NEPHROS INC

Previous wording

In February 2026, the U.S. Supreme Court issued a ruling striking down certain tariffs previously imposed under the International Emergency Economic Powers Act (“IEEPA”). The U.S. presidential administration subsequently invoked additional tariffs under other U.S. laws resulting in a rapidly changing tariff environment. In April 2026, the U.S. Customs and Border Protection agency (“CBP”) launched a platform to allow for the submission of IEEPA tariff refund requests.

Current wording

In February 2026, the U.S. Supreme Court issued a ruling invalidating certain tariffs previously imposed by the U.S. presidential administration under the International Emergency Economic Powers Act (“IEEPA”). The administration subsequently invoked additional tariffs under other U.S. laws resulting in a rapidly changing tariff environment. In April 2026, the U.S. Customs and Border Protection agency (“CBP”) launched a platform to allow for the submission of IEEPA tariff refund requests.

Previous wording

During the six months ended June 30, 2026, we were notified by CBP that a refund of approximately $647,000 had been approved. Accordingly, during the six months ended June 30, 2026, we recognized a $624,000 reduction in cost of goods sold in our consolidated statements of operations, representing the expense for IEEPA tariffs to be refunded with respect to inventory sold to customers since the tariffs were imposed in February 2025. Additionally, we recognized a $23,000 reduction in the carrying value of inventories on hand on our consolidated balance sheet as of June 30, 2026 for IEEPA tariffs previously capitalized as cost of inventory. We recorded a receivable of approximately $647,000 related to the refunds as of June 30, 2026, as the cash had not yet been received.

Current wording

During the nine months ended September 30, 2026, the Company received notification from CBP that a refund of approximately $647,000 had been approved. The Company subsequently received the refund during the same period, and the related receivable was fully settled as of September 30, 2026. During the nine months ended September 30, 2026, we recognized a total reduction in cost of goods sold of approximately $636,000, consisting of $624,000 recognized during the six months ended June 30, 2026, and an additional $12,000 recognized during the three months ended September 30, 2026, which represented the expense for IEEPA tariffs refunded with respect to inventory sold to customers since the tariffs were imposed in February 2025. Additionally, we recognized an $11,000 reduction in the carrying value of inventories on hand on our balance sheet as of September 30, 2026 for IEEPA tariffs previously capitalized as cost of inventory.

Previous wording

We expect to receive approximately $22,000 of statutory interest in connection with the refund. Interest will be recognized in other income when realized or realizable.

Current wording

During the three months ended September 30, 2026, we received approximately $22,000 of statutory interest in connection with the refund, which was recognized in other income on the statement of operations.

Previous wording

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.

Current wording

According to the American Hospital Association’s most recent annual survey data (2024), there are approximately 6,100 hospitals in the U.S., representing more than 916,752 beds and approximately 35.7 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.

Previous wording

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.

Current wording

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 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.

Previous wording

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 12, 2026. During the six months ended June 30, 2026, we adopted an accounting policy for expected tariff refunds.

Current wording

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 12, 2026. During the nine months ended September 30, 2026, we adopted an accounting policy for expected tariff refunds.

Previous wording

Except for the adoption of this tariff-refund accounting policy, there were no material changes to our critical accounting policies during the six months ended June 30, 2026.

Current wording

Except for the adoption of this tariff-refund accounting policy, there were no material changes to our critical accounting policies during the nine months ended September 30, 2026.

Previous wording

Net revenue increased by $1.9 million, or 21%, for the six months ended June 30, 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 half of 2025 that did not fully repeat in 2026. We also experienced strong growth in both our commercial products and service revenue.

Current wording

Net revenue increased by $0.9 million, or 18%, in the third quarter of 2026 compared to the same period in 2025. This increase was primarily driven by growth in both product and service revenue. We had particularly strong growth in our emergency response revenue which outpaced growth in our programmatic revenue.

Previous wording

Gross profit margin was approximately 67% for the three months ended June 30, 2026, compared to approximately 63% for the corresponding 2025 period. The increase of approximately four percentage points was primarily attributable to our recognition during the period of IEEPA tariff refunds of approximately $0.6 million, which was recognized as a reduction of cost of goods sold during the three months ended June 30, 2026. The benefit resulting from the tariff refund was offset by increased costs due to the weakening of the U.S. dollar compared to the Euro, an increase in shipping expense and rapid growth in our service revenue, which yields lower gross margins than we realize from product sales. With respect to the tariff refund, the refund represents duties paid by us between the period from April 2025 to February 2026 and that were imposed by executive order in April 2025 under the IEEPA, which the U.S. Supreme Court ruled were invalid in February 2026. However, approximately $0.50 million of the entire tariff refund amount relates to purchased inventory that we converted to revenue beginning with the second quarter of 2025 through the first quarter of 2026 and which therefore would have reduced cost of goods sold in such periods; only approximately $0.1 million of the tariff refund related to purchased inventory that was converted to revenue during the three-month period ended June 30, 2026. The $0.50 million of tariff refund corresponding to product sales made in prior periods increased our gross profit margin by approximately nine percentage points for the three months ended June 30, 2026. Approximately $0.03 million of the tariff refund related to purchased inventory that was converted to revenue during the three-month period ended June 30, 2025. Including that $0.03 million, our gross profit margin for such period would have increased by approximately one percentage point. Although the IEEPA tariffs were declared invalid, the current administration has imposed tariffs using other statutory bases, which remain in effect. Accordingly, we expect that our gross profit margin will continue to face headwinds as a result of current U.S. tariff policy.

Current wording

Gross profit margin was approximately 58% for the three months ended September 30, 2026, compared to approximately 61% for the corresponding 2025 period. The decrease of approximately three percentage points was primarily attributable to higher inventory shipping and handling costs, including tariff expense, and growth in our service revenue, which yields lower gross margins than we realize from product sales.

Previous wording

Selling, general and administrative expense increased $484,000, or 11%, primarily due to an increase in headcount and an increase in professional fees.

Current wording

Selling, general and administrative expense increased $196,000, or 9%, primarily due to an increase in headcount and an increase in professional fees.

Previous wording

Depreciation and amortization expenses were approximately $29,000 and $35,000, respectively, for the three months ended June 30, 2026 and 2025. The decrease was primarily due to the extension of the Medica license period.

Current wording

Depreciation and amortization expenses were approximately $29,000 and $34,000, respectively, for the three months ended September 30, 2026 and 2025. The decrease was primarily due to the extension of the Medica license period.

Previous wording

Other expense was approximately $32,000 for the three months ended June 30, 2026 and June 30, 2025, respectively, primarily as a result of gains and losses on foreign currency transactions.

Current wording

Other expense was approximately $42,000 and $15,000 for the three months ended September 30, 2026 and September 30, 2025, respectively, primarily as a result of losses on foreign currency transactions.

Previous wording

The following table sets forth our summarized results of operations for the six months ended June 30, 2026 and 2025 (in thousands, except percentages):

Current wording

The following table sets forth our summarized results of operations for the nine months ended September 30, 2026 and 2025 (in thousands, except percentages):

Previous wording

Net revenue increased by $1.6 million, or 36%, in the second quarter of 2026 compared to the same period in 2025. This increase was primarily driven by increased product revenue due to programmatic growth. We also experienced strong growth in our emergency response and service revenue.

Current wording

Net revenue increased by $2.8 million, or 20%, for the nine months ended September 30, 2026, compared to the same period in 2025. This increase was primarily driven by growth in product revenue, attributable to both our programmatic and increased emergency response business. We also experienced growth in both our commercial products and service revenue.

Previous wording

Gross profit margin was approximately 63% for the six months ended June 30, 2026, compared to approximately 64% for the corresponding 2025 period. The decrease of approximately one percentage point was primarily attributable to increased product costs due to the weakening of the U.S. dollar compared to the Euro, increased shipping expense and rapid revenue growth from our commercial products offerings and services revenue, both of which yield lower gross margins than our infection control business. However, our gross margins significantly benefited from our recognition during the 2026 period of the IEEPA tariff refund of approximately $0.6 million, which was recognized as a reduction of cost of goods sold during the six months ended June 30, 2026. This refund reflects tariffs paid by us between the period from April 2025 to February 2026. Approximately $0.3 million of this tariff refund corresponds to purchased inventory that we converted to revenue in 2026, which amount accounts for an approximately three percentage point improvement in our gross profit margin for the six months ended June 30, 2026. The remaining approximately $0.3 million of the refunded tariffs correspond to purchased inventory that we converted to revenue in 2025, of which approximately $0.03 million corresponds to purchased inventory that we converted to revenue in the six months ended June 30, 2025. Although the IEEPA tariffs were declared invalid by the U.S. Supreme Court in February 2026, the current U.S. administration has imposed tariffs using other statutory bases, which remain in effect. Accordingly, we expect that our gross profit margin will continue to face headwinds as a result of current U.S. tariff policy.

Current wording

Gross profit margin was approximately 61% for the nine months ended September 30, 2026, compared to approximately 63% for the corresponding 2025 period. The decrease of approximately two percentage points was primarily attributable to increased product costs due to the weakening of the U.S. dollar compared to the Euro, and rapid revenue growth from our commercial products offerings and services revenue, both of which yield lower gross margins than our infection control business. However, our gross margins significantly benefited from our recognition during the 2026 period of the IEEPA tariff refund of approximately $0.6 million, which was recognized as a reduction of cost of goods sold during the nine months ended September 30, 2026. This refund reflects tariffs paid by us between the period from April 2025 to February 2026. Approximately $0.3 million of this tariff refund corresponds to purchased inventory that we converted to revenue in 2026. The remaining approximately $0.3 million of the refunded tariffs correspond to purchased inventory that we converted to revenue in 2025, of which approximately $0.2 million corresponds to purchased inventory that we converted to revenue in the nine months ended September 30, 2025. Although the IEEPA tariffs were declared invalid by the U.S. Supreme Court in February 2026, the current U.S. administration has imposed tariffs using other statutory bases, which remain in effect. Accordingly, we expect that our gross profit margin will continue to face headwinds as a result of current U.S. tariff policy.

Previous wording

Selling, general and administrative expense increased $217,000, or 10%, primarily due to an increase in headcount and an increase in sales commissions.

Current wording

Selling, general and administrative expense increased $0.7 million, or 10%, primarily due to an increase in headcount and an increase in professional fees.

Previous wording

Research and development expense increased by approximately $106,000, or 17%, primarily due to higher salary expense driven by increased headcount.

Current wording

Research and development expense increased by approximately $99,000, or 10%, primarily due to higher salary expense driven by increased headcount.

Previous wording

Depreciation and amortization expenses were approximately $58,000 and $74,000, respectively, for the six months ended June 30, 2026 and 2025. The decrease was primarily due to the extension of the Medica license period.

Current wording

Depreciation and amortization expenses were approximately $87,000 and $108,000, respectively, for the nine months ended September 30, 2026 and 2025. The decrease was primarily due to the extension of the Medica license period.

Previous wording

Interest income was approximately $30,000 for the three months ended June 30, 2026 compared to approximately $31,000 for the three months ended June 30, 2025.

Current wording

Interest income was approximately $115,000 for the nine months ended September 30, 2026 compared to approximately $85,000 for the nine months ended September 30, 2025.

Previous wording

Other expense was approximately $21,000 for the six months ended June 30, 2026, and $53,000 for the six months ended June 30, 2025, primarily as a result of gains and losses on foreign currency transactions.

Current wording

Other expense was approximately $63,000 for the nine months ended September 30, 2026, and $68,000 for the nine months ended September 30, 2025, primarily as a result of gains and losses on foreign currency transactions.

Previous wording

As of June 30, 2026, we had an accumulated deficit of approximately $142 million. Although we were profitable in the three and six months ended June 30, 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.

Current wording

As of September 30, 2026, we had an accumulated deficit of approximately $141 million. Although we were profitable in the three and nine months ended September 30, 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.

Previous wording

Net cash used in operating activities was approximately $1.0 million for the six months ended June 30, 2026, compared to net cash provided by operating activities of approximately $1.3 million for the six months ended June 30, 2025. Although we had negative cash flow in the first half of 2026, net income was $1.3 million for that period. In addition, accounts payable increased by $1.1 million. The favorable impacts were more than offset by an increase in accounts receivable of $1.7 million, an increase in inventory of $1.3 million, and a decrease in accrued expenses of approximately $0.5 million. The increase in inventory primarily reflects the timing of purchases to support revenue growth and our efforts to improve in-stock levels of fast-selling items. We also accelerated certain purchases ahead of our primary supplier’s annual summer shutdown in August. Net cash provided by operating activities in 2025 was primarily due to net income of approximately $0.8 million, a decrease in inventory of approximately $0.3 million, offset by an increase in accounts receivable of approximately $0.3 million.

Current wording

Net cash used in operating activities was approximately $1.1 million for the nine months ended September 30, 2026, compared to net cash provided by operating activities of approximately $1.4 million for the nine months ended September 30, 2025. Although we had negative cash flow in the nine months ended September 30, 2026, net income was $1.8 million for that period. The favorable impacts were more than offset by an increase in inventory of $1.8 million, an increase in accounts receivable of $1.1 million, and a decrease in accrued expenses of approximately $0.3 million. The increase in inventory primarily reflects the timing of inventory purchases to support revenue growth and our efforts to improve in-stock levels of fast-selling items. We also accelerated certain purchases ahead of our primary supplier’s annual summer shutdown in August. We believe we have sufficient inventory to support growth over the next twelve months and will work to improve inventory turns and manage the business more efficiently to improve cash flow from operations. 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.

Previous wording

We had no investing activities for both the six months ended June 30, 2026 and June 30, 2025.

Current wording

We had no investing activities for both the nine months ended September 30, 2026 and September 30, 2025.

Previous wording

Net cash provided by financing activities was approximately $287,000 for the six months ended June 30, 2026, primarily due to cash exercises of stock options, compared to net cash used of approximately $2,000 for the same period in 2025, primarily due to payments on our equipment financing debt.

Current wording

Net cash provided by financing activities was approximately $286,000 for the nine months ended September 30, 2026, primarily due to cash exercises of stock options, compared to net cash used of approximately $4,000 for the same period in 2025, primarily due to payments on our equipment financing debt.