereto should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.

Segment Reporting

The Company operates in only one business segment from which the Company’s chief operating decision maker evaluates the financial performance of the Company.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amount of revenues and expenses, during the reporting period. Actual results could differ materially from those estimates. Included in these estimates are assumptions about the collection of accounts receivable, value of inventories, useful life of fixed assets and intangible assets, the assessment of expected cash flows used in evaluating goodwill and other long-lived assets, the assessment of the ability to continue as a going concern and assumptions used in determining stock compensation such as expected volatility and risk-free interest rate.

Liquidity

The Company generated net income for the three and nine months ended September 30, 2025, and the full year ended December 31, 2024. In addition, the Company generated cash from operations in the three and nine months ended September 30, 2025. Conversely, net cash from operations was negative for the year ended December 31, 2024 due to an increase in inventory and accounts receivable and a decrease in accounts payable. The Company has an accumulated deficit of $143.2 million as of September 30, 2025. The Company continues to focus on growth in sales and managing tight expenses in order to maintain profitability and positive cash flow from operations.

Recent Accounting Pronouncements, Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, “Improvements to Income Tax Disclosures,” which enhances the transparency and decision usefulness of income tax disclosures. The guidance is effective for the Company’s annual reporting period ending December 31, 2025. Early adoption is permitted. The Company is assessing the impact of adopting this guidance on its financial statements.

In November 2024, the FASB issued ASU 2024-03, “ASC 220- Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures,” which requires entities, in the notes to financial statements, to disclose specified information about certain costs and expenses. The guidance is effective for the Company’s annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is assessing the impact of adopting this guidance on its financial statements.

Concentration of Credit Risk

The Company deposits its cash in financial institutions. At times, such deposits may be in excess of insured limits. To date, the Company has not experienced any impairment losses on its cash. The Company also limits its credit risk with respect to accounts receivable by performing credit evaluations when deemed necessary.

Major Customers

For the three months ended September 30, 2025, and 2024, the following customers accounted for the following percentages of the Company’s revenues, respectively:

Customer	2025			2024
A		25	%		27	%
C		11	%		6	%
D		10	%		3	%
Total		46	%		36	%

For the nine months ended September 30, 2025, and 2024, the following customers accounted for the following percentages of the Company’s revenues, respectively:

Customer	2025			2024
A		23	%		27	%
B		10	%		8	%
Total		33	%		35	%

As of September 30, 2025, and December 31, 2024, the following customers accounted for the following percentages of the Company’s accounts receivable, respectively:

Customer	2025			2024
C		14	%		6	%
A		11	%		13	%
E		11	%		-	%
Total		36	%		19	%
Concentration risk percentage		36	%		19	%

Accounts Receivable

The Company recognizes an allowance that reflects a current estimate of credit losses expected to be incurred over the life of a financial asset, including trade receivables. The Company continuously monitors collections and payments from its customers and maintains a provision for estimated credit losses. The allowance for credit losses reflects the best estimate of expected credit losses of the accounts receivable portfolio determined by considering current information, forecasts of future economic conditions, industry knowledge and to some extent the Company’s historical experience. The Company determines its allowance by pooling receivable balances at the customer level and considering various factors, including individual credit risk associated with each customer, the current and future condition of the general economy and industry knowledge. These credit risk factors are monitored on a quarterly basis and updated as necessary. The Company writes off accounts receivable when they are determined to be uncollectible. There was no allowance for credit losses as of September 30, 2025. The allowance for credit losses was approximately $11,000 as of December 31, 2024.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. In accordance with ASC Topic 350, Intangibles-Goodwill and Other, the Company does not amortize goodwill but tests it for impairment annually on October 1^st of each fiscal year or more frequently if events or changes in circumstances indicate that the asset may be impaired. The Company operates as one reporting segment. When testing goodwill for impairment, the Company may first perform an optional qualitative assessment. The qualitative factors evaluated by the Company include macro-economic conditions of the business environment, overall financial performance, and other entity specific factors as deemed appropriate. If under such qualitative analysis the Company determines that it is not more likely than not that the reporting segment’s fair value is less than its carrying amount, then no further analysis is necessary. If the Company determines that it is more likely than not that the fair value of its reporting unit is less than its carrying amount, then the quantitative impairment test will be performed. Under the quantitative impairment test, if the carrying amount of the Company’s reporting segment exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess but limited to the total amount of goodwill. No goodwill impairment was recorded for the three and nine months ended September 30, 2025 and 2024.

Note 3 – Revenue Recognition

The Company recognizes revenue related to product sales at a point-in-time when product is shipped via external logistics providers and the other criteria of ASC 606 are met. Product revenue is recorded net of variable consideration which includes prompt pay discounts, other discounts, and returns and allowances. As of September 30, 2025, the Company recorded an allowance for sales returns of approximately $8,000, compared to $5,000 as of December 31, 2024.

The Company recognizes revenue related to royalty, service, and other agreements in accordance with the five-step model in ASC 606. Sales-based royalties, for which the license is the predominant item to which the royalties relate, are recognized (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). Service revenue is recognized at a point in time. The Company is not entitled to payment until the point at which the service is completed. Certain contracts include additional product and related services in cases of emergencies. These performance obligations are separately invoiced at the time of the emergency and are not included in the initial customer contract price.

Revenue from contracts with customers may include multiple deliverables which include a combination of the product and service performance obligations discussed above. The Company has determined that these performance obligations are distinct and therefore should be accounted for as separate revenue transactions for recognition purposes. For these contracts, revenue is allocated to each performance obligation based on its relative standalone selling price basis by maximizing the use of observable inputs to determine the standalone selling price for each performance obligation. If the standalone selling price is unknown, management uses an expected cost-plus margin approach to determine the standalone selling price in order to allocate the transaction price.

The Company combines contracts with the same customer into a single contract for accounting purposes when the contracts are entered into at or near the same time and the contracts are negotiated as a single commercial package, consideration in one contract depends on the other contract, or the services are considered a single performance obligation.

Service, royalty, and other revenues recognized for the three and nine months ended September 30, 2025, were approximately $168,000 and $447,000, respectively. Service, royalty, and other revenues recognized for the three and nine months ended September 30, 2024, were approximately $46,000 and $106,000, respectively.

Note 4 – Fair Value Measurements

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability.

To measure fair value, the Company uses the following fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Value is determined using pricing models, discounted cash flow methodologies, or similar techniques and also includes instruments for which the determination of fair value requires significant judgment or estimation.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period.

At September 30, 2025 and December 31, 2024, the Company’s cash equivalents consisted of money market funds. The Company values its cash equivalents using observable inputs that reflect quoted prices for securities with identical characteristics and classifies the valuation techniques that use these inputs as Level 1.

At September 30, 2025 and December 31, 2024, the fair value measurements of the Company’s assets and liabilities measured on a recurring basis were as follows:

	Fair Value Measurements at Reporting Date Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
September 30, 2025
Money market funds	$	3,951	$	-	$	-
Cash equivalents	$	3,951	$	-	$	-

December 31, 2024
Money market funds	$	1,866	$	-	$	-
Cash equivalents	$	1,866	$	-	$	-

Assets and Liabilities Not Measured at Fair Value on a Recurring Basis

The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term maturity of these instruments.

The carrying amounts of the lease liabilities and equipment financing approximate fair value as of September 30, 2025 and December 31, 2024 because those financial instruments bear interest at rates that approximate current market rates for similar agreements with similar maturities and credit.

Note 5 – Inventory

Inventory is stated at the lower of cost or net realizable value using the first-in, first-out method and consists of raw materials and finished goods. The Company’s inventory components as of September 30, 2025 and December 31, 2024, were as follows:

Schedule of Inventory, Net

	September 30, 2025		December 31, 2024
	(in thousands)
Finished goods	$	2,529	$	2,261
Raw materials		209		354
Total inventory	$	2,738	$	2,615

Note 6 – Intangible Assets and Goodwill

Intangible Assets

Intangible assets as of September 30, 2025 and December 31, 2024 are set forth in the table below. Gross carrying values and accumulated amortization of the Company’s intangible assets by type are as follows:

Schedule of Intangible Assets

	September 30, 2025							December 31, 2024
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
	(in thousands)
Customer relationships	$	540	$	(214	)	$	326	$	540	$	(191	)	$	349
Total intangible assets	$	540	$	(214	)	$	326	$	540	$	(191	)	$	349

The Company recognized amortization expense of approximately $8,000 for each of the three months ended September 30, 2025 and September 30, 2024. All were recognized in selling, general and administrative expenses on the accompanying condensed statement of operations.

The Company recognized amortization expense of approximately $24,000 for each of the nine months ended September 30, 2025 and September 30, 2024. All were recognized in selling, general and administrative expenses on the accompanying condensed statement of operations.

As of September 30, 2025, future amortization expense for each of the next five years is (in thousands):

Schedule of Future Amortization Expense

Fiscal Years
2025 (excluding the nine months ended September 30, 2025)	$	8
2026		32
2027		32
2028		32
2029		32
2030		32

Goodwill

Goodwill has a carrying value on the Company’s condensed balance sheets of approximately $0.8 million at September 30, 2025 and December 31, 2024.

Note 7 – License and Supply Agreement, net

On April 23, 2012, the Company entered into a License and Supply Agreement (as thereafter amended, 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, with certain limitations on territory, during the term of the License and Supply Agreement. In addition, the Company granted 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 products 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. In December 2023, the Company signed a new agreement with Medica which extends the term until December 31, 2028, 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, the Company agreed to make minimum annual aggregate purchases from Medica of €4,208,000, €4,629,000, €4,976,000, €5,349,000 and €5,750,000 for the years 2024, 2025, 2026, 2027 and 2028, respectively. The Company satisfied its minimum purchase requirement for 2024 and 2025, but if the Company is unable to satisfy its minimum purchase commitment in any of the remaining years of the term, it will be in breach of the License and Supply Agreement, giving Medica a right of termination.

In exchange for the license, the gross value of the intangible asset capitalized was $2.3 million. License and Supply Agreement, net, on the condensed balance sheet is $0.2 million as of September 30, 2025 and December 31, 2024, respectively. Accumulated amortization is $2.1 million as of September 30, 2025 and December 31, 2024, respectively. The intangible asset is being amortized as an expense over the life of the License and Supply Agreement. Amortization expense of approximately $14,000 was recognized in each of the three months ended September 30, 2025 and 2024, respectively, on the condensed statement of operations.

As of December 11, 2023, the Company has agreed to pay interest per month at the EURIBOR 360-day rate plus 500 basis points calculated on the principal amount of any outstanding invoices that are overdue by more than 15 days beyond the original payment terms. There was no interest recognized for the nine months ended September 30, 2025 or September 30, 2024.

Note 8 – Leases

The Company has operating leases for corporate offices and office equipment. The leases have remaining lease terms of approximately 2.1 years to 3.1 years.

Lease cost, as presented below, includes costs associated with leases for which right-of-use (“ROU”) assets have been recognized as well as short-term leases.

The components of total lease costs were as follows:

Schedule of Components of Lease Cost

	Three months ended September 30, 2025		Three months ended September 30, 2024
	(in thousands)
Operating lease cost	$	88	$	112
Finance lease cost:
Amortization of right-of-use assets		1		-
Interest on lease liabilities		1		-
Total finance lease cost		2		-
Variable lease cost		24		37
Total lease cost	$	114	$	149

	Nine months ended September 30, 2025		Nine months ended September 30, 2024
	(in thousands)
Operating lease cost	$	261	$	364
Finance lease cost:
Amortization of right-of-use assets		4		4
Interest on lease liabilities		1		2
Total finance lease cost		5		6
Variable lease cost		82		62
Total lease cost	$	348	$	432

Supplemental cash flow information related to leases was as follows:

	Nine months ended September 30, 2025		Nine months ended September 30, 2024
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	325	$	456
Financing cash flows from finance leases	$	4	$	4

Supplemental balance sheet information related to leases was as follows:

	September 30, 2025			December 31, 2024
	(in thousands)
Operating lease right-of-use assets	$	1,094		$	1,355
Finance lease right-of-use assets	$	18		$	22

Current portion of operating lease liabilities	$	375		$	343
Operating lease liabilities, net of current portion		761			1,046
Total operating lease liabilities	$	1,136		$	1,389

Current portion of finance lease liabilities	$	5		$	5
Finance lease liabilities, net of current portion		13			17
Total finance lease liabilities	$	18		$	22

Weighted average remaining lease term
Operating leases		2.82 years			3.6 years
Finance leases		3.10 years			3.8 years

Weighted average discount rate
Operating leases		8.0	%		8.0	%
Finance leases		8.0	%		8.0	%

As of September 30, 2025, maturities of lease liabilities were as follows:

	Operating Leases			Finance Leases
	(in thousands)
2025 (excluding the nine months ended September 30, 2025)	$	110		$	2
2026		450			7
2027		450			7
2028		251			5
Total future minimum lease payments		1,261			21
Less imputed interest		(125	)		(3	)
Total	$	1,136		$	18

Note 9 – Stock Plans and Share-Based Payments

The fair value of stock options and restricted stock is recognized as stock-based compensation expense in the Company’s condensed statement of operations. The Company calculates stock-based compensation expense in accordance with ASC 718. The fair value of stock-based awards is amortized over the vesting period of the award.

Stock Options

The Company granted stock options to purchase 14,729 shares of common stock to employees and board members during the three months ended September 30, 2025. These stock options are being expensed over the respective vesting period, which is based on a service condition. The Company granted stock options to purchase 219,804 shares of common stock to employees and board members during the nine months ended September 30, 2025. Of the 219,804 stock options granted in the nine months ended September 30, 2025, 160,843 are stock options with service based vesting conditions and, as such, are being expensed over the respective service period. The remaining 58,961 stock options contain a performance condition that is not probable and therefore have no expense recognized as of September 30, 2025.

The fair value of the stock options granted during the nine months ended September 30, 2025, was approximately $0.2 million.

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. The below assumptions for the risk-free interest rates, expected dividend yield, expected lives and expected stock price volatility were utilized for the stock options granted during the nine months ended September 30, 2025.

Schedule of Fair Value Assumptions

Assumptions for Option Grants
Stock Price Volatility	63.41	%
Risk-Free Interest Rate	4.22	%
Expected Life (in years)	6.03
Expected Dividend Yield	0	%

Stock-based compensation expense related to stock options was approximately $70,000 and $64,000 for the three months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025, approximately $67,000 and $3,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations. For the three months ended September 30, 2024, approximately $62,000 and $2,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations.

Stock-based compensation expense related to stock options was $207,000 and $76,000 for the nine months ended September 30, 2025 and 2024, respectively. For the nine months ended September 30, 2025, approximately $199,000 and $8,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations. Stock-based compensation expense for the nine months ended September 30, 2024 consisted of $185,000 expense for shares vested, partially offset by a credit of $109,000 due to the reversal of expense related to an immaterial error associated with the forfeiture of unvested options for employee terminations that occurred in prior fiscal periods.

There was approximately $451,000 of total unrecognized compensation expense related to unvested stock-based awards granted under the equity compensation plans, which will be amortized over the weighted average remaining requisite service period of 2.2 years.

Restricted Stock

Total stock-based compensation expense for restricted stock on the Company’s condensed statement of operations was zero for each of the three months ended September 30, 2025 and 2024. Total stock-based compensation expense for restricted stock was approximately $10,000 and $15,000 for the nine months ended September 30, 2025 and 2024, respectively. Stock-based compensation expense for restricted stock is included in selling, general and administrative expenses on the accompanying condensed statement of operations.

For the nine months ended September 30, 2025, 55,659 shares of restricted stock were issued to board members related to services rendered during the year ended December 31, 2024. As a result of the issuance of the 55,569 shares of restricted stock, approximately $72,000 of the total amount recorded in additional paid-in capital related to expense that was previously in accrued expenses and was reclassified to additional paid-in capital during the nine months ended September 30, 2025. All restricted shares issued during the nine months ended September 30, 2025, vested at issuance. No shares of restricted stock were issued.

As of September 30, 2025, there was no unrecognized compensation expense related to unvested stock-based awards granted under the equity compensation plans.

Note 10 – Segment Information

The Company operates in one operating segment, and therefore one reportable segment, focused on the development and sale of high-performance water solutions to the medical and commercial markets. The Company manages business activities on a basis primarily through the development and commercialization of water filtration products, which are sold to U.S. and international customers.

The accounting policies for the Company’s single operating segment are the same as those described in the summary of significant accounting policies. The Company’s Chief Executive Officer is the Chief Operating Decision Maker (“CODM”). The CODM manages the Company’s business activities as a single operating and reportable segment. Accordingly, our CODM uses net income (loss) to measure segment profit or loss, allocate resources, and assess performance. The measure of segment assets is reported on the balance sheet as total assets.

The following is a summary of the significant revenue and expense categories, and net income (loss) provided to the CODM (in thousands):

Schedule of Net Income for Segment

	2025			2024			2025			2024
	Three Months Ended September 30,						Nine Months Ended September 30,
	2025			2024			2025			2024
Net revenue:
Product revenues	$	4,596		$	3,472		$	13,613		$	10,186
Service, royalty, and other revenues		168			46			447			106
Total net revenues		4,764			3,518			14,060			10,292
Cost of goods sold		1,849			1,369			5,196			4,044
Gross Margin		2,915			2,149			8,864			6,248
Operating expenses:
Research and development		338			188			944			654
Selling, general and administrative		2,229			1,721			6,684			5,804
Other operating expenses (1)		34			34			108			101
Total operating expenses		2,601			1,943			7,736			6,559
Operating income (loss)		314			206			1,128			(311	)
Other (expense) income		26			(23	)		16			36
Income (loss) before income taxes		340			183			1,144			(275	)
Income tax expense		(3	)		-			(12	)		-
Net income (loss)	$	337		$	183		$	1,132		$	(275	)

(1)	Other operating expenses is comprised of depreciation and amortization.

Note 11 – Net Income (Loss) per Common Share

Basic income (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the number of weighted average common shares issued and outstanding. Diluted income (loss) per common share is calculated by dividing net income (loss) available to common shareholders by the weighted average number of common shares issued and outstanding for the period, plus amounts representing the dilutive effect from the exercise of stock options and warrants and unvested restricted stock, as applicable. The Company calculates dilutive potential common shares using the treasury stock method, which assumes the Company will use the proceeds from the exercise of stock options and warrants to repurchase shares of common stock to hold in its treasury stock reserves.

A reconciliation of the Company’s basic and diluted income (loss) per common share is as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands, except share and per share data)	2025		2024		2025		2024
Numerator:
Net income (loss)	$	337	$	183	$	1,132	$	(275	)

Denominator:
Basic weighted average common shares outstanding		10,612,012		10,544,139		10,604,300		10,518,742
Effect of potentially dilutive options		428,913		36,767		242,177		-
Diluted weighted average common shares outstanding		11,040,925		10,580,906		10,846,477		10,518,742

Income (loss) per common share:
Basic	$	0.03	$	0.02		0.11		(0.03	)
Diluted	$	0.03	$	0.02		0.10		(0.03	)

The following potentially dilutive securities have been excluded from the computations of diluted weighted average shares outstanding as they would be antidilutive:

	September 30,
	2025		2024
Shares underlying options outstanding		1,350,036		1,205,087

Note 12 – Income Taxes

Our tax provision or benefit from income taxes for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period.

Our quarterly tax provision, and our quarterly estimate of our annual effective tax rate, is subject to significant variation due to several factors, including variability in accurately predicting our pre-tax and taxable income and loss and the mix of jurisdictions to which they relate.

The Company recorded income tax expense of approximately $3,000 and $12,000 for the three and nine months ended September 30, 2025, respectively, compared to income tax expense of $0 for the three and nine months ended September 30, 2024. The Company’s effective tax rate for the three and nine months ended September 30, 2025 was 1.08%, compared to 0% for the corresponding prior-year periods.

The Company continues to maintain a full valuation allowance against its deferred tax assets as management believes it is more likely than not that such assets will not be realized.

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

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.

Business Overview

Nephros is a commercial-stage company that develops and markets high-performance water filtration solutions for points of use, with a core focus on medical-grade water filtration. Our portfolio includes two primary product lines: infection control and dialysis water. The infection control segment features both microfilters (0.1 micron) and ultrafilters (0.005 micron), used to help prevent infections from waterborne pathogens such as Legionella and Pseudomonas. The dialysis segment consists exclusively of ultrafilters designed to remove biological contaminants, particularly endotoxins, from water and bicarbonate concentrate used in dialysis treatment. All of our medical-grade filters are FDA 510(k)-cleared as Class II medical devices—a distinguishing feature that affirms their validated safety and performance in critical-use environments. While these filters are widely used in healthcare settings, they have also been adopted across a range of other industries—including manufacturing, laboratories, aviation, and federal facilities—where water purity is essential to operational safety and compliance.

In addition, we offer a line of commercial water filters that improve taste and odor, reduce biofilm formation and scale buildup, and remove cysts, particulates, and lead from water systems. With the recent release of our newest solution, validated for the reduction of Total PFAS (a mixture of seven PFAS compounds including PFOA, PFOS, PFHxS, PFNA, PFHpA, PFBS, and PFDA), further enhancing our portfolio of products and their ability to address a broad spectrum of emerging and persistent waterborne contaminants. These products are broadly applicable across industries and are especially valuable when used in tandem with our medical-grade filters to deliver comprehensive water-quality protection. Whether in clinical care, industrial operations, or public infrastructure, Nephros solutions support the universal need for safe, high-quality water.

Our Products

Water Filtration Products

We develop and sell water filtration products used in both medical and commercial applications. Our water filtration products employ multiple filtration technologies, as described below.

In medical markets, we manufacture both ultra- and microfilters using polysulfone hollow fiber membranes that retain microbiological contaminants through physical size exclusion. Our ultrafilters, with a 0.005-micron pore size, retain bacteria, viruses, and endotoxins, providing a unique alternative to charged membrane solutions and featuring one of the smallest pore sizes available. Our microfilters, with a 0.1-micron pore size, also retain bacteria, a critically important function given the prevalence of Legionella in premise plumbing and the risks associated with Legionnaires’ disease. Across both filter types, Nephros filters are distinguished by exceptional membrane surface area and longer service life, particularly in comparison to our competitors, making Nephros filters well-suited to support improved water safety within the demands of clinical environments.

Our primary sales strategy in medical markets is to sell through distributors (also termed as value-added resellers, or “VARs”). Leveraging VARs has enabled us to rapidly expand our access to target customers with limited sales staff expansion. In addition, while we are currently focused on medical markets, the VARs that support these customers also support a wide variety of commercial and industrial customers. We believe that our VAR relationships have and will continue to facilitate growth in filter sales outside of the medical industry. In addition to VARs, we also utilize a direct salesforce that targets key geographic regions throughout the country, as well as focuses on the hospital and dialysis markets.

In commercial markets, we develop filters designed to improve water quality through the reduction of aesthetic and functional contaminants. This segment includes both carbon-based and carbon-free solutions to reduce a number of issues including taste, odor, scale buildup, fine particulate, lead, cysts, and Total PFAS (otherwise known as “forever chemicals”). Like our infection control segment, our commercial filters support a wide range of applications; they also play a key role in enhancing equipment performance and reducing maintenance needs.

Our commercial sales model combines both direct and indirect channels. Through our internal sales team, we sell directly to customers across a range of industries, including healthcare, where our commercial solutions are an effective complement to our medical-grade, infection control filters. We also partner with VARs, including one non-exclusive partner focused only on food service and hospitality sectors, such as quick-service restaurants (QSRs), convenience stores, and restaurants. In contrast to our channel partners who offer both medical and commercial products, this VAR expands our reach in high-volume, commercial food and beverage markets.

Target Markets

We currently serve the following primary and emerging markets through our portfolio of medical-grade and commercial water filtration products:

	●	Hospitals and Other Healthcare Facilities: Our ultrafilters and microfilters support infection control across a wide range of water outlets and equipment, including sinks, showers, ice machines and sterile processing. These filters are FDA 510(k)-cleared Class II medical devices, offering validated performance that helps facilities address waterborne pathogen control under CMS Conditions of Participation and The Joint Commission’s water management expectations.

	●	Dialysis Settings: Our ultrafilters are used for advanced purification and polishing of water or bicarbonate concentrate in dialysis environments. They are typically installed post-reverse osmosis in water treatment rooms or upstream of dialysis machines. These filters assist in achieving hemodialysis-quality water that exceeds the ISO 23500-5 standard for ultrapure dialysate production and are FDA 510(k)-cleared as Class II medical devices.

	●	Foodservice and Hospitality: Our commercial filters are ideal for foodservice and hospitality operations where they improve water quality, equipment performance, and operational efficiency. These filters are commonly installed at beverage dispensers, coffee machines, and ice makers, supporting restaurants, convenience stores, hotels, and similar venues in enhancing taste and customer experience.

	Additional Use Cases

		Beyond healthcare and foodservice settings, Nephros filters are also deployed in laboratories, manufacturing facilities, aviation environments, and government buildings, where water purity is critical to safety, compliance, or system performance. With the recent addition of Total PFAS reduction capability, we also anticipate growing relevance in schools and other federally regulated facilities, where adherence to standards such as the Safe Drinking Water Act is a key consideration. We continue to evaluate opportunities to expand into new verticals where our filtration technologies provide measurable value.

Hospitals and Other Healthcare Facilities. Nephros infection control filters are widely used by hospitals and healthcare facilities seeking to reduce exposure to waterborne pathogens and meet infection prevention and water management goals. Our products help mitigate microbiological risks in potable water systems, particularly in areas of patient vulnerability and during periods of elevated waterborne threat.

The U.S. Centers for Disease Control and Prevention (CDC) estimates that one in every 31 hospital patients acquire a healthcare-associated infection (HAI), totaling over one million patients in 2023. Many of these infections are caused by waterborne bacteria or viruses that proliferate in premise plumbing systems, particularly in aging infrastructure or where water is stagnant, warm, or aerosolized.

In response to risks posed by Legionella and other opportunistic pathogens, regulatory and accreditation bodies have emphasized the need for proactive water management. The Centers for Medicare and Medicaid Services (CMS) require hospitals and long-term care facilities to implement documented water management programs that align with ANSI/ASHRAE Standard 188 and CDC guidance. Similarly, The Joint Commission includes oversight of utility system safety, water quality, and building risk within its physical environment standards, formerly part of the Environment of Care (EC) chapter. Although TJC is reorganizing these standards under a new Physical Environment (PE) chapter, the underlying compliance obligations remain active and enforceable. In parallel, newly introduced standards, such as ANSI/ASHRAE Standard 514 and ANSI/AAMI ST108, signal a broader regulatory shift toward formalized water safety and medical device reprocessing quality, even when not yet codified as survey requirements.

Nephros filters are validated for physical retention of bacteria, viruses, and endotoxins through size exclusion. All models are FDA 510(k)-cleared and installed at the point of use, where they can support compliance goals, align with evolving standards, and provide additional protection for patients, staff, and visitors.

Dialysis Settings. Nephros ultrafiltration products are widely deployed in both acute and chronic dialysis environments to enhance water safety and support the production of ultrapure dialysate. Our filters provide retention of bacteria, viruses, and endotoxins in water and bicarbonate lines used to treat patients with kidney failure.

Hemodialysis requires the use of large volumes of purified water, often more than 100 liters per treatment. Clinics rely on reverse osmosis systems to generate this water and use ultrafilters downstream as a final barrier against microbial contaminants. Our filters are used in both fixed RO loops and portable systems and are validated for up to 12 months of service life in dialysis applications.

According to the American Journal of Kidney Diseases, approximately 7,100 dialysis clinics in the United States provide care for over 500,000 patients annually. Nephros is a recognized provider of ultrafiltration solutions to dialysis machine manufacturers, water system integrators, and clinical service providers. All Nephros dialysis filters are FDA 510(k)-cleared and meet current regulatory expectations for microbial retention in water and bicarbonate lines.

Commercial and Industrial Facilities. Our commercial product portfolio includes both carbon-based and carbon-free filtration solutions that address a variety of water-quality concerns common in foodservice and hospitality industries. These include but are not limited to: taste and odor compounds, scale-forming minerals, and various particulates, with several membrane-based models capable of retaining particles down to 0.005 micron. In addition, our newest offering supports the validated reduction of Total PFAS, expanding our reach to customers concerned with long-term exposure to “forever chemicals” in water-fed equipment.

Our commercial market focus is on food service and hospitality industries, including hotels, restaurants, and convenience stores. In March 2022, we entered into an agreement with Donastar LLC to provide water filtration systems to an organization that services approximately 3,000 Quick Service Restaurants (“QSR”). Effective January 1, 2023, we entered into a new supply agreement with Donastar, which superseded the March 2022 agreement. Under the January 2023 agreement, we engaged Donastar to be our exclusive distributor to the food service and hospitality sectors. Effective September 2024, we ended our exclusivity arrangement with Donastar though Donastar continues to distribute our products on a non-exclusive basis and expand our reach within their target markets.

Over time, we believe that the same water safety management programs currently underway at medical facilities may migrate to commercial markets. As the epidemiology of waterborne pathogens expands, links to contamination sources will become more efficient and the data more readily available. In cases where those sources are linked to restaurants, hotels, office buildings and residential complexes, the corporate owners of those facilities will likely face increasing liability exposure. We expect that building owners will come to understand ASHRAE-188, which outlines risk factors for buildings and their occupants, and provides water safety management guidelines. We believe, in time, most commercial buildings will need to follow the basic requirements of ASHRAE-188: create a water management plan, perform routine testing, and establish a plan to treat the building in the event of a positive test.

As demand for water testing and microbiological filtration grows, we will be ready to deploy our expertise and solutions based on years of experience servicing the medical market. We believe that we have an opportunity to offer unique expertise and products to the commercial market, and that our future revenue from the commercial market could even surpass our infection control revenue.

Critical Accounting Policies

For the nine-month period ended September 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.

Revenue Recognition

A majority of our revenue is product sales which is recognized at a point-in-time when the product is shipped via external logistics providers and the other criteria of ASC 606 are met. Product revenue is recorded net of variable consideration which includes prompt pay discounts, other discounts, and returns and allowances.

In addition to product revenue, the Company recognizes revenue related to royalty, service, and other agreements in accordance with the five-step model in ASC 606. Sales-based royalties, for which the license is the predominant item to which the royalties relate, are recognized (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Service revenue is recognized at a point in time when service is completed. The Company is not entitled to payment until the point at which the service is completed.

To recognize revenue for contracts that include a combination of products and services, we allocate the transaction price for the contract among the identified performance obligations on a relative standalone selling price basis. We establish standalone selling price basis for our products based on the observable price of the respective product. For services where the standalone selling price is not directly observable through historical transactions, we estimate standalone selling price using expected cost-plus margin based on management judgment by considering available data, such as labor cost of providing the services and internal margin objectives which include market and competitive conditions. Standalone selling prices for our products and services are reassessed periodically.

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 2, “Basis of Presentation and Liquidity,” of the Notes to our Unaudited Condensed 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, including recently, and are likely to continue to do so in the future. We anticipate that our annual results of operations will be impacted in the foreseeable future by several factors, including market acceptance of our products, expense management, and continued ability to achieve positive operating cash flow. 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 September 30, 2025 Compared to the Three Months Ended September 30, 2024

The following table sets forth our summarized, results of operations for the three months ended September 30, 2025 and 2024 (in thousands, except percentages):

							$			%
							Increase			Increase
	2025			2024			(Decrease)			(Decrease)
Total net revenues	$	4,764		$	3,518		$	1,246			35	%
Cost of goods sold		1,849			1,369			480			35	%
Gross margin		2,915			2,149			766			36	%
Gross margin %		61	%		61	%		-			-	%
Selling, general and administrative expense		2,229			1,721			508			30	%
Research and development expense		338			188			150			80	%
Depreciation and amortization expense		34			34			-			-	%
Operating income		314			206			108			52	%
Interest income		41			20			21			105	%
Other income (expense), net		(15	)		(43	)		28			(65	)%
Income before income taxes	$	340		$	183		$	157			86	%
Income tax expense		(3	)		-			(3	)		-	%
Net income	$	337		$	183		$	154			84	%

Revenue

Overall, net revenues increased by $1.2 million, or 35%, for the three months ended September 30, 2025, compared to the same period in 2024. This increase was primarily driven by higher programmatic revenue, reflecting strong reorder activity and the addition of several new active sites, and significant growth in our service revenue.

Gross Profit Margin

Gross margin was approximately 61% for the three months ended September 30, 2025, consistent with approximately 61% for the three months ended September 30, 2024. An increase in handling expenses including tariffs was mostly offset by a reduction in inventory reserve adjustments.

Selling, General and Administrative Expenses

Selling, general and administrative expense increased by approximately $508,000, or 30%, for the three months ended September 30, 2025, compared to the same period in the prior year. The increase was primarily driven by higher sales commissions and higher accrual for employee bonuses.

Research and Development Expenses

Research and development expense increased approximately $150,000, or 80%, due to higher accrual for employee bonuses and higher salary expense.

Depreciation and Amortization Expense

Depreciation and amortization expense were approximately $34,000 for the three months ended September 30, 2025 and 2024 respectively.

Interest Income

Interest income was approximately $41,000 for the three months ended September 30, 2025 compared to approximately $20,000 for the three months ended September 30, 2024.

Other Income (Expense), net

Other expense of approximately $15,000 for the three months ended September 30, 2025 is primarily a result of losses on foreign currency transactions. Other expense of approximately $43,000 for the three months ended September 30, 2024 was also primarily a result of losses on foreign currency transactions.

Nine Months Ended September 30, 2025 Compared to the Nine Months Ended September 30, 2024

The following table sets forth our summarized, results of operations for the nine months ended September 30, 2025 and 2024 (in thousands, except percentages):

							$			%
							Increase			Increase
	2025			2024			(Decrease)			(Decrease)
Total net revenues	$	14,060		$	10,292		$	3,768			37	%
Cost of goods sold		5,196			4,044			1,152			28	%
Gross margin		8,864			6,248			2,616			42	%
Gross margin %		63	%		61	%		-			2	%
Selling, general and administrative expense		6,684			5,804			880			15	%
Research and development expense		944			654			290			44	%
Depreciation and amortization expense		108			101			7			7	%
Operating income (loss)		1,128			(311	)		1,439			463	%
Interest expense		(1	)		(1	)		-			-	%
Interest income		85			66			19			29	%
Other income (expense), net		(68	)		(29	)		(39	)		134	%
Income (loss) before income taxes	$	1,144		$	(275	)		1,419			516	%
Income tax expense		(12	)		-			(12	)		-	%
Net income (loss)	$	1,132		$	(275	)	$	1,407			512	%

Revenue

Overall, net revenues increased by $3.8 million or 37% for the nine months ended September 30, 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 more opportunities in the first half of 2025 compared to limited opportunities in the prior year period. Service revenue also showed significant growth.

Gross Profit Margin

Gross margin was approximately 63% for the nine months ended September 30, 2025 compared to approximately 61% for the nine months ended September 30, 2024. The increase of approximately 2 percentage points was primarily driven by a reduction in inventory reserve adjustments and lower product costs resulting from a more favorable product mix, both of which contributed to lower cost of goods sold.

Selling, General and Administrative Expenses

Selling, general and administrative expense increased $880,000, or 15%, for the nine months ended September 30, 2025 compared to the same period in the prior year. The increase was primarily driven by higher sales commissions, increased employee bonus accruals, and higher stock-based compensation.

Research and Development Expenses

Research and development expense increased $290,000, or 44%, primarily due to due to higher accrual for employee bonuses and higher salary expense.

Depreciation and Amortization Expense

Depreciation and amortization expenses were approximately $108,000 and $101,000, respectively, for the nine months ended September 30, 2025 and 2024.

Interest Income

Interest income was approximately $85,000 for the nine months ended September 30, 2025, compared to approximately $66,000 for the nine months ended September 30, 2024.

Other Income (Expense), net

Other expense was approximately $68,000 and $29,000 respectively for the nine months ended September 30, 2025 and September 30, 2024, primarily a result of losses on foreign currency transactions.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of September 30, 2025 and December 31, 2024 and is intended to supplement the more detailed discussion that follows. The amounts stated are expressed in thousands.

	September 30,		December 31,
Liquidity and Capital Resources	2025		2024
Cash and cash equivalents	$	5,171	$	3,760
Other current assets		5,535		4,538
Working capital		8,239		6,736
Stockholders’ equity		10,006		8,585

At September 30, 2025, we had an accumulated deficit of $143.2 million. Although we were profitable in the quarter ended September 30, 2025, the nine months ended September 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.

Based on cash that is available for our operations and projections of our future operations, we believe that our cash balances will be sufficient to fund our current operating plan through at least the next 12 months from the date of issuance of the condensed financial statements in this Quarterly Report on Form 10-Q. Additionally, our operating plans are designed to help control operating costs and to increase revenue so we can continue to generate sufficient cash flows to fund operations. If there were a decrease in the demand for our products due to either economic or competitive conditions, or if we are otherwise unable to achieve our plan or achieve our anticipated operating results, there could be a significant reduction in liquidity due to our possible inability to cut costs sufficiently. In such event, the Company may need to take further actions to reduce its discretionary expenditures, including further reducing headcount, reducing spending on R&D projects, and reducing other variable costs.

Our future liquidity sources and requirements will depend on many other factors, including:

	●	the market acceptance of our products, and our ability to effectively and efficiently produce, market and sell our products;
	●	the costs involved in filing and enforcing patent claims and the status of competitive products; and
	●	the cost of litigation, including potential patent litigation and any other actual or threatened litigation.

We expect to put our current capital resources toward the development, marketing, and sales of our water filtration products and working capital purposes.

Net cash provided by operating activities was $1.4 million for the nine months ended September 30, 2025, compared to net cash used in operating activities of approximately $1.8 million for the nine months ended September 30, 2024. Net cash provided by operating activities in 2025 was primarily due to net income of approximately $1.1 million and an increase in accrued expenses 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 an increase in inventory of approximately $0.8 million, a decrease in accounts payable and accrued expenses of approximately $0.5 million each, and a net loss of approximately $0.3 million, offset by an increase in inventory impairments and write-offs of approximately $0.2 million.

We had no investing activities for the nine months ended September 30, 2025. Net cash used in investing activities was approximately $50,000 in the nine months ended September 30, 2024 due primarily to purchases of property and equipment.

Net cash used in financing activities was approximately $4,000 for the nine months ended September 30, 2025 and September 30, 2024, respectively, primarily due to payments on finance leases.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2025.

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain statements in this Quarterly Report on Form 10-Q constitute “forward-looking statements”. Such statements include statements regarding the efficacy and intended use of our technologies under development, the timelines and strategy for bringing such products to market, the timeline for regulatory review and approval of our products, the availability of funding sources for continued development of such products, and other statements that are not historical facts, including statements which may be preceded by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,” “aims,” “believes,” “hopes,” “potential” or similar words. Forward-looking statements are not guaranties of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond our control. Actual results may differ materially from the expectations contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks that:

	●	we face significant challenges in obtaining market acceptance of our products, which, if not obtained, could adversely affect our potential sales and revenues;

	●	product-related deaths or serious injuries or product malfunctions could trigger recalls, class action lawsuits and other events that could cause us to incur expenses and may also limit our ability to generate revenues from such products;

	●	we face potential liability associated with the production, marketing and sale of our products, and the expense of defending against claims of product liability could materially deplete our assets and generate negative publicity, which could impair our reputation;

	●	to the extent our products or marketing materials are found to violate any provisions of the U.S. Food, Drug and Cosmetic Act (the “FDC Act”) or any other statutes or regulations, we could be subject to enforcement actions by the U.S. Food and Drug Administration (the “FDA”) or other governmental agencies;

	●	we may not be able to obtain funding when needed or on terms favorable to us in order to continue operation;

	●	we may not have sufficient capital to successfully implement our business plan;

	●	we may not be able to effectively market our products;

	●	we may not be able to sell our water filtration products at competitive prices or profitably;

	●	we may encounter problems with our suppliers, manufacturers, and distributors;

	●	we may experience increased costs and/or disruptions in our supply chain due to the imposition of U.S. tariffs;

	●	we may encounter unanticipated internal control deficiencies or weaknesses or ineffective disclosure controls and procedures;

	●	we may not be able to obtain appropriate or necessary regulatory approvals to achieve our business plan;

	●	we may not be able to secure or enforce adequate legal protection, including patent protection, for our products; and

	●	we may not be able to achieve sales growth in key geographic markets.

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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not required for smaller reporting companies.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) or Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which is designed to provide reasonable assurance that information required to be disclosed in our reports filed pursuant to the Exchange Act is accumulated and communicated to management in a timely manner. Management recognizes that any disclosure controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud have been or will be detected.

Material Weakness in Internal Control Over Financial Reporting

As previously disclosed in Part I, Item 4 of our Quarterly Report on Form 10-Q for the period ended March 31, 2025, management identified a material weakness in our internal control over financial reporting related to the recognition of revenue from contracts that included a combination of products sales and service-based deliverables and the application of ASC 606. While management determined that both performance obligations were delivered at a point-in-time, the contract’s transaction price was not allocated based on the respective performance obligations’ relative standalone selling price. Management noted a lack of internal control over contract identification as well as a lack of internal control over evaluating contracts for proper revenue recognition under U.S. GAAP. The material weakness described above did not result in any material misstatement in our financial statements or disclosures for any period presented in the accompanying financial statements.

In response to the material weakness, with the oversight of the board of directors, management worked with its outside accounting consultants to establish controls and protocols designed to properly recognize revenue from contracts with multiple performance obligations while ensuring appropriate accounting for all material sales contracts. Specifically, we are developing a process to correctly price product and service revenues on a standalone basis in order to properly allocate revenue from combined contracts between product and other revenues (service). We continue to develop internal processes and controls, as well as provide additional training to our sales team, to properly capture the relevant information needed when we price contracts. We will consider the material weakness to be fully remediated once the applicable controls operate for a sufficient period of time and our management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

Other than our remediation efforts with respect to the material weakness described above, there were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

As a smaller reporting company, we are not required to provide disclosure pursuant to this item. However, in addition to other information set forth in this Quarterly Report on Form 10-Q, including the important information in the section entitled “Forward Looking Statements,” you should carefully consider the “Risk Factors” in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2024, as supplemented by the “Risk Factors” in Part II, Item 1A of our Quarterly Report on Form 10-Q for the period ended March 31, 2025, for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results. You should also consider the following risk factor:

We rely on third-party contractors to install and service our water filtration products, and any failure by these parties to perform adequately could adversely affect our business and reputation.

The proper installation and servicing of our water filtration products are critical to ensuring their performance, safety and regulatory compliance. We rely on third-party contractors and service providers to install and service our water filtration products. These contractors are not our employees, and we have limited control over the quality, timeliness, and consistency of their work. Their performance is influenced by factors that may be beyond our control, including the availability and training of their personnel. If we or our third-party service providers fail to perform installation or service work to our standards or to our customers’ expectations, our products may not function as intended, our reputation and customer satisfaction may be harmed. Poor workmanship or noncompliance with our installation and servicing specifications or applicable regulations could result in product malfunctions, water quality issues, property damage, customer complaints, personal injury, or other claims against us. Such failures could also expose us to increased warranty claims, as well as costs associated with corrective actions, replacements, or recalls. In addition, even isolated incidents of improper installation or servicing – whether caused by us or by third-party providers engaged by us – could negatively impact our brand and reputation, leading to reduced repeat or referral sales. Any of these outcomes could materially and adversely affect our reputation, results of operations, and financial condition.

Item 5. Other Information.

CEO Compensation Adjustment.

On November 4, 2025, our Board of Directors approved an increase in the annual base salary payable to Robert Banks, our President and Chief Executive Officer, from $350,000 to $400,000, effective October 1, 2025.

Insider Trading Arrangements and Policies.

During the three months ended September 30, 2025, none of our directors or officers adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K.

Item 6. Exhibits

EXHIBIT INDEX

Exhibit No.		Description of Exhibit

10.1		Nephros, Inc. Non-Employee Director Compensation Policy *

31.1		Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

31.2		Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. *

32.1		Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

32.2		Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. **

101		Interactive Data File. *

101.INS		Inline XBRL Instance Document*

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File (embedded within the Inline XBRL document)

*		Filed herewith
**		Furnished herewith
†		Management contract or compensatory plan arrangement

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NEPHROS, INC.

Date: November 6, 2025	By:	/s/ Robert Banks
	Name:	Robert Banks
	Title:	President, Chief Executive Officer (Principal Executive Officer)

Date: November 6, 2025	By:	/s/ Judy Krandel
	Name:	Judy Krandel
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Nephros Inc.