SOURCE: Nephros, Inc.

November 13, 2007 16:05 ET

Nephros Reports Third Quarter 2007 Financial Results

NEW YORK, NY--(Marketwire - November 13, 2007) - Nephros, Inc. (AMEX: NEP) announced today financial results for the three and nine month periods ended September 30, 2007.

"The third quarter of 2007 has been an exciting period for Nephros," said Norman J. Barta, Chairman and CEO of Nephros. "With our recent financing, the Company is now poised to execute the commercialization of our filtration products.

"We anticipate 2008 to be a transforming year for Nephros. Upon successful completion of the U.S. clinical trial, Nephros plans to seek FDA approval to market both the OLpur™ H2H™ Module and the OLpur™ MD Hemodiafilter series in the U.S., with a product launch targeted for 2008. We were pleased with the physician interest and enthusiasm during our product demonstrations at the recent American Society of Nephrology (ASN) Renal Week in San Francisco, CA. It was clear these physicians understood the value our technologies can bring to both the patient and the clinic.

"While we progress with our leading-edge technologies for ESRD therapy, we are also placing our water ultrafiltration products on the fast track, moving forward with our marketing and sales in hospital, assisted living, and related domains and pursuing our military product development."

On October 16, 2007, Nephros announced the initiation of its pivotal U.S. clinical trial for the OLpur™ H2H™ Hemodiafiltration Module and OLpur™ MD 220 Hemodiafilter. Nephros believes that, upon approval, its mid-dilution HDF technology would be the first approved online HDF therapy in the U.S.

For the quarter ended September 30, 2007, Nephros reported net product revenues of $112,000, attributable to sales of its OLpur™ MD190 and MD220 products in Europe, compared with $165,000 in the corresponding period of 2006, a decrease of 32%. The decrease is largely due to a few customers in the U.K. drawing down surplus inventory positions.

The Company's net loss was $1,462,000 or $(0.12) per basic and diluted common share for the third quarter of 2007 versus a net loss of $1,906,000 or $(0.15) per basic and diluted common share in the third quarter of 2006. The Company's net loss was decreased in the current quarter primarily due to the gain recorded on the exchange of notes which includes approximately the gain realized on debt extinguishment and the impact of refunds received from New York State for Qualified Emerging Technology Credits.

Net product revenues for the nine months ended September 30, 2007 were $755,000 compared to $641,000 in the corresponding period of 2006, an increase of almost 18%. The Company's net loss was $4,663,000 or $(0.38) per basic and diluted common share for the nine months ended September 30, 2007 compared with $5,758,000 or $(0.47) per basic and diluted common share for the corresponding period of 2006.

As of September 30, 2007, Nephros had cash, cash equivalents and short-term investments of $10,513,000.

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. The Nephros HDF system is 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." These molecules 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 sold and distributed throughout Europe and are currently being used in over fifty clinics in Europe.

Nephros also markets a line of water filtration products, the Dual Stage Ultrafilter (DSU). The Company's 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 which reduces the risk of filtration failure. With an initial focus on health care, the DSU is in a pilot-use program at a major U.S. medical center and has been selected for further development by the U.S. Marine Corps.

For more information on Nephros please visit the Company's website,

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 include statements regarding the efficacy and intended use of the Company's 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, the Company 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 Company's control. 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) Nephros may not be able to satisfy its obligations when they become due and payable and meet its anticipated cash needs and may not be able to obtain funding if and when needed or on terms favorable to it in order to continue operations or fund its clinical trials; (ii) Nephros may not be able to continue as a going concern; (iii) 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; (iv) 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; (v) Nephros may not obtain appropriate or necessary governmental approvals to achieve its business plan or effectively market its products; (vi) Nephros may encounter unanticipated internal control deficiencies or weaknesses or ineffective disclosure controls and procedures; (vii) HDF therapy may not be accepted in the United States and/or Nephros' technology and products may not be accepted in current or future target markets, which could lead to failure to achieve market penetration of Nephros' products; (viii) Nephros may not be able to sell its ESRD therapy or water filtration products at competitive prices or profitably; (ix) Nephros may not be able to secure or enforce adequate legal protection, including patent protection, for its products; (x) FDA approval relating to Nephros' OLpur HD190 filter may not facilitate or have any effect on the regulatory approval process for its other products; and (xi) Nephros may not be able to achieve sales growth in Europe or expand into other key geographic markets. 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 and Nephros' Quarterly Reports filed with the SEC on Form 10-QSB for the quarters ended September 30, 2007, June 30, 2007 and March 31, 2007. Investors and security holders are urged to read these documents free of charge on the SEC's web site at 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

                   (In thousands, except share amounts)

                                               September 30, December 31,
                                                   2007          2006
                                               ------------- -------------
Current assets:
     Cash and cash equivalents                 $       6,513 $         253
     Short-term investments                            4,000         2,800
     Accounts receivable, less allowances of $7
      and $48 as of September 30, 2007 and
      December 31, 2006, respectively                    114           228
     Inventory, net                                      560           512
     Deferred costs                                    2,043
     Prepaid expenses and other current assets           244           440
                                               ------------- -------------

Total current assets                                  13,474         4,233

     Property and equipment, net                         694           911
     Other assets                                         23            23
                                               ------------- -------------
Total assets                                   $      14,191 $       5,167
                                               ============= =============

Current liabilities:
     Accounts payable                          $         392 $         568
     Accrued expenses                                    620           649
     Accrued severance expense                           137            94
     Note payable - short-term portion                   372           380
                                               ------------- -------------
Total current liabilities                              1,521         1,691
Long-term liabilities:
     Convertible notes payable                        17,216         5,205
     Warrant payable - placement agent                 1,047
     Accrued interest-convertible notes                   50           183
     Note payable - long-term portion                                  184
                                               ------------- -------------
Total liabilities                                     19,834         7,263
                                               ------------- -------------

 Commitments and contingencies

Stockholders' deficit:
  Preferred stock, $.001 par value; 5,000,000
   shares authorized, none issued
  Common stock, $.001 par value; 40,000,000 and
   25,000,000 shares authorized and 12,317,992
   shares issued and outstanding as of September
   30, 2007 and December 31, 2006, respectively           12            12
  Additional paid-in capital                          54,185        53,135
  Accumulated other comprehensive income                  78            12
  Accumulated deficit                                (59,918)      (55,255)
                                               ------------- -------------
Total stockholders' deficit                           (5,643)       (2,096)
                                               ------------- -------------
Total liabilities and stockholders' deficit    $      14,191 $       5,167
                                               ============= =============

                       NEPHROS, INC. AND SUBSIDIARY

                   (In thousands, except share amounts)

                          Three Months Ended         Nine Months Ended
                             September 30,             September 30,
                       ------------------------- -------------------------
                           2007         2006         2007         2006
                       ------------ ------------ ------------ ------------

Net product revenues   $        112 $        165 $        755 $        641

Cost of goods sold              131          203          581          811

                       ------------ ------------ ------------ ------------
Gross margin (loss)             (19)         (38)         174         (170)

Operating expenses:
  Research and
   development                  298          545        1,102        1,444
  Depreciation                   86           64          253          224
  Selling, general and
   administrative             1,408        1,256        3,697        3,966
                       ------------ ------------ ------------ ------------
Total operating
 expenses                     1,792        1,865        5,052        5,634

                       ------------ ------------ ------------ ------------
Loss from operations         (1,811)      (1,903)      (4,878)      (5,804)

Other income (expense):
  Interest income                 2          116           35          164
  Interest expense             (149)        (114)        (317)        (113)
  Gain on exchange of
   debt                         330            -          330            -
  Other income (expense)        166           (5)         167           (5)
                       ------------ ------------ ------------ ------------

Net loss               $     (1,462)$     (1,906)$     (4,663)$     (5,758)
                       ============ ============ ============ ============

Loss per common share -
 basic and diluted     $      (0.12)$      (0.15)$      (0.38)$      (0.47)
                       ============ ============ ============ ============

Weighted average number
 of shares outstanding
 -basic and diluted      12,317,992   12,317,992   12,317,992   12,316,773
                       ============ ============ ============ ============

                       NEPHROS, INC. AND SUBSIDIARY
                              (In thousands)

                                                      Nine Months Ended
                                                        September 30,
                                                      2007         2006
                                                 ------------ ------------
Cash flows from operating activities:

Net loss                                         $     (4,663)  $   (5,758)

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

  Depreciation                                            253          224
  Amortization of research and development costs           11
  Loss on disposal of equipment                             2           24
  Amortization of debt discount                            32            4
  Loss on change in valuation of derivative
   liability                                                7
  Stock-based compensation                                265          454
  Gain on exchange of debt                               (330)

(Increase) decrease in operating assets:
  Accounts receivable, net                                124         (181)
  Inventory, net                                          (11)         387
  Deferred cost - insurance                                (4)
  Prepaid expenses and other current assets               197

Increase (decrease) in operating liabilities:
  Accounts payable and accrued expenses                  (250)        (615)
  Accrued severance expense                                45         (335)
  Accrued interest-convertible notes                      277          103
  Other liabilities                                      (192)
                                                 ------------ ------------
  Net cash used in operating activities                (4,237)      (5,693)
                                                 ------------ ------------

Cash flows from investing activities:
  Purchase of property and equipment                       (2)         (33)
  Purchase of short-term investments                   (4,000)      (3,000)
  Proceeds received from maturities of short-term
   investments                                          2,800        3,700
                                                 ------------ ------------
  Net cash provided by (used in) investing
   activities                                          (1,202)         667
                                                 ------------ ------------

Cash flows from financing activities:
  Proceeds from exercise of stock options                                1
  Deferred financing costs                               (992)
  Proceeds from private placement of convertible
   securities                                          12,677        5,207
                                                 ------------ ------------
  Net cash provided by financing activities            11,685        5,208
                                                 ------------ ------------

Effect of exchange rates on cash                           14           (5)
                                                 ------------ ------------

  Net increase in cash and cash equivalents             6,260          177

  Cash and cash equivalents, beginning of period          253          747
                                                 ------------ ------------
  Cash and cash equivalents, end of period       $      6,513 $        924
                                                 ============ ============

Supplemental disclosure of cash flow information
  Cash paid during the period for income taxes   $          3 $         32
                                                 ============ ============
Supplemental disclosure of noncash investing and
 financing activities
  Convertible note issued on debt exchange              5,300
  Fair value of warrants issued as placement agent
   fees                                                 1,047
                                                 ------------ ------------
                                                 $      6,347 $          -
                                                 ============ ============

See accompanying notes to the unaudited condensed consolidated interim
financial statements

Contact Information

    Norman Barta
    Nephros, Inc.
    212 781-5113

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