NEPHROS INC Stock Compensation Disclosure

Note 12 - 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 statement of operations. The Company calculates stock-based compensation expense in accordance with ASC 718. The fair value of stock-based awards is amortized over the vesting period of the award.

 

Stock Plans

 

In 2024, the Board of Directors adopted the Nephros, Inc. 2024 Equity Incentive Plan (“2024 Plan”). As of December 31, 2025, options to purchase 212,755 shares of common stock had been issued to employees under the 2024 Plan and were outstanding. The options issued to employees expire on various dates between November 6, 2034 and November 10, 2035. As of December 31, 2025, there were 1,294,708 shares available for future grant under the 2024 Plan.

 

Generally, grants vest based on a service condition only and vest between two to four years. The share reserve under the 2024 Plan is be automatically increased from time to time for shares subject to outstanding stock awards under the 2015 Plan (as defined below) and that following the effective date of the 2024 Plan: (i) are not issued because such stock award or any portion thereof expires or otherwise terminates without all of the shares covered by such stock award having been issued; (ii) are not issued because such stock award or any portion thereof is settled in cash; (iii) are forfeited back to or repurchased by the Company because of the failure to meet a contingency or condition required for the vesting of such shares; (iv) are withheld or reacquired to satisfy the exercise, strike or purchase price; or (v) are withheld or reacquired to satisfy a tax withholding obligation. However, the maximum number of shares that may be available for issuance under the 2024 Plan cannot exceed 2,616,875. The maximum contractual term for stock options granted under the 2024 Plan is 10 years.

 

The Company had previously adopted the Nephros, Inc. 2015 Equity Incentive Plan (“2015 Plan”), pursuant to which the Company granted equity awards to its officers, directors, employees and other service providers. Following the adoption of the 2024 Plan, the Company ceased using the 2015 Plan for granting equity awards.

 

As of December 31, 2025, options to purchase 1,010,281 shares of common stock had been issued to employees under the 2015 Plan and were outstanding. The options issued to employees expire on various dates between May 14, 2026 and May 14, 2034. No shares are available for future grants under the 2015 Plan.

 

In 2023, the Company issued 122,524 stock options outside of the 2015 Plan to the Company’s new Chief Financial Officer. The terms for these options are identical to those issued to employees under the 2015 Plan.

 

Stock Options

 

The Company has elected to recognize forfeitures as they occur. Stock-based compensation expense related to stock options was approximately $0.3 million and $0.1 million for the years ended December 31, 2025, and 2024, respectively.

 

For the year ended December 31, 2025, approximately $266,000 and $11,000     are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying statement of operations. For the year ended December 31, 2024, $131,000 and approximately $6,000 are included in selling, general and administrative expenses and research and development expenses, respectively, on the accompanying statement of operations.

 

 

The following table issued summarizes the option activity for the years ended December 31, 2025:

 Summary of Option Activity 

		Shares				Weighted Average Exercise Price
Outstanding at December 31, 2024			1,238,793			$	3.20
Options granted			221,304				1.82
Options forfeited			(60,737	)			4.50
Options expired			(1,667	)			7.11
Options exercised (1)			(52,132	)			1.96
Outstanding at December 31, 2025			1,345,561			$	2.96

 

(1)	52,132 options were exercised via cashless exercise which resulted in 28,869 shares issued.

 

The following table summarizes the options exercisable and vested and expected to vest as of December 31, 2025.

 Summary of Options Exercisable Vested and Expected to Vest 

		Shares				Weighted Average Exercise Price
Vested at December 31, 2025			890,653			$	3.60
Vested and expected to vest at December 31, 2025			1,263,633			$	3.04

 

The grant date fair value of each option grant was estimated throughout the year using the Black-Scholes option-pricing model using the following weighted-average assumptions:

 Schedule of Fair Value Assumptions 

Assumption for Option Grants		2025				2024
Stock Price Volatility			63.43	%			69.54	%
Risk-Free Interest Rates			4.22	%			4.45	%
Expected Life (in years)			6.03				6.08
Expected Dividend Yield			0	%			0	%

 

Expected volatility is based on historical volatility of the Company’s common stock at the time of grant. The risk-free interest rate is based on the U.S. Treasury yields in effect at the time of grant for periods corresponding with the expected life of the options. For the expected life, the Company is using the simplified method as described in the SEC Staff Accounting Bulletin 107. This method assumes that stock option grants will be exercised based on the average of the vesting periods and the option’s life.

 

The weighted-average fair value of options granted in 2025 and 2024 is $1.13 and $1.40, respectively. The aggregate intrinsic values of stock options outstanding and stock options vested or expected to vest as of December 31, 2025 was approximately $3.2 million and $2.9 million respectively. A stock option has intrinsic value, at any given time, if and to the extent that the exercise price of such stock option is less than the market price of the underlying common stock at such time. The weighted-average remaining contractual life of options vested or expected to vest as of December 31, 2025 was approximately 6.1 years.

 

The intrinsic values of stock options exercised was approximately $125,000 and $2,000 for the years ended December 31, 2025, and 2024 respectively.

 

As of December 31, 2025, there was $0.4 million of total unrecognized compensation cost related to unvested share-based compensation awards granted under the equity compensation plans which will be amortized over the weighted average remaining requisite service period of 2.03 years.

 

The Company did not recognize an income tax benefit for the years ended December 31, 2025, and 2024. While the Company generated taxable income during the year ended December 31, 2025, this income was fully offset by the utilization of net operating loss carryforwards for which the company continues to maintain a full valuation allowance against its deferred tax assets as of December 31, 2025.

 

 

Restricted Stock

 

The Company has issued restricted stock as compensation for the services of certain employees and non-employee directors. The grant date fair value of restricted stock is based on the fair value of the common stock on the date of grant, and compensation expense is recognized based on the period in which the restrictions lapse.

 

The following table summarizes restricted stock activity for the years ended December 31, 2025, and 2024:

 Summary of Restricted Stock Activity 

		Shares				Weighted Average Grant Date Fair Value
Nonvested at December 31, 2023			42,167			$	3.18
Granted			-				-
Vested			(42,167	)			3.18
Nonvested at December 31, 2024			-			$	-
Granted			70,708				2.07
Vested			(70,708	)			2.07
Nonvested at December 31, 2025			-			$	-

 

The total fair value of restricted stock that vested during each of the years ended December 31, 2025 and 2024 was approximately $0.1 million.

 

Total stock-based compensation expense for restricted stock was approximately $19,000 and $15,000 for the year ended December 31, 2025 and 2024, respectively and is recognized in selling, general and administrative expenses on the accompanying statement of operations.

 

As of December 31, 2025 and December 31, 2024, there was no unrecognized compensation expense related to restricted stock-based awards granted under the equity compensation plans.