Delaware
|
3841
|
13-3971809
|
(State
or other jurisdiction of
incorporation
or organization)
|
(Primary
Standard Industrial
Classification
Code Number)
|
(I.
R. S. Employer
Identification
No. )
|
Large
accelerated filer ¨
|
Accelerated
filer ¨
|
Non-accelerated
filer ¨ (Do not check if
smaller reporting company)
|
Smaller
reporting company x
|
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the
registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell
these securities or the solicitation of an offer to buy these securities
in any state in which such offer, solicitation or sale is not
permitted.
|
PROSPECTUS SUMMARY
|
1
|
RISK FACTORS
|
5
|
USE OF PROCEEDS
|
21
|
DETERMINATION OF OFFERING PRICE | 21 |
DILUTION | 21 |
PLAN OF DISTRIBUTION
|
21
|
DESCRIPTION OF CAPITAL
STOCK
|
22
|
DIVIDEND POLICY | 23 |
BUSINESS
|
24 |
PROPERTIES | 35 |
LEGAL PROCEEDINGS | 36 |
MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS | 37 |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 38 |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE | 52 |
EXECUTIVE COMPENSATION | 56 |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
62 |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
|
63
|
LEGAL MATTERS
|
64
|
EXPERTS
|
64
|
WHERE YOU CAN FIND MORE
INFORMATION
|
64
|
DISCLOSURE OF SEC POSITION ON INDEMNIFICATION FOR
SECURITIES LAW VIOLATIONS
|
65
|
FINANCIAL STATEMENTS | F-1 |
|
·
|
OLpur
MDHDF filter series (which we sell in various countries in Europe and
currently consists of our MD190 and MD220 diafilters), which is, to our
knowledge, the only filter designed expressly for HDF therapy and
employing our proprietary Mid-Dilution Diafiltration
technology;
|
|
·
|
OLpur
H2H,
our add-on module designed to allow the most common types of hemodialysis
machines to be used for HDF therapy;
and
|
|
·
|
OLpur
NS2000 system, our stand-alone HDF machine and associated filter
technology.
|
Securities
Offered:
|
We
are offering 2,352,941 shares of our common stock, $0.001 par
value.
|
Offering
Price:
|
The
offering price per share is
$___. The
offering price per share will be a price within the range of $0.85 and a
price equal to the volume weighted average price, or VWAP, for the closing
sale price of our common stock as reported by the Over-the-Counter
Bulletin Board for the 30 trading days prior to the date on which we price
the shares. The offering price will not be less than $0.85 per
share. The VWAP for the closing sale price of our common stock
for the 30 trading days ended February 11, 2010 as reported by the
Over-the-Counter Bulletin Board, was
$0.87.
|
Use
of Proceeds:
|
We
intend to use the net proceeds from this offering for general corporate
purposes, including further development of our product candidates,
clinical trials, research and development expenses, and administrative
expenses. Pending the application of the net proceeds, we
intend to invest the net proceeds generally in short-term, investment
grade, interest bearing securities.
|
Manner of offering: |
We
are offering the shares on our own. There will be no underwriter, sales
agent or other third party involved in the sale of the shares.
We will offer the shares through our officers and directors who will
not be paid any commission for such sales.
We will
conduct one closing for the sale of our common stock. We estimate the
expenses of the offering to be $55,000.
|
There
is no minimum number of shares that we must sell in this
offering. As a result, the actual amount of gross proceeds from
the sale of shares, if any, might not be sufficient to cover the expenses
of the offering.
The
offering price will be negotiated by us with prospective
purchasers. Each purchaser will pay the same price to purchase
stock in this offering. The
offering price per share will be a price within the range of $0.85 and a
price equal to the volume weighted average price, or VWAP, for the closing
sale price of our common stock as reported by the Over-the-Counter
Bulletin Board for the 30 trading days prior to the date on which we price
the shares. The offering price will not be less than $0.85 per
share. The VWAP for the closing sale price of our common stock
for the 30 trading days ended February 11, 2010 as reported by the
Over-the-Counter Bulletin Board, was $0.87.
The
offering will run for 15 business days from the date of this prospectus.
|
|
Over-the-Counter
Bulletin Board stock symbol:
|
NEPH.OB
|
Risk
Factors:
|
This
investment involves a high degree of risk. See “Risk Factors”
beginning on page 5 of this
prospectus.
|
Number
of shares outstanding before the offering:
|
41,604,798 shares. Does
not include 1,506,712 shares issuable upon the exercise of stock options
or 8,191,827 shares issuable upon the exercise of warrants outstanding
on September 30, 2009 (which
number will increase to 8,626,334 shares after giving effect to this
offering due to anti-dilution provisions applicable to certain warrants in
the event that the offering price is less than $0.90).
|
Number
of shares outstanding after the
offering:
|
43,957,739
shares, assuming all shares are sold.
|
Proceeds
to us from this offering:
|
$_______,
without deducting any offering expenses. See "Use of Proceeds" on page 21
for estimated net proceeds, based on an assumed offering price per
share.
|
Where
you can find more information:
|
If
you have any questions relating to this prospectus, you should
contact:
|
Ernest
Elgin
|
|
President
and Chief Executive Officer
|
|
Nephros,
Inc.
|
|
41
Grand Avenue
|
|
River
Edge, New Jersey 07661
|
|
(201)
343-5202
|
|
·
|
the
completion and success of additional clinical trials and of our regulatory
approval processes for each of our ESRD therapy products in our target
territories;
|
|
·
|
the
market acceptance of HDF therapy in the United States and of our
technologies and products in each of our target
markets;
|
|
·
|
our
ability to effectively and efficiently manufacture, market and distribute
our products;
|
|
·
|
our
ability to sell our products at competitive prices which exceed our per
unit costs; and
|
|
·
|
the
consolidation of dialysis clinics into larger clinical
groups.
|
|
·
|
slower
than expected patient enrollment due to the nature of the protocol, the
proximity of subjects to clinical sites, the eligibility criteria for the
study, competition with clinical trials for similar devices or other
factors;
|
|
·
|
lower
than expected retention rates of subjects in a clinical
trial;
|
|
·
|
inadequately
trained or insufficient personnel at the study site to assist in
overseeing and monitoring clinical
trials;
|
|
·
|
delays
in approvals from a study site’s review board, or other required
approvals;
|
|
·
|
longer
treatment time required to demonstrate
effectiveness;
|
|
·
|
lack
of sufficient supplies of the ESRD therapy
product;
|
|
·
|
adverse
medical events or side effects in treated subjects;
and
|
|
·
|
lack
of effectiveness of the ESRD therapy product being
tested.
|
|
·
|
information
contained in the MDRs could trigger FDA regulatory actions such as
inspections, recalls and patient/physician
notifications;
|
|
·
|
because
the reports are publicly available, MDRs could become the basis for
private lawsuits, including class actions;
and
|
|
·
|
if
we fail to submit a required MDR to the FDA, the FDA could take
enforcement action against us.
|
|
·
|
to
obtain product liability insurance;
or
|
|
·
|
to
indemnify manufacturers against liabilities resulting from the sale of our
products.
|
|
·
|
fines;
|
|
·
|
injunctions;
|
|
·
|
civil
penalties;
|
|
·
|
recalls
or seizures of products;
|
|
·
|
total
or partial suspension of the production of our
products;
|
|
·
|
withdrawal
of any existing approvals or pre-market clearances of our
products;
|
|
·
|
refusal
to approve or clear new applications or notices relating to our
products;
|
|
·
|
recommendations
by the FDA that we not be allowed to enter into government contracts;
and
|
|
·
|
criminal
prosecution.
|
|
·
|
such
products will be safe for use;
|
|
·
|
such
products will be effective;
|
|
·
|
such
products will be cost-effective;
|
|
·
|
we
will be able to demonstrate product safety, efficacy and
cost-effectiveness;
|
|
·
|
there
are unexpected side effects, complications or other safety issues
associated with such products; and
|
|
·
|
government
or third party reimbursement for the cost of such products is available at
reasonable rates, if at all.
|
|
·
|
fluctuations
in exchange rates of the United States dollar could adversely affect our
results of operations;
|
|
·
|
we
may face difficulties in enforcing and collecting accounts receivable
under some countries’ legal
systems;
|
|
·
|
local
regulations may restrict our ability to sell our products, have our
products manufactured or conduct other
operations;
|
|
·
|
political
instability could disrupt our
operations;
|
|
·
|
some
governments and customers may have longer payment cycles, with resulting
adverse effects on our cash flow;
and
|
|
·
|
some
countries could impose additional taxes or restrict the import of our
products.
|
|
·
|
the
development of new medications, or improvements to existing medications,
which help to delay the onset or prevent the progression of ESRD in
high-risk patients (such as those with diabetes and
hypertension);
|
|
·
|
the
development of new medications, or improvements in existing medications,
which reduce the incidence of kidney transplant rejection;
and
|
|
·
|
developments
in the use of kidneys harvested from genetically-engineered animals as a
source of transplants.
|
|
·
|
publicity
regarding actual or potential clinical or regulatory results relating to
products under development by our competitors or us;
|
|
·
|
delays
or failures in initiating, completing or analyzing clinical trials or the
unsatisfactory design or results of these trials;
|
|
·
|
achievement
or rejection of regulatory approvals by our competitors or
us;
|
|
·
|
announcements
of technological innovations or new commercial products by our competitors
or us;
|
|
·
|
developments
concerning proprietary rights, including patents;
|
|
·
|
regulatory
developments in the United States and foreign countries;
|
|
·
|
economic
or other crises and other external factors;
|
|
·
|
period-to-period
fluctuations in our results of operations;
|
|
·
|
changes
in financial estimates by securities analysts; and
|
|
·
|
sales
of our common stock.
|
|
·
|
authorizing
our board of directors to issue “blank check” preferred stock without
stockholder approval;
|
|
·
|
providing
for a classified board of directors with staggered, three-year
terms;
|
|
·
|
prohibiting
us from engaging in a “business combination” with an “interested
stockholder” for a period of three years after the date of the transaction
in which the person became an interested stockholder unless certain
provisions are met;
|
|
·
|
prohibiting
cumulative voting in the election of
directors;
|
|
·
|
limiting
the persons who may call special meetings of stockholders;
and
|
|
·
|
establishing
advance notice requirements for nominations for election to our board of
directors or for proposing matters that can be acted on by stockholders at
stockholder meetings.
|
|
·
|
developed
procedures to implement a formal quarterly closing calendar and process
and held quarterly meetings to address the quarterly closing
process;
|
|
·
|
established
a detailed timeline for review and completion of financial reports to be
included in our Forms 10-Q and
10-K;
|
|
·
|
enhanced
the level of service provided by outside accounting service providers to
further support and provide additional resources for internal preparation
and review of financial reports and supplemented our internal staff in
accounting and related areas; and
|
|
·
|
employed
the use of appropriate supplemental SEC and U.S. GAAP checklists in
connection with our closing process and the preparation of our Forms 10-Q
and 10-K.
|
·
|
1,506,712
shares issuable upon the exercise of stock options outstanding
on September 30, 2009; or
|
|
·
|
8,191,827 shares
issuable upon the exercise of warrants outstanding on September 30, 2009
(which
number will increase to 8,626,334 shares after giving effect to this
offering due to anti-dilution provisions applicable to
certain warrants in the event that the offering price is less than
$0.90).
|
|
·
|
we agreed to take such corporate
actions as may be required to, among other things, entitle Lambda to (i)
nominate the Lambda Nominees (as defined in the Investor Rights Agreement)
to our board of directors to serve as directors until their respective
successor(s) are elected and qualified, (ii) nominate each successor to
such Lambda nominees, provided that any successor shall have reasonably
appropriate experience and background, and (iii) direct the removal from
the board of any director nominated under the foregoing clauses (i) or
(ii). Under the agreement, we are required to convene meetings
of our board at least once every three months. If we fail to do
so, a Lambda director will be empowered to convene such meeting;
and
|
|
·
|
the Investors other than Lambda
agreed to vote all shares of our common stock, and any other capital stock
or other securities of ours, that they hold for the election to our board
of the Lambda nominees and for the removal from the Board of the Lambda
nominees proposed to be removed in accordance with clause (iii) above, and
not to vote for the removal of any Lambda director except pursuant to
direction from Lambda pursuant to clause (iii)
above.
|
·
|
OLpur
MDHDF filter series (which we sell in various countries in Europe and
currently consists of our MD190 and MD220 diafilters); to our knowledge,
the only filter designed expressly for HDF therapy and employing our
proprietary Mid-Dilution Diafiltration
technology;
|
·
|
OLpur
H2H,
our add-on module designed to allow the most common types of hemodialysis
machines to be used for HDF therapy;
and
|
·
|
OLpur
NS2000 system, our stand-alone HDF machine and associated filter
technology.
|
·
|
Section
1003(a)(iii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $6,000,000 if such issuer has sustained
net losses in its five most recent fiscal
years;
|
·
|
Section
1003(a)(ii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $4,000,000 if such issuer has sustained
net losses in its three of its four most recent fiscal years;
and
|
·
|
Section
1003(f)(v), which states AMEX will normally consider suspending dealings
in, or removing from the list, common stock that sells for a substantial
period of time at a low price per
share.
|
·
|
Dialysis
|
o
|
Peritoneal Dialysis, or
PD, uses the patient’s peritoneum, the membrane lining covering the
internal abdominal organs, as a filter by introducing injectable-grade
dialysate solution into the peritoneal cavity through a surgically
implanted catheter. After some period of time, the fluid is drained and
replaced. PD is limited in use because the peritoneal cavity is subject to
scarring with repeated episodes of inflammation of the peritoneal
membrane, reducing the effectiveness of this treatment approach. With
time, a PD patient’s kidney function continues to deteriorate and
peritoneal toxin removal alone may become insufficient to provide adequate
treatment. In such case the patient may switch to an extracorporeal renal
replacement therapy such as hemodialysis or
hemodiafiltration.
|
o
|
Hemodialysis uses an
artificial kidney machine to remove certain toxins and fluid from the
patient’s blood while controlling external blood flow and monitoring
patient vital signs. Hemodialysis patients are connected to a dialysis
machine via a vascular access device. The hemodialysis process occurs in a
dialyzer cartridge with a semi-permeable membrane which divides the
dialyzer into two chambers: while the blood is circulated through one
chamber, a premixed solution known as dialysate circulates through the
other chamber. Toxins and excess fluid from the blood cross the membrane
into the dialysate solution through a process known as
“diffusion.”
|
·
|
Hemofiltration is a
cleansing process without dialysate solution where blood is passed through
a semi-permeable membrane, which filters out solute
particles.
|
·
|
Hemodiafiltration, or
HDF, in its basic form combines the principles of hemodialysis with
hemofiltration. HDF uses dialysate solution with a negative pressure
(similar to a vacuum effect) applied to the dialysate solution to draw
additional toxins from the blood and across the membrane. This process is
known as “convection.” HDF thus combines diffusion with convection,
offering efficient removal of small solutes by diffusion, with improved
removal of larger substances (i.e., middle molecules) by
convection.
|
·
|
With
pre-dilution, substitution fluid is added to the blood before the blood
enters the dialyzer cartridge. In this process, the blood can be
over-diluted, and therefore more fluid can be drawn across the membrane.
This enhances removal of toxins by convection. However, because the blood
is diluted before entering the device, it actually reduces the rate of
removal by diffusion; the overall rate of removal, therefore, is reduced
for small molecular weight toxins (such as urea) that rely primarily on
diffusive transport.
|
·
|
With
post-dilution, substitution fluid is added to blood after the blood has
exited the dialyzer cartridge. This is the currently preferred method
because the concentration gradient is maintained at a higher level, thus
not impairing the rate of removal of small toxins by diffusion. The
disadvantage of this method, however, is that there is a limit in the
amount of plasma water that can be filtered from the blood before the
blood becomes too viscous, or thick. This limit is approximately 20% to
25% of the blood flow rate. This limit restricts the amount of convection,
and therefore limits the removal of middle and larger
molecules.
|
1)
|
the
DSU is, to our knowledge, the only water filter that provides the user
with a simple sight verification that the filter is properly performing
its cleansing function due to our unique dual-stage
architecture;
|
2)
|
the
DSU filters finer biological contaminants than other filters of which we
are aware in the water filtration
marketplace;
|
3)
|
the
DSU filters relatively large volumes of water before requiring
replacement; and
|
4)
|
the
DSU continues to protect the user even if the flow is reduced by
contaminant volumes, because contaminants do not cross the filtration
medium.
|
·
|
continuing
our efforts to develop, have manufactured and sell products which, when
compared to existing products, perform more efficiently and are available
at prices that are acceptable to the
market;
|
·
|
displaying
our products and providing associated literature at major industry trade
shows in the United States, our Target European Market and
Asia;
|
·
|
initiating
discussions with dialysis clinic medical directors, as well as
representatives of dialysis clinical chains, to develop interest in our
products;
|
·
|
offering
the OLpur H2H at
a price that does not provide us with significant positive margins in
order to encourage adoption of this product and associated demand for our
dialyzers; and
|
·
|
pursuing
alliance opportunities in certain territories for distribution of our
products and possible alternative manufacturing
facilities.
|
·
|
developing
and marketing products that are designed to meet critical and specific
customer needs more effectively than competitive
devices;
|
·
|
offering
unique attributes that illustrate our product reliability,
“user-friendliness,” and performance
capabilities;
|
·
|
selling
products to specific customer groups where our unique product attributes
are mission-critical; and
|
·
|
pursuing
alliance opportunities for joint product development and
distribution.
|
·
|
Class
I devices are medical devices for which general controls are deemed
sufficient to ensure their safety and effectiveness. General controls
include provisions related to (1) labeling, (2) producer registration, (3)
defect notification, (4) records and reports and (5) quality service
requirements, or QSR.
|
·
|
Class
II devices are medical devices for which the general controls for the
Class I devices are deemed not sufficient to ensure their safety and
effectiveness and require special controls in addition to the general
controls. Special controls include provisions related to (1) performance
and design standards, (2) post-market surveillance, (3) patient registries
and (4) the use of FDA guidelines.
|
·
|
Class
III devices are the most regulated medical devices and are generally
limited to devices that support or sustain human life or are of
substantial importance in preventing impairment of human health or present
a potential, unreasonable risk of illness or injury.
Pre-market approval by the FDA is the required process of scientific
review to ensure the safety and effectiveness of Class III
devices.
|
·
|
that
we will not need to reevaluate the applicability of the Section 510(k)
pre-market notification process to our ESRD therapy and DSU products in
the future;
|
·
|
that
the FDA will agree with our determination that we are eligible to use the
Section 510(k) pre-market notification process;
or
|
·
|
that
the FDA will not in the future require us to submit a Section 515
pre-market approval application, which would be a more costly, lengthy and
uncertain approval process.
|
·
|
our
inability to timely raise sufficient funds;
|
·
|
the
FDA’s failure to schedule advisory review panels;
|
·
|
changes
in established review guidelines;
|
·
|
changes
in regulations or administrative interpretations; or
|
·
|
determinations
by the FDA that clinical data collected is insufficient to support the
safety and effectiveness of one or more of our products for their intended
uses or that the data warrants the continuation of clinical
studies.
|
·
|
the
design and manufacturing processes be regulated and controlled by the use
of written procedures;
|
·
|
the
ability to produce medical devices which meet the manufacturer’s
specifications be validated by extensive and detailed testing of every
aspect of the process;
|
·
|
any
deficiencies in the manufacturing process or in the products produced be
investigated;
|
·
|
detailed
records be kept and a corrective and preventative action plan be in place;
and
|
·
|
manufacturing
facilities be subject to FDA inspection on a periodic basis to monitor
compliance with QSR regulations.
|
·
|
all
medical device manufacturers and distributors register with the FDA
annually and provide the FDA with a list of those medical devices which
they distribute commercially;
|
·
|
information
be provided to the FDA on death or serious injuries alleged to have been
associated with the use of the products, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur; and
|
·
|
certain
medical devices not cleared with the FDA for marketing in the United
States meet specific requirements before they are
exported.
|
Quarter
Ended
|
High
|
Low
|
||||||
March
31, 2008
|
$
|
1.60
|
$
|
.33
|
||||
June
30, 2008
|
$
|
.97
|
$
|
.50
|
||||
September
30, 2008
|
$
|
.65
|
$
|
.24
|
||||
December
31, 2008
|
$
|
.48
|
$
|
.05
|
||||
March
31, 2009
|
$
|
.25 |
$
|
.04
|
||||
June
30, 2009
|
$
|
1.77
|
$
|
.01
|
||||
September
30, 2009
|
$
|
2.63
|
$
|
.99
|
||||
December
31, 2009
|
$
|
1.75
|
$
|
.61
|
||||
March 31, 2010 (through February 11) | $ |
1.02
|
$ |
.76
|
Plan Category
|
(a)
Number of Securities
to be Issued Upon
Exercise of
Outstanding Options,
Warrants and Rights
|
(b)
Weighted-Average
Exercise Price of
Outstanding Options,
Warrants and Rights
|
(c)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation
Plans (Excluding
Securities Reflected
in Column (a))
|
|||||||||
Equity
compensation plans approved by stockholders:
|
||||||||||||
Stock Option Plans | 1,885,782 | $0.86 | 1,953,101 | |||||||||
Placement Agent Warrants | 129,681 | $0.70 | — | |||||||||
Equity
compensation plans not approved by stockholders
|
— | — | — | |||||||||
All
plans
|
2,015,463 | 1,953,101 |
·
|
OLpur
MDHDF filter series (which we sell in various countries in Europe and
currently consists of our MD190 and MD220 diafilters); to our knowledge,
the only filter designed expressly for HDF therapy and employing our
proprietary Mid-Dilution Diafiltration
technology;
|
·
|
OLpur
H2H, our add-on module designed to allow the most common types of
hemodialysis machines to be used for HDF therapy;
and
|
·
|
OLpur
NS2000 system, our stand-alone HDF machine and associated filter
technology.
|
1)
|
the
completion and success of additional clinical
trials;
|
2)
|
receiving
regulatory approval for each of our ESRD therapy products and our DSU
product in our target territories;
|
3)
|
the
market acceptance of HDF therapy in the United States and of our
technologies and products in each of our target
markets;
|
4)
|
our
ability to effectively and efficiently manufacture, market and distribute
our products;
|
5)
|
our
ability to sell our products at competitive prices which exceed our per
unit costs;
|
6)
|
the
consolidation of dialysis clinics into larger clinical groups;
and
|
7)
|
the
current U.S. healthcare plan is to bundle reimbursement for dialysis
treatment which may force dialysis clinics to change therapies due to
financial reasons.
|
·
|
Section
1003(a)(iii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $6,000,000 if such issuer has sustained
net losses in its five most recent fiscal
years;
|
·
|
Section
1003(a)(ii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $4,000,000 if such issuer has sustained
net losses in its three of its four most recent fiscal years;
and
|
·
|
Section
1003(f)(v), which states AMEX will normally consider suspending dealings
in, or removing from the list, common stock that sells for a substantial
period of time at a low price per
share.
|
·
|
Selling
expenses were $624,000 for the year ended December 31, 2008 compared to
$451,000 for the year ended December 31, 2007, an increase of $173,000, or
38.4%. The increase in personnel costs of $73,000 and $100,000 in
marketing expenditures during 2008 compared to the comparable period in
2007 were the primary reasons. This increase reflects the Company’
investment in Marketing during fiscal year 2008 in order to establish
corporate identity, improve the Company’s website and advertise the merits
of the DSU water filtration system.
|
·
|
General
and administrative expenses were $4,078,000 for the year ended December
31, 2008 compared to $5,076,000 for the year ended December 31, 2007, a
decrease of $998,000, or 19.7%, primarily due to factors impacting
professional service fees and compensation expense. The
decrease is due to the following reductions in 2008 spending compared to
2007: personnel costs reduced by $150,000; deferred compensation costs
reduced by $433,000; audit and legal fees reduced by $524,000;
underwriting fees reduced by $140,000. These decreases were
offset by the following increases in 2008 spending compared to 2007:
recruiting fees of $148,000; directors’ fees of $46,000; regulatory fees
of $34,000; insurance fees of $27,000; facility costs of $20,000 and
moving costs of $16,000.
|
·
|
$498,000
in connection with the New Notes;
|
·
|
$37,000
associated with the present value impact of $400,000 of payments made
during such period under our settlement agreement with the Receiver for
Lancer Offshore, Inc.;
|
·
|
Section
1003(a)(iii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $6,000,000 if such issuer has sustained
net losses in its five most recent fiscal
years;
|
·
|
Section
1003(a)(ii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $4,000,000 if such issuer has sustained
net losses in its three of its four most recent fiscal years;
and
|
·
|
Section
1003(f)(v), which states AMEX will normally consider suspending dealings
in, or removing from the list, common stock that sells for a substantial
period of time at a low price per
share.
|
·
|
the
market acceptance of our products, and our ability to effectively and
efficiently produce and market our
products;
|
·
|
the
availability of additional financing, through the sale of equity
securities or otherwise, on commercially reasonable terms or at
all;
|
·
|
the
timing and costs associated with obtaining the Conformité Européene, or
CE, mark, which demonstrates compliance with the relevant European Union
requirements and is a regulatory pre requisite for selling our ESRD
therapy products in the European Union and certain other countries that
recognize CE marking (for products other than our OLpur MDHDF filter
series, for which the CE mark was obtained in July 2003), or United States
regulatory approval;
|
·
|
the
continued progress in and the costs of clinical studies and other research
and development programs;
|
·
|
the
costs involved in filing and enforcing patent claims and the status of
competitive products; and
|
·
|
the
cost of litigation, including potential patent litigation and any other
actual or threatened litigation.
|
·
|
for the marketing
and sales of our products;
|
·
|
to
obtain appropriate regulatory approvals and expand our research and
development with respect to our ESRD therapy
products;
|
·
|
to
continue our ESRD therapy product
engineering;
|
·
|
to
pursue business opportunities with respect to our DSU water-filtration
product; and
|
·
|
for
working capital purposes.
|
·
|
During
2008, our net loss adjusted to reconcile net loss to net cash used in
operating activities was $5,735,000 compared to $6,461,000 in
2007. This represents a improvement of $726,000 in operating
cash in 2008. Noncash stock-based compensation was $155,000 and
$885,000 in 2008 and 2007 respectively, a reduction of
$730,000.
|
·
|
During
2008, our accounts receivable, other current assets and other assets
decreased by $236,000. This compares to an increase of $96,000
in 2007. This represents a $332,000 source of operating
cash.
|
·
|
During
2008, our inventory increased by $409,000. This compares to a decrease in
inventory of $217,000 in 2007. This represents a $626,000 use
of operating cash. Inventory increased due to the introduction
of the DSU product in 2008.
|
·
|
During
2008, accounts payable and accrued expenses increased by $183,000. This
compares to a decrease in accounts payable and accrued expenses of
$102,000 during 2007. This represents a $285,000 source of
operating cash.
|
|
·
|
During
the 2009 period, our net loss decreased by approximately
$3,887,000;
|
|
·
|
During
the 2009 period, our stock-based compensation expense decreased by
approximately $29,000;
|
|
·
|
Our
accounts receivable increased by approximately $114,000 during the 2009
period compared to a decrease of approximately $93,000 during the 2008
period;
|
|
·
|
Our
inventory decreased by approximately $118,000 during the 2009 period
compared to an increase of approximately $1,000 during the 2008
period;
|
|
·
|
Our
prepaid expenses and other assets decreased by approximately $49,000 in
the 2009 period compared to a decrease of approximately $48,000 in the
2008 period; and
|
|
·
|
Our
accounts payable and accrued expenses decreased by approximately $638,000
in the aggregate in the 2009 period compared to an increase of
approximately $594,000 in the 2008
period.
|
Payments
Due in Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Within
1
Year
|
Years
1 – 3
|
Years
3 – 5
|
More
than
5
Years
|
|||||||||||||||
Leases
|
$ | 296,000 | $ | 115,000 | $ | 181,000 | $ | — | $ | — | ||||||||||
Employment
Contracts
|
1,066,250 | 425,000 | 641,250 | |||||||||||||||||
Total
|
$ | 1,362,250 | $ | 540,000 | $ | 822,250 | $ | — | $ | — |
Name
|
Age
(as of
12/31/09)
|
Director Since
|
Business Experience For Last Five Years
|
|||
Arthur
H. Amron
|
53
|
2007
|
Arthur
H. Amron has served as a director of our company since September 2007. Mr.
Amron is a partner of Wexford Capital LP and serves as its General
Counsel. Mr. Amron also actively participates in various private equity
transactions, particularly in the bankruptcy and restructuring areas, and
has served on the boards and creditors’ committees of a number of public
and private companies in which Wexford has held investments. From 1991 to
1994, Mr. Amron was an Associate at Schulte Roth & Zabel LLP
specializing in corporate and bankruptcy law and from 1984 to 1991, Mr.
Amron was an Associate at Debevoise & Plimpton LLP specializing in
corporate litigation and bankruptcy law. Mr. Amron holds a JD from Harvard
University, a BA in political theory from Colgate University and is a
member of the New York Bar.
|
Name
|
Age
(as of
12/31/09)
|
Director Since
|
Business Experience For Last Five Years
|
|||
James
S. Scibetta
|
45
|
2007
|
James
S. Scibetta has served as a director of our company since November 2007.
Since August 2008, Mr. Scibetta has been the Chief Financial Officer of
Pacira Pharmaceuticals, Inc. Prior to that, Mr. Scibetta was Chief
Financial Officer of Bioenvision, Inc. from December 2006 until its
acquisition by Genzyme, Inc. in October 2007. From September 2001 to
November 2006, Mr. Scibetta was Executive Vice President and CFO of
Merrimack Pharmaceuticals, Inc., and he was a member of the Board of
Directors of Merrimack from April 1998 to March 2004. Mr. Scibetta
formerly served as a senior investment banker at Shattuck Hammond
Partners, LLC and PaineWebber Inc., providing capital acquisition, mergers
and acquisitions, and strategic advisory services to healthcare companies.
Mr. Scibetta holds a B.S. in Physics from Wake Forest University, and an
M.B.A. in Finance from the University of Michigan. He completed executive
education studies in the Harvard Business School Leadership & Strategy
in Pharmaceuticals and Biotechnology program.
|
Name
|
Age
(as
of
12/31/09)
|
Director Since
|
Business Experience For Last Five Years
|
|||
Paul
A. Mieyal
|
40
|
2007
|
Paul
A. Mieyal has served as a director of our company since September 2007.
Dr. Mieyal has been a Vice President of Wexford Capital LP since October
2006. From January 2000 through September 2006, he was
Vice President in charge of healthcare investments for Wechsler & Co.,
Inc., a private investment firm and registered
broker-dealer. Dr. Mieyal is also a director of Nile
Therapeutics, Inc. Dr. Mieyal received his Ph.D. in pharmacology
from New York Medical College, a B.A. in chemistry and psychology from
Case Western Reserve University, and is a Chartered Financial Analyst.
|
Name
|
Age
(as
of
12/31/09)
|
Director Since
|
Business Experience For Last Five Years
|
|||
Lawrence
J. Centella
|
69
|
2001
|
Lawrence
J. Centella has served as a
director of our company since January 2001. Mr. Centella serves
as president of Renal Patient Services, LLC, a company that owns and
operates dialysis centers, and has served in such capacity since June
1998. From 1997 to 1998, Mr. Centella served as executive vice
president and chief operating officer of Gambro Healthcare, Inc., an
integrated dialysis company that manufactured dialysis equipment, supplied
dialysis equipment and operated dialysis clinics. From 1993 to
1997, Mr. Centella served as president and chief executive officer of
Gambro Healthcare Patient Services, Inc. (formerly REN
Corporation). Prior to that, Mr. Centella served as president
of COBE Renal Care, Inc., Gambro Hospal, Inc., LADA International, Inc.
and Gambro, Inc. Mr. Centella is also the founder of LADA
International, Inc. Mr. Centella received a B.S. from DePaul University.
|
|||
Ernest
Elgin III
|
44
|
2009
|
Ernest
Elgin III has served as our President and Chief Executive Officer since
September 2008. Mr.
Elgin most recently served as Vice President of Business Development and
Chief Operating Officer of Novaflux Technologies, Inc., a medical
technology company engaged in biofilm removal, among other things. Prior
to joining Novaflux in September 2004, Mr. Elgin spent four years as Vice
President, Healthcare for EHC Group, a New York based consulting
organization providing market and business development services for
healthcare related organizations. Mr. Elgin has also held product and
business development roles with Becton Dickinson, Olympus America, and
E-Z-EM, Inc. Mr. Elgin started his career as a Financial Analyst with
Salomon Brothers. He earned his B.A. from Queens College and
his M.B.A. from Long Island University.
|
Name
|
Age
|
Position
|
||
Ernest
Elgin III
|
44
|
Ernest
Elgin III has served as our President and Chief Executive Officer since
September 2008. Mr.
Elgin most recently served as Vice President of Business Development and
Chief Operating Officer of Novaflux Technologies, Inc., a medical
technology company engaged in biofilm removal, among other things. Prior
to joining Novaflux in September 2004, Mr. Elgin spent four years as Vice
President, Healthcare for EHC Group, a New York based consulting
organization providing market and business development services for
healthcare related organizations. Mr. Elgin has also held product and
business development roles with Becton Dickinson, Olympus America, and
E-Z-EM, Inc. Mr. Elgin started his career as a Financial Analyst with
Salomon Brothers. He earned his B.A. from Queens College and
his M.B.A. from Long Island University.
|
||
Gerald
J. Kochanski
|
56
|
Gerald
J. Kochanski has served as our Chief Financial Officer since April
2008. Mr. Kochanski most recently served as the Financial
Services Director of Lordi Consulting LLC, a national consulting firm,
from February 2007 through February 2008. From October 2004 until December
2006, Mr. Kochanski was the Chief Financial Officer of American Water
Enterprises, Inc., a business unit of a privately owned company in the
water and wastewater treatment industry. From November 1998
through September 2004, Mr. Kochanski was the Chief Financial Officer of
Scanvec Amiable Ltd., a publicly traded provider of software to the
signmaking, digital printing and engraving industries. Mr.
Kochanski is a Certified Public Accountant and received his B.S. in
Accounting and his M.B.A. in Finance from La Salle University, where he
has also been an adjunct accounting department faculty member since 1986.
|
Name and Principal Position
|
Year
|
Salary($)
|
Bonus(1) ($)
|
Option Awards(2) ($)
|
All Other
Compensation(3) ($)
|
Total
|
||||||||||||||||
Norman J. Barta(4)
|
2009
|
— | — | — | — | — | ||||||||||||||||
President
and Chief Executive Officer
|
2008
|
$ | 373,846 | $ | 18,000 | $ | — | $ | 37,212 | $ | 429,058 | |||||||||||
Ernest A. Elgin
III(5)
|
|
2009
|
$ | 240,000 | — | $ | 160,048 | $ | 23,876 | $ | 423,924 | |||||||||||
President
and Chief Executive Officer
|
2008
|
$ | 70,000 | $ | 35,000 | $ | 210,000 | $ | 7,073 | $ | 322,075 | |||||||||||
Mark W. Lerner(6)
|
2009
|
— | — | — | — | — | ||||||||||||||||
Chief
Financial Officer
|
2008
|
$ | 113,750 | — | — | $ | 1,105 | $ | 114,855 | |||||||||||||
Gerald J.
Kochanski(7)
|
2009
|
$ | 190,550 | — | $ | 48,614 | $ | 32,059 | $ | 271,223 | ||||||||||||
Chief
Financial Officer
|
2008
|
$ | 138,750 | $ | 18,000 | $ | 143,747 | $ | 19,553 | $ | 320,050 |
(1)
|
The
amounts in this column reflect decisions approved by our Compensation
Committee and are based on an analysis of the executive’s contribution to
Nephros during fiscal 2008 and 2009.
|
(2)
|
The amount reported is the
aggregate grant date fair value of the options granted, computed in
accordance with FASB ASC Topic 718. The dollar amounts
related to these grants that we recognized for financial statement
reporting purposes with respect to the year ended December 31, 2008, in
accordance with SFAS 123(R), was $0 for Mr. Barta, $14,424 for Mr. Elgin
and $25,169 for Mr. Kochanski and was based on the assumptions used in the
calculation that is included in Note 2 to our audited consolidated
financial statements for the year ended December 31, 2008, which are
included in this prospectus. The dollar amount of option
expense that we expect to recognize for financial statement reporting
purposes with respect to the year ended December 31, 2009, in accordance
with FASB ASC Topic 718 (formerly, SFAS 123(R)), is $51,343 for Mr. Elgin
and $34,188 for Mr. Kochanski, and will be based on the same assumptions
used in the calculation that is included in Note 2 to our audited
consolidated financial statements for the year ended December 31, 2008,
which are included in this prospectus. All assumptions used and amounts
pertaining to the year ended December 31, 2009 have not yet been audited
as of the date of this prospectus.
|
(3)
|
See
table below for details on Other
Compensation.
|
(4)
|
Mr. Barta
resigned as President and Chief Executive Officer and as a member of our
Board of Directors on September 15,
2008.
|
(5)
|
Mr.
Elgin became our President and Chief Executed Officer on September 15,
2008.
|
(6)
|
Mr.
Lerner resigned on April 28, 2008.
|
(7)
|
Mr.
Kochanski became our Chief Financial Officer as of April 1,
2008.
|
Name
|
Year
|
Matching 401K
Plan
Contribution
|
Health Insurance
Paid by
Company
|
Life Insurance
Paid by the
Company
|
Fees Paid As
Non-
Management
Directors
|
Company Paid
Transportation
Expense
|
Total Other
Compensation
|
|||||||||||||||||||
Norman
J. Barta
|
2009
|
— | — | — | — | — | — | |||||||||||||||||||
|
2008
|
$ | 8,050 | $ | 18,682 | $ | 8,434 | - | $ | 2,046 | $ | 37,212 | ||||||||||||||
Ernest
A. Elgin III
|
2009
|
— | $ | 23,208 | $ | 668 | — | — | $ | 23,876 | ||||||||||||||||
|
2008
|
- | $ | 6,620 | $ | 44 | - | $ | 409 | $ | 7,073 | |||||||||||||||
Mark
W. Lerner
|
2009
|
— | — | — | — | — | — | |||||||||||||||||||
|
2008
|
- | - | $ | 82 | - | $ | 1.023 | $ | 1,105 | ||||||||||||||||
Gerald
J. Kochanski
|
2009
|
$ | 4,846 | $ | 16,407 | $ | 806 | — | $ | 10,000 | $ | 32,059 | ||||||||||||||
|
2008
|
$ | 5,242 | $ | 14,011 | $ | 300 | - | - | $ | 19,553 |
Option
Awards
|
|||||||||||||
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
|||||||||
Ernest
A. Elgin IIII
|
187,500 | 562,500 | $ | 0.37 |
9/15/18
|
||||||||
Ernest
A. Elgin IIII
|
- | 75,000 | $ | 0.13 |
1/6/19
|
||||||||
Ernest
A. Elgin IIII
|
- | 250,000 | $ | 0.77 |
12/31/19
|
||||||||
Gerald
J. Kochanski
|
62,500 | 187,500 | $ | 0.75 |
4/1/18
|
||||||||
Gerald
J. Kochanski
|
- | 25,000 | $ | 0.13 |
1/6/19
|
||||||||
Gerald
J. Kochanski
|
- | 75,570 | $ | 0.77 |
12/31/19
|
Non-Employee
Director Compensation in Fiscal 2009
|
Name
|
Fees Earned or
Paid in Cash
|
Option
Awards(1)
(2)
|
Total
($)
|
|||||||||
Arthur
H, Amron
|
$ | 14,800 | $ | — | $ | 14,800 | ||||||
Lawrence
J. Centella
|
$ | 14,800 | — | $ | 14,800 | |||||||
Paul
A. Mieyal
|
$ | 14,800 | $ | — | $ | 14,800 | ||||||
Eric
A. Rose, M.D.(3)
|
$ | 7,400 | — | $ | 7,400 | |||||||
James
S. Scibetta
|
$ | 27,000 | $ | 26,275 | $ | 53,275 |
(1)
|
The amount reported is the
aggregate grant date fair value of the options granted, computed in
accordance with FASB ASC Topic 718. The dollar amount of
option expense that we expect to recognize for financial statement
reporting purposes with respect to the year ended December 31, 2009, in
accordance with FASB ASC Topic 718 (formerly, SFAS 123(R)), is $2,547 for
Mr. Amron, $0 for Mr. Centella, $2,547 for Mr. Mieyal, $0 for Dr. Rose,
and $14,980 for Mr. Scibetta, based on the same assumptions used in the
calculation that is included in Note 2 to our audited consolidated
financial statements for the year ended December 31, 2008, which are
included in this prospectus. All assumptions used and amounts pertaining
to the year ended December 31, 2009 have not yet been audited as of the
date of this prospectus.
|
(2)
|
Unless
otherwise indicated below, option awards included in this table vest in
three equal installments on each of the date of grant and the first and
second anniversaries thereof.
|
(3) |
Dr.
Rose resigned from the Board on June 22, 2009.
|
Name and Address of Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percentage of
class (1)
|
||||||
Lambda
Investors LLC (2)
|
21,572,432 | 44.2 | % | |||||
Stagg
Capital Group LLC(3)
|
3,749,558 | 9.0 | % | |||||
AFS
Holdings One LLC (4)
|
3,150,597 | 7.6 | % | |||||
Arthur
H. Amron (5)
|
15,000 | * | ||||||
Lawrence
J. Centella (6)
|
63,410 | * | ||||||
Ernest
Elgin III (7)
|
206,250 | * | ||||||
Gerald
J. Kochanski (8)
|
68,750 | * | ||||||
Paul
A. Mieyal (9)
|
15,000 | * | ||||||
James
S. Scibetta (10)
|
26,667 | * | ||||||
All
executive officers and directors as a group (5-10)
|
395,077 | * |
(1)
|
Percentages are based on
41,604,798 shares of common stock issued and outstanding as
of December 31, 2009.
|
(2)
|
Based in part on information
provided in Schedule 13D filed on October 1, 2007. The shares beneficially
owned by Lambda Investors LLC may be deemed beneficially owned by Wexford
Capital LLC, which is the managing member of Lambda Investors LLC, by
Charles E. Davidson in his capacity as chairman and managing member of
Wexford Capital LLC and by Joseph M. Jacobs in his capacity as president
and managing member of Wexford Capital LLC. The address of each of Lambda
Investors LLC, Wexford Capital LLC, Mr. Davidson and Mr. Jacobs is c/o
Wexford Capital LLC, 411 West Putnam Avenue, Greenwich, CT 06830. Each of
Wexford Capital LLC, Mr. Davidson and Mr. Jacobs disclaims beneficial
ownership of the shares of Common Stock owned by Lambda Investors LLC
except, in the case of Mr. Davidson and Mr. Jacobs, to the extent of their
respective interests in each member of Lambda Investors LLC. Includes
7,190,811 shares issuable on or prior to November 14, 2012 upon exercise
of warrants held by Lambda Investors LLC having an exercise price of $0.90
per share.
|
(3)
|
Based in part on information
provided in Schedule 13/D filed with the SEC on August 21, 2008. Stagg
Capital Group, LLC (“Stagg Capital”) serves as the investment advisor to
an investment fund that holds the shares and Scott A. Stagg is the
managing member of Stagg Capital. By reason of such
relationships, Stagg Capital and Mr. Stagg may be deemed to be indirect
beneficial owners of the
shares.
|
(4)
|
Based
in part on information provided in Schedule 13G filed with the SEC on
January 8, 2009 by AFS Holdings One LLC. AFS reported that it
beneficially owns 3,150,597 shares of our common stock and has sole voting
and dispositive power with respect to those shares. On
February 1, 2010, AFS Holdings One LLC filed an Amendment No. 1 to
Schedule 13G reporting that it no longer held any shares of our common
stock.
|
(5)
|
Mr. Amron’s address is c/o
Wexford Capital LLC, 411 West Putnam Avenue, Greenwich, CT 06830. The
shares identified as being beneficially owned by Mr. Amron consist of
15,000 shares issuable upon exercise of options granted under the 2004
Plan.
|
(6)
|
Mr.
Centella’s address is the Company address. The shares identified as being
beneficially owned by Mr. Centella include 35,000 shares issuable upon
exercise of options granted under the 2004 Plan.
|
(7)
|
Mr.
Elgin’s address is the Company address. The shares identified
as being beneficially owned by Mr. Elgin consist of 206,250 shares
issuable upon exercise of options granted under the 2004
Plan. Does not include 868,750 shares issuable upon the
exercise of options which have been granted under our Stock Option Plans
but will not vest within 60 days of December 31, 2009.
|
(8)
|
Mr.
Kochanski’s address is the Company address. The shares
identified as being beneficially owned by Mr. Kochanski consist of 68,750
shares issuable upon exercise of options granted under the 2004
Plan. Does not include 281,820 shares issuable upon the
exercise of options which have been granted under our Stock Option Plans
but will not vest within 60 days of December 31, 2009.
|
(9)
|
Mr. Mieyal’s address is c/o
Wexford Capital LLC, 411 West Putnam Avenue, Greenwich, CT 06830. The
shares identified as being beneficially owned by Mr. Mieyal consist of
15,000 shares issuable upon exercise of options granted under the 2004
Plan.
|
(10)
|
Mr. Scibetta’s address is the
Company address. The shares identified as being beneficially owned by Mr.
Scibetta consist of 26,667 shares issuable upon exercise of options
granted under the 2004 Plan. Does not include 13,333 shares issuable upon
the exercise of options which have been granted under our Stock Option
Plans but will not vest within 60 days of December 31, 2009.
|
Page
|
|
Annual Financial Statements |
|
Report
of Independent Registered Public Accounting Firm
|
F-1
|
Consolidated
Balance Sheets – December 31, 2008 and 2007
|
F-2
|
Consolidated
Statements of Operations – Years ended December 31, 2008 and
2007
|
F-3
|
Consolidated
Statements of Changes in Stockholders’ Equity – Years ended December 31,
2008 and 2007
|
F-4
|
Consolidated
Statements of Cash Flows – Years ended December 31, 2008 and
2007
|
F-5
|
Notes
to Audited Consolidated Financial Statements
|
F-6
|
Interim
Financial Statements
|
|
Condensed
Consolidated Balance Sheets – September 30, 2009 (unaudited) and
December 31, 2008 (audited)
|
F-25
|
Condensed
Consolidated Statements of Operations – Three and nine months ended
September 30, 2009 and 2008 (unaudited)
|
F-26
|
Condensed
Consolidated Statements of Cash Flows – Nine months ended September 30,
2009 and 2008 (unaudited)
|
F-27
|
Notes
to Unaudited Condensed Consolidated Interim Financial
Statements
|
F-28
|
December 31, 2008 |
December 31, 2007
|
|||||||
ASSETS
|
|
|
||||||
|
|
|||||||
Current
assets:
|
|
|
||||||
Cash
and cash equivalents
|
$
|
2,306
|
$
|
3,449
|
||||
Short-term
investments
|
7
|
4,700
|
||||||
Accounts
receivable, less allowances of $4 and $7, respectively
|
404
|
419
|
||||||
Inventory,
less allowances of $0 and $30, respectively
|
724
|
336
|
||||||
Prepaid
expenses and other current assets
|
162
|
392
|
||||||
Total
current assets
|
3,603
|
9,296
|
||||||
Property
and equipment, net
|
412
|
762
|
||||||
Other
assets
|
21
|
27
|
||||||
Total
assets
|
$
|
4,036
|
$
|
10,085
|
||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
||||||
Current
liabilities:
|
|
|
||||||
Accounts
payable
|
$
|
986
|
$
|
488
|
||||
Accrued
expenses
|
411
|
781
|
||||||
Accrued
severance expense
|
105
|
60
|
||||||
Total
current liabilities
|
1,502
|
1,329
|
||||||
Total
liabilities
|
1,502
|
1,329
|
||||||
|
||||||||
Commitments
and Contingencies (Note 12)
|
||||||||
Stockholders’
equity:
|
|
|||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized at December 31, 2008
and 2007; no shares issued and outstanding at December 31, 2008 and
2007
|
—
|
—
|
||||||
Common
stock, $.001 par value; 60,000,000 authorized at December 31, 2008 and
2007, respectively; 38,165,380 shares issued and outstanding at December
31, 2008 and 2007
|
38
|
38
|
||||||
Additional
paid-in capital
|
90,375
|
90,220
|
||||||
Accumulated
other comprehensive income
|
70
|
110
|
||||||
Accumulated
deficit
|
(87,949
|
)
|
(81,612
|
)
|
||||
Total
stockholders’ equity
|
2,534
|
8,756
|
||||||
Total
liabilities and stockholders’ equity
|
$
|
4,036
|
$
|
10,085
|
Years Ended December
31
|
||||||||
2008
|
2007
|
|||||||
Product
revenue
|
$
|
1,473
|
$
|
1,196
|
||||
Cost
of goods sold
|
1,064
|
876
|
||||||
Gross
margin
|
409
|
320
|
||||||
Operating
expenses:
|
|
|||||||
Research
and development
|
1,977
|
1,920
|
||||||
Depreciation
and amortization
|
447
|
352
|
||||||
Selling,
general and administrative
|
4,702
|
5,527
|
||||||
Total
operating expenses
|
7,126
|
7,799
|
||||||
Loss
from operations
|
(6,717
|
)
|
(7,479
|
)
|
||||
Interest
income
|
199
|
138
|
||||||
Interest
expense
|
—
|
(535
|
)
|
|||||
Amortization
of beneficial conversion feature
|
—
|
(13,429
|
)
|
|||||
Amortization
of debt discount
|
—
|
(4,556
|
)
|
|||||
Amortization
of deferred financing costs
|
—
|
(992
|
)
|
|||||
Impairment
of auction rate securities
|
(114
|
)
|
—
|
|||||
Gain
on sale of investments
|
114
|
—
|
||||||
Gain
on exchange of debt
|
—
|
330
|
||||||
Other
income
|
181
|
167
|
||||||
Net
loss
|
$
|
(6,337
|
)
|
$
|
(26,356
|
)
|
||
Net
loss per common share, basic and diluted
|
$
|
(0.17
|
)
|
$
|
(1.68
|
)
|
||
Weighted
average common shares outstanding, basic and diluted
|
38,165,380
|
15,646,286
|
Accumulated
|
||||||||||||||||||||||||
Additional
|
Other
|
|||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Comprehensive
|
Accumulated
|
|||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Income
(Loss)
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
January 1, 2007
|
12,317,992
|
$
|
12
|
$
|
53,135
|
$
|
12
|
$
|
(55,256
|
)
|
$
|
(2,097
|
)
|
|||||||||||
Comprehensive
income:
|
|
|
|
|
|
|
||||||||||||||||||
Net
loss
|
(26,356
|
)
|
(26,356
|
)
|
||||||||||||||||||||
Net
unrealized gains on foreign currency translation
|
98
|
98
|
||||||||||||||||||||||
Comprehensive
loss
|
(26,258
|
)
|
||||||||||||||||||||||
Debt
discount on issuance of convertible note
|
785
|
785
|
||||||||||||||||||||||
Beneficial
conversion feature and warrant valuation
|
17,192
|
17,192
|
||||||||||||||||||||||
Conversion
of notes and related accrued interest
|
25,847,388
|
26
|
18,223
|
18,249
|
||||||||||||||||||||
Noncash
stock-based compensation
|
885
|
885
|
||||||||||||||||||||||
Balance,
December 31, 2007
|
38,165,380
|
$
|
38
|
$
|
90,220
|
$
|
110
|
$
|
(81,612
|
)
|
$
|
8,756
|
||||||||||||
Comprehensive
income:
|
|
|
|
|
|
|
||||||||||||||||||
Net
loss
|
|
|
|
|
(6,337
|
)
|
(6,337
|
)
|
||||||||||||||||
Net
unrealized losses on foreign currency translation
|
|
|
|
(40
|
)
|
|
(40
|
)
|
||||||||||||||||
Comprehensive
loss
|
|
|
|
|
|
(6,377
|
)
|
|||||||||||||||||
Noncash
stock-based compensation
|
|
|
155
|
|
|
155
|
||||||||||||||||||
Balance,
December 31, 2008
|
38,165,380
|
$
|
38
|
$
|
90,375
|
$
|
70
|
$
|
(87,949
|
)
|
$
|
2,534
|
Years Ended December
31,
|
||||||||
2008
|
2007
|
|||||||
Operating
activities:
|
|
|
||||||
Net
loss
|
$
|
(6,337
|
)
|
$
|
(26,356
|
)
|
||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
||||||
Depreciation
and amortization of property and equipment
|
447
|
352
|
||||||
Impairment
of auction rate securities
|
114
|
—
|
||||||
Loss
on disposal of equipment
|
—
|
4
|
||||||
Beneficial
conversion features
|
—
|
13,429
|
||||||
Amortization
of debt discount
|
—
|
4,556
|
||||||
Amortization
of deferred financing costs
|
—
|
992
|
||||||
Change
in valuation of derivative liability
|
—
|
7
|
||||||
Noncash
stock-based compensation
|
155
|
885
|
||||||
Gain
on sale of investments
|
(114
|
)
|
—
|
|||||
Gain
on exchange of debt
|
—
|
(330
|
)
|
|||||
(Increase)
decrease in operating assets:
|
||||||||
Accounts
receivable
|
1
|
(154
|
)
|
|||||
Inventory
|
(409
|
)
|
217
|
|||||
Prepaid
expenses and other current assets
|
227
|
63
|
||||||
Deferred
costs
|
—
|
(2
|
)
|
|||||
Other
assets
|
8
|
(3
|
)
|
|||||
Increase
(decrease) in operating liabilities:
|
|
|
||||||
Accounts
payable and accrued expenses
|
138
|
2
|
||||||
Accrued
severance expense
|
45
|
(38
|
)
|
|||||
Accrued
interest-convertible notes
|
—
|
498
|
||||||
Other
liabilities
|
—
|
(564
|
)
|
|||||
Net
cash used in operating activities
|
(5,725
|
)
|
(6,442
|
)
|
||||
Investing
activities
|
|
|
||||||
Purchase
of property and equipment
|
(97
|
)
|
(145
|
)
|
||||
Purchase
of short-term investments
|
—
|
(4,700
|
)
|
|||||
Proceeds
from sales of property and equipment
|
3
|
—
|
||||||
Maturities
of short-term investments
|
4,693
|
2,800
|
||||||
Net
cash provided by (used in) investing activities
|
4,599
|
(2,045
|
)
|
|||||
Financing
activities
|
|
|
||||||
Proceeds
from private placement of convertible notes
|
—
|
12,677
|
||||||
Payment
of deferred financing costs
|
—
|
(992
|
)
|
|||||
Net
cash provided by financing activities
|
—
|
11,685
|
||||||
Effect
of exchange rates on cash
|
(17
|
)
|
(2
|
)
|
||||
Net
increase (decrease) in cash and cash equivalents
|
(1,143
|
)
|
3,196
|
|||||
Cash
and cash equivalents, beginning of year
|
3,449
|
253
|
||||||
Cash
and cash equivalents, end of year
|
$
|
2,306
|
$
|
3,449
|
||||
Supplemental
disclosure of cash flow information
|
|
|
||||||
Cash
paid for interest
|
$
|
—
|
$
|
36
|
||||
Cash
paid for taxes
|
$
|
1
|
$
|
3
|
||||
Supplemental
disclosure of non-cash investing and financing activities
|
|
|||||||
Convertible
note issued on debt exchange
|
$
|
—
|
$
|
5,300
|
||||
Stock
issued upon conversion of convertible notes
|
$
|
—
|
$
|
17,977
|
||||
Stock
issued upon conversion of accrued interest of convertible
notes
|
$
|
—
|
$
|
272
|
·
|
Section
1003(a)(iii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $6,000,000 if such issuer has sustained
net losses in its five most recent fiscal
years;
|
·
|
Section
1003(a)(ii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $4,000,000 if such issuer has sustained
net losses in its three of its four most recent fiscal years;
and
|
·
|
Section
1003(f)(v), which states AMEX will normally consider suspending dealings
in, or removing from the list, common stock that sells for a substantial
period of time at a low price per
share.
|
2008
|
2007
|
|||||||
Stock
options
|
2,696,225
|
2,256,580
|
||||||
Warrants
|
11,090,248
|
11,090,248
|
Total Fair Value
at
|
Fair Value Measurements at Reporting
Date Using
|
|||||||||||||||
December 31, 2008
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Certificates
of deposit
|
$ | 7,000 |
$
|
7,000 | $ | — | $ | — | ||||||||
Total
|
$ | 7,000 |
$
|
7,000 | $ | — | $ | — |
Auction Rate
Securities
|
||||
Balance
as of December 31, 2007
|
$ | 4,700,000 | ||
Sale
of Securities
|
(4,700,000 | ) | ||
Gain
on sale of investments
|
114,000 | |||
Impairment
of auction rate securities
|
(114,000 | ) | ||
Balance
as of December 31, 2008
|
$ | — |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Raw
Materials
|
$
|
382,000
|
$
|
62,000
|
||||
Finished
Goods
|
342,000
|
304,000
|
||||||
Total
Gross Inventory
|
724,000
|
366,000
|
||||||
Less:
Inventory reserve
|
—
|
30,000
|
||||||
Total
Inventory
|
$
|
724,000
|
$
|
336,000
|
December
31,
|
||||||||
2008
|
2007
|
|||||||
Prepaid
insurance premiums
|
$
|
88,000
|
$
|
211,000
|
||||
Advances
on product development services
|
—
|
96,000
|
||||||
Other
|
74,000
|
85,000
|
||||||
Prepaid
expenses and other current assets
|
$
|
162,000
|
$
|
392,000
|
December 31,
|
|||||||||
Life
|
2008
|
2007
|
|||||||
Manufacturing
equipment
|
5
years
|
$ | 2,057,000 | $ | 2,028,000 | ||||
Research
equipment
|
5
years
|
91,000 | 91,000 | ||||||
Computer
equipment
|
4
years
|
61,000 | 70,000 | ||||||
Furniture
and fixtures
|
7
years
|
39,000 | 39,000 | ||||||
Leasehold
improvements
|
Term
of lease
|
— | 15,000 | ||||||
2,248,000 | 2,243,000 | ||||||||
Less:
accumulated depreciation
|
1,836,000 | 1,481,000 | |||||||
Property
and equipment, net
|
$ | 412,000 | $ | 762,000 |
December
31,
|
||||||||
2008
|
2007
|
|||||||
Accrued
Clinical Trial
|
$
|
102,000
|
$
|
223,000
|
||||
Accrued
Management Bonus and Directors’ Compensation
|
119,000
|
—
|
||||||
Accrued
Accounting
|
75,000
|
218,000
|
||||||
Accrued
Legal
|
32,000
|
123,000
|
||||||
Accrued
Other
|
83,000
|
217,000
|
||||||
$
|
411,000
|
$
|
781,000
|
2008
|
2007
|
|||||||
U.S.
federal statutory rate
|
35.00
|
%
|
35.00
|
%
|
||||
State
& local taxes
|
10.79
|
%
|
11.26
|
%
|
||||
Tax
on foreign operations
|
(1.36
|
)%
|
(0.51
|
)%
|
||||
Other
|
(3.03
|
)%
|
(1.21
|
)%
|
||||
Valuation
allowance
|
(44.11
|
)%
|
(45.53
|
)%
|
||||
Effective
tax rate
|
(2.71
|
)%
|
(0.99
|
)%
|
|
|
|||||||
2008
|
2007
|
|||||||
Deferred
tax assets:
|
|
|
||||||
Net
operating loss carry forwards
|
$
|
29,357,000
|
$
|
26,734,000
|
||||
Research
and development credits
|
957,000
|
896,000
|
||||||
Nonqualified
stock option compensation expense
|
1,751,000
|
1,703,000
|
||||||
Other
temporary book – tax differences
|
(63,000
|
)
|
2,000
|
|||||
Total
deferred tax assets
|
32,002,000
|
29,335,000
|
||||||
Valuation
allowance for deferred tax assets
|
(32,002,000
|
)
|
(29,335,000
|
)
|
||||
Net
deferred tax assets
|
$
|
—
|
$
|
—
|
Option
Pricing Assumptions
|
||||||||
Grant
Year
|
2008
|
2007
|
||||||
Stock
Price Volatility
|
89%-90%
|
84% – 86%
|
||||||
Risk-Free
Interest Rates
|
3.45% to 3.47%
|
3.97% to 4.83%
|
||||||
Expected
Life (in years)
|
6.25
|
5.8
to 6.0
|
||||||
Expected
Dividend Yield
|
0%
|
0%
|
Options Outstanding
|
Options Exercisable
|
|||||||||||||||||||
Range of Exercise
Price
|
Number
Outstanding as
of December
31, 2008
|
Weighted
Average
Remaining
Contractual
Life in
Years
|
Weighted
Average
Exercise
Price
|
Number
Exercisable as
of
December 31,
2008
|
Weighted
Average
Exercise Price
|
|||||||||||||||
$0.32
- $0.37
|
1,270,471 | 5.7 | $ | 0.35 | 520,471 | $ | 0.32 | |||||||||||||
$0.75
|
375,000 | 9.3 | $ | 0.75 | — | $ | — | |||||||||||||
$0.80
– $1.49
|
306,279 | 1.9 | $ | 1.15 | 285,446 | $ | 1.17 | |||||||||||||
$1.76
|
165,630 | 4.4 | $ | 1.76 | 165,630 | $ | 1.76 | |||||||||||||
$2.32
– $2.64
|
335,703 | 4.8 | $ | 2.42 | 335,703 | $ | 2.42 | |||||||||||||
$2.78
– $4.80
|
243,142 | 4.6 | $ | 3.23 | 243,142 | $ | 3.23 | |||||||||||||
Total
Outstanding
|
2,696,225 | $ | 1.10 | 1,550,392 | $ | 1.54 |
Shares
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
at December 31, 2007
|
2,256,580
|
$
|
1.53
|
|||||
Options
granted
|
1,125,000
|
$
|
0.50
|
|||||
Options
canceled
|
(685,355
|
)
|
$
|
1.46
|
||||
Outstanding
at December 31, 2008
|
2,696,225
|
$
|
1.10
|
|||||
Expected
to vest at December 31, 2008
|
1,079,375
|
$
|
0.50
|
|||||
Exercisable
at December 31, 2008
|
1,550,392
|
$
|
1.54
|
Title
of Warrant
|
Date
Issued
|
Expiry
Date
|
Exercise
Price
|
Total
Common
Shares
Issuable
|
||||||||||||
IPO
Underwriter Warrants
|
3/24/2005
|
9/20/2009
|
$
|
7.50
|
200,000
|
|||||||||||
Lancer
Warrants
|
1/18/2006
|
1/18/2009
|
$
|
1.50
|
21,308
|
|||||||||||
Class
D Warrants
|
11/14/2007
|
11/14/2012
|
$
|
0.90
|
9,112,566
|
|||||||||||
Placement
Agent Warrants
|
11/14/2007
|
11/14/2012
|
$
|
0.90
|
1,756,374
|
|||||||||||
Total
all Outstanding Warrants
|
|
|
$
|
1.02 (1)
|
11,090,248
|
(1)
|
Weighted
average.
|
Payments
Due in Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Within
1
Year
|
Years
1 – 3
|
Years
3 – 5
|
More
than
5
Years
|
|||||||||||||||
Leases
|
$
|
296,000
|
$
|
115,000
|
$
|
181,000
|
$
|
—
|
$
|
—
|
||||||||||
Employment
Contracts
|
1,066,250
|
425,000
|
641,250
|
|||||||||||||||||
Total
|
$
|
1,362,250
|
$
|
540,000
|
$
|
822,250
|
$
|
—
|
$
|
—
|
·
|
The
Company will pay Mr. Barta his base salary and any accrued but unused
vacation through the Separation
Date;
|
·
|
Within
five days following the Separation Date, the Company will pay Mr. Barta an
$18,000 bonus in connection with certain operational milestones that had
been met; and
|
·
|
Mr.
Barta will continue to receive his base salary for a period of six
months following the Separation
Date.
|
·
|
Section
1003(a)(iii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $6,000,000 if such issuer has sustained
net losses in its five most recent fiscal
years;
|
·
|
Section
1003(a)(ii), which states AMEX will normally consider suspending dealings
in, or removing from the list, securities of an issuer which has
stockholders’ equity of less than $4,000,000 if such issuer has sustained
net losses in its three of its four most recent fiscal years;
and
|
·
|
Section
1003(f)(v), which states AMEX will normally consider suspending dealings
in, or removing from the list, common stock that sells for a substantial
period of time at a low price per
share.
|
(Unaudited)
|
(Audited)
|
|||||||
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,795 | $ | 2,306 | ||||
Short-term
investments
|
- | 7 | ||||||
Accounts
receivable, less allowances of $0 and $4, respectively
|
525 | 404 | ||||||
Inventory
|
607 | 724 | ||||||
Prepaid
expenses and other current assets
|
113 | 162 | ||||||
Total
current assets
|
3,040 | 3,603 | ||||||
Property
and equipment, net
|
218 | 412 | ||||||
Other
assets
|
21 | 21 | ||||||
Total
assets
|
$ | 3,279 | $ | 4,036 | ||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable
|
$ | 616 | $ | 986 | ||||
Accrued
expenses
|
251 | 411 | ||||||
Accrued
severance expense
|
- | 105 | ||||||
Total
current liabilities
|
867 | 1,502 | ||||||
Stockholders’
equity:
|
||||||||
Preferred
stock, $.001 par value; 5,000,000 shares authorized at September 30, 2009
and December 31, 2008; no shares issued and outstanding at September 30,
2009 and December 31, 2008
|
- | - | ||||||
Common
stock, $.001 par value; 60,000,000 shares authorized at September 30, 2009
and December 31, 2008; 41,604,798 shares issued and outstanding at
September 30, 2009 and 38,165,380 at December 31, 2008
|
42 | 38 | ||||||
Additional
paid-in capital
|
91,774 | 90,375 | ||||||
Accumulated
other comprehensive income
|
88 | 70 | ||||||
Accumulated
deficit
|
(89,492 | ) | (87,949 | ) | ||||
Total
stockholders’ equity
|
2,412 | 2,534 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 3,279 | $ | 4,036 |
Three
Months Ended
|
Nine
Months Ended
|
|||||||||||||||
September
30,
|
September
30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Product
revenues
|
$ | 711 | $ | 393 | $ | 1,869 | $ | 1,033 | ||||||||
Cost
of goods sold
|
463 | 254 | 1,251 | 654 | ||||||||||||
Gross
margin
|
248 | 139 | 618 | 379 | ||||||||||||
Operating
expenses:
|
||||||||||||||||
Research
and development
|
62 | 191 | 212 | 2,072 | ||||||||||||
Depreciation
|
53 | 84 | 190 | 255 | ||||||||||||
Selling,
general and administrative
|
676 | 1,242 | 2,093 | 3,830 | ||||||||||||
Total
operating expenses
|
791 | 1,517 | 2,495 | 6,157 | ||||||||||||
Loss
from operations
|
(543 | ) | (1,378 | ) | (1,877 | ) | (5,778 | ) | ||||||||
Interest
income
|
2 | 27 | 8 | 185 | ||||||||||||
Interest
expense
|
- | - | (2 | ) | - | |||||||||||
Impairment
of auction rate securities
|
- | - | - | (114 | ) | |||||||||||
Unrealized
holding gain - auction rate securities
|
- | (114 | ) | - | - | |||||||||||
Gain
on sale of investments
|
- | 114 | - | 114 | ||||||||||||
Other
income
|
146 | 5 | 328 | 163 | ||||||||||||
Net
loss
|
$ | (395 | ) | $ | (1,346 | ) | $ | (1,543 | ) | $ | (5,430 | ) | ||||
Net
loss per common share, basic and diluted
|
$ | (0.01 | ) | $ | (0.04 | ) | $ | (0.04 | ) | $ | (0.14 | ) | ||||
Weighted
average common shares outstanding, basic
and diluted
|
40,439,506 | 38,165,380 | 38,961,179 | 38,165,380 |
Nine Months Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Operating
activities:
|
||||||||
Net
loss
|
$ | (1,543 | ) | $ | (5,430 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
190 | 255 | ||||||
Amortization
of research & development assets
|
- | 12 | ||||||
Loss
on disposal of equipment
|
- | 3 | ||||||
Impairment
of auction rate securities
|
- | 114 | ||||||
Gain
on sale of investments
|
- | (114 | ) | |||||
Stock-based
compensation
|
68 | 97 | ||||||
(Increase)
decrease in operating assets:
|
||||||||
Accounts
receivable
|
(114 | ) | 93 | |||||
Inventory
|
118 | (1 | ) | |||||
Prepaid
expenses and other current assets
|
49 | 48 | ||||||
Increase
(decrease) in operating liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
(638 | ) | 594 | |||||
Net
cash used in operating activities
|
(1,870 | ) | (4,329 | ) | ||||
Investing
activities:
|
||||||||
Purchase
of property and equipment
|
- | (63 | ) | |||||
Proceeds
from sale of short-term investments
|
- | 4,100 | ||||||
Maturities
of short-term investments
|
7 | 593 | ||||||
Net
cash provided by investing activities
|
7 | 4,630 | ||||||
Financing
activities:
|
||||||||
Proceeds
from private placement
|
1,251 | - | ||||||
Exercise
of stock options
|
84 | - | ||||||
Net
cash provided by investing activities
|
1,335 | - | ||||||
Effect
of exchange rates on cash
|
17 | (5 | ) | |||||
Net
increase (decrease) in cash and cash equivalents
|
(511 | ) | 296 | |||||
Cash
and cash equivalents, beginning of period
|
$ | 2,306 | $ | 3,449 | ||||
Cash
and cash equivalents, end of period
|
1,795 | 3,745 | ||||||
Supplemental
disclosure of cash flow information:
|
||||||||
Cash
paid for interest
|
2 | - | ||||||
Cash
paid for taxes
|
6 | 8 |
1.
|
Basis
of Presentation and Going Concern
|
2.
|
Concentration
of Credit Risk
|
Customer
|
2009
|
2008
|
||||||
A
|
45 | % | 84 | % | ||||
B
|
42 | % | 10 | % |
Customer
|
2009
|
2008
|
||||||
A
|
47 | % | 66 | % | ||||
B
|
32 | % | 23 | % |
3.
|
Revenue
Recognition
|
4.
|
Stock-Based
Compensation
|
5.
|
Comprehensive
Income
|
6.
|
Loss
per Common Share
|
7.
|
Recent
Accounting Pronouncements
|
8.
|
Fair
Value of Financial Instruments
|
Fair Value Measurements at Reporting
Date Using
|
||||||||||||||||
Total Fair Value at
December 31, 2008
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Certificate
of deposit
|
$ | 7,000 | $ | 7,000 | $ | — | $ | — | ||||||||
Total
|
$ | 7,000 | $ | 7,000 | $ | — | $ | — |
9.
|
Inventory
|
Unaudited
|
Audited
|
|||||||
September 30, 2009
|
December 31, 2008
|
|||||||
Raw
Materials
|
$ | 109,000 | $ | 382,000 | ||||
Finished
Goods
|
498,000 | 342,000 | ||||||
Total
Inventory
|
$ | 607,000 | $ | 724,000 |
10.
|
Equity
Transactions
|
Title of Warrant
|
Date Issued
|
Expiry Date
|
Exercise Price
|
Total Common
Shares Issuable
|
||||||||
IPO
Underwriter Warrants
|
3/24/2005
|
9/20/2009
|
$ | 7.50 | 200,000 | |||||||
Lancer
Warrants
|
1/18/2006
|
1/18/2009
|
$ | 1.50 | 21,308 | |||||||
Class
D Warrants
|
11/14/2007
|
11/14/2012
|
$ | 0.706 | 9,112,566 | |||||||
Placement
Agent Warrants
|
11/14/2007
|
11/14/2012
|
$ | 0.90 | 1,756,374 | |||||||
Total
all Outstanding Warrants
|
$ | 1.02 |
(1)
|
11,090,248 |
(A)
=
|
the
VWAP (as defined below) on the Trading Day (as defined below) immediately
preceding the date of such election;
|
(B)
=
|
the
Per Share Exercise Price of this Warrant, as adjusted;
and
|
(C)
=
|
the
number of Warrant Shares issuable upon exercise of this Warrant in
accordance with the terms of this Warrant by means of a cash exercise
rather than a cashless
exercise.
|
Title of Warrant
|
Date Issued
|
Expiry Date
|
Exercise Price
|
Total Common
Shares Issuable
|
||||||||
Class
D Warrants
|
11/14/2007
|
11/14/2012
|
$ | 0.90 | 7,389,565 | |||||||
Placement
Agent Warrants
|
11/14/2007
|
11/14/2012
|
$ | 0.706 | 129,681 | |||||||
July
2009 Warrants
|
7/24/2009
|
7/24/2014
|
$ | 1.12 | 672,581 | |||||||
Total
all Outstanding Warrants
|
$ | .92 |
(1)
|
8,191,827 |
11.
|
Contingencies
|
12.
|
Subsequent
Events
|
SEC
Filing Fee
|
$ | 837 | ||
Printing
expenses
|
$ | 3,000 | ||
Legal
Fees and Expenses
|
$ | 45,000 | ||
Accounting
Fees and Expenses
|
$ | 5,000 | ||
Miscellaneous
|
$ | 1,163 | ||
Total
|
$ | 55,000 |
Exhibit No.
|
Description
|
|
3.1
|
Fourth
Amended and Restated Certificate of Incorporation of the Registrant.(5)
|
|
3.2
|
Certificate
of Amendment to the Fourth Amended and Restated Certificate of
Incorporation of the Registrant.
(13)
|
|
3.3
|
Certificate
of Amendment to the Fourth Amended and Restated Certificate of
Incorporation of the Registrant.
(13)
|
|
3.4
|
Certificate
of Amendment to the Fourth Amended and Restated Certificate of
Incorporation of the Registrant as filed with the Delaware Secretary of
State on November 13, 2007.
(14)
|
|
3.5* |
Certificate
of Amendment to the Fourth amended and Restated Certificate of
Incorporation of the Registrant as filed with the Delaware Secretary of
state on October 26, 2009.
|
|
3.6
|
Second Amended and Restated
By-Laws of the Registrant.(16)
|
|
4.1
|
Specimen
of Common Stock Certificate of the Registrant.(1)
|
|
4.2
|
Form
of Underwriter’s Warrant.(1)
|
|
4.3
|
Warrant
for the purchase of shares of common stock dated January 18, 2006, issued
to Marty Steinberg, Esq., as Court-appointed Receiver for Lancer Offshore,
Inc.(17)
|
|
4.4
|
Form
of Series A 10% Secured Convertible Note due 2008 convertible into Common
Stock and Warrants.
(15)
|
|
4.5
|
Form
of Series B 10% Secured Convertible Note due 2008 convertible into Common
Stock.(15)
|
|
4.6
|
Form
of Class D Warrant.(15)
|
|
4.7
|
Form
of Placement Agent Warrant.(15)
|
|
4.8
|
Form
of Investor Warrant issued on July 24, 2009.
(20)
|
|
5.1*
|
Opinion
of Wyrick Robbins Yates & Ponton LLP as to the legality of the
securities being registered.
|
|
10.1
|
Amended
and Restated 2000 Nephros Equity Incentive Plan.(1)(2)
|
|
10.2
|
2004
Nephros Stock Incentive Plan.(1)(2)
|
|
10.3
|
Amendment
No. 1 to 2004 Nephros Stock Incentive Plan.(2)(5)
|
|
10.4
|
Amendment
No. 2 to the Nephros, Inc. 2004 Stock Incentive Plan.(14)
|
|
10.5
|
Form
of Subscription Agreement dated as of June 1997 between the Registrant and
each Purchaser of Series A Convertible Preferred Stock.
(1)
|
|
10.6
|
Amendment and Restatement to
Registration Rights Agreement, dated as of May 17, 2000 and amended and
restated as of June 26, 2003, between the Registrant and the holders of a
majority of Registrable Shares (as defined therein).
(1)
|
10.7
|
Employment
Agreement dated as of November 21, 2002 between Norman J. Barta and
the Registrant.
(1)(2)
|
|
10.8
|
Amendment
to Employment Agreement dated as of March 17, 2003 between Norman J. Barta
and the Registrant.
(1)(2)
|
|
10.9
|
Amendment
to Employment Agreement dated as of May 31, 2004 between Norman J. Barta
and the Registrant.
(1)(2)
|
|
10.10
|
Employment
Agreement effective as of July 1, 2007 between Nephros, Inc. and Norman J.
Barta.
(14)
|
|
10.11
|
Form
of Employee Patent and Confidential Information Agreement.(1)
|
|
10.12
|
Form
of Employee Confidentiality Agreement.(1)
|
|
10.13
|
Settlement
Agreement and Mutual Release dated June 19, 2002 between Plexus Services
Corp. and the Registrant.(1)
|
|
10.14
|
Settlement
Agreement dated as of January 31, 2003 between Lancer Offshore, Inc. and
the Registrant.
(1)
|
|
10.15
|
Settlement
Agreement dated as of February 13, 2003 between Hermitage Capital
Corporation and the Registrant.
(1)
|
|
10.16
|
Supply
Agreement between Nephros, Inc. and Membrana GmbH, dated as of December
17, 2003.
(1)(3)
|
|
10.17
|
Amended
Supply Agreement between Nephros, Inc. and Membrana GmbH dated as of June
16, 2005.
(3)(7)
|
|
10.18
|
Manufacturing
and Supply Agreement between Nephros, Inc. and Medica s.r.l., dated as of
May 12, 2003.
(1)(3)
|
|
10.19
|
Manufacturing
and Supply Agreement between Nephros, Inc. and Medica s.r.l., dated as of
March 22, 2005 supercedes prior Agreement dated May 12, 2003.
(3)(8)
|
|
10.20
|
HDF-Cartridge
License Agreement dated as of March 2, 2005 between Nephros, Inc. and
Asahi Kasei Medical Co., Ltd.
(4)
|
|
10.21
|
Subscription
Agreement dated as of March 2, 2005 between Nephros, Inc. and Asahi Kasei
Medical Co., Ltd.
(4)
|
|
10.22
|
Non-employee
Director Compensation Summary.(2)(6)
|
|
10.23
|
Named
Executive Officer Summary of Changes to Compensation.(2)(6)
|
|
10.24
|
Stipulation
of Settlement Agreement between Lancer Offshore, Inc. and Nephros, Inc.
approved on December 19, 2005.
(8)
|
|
10.25
|
Consulting
Agreement, dated as of January 11, 2006, between the Company and Bruce
Prashker.
(2)(8)
|
|
10.26
|
Summary
of Changes to Chief Executive Officer’s Compensation.(2)(8)
|
|
10.27
|
Offer
of Employment Agreement, dated as of February 24 2006, between the Company
and Mark W. Lerner.
(2)(8)
|
|
10.28
|
Form
of 6% Secured Convertible Note due 2012 for June 1, 2006 Investors.(9)
|
|
10.29
|
Form
of Common Stock Purchase Warrant.(9)
|
|
10.30
|
Form
of Subscription Agreement, dated as of June 1, 2006.(9)
|
|
10.31
|
Form
of Registration Rights Agreement, dated as of June 1, 2006.(9)
|
|
10.32
|
Form
of 6% Secured Convertible Note due 2012 for June 30, 2006 Investors.(10)
|
|
10.33
|
Form
of Subscription Agreement, dated as of June 30, 2006.(10)
|
|
10.34
|
Employment
Agreement between Nephros, Inc. and William J. Fox, entered into on August
2, 2006.
(2)(11)
|
|
10.35
|
Addendum
to the Commercial Contract between Nephros, Inc. and Bellco S.p.A,
effective as of January 1, 2007.
(3)(12)
|
|
10.36
|
Form
of Subscription Agreement between Nephros and Subscriber.(15)
|
|
10.37
|
Exchange
Agreement, dated as of September 19, 2007, between Nephros and the
Holders.
(15)
|
|
10.38
|
Registration
Rights Agreement, dated as of September 19, 2007, among Nephros and the
Investors.
(15)
|
|
10.39
|
Investor
Rights Agreement, dated as of September 19, 2007, among Nephros and the
Covered Holders as defined therein.
(15)
|
|
10.40
|
Placement
Agent Agreement, dated as of September 18, 2007, among Nephros, NSC and
Dinosaur. (15)
|
10.41
|
License
Agreement, dated October 1, 2007, between the Trustees of Columbia
University in the City of New York, and Nephros.
(17)
|
|
10.42
|
Employment
Agreement, dated as of April 1, 2008, between Nephros, Inc. and Gerald
Kochanski. (2)
(18)
|
|
10.43
|
Separation
Agreement, dated as of April 28, 2008, between Nephros, Inc. and Mark W.
Lerner. (2)
(18)
|
|
10.44
|
Separation
Agreement and Release, dated as of September 15, 2008, between Nephros,
Inc. and Norman J. Barta. (2)
(19)
|
|
10.45
|
Employment
Agreement, dated as of September 15, 2008, between Nephros, Inc. and
Ernest A. Elgin III. (2)
(19)
|
|
10.46
|
Distribution
Agreement between Nephros, Inc. and OLS, dated as of November 26,
2008.(20)
|
|
10.47
|
Lease
Agreement between Nephros International LTD and Coldwell Banker Penrose
& O’Sullivan dated November 30, 2008.(20)
|
|
10.48
|
Distribution
Agreement between Nephros, Inc. and Aqua Services, Inc., dated as of
December 3, 2008.(20)
|
|
10.49
|
Sales
Management Agreement between Nephros, Inc. and Steve Adler, dated as of
December 16, 2008.(20)
|
|
10.50
|
Amendment
No. 3 to the Nephros, Inc. 2004 Stock Incentive Plan.(20)
|
|
10.51
|
Form
of Subscription Agreement between Nephros, Inc. and various investors,
dated July 24, 2009. (20)
|
|
21.1
|
Subsidiaries
of Registrant.(12)
|
|
23.1
|
Consent
of Rothstein Kass, Certified Public Accountants.
|
|
23.2*
|
|
Consent
of Wyrick Robbins Yates & Ponton LLP (contained in Exhibit
5.1).
|
(1)
|
Incorporated
by reference to Nephros, Inc.’s Registration Statement on Form S-1, File
No. 333-116162.
|
|
(2)
|
Management
contract or compensatory plan arrangement.
|
|
(3)
|
Portions
omitted pursuant to a request for confidential
treatment.
|
|
(4)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K Filed with the
Securities and Exchange Commission on March 3, 2005.
|
|
(5)
|
Incorporated
by reference to Nephros, Inc.’s Registration Statement on Form S-8 (No.
333-127264), as filed with the Securities and Exchange Commission on
August 5, 2005.
|
|
(6)
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-QSB, filed
with the Securities and Exchange Commission on May 16,
2005.
|
|
(7)
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-QSB, filed
with the Securities and Exchange Commission on August 15,
2005.
|
|
(8)
|
Incorporated
by reference to Nephros, Inc.’s Annual Report on Form 10-KSB, filed with
the Securities and Exchange Commission on April 20,
2006.
|
|
(9)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on June 2, 2006.
|
|
(10)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 7, 2006.
|
|
(11)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on August 4, 2006.
|
|
(12)
|
Incorporated
by reference to Nephros, Inc.’s Annual Report on Form 10-KSB for the year
ended December 31, 2006, filed with the Securities and Exchange Commission
on April 10, 2007.
|
|
(13)
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2007, filed with the Securities and Exchange
Commission on August 13, 2007.
|
|
(14)
|
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2007, filed with the Securities and Exchange
Commission on November 13,
2007.
|
(15)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on September 25,
2007.
|
|
(16)
|
Incorporated
by reference to Nephros, Inc.’s Current Report on Form 8-K filed with the
Securities and Exchange Commission on December 3, 2007.
|
|
(17)
|
Incorporated
by reference to Nephros, Inc.’s Annual Report on Form 10-KSB for the year
ended December 31, 2007, filed with the Securities and Exchange Commission
on March 31, 2008.
|
|
(18)
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2008, filed with the Securities and Exchange
Commission on May 15, 2008.
|
|
(19)
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2008, filed with the Securities and Exchange
Commission on November 14, 2008.
|
|
(20)
|
|
Incorporated
by reference to Nephros, Inc.’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2009, filed with the Securities and Exchange
Commission on August 14,
2009.
|
NEPHROS,
INC.
|
||
Date: February 12,
2010
|
By:
|
/s/ Ernest A. Elgin III |
Name:
Ernest A. Elgin III
|
||
Title:
President, Chief Executive Officer and Director
|
Signature
|
Title
|
Date
|
||
President,
Chief Executive Officer
|
February
12, 2010
|
|||
/s/ Ernest A. Elgin III
|
(Principal
Executive Officer) and Director
|
|||
Ernest
A. Elgin III
|
|
|||
Chief
Financial Officer (Principal
|
February
12, 2010
|
|||
/s/ Gerald
J. Kochanski
|
Financial
and Accounting
Officer)
|
|||
Gerald
J. Kochanski
|
|
|||
Director
|
February
12, 2010
|
|||
/s/
Arthur H. Amron*
|
||||
Arthur
H. Amron
|
||||
Director
|
February
12, 2010
|
|||
/s/
Lawrence J. Centella*
|
||||
Lawrence
J. Centella
|
||||
Director
|
February
12, 2010
|
|||
/s/
Paul A. Mieyal*
|
||||
Paul
A. Mieyal
|
||||
Director
|
February
12, 2010
|
|||
/s/
James S. Scibetta*
|
||||
James
S. Scibetta
|
|
|
*By:
|
Gerald J. Kochanski
|
Gerald
J. Kochanski
|
|
Attorney-in-Fact
|