Nephros Reports 2013 Fourth Quarter and Full Year Financial Results

RIVER EDGE, N.J., March 28, 2014 /PRNewswire/ -- Nephros, Inc. (OTCQB:NEPH), a commercial stage medical device company that develops and sells high performance liquid purification ultrafilters and an on-line mid-dilution hemodiafiltration system for the treatment of chronic renal failure patients, announced today financial results for the three months and full year ended December 31, 2013.

2013 Highlights

• Total water filter sales increased by 23% from $1,005,000 in 2012 to $1,240,000 in 2013
• Key business segments of dialysis water and hospital water sales increased by approximately 66% and 25%, respectively
• Launched new SSU for Dialysis Water/Bicarbonate filtration
• Signed Distributor agreements with Chem-Aqua and Garrett Callahan
• Submitted U.S. Army RFP
• Achieved GSA listing
• Completed May 2013 rights offering
• Daron Evans appointed to Board of Directors

"We have continued to show growth with our water filtration business; however, this was offset by the unanticipated voluntary product recall in the fourth quarter of 2013," said John C. Houghton, Chief Executive Officer of Nephros. "In 2014 we intend to continue to focus our efforts on expanding the availability of our water filtration products by enhancing our relationships with key distributors.  In addition we also expect to commence commercialization of our on-line mid-dilution hemodiafiltration system in the second quarter of 2014."

Financial Performance for the Year Ended December 31, 2013
Total revenues for the year ended December 31, 2013 were approximately $1,740,000 compared to approximately $1,807,000 for the year ended December 31, 2012.  Total revenues decreased approximately $67,000, or 4%, as a result of decreases of approximately $117,000 related to the Office of Naval Research, whose contract ended as of March 2012, and approximately $216,000 related to the sales credits recorded to reflect the impact of a voluntary product recall of point of use filters (POU) announced on October 30, 2013. These decreases were partially offset by an increase of approximately $31,000 related to the Bellco license agreement as well as underlying increases in total water filter sales.  Total water filter sales increased by 23% from $1,005,000 in 2012 to $1,240,000 in 2013 reflecting growth in key business segments of dialysis water and hospital water.  Dialysis water and hospital water sales increased by approximately 66% and 25%, respectively.  These increases were partially offset by decreases in military water sales of approximately 83%.

Cost of goods sold was approximately $898,000 for the year ended December 31, 2013 compared to approximately $737,000 for the year ended December 31, 2012. The increase of approximately $161,000 or 22%, in cost of goods sold is related to the increase in inventory reserves of approximately $210,000, $203,000 of which is a result of the October 2013 voluntary product recall and an increase in cost of goods sold of approximately $119,000 related to increased sales of water filters in key business segments during the year ended December 31, 2013. The increases are partially offset by a decrease in sales related to the Office of Naval Research combined with the impact of a voluntary product recall of point of use filters (POU) of approximately $168,000.

Research and development expenses were approximately $826,000 and $632,000, respectively, for the years ended December 31, 2013 and December 31, 2012. This increase of approximately $194,000, or 31%, is primarily due to an increase in research and development material and other project costs primarily related to our OLpur H2H Module of approximately $104,000 and an increase in personnel related costs of approximately $88,000 during the year ended December 31, 2013 compared to the year ended December 31, 2012.

Selling, general and administrative expenses were approximately $3,110,000 for the year ended December 31, 2013 compared to approximately $3,620,000 for the year ended December 31, 2012, representing a decrease of $510,000, or 14%. The decrease is primarily due to a decrease in legal and professional services expenses.  In the twelve months ended December 31, 2013, approximately $229,000 of legal and professional services expenses were recorded in equity as a result of the May 2013 rights offering and approximately $204,000 were recorded as amortization of debt discount as they were fees paid in relation to the February 2013 Senior Secured Note.  In addition, travel and other expenses decreased approximately $130,000 during the year ended December 31, 2013 compared to the year ended December 30, 2012.  These decreases were partially offset by an increase in personnel related expenses of approximately $53,000, primarily a result of increased expenses related to bonus and stock-based compensation expense.

As of December 31, 2013, Nephros had cash and cash equivalents of approximately $579,000. As previously announced, Nephros received gross proceeds of $2.14 million from the March 2014 rights offering. A portion of the proceeds was used for the repayment of the $1.5 million note issued to Lambda Investors LLC, Nephros' largest shareholder, in November 2013, plus $61,000 of accrued interest thereon. Nephros issued a total of 7,140,822 shares of common stock to the holders of subscription rights who validly exercised their subscription rights, which represents 77% of the total shares offered in the rights offering.  Pursuant to the previously announced amendment to our license agreement with Bellco S.r.l., Nephros will receive a total of €450,000; €225,000 of which was paid in February 2014 and the remaining €225,000 is payable on March 31, 2014.

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 for the removal of biological contaminants from water, bicarbonate concentrate and/or blood.

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). We have extended our filtration technologies to meet the demand for liquid purification in other areas, in particular water purification.

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

• Dialysis Centers - Water/Bicarbonate: Filtration of water or bicarbonate concentrate used in hemodialysis devices
• Dialysis Centers - Blood: Clearance of toxins from blood using an alternative method to HD in patients with chronic renal failure
• Military and Outdoor Recreation: Highly compact, individual water purification devices used by soldiers to produce drinking water in the field
• Hospitals and Other Commercial Facilities: Filtration of water for drinking and washing

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

Forward-Looking Statements
Certain statements in this press release constitute "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;
• the voluntary recalls of point of use and DSU in-line ultrafilters used in hospital water treatment applications announced on October 30, 2013 and the related circumstances could subject us to claims or proceedings by consumers, the FDA or other regulatory authorities which may adversely impact our sales and revenues;
• we face significant challenges in obtaining market acceptance of our products, which could adversely affect our potential sales and revenues;
• there are product-related deaths or serious injuries or product malfunctions, which could trigger recalls, class action lawsuits and other events that could cause us to incur expenses and may also limit our ability to generate revenues from such products;
• we face potential liability associated with the production, marketing and sale of our products, and/or the expense of defending against claims of product liability, could materially deplete our assets and generate negative publicity which could impair our reputation;
• to the extent our products or marketing materials are found to violate any provisions of the FDC Act or any other statutes or regulations then we could be subject to enforcement actions by the FDA or other governmental agencies;
• 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, manufacturers and distributors;
• 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, 2013 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.

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