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: March 31, 2026

☐	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 May 4, 2026, 10,856,546 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. Interim Financial Statements (unaudited).	3
CONDENSED BALANCE SHEETS – March 31, 2026 and December 31, 2025	3
CONDENSED STATEMENTS OF OPERATIONS – Three months ended March 31, 2026 and 2025	4
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY – Three months ended March 31, 2026 and 2025	5
CONDENSED STATEMENTS OF CASH FLOWS – Three months ended March 31, 2026 and 2025	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.	24
Item 4. Controls and Procedures.	24
PART II - OTHER INFORMATION	25
Item 1A. Risk Factors	25
Item 5. Other Information	25
Item 6. Exhibits	25
SIGNATURES	26

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

NEPHROS, INC.

CONDENSED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

	March 31, 2026			December 31, 2025
ASSETS
Current assets:
Cash and cash equivalents	$	4,018		$	5,400
Accounts receivable, net		3,521			2,414
Inventory		3,619			3,232
Prepaid expenses and other current assets		338			177
Total current assets		11,496			11,223
Property and equipment, net		95			106
Lease right-of-use assets		928			1,021
Intangible assets, net		310			318
Goodwill		759			759
License and supply agreement, net		156			164
Other assets		50			50
TOTAL ASSETS	$	13,794		$	13,641
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		1,463			914
Accrued expenses		662			1,462
Current portion of lease liabilities		402			391
Total current liabilities		2,527			2,767
Lease liabilities, net of current portion		566			672
TOTAL LIABILITIES		3,093			3,439

STOCKHOLDERS’ EQUITY:

Preferred stock, $.001 par value; 5,000,000 shares authorized at March 31, 2026 and December 31, 2025; no shares issued and outstanding at March 31, 2026 and December 31, 2025		-			-
Common stock, $.001 par value; 40,000,000 shares authorized at March 31, 2026 and December 31, 2025; 10,843,493 and 10,644,268 shares issued and outstanding at March 31, 2026 and December 31, 2025, respectively		11			11
Additional paid-in capital		153,688			153,329
Accumulated deficit		(142,998	)		(143,138	)
TOTAL STOCKHOLDERS’ EQUITY		10,701			10,202
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	13,794		$	13,641

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)

	2026		2025
	Three Months Ended March 31,
	2026		2025
Net revenue:
Product revenues	$	5,040	$	4,706
Service, royalty and other revenues		172		171
Total net revenues		5,212		4,877
Cost of goods sold		2,219		1,723
Gross margin		2,993		3,154
Operating expenses:
Selling, general and administrative		2,521		2,254
Research and development		346		295
Depreciation and amortization		29		39
Total operating expenses		2,896		2,588
Operating income		97		566
Other (expense) income:
Interest income		32		13
Other income(expense), net		11		(21	)
Total other income (expense):		43		(8	)
Net income		140		558

Net income per common share, basic	$	0.01	$	0.05
Net income per common share, diluted	$	0.01	$	0.05
Weighted average common shares outstanding, basic		10,650,819		10,600,350
Weighted average common shares outstanding, diluted		10,990,904		10,615,766

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

NEPHROS, INC.

CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)

	Shares		Amount		Capital		Deficit			Equity
	Common Stock				Additional Paid-in		Accumulated			Total Stockholders’
	Shares		Amount		Capital		Deficit			Equity
Balance, December 31, 2025		10,644,268	$	11	$	153,329	$	(143,138	)	$	10,202
Net Income		-		-		-		140			140
Stock Option Exercises		195,615				290					290
Issuance of vested restricted stock		3,610		-		11		-			11
Stock-based compensation				-		58		-			58
Balance, March 31, 2026		10,843,493	$	11	$	153,688	$	(142,998	)	$	10,701

	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
Balance		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
Balance		10,600,350	$	11	$	153,054	$	(143,774	)	$	9,291

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

NEPHROS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	2026			2025
	Three Months Ended March 31,
	2026			2025
OPERATING ACTIVITIES:
Net income	$	140		$	558
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation of property and equipment		11			17
Amortization of intangible assets, license and supply agreement and finance lease right-of-use asset		16			23
Stock-based compensation		60			76
Inventory impairments and write offs		11			6
Change in right of use asset		93			87
(Gain) loss on foreign currency transactions		(13	)		13
Decrease (increase) in operating assets:
Accounts receivable		(1,107	)		(896	)
Inventory		(398	)		655
Prepaid expenses and other current assets		(161	)		(137	)
(Decrease) increase in operating liabilities:
Accounts payable		562			(105	)
Accrued expenses		(791	)		109
Lease liabilities		(94	)		(84	)
Net cash (used in) provided by operating activities		(1,671	)		322

FINANCING ACTIVITIES:
Proceeds from exercise of options		290			-
Principal payments on finance lease liability		(1	)		(1	)
Net cash provided by (used in) financing activities		289			(1	)
Net (decrease) increase in cash and cash equivalents		(1,382	)		321
Cash and cash equivalents, beginning of period		5,400			3,760
Cash and cash equivalents, end of period	$	4,018		$	4,081
Supplemental disclosure of cash flow information
Cash paid for income taxes	$	-		$	6

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 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

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, 2025 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 three months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026.

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, 2025.

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 months ended March 31, 2026 and the full year December 31, 2025. The Company used cash in operations in the three months ended March 31, 2026 due to an increase in inventory and accounts receivable and a decrease in accruals. The Company generated cash from operations in the three months ended March 31, 2025. In addition, the company generated cash from operations in the twelve months ended December 31, 2025 of $1.6 million. The Company has an accumulated deficit of $143 million as of March 31, 2026. The Company continues to focus on growth in sales and managing expenses with the goal of returning to and sustaining positive cash flow from operations.

Recent Accounting Pronouncements, Not Yet Effective

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.

In December 2025, the FASB issued ASU 2025-11, “Interim Reporting (Topic 270): Narrow-Scope Improvements” (“ASU 2025-11”). ASU 2025-11 is intended to update the guidance in Topic 270 by improving navigability of the required interim disclosures, clarifying when that guidance is applicable and adding a principle that requires entities to disclose events since the end of the last annual reporting period that have a material impact on the entity. ASU 2025-11 will be effective for the interim reporting periods within annual reporting periods beginning after December 15, 2027, with the option to early adopt at any time prior to the effective date and should be applied either prospectively to financial statements issued for reporting periods after the effective date or retrospectively to any or all prior periods presented in the financial statements. 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 March 31, 2026, and 2025, the following customers accounted for the following percentages of the Company’s revenues, respectively:

Customer	2026			2025
A		19	%		19	%
B		13	%		9	%
C		6	%		11	%
Total		38	%		39	%

As of March 31, 2026 and December 31, 2025, the following customers accounted for the following percentages of the Company’s accounts receivable, respectively:

Customer	2026			2025
D		17	%		11	%
A		14	%		17	%
B		11	%		6	%
C		5	%		16	%
Total		47	%		50	%
Concentration risk percentage		47	%		50	%

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 March 31, 2026 or December 31, 2025.

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 months ended March 31, 2026 and 2025.

Note 3 – Revenue Recognition

The Company disaggregates revenue from contracts with customers between product sales and revenue related to royalty, service, and other agreements. A majority of the Company’s 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. The allowance for sales returns was approximately $2,000 and $31,000 as of March 31, 2026 and March 31, 2025, respectively.

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. 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, the Company allocates the transaction price for the contract among the identified performance obligations on a relative standalone selling price basis. The Company establishes standalone selling price 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, the Company estimates 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 evaluated on a periodic basis using updated observable inputs and market information to ensure they continue to reflect an appropriate estimate of the price at which the Company would sell each promised good or service on a standalone basis.

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.

Royalty and service revenues recognized for the three months ended March 31, 2026, and 2025 were approximately $172,000 and $171,000, 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 March 31, 2026 and December 31, 2025, 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 classify the valuation techniques that use these inputs as Level 1.

At March 31, 2026 and December 31, 2025, 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)
March 31, 2026
Money market funds	$	3,128		-		-
Cash equivalents	$	3,128	$	-	$	-

December 31, 2025
Money market funds	$	4,205		-		-
Cash equivalents	$	4,205	$	-	$	-

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 March 31, 2026 and December 31, 2025 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 March 31, 2026 and December 31, 2025, were as follows:

Schedule of Inventory, Net

	March 31, 2026		December 31, 2025
	(in thousands)
Finished goods	$	3,265	$	2,973
Raw materials		354		259
Total inventory	$	3,619	$	3,232

Note 6 – Intangible Assets and Goodwill

Intangible Assets

Intangible assets as of March 31, 2026, and December 31, 2025 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

	March 31, 2026							December 31, 2025
	Cost		Accumulated Amortization			Net		Cost		Accumulated Amortization			Net
	(in thousands)
Customer relationships		540		(230	)		310		540		(222	)		318
Total intangible assets	$	540	$	(230	)	$	310	$	540	$	(222	)	$	318

The Company recognized amortization expense of approximately $8,000 for each of three months ended March 31, 2026 and 2025. All were recognized in selling, general and administrative expenses on the accompanying condensed statement of operations.

As of March 31, 2026, future amortization expense for each of the next five years is (in thousands):

Fiscal Years
2026 (excluding the three months ended March 31, 2026)			24
2027			32
2028			32
2029			32
2030			32
2031 and thereafter			158

Goodwill

Goodwill had a carrying value on the Company’s condensed balance sheets of $0.8 million at March 31, 2026 and December 31, 2025, respectively.

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. Medica is currently the Company’s sole supplier of the filter material used in certain of the Company’s 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 had extended the term until December 31, 2028. In November 2025, the Company signed a new agreement with Medica which extends the term until December 31, 2030, unless earlier terminated by either party in accordance with the terms of the License and Supply Agreement. As of November 21, 2025 the Company has agreed with Medica 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 three months ended March 31, 2026 or March 31, 2025.

In exchange for the rights granted, we have agreed to make minimum annual aggregate purchases from Medica of €4,629,000, €4,976,000, €5,349,000, €5,750,000, €6,000,000, €6,300,000 for the years 2025, 2026, 2027, 2028, 2029 and 2030, respectively. The Company satisfied its minimum purchase requirement for 2025, but if the Company is unable to satisfy its remaining minimum purchase commitment for 2026 and beyond, 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 balance sheet is $0.2 million as of March 31, 2026 and December 31, 2025 respectively. Accumulated amortization is $2.1 million as of March 31, 2026 and December 31, 2025 respectively. The intangible asset is being amortized as an expense over the life of the License and Supply Agreement. Amortization expense of approximately $8,000 and $14,000 was recognized in the three months ended March 31, 2026 and 2025, respectively on the statement of operations.

Note 8 – Leases

The Company has operating leases for corporate offices, and office equipment. The leases have remaining lease terms of 2 to 3 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 March 31, 2026		Three months ended March 31, 2025
	(in thousands)
Operating lease cost	$	92	$	86
Finance lease cost:
Amortization of right-of-use assets		1		1
Interest on lease liabilities		0		0
Total finance lease cost		1		1
Variable lease cost		34		32
Total lease cost	$	127	$	119

Supplemental cash flow information related to leases was as follows:

	Three months ended March 31, 2026		Three months ended March 31, 2025
	(in thousands)
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	112	$	108
Financing cash flows from finance leases	$	1	$	1

Supplemental balance sheet information related to leases was as follows:

	March 31, 2026			December 31, 2025
	(in thousands)
Operating lease right-of-use assets	$	912		$	1,004
Finance lease right-of-use assets	$	16		$	17

Current portion of operating lease liabilities	$	397		$	386
Operating lease liabilities, net of current portion		556			661
Total operating lease liabilities	$	953		$	1,047

Current portion of finance lease liabilities	$	5		$	5
Finance lease liabilities, net of current portion		10			11
Total finance lease liabilities	$	15		$	16

Weighted average remaining lease term
Operating leases		2.3 years			2.6 years
Finance leases		2.6 years			2.8 years

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

As of March 31, 2026, maturities of lease liabilities were as follows:

	Operating Leases			Finance Leases
	(in thousands)
Year ending December 31,
2026 (remaining nine months)	$	338		$	5
2027		450			7
2028		251			5
Total future minimum lease payments		1,039			17
Less imputed interest		(86	)		(2	)
Total	$	953		$	15

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 expenses 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 42,500 shares of common stock to employees and board members during the three months ended March 31, 2026. The fair value of the stock options granted during the three months ended March 31, 2026, was approximately $0.1 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 three months ended March 31, 2026.

Schedule of Fair Value Assumptions

Assumptions for Option Grants
Stock Price Volatility	66.24	%
Risk-Free Interest Rate	3.93	%
Expected Life (in years)	6.25
Expected Dividend Yield	0.0	%

The Company granted stock options to purchase 204,575 shares of common stock to employees and board members during the three months ended March 31, 2025. Of the 204,575 stock options granted, 145,614 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 March 31, 2026. The fair value of the stock options granted during the three months ended March 31, 2025, was approximately $0.2 million.

Stock-based compensation expense related to stock options was $58,000 and $66,000 for the three months ended March 31, 2026 and 2025, respectively. For the three months ended March 31, 2026, approximately $56,000 and $2,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying statement of operations. For the three months ended March 31, 2025, approximately $64,000 and $2,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying statement of operations.

As of March 31, 2026, there was $407,000 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 2.3 years. This does not include approximately $60,000 of unrecognized compensation related to the vesting conditions of 58,961 options that are not probable to be achieved as of March 31, 2026.

Restricted Stock

Total stock-based compensation expense for restricted stock on the Company’s condensed statement of operations was approximately $2,000 and $10,000 for the three months ended March 31, 2026 and 2025, respectively. For the three months ended March 31, 2026 and 2025, approximately $2,000 and $10,000, respectively, are included in selling, general and administrative expenses in the accompanying statement of operations.

During the three months ended March 31, 2026, 3,610 shares of restricted stock were issued to board members related to services rendered during the year ended December 31, 2025. As a result of the issuance of the 3,610 shares of restricted stock, approximately $8,750 of expense previously in accrued expenses was reclassified to additional paid-in capital during the three months ended March 31, 2026. All restricted shares issued during the three months ended March 31, 2026 vested at issuance. During the three months ended March 31, 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 55,659 shares of restricted stock, approximately $72,000 of expense previously in accrued expenses was reclassified to additional paid-in capital during the three months ended March 31, 2025. All restricted shares issued during the three months ended March 31, 2025 vested at issuance.

As of March 31, 2026, 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):

	2026		2025
	Three Months Ended March 31,
	2026		2025
Net revenue:
Product revenues	$	5,040	$	4,706
Royalty and other revenues		172		171
Total net revenues		5,212		4,877
Cost of goods sold		2,219		1,723
Gross margin		2,993		3,154
Operating expenses:
Research and development		346		295
Selling, general and administrative		2,521		2,254
Other operating expenses (1)		29		39
Total operating expenses		2,896		2,588
Operating income		97		566
Other income (expense)		43		(8	)
Net income		140		558

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

Note 11 – Net Income per Common Share

Basic income per common share is calculated by dividing net income available to common shareholders by the number of weighted average common shares issued and outstanding. Diluted income per common share is calculated by dividing net income 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 per common share is as follows:

(In thousands, except share and per share data)	2026		2025
	Three Months Ended March 31,
(In thousands, except share and per share data)	2026		2025
Numerator:
Net income	$	140	$	558

Denominator:
Basic weighted average common shares outstanding		10,650,819		10,600,350
Effect of potentially dilutive options		340,085		15,416
Diluted weighted average common shares outstanding		10,990,904		10,615,766

Income per common share:
Basic	$	0.01	$	0.05
Diluted	$	0.01	$	0.05

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

	As of March 31,
	2026		2025
Shares underlying options outstanding		847,025		1,423,290
Unvested restricted stock		-		-

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 did not record income tax expense for the three months ended March 31, 2026, and March31, 2025. The Company’s effective tax rate for the three months ended March 31, 2026 and March 31, 2025 was approximately 0%.

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.

Note 13 – Subsequent Event

On February 20, 2026, the U.S. Supreme Court ruled that the International Emergency Economic Powers Act (“IEEPA”) does not authorize the President to impose tariffs, thereby invalidating prior IEEPA-based tariff programs previously announced by the current U.S. Administration. Following the decision, the President issued an executive order directing that the collection of such IEEPA-based duties end “as soon as practicable.” In April 2026, the federal government established procedures by which companies that had paid IEEPA tariffs prior to the Supreme Court ruling could apply for refunds. Accordingly, on April 24, 2026, the Company applied for a refund of its previously paid IEEPA tariffs in the amount of $646,698. Although the Company believes it is entitled to be refunded such amount in full, it is unclear what additional eligibility or other conditions may be imposed on such refund requests, if any, or the timing of processing and payment of IEEPA refund requests. No asset or gain related to potential tariff refunds has been recognized due to uncertainty regarding eligibility, amount, and timing.

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

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.

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 medical filtration portfolio includes two product lines: infection control and dialysis water. The infection control products feature both microfilters (0.1 micron), which retain bacteria, and ultrafilters (0.005 micron), which retain bacteria, viruses, and endotoxins to address a broader spectrum of waterborne pathogens including and beyond Legionella and Pseudomonas. The dialysis products consist exclusively of ultrafilters, extending the same microbial and endotoxin retention capabilities to the purification of water and bicarbonate concentrate used in dialysis treatment, where endotoxin control is especially critical. 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), our portfolio of products is further enhanced with the ability to address a broad spectrum of emerging and persistent waterborne contaminants. Our commercial filtration 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.

Across our product portfolio, we characterize revenue as either programmatic or emergency response. Programmatic revenue reflects recurring procurement of filters used within ongoing clinical, treatment, or operational workflows, and following a replacement schedule based on filter life. Emergency response revenue represents the rapid deployment of filtration solutions in response to acute water-quality events, such as outbreaks, contamination concerns, system disruptions, or precautionary advisories, and is predominantly associated with infection control filtration. Emergency response orders are generally non-recurring in nature, although emergency deployments may lead to subsequent routine purchasing.

Our Products

Water Filtration Products

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

For medical applications, 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, provide a unique alternative to charged membrane solutions and feature 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 highly regulated environments.

Our primary sales strategy for medical applications is to sell within healthcare 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 healthcare as a primary customer base, the VARs that support these facilities also support a wide variety of commercial and industrial businesses. 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, while focusing on the hospital and dialysis customers.

For commercial applications, we develop filters 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 application sales model also 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 a leading tool for proactive protection to patients in high-risk areas (e.g., ice machines, surgical rooms, NICUs) and reactive protection to patients in broader areas during periods of water pathogen outbreaks. Our products are used in hundreds of medical facilities to aid in infection control, both proactively and reactively.

According to the American Hospital Association’s most recent annual survey data (2023), there are approximately 6,093 hospitals in the U.S., representing more than 913,000 beds and approximately 34.4 million inpatient admissions annually. These facilities rely on extensive internal water systems to support patient care, including handwashing, bathing, medical device reprocessing, dialysis, and other clinical and operational uses.

According to a June 2025 report from the U.S. Centers for Disease Control and Prevention (“CDC”), on any given day, approximately one in 31 hospitalized patients has at least one healthcare-associated infection (“HAI”), underscoring the scale of infection risk within hospital environments. The CDC further identifies waterborne pathogens such as Legionella, Pseudomonas, and nontuberculous mycobacteria as significant contributors to HAIs, noting that these organisms can proliferate in aging, complex premise plumbing systems commonly found in healthcare facilities and be transmitted through sinks, showers, ice machines, and other water outlets.

CDC surveillance of waterborne disease outbreaks indicates that premise plumbing is a leading source of water-related illness, hospitalizations, and deaths in the United States, with healthcare facilities representing a higher-risk environment due to susceptible patient populations and frequent water exposure. These factors underscore the importance of effective water management and point-of-use filtration strategies to mitigate microbiological risk in critical-use healthcare settings.

Since 2017, Centers for Medicare and Medicaid Services (“CMS”) has required Medicare- and Medicaid-certified healthcare facilities to implement policies and procedures to reduce the risk of growth and spread of Legionella and other opportunistic waterborne pathogens in building water systems. Compliance with these expectations is evaluated through routine survey and certification activities, during which CMS surveyors and accrediting organizations review whether facilities have established and implemented formal water management programs (“WMPs”), including documented governance, monitoring protocols, corrective actions, and records demonstrating ongoing execution. CMS guidance directs facilities to align their WMPs with prevailing industry standards, including ASHRAE Standard 188 and the Centers for Disease Control and Prevention (“CDC”) water management toolkit. While the underlying CMS expectations have remained in effect since 2017, enforcement and documentation requirements have become increasingly embedded in standard survey practice over time, particularly as healthcare facilities have faced heightened scrutiny of waterborne infection risks. We believe that continued enforcement of these requirements and the growing emphasis on effective water management programs may have a positive impact on demand for our HAI-inhibiting micro- and ultrafilters.

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 dialysis water filters are widely deployed in both acute and chronic dialysis environments to enhance water safety and support the production of ultrapure dialysate. Our solutions 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.

To perform hemodialysis, dialysis clinics rely on dedicated water purification systems to produce ultrapure water and bicarbonate concentrate, the two essential ingredients for preparing dialysate, the fluid used to remove waste material from the blood during treatment. As of early 2025, there are approximately 7,556 dialysis clinics in the United States serving more than 500,000 patients. While precise counts of hemodialysis machines in use are not publicly reported on a routine national basis, industry sources indicate that the installed base in the United States likely exceeds 200,000 hemodialysis units, consistent with estimates used in market analyses. These dialysis facilities and machines represent a significant sustained demand environment for water purification and treatment technologies that support patient safety and the reliable operation of clinical dialysis care.

Nephros dialysis filters are validated for physical retention of bacteria, viruses, and endotoxins through size exclusion. All models are FDA 510(k)-cleared and installed within dialysis water systems, where they support the production of ultrapure water and bicarbonate concentrate used in hemodialysis treatment.

Foodservice and Hospitality. 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.

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 owners of those facilities may 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 intend to be ready to deploy our expertise and solutions based on our years of experience servicing the medical market. We believe that we have an opportunity to offer unique expertise and products to the commercial market.

Critical Accounting Policies

Our critical accounting policies are described in our Annual Report on Form 10-K for the year ended December 31, 2025 filed with the SEC on March 17, 2026. There have been no material changes to these policies for the three months ended March 31, 2026.

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.

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 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 evaluated on a periodic basis using updated observable inputs and market information to ensure they continue to reflect an appropriate estimate of the price at which we would sell each promised good or service on a standalone basis.

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 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 our progress toward achieving positive operating cash flow.

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

The following table sets forth our summarized results of operations for the three months ended March 31, 2026 and 2025 (in thousands, except percentages):

	2026			2025			$ Increase (Decrease)			% Increase (Decrease)
Total net revenue	$	5,212		$	4,877		$	335			7	%
Cost of goods sold		2,219			1,723			496			29	%
Gross margin		2,993			3,154			(161	)		(5	)%
Gross margin %		57	%		65	%		-			(8	)%
Selling, general and administrative expense		2,521			2,254			267			12	%
Research and development expense		346			295			51			17	%
Depreciation and amortization expense		29			39			(10	)		(26	)%
Operating Income		97			566			(469	)		(83	)%
Interest income		32			13			19			146	%
Other (expense) income, net		11			(21	)		32			152	%
Net Income	$	140		$	558		$	(418	)		(75	)%

Net Revenues

Net revenue increased by $335,000, or 7%, in the first quarter of 2026 compared to the same period in 2025. This increase was primarily driven by increased product revenue due to programmatic growth. The growth in programmatic revenue was offset somewhat by a decline in emergency response business. We had significant emergency response business in the first quarter of 2025 that did not fully repeat in 2026.

Gross Profit Margin

Gross profit margin was approximately 57% for the three months ended March 31, 2026 compared to approximately 65% for the three months ended March 31, 2025. The decrease of approximately 8 percentage points was primarily driven by higher product costs due to the decline in the US Dollar relative to the Euro and the impact of tariffs implemented in May 2025. Gross margins were also impacted by the mix of revenues as commercial revenues were a larger part of total revenue in the quarter ended March 31, 2026 vs. last year’s comparable quarter. Gross margins are lower on commercial revenues versus our infection control revenues.

Selling, General and Administrative Expense

Selling, general and administrative expense increased $267,000, or 12%, primarily due to an increase in headcount and an increase in professional fees.

Research and Development Expense

Research and development expense increased by approximately $51,000 primarily due to higher salary expense driven by increased headcount.

Depreciation and Amortization Expense

Depreciation and amortization expenses were approximately $29,000 and $39,000, respectively, for the three months ended March 31, 2026 and 2025. The decrease was primarily due to the extension of the Medica license period.

Interest Income

Interest income was approximately $32,000 for the three months ended March 31, 2026 compared to approximately $13,000 for the three months ended March 31, 2025. The increase was primarily due to higher balances in our money market account.

Other Income (Expense), net

Other income was approximately $11,000 for the three months ended March 31, 2026, and other expense of approximately $21,000 for the three months ended March 31, 2025, primarily as a result of gains and losses on foreign currency transactions.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of March 31, 2026 and December 31, 2025 and is intended to supplement the more detailed discussion that follows. The amounts stated are expressed in thousands.

Liquidity and Capital Resources	March 31, 2026		December 31, 2025
Cash and cash equivalents	$	4,018	$	5,400
Other current assets	$	7,478	$	5,823
Working capital	$	8,969	$	8,456
Stockholders’ equity	$	10,701	$	10,202

As of March 31, 2026, we had an accumulated deficit of $143 million. Although we were profitable in the quarter ended March 31, 2026 and the full year ended December 31, 2025, 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 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 used in operating activities was approximately $1.7 million for the three months ended March 31, 2026, compared to net cash provided by operating activities of approximately $0.3 million for the three months ended March 31, 2025. Net cash used in operating activities in 2026 was primarily due to an increase in accounts receivable of $1.1 million and a decrease in accrued expenses of approximately $0.8 million offset by $0.1 million of net income. Net cash provided by operating activities in 2025 was primarily due to 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.

We had no investing activities for both the three months ended March 31, 2026 and March 31, 2025.

Net cash provided by financing activities was approximately $289,000 for the three months ended March 31, 2026, primarily due to cash exercises of stock options, compared to approximately $1,000 for the same period in 2025, primarily due to payments on our equipment financing debt.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2026.

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, 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.

As required by Rules 13a-15 and 15d-15 under the Exchange Act, the Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of March 31, 2026. Based upon this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the disclosure controls and procedures were not effective as of March 31, 2026, due to the existence of a material weakness in our internal control over financial reporting, as discussed below. Notwithstanding such material weakness, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly in all material respects the financial position, results of operations and cash flows for the period presented.

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 developed 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 also implemented new controls to ensure that we properly recognize the specific point in time at which contracted services are completed and approved by the customer. In addition to developing internal processes and controls, we provided additional training to our sales team, to properly capture the relevant information needed when we price contracts and when contracted services are completed by us and approved by the customer. 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, 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.

Item 5. Other Information

Rule 10b5-1 Trading Arrangements

During the three months ended March 31, 2026, 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.

Annual Meeting of Stockholders

The Company’s Board of Directors has not yet determined the date or time of the Company’s 2026 Annual Meeting of Stockholders (the “2026 Annual Meeting”). The Company intends to announce the date, time and location of the 2026 Annual Meeting through a press release and/or the filing of proxy materials with the SEC once such information has been determined.

The date of the 2026 Annual Meeting will likely be more than 30 days following the anniversary of the 2025 Annual Meeting of the Stockholders held on June 16, 2025 (the “2025 Annual Meeting”). Because the date of the 2026 Annual Meeting has not yet been established, assuming the meeting will be more than 30 days after the anniversary of the 2025 Annual Meeting, the updated deadlines for stockholder proposals or director nominations pursuant to Rule 14a-8 under the Securities Exchange Act of 1934 and the Company’s bylaws have not yet been determined. Once the Company announces the date of the 2026 Annual Meeting, stockholders will be notified of the applicable deadlines for submission of stockholder proposals and director nominations in accordance with applicable SEC rules and the Company’s governing documents.

Item 6. Exhibits

EXHIBIT INDEX

Exhibit No.		Description of Exhibit

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.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: May 7, 2026	By:	/s/ Robert Banks
	Name:	Robert Banks
	Title:	President, Chief Executive Officer (Principal Executive Officer)

Date: May 7, 2026	By:	/s/ Judy Krandel
	Name:	Judy Krandel
	Title:	Chief Financial Officer (Principal Financial and Accounting Officer)

SEC Form 10-Q filed by Nephros Inc.