Nephros' 2009 product revenues up 81%

Nephros, Inc. (OTC Bulletin Board: NEPH) announced today financial results for the twelve month period ended December 31, 2009.

2009 Highlights

• Increased revenues by 81% to approximately $2,661,000.
• Reduced operating expenses by approximately $3,803,000 or 53% from prior year
• Awarded $2 Million Contract Expansion by the Office of Naval Research.
• Received FDA 510(k) approval to market Dual Stage Ultrafilters (DSUs) for in-line purification of dialysate solution.
• Received the Frost & Sullivan Medical Patient Care Company of the Year Award for 2009

"2009 was a productive year for Nephros," said James S. Scibetta, Chairman of Nephros.  "The Company significantly increased its revenues and decreased its expenses.  With regard to product development, the Company received 510(k) approval for its DSU filter to purify dialysate solution and is awaiting a formal response from the FDA on our application for the MD 220 hemodiafilter and H2H™ module for the treatment of End Stage Renal Disease patients.  More recently in 2010, we signed an exclusive distribution agreement with Bellco Healthcare in Canada to market our MD hemodiafilters and executed a product development agreement with STERIS."

Recent Events

On March 30, 2010, Ernest Elgin, III resigned as our President and Chief Executive Officer and also resigned from our Board of Directors.  Gerald Kochanski, our Chief Financial Officer, will serve as our acting Chief Executive Officer until April 5, 2010. As of April 6, 2010, Paul Mieyal, a member of our Board of Directors, will serve as our acting Chief Executive Officer.

Financial Performance for the Year Ended December 31, 2009

Product revenues for the twelve months ended December 31, 2009 were approximately $2,661,000 compared to approximately $1,473,000 in the corresponding period of 2008, an increase of approximately 81%. The Company's net loss was approximately $2,026,000 or $0.05 per basic and diluted common share for the twelve months ended December 31, 2009 compared with approximately $6,337,000 or $0.17 per basic and diluted common share for the corresponding period of 2008.  Loss from operations for the twelve months ended December 31, 2009 was approximately $2,406,000 compared to approximately $6,717,000 in the corresponding period of 2008.  The $4,311,000 reduction in operating loss resulted from an increase of approximately $508,000 in gross profit due to increased revenue and a reduction in research and development expenses of approximately $1,697,000, a reduction in depreciation expense of approximately $216,000 and a reduction in selling, general and administrative expenses of approximately $1,890,000.

As of December 31, 2009, Nephros had cash and cash equivalents of approximately $1,004,000.  The Company's independent registered public accountants, Rothstein, Kass & Company, P.C. included a going concern explanatory paragraph in its audit report covering the Company's financial statements for the year ended December 31, 2009.  For information regarding the going concern qualification and management's response, please see Nephros' Annual Report on Form 10-K for the year ended December 31, 2009, which is available on the Securities and Exchange Commission's web site at www.sec.gov.

Financial Performance for the Fourth Quarter Ended December 31, 2009 (Unaudited)

For the quarter ended December 31, 2009, Nephros recognized net product revenues of approximately $792,000 compared with $440,000 in the corresponding period of 2008, an increase of $352,000 or 80%. The increase is primarily attributable to an approximately $213,000 increase in revenue related to the contract with the Office of Naval Research recognized in the fourth quarter of 2009 compared to the same period in 2008.  Sales of the OLpur™ MD 190 and MD 220 products in Europe increased by approximately $65,000 or 21% in the fourth quarter of 2009 compared to the same period in 2008.  Sales of Dual Stage Ultrafilters (DSUs) in the United States increased by approximately $74,000 or 218% in the fourth quarter of 2009 compared to the same period in 2008.

Operating expenses for the three months ended December 31, 2009 were approximately $828,000 compared with $969,000 in the corresponding period of 2008. The decrease of approximately $141,000 or 14% is primarily related to the reduction in depreciation expense of $151,000 or 79% in the fourth quarter of 2009 compared to the same period in 2008.  Selling, general and administrative expenses were approximately $153,000 or 18% less in the fourth quarter of 2009 compared to the same period in 2008.  Savings were realized primarily in personnel related expenses as well as facility, legal and marketing expenses.  Research and development expenses increased by approximately $163,000 in the fourth quarter of 2009 compared to the same period in 2008.  This increase is due to the 2008 fourth quarter research and development expenses being offset by a fiscal year end credit adjustment in 2008 that did not repeat in the 2009 fourth quarter.

Nephros' net loss was approximately $483,000 or $0.01 per basic and diluted common share for the fourth quarter of 2009 versus a net loss of approximately $907,000 or $0.03 per basic and diluted common share in the fourth quarter of 2008. Nephros' net loss decreased $424,000 or 47% in the current quarter primarily due to the approximately $410,000 or 44% reduction in loss from operations and $14,000 or 44% increase in other income in the fourth quarter of 2009 compared to the same period in 2008.

End-Stage Renal Disease (ESRD) Products

Nephros completed the patient treatment phase of the U.S. clinical trial evaluation of the OLpur™ H2H™ module and OLpur™ MD 220 filter during the second quarter of 2008. The Company submitted the clinical data to the FDA with the 510(k) application for U.S. marketing approval of these products in November 2008.  Following its review of the application, the FDA requested additional information from us. We replied to the FDA inquiries on March 13, 2009.  The FDA has not provided us with any additional requests for information or rendered a decision on our application.  We have made inquiries to the FDA about the status of our application and have most recently been informed that as of March 10, 2010 our application is still under their review process.  Nephros believes that, if approved, its technology would be the first FDA-approved on-line HDF therapy available in the U.S.

Water Ultrafiltration Products

On July 1, 2009, we received FDA approval to market the DSU to be used to filter biological contaminants from water and bicarbonate concentrate used in hemodialysis procedures.  Nephros is investigating a range of commercial, industrial and retail opportunities for its DSU technology.  On March 23, 2010, Nephros announced a product development agreement with STERIS Corporation ( STE).

Military Product Development

Nephros has contracted with the Office of Naval Research to develop an advanced water purification system for military field use. Nephros' proprietary dual stage cold sterilization ultrafilter will form the basis of the portable system. Nephros is continuing the development of its dual stage ultra reliable personal water filtration system under support from its U.S. Department of Defense appropriation and has completed initial concept development. Once work on this initial project was completed in August 2009, we were awarded a new $2 million research contract from the Office of Naval Research for continued development of a potable dual-stage military water purifying filter.   We have also introduced the DSU to various government agencies as a solution to providing potable water in certain emergency response situations.