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 asLegionella andPseudomonas, 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. In the opinion of management, the accompanying unaudited condensed interim financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of the Company’s financial position as of September 30, 2026, and its results of operations and changes in stockholders’ equity for the three and nine months ended September 30, 2026 and 2025, and its cash flows for the nine months ended September 30, 2026 and 2025. Results as of and for the nine months ended September 30, 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 onlyone 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

Management has evaluated the Company’s projected cash flows, existing cash balances and expected obligations for the twelve-month period following the date these financial statements are issued. Based on this evaluation, management believes that the Company’s existing cash balances and projected cash flows from operations will be sufficient to fund its current operating plan and meet its obligations as they become due for at least twelve months from the date these financial statements are issued. The Company’s projections are dependent on, among other matters, continued revenue growth, customer collections, inventory management and control of operating expenses. Actual results may differ from management’s projections, and adverse changes in these factors could reduce the Company’s available liquidity.

The Company generated net income for the three and nine months ended September 30, 2026 and the full year December 31, 2025. The Company used cash in operating activities during the three and nine months ended September 30, 2026 primarily due to increases in inventory and accounts receivable and a decrease in accounts payable. The Company generated cash from operations in the three and nine months ended September 30, 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 $141.3 million as of September 30, 2026. The increase in inventory during the first nine months of 2026 primarily reflected purchases made to support revenue growth, improve availability of fast-selling products and accommodate the timing of purchases ahead of our primary supplier’s annual summer shutdown. As of September 30, 2026, management believes current inventory levels are sufficient to support anticipated near-term growth. Accordingly, we expect the rate of inventory purchases to moderate as we sell through existing inventory, which, together with continued customer collections, is expected to improve working capital and cash flows from operations. The Company continues to focus on growth in sales and managing expenses with the goal of returning to 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 September 30, 2026, and 2025, the following customers accounted for the following percentages of the Company’s revenues, respectively:

For the nine months ended September 30, 2026, and 2025, the following customers accounted for the following percentages of the Company’s revenues, respectively:

As of September 30, 2026 and December 31, 2025, the following customers accounted for the following percentages of the Company’s accounts receivable, respectively:

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 determinedby 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. The Company hadno allowance for credit losses as of September 30, 2026 or December 31, 2025.

IEEPA Tariff Refunds

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. presidential administration. Following the decision, the President issued an executive order directing that the collection of such IEEPA-based duties end “as soon as practicable.” Although the Supreme Court ruling may allow importers to claim refunds of such previously paid IEEPA-related duties, and recovery may require administrative proceedings or litigation, with timing and outcomes uncertain. On the same date, the U.S. Administration announced new temporary global tariffs under Section 122 of the Trade Act of 1974 to take effect February 24, 2026. Subsequently, the U.S. Court of International Trade ruled that the collected IEEPA tariffs in question must be refunded in accordance with the law. The U.S. Customs and Border Protection (“CBP”) has issued an official notice and launched a special tariff refund program to facilitate such refunds.

In the absence of specific GAAP applicable to tariff refunds, the Company applied the loss-recovery model in ASC 410-30 by analogy and evaluated whether recovery was probable under ASC 450-20. Any future recovery of tariff refund claims will be recognized as a receivable when the claim becomes probable and will be reflected as a reduction of cost of goods sold for inventory previously sold, or as a reduction of inventory for goods that remain unsold.

During the second quarter of 2026, the Company received notification from its customs broker, who acts as the Company’s liaison with CBP, that previously paid IEEPA tariffs of approximately $647,000 had been approved for refund. The Company subsequently received the refund proceeds during the third quarter of 2026. The Company applied the loss recovery model and determined that recovery of the previously paid IEEPA tariff was probable and reasonably estimable. Accordingly, the Company recognized a refund receivable during the second quarter of 2026. During the third quarter of 2026, the Company received the approved refund, and the related receivable was fully settled. The cash received was classified as an operating cash inflow in the statements of cash flows, consistent with the classification of the original tariff payment.

The accounting for the IEEPA tariff refund reflects the original treatment of the underlying tariff costs. During the nine months ended September 30, 2026, the Company 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. These amounts represent the recovery of previously expensed IEEPA tariffs associated with inventory sold to customers since the tariffs were imposed in February 2025. Additionally, the Company recognized an $11,000 reduction in the carrying value of inventories on hand on the Company’s balance sheet as of September 30, 2026, for IEEPA tariffs previously capitalized as cost of inventory. The Company will apply this policy consistently to any future tariff refunds. The Company received approximately $22,000 of statutory interest in connection with the refund. Because the interest does not represent recovery of previously recognized tariff costs, the Company accounts for it as a gain contingency under ASC 450-30. During the three months ended September 30, 2026, the Company received the interest payment and recognized the amount in other income.

Management concluded that the IEEPA tariff refund, and receipt thereof, does not have any impact on its contracts with customers. The tariff imposed on Company products did not impact its pricing with customers, as the Company did not pass the tariff costs through to customers, and its customer contracts do not contain tariff pass-through or refund provisions. Accordingly, the Company did not recognize a customer refund liability or contract modification related to the tariff recovery.

Goodwill

The Company has one operating segment and one reporting unit for purposes of goodwill impairment testing. 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 goodwill may be impaired. The Company operates as one reporting unit. 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 unit’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 unit exceeds its fair value, the Company will recognize an impairment loss in an amount equal to that excess but limited to the total amount of goodwill. No goodwill impairment was recorded for the three and nine months ended September 30, 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. The majority of the Company’s revenue is derived from product sales. Product sales are recognized at a point in time when control of the product transfers to the customer, generally upon shipment via external logistics providers, in accordance with the applicable shipping terms, provided that the other applicable criteria of ASC 606 have been 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 $17,000 and $8,000 as of September 30, 2026 and September 30, 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. The Company provides services as either programmatic or emergency response. These services are invoiced separately at the time the respective services are completed and recognized as service revenue at standalone selling 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 performance obligations for revenue recognition purposes. For contracts that include multiple deliverables, 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 its 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.

Service, royalty, and other revenues recognized for the three and nine months ended September 30, 2026, were approximately $191,000 and $679,000, respectively. Service, royalty, and other revenues recognized for the three and nine months ended September 30, 2025, were approximately $168,000 and $447,000, respectively.

Note 4 –Fair Value Measurements

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

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

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

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

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

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

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level of classification for each reporting period. At September 30, 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 September 30, 2026 and December 31, 2025, the fair value measurements of the Company’s assets and liabilities measured on a recurring basis were as follows:

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

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

The carrying amounts of the lease liabilities and equipment financing approximate fair value as of September 30, 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 September 30, 2026 and December 31, 2025, were as follows:

Note 6 –Intangible Assets and Goodwill

Intangible Assets

Intangible assets as of September 30, 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:

The Company recognized amortization expense of approximately $8,000 for each of three months ended September 30, 2026 and 2025, respectively. All were recognized in selling, general and administrative expenses on the accompanying condensed statement of operations. The Company recognized amortization expense of approximately $24,000 for each of nine months ended September 30, 2026 and 2025, respectively. All were recognized in selling, general and administrative expenses on the accompanying condensed statement of operations.

As of September 30, 2026, future amortization expense for each of the next five years is (in thousands):

Goodwill

Goodwill had a carrying value on the Company’s condensed balance sheets of $0.8 million at September 30, 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 nine months ended September 30, 2026 or September 30, 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 $0.1 million and $0.2 million as of September 30, 2026 and December 31, 2025 respectively. Accumulated amortization is $2.2 million as of September 30, 2026 and $2.1 million as of December 31, 2025. 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 September 30, 2026 and 2025, respectively on the statement of operations. Amortization expense of approximately $25,000 and $41,000 was recognized in the statement of operations for the nine months ended September 30, 2026 and 2025, respectively.

Note 8 –Leases

The Company has operating leases for corporate offices, and office equipment. The leases have remaining lease terms of 1.1 to 2.1 years.

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

The components of total lease costs were as follows:

Supplemental cash flow information related to leases was as follows:

Supplemental balance sheet information related to leases was as follows:

As of September 30, 2026, maturities of lease liabilities were as follows:

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 43,500 shares of common stock to employees and board members during the nine months ended September 30, 2026. The fair value of the stock options granted during the nine months ended September 30, 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 nine months ended September 30, 2026.

The Company granted stock options to purchase 219,804 shares of common stock to employees and board members during the nine months ended September 30, 2025. Of the stock options granted in the nine months ended September 30, 2025,160,843 are stock options with service based vesting conditions and, as such, are being expensed over the respective service period. The remaining 58,961 stock options contain a performance condition that is not probable and therefore have no expense recognized as of September 30, 2026. The fair value of the stock options granted during the nine months ended September 30, 2025, was approximately $0.2 million.

Stock-based compensation expense related to stock options was approximately $58,000 and $70,000 for the three months ended September 30, 2026 and 2025, respectively. For the three months ended September 30, 2026, approximately $54,000 and $4,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations. For the three months ended September 30, 2025, approximately $67,000 and $3,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations.

Stock-based compensation expense related to stock options was $175,000 and $207,000 for the nine months ended September 30, 2026 and 2025, respectively. For the nine months ended September 30, 2026, approximately $166,000 and $9,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations. For the nine months ended September 30, 2025, approximately $199,000 and $8,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying condensed statement of operations.

As of September 30, 2026, there was $289,000 of total unrecognized compensation expense related to unvested stock options granted under the equity compensation plans, which will be amortized over the weighted average remaining requisite service period of 2.0 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 September 30, 2026.

Restricted Stock

Total stock-based compensation expense for restricted stock on the Company’s condensed statement of operations was approximately $1,000 and zero for the three months ended September 30, 2026 and 2025, respectively, which was included in selling, general and administrative expenses in the accompanying statement of operations.

Total stock-based compensation expense for restricted stock was approximately $5,000 and $10,000 for the nine months ended September 30, 2026, and 2025, respectively. During the nine months ended September 30, 2026,9,602 shares of restricted stock were issued to board members related to services rendered during the year ended December 31, 2025 or the quarters ended March 31, 2026 and June 30, 2026. As a result of the issuance of the 9,602 shares of restricted stock, approximately $26,000 of expense previously in accrued expenses was reclassified to additional paid-in capital during the nine months ended September 30, 2026. All restricted shares issued during the nine months ended September 30, 2026 vested at issuance. During the nine months ended September 30, 2025, the Company issued 55,659 shares of restricted stock to members of its Board of Directors, subject to continued service requirements. 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 during the nine months ended September 30, 2025. All restricted shares issued during the nine months ended September 30, 2025, vested at issuance.

As of September 30, 2026, there wasno unrecognized compensation expense related to unvested restricted stock awards granted under the equity compensation plans.

Note 10 –Segment Information

The Company operates inone operating segment, and thereforeone 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):

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:

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

Note 12 –Income Taxes

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

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

The Company recorded income tax expense of approximately $0 and $3,000 for the three months ended September 30, 2026, and September 30, 2025 respectively, and approximately $13,000 and $12,000 for the nine months ended September 30,2026 and 2025, respectively. The Company’s effective tax rate for the nine months ended September 30, 2026, and September 30, 2025 was approximately 1.02% and 1.08%.

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.