SOURCE: Nephros, Inc.

May 15, 2007 16:05 ET

Nephros Reports First Quarter 2007 Financial Results

Revenues Increase 70%, Net Loss Is Reduced

NEW YORK, NY -- (MARKET WIRE) -- May 15, 2007 -- Nephros, Inc. (AMEX: NEP) announced today financial results for the three months ended March 31, 2007.

For the quarter ended March 31, 2007, Nephros reported net revenue of $296,000, attributable to sales of its OLpur™ MDHDF filter series (which currently consists of the MD190 and MD220 diafilters) products in Europe, compared with $174,000 in the corresponding period of 2006. Our sales increase of approximately 70% is primarily due to increased sales to our principal European distributor as the number of clinics and patients using our products has expanded.

The Company's net loss was $1,571,000 for the first quarter of 2007 versus a net loss of $1,679,000 in the first quarter of 2006. Nephros reported a net loss attributable to common stockholders in the first quarter of 2007 of $0.13 per basic and diluted share, compared to a net loss of $0.14 per basic and diluted share in the year-earlier period. The average number of basic and diluted common shares for the quarter ended March 31, 2007 was 12,317,992, compared to 12,314,294 for the quarter ended March 31, 2006. The Company's net loss was reduced as the current quarter benefited from higher gross profit on higher sales levels and lower operating costs, offset by the interest expense incurred related to the Convertible Notes issued in June 2006.

Nephros had cash, cash equivalents and short-term investments of approximately $1,313,000 and $803,000 as of March 31, 2007 and May 14, 2007, respectively.

About Nephros Inc.

Nephros, Inc., headquartered in New York, is a medical device company developing and marketing products designed to improve the quality of life for the End-Stage Renal Disease (ESRD) patient, while addressing the critical financial and clinical needs of the care provider. ESRD is a disease state characterized by the irreversible loss of kidney function. Nephros believes that its products, particularly its Mid-Dilution Hemodiafiltration therapy, are designed to remove a range of harmful substances more effectively, and more cost-effectively, than existing ESRD treatment methods; particularly with respect to substances known collectively as "middle molecules," due to their molecular weight, that have been found to contribute to such conditions as dialysis-related amyloidosis, carpal tunnel syndrome, degenerative bone disease and, ultimately, mortality in the ESRD patient. Nephros products are currently being used in over fifty clinics in Europe, and are distributed in Italy, France, Spain, Greece, the United Kingdom, Germany, Norway, Sweden, Denmark, The Netherlands and Belgium.

Nephros also markets a line of water filtration products, the Dual Stage Ultrafilter (DSU). Nephros' patented dual stage cold sterilization ultrafilter has the capability to filter out bacteria and, due to its exceptional filtration levels, filter out many viruses and parasites. The DSU proprietary design provides dual-stage filtration reducing the risk of filtration failure. With initial focus on health care, the DSU is in a pilot-use program at a major medical center and has been selected for further development by the U.S. Marine Corps. Nephros considers the DSU a significant breakthrough in providing affordable and reliable water filtration. The DSU is based on Nephros' proprietary water filtration technology originally designed for medical use in its H2H machine, and is a complementary product line to Nephros' main focus, the ESRD therapy business.

For more information on Nephros please visit the company's website, www.nephros.com.

Forward-Looking Statements

This news release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended. Such statements may include statements regarding the efficacy and intended use of Nephros' technologies under development, the timelines for bringing such products to market and 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. For such statements, Nephros claims the protection of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future performance, are based on certain assumptions and are subject to various known and unknown risks and uncertainties, many of which are beyond the control of Nephros. Actual results may differ materially from the expectations contained in the forward-looking statements. Factors that may cause such differences include the risks that: (i) products that appeared promising to Nephros in research or clinical trials may not demonstrate anticipated efficacy, safety or cost savings in subsequent pre-clinical or clinical trials; (ii) Nephros may not obtain appropriate or necessary governmental approvals to achieve its business plan or effectively market its products; (iii) product orders may be cancelled, patients currently using Nephros' products may cease to do so and patients expected to begin using Nephros' products may not; (iv) Nephros' technology and products may not be accepted in current or future target markets, which could lead to the failure to achieve market penetration of Nephros' products; (v) Nephros may not be able to sell its ESRD or water filtration products at competitive prices or profitably; (vi) Nephros may not be able to satisfy its debt obligations when they become due and payable and meet its anticipated cash needs and may not be successful in obtaining additional funding in order to continue operations or fund its clinical trials; (vii) Nephros may not be able to build key relationships with physicians, clinical groups and government agencies, pursue or increase sales opportunities in Europe or elsewhere, or be the first to introduce hemodiafiltration therapy in the United States; (viii) Nephros may not be able to secure or enforce adequate legal protection, including patent protection, for its products; and (ix) Nephros may be unable to show progress consistent with its plan of compliance to meet the American Stock Exchange's continued listing standards or may be otherwise unable to timely regain compliance with the AMEX listing standards. More detailed information about Nephros and the risk factors that may affect the realization of forward-looking statements is set forth in Nephros' filings with the Securities and Exchange Commission, including Nephros' Annual Report on Form 10-KSB filed with the SEC for the fiscal year ended December 31, 2006. Investors and security holders are urged to read those documents free of charge on the SEC's web site at www.sec.gov. Nephros does not undertake to publicly update or revise its forward-looking statements as a result of new information, future events or otherwise.

                       NEPHROS, INC. AND SUBSIDIARY
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                   (In thousands, except share amounts)
                                (unaudited)



                                                  March 31,   December 31,
                                                    2007          2006
                                                ------------  ------------
ASSETS
Current assets:
  Cash and cash equivalents                     $        413  $        253
  Short-term investments                                 900         2,800
  Accounts receivable, less allowances of $49
   and $48, respectively                                 248           228
  Inventory, net                                         656           512
  Prepaid expenses and other current assets              319           440

                                                ------------  ------------
Total current assets                                   2,536         4,233

  Property and equipment, net                            832           911
  Other assets                                            23            23
                                                ------------  ------------
Total assets                                    $      3,391  $      5,167
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
    Accounts payable                            $        285  $        568
  Accrued expenses                                       740           649
  Accrued severance expense                                -            94
  Note payable - short-term portion                      372           380
                                                ------------  ------------
Total current liabilities                              1,397         1,691

  Convertible notes payable                            5,201         5,205
  Accrued interest-convertible notes                     259           183
  Note payable - long-term portion                         -           184
                                                ------------  ------------
Total liabilities                                      6,857         7,263
                                                ------------  ------------

Stockholders' (deficit) equity:
   Common stock, $.001 par value; 25,000,000
    shares authorized and 12,317,992 shares
    issued and outstanding at March 31, 2007
    and December 31, 2006                                 12            12
  Additional paid-in capital                          53,322        53,135
  Accumulated other comprehensive income                  26            12
  Accumulated deficit                                (56,826)      (55,255)
                                                ------------  ------------
  Total stockholders' deficit                         (3,466)       (2,096)
                                                ------------  ------------
Total liabilities and stockholders' deficit     $      3,391  $      5,167
                                                ============  ============





                       NEPHROS, INC. AND SUBSIDIARY

              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                   (In thousands, except share amounts)
                                (unaudited)

                                                    Three Months Ended
                                                         March 31,
                                                --------------------------
                                                    2007          2006
                                                ------------  ------------

Net product revenues                            $        296  $        174

Cost of goods sold                                       205           146
                                                ------------  ------------

Gross profit                                              91            28

Operating expenses:
  Research and development                               388           345
  Depreciation                                            83            77
  Selling, general and administrative                  1,138         1,324
                                                ------------  ------------
 Total operating expenses                              1,609         1,746

                                                ------------  ------------
Loss from operations                                  (1,518)       (1,718)

Interest income                                           25            39
Interest expense                                          87             -
Other income                                               9             -
                                                ------------  ------------

Net loss                                        $     (1,571) $     (1,679)
                                                ============  ============

Basic and diluted net loss per common share     $      (0.13) $      (0.14)
                                                ============  ============

Shares used in computing basic and diluted net
 loss per common share                            12,317,992    12,314,294
                                                ============  ============




                       NEPHROS, INC. AND SUBSIDIARY
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                              (In thousands)
                                (unaudited)

                                                   Three Months Ended
                                                        March 31,
                                                --------------------------
                                                   2007          2006
                                                ------------  ------------
Operating activities:

Net loss                                        $     (1,571) $     (1,679)

Adjustments to reconcile net loss to net cash
 used in operating activities:

  Depreciation                                            83            77
  Amortization of research and development
   assets                                                  4             -
  Amortization of debt discount                            3             -
  Change in valuation of derivative liability             (7)            -
  Noncash stock-based compensation                       187           115

(Increase) decrease in operating assets:
  Accounts receivable                                    (17)           66
  Inventory                                             (138)          (71)
  Prepaid expenses and other current assets              122             3

Increase (decrease) in operating liabilities:
  Accounts payable and accrued expenses                 (195)          (24)
  Accrued severance expense                              (94)            -
  Accrued interest-convertible notes                      76             -
  Other liabilities                                     (192)            -
                                                ------------  ------------
  Net cash used in operating activities               (1,739)       (1,513)
                                                ------------  ------------

Investing activities:
  Purchase of property and equipment                      (2)            -
  Maturities of short-term investments                 1,900         1,250
                                                ------------  ------------
  Net cash provided by investing activities            1,898         1,250
                                                ------------  ------------

Financing activities:
  Proceeds from exercise of stock options                  -             1
                                                ------------  ------------
  Net cash provided by financing activities                -             1
                                                ------------  ------------

Effect of exchange rates on cash                           1           (28)
                                                ------------  ------------

  Net increase (decrease) in cash and cash
   equivalents                                           160          (290)

  Cash and cash equivalents, beginning of
   period                                                253           746
                                                ------------  ------------
  Cash and cash equivalents, end of period      $        413  $        456
                                                ============  ============

Contact Information

  • CONTACTS:
    Norman Barta
    Nephros, Inc.
    212 781-5113

    Paul G. Henning
    Cameron Associates
    212 554-5462
    Email Contact