kl08028.htm
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
__________________________
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
report (Date of earliest event reported) July 30, 2007
Nephros,
Inc.
(Exact
Name of Registrant as Specified in Charter)
Commission
File Number: 001-32288
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Delaware
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13-3971809
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(State
or other Jurisdiction of
Incorporation)
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(I.R.S.
Employer Identification No.)
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3960
Broadway, New York, New York 10032
(Address
of Principal Executive Offices)
(Zip
Code)
(212)
781-5113
(Registrant’s
telephone number, including area code)
Not
Applicable
(Former
name or former address, if changed since last report)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
r
Written
communications
pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
r
Soliciting
material
pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
r
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
r
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item
2.04 Triggering Events That Accelerate or Increase a Direct Financial Obligation
or an Obligation under an Off-Balance Sheet Arrangement.
As
previously disclosed, Nephros, Inc. (the “Company”) was a defendant in an action
captioned Marty Steinberg, Esq. as Receiver for Lancer Offshore, Inc. v.
Nephros, Inc., Case No. 04-CV-20547, that was commenced on March 8,
2004. That action is ancillary to a proceeding captioned Securities
and Exchange Commission v. Michael Lauer, et. al., Case No. 03-CV-80612, which
was commenced on July 8, 2003, wherein the court appointed a Receiver to manage
Lancer Offshore, Inc. and various related entities. On December 19, 2005 (the
“Date of Entry”) the United States District Court for the Southern District of
Florida issued an order approving the Stipulation of Settlement entered into
on
November 8, 2005 (the “Settlement”) between the Receiver and the
Company. Under the Settlement, the Company will pay the Receiver an
aggregate of $900,000 (the “Settlement Amount”) under the following payment
terms: $100,000 paid no later than 30 days after the Date of Entry; and four
payments of $200,000 each at six month intervals thereafter. In
addition, any warrants previously issued to Lancer Offshore, Inc. have been
cancelled, and the Company issued to the Receiver warrants to purchase 21,308
shares of the Company’s common stock (the “Settlement Warrants”), exercisable
for a period of three years at the market price as of the Date of
Entry. The Company has paid $500,000 to the Receiver and issued the
Settlement Warrants. The remaining balance of the Settlement Amount
to be paid is $400,000 and the Company failed to tender the third $200,000
installment to the Receiver in a timely manner.
The
Settlement provides that in the event the Company fails to pay any portion
of
the Settlement Amount, the Receiver will provide the Company with five business
days written notice of the default. During this five business day
period, the Company has the opportunity to cure the default. If the
Company fails to cure the default within the cure period, then the Receiver
may
retain any portion of the Settlement Amount and Settlement Warrants received
to
date and file a Certificate of Default requesting the entry of a final judgment,
and the Court will enter a final judgment against the Company in the amount
of
$1.2 million less any portion of the Settlement Amount previously paid under
the
Settlement and awarding any portion of the Settlement Warrants not previously
delivered pursuant to the Settlement. The Settlement also provides
that in the event of any litigation arising as a result of a default under
the
Settlement, the Receiver shall be entitled to reasonable attorneys’ fees and
costs related thereto.
On
July
23, 2007, the Company received a letter from the Receiver’s representatives
notifying the Company of its failure to pay the third installment and asking
the
Company to cure such default by July 30, 2007. The letter also
indicated that the Receiver intends to (i) file a Certificate of Default and
seek a final judgment in the amount of $1.2 million, less those portions the
Company has already paid, if the Company is unable to cure in the time
specified, and (ii) seek to recover its attorneys’ fees and costs if legal fees
are incurred in connection with such filing.
The
Company has previously announced in its annual and quarterly filings with the
Securities and Exchange Commission the implementation of a strict cash
management program to conserve its cash, reduce its expenditures and control
its
payables and as a result, it was unable to fund the third installment prior
to
the expiration of the specified cure period. After receipt of the
letter, the Company informed the Receiver’s representatives that it is currently
investigating additional funding opportunities and talking to various potential
investors who could provide additional financing, which would allow the Company
to tender the remaining installments. If the Receiver files a
Certificate of Default and the Company is unable to obtain additional financing,
it would significantly impact the Company’s ability to execute its cash
management program and the Company could have to curtail its planned activities
or cease its operations.
If
the
Receiver files a Certificate of Default and the final judgment amount is in
excess of $500,000 and such amount remains undischarged for 90 days, or any
action shall be taken by the Receiver to levy upon assets or properties of
the
Company to enforce such judgment, such occurrence would constitute an “Event of
Default” under the Company’s $5,200,000 principal amount of 6% Secured
Convertible Notes due 2012 (the “Notes”). As a result, the holders of
Notes constituting a majority of the principal amount of the Notes then
outstanding could declare, by notice to the Company, the unpaid principal of,
and accrued interest on, all the Notes then outstanding to be due and
payable.
For
additional information of factors which could affect the Company’s ability to
meet its obligations, please see the sections titled “Certain Risks and
Uncertainties” and “Liquidity and Capital Resources” in the Company’s Annual
Report on Form 10-KSB for the year ended December 31, 2006 and Quarterly Report
on Form 10-QSB for the quarter ended March 31, 2007.
Safe
Harbor for Forward-Looking Statements
This
report contains certain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995, as amended. Such
statements include statements regarding the efficacy and intended use of the
Company’s technologies under development, the timelines for bringing such
products to market and the availability of funding sources for continued
development of such products and other statements that are not historical facts,
including statements which may be preceded by the words “intends,” “may,”
“will,” “plans,” “expects,” “anticipates,” “projects,” “predicts,” “estimates,”
“aims,” “believes,” “hopes,” “potential” or similar words. For such statements,
the Company claims the protection of the Private Securities Litigation Reform
Act of 1995. Forward-looking statements are not guarantees of future
performance, are based on certain assumptions and are subject to various known
and unknown risks and uncertainties, many of which are beyond the Company’s
control. Actual results may differ materially from the expectations
contained in the forward-looking statements. Factors that may cause such
differences include the risks that:
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the
Company may not be able to satisfy its obligations when they become
due
and payable;
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products
that appeared promising in research or clinical trials to the Company
may
not demonstrate anticipated efficacy, safety or cost savings in subsequent
pre-clinical or clinical trials;
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the
Company may not obtain appropriate or necessary governmental or regulatory
approvals to achieve its business
plan;
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product
orders may be cancelled, patients currently using the Company’s products
may cease to do so, patients expected to begin using the Company’s
products may not and the Company may not be able to bring on new
patients
at the rate originally anticipated;
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the
Company may not be able to obtain funding if and when needed or on
terms
favorable to it;
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the
Company may encounter unanticipated internal control deficiencies
or
weaknesses or ineffective disclosure controls and
procedures;
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HDF
therapy may not be accepted in the United States and/or the Company’s
technology and products may not be accepted in current or future
target
markets, which could lead to failure to achieve market penetration
of the
Company’s products;
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the
Company may not be able to sell its ESRD therapy or water filtration
products at competitive prices or
profitably;
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the
Company may not be able to secure or enforce adequate legal protection,
including patent protection, for its
products;
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FDA
approval relating to the Company’s
OLpūr
HD190 filter may not facilitate or have any effect on the
regulatory approval process for its other
products;
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the
Company may not be able to achieve sales growth in Europe or expand
into
other key geographic markets;
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the
Company may not be able to meet the AMEX’s continued listing standards and
as a result, it may be delisted from the AMEX;
and
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the
Company may not be able to continue as a going
concern.
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More
detailed information about the Company and the risk factors that may affect
the
realization of forward-looking statements is set forth in the Company’s filings
with the Securities and Exchange Commission, including the Annual Report on
Form
10-KSB for the fiscal year ended December 31, 2006. The Company urge
investors and security holders to read those documents free of charge at the
SEC’s web site at www.sec.gov. The Company does not undertake to
publicly update or revise its forward-looking statements as a result of new
information, future events or otherwise.
SIGNATURES
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the undersigned hereunto duly
authorized.
Date: August
3, 2007
NEPHROS,
INC.
By:
/s/
Mark W.
Lerner
Mark
W.
Lerner
Chief
Financial
Officer
(Principal
Financial
and Accounting Officer)