Nephros Inc. Reports Second Quarter 2013 Financial Results

RIVER EDGE, N.J., Aug. 13, 2013 /PRNewswire/ -- Nephros, Inc. (OTC Bulletin Board:NEPH), a commercial stage medical device company that develops and sells high performance liquid purification ultrafilters, announced financial results for the three and six months ended June 30, 2013.

Recent Highlights

• 196% increase in water filter sales Q2 2013 versus Q2 2012
• Completed Rights Offering and Temporary Reduction in Exercise Price for March 2011 Warrants
• Complete range of Nephros ultrafilters added to GSA Schedule and listed on GSA Advantage!^®
• Nephros Point of Use filters were selected for use in three Veterans Affairs Medical Centers
• Signed agreements with W.S. Darley & Company and Source One Distribution Inc. to assist with the distribution and marketing of our Individual Water Purification Device (IWPD) to the U.S. military

"The second quarter of 2013 showed further growth in our water filtration business, particularly in the Hospital segment," said John C. Houghton, President and CEO of Nephros. "Our continued effort to make products available to Federal and other Government customers has been improved by the inclusion of our full product range on a GSA schedule. This has already resulted in successful awards with three Veterans Affairs Medical Centers."

Financial Performance for the Second Quarter Ended June 30, 2013

Total revenues for the quarter ended June 30, 2013 were $575,000 as compared with $302,000 for the quarter ended June 30, 2012. The increase in revenues was primarily driven by increased revenue of approximately $259,000 related to water filter sales. Licensing revenue ofapproximately $184,000 was recognized during the second quarter of 2013, which represented an increase of approximately $14,000 over the same period in 2012.

Total operating expenses for the quarter ended June 30, 2013 were $977,000 compared with $1,079,000 for the quarter ended June 30, 2012. The decrease was primarily driven by legal, accounting and professional services fees incurred during the quarter ended June 30, 2013 relating to the Rights Offering and, therefore, such expenses were recorded in equity. This decrease was partially offset by an increase in expenses related to research projects and an increase in amortization expense due to the amortization of the long-term asset related to the long-term supply agreement with Medica signed in April, 2012.

Net loss for the quarter ended June 30, 2013 was $671,000, or $0.05 per share (based on 14.5 million weighted average shares outstanding) compared to $754,000, or$0.07 per share (based on 11.0 million shares outstanding) for the quarter ended June 30, 2012. As of June 30, 2013, the Company had approximately 18.0 million shares outstanding.

Nephros ended the second quarter of 2013 with cash and cash equivalents of $298,000.

As previously disclosed, Nephros' $3 million rights offering was completed in May, 2013. In addition, during the rights offering period, Nephros offered the holders of its 2011 warrants the opportunity to exercise those warrants at a discounted exercise price of $0.30 per share. As a result of the temporarily discounted exercise price, holders of the Company's 2011 warrants exercised 14,879,708 warrants for 687,793 shares of common stock, resulting in gross proceeds of approximately $206,000 to the Company.

Dialysis and Hospital Applications Ultrafilters

For the second quarter of 2013, Nephros recorded approximately $391,000 of sales related to its water and bicarbonate ultrafiltration products, a 196% increase over the same period in 2012. Nephros believe that more stringent standards for dialysis water purity from the Association for the Advancement of Medical Instruments (AAMI), bundling of dialysis reimbursement payments, and the Affordable Care Act initiatives which relate hospital reimbursement rates to infection control compliance can provide positive momentum for increased adoption of Nephros ultrafiltration products. Nephros is now offering a full range of point-of-use filters for hospital infection control, including SafeSpout and SafeShower filters. The plastic casing of the Nephros hospital ultrafilters contains BACTiglas^TM. BACTiglas^TM releases silver ions at the surface of the plastic casing such that they are imparted to anything that touches it. Silver ions (through chemical bonding with amino acids) result in the killing of the bacteria that remains on the surface of the plastic. This enables the Nephros hospital ultrafilters to be bactericidal to touch contamination or growth on the surface of the plastic in addition to their water treatment effect. In February 2013, Nephros and Chem-Aqua, Inc. announced that the companies signed a non-exclusive distributor agreement for Chem-Aqua to distribute Nephros's innovative ultrafilters to hospitals in North America.

Military Applications Ultrafilters

In response to a Special Notice Announcement from the U.S. Army, Nephros submitted its Individual Water Purification Device (IWPD) containing the Nephros proprietary ultrafilter technology for consideration as part of a standard issue personal hydration pack for soldiers in the field. Nephros has been informed by the Military Government Review Agency that its IWPD has been validated to meet the military's NSF P248 standard as a microbiological water treatment device for military operations. The IWPD was evaluated by approximately 100 U.S. Marines and a Military Assessment Team. To date, Nephros has shipped approximately 2,000 IWPDs to the U.S. armed forces, equating to approximately $200,000 of sales. In January 2013, the U.S. Army issued a request for proposal (RFP) relating to IWPDs; Nephros submitted its response to this RFP on February 25, 2013. On March 29, 2013, Nephros received notification from the U.S. Army that the Government has completed the initial evaluation of the Nephros proposal and found Nephros to be within the competitive range to commence negotiations. Nephros received a request for 180 of Nephros IWPDs to be used as test assets during the Limited User Evaluation phase of the source selection. The U.S. Army may award several, one or no contracts as a result of this solicitation. The maximum quantity of all contracts combined is not to exceed 450,000 units or $45,000,000 over a 3 year period. The RFP evaluation period may take up to 6 months before an award is made, if at all. Nephros can provide no assurances that the Nephros RFP proposal will be accepted or that Nephros will sell any products to the U.S. Army or U.S. Marines.

European Hemodiafiltration

Under the licensing agreement with Bellco, S.r.l., Nephros received the third and final installment payment of 600,000 on January 15, 2013. Beginning on January 1, 2015 until December 31, 2016, Nephros will receive royalty payments from Bellco's sales of mid-dilution filters as part of the license agreement. During the license period, Nephros no longer recognizes sales from the licensed territory, but rather licensing revenue and royalty payments.

U.S. On-line Mid-dilution Hemodiafiltration

In April 2012, Nephros received FDA 510(k) clearance to market the Company's online mid-dilution hemodiafiltration (mid HDF) system in the U.S. for the treatment of patients with chronic renal failure when used with a UF controlled hemodialysis machine that provides ultrapure dialysate in accordance with current AAMI/ANSI/ISO standards. Nephros intends to pursue a limited launch of its mid-HDF system prior to expanding into the broader market. Nephros are currently preparing the Nephros mid-HDF system for a scaled market release and expect to have 10 units placed in a select number of dialysis clinics in the third quarter of 2013. In parallel, Nephros continues to explore opportunities to leverage the resources of a strategic partner to most effectively address the market. There are more than half a million patients in the U.S. whose kidneys have failed requiring them to seek treatment. Of these, approximately 370,000 are receiving hemodialysis. In 2009 the total medical care costs for Chronic Renal Failure reached $42.5 billion. The Nephros mid-HDF system is the only FDA-cleared online mid-dilution HDF therapy available in the U.S.

Nephros is evaluating a range of additional commercial, industrial, and military opportunities for its ultrafiltration technology.

About Nephros, Inc.

Nephros is a commercial stage medical device company that develops and sells high performance liquid purification filters. Our filters, which we call ultrafilters, are primarily used in dialysis centers and healthcare facilities for the production of ultrapure water and bicarbonate.

We were founded in 1997 by healthcare professionals affiliated with Columbia University Medical Center/New York-Presbyterian Hospital to develop and commercialize an alternative method to hemodialysis (HD). In 2009, we began to extend our filtration technologies to meet the demand for liquid purification in other areas, in particular water purification.

Presently, we offer seven types of ultrafilters for sale to customers in four markets:

• Dialysis Centers Water/Bicarbonate: Treatment of both water and bicarbonate for the production of ultrapure dialysate
• Hospitals and Other Healthcare Facilities: Removal of infectious agents in drinking and bathing water, particularly in high risk patient areas
• Military: Highly compact, individual water purification devices used by soldiers to produce safe drinking water in the field
• Dialysis Centers Blood: Clearance of toxins from blood using an alternative method to HD in patients with chronic renal failure

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

Forward-Looking Statements

This press release contains certain "forward-looking statements." Such statements include statements regarding the efficacy and intended use of our 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. 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 our control. Actual results may differ materially from the expectations contained in the forward-looking statements. Factors that may cause such differences include, but are not limited to, the risks that:

• we may not be able to continue as a going concern;
• we may not be able to obtain funding if and when needed or on terms favorable to us in order to continue operations;
• we may not have sufficient capital to successfully implement our business plan;
• we may not be able to effectively market our products;
• we may not be able to sell our water filtration products or chronic renal failure therapy products at competitive prices or profitably;
• we may encounter problems with our suppliers and manufacturers;
• we may encounter unanticipated internal control deficiencies or weaknesses or ineffective disclosure controls and procedures;
• we may not obtain appropriate or necessary regulatory approvals to achieve our business plan;
• products that appeared promising to us in research or clinical trials may not demonstrate anticipated efficacy, safety or cost savings in subsequent pre-clinical or clinical trials;
• we may not be able to secure or enforce adequate legal protection, including patent protection, for our products; and
• we may not be able to achieve sales growth in key geographic markets.

More detailed information about the Company and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements in this press release, is set forth in our filings with the SEC, including our Annual Report on Form 10-K for the fiscal year ended December 31, 2012 and our other periodic reports filed with the SEC. We urge you to read those documents free of charge at the SEC's web site at www.sec.gov. We do not undertake to publicly update or revise our forward-looking statements as a result of new information, future events or otherwise, except as required by law.

SOURCE Nephros, Inc.