Nephros Reports 2016 Fourth Quarter and Full Year Financial Results and Provides Corporate Update

RIVER EDGE, NJ–(Marketwired – Mar 20, 2017) – Nephros, Inc. (OTCQB: NEPH) (the “Company”), a commercial stage medical device company that develops and sells high performance liquid purification ultrafilters and an on-line mid-dilution hemodiafiltration (“HDF”) system for use with a hemodialysis machine for the treatment of patients with end stage renal disease, announced today financial results for the three months and full year ended December 31, 2016.

“In 2016, we continued to execute on our growth strategy, focusing on the expansion of our product portfolio and on enhancing our sales and marketing efforts,” said Daron Evans, President and Chief Executive Officer of Nephros. “We launched the S100 Point of Use product line, and completed our regulatory submissions for the HydraGuard™ and EndoPur™ product lines, which will we expect to launch in the second quarter of 2017. Additionally, we have completed the development of our NanoGuard-E product that inserts into any existing Everpure filter manifold, a standard in the food service industry. We also completed the development of our upcoming lead filter.”

“Our approximately 40% growth in product revenue in the fourth quarter of 2016, versus the third quarter of 2016, was a result of both the launch of the S100, and growth from our existing filter portfolio. We expect a similar increase in revenue as we launch the HydraGuard™ and EndoPur™ product lines. We believe that we will grow filters sales in our core markets by over 100% in 2017 versus 2016, and that we be able to reach cash flow positive in three to six months now that we are through the regulatory approval process.”

Corporate Update

Hospital Infection Control Filter Market

In 2016, revenue from the hospital infection control market grew 30% versus 2015. We expect this growth rate to increase significantly in 2017, due to several factors, including fast-growing sales of the new S100 Point-of-Use filter, the planned launch of the HydraGuard™ in the second quarter of 2017, and the planned launch of a flushable version of the HydraGuard™, to be released in the third quarter of 2017.

Dialysis Water Filter Market

In 2016, revenue from the dialysis water filter market declined 19% versus 2015. We narrowed our dialysis water sales and marketing efforts to focus on polish filters for reverse osmosis (“RO”) systems. We are planning to launch our EndoPur™ Endotoxin filter product line, which is targeted at large dialysis clinic RO systems, in the second quarter of 2017.

Commercial / Industrial Water Filter Market

We have been working with our customers and strategic distribution partners to better understand the potential for our products in the commercial and industrial sector. We have performed pilot tests in multiple areas of potential interest. We are beginning to focus on certain niche markets where we believe our products may add substantial value and expect a meaningful revenue contribution from the commercial / industrial water filter market in 2017.

Hemodiafiltration System

Vanderbilt University began treating patients with our hemodiafiltration (“HDF”) systems early in 2017. For the foreseeable future, we intend to support Vanderbilt in any efforts to publish prospective and observational data resulting from the treatment of patients with HDF.

Financial Performance for the Year Ended December 31, 2016

Total revenues for the year ended December 31, 2016, were approximately $2,320,000 compared to approximately $1,944,000 for the year ended December 31, 2015.

Cost of goods sold was approximately $1,026,000 for the year ended December 31, 2016, compared to approximately $844,000 for the year ended December 31, 2015.

Research and development expenses were approximately $1,079,000, and $826,000, respectively, for the years ended December 31, 2016 and December 31, 2015. Depreciation and amortization expense was approximately $230,000 for the year ended December 31, 2016, compared to approximately $212,000 for the year ended December 31, 2015. Selling, general and administrative expenses were approximately $2,854,000 for the year ended December 31, 2016 compared to approximately $3,443,000 for the year ended December 31, 2015.

As of December 31, 2016, Nephros had cash and cash equivalents of approximately $275,000.

About Nephros, Inc.

Nephros is a commercial stage medical device company that develops and sells high performance liquid purification filters, as well as a hemodiafiltration system for the treatment of patients with End Stage Renal Disease. Its filters, which it calls ultrafilters, are used primarily in medical applications. Nephros ultrafilters are used by dialysis centers for the removal of biological contaminants from the water and bicarbonate concentrate feeding hemodialysis devices. Additionally, Nephros ultrafilters are used in hospitals and medical clinics as an aid in infection control by retaining bacteria (i.e. Legionella, Pseudomonas), virus and endotoxin from water used by patients.

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 our expectations that our EndoPur and HydraGuard filters will significantly contribute to our projected revenue growth, our expected 2017 product revenue, our ability to grow revenue, our ability to become cash flow positive in 2017, our expectation of increased adoption of our ultrafiltration products, our expectation to deploy our HDF module to an additional dialysis clinic, our expectations for 510(k) approval of our products, 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 accompanied by the words “intends,” “may,” “will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “forecasts,” “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: (i) we may not be able to continue as a going concern; (ii) we may not be able to obtain funding if and when needed or on terms favorable to us in order to continue operations and successfully implement our business plan; (iii) we face significant challenges in obtaining market acceptance of our products and sales growth in key geographic areas, which could adversely affect our potential sales and revenues; (iv) we face potential liability associated with the production, marketing and sale of our products including with respect to potential serious injuries, product-related deaths or product malfunctions, product recalls, product liability claims, class action lawsuits or other events that could cause us to incur expenses and may also limit our ability to generate revenues from such products; (v) to the extent our products or marketing materials are found to violate any provisions of the U.S. Food Drug and Cosmetic Act or any other statutes or regulations then we could be subject to enforcement actions by the FDA or other governmental agencies; (vi) we are dependent on third party suppliers, manufacturers and distributors over whom we may not control; and (vii) we may not be able to secure or enforce adequate legal protection, including patent protection, for our products.

More detailed information about us and the risk factors that may affect the realization of forward-looking statements, including the forward-looking statements contained 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, 2015, and our other periodic reports filed with the SEC. We urge investors and security holders to read those documents free of charge at the SEC’s website 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.

NEPHROS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
		December 31, 2016				December 31, 2015
ASSETS
Current assets:
Cash		$	275			$	1,248
Accounts receivable, net			388				397
Investment in lease, net-current portion			27				–
Inventory, net			479				591
Prepaid expenses and other current assets			95				228
Total current assets			1,264				2,464
Property and equipment, net			70				12
Investment in lease, net-less current portion			61				–
License and supply agreement, net			1,262				1,473
Other asset			21				21
Total assets		$	2,678			$	3,970
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	585			$	652
Accrued expenses			240				237
Deferred revenue, current portion			70				70
Total current liabilities			895				959
Unsecured long-term note payable, net of debt issuance costs and debt discount of $349			838				–
Long-term portion of deferred revenue			278				347
Total liabilities			2,011				1,306
Commitments and Contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $.001 par value; 5,000,000 shares authorized at December 31, 2016 and 2015; no shares issued and outstanding at December 31, 2016 and 2015.			–				–
Common stock, $.001 par value; 90,000,000 shares authorized at December 31, 2016 and 2015; 49,782,797 and 48,580,355 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively.			50				49
Additional paid-in capital			120,835				119,797
Accumulated other comprehensive income			67				71
Accumulated deficit			(120,285	)			(117,253	)
Total stockholders’ equity			667				2,664
Total liabilities and stockholders’ equity		$	2,678			$	3,970

NEPHROS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Thousands, Except Share and Per Share Amounts)
		Years Ended December 31,
		2016				2015
Net revenue:
Product revenues		$	2,093			$	1,790
License, royalty and other revenues			227				154
Total net revenues			2,320				1,944
Cost of goods sold			1,026				884
Gross margin			1,294				1,060
Operating expenses:
Research and development			1,079				826
Depreciation and amortization			230				212
Selling, general and administrative			2,854				3,443
Total operating expenses			4,163				4,481
Loss from operations			(2,869	)			(3,421	)
Change in fair value of warrant liability			–				2,099
Warrant modification expense			–				(1,761	)
Interest expense			(172	)			(42	)
Interest income			5				–
Other income (expense), net			4				37
Net loss			(3,032	)			(3,088	)
Other comprehensive loss, foreign currency translation adjustments			(4	)			(1	)
Total comprehensive loss		$	(3,036	)		$	(3,089	)
Net loss		$	(3,032	)		$	(3,088	)
Deemed dividend as a result of warrant modification			–				(73	)
Net loss attributable to common stockholders		$	(3,032	)		$	(3,161	)
Net loss per common share, basic and diluted		$	(0.06	)		$	(0.09	)
Weighted average common shares outstanding, basic and diluted			48,583,165				34,780,506