Nephros Reports Second Quarter 2005 Financial Results

NEW YORK, August 15, 2005 – Nephros, Inc. (AMEX: NEP) announced today financial results for the three months and six months ended June 30, 2005.

For the quarter ended June 30, 2005, Nephros reported net revenue of $226,426, attributable to sales of its OLpūr™ MD190 product in Europe, compared with no revenue in the corresponding period of 2004.

The Company’s net loss was $2,032,333 for the second quarter of 2005 versus a net loss of $1,680,033 in the second quarter of 2004. Nephros reported a net loss attributable to common stockholders in the second quarter of 2005 of $2,032,333, or $0.17 loss per basic and diluted share, compared to a loss of $4,360,120, or $2.74 loss per basic and diluted share, in the year-earlier period.

For the six months ended June 30, 2005, Nephros reported net revenue of $2,128,091 compared with no revenue in the first six months of 2004. In the first half of 2005, net revenue recognized from product sales totaled $378,091. Half-year revenue also included a one-time, upfront fee of $1.75 million resulting from Nephros’s license agreement with Asahi Kasei Medical Co., Ltd., the largest filter provider in Japan, entered into on March 2, 2005.

Nephros’s net loss was $2,425,220 for the first half of 2005 versus a net loss of $3,697,766 in the comparable period last year. Nephros reported a net loss attributable to common stockholders for the first half of 2005 of $2,425,220, or $0.20 loss per basic and diluted share, compared to a loss of $8,449,353, or $5.30 loss per basic and diluted share, in the year-earlier period.

It should be noted that, although Nephros began selling products in the first quarter of 2004, Nephros does not recognize revenue from product sales until a customer’s right of return has expired. Accordingly, Nephros reported no revenue during the first half of 2004. It should also be noted that the differences between net loss and net loss attributable to common stockholders for the 2004 periods are the result of the accrual of preferred dividends and the accretion of a beneficial conversion feature associated with Nephros’s issuance of series D convertible preferred stock.

As of June 30, 2005, Nephros had cash, cash equivalents and short-term investments of $8,813,624.

“I am pleased with our achievements in the second quarter of 2005. In June, we received approval from the FDA to market our OLpūr™ HD190 high flux filter in the U.S., a significant milestone for our company. While the Olpūr™ HD190 is not expected to offer a substantial sales opportunity in the foreseeable future, we believe that the FDA approval of the Olpūr™ HD190 is an important step in the regulatory process to gain approval for our more advanced End-Stage Renal Disease therapies in the U.S. In addition, we recently received U.S. patent confirmation for our Olpūr™ H2H™ online hemodiafiltration module, giving us the exclusive right, subject to FDA approval, to use our Olpūr™ H2H™ product to open the U.S. market to hemodiafiltration, which has been shown to be a superior therapy to hemodialysis,” stated Norman Barta, chief executive officer of Nephros.

“In addition to progress in the U.S., we continue to make marked strides in the European market. During the second quarter, we built upon the initial sales of our OLpūr™ MD190 and initiated supplemental clinical trials in five European countries which are designed to demonstrate the OLpūr™ MD190’s effectiveness in removing a range of blood toxins and other factors contributing to overall therapy cost savings and patient well-being. We’re pursuing our strategy of attaining targeted, measurable sales growth throughout Europe, and in turn expanding into other key geographic areas including the U.S. We have made measurable progress in the execution of our business plan during the first half of 2005, and remain focused on increasing sales and driving market penetration of our advanced mid-dilution hemodiafiltration technologies,” Barta concluded.

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 are designed to remove a range of harmful substances more effectively, and more cost-effectively, than existing 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, to mortality in the ESRD patient.

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’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, 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 in research or clinical trials to Nephros 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; (iii) product orders may be cancelled, patients currently using Nephros’s products may cease to do so and patients expected to begin using Nephros’s products may not; (iv) hemodiafiltration therapy may not be accepted in the United States and/or Nephros’s 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’s products; (v) Nephros may not be able to sell its products at competitive prices or profitably; (vi) Nephros may not be able to secure or enforce adequate legal protection, including patent protection, for its products; (vii) FDA approval relating to Nephros’s Olpūr HD190 filter may not facilitate or have any effect on the regulatory approval process for Nephros’s other products; and (viii) 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’s filings with the Securities and Exchange Commission, including Nephros’s Annual Report on Form 10-KSB filed with the SEC for the fiscal year ended December 31, 2004 and its Quarterly Report on Form 10-QSB filed with the SEC for the fiscal quarter ended June 30, 2005. 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

NEPHROS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Operations

(unaudited)

	Three Months Ended June 30,		Six Months Ended June 30,
	2005	2004	2005	2004
Net contract revenues	$            —	$            —	$ 1,750,000	$           —
Net product revenues	226,426	—	378,091	—
Net revenues	226,426	—	2,128,091	—
Operating costs and expenses:
Cost of product revenue	113,681	54,304	249,049	66,922
Research and development	551,009	601,992	1,013,710	1,292,016
Selling, general and       administrative	1,656,533	1,024,307	3,409,021	2,340,743
Total operating expenses	2,321,223	1,680,603	4,671,780	3,699,681
Loss from operations	(2,094,797)	(1,680,603)	(2,543,689)	(3,699,681)
Other income:
Interest income	62,464	570	118,469	1,915
Total other income	62,464	570	118,469	1,915
Net loss	(2,032,333)	(1,680,033)	(2,425,220)	(3,697,766)
Dividends and accretion to redemption value of redeemable convertible preferred stock	—	(2,680,087)	—	(4,751,587)
Net loss attributable to common stockholders	$(2,032,333)	$(4,360,120)	$(2,425,220)	$ (8,449,353)
Basic and diluted net loss attributable to common stockholders per common share	$       (0.17)	$       (2.74)	$      (0.20)	$    (5.30)
Shares used in computing basic and diluted net loss attributable to common stockholders per common share	12,304,498	1,593,659	12,228,151	1,593,659

NEPHROS, INC. AND SUBSIDIARY

Condensed Consolidated Statements of Cash Flows

(unaudited)

# # #

back to top ^