FOR IMMEDIATE RELEASE

Nephros Discloses Nonpayment of Installment under the Lancer Settlement Agreement in Current Report on Form 8-K

NEW YORK, NEW YORK – August 7, 2007 – Nephros, Inc. (AMEX:NEP) today announced that it received a letter on July 23, 2007 from representatives of Marty Steinberg, Esq., as Receiver for Lancer Offshore, Inc., notifying it of its failure to pay the third $200,000 installment of a settlement between the parties as further described below, and asking it to cure such default by July 30, 2007. In the letter and in subsequent communications with a representative of Nephros, Inc. (the “Company”), the Receiver’s representatives also indicated that the Receiver may (i) file a Certificate of Default and seek a final judgment in the amount of $1.2 million, less those portions the Company has already paid and (ii) seek to recover its attorneys’ fees and costs if legal fees are incurred in connection with such filing. The Company previously disclosed these communications in a Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on August 3, 2007.

Prior to receipt of the Receiver’s letter, the Company had implemented a strict cash management program to conserve its cash, reduce its expenditures and control its payables. As a result, it was unable to fund this third installment prior to the expiration of the specified cure period. After receipt of this letter, the Company informed the Receiver’s representatives that it is currently investigating additional funding opportunities and talking to various potential investors who could provide additional financing, which would allow the Company to tender the remaining installments.

As previously disclosed in its filings with the SEC, the Company was a defendant in an action captioned Marty Steinberg, Esq. as Receiver for Lancer Offshore, Inc. v. Nephros, Inc., Case No. 04-CV-20547, that was commenced on March 8, 2004. That action is ancillary to a proceeding captioned Securities and Exchange Commission v. Michael Lauer, et. al., Case No. 03-CV-80612, which was commenced on July 8, 2003, wherein the court appointed a Receiver to manage Lancer Offshore, Inc. and various related entities. On December 19, 2005 (the “Date of Entry”) the United States District Court for the Southern District of Florida issued an order approving the Stipulation of Settlement entered into on November 8, 2005 (the “Settlement”) between the Receiver and the Company. Under the Settlement, the Company agreed to pay the Receiver an aggregate of $900,000 (the “Settlement Amount”) under the following payment terms: $100,000 paid no later than 30 days after the Date of Entry; and four payments of $200,000 each at six month intervals thereafter. In addition, any warrant previously issued to Lancer Offshore, Inc. was cancelled, and the Company issued to the Receiver warrants to purchase 21,308 shares of the Company’s common stock (the “Settlement Warrants”), exercisable for a period of three years at the market price as of the Date of Entry. The Company has paid $500,000 to the Receiver and issued the Settlement Warrants. The remaining balance of the Settlement Amount to be paid is $400,000, and, as described above, the Company failed to tender the third $200,000 installment to the Receiver in a timely manner.

The Settlement provides that, in the event the Company fails to pay any portion of the Settlement Amount, the Receiver will provide the Company with five business days written notice of the default. During this five business day period, the Company has the opportunity to cure the default. If the Company fails to cure the default within the cure period, then the Receiver may retain any portion of the Settlement Amount and Settlement Warrants received to date and file a Certificate of Default requesting the entry of a final judgment, and the Court will enter a final judgment against the Company in the amount of $1.2 million less any portion of the Settlement Amount previously paid under the Settlement and awarding any portion of the Settlement Warrants not previously delivered pursuant to the Settlement. The Settlement also provides that, in the event of any litigation arising as a result of a default under the Settlement, the Receiver shall be entitled to reasonable attorneys’ fees and costs related thereto.

To the Company’s knowledge, the Receiver has not yet filed a Certificate of Default requesting the entry of a final judgment. However, if the Receiver does file a Certificate of Default and the Company is unable to obtain additional financing, it would significantly impact the Company’s ability to execute its cash management program and the Company could have to curtail its planned activities or cease its operations. If the Receiver files a Certificate of Default and the final judgment is in excess of $500,000 and such amount remains undischarged for 90 days, or any action shall be taken by the Receiver to levy upon the assets or properties of the Company to enforce such judgment, such occurrence would constitute an “Event of Default” under the Company’s $5,200,000 principal amount of 6% Secured Convertible Notes due 2012 (the “Notes”). As a result, the holders of the Notes constituting a majority of the principal amount of the Notes then outstanding could declare, by notice to the Company, the unpaid principal of, and accrued interest on, all the Notes then outstanding to be due and payable.

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 and Belgium.

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 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 US Marine Corps. The Company 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 the Company's main focus, the ESRD therapy business.

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

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) 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) Nephros may not 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; and (iv) 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, Nephros’ Quarterly Report filed on Form 10-QSB filed with the SEC for the quarter ended March 31, 2007 and Nephros’ Form 8-K filed with the SEC on August 3, 2007. Investors and security holders are urged to read these 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.

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