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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
CAPRIUS COMMON STOCK
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the Fiscal Year Ended September 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________ to ___________
Commission File Number 0-11914
CAPRIUS, INC.
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(Exact name of Registrant as specified in its charter)
Delaware 22-2457487
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(State or other jurisdiction (I.R.S. Employer
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of incorporation or organization)
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46 Jonspin Road
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Wilmington, Massachusetts 01887
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(Address of principal executive offices) (Zip Code)
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Registrant's telephone number, including area code: (508) 657-8876
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value per share
Warrants for purchase of Common Stock
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirement for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock, $.01 par
value, held by non-affiliates computed by reference to the average of the
closing bid and asked prices as reported by NASDAQ on December 31, 1997 (based
upon the assumption that each officer, director and person who is known by the
Registrant to own more than five percent of the outstanding Common Stock of the
Registrant is an affiliate of the Registrant for purposes of this computation):
$5,956,848.
Number of shares of the Registrant's Common Stock, $.01 par value,
outstanding as of December 31, 1997: 7,331,505
Documents Incorporated by Reference - Not applicable.
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INDEX
Page No.
PART I.....................................................................3
ITEM I. BUSINESS.......................................................3
ITEM 2. PROPERTIES....................................................13
ITEM 3. LEGAL PROCEEDINGS.............................................14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS...........15
PART II...................................................................18
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.......................................18
ITEM 6. SELECTED FINANCIAL DATA.......................................19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS......................25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...................28
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE..................................28
PART III..................................................................29
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...........29
ITEM 11. EXECUTIVE COMPENSATION.......................................32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................37
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...............39
PART IV...................................................................40
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K...............................................40
SIGNATURES................................................................49
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PART I
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ITEM I. BUSINESS
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General
Caprius, Inc. ("Caprius" or the "Company") (formerly Advanced NMR
Systems, Inc.) was incorporated in 1983 under the laws of the State of Delaware.
Until August 1996, the Company operated under two segments, known as Imaging
Systems and Imaging and Rehabilitation Services. The Company's Imaging Systems
business was discontinued during fiscal 1996. Pursuant to the Company's recent
merger with Advanced Mammography Systems, Inc. ("AMS")(described below), the
Company is now developing, marketing and commercializing a dedicated magnetic
resonance imaging ("MRI") system for breast imaging known as the Aurora(TM)
system (the "Aurora System") and in September 1997 opened its first breast
imaging center at the Faulkner-Sagoff Center for Breast Health Care in Boston,
Massachusetts ("Faulkner Center"). The Company is also engaged in rehabilitation
services, consisting of comprehensive physician care, physical therapy and case
management for motor vehicle accident patients.
Effective November 10, 1997, the Company completed a merger with AMS,
whereby ANMR/AMS Merger Corp., a wholly owned subsidiary of Caprius organized to
effect the merger, merged with and into AMS and AMS became a wholly owned
subsidiary of Caprius (the "Merger"). In connection with the Merger, the Company
effected a one-for-ten reverse stock split (the "Reverse Stock Split"), which is
reflected retroactively in the accompanying financial statements. AMS was
originally formed on July 2, 1992 as a wholly owned subsidiary of Caprius to
develop a dedicated breast MRI system. AMS obtained its mammography technology
from Caprius and retained certain rights to other dedicated MRI systems
utilizing the technology rights. AMS then completed an initial public offering
of its securities in 1993, generating net cash proceeds of approximately $7.4
million. Subsequently, certain warrants and options were exercised, AMS closed a
Regulation S private placement and 2,750,000 shares of AMS Common Stock owned by
Caprius were forfeited from escrow, such that the Company's interest in AMS was
approximately 14% immediately preceding the Merger.
On February 27, 1997, the Company and U.S. Diagnostic Inc. ("US
Diagnostic") completed a transaction whereby Medical Diagnostics, Inc. ("MDI"),
a wholly owned subsidiary of Caprius, merged with MDI Acquisition Corporation, a
newly formed wholly owned subsidiary of US Diagnostic, and became a wholly
owned subsidiary of US Diagnostic (the "MDI Merger"). The Company had acquired
MDI, which provided imaging and rehabilitation services, on August 31, 1995.
Pursuant to the MDI Merger, Caprius retained three rehabilitation centers
formerly operated by MDI. At the time of the sale of MDI to US Diagnostic,
Caprius was in covenant default under its credit agreement with its senior
lender. Caprius sold MDI principally to pursue its strategy of developing and
installing its breast imaging system and to repay all the indebtedness to the
senior lender. Accordingly the covenant defaults are no longer applicable.
In August 1996, Caprius announced a new strategic direction to focus on
the development of breast imaging centers and its Imaging and Rehabilitation
Services business.
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From its inception through November 1992, the Company's Imaging Systems segment
had engaged in research and development activities for its InstaScan ultrafast
magnetic resonance imaging system. Subsequently, the Company also provided very
high field MRI systems for clinical applications and advanced research through
its agreements with GE Medical Systems ("GEMS"). In 1992, Caprius received U.S.
Food and Drug Administration ("FDA") clearance and commenced commercial
marketing activities up until August 1996, when the Company discontinued the
manufacture of its InstaScan product because of the lack of sales. On August 18,
1997, Caprius and General Electric Company ("GE") entered into a purchase
agreement (the "GE Purchase Agreement") whereby GE purchased all inventory,
equipment, and other assets, and assumed liabilities relating to the high field
MRI systems and InstaScan business, in exchange for $2,432,580 in cash and the
purchase by GE of $2.7 million stated value of a newly issued class of
Convertible Redeemable Preferred Stock.
Rehabilitation Services
The Company has diversified a portion of its business in niche
rehabilitation markets through its subsidiary, MVA Rehabilitation Associates, a
partnership. On March 21, 1997, the Company acquired the remaining 25% minority
interest it did not already own in the rehabilitation centers for $1.5 million,
which included a seller note of $1.3 million, maturing October 1998, payable
quarterly with a balloon payment of $200,000. The MVA centers provide a
comprehensive physician care, physical therapy and case management for motor
vehicle accident patients and have developed a system to document valid personal
injury claims and exclude false claims that enable it to provide more efficient
patient care.
Magnetic Resonance Imaging Technology
A majority of the Company's business is based on magnetic resonance
imaging technology. MRI provides very high resolution medical images of soft
tissue. When interpreted by a trained physician, the images can be used in many
applications and can be a valuable tool in the detection and management of
breast disease. MRI systems use large magnets, digital computers and controlled
radio waves to derive cross-sectional (two dimensional) and volume
(three-dimensional) high resolution images of the body's internal organs,
tissues and function. Information can be displayed either on film or video
monitor about the concentration and the physical and chemical environment of
atomic nuclei without the need for invasive surgery. MRI systems present no
known risks to patients in contrast to other diagnostic techniques (including
Positron Emission Tomography, Computerized Axial Tomography and conventional
x-ray) that subject the patient to potentially harmful ionizing radiation.
In February 1996, the FDA cleared the commercial use of the Company's
Aurora System. The Company has already contracted with several significant
managed care companies in Massachusetts and continues to gain contracts from
others, further supporting the clinical acceptance of MRI in breast care.
However, in order to fully commercialize the Aurora System and to demonstrate
diagnostic effectiveness as an accepted tool for the diagnosis and management of
breast disease and continue to obtain reimbursement for dedicated breast MRI by
third parties such as Medicare, private insurance and managed care
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consortiums, the Company must develop clinical utility. The Company has launched
a clinical study, which includes a scientific investigation of the improved
breast imaging device in a large patient population to provide objective
evidence of its clinical utility.
In February 1997, the Company completed the sale of its first Aurora
System, which had previously been installed in February 1996 at the Breast
Imaging Center at the University of Texas Medical Branch at Galveston, Texas.
The second installation of the Aurora System took place at the Faulkner Center.
The Company has agreements to install the Aurora System in March 1998 at the
University of Arkansas Teaching Hospital in Little Rock, Arkansas and the Breast
Care Center at the Englewood Hospital and Medical Center in Englewood, New
Jersey and in April 1998 at the Magee Women's Hospital in Pittsburgh,
Pennsylvania. It is anticipated that the breast imaging technology should gain
clinical acceptance over the next two years and continue to evolve as further
information is obtained from the clinical studies concerning additional
applications, subject to the pricing of competitive technologies.
Breast Disease Incidence and Diagnosis
According to the American Cancer Society, except for skin cancer, which
has a low mortality rate, breast cancer is the most common cancer among women,
accounting for one out of every three cancer diagnoses. In 1996, approximately
184,300 new cases of invasive breast cancer were expected to be diagnosed, and
44,300 women are expected to die from this disease. Only lung cancer causes more
cancer deaths in women. The procedure generally employed to diagnose breast
cancer involves several steps. First, x-ray mammography is used to screen for
breast tissue abnormalities or existence of a lesion. If an abnormality in
breast tissue is discovered and determined to be possibly indicative of a
lesion, confirming ultrasound is generally performed. A biopsy procedure must
then be performed to determine whether or not a malignancy is present. There is,
however, a subset of patients who have a palpable mass that cannot be seen on
x-ray. Biopsy in these patients is presently being done by ultrasound or by
excision by a surgeon.
In the U.S., National Cancer Institute guidelines recommend that women
over 40 undergo an annual screening for breast cancer using x-ray mammography.
Approximately 25 million screening procedures were performed in 1996 generally
utilizing conventional x-ray and ultrasound equipment. Screening exams with
x-ray mammography are generally credited with the earlier detection of lesions
and, thus, increased survival rates among breast cancer patients. Despite this
improvement, however, screening x-ray mammography results in ambiguous or
indeterminate finding in 15-20% of patients tested. It is in these cases where
the Company believes its Aurora System will provide important diagnostic
information not presently available.
Over the last several years there has been increased activity in the
field of breast cancer detection, diagnosis, treatment, and overall management.
The National Institutes of Health are currently sponsoring a major initiative in
breast cancer research. In addition, there has generally been an increased
application of magnetic resonance breast imaging. Two investigators in Europe
have now performed several thousand exams using a whole body scanner with a
breast surface coil and have, as a result, reshaped their clinical practice. In
the
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United States, the National Cancer Institute is sponsoring a multi-center trial
that began in 1994, and at least one participating center has developed data
complementary to the European research. At the Annual Meeting of the Radiologic
Society of North America ("RSNA") in 1996 there was an increased focus on the
use of imaging systems in the diagnosis breast cancer. The first international
MRI breast imaging conference took place in May 1997 in Germany at which
numerous papers were submitted regarding the use of MRI systems in the detection
and diagnosis of breast cancer.
The Aurora Breast Imaging System
The Company believes its Aurora System has the potential to become an
important adjunct in the evaluation of the 15-20% of x-ray mammograms that are
ambiguous or indeterminate when used to image dense breast tissue. The Aurora
System uses a patent pending technique that can suppress fat in breast images
for earlier diagnostic intervention among high risk individuals, characterizing
breast lesions, staging cancer treatment and for post surgery and post radiation
follow-up. The Company is initiating studies among its clinical partners to
accelerate the expansion of MRI's potential in breast imaging. The study's goal
is to establish breast MRI as an integral tool in the diagnosis and treatment of
breast disease. These studies will be performed through the application of
American College of Radiology lexicon or decision making criteria. As broader
diagnostic applications are established, the Company's next goal will be to
demonstrate clinical utility beyond diagnosis to include screening. This
expansion of breast MRI's clinical utility should alter medical practices to
include MRI on a more routine basis. This will lead to patient demand that
should exceed the capacity of currently available whole body MRI systems. The
Aurora System is a technology dedicated to breast imaging that will address this
potential future demand and meet patient needs that are distinct from and not
adequately served by whole body MRI systems. The Aurora System utilizes a .5T
magnet that maintains an imaging field of view and image quality comparable to a
1.5T whole body system, dramatically reducing the customer purchase price and
siting costs. The Aurora System will be offered at about 1/3 of the cost of a
whole body system, or approximately $550,000. With future expanded applications
and the Aurora System's market pricing strategy, the Company expects sales of
the Aurora System and its diffusion in the women's healthcare marketplace to
develop commensurate with new applications. The Company plans to market the
Aurora System to mammography clinics and practices where patient volume is
sufficient to justify the cost of adding MRI breast imaging to the diagnostic
workup of certain breast patients.
Marketing
In February 1996, the Company was granted a 510(k) clearance by the FDA
for the purpose of commercial distribution of the Aurora System. To accelerate
the establishment of MRI's clinical efficacy and cost effectiveness in the
diagnosis of breast diseases, in addition to its arrangements with its two
current institutions, the Company is partnering, under terms currently in
negotiation, with other leading institutions to conduct rigorous and
scientifically sound clinical and economic outcome comparisons between MRI
breast imaging and mammography. This marketing effort will fuel a comprehensive
sales campaign, including advertising, trade shows, application training and
other activities as appropriate.
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The Company intends to market its MRI breast imaging products or
components thereof, either directly to hospitals and clinics or through a
marketing or joint venture arrangement with one or more distributors.
The Company intends to operate and install its breast imaging system
through several structures:
"Full-Service Provider"
The Company may operate as a full-service medical provider whereby the
Company provides the Aurora System and the technologists to operate the system.
The Company also provides for the scheduling and screening of patients, the
maintenance of medical and administrative records, the establishment of charges
and the billing and the collection of revenues from patients and third-party
payers. In these instances, host hospitals generally function as a landlord for
the Company. By operating in this manner, the Company is able to control the
hours of operation for its units and manage patient scheduling, permitting the
Company to more fully utilize its equipment. Caprius would also be able to
expand demand for its services by marketing directly to referring physicians and
third-party payers, the primary sources of MRI patient business, including
physicians who are not affiliated with the host hospitals. Caprius believes that
controlling all or most of the radiology services, including holding the
required clinic licenses when possible, enhances its ability to negotiate
renewals or extensions of its arrangements with the host hospitals.
Breast MRI examinations typically last up to 90 minutes. Once the MRI
scans are generated, they are reviewed and interpreted by trained radiologists.
Written reports are forwarded to the referring physicians, usually within 48
hours of the examination. Upon receipt of the written report, the Company
generates an invoice that is sent to the patient's insurance company or other
third-party payer and/or to the patient, completes any necessary insurance forms
and follows up on and collects the payment for the services rendered. Generally,
Caprius renders a bill that covers only the charges for its technical services.
Total charges billed vary depending on the type and duration of examination.
Insurance reimbursements are normally less than rates charged. In addition, the
Company enters into contractual arrangements with third-party payers that
provide for volume or group discounts. Professional service charges due to the
radiologists who read and interpret the examination results are generally billed
separately by the radiologists.
"Shared Revenue Agreements"
The Company may install its Aurora system under a shared revenue
agreement, whereby the Company provides the Aurora breast imaging system, all
upgrades to the system made available during the term of the agreement, all
maintenance and cryogens for the system and equipment insurance coverage. The
hospital then provides the necessary leasehold improvements and all other
required services, including the technologists, and provides for all scheduling
and screening, billing and collecting of revenues from patients and third-party
payers, maintaining medical and administrative records and filing for required
clinic licenses, if necessary.
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In exchange for the Company providing the equipment, the Company
receives a monthly lease payment based on a percentage of the collected net
patient revenue from technical services, generally 50%. Similar to the
full-service provider structure, total fees charged by the hospital will vary
and reimbursement will normally be less than the total fees charged. In
addition, the hospital will also enter into contractual arrangements with
third-party payers that provide for volume or group discounts.
"Direct Sales"
The Company may install its Aurora system through a direct sale to a
hospital or women's health center. The Company believes that direct sales will
be the most prevalent as breast MRI technology becomes more accepted in managing
and treating breast disease. The Company further expects to generate additional
future revenues through sales of upgrades and enhancements as they become
available.
Competition
The health care industry in general, and the market for diagnostic
imaging equipment in particular, is highly competitive and virtually all of the
other entities known by management of the Company to be engaged in the
manufacture of MRI systems possess substantially greater resources than the
Company. At the present time, manufacturers of whole body scanners include GE;
Toshiba; Bruker Medical Imaging Inc.; Elscint; Siemens Corporation; Philips
Medical Systems, a division of Philips Industries, N.V.; Picker International
Corporation; Shimadzu; and Hitachi. Although the Company is not aware of any
other entities involved in developing dedicated use MRI scanners for breast
imaging, the Company may experience competition from either entities developing
other dedicated use MRI scanners to image other parts of the body seeking to
expand into the area of mammography or manufacturers of whole body scanners
designed to utilize breast coils to image the breast area. In addition to
competition on price, the principal elements of competition which will affect
the ability of the Company to engage in the marketing of MRI systems will
include product performance, service and support capability, financing terms and
brand name recognition. To some extent, competition will also come from the
manufacturers of other types of diagnostic imaging systems, such as ultrasound
or thermography.
The Company will also experience competition from the use of x-ray
mammography machines, which machines are widely established and clinically
accepted. The cost of x-ray mammography equipment is typically $60,000, which is
significantly less than the expected cost to the user of the Company's breast
imaging MRI system. Today, the charge for a typical mammogram is about $130 and
a typical MRI is about $1,000. Since the Company's cost to the purchaser is
expected to be about one-half to one-third of a whole body MRI system, the
Company believes that a proportionate savings might be passed to the patient,
which should make MRI scans more economically viable and competitive.
Although the Company believes that an MRI scanner for breast imaging
will represent a safer and more effective diagnostic imaging device, there can
be no assurance that any products developed by the Company will be commercially
accepted, especially in light of the
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cost savings involved in purchasing x-ray mammography machines and the
familiarity of current practitioners in operating such devices. However, the
Company also believes that MRI breast imaging would provide additional
information, especially in patients with mammographically dense breast, that
will make it an important diagnostic tool without having to displace x-ray
mammography.
To the extent the Company either owns and operates its own breast
imaging center or participates in revenue through its shared revenue
arrangement, it competes with other providers of breast imaging services at
hospitals, private clinics, physician practices and other independent sites.
Competitive factors include the range of services provided, equipment
capabilities and the ability to serve a broad range of patients. Barriers to
entry in Company's markets include the cost of equipment, hiring of qualified
technologists and management, proprietary business practices and, where
applicable, Certificate of Need ("CON") or Determination of Need ("DON")
regulation and other regulatory constraints. A CON or DON generally must be
obtained by an MRI operator and/or the hospital where services are provided in
order for services to be provided at hospital sites or to hospital inpatients
and/or to receive certain third-party reimbursement payments.
Although the Company's rehabilitation services are also considered to
be in highly competitive markets, the Company believes the market sector it is
targeting (value-added services for motor vehicle accident victims and their
insurers) is unique. The Company is not aware of any other significant
participants in this industry.
Manufacturing
The Company believes that its facility in Wilmington, Massachusetts has
sufficient capacity to satisfy its commitments under existing contracts.
Research and Development
The Company has developed and installed its first two units at the
University of Texas Medical Branch at Galveston and the Faulkner Center. Through
the commencement of studies among its clinical partners, the Company hopes to
establish and accelerate the acceptance of MRI in the diagnosis of breast
disease The Company continues to enhance the product's software capabilities and
is in full prototype development of a biopsy accessory for the product.
As of December 31, 1997, the Company had 22 scientists, engineers and
technical support personnel involved on a full-time basis in developing its MRI
scanner for breast imaging.
Patents
The Company currently owns 19 U. S. patents and has 3 other patents
pending relating to MRI imaging. All major patents are protected in Japan,
Canada and the European Market countries. Pursuant to the GE Purchase Agreement,
GE has been granted a royalty-free license to 11 of the U.S. patents and 2 of
the patents pending.
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Equipment and Supplies
All of the diagnostic equipment utilized by the Company is
technologically complex. The Company provides comprehensive maintenance and
repair services for its Aurora System to minimize the period of time equipment
is unavailable during scheduled use hours because of unanticipated malfunctions
or breakdowns. The Company also has extensive relationships with certain
suppliers for maintenance and repair of all of the related and auxiliary
equipment on the units that are subject to mechanical failures.
Although the Company's equipment is insured against the risks of damage
in an accident, repairs to damaged equipment may not restore the equipment to
its original condition and level of performance. The Company also maintains
business interruption insurance to offset lost revenue that may occur in the
event of prolonged equipment downtime. However, no assurance can be given that
the Company would receive sufficient insurance proceeds following any damage to
its equipment to fully compensate it for the losses resulting from such damage.
Many of the components of the Aurora System are purchased from outside
suppliers. In addition, there are several suppliers of FDA-approved MRI contrast
agents used to enhance the images produced. The Company has not experienced any
problems in obtaining sufficient quantities of components and other supplies.
However, no assurances can be given that these outside suppliers will continue
to supply those components or that interruption of the flow of supplies would
not disrupt the assembly of the breast imaging system.
Government Regulation and Reimbursement
The health care operations of the Company are subject to extensive
federal and state regulation. Magnetic Resonance Diagnostic Devices ("MRDD")
generally, and any products the Company may develop, in particular, are subject
to regulation by the FDA, certain state and federal agencies that regulate the
provision of health care, particularly the Health Care Financing Administration
("HCFA"), and the Environmental Protection Agency ("EPA").
FDA Regulation
The MRI scanner for breast imaging and other MRI technology devices
which the Company intends to develop will be regulated as medical devices by the
FDA and as such require regulatory clearance prior to commercialization. The
level of its classification as a medical device would determine the extent and
the scope of the FDA approval process for the MRI scanner. Various states and
foreign countries in which the Company's products may be sold in the future may
impose additional regulatory requirements.
The Company submitted a Pre-market Notification of intent to market the
Aurora System under section 510(k) of the Federal Food, Drug, and Cosmetic Act
in February 1995. Clearance to market the Aurora System was granted by the FDA
in February 1996.
Any products distributed by the Company pursuant to the above described
clearances will be subject to continuous regulation by the FDA, such as
performance standards or special
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controls promulgated by the FDA. Labeling and promotional activities are subject
to scrutiny by the FDA and, in certain instances, by the Federal Trade
Commission. The export of medical devices is also subject to regulation in
certain instances. In addition, the use of the Company's products may be
regulated by various state agencies. Moreover, future changes in regulations or
enforcement policies could impose more stringent requirements on the Company,
compliance with which could adversely affect the Company's business. Failure to
comply with applicable regulatory requirements could result in enforcement
action, including withdrawal of marketing authorization, injunction, seizure of
products, and liability for civil and/or criminal penalties.
Third Party Coverage, Reimbursement and Related Health Care Regulations
The market for MRI systems, including the Company's proposed products,
is likely to be affected significantly by the amount which Medicare, Medicaid or
other third party payers, including private insurance companies, will reimburse
hospitals and other providers for diagnostic procedures using MRI systems.
Recent proposals to reduce reimbursement for certain diagnostic procedures
coupled with studies questioning the need for custom testing for breast cancer
could result in limitations on or reductions for reimbursements to providers of
MRI for breast imaging.
MRI diagnostic services provided on an outpatient basis are
reimbursable under Part B of the Medicare program. The professional and
technical components of radiological procedures which are performed in a
physician's office or freestanding diagnostic imaging center, and the
professional component of radiological procedures performed in a hospital
setting, are currently reimbursed on the basis of a recently adopted relative
value scale which phased in, beginning January 1, 1992. Prior to January 1,
1992, screening mammography was not a covered benefit under Medicare. Payment
for the professional and technical component is limited by statute.
The market for the Company's proposed products could also be adversely
affected by the amount of reimbursement provided by third party payers to
hospitals for procedures performed using such products. Reimbursement rates from
private insurance companies vary depending upon the procedure performed, the
third-party payer, the insurance plan, and other factors. Medicare generally
reimburses hospitals that are expected to purchase the Company's proposed
products for their operating costs for in-patients on a prospectively-determined
fixed amount for the costs associated with an inpatient hospital stay based on
the patient's discharge diagnosis, regardless of the actual costs incurred by
the hospital in furnishing care. The willingness of these hospitals to purchase
the Company's proposed products could be adversely affected if hospitals
determine that the prospective payment amount to be received for the procedures
for which the Company's proposed products are used would be inadequate to cover
the hospitals' costs associated with performing the procedures using the
Company's proposed products, or to be less profitable than using an alternative
procedure for the same condition.
The Mammography Quality Standards Act of 1992 ("MQSA") authorizes the
U.S. Department of Health and Human Services ("DHHS") to regulate facilities
that provide mammography services and utilize radiological equipment. Under the
MQSA, no facility may
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provide a mammography (as defined therein to mean a radiography (i.e., an x-ray)
of the breast), unless it has obtained a certificate from DHHS to do so. The
MQSA also requires that the Secretary of DHHS develop quality standards to
assure the safety and accuracy of mammography carried out by such facilities.
The Company's MRI products currently under development do not provide
radiography of the breast. Instead, they rely upon magnetic resonance imaging
technology, which does not currently fall within the scope of the MQSA. The
Company is aware of the high MQSA standard and endeavors to develop the Aurora
System to meet the MQSA guidelines. Nonetheless, the Company cannot predict
whether the MQSA will be amended or interpreted to regulate the use of any of
the Company's proposed MRI products. As such, there can be no assurance that the
MQSA and the standards promulgated thereunder will not have an adverse effect on
the Company's future ability to market its Aurora System MRI product.
In much of its operations, the Company is subject to HCFA Medicare and
Medicaid anti-fraud and abuse statutes which prohibit bribes, kickbacks, rebates
and any direct or indirect remuneration in connection with providing services,
items or equipment for which payment may be made in whole or in part under
Medicare or Medicaid. These statutes are intended to prevent the improper
referral of patients for medical tests or treatment by health service providers
who may have a financial interest in the entity, which provides such services.
Violation of these provisions may result in significant criminal penalties and
exclusion from participation in Medicare and Medicaid programs for both the
entity paying the kickback or rebate and the entity receiving it.
The Company believes that none of its operations are in violation of
the anti-fraud and abuse statutes.
The HCFA, a federal agency that regulates national standards for
charges for all medical examinations, currently has Customary Procedure Time
codes for magnetic resonance imaging of the breast. The use of MRI to diagnose
breast disease has been approved as a reimbursable procedure by many third party
payers and the Company has received numerous contracts from third-party payers
at its first owned site at the Faulkner Center. However, this does not assure
that breast imaging will become a reimbursable procedure by other third party
payers or in other states.
Congress has also enacted legislation generally prohibiting physicians
from billing Medicare and Medicaid for patients referred by a physician to any
of a broad range of health services (including diagnostic imaging services) if
the physician has (i) an ownership or investment interest in the health service,
or (ii) otherwise receives compensation (broadly defined in the legislation)
from the health service. The legislative prohibitions were effective January 1,
1995. The Company has no such physician ownership in its businesses that would
violate this statute.
A number of states, through CON laws, limit the establishment of a new
facility or service or the purchase of major medical equipment to situations
where it has been determined that the need for such facility, service or
equipment exists. While many states exempt non institutional providers from CON
coverage, a number of states have extended CON coverage
-12-
<PAGE>
to physicians' offices or medical groups by restricting the purchase of major
medical equipment wherever located. The CON and DON programs throughout the
country vary significantly from each other in the scope of regulation.
Generally, however, the CON or DON authorizes the holder to provide, or in the
instance of a hospital, to receive, services at specific sites and/or to acquire
equipment to provide services. When required, the Company holds all CONs and
DONs necessary for it to conduct its business. However, there can be no
assurance that such CONs can be obtained if needed.
Laws, rules and regulations pertaining to health care benefits have
been subject to change in the past and the current administration is seeking
changes in the cost and delivery of health care benefits. At this time the
Company cannot predict how any such changes would affect the Company.
Environmental Protection Agency Regulation
The Company, and any research facility which it operates, is required
to comply with any applicable federal and state environmental regulations and
other regulations related to hazardous materials used, generated, and/or
disposed of in the course of its operations. The Company currently is registered
as a Very Small Quantity Generator of hazardous waste. This means that the
Company is making an effort to reduce hazardous waste produced, and to track the
waste generated.
Future EPA regulations may impact Company policies on air pollution,
waste management, and radon testing. While the Company does not expect to have
to incur substantial costs in order to comply with existing regulations, no
assessment may be made as to the impact of future regulations upon operations of
the Company.
Employees
As of November 30, 1997, the Company's breast imaging business had a
staff of 54 full-time employees and 9 short-term contractors, including 22
persons devoted to research and development, 2 technologists and 5 senior
managers.
As of November 30, 1997, the rehabilitation business had 35 full-time
employees, including 12 physical therapists and 5 physicians.
None of the Company's employees are represented by labor organizations
and the Company is not aware of any activities seeking such organization. The
Company considers its relations with its employees to be good.
ITEM 2. PROPERTIES
----------
The Company leases a facility in Wilmington, Massachusetts consisting
of approximately 61,000 square feet of office, research and development,
manufacturing and warehouse space. The Company has exercised its option to renew
its lease as of May 1996 for another five year term at a base monthly rental of
approximately $37,000. The Company currently subleases approximately 31,000
square feet to a third-party for $16,270 per month
-13-
<PAGE>
and subleases approximately 9,421 square feet to MDI, its former subsidiary, for
$6,928 per month. The Company believes that the space it currently occupies is
adequate for the Company's needs for the foreseeable future.
The Company leases 1,290 square feet of office space in Fort Lee, New
Jersey for certain administrative and investor relations personnel, pursuant to
a lease expiring March 31, 1999, at a base monthly rental of approximately
$2,300.
The Company leases space for its breast imaging center at the Faulkner
Hospital pursuant to a lease with monthly rental payments of $1,439 expiring in
August 2004 , with a five-year renewal option.
The Company leases facilities for its rehabilitation operations in
Springfield, Holyoke and Malden, Massachusetts. These facilities include
approximately 7,400, 3,100 and 7,400 square feet, respectively, over lease terms
that expire on June 30, 2001, June 1, 2001, and January 31, 2001, respectively.
The current rent for these facilities are $142,000, $19,000 and $82,000 per
annum, respectively, plus operating expenses. In September 1997, the Malden
facility was closed and the Company is attempting to sublease the premises to an
outside party.
ITEM 3. LEGAL PROCEEDINGS
-----------------
MDI, as general partner of Mass. Mobile Imaging Venture ("MMIV"), and
Western Massachusetts Magnetic Resonance Services, Inc. ("WMMRS") filed a
complaint in September 1992 in Middlesex County Superior Court, Cambridge,
Massachusetts against Medical Imaging Partners, L.P. ("MIP"), which is wholly
owned by Raytel Medical Corporation ("Raytel"), and certain of its affiliates,
seeking a declaration, unspecified monetary damages and equitable relief
relating to an alleged breach by MIP of certain fiduciary and contractual
obligations with respect to the business of MMIV. MIP filed a counterclaim
against MDI also seeking a declaratory judgment, unspecified monetary damages
and equitable relief on the basis of an alleged breach of fiduciary and
contractual obligations by MDI with respect to the business of MMIV. On August
12, 1997, the judge decided the remaining pre-trial motions in this action and
denied MIP's motion for summary judgment on its tender offer claims and granted
part of MDI's summary judgment motion ruling that MIP's interest in the MMIV
joint venture ended on December 31, 1996. On November 29, 1994, Raytel filed a
complaint in Delaware Chancery Court naming MDI as a defendant. The lawsuit
relates to matters arising in conjunction with a tender offer launched by Raytel
to acquire MDI's predecessor. Raytel sought injunctive relief against certain
actions that MDI's predecessor took or may have taken to defend itself against
Raytel's tender offer. On December 22, 1994, Raytel filed an amended complaint.
On May 4, 1995, Raytel terminated its tender offer. On September 12, 1997, the
parties entered into a settlement agreement (the "Raytel Settlement") to settle
their disputes in the above-described actions. Pursuant to the Raytel
Settlement, MDI and Raytel dismissed all actions between them and provided each
other with mutual releases and divided all funds in an escrow account between
themselves. The Raytel Settlement also provides that Raytel reimburse MDI in an
amount equal to the amount, if any, by which the legal fees and expenses paid by
MDI in connection with the
-14-
<PAGE>
litigation concerning a hospital exceeded 50% of the total of such legal fees
and expenses. Pursuant to its arrangement with US Diagnostic, described below,
Caprius received the MDI portion, or $270,000.
Effective November 28, 1995, the Company terminated the Key Employment
Agreement, dated May 2, 1995, of John A. Lynch, Chief Executive Officer of MDI
(the "Lynch Employment Agreement"). In March 1996, Mr. Lynch filed a demand for
arbitration seeking a declaratory ruling, equitable relief, monetary damages of
approximately $2.0 million and legal fees related to claims arising out of the
Lynch Employment Agreement. The Lynch Employment Agreement provides that Mr.
Lynch may recover his reasonable legal fees and expenses if he is successful in
this action. Hearings have been held and the proceeding is anticipated to
terminate during fiscal 1998. On September 23, 1997, the arbitration panel ruled
in favor of the Company and MDI on substantially all of Mr. Lynch's claims such
that the only issues remaining in the arbitration are for performance unit
payments defined in the Lynch Employment Agreement and reasonable attorneys'
fees. The Company believes that the results of the remaining two issues in this
arbitration should not have a material adverse effect on its business, results
of operations or financial condition.
Pursuant to the MDI Merger, the Company agreed to indemnify US
Diagnostic in connection with certain potential liabilities that could arise out
of the Raytel and Lynch proceedings against MDI described above. To secure its
indemnification obligations for the Raytel proceedings, the Company placed
1,250,000 shares of AMS Common Stock and $1,000,000 in a blocked account. As a
result of the Raytel Settlement described above, the 1,250,000 shares of AMS
Common Stock and the $1,000,000 are to be released from the blocked account.
There is no accounting treatment for the pledged shares and cash.
During 1996, the Company became engaged in litigation with
International Magnetic Imaging, Inc. ("IMI"), one of its customers, regarding
the performance of its enhancement package for five MRI systems sold to the
customer for approximately $1,500,000. The suit, entitled International Magnetic
Imaging, Inc. vs. Advanced NMR Systems, Inc. (Case No. 96-014750(03)), was filed
in the Circuit Court of the 17th Judicial Circuit in and for Broward County,
Florida. On August 4, 1997, the Company and IMI entered into a settlement
agreement pursuant to which (i) IMI retained three InstaScan systems, for which
the Company would license to IMI its software to be used in such systems; (ii)
IMI transferred to the Caprius two InstaScan systems; and (iii) IMI paid $15,940
to the Company and the Company retained certain equipment deposits. The
receivable balance due from IMI of $751,500 was previously written off in
September 1996. The settlement payment of $15,940 was recorded as a gain in
fiscal year 1997. The two systems transferred to the Company were not valued, as
they had no use within the Company or otherwise, and ultimately were transferred
to GEMS as part of the GE Purchase Agreement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
The Company's Annual Meeting of Stockholders was held on November 10,
1997. The following eight directors, consisting of all the directors of the
Company, were elected to
-15-
<PAGE>
serve until the next Annual Meeting of Stockholders and thereafter, until their
successors are elected and qualified.
Name Votes "FOR" Votes "WITHHELD"
- ---- ----------- ----------------
Jack Nelson 27,355,240 649,877
Enrique Levy 27,355,240 649,877
Robert Spira 27,355,240 649,877
Alison Estabrook 27,355,240 649,877
Susan S. Bailis 27,355,240 649,877
Daniel E. Straus 27,355,240 649,877
Sol Triebwasser 27,355,240 649,877
Bernard Weiner 27,355,240 649,877
The stockholders also approved an amendment to the Certificate of
Incorporation to effect the one-for-ten Reserve Stock Split by the following
vote:
FOR: 27,259,054
AGAINST: 1,612,047
ABSTAIN: 296,687
BROKER NON-VOTE: 3,100
The stockholders also approved an amendment to the Company's 1993
Employee Stock Option Plan increasing the number of shares available up to
1,000,000 shares on a post-Reverse Stock Split basis by the following vote:
FOR: 9,553,462
AGAINST: 2,561,545
ABSTAIN: 534,004
BROKER NON-VOTE: 16,515,877
The stockholders also approved an amendment to the Company's 1993
Directors Stock Option Plan for Non-Employee Directors increasing the number of
shares available under such plan to 200,000 shares on a post-Reverse Stock Split
basis by the following vote:
FOR: 8,899,997
AGAINST: 3,192,994
ABSTAIN: 557,020
BROKER NON-VOTE: 12,650,011
-16
<PAGE>
The stockholders also approved an amendment to the Company's
Certificate of Incorporation to change its name from "Advanced NMR Systems,
Inc." to "Caprius, Inc." by the following vote:
FOR: 27,483,570
AGAINST: 961,047
ABSTAIN: 155,064
BROKER NON-VOTE: 565,267
The stockholders also ratified the selection of Richard A. Eisner, LLP,
independent public accountants, as the Company's public accountants for the 1997
fiscal year by the following vote:
FOR: 28,343,047
AGAINST: 590,419
ABSTAIN: 234,322
BROKER NON-VOTE: -0-
-17-
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
-------------------------------------------------
STOCKHOLDER MATTERS
-------------------
Since November 10, 1997, upon the Merger with AMS, the Company's Common
Stock has traded on the Nasdaq Small Cap Market under the symbol ("CAPR"). From
May 17, 1996, the Company's Common Stock traded on the Nasdaq Small Cap Market
under the symbol ("ANMR"), from February 1994 to May 16, 1996, it traded on the
Nasdaq National Market System and since its inception through February 1994
traded on the over-the-counter market and was listed on the Boston and Pacific
Stock Exchanges. Trading in the Warrants (NASDAQ: CAPRW) commenced on August 31,
1995, after the closing of the MDI acquisition. Prior to the AMS Merger, the
Warrants traded under the symbol ("ANMRW").
The following table sets forth, for the calendar quarters indicated,
the reported high and low bid quotations per share, as reported on the Nasdaq
Small Cap Market and Nasdaq National Market System. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down or commission, and may
not necessarily represent actual transactions. The prices shown below do not
give effect to the Reverse Stock Split.
Common Stock High Low
- ------------ ---- ---
1997
- ----
Fourth Quarter 0.438 0.156
Third Quarter 0.410 0.220
Second Quarter 0.656 0.219
First Quarter 0.688 0.219
1996
- ----
Fourth Quarter 1.250 0.438
Third Quarter 2.000 1.094
Second Quarter 2.563 1.000
First Quarter 2.250 1.062
The Company has paid no dividends on its shares of Common Stock since
its inception in July 1983 nor does the Company expect to declare any dividends
on its Common Stock in the foreseeable future.
On December 31, 1997, there were approximately 1,023 holders of record
of the Common Stock of the Company. Since a large number of shares of Common
Stock are held in street or nominee name, it is believed that there are a
substantial number of additional beneficial owners of the Company's Common
Stock. On December 31,1997, there were 7,331,505 shares outstanding.
-18-
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL INFORMATION OF CAPRIUS
The selected historical financial information of Caprius set forth
below has been derived from the consolidated financial statements for each of
the fiscal years in the period ended December 31, 1994 and 1993, for the
nine-month period ended September 30, 1995, and for the twelve-month periods
ended September 30, 1997, 1996 and 1995.
This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and notes thereto included elsewhere in this Form 10-K.
-19-
<PAGE>
<TABLE>
<CAPTION>
Nine As of and for the
As of and for the Months Ended Year Ended
Year Ended September 30, September 30 December 31,
(Unaudited)
1997 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Revenues:
Systems sales
Net patient service ...... $ 12,436,463 $ 25,480,813 $ 1,934,322 $ 1,934,322 -- --
revenue
Management fees and other
revenue ............... 287,314 653,425 40,220 40,220 -- --
------------ ------------ ------------ ------------ ------------ ------------
Total revenues ........... 12,723,777 26,134,238 1,974,542 1,974,542 -- --
------------ ------------ ------------ ------------ ------------ ------------
Operating Expenses
Cost of service operations 8,914,513 16,205,961 1,203,497 1,203,497 -- --
Research & Development ... -- -- 940,141 664,786 $ 992,365 $ 822,994
Selling, general &
administrative ........ 3,869,788 4,254,964 2,449,364 2,002075 1,582,820 870,414
Provision for bad debt ... 926,507 2,126,471 162,377 162,377 -- --
------------ ------------ ------------ ------------ ------------ ------------
Total operating expenses . 13,710,808 22,587,396 4,755,379 4,032,735 2,575,185 1,693,408
------------ ------------ ------------ ------------ ------------ ------------
Income (loss) from ....... (987,031) 3,546,842 (2,780,837) (2,575,185) (1,693,408)
operations
Interest expense ......... (977,909) (1,847,910) (139,020) (139,020) -- (99,999)
Other income (expense) ... 214,120 126,263 579,758 579,758 -- (99,999)
Interest income .......... 274,593 212,814 195,191 265,208 208,480 170,720
Loss of sale of imaging
business .............. (9,515,903) -- -- -- -- --
Equity in net loss of
unconsolidated ........ (1,304,496) (2,373,580) -- -- -- --
subsidiary
Minority interest ........ (202,234) (1,005,831) 783,520 569,354 702,965 414,641
------------ ------------ ------------ ------------ ------------ ------------
(Loss) from continuing
operations before
income taxes .......... (12,498,859) (1,341,402) (1,361,388) (782,893) (1,663,740) (1,208,046)
Provision for Income taxes 103,444 (42,288) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Loss from continuing
operations ............ (12,395,415) (1,383,690) (1,361,388) (782,893) (1,663,740) (1,208,046)
Income (loss) from
operations of ......... 30,181 (3,928,706) (2,521,580) (894,865) (1,883,258) (4,958,904)
discontinued division .
Income (loss) on disposal
of discontinued
division ....... 2,690,462 (3,510,563) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) ........ $ (9,674,772) $ (8,822,959) $ (3,882,968) $ (1,677,758) $ (3,546,998) $ (6,166,950)
============ ============ ============ ============ ============ ============
(Loss) per common share:
(Loss) from continuing
operations ............ $ (3.00) $ (0.45) $ (0.57) $ (0.32) $ (0.70) $ (0.63)
Income (loss) from
operations of ......... 0.01 (1.28) (1.05) (0.37) (0.80) (2.58)
discontinued division .
Gain (loss) of disposal
of discontinued
division............... 0.65 (1.15) -- -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Net income (loss) per .... $ (2.34) $ (2.88) $ (1.62) $ (0.69) $ (1.50) $ (3.21)
share ============ ============ ============ ============ ============ ============
Weighted average shares
outstanding ........... 4,126,587 3,058,332 2,402,065 2,424,390 2,360,325 1,918,427
BALANCE SHEET DATA:
Working capital (deficit) $ 12,179,109 $ (6,735,989) $ 11,083,145 $ 11,083,145 $ 8,614,161 $ 12,452,896
Total assets ............. 19,834,601 50,724,530 58,431,709 58,431,709 12,692,152 15,864,126
Total liabilities ........ 2,511,417 26,906,107 27,79,9,636 30,413,743 2,993,228 3,312,288
Stockholders' equity ..... 17,323,184 23,818,423 28,017,966 28,017,966 9,698,924 12,551,838
</TABLE>
-20-
<PAGE>
Summary Unaudited Pro Forma Combined Consolidated Financial Information
The summary unaudited pro forma combined consolidated financial
information set forth below combines the historical balance sheets and income
statement data of Caprius and AMS, after giving effect to the Merger and the
effect of the MDI Merger. Both the income statement data and the balance sheet
data also give effect to the one-for-ten Reverse Stock Split. Such unaudited pro
forma combined financial information assumes the Merger had been completed on
September 30, 1997, in the case of the balance sheet information, and October 1,
1995, in the case of the statement of operations information. The Merger is
accounted for under the purchase method of accounting. The pro forma adjustments
are described in the notes to the unaudited pro forma combined financial
information which follow. The summary unaudited pro forma combined financial
information is presented for informational purposes only and is not necessarily
indicative of the operating results or financial position that would have
occurred had the Merger been consummated on the dates for which the Merger is
being given effect, nor is it indicative of future operating results or
financial position.
-21-
<PAGE>
Caprius and AMS Pro Forma Combined
(in thousands except per share amounts)
As of and For the For the Twelve
Twelve Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------- ------------------
INCOME STATEMENT DATA:
Net revenue ......... $ 4,437 $ 4,711
Loss from continuing operations (6,578) (3,980)
BALANCE SHEET DATA:
Total assets ......... 20,809 N/A
Working capital ......... 12,026 N/A
Long-term debt and capital lease
obligations less current maturities 342 N/A
Stockholder's equity....... 17,881 N/A
PER SHARE DATA:
Loss from continuing operations $(.93) $(.66)
-22-
<PAGE>
Comparative Unaudited Per Share Data
The following table sets forth certain unaudited per share data of Caprius and
AMS on both historical and pro forma combined basis. This table should be read
in conjunction with the historical financial statements and pro forma financial
information, and the related notes thereto. See "Unaudited Pro Forma Combined
Financial Information" and "Index To Financial Statements." Unaudited pro forma
combined pro forma per share data reflect the combined results of Caprius and
AMS, after giving effect to the Merger as if it had occurred on September 30,
1997, in the case of book value data, and on October 1, 1995, in the case of
statement of operations information. The unaudited pro forma financial data are
presented for informational purposes only, and are not necessarily indicative of
the operating results or financial position that would have occurred had the
Merger and other transactions presented in the unaudited pro forma combined
financial information been completed on the dates indicated nor is it indicative
of future operating results or financial position.
Comparative Share Data
For the Twelve For the Twelve
Months Ended Months Ended
September 30, 1997 September 30, 1996
------------------ ------------------
Loss from continuing operations
per common share
Historical $(0.30) $(.05)
Supplemental historical (1) (3.00) (.45)
Pro forma (0.93) (.66)
Dividends per common share
Historical -- --
Book value per common share
Historical .33 N/A
Supplemental historical (1) 3.34 N/A
Pro forma 2.06 N/A
- --------------------------------------------------------------------------------
(1) Represents historical book value per common share adjusted for the
one-for-ten Reverse Stock Split.
-23-
<PAGE>
PRO FORMA CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma condensed financial statements set
forth the financial position as of September 30, 1997, as if the Merger had
occurred on that date, and the results of operations for the twelve months ended
September 30, 1997 and 1996, as if the Merger had occurred as of October 1,
1995. The pro forma adjustments also include the effect of the MDI Merger as if
that transaction had occurred as of the dates above. In addition, both the
income statement data and the balance sheet data give effect to the proposed
one-for-ten Reverse Stock Split. The pro forma condensed financial statements do
not purport to represent what the Company's financial position or results of
operations would actually have been if the Merger had occurred on October 1,
1995 or to project the Company's financial position or results of operations for
any future date or period.
-24-
<PAGE>
<TABLE>
CAPRIUS, INC.
PRO FORMA CONDENSED BALANCE SHEET
(In Thousands)
<CAPTION>
As of September 30, 1997
---------------------------------------------------
Historical Pro Forma
------------ ------------------------------------
AMS
Caprius, AMS Proforma Caprius
Inc. Historical Adjustments Proforma
------------ ---------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 9,753 $ 23 ($ 580) $ 9,196
Cash, restricted 1,745 1,745
Accounts receivable 2,692 2,692
Inventories 793 793
Other current assets 163 23 186
-------- -------- -------- --------
Total current assets 14,353 839 (580) 14,612
-------- -------- -------- --------
Equipment, building, furniture & leasehold
improvements 1,301 621 1,922
Goodwill, net 2,384 2,384
Investment in and advances to unconsolidated
Subsidiary 1,525 (1,525) 0
Other 272 119 1,500 1,891
-------- -------- -------- --------
TOTAL ASSETS $ 19,835 $ 1,579 ($ 605) $ 20,809
======== ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 1,624 $ 268 $ 1,892
Other current liabilities 144 144
Accounts payable to related parties 1,582 (1,582) 0
Current portion of long-term debt and
capital lease obligations 550 550
-------- -------- -------- --------
Total current liabilities 2,174 1,994 (1,582) 2,586
-------- -------- -------- --------
Long-term debt and capital lease obligations, less
current portion 338 4 342
Minority interest in net assets of consolidated entities 0
Stockholders' equity:
Preferred stock 2,700 2,700
Common stock 437 86 (449) 74
Additional paid-in capital 55,777 17,047 (9,293) 63,531
Accumulated deficit (41,589) (17,552) 10,719 (48,422)
-------- -------- -------- --------
17,325 (419) 977 17,883
Less: Treasury stock, at cost 2 2
-------- -------- -------- --------
-------- -------- -------- --------
Total stockholders' equity 17,323 (419) 977 17,881
-------- -------- -------- --------
TOTAL LIABILITIES & STOCKHOLDERS EQUITY $ 19,835 $ 1,579 ($ 605) $ 20,809
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
<CAPTION>
CAPRIUS, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(In Thousands)
Twelve months ended September 30, 1997
Historical Pro Forma
AMS
Caprius, MDI Sale Adjusted AMS Pro forma Caprius,
Inc. Adjustments Caprius Historical Adjustments Pro forma(1)
-------------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net patient service revenue $ 12,436 ($ 8,424) $ 4,012 $ 4,012
Systems sales 0 825 (400) 425
Management fees and other 287 (287) 0 0
-------- -------- -------- -------- -------- --------
Total revenue 12,723 (8,711) 4,012 825 (400) 4,437
-------- -------- -------- -------- -------- --------
Operating expenses:
Cost of service operations 8,915 (5,788) 3,127 3,127
Research and development 0 1,886 1,886
Manufacturing 0 1,100 (400) 700
Selling, general and administrative 3,870 (1,254) 2,616 2,614 300 5,530
Provision for bad debt and collection costs 926 (657) 269 269
-------- -------- -------- -------- -------- --------
Total operating costs 13,711 (7,699) 6,012 5,600 (100) 11,512
-------- -------- -------- -------- -------- --------
Operating income from continuing operations (988) (1,012) (2,000) (4,775) (300) (7,075)
Other income 214 214 214
Loss on sale of imaging business (9,515) 9,515 0 0
Interest income 275 (1) 274 71 345
Interest expense (978) 807 (171) (171)
-------- -------- -------- -------- -------- --------
Loss before minority interest and
provision for taxes (10,992) 9,309 (1,683) (4,704) (300) (6,687)
Minority interest in net income of
consolidated entities (202) 208 6 6
Equity in net loss of
unconsolidated subsidiary (1,304) (1,304) 1,304 0
-------- -------- -------- -------- -------- --------
Loss before income taxes (12,498) 9,517 (2,981) (4,704) 1,004 (6,681)
Provision for income taxes 103 103 103
-------- -------- -------- -------- -------- --------
Loss from continuing operations ($12,395) $ 9,517 ($ 2,878) ($ 4,704) $ 1,004 ($ 6,578)
======== ======== ======== ======== ======== ========
Loss per common share ($0.30) ($0.93)
========= =========
Weighted average number of shares
outstanding 41,266 7,084
========= =========
Supplemental historical loss per share
from continuing operations (1) ($3.00)
---------
Supplemental historical weighted average
number of shares outstanding (1) 4,127
=========
</TABLE>
(1) Adjusted to reflect 1:10 reverse stock split.
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
CAPRIUS, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(In Thousands)
<CAPTION>
Twelve months ended September 30, 1996
Historical Pro Forma
AMS
Caprius, MDI Sale Adjusted AMS Pro forma Caprius,
Inc. Adjustments Caprius Historical Adjustments Pro forma(1)
<S> <C> <C> <C> <C>
Revenues:
Net patient service revenue $ 25,481 ($20,770) $ 4,711 $ 4,711
Management fees and other 653 (653) 0 0
-------- -------- -------- -------- -------- --------
Total revenue 26,134 (21,423) 4,711 0 0 4,711
-------- -------- -------- -------- -------- --------
Operating expenses:
Cost of service operations 16,206 (13,237) 2,969 2,969
Research and development 0 $ 1,007 1,007
Manufacturing 0 2,210 2,210
Selling, general and administrative 4,255 (3,419) 836 $ 300 1,136
Provision for bad debt and collection costs 2,126 (1,738) 388 388
-------- -------- -------- -------- -------- --------
Total operating costs 22,587 (18,394) 4,193 3,217 300 7,710
-------- -------- -------- -------- -------- --------
Operating income (loss) 3,547 (3,029) 518 (3,217) (300) (2,999)
Amortization of debt issuance costs (31) (31)
Other income 126 (126) 0 0
Interest income 213 (31) 182 70 252
Interest expense (1,848) 1,848 0 (1,000) (1,000)
-------- -------- -------- -------- -------- --------
Loss before minority interest and
provision for taxes 2,038 (1,338) 700 (4,178) (300) (3,778)
Minority interest in net income of
consolidated entities (1,006) 846 (160) (160)
Equity in net loss of unconsolidated subsidiary (2,374) (2,374) 2,374 0
-------- -------- -------- -------- -------- --------
Loss before income taxes (1,342) (492) (1,834) (4,178) 2,074 (3,938)
Provision for income taxes (42) (42) (42)
-------- -------- -------- -------- -------- --------
Loss from continuing operations ($ 1,384) ($ 492) ($ 1,876) ($ 4,178) $ 2,074 ($ 3,980)
======== ======== ======== ======== ======== ========
Loss per common share
Loss from continuing operations ($ 0.05) ($ 0.66)
======== ======== ======== ======== ======== ========
Weighted average number of shares
outstanding 30,583 6,015
======== ======== ======== ======== ======== ========
Supplemental historical loss per share
from continuing operations (1) ($ 0.45)
======== ======== ======== ======== ======== ========
Supplemental historical weighted average
number of shares outsanding (1) 3,058
======== ======== ======== ======== ======== ========
</TABLE>
(1) Adjusted to reflect 1:10 reverse stock split
The accompanying notes are an integral part of these condensed financial
statements.
<PAGE>
<TABLE>
CAPRIUS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
Note 2 Pro Forma Adjustments to Reflect the Sale of MDI
On February 27, 1997, the Company sold most of its interest in MDI.
The following adjustments remove the operations of the Imaging business
of MDI as if the sale had occurred on October 1, 1995.
<CAPTION>
Twelve months ended Twelve months ended
September 30, 1997 September 30, 1996
Debit (Credit) Debit (Credit)
<S> <C> <C>
Remove income from MDI Imaging Business
Net patient service revenue 8,424 20,770
Management fees and other 287 653
Cost of service operations (5,788) (13,237)
Selling, general and administrative (1,254) (3,419)
Provision for bad debt and collection costs (657) (1,738)
Other income 126
Interest income 1 31
Interest expense (807) (1,848)
Minority interest in net income of consolidated
subsidiaries (208) (846)
Reverse loss on sale of MDI Imaging Business
Loss on sale of imaging business (9,515)
Note 3 Pro Forma Adjustments to Reflect the Purchase of AMS and to
consolidate Caprius and AMS, the Conversion of the AMS Convertible
Debenturs and to Consolidate Caprius and AMS.
Calculation of cost of AMS:
Shares outstanding 8,641,854
Less: Caprius shares owned (1,250,000)
-------------------
Shares converted 7,391,854
Conversion ratio 0.40
-------------------
Caprius shares to be issued 2,956,742
Caprius share price $ 2.50
-------------------
Value of Caprius shares to be issued 7,391,854
Transaction costs 580,000
-------------------
Cost of AMS shares purchased 7,971,854
Basis of existing investment in AMS (56,323)
Accounts receivable from AMS 1,581,710
===================
Total cost of AMS $9,497,241
===================
Cost allocated as follows:
Cash 22,747
Inventories 793,361
Other current assets 22,773
Equipment 621,395
Other assets 119,497
Purchased contracts(1) 500,000
Purchased research and development(2) 6,833,299
Other intangible assets(3) 1,000,000
Accounts payable and accrued expenses (267,593)
Other current liabilities (144,277)
Note payable (3,961)
===================
$9,497,241
===================
</TABLE>
(1) Purchased contracts represent the net present value of the estimated
future cash flow arising from the AMS executed hospital contracts
based on management's estimates.
(2) Purchased research and development represents the balance of the
purchase price to be allocated to the value of research and
development on AMS breast imaging system. The estimated value of
purchased research and development was based on the net present value
of estimated future cash flow arising from the sale and installation
of breast imaging systems. Generally accepted accounting principles
requires that a portion of the purchase price be allocated to research
and development projects in process and that, if those projects have
no alternative future use, the amount should be charged to expense as
a research and development cost. The Company has determined that the
technology being developed by AMS is specific to breast MRI and has no
alternative use. Accordingly, the portion of the purchase price
allocated to purchased research and development has been charged to
accumulated deficit on the Pro Forma Condensed Balance Sheet.
(3) Other intangible assets represent the estimated value of product name,
employee base and general infrastructure, etc.
<PAGE>
<TABLE>
CAPRIUS, INC.
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
<CAPTION>
Twelve months ended Twelve months ended
September 30, 1997 September 30, 1996
(In Thousands, except in text) (In Thousands, except in text)
Debit (Credit) Debit (Credit)
<S> <C> <C>
Reflect AMS assets and liabilities
Cash and cash equivalents $23
Inventories 793
Other current assets 23
Equipment, furniture and leasehold improvements, net 621
Other 119
Accounts payable and accrued expenses (268)
Other current liabilities (144)
Due to related parties (1,582)
Long-term debt and capital lease obligations, net of current (4)
Common stock (86)
Additional paid-in capital (17,047)
Accumulated deficit 17,552
Record Caprius reverse stock split
APIC (393)
Common stock 393
Eliminate investment in AMS and record purchase
Cash (580)
Investment in and advances to unconsolidated subsidiary (1,525)
Other intangible assets 1,000
Other assets 500
Due to related parties 1,582
Common stock (AMS) 86
Common stock (Caprius shares issued) (30)
Additional paid-in capital (AMS) 17,047
Additional paid-in capital (Caprius shares issued) (7,361)
Accumulated deficit (AMS deficit) (17,552)
Accumulated deficit (Purchased R&D) 6,833
Reverse equity in loss of unconsolidated subsidiary
Equity in net loss of unconsolidated subsidiary (1,304) ($2,374)
Eliminate intercompany sale
Systems sales 400
Manufacturing (400)
Note: The other intangible assets and contracts will be amortized on a
straight-line basis over the periods estimated to be benefitted. The
contracts will amortized over the life of the contracts which is generally
five years. The other intangible assets will be amortized over five years,
the minimum period expected to be benefitted.
</TABLE>
<PAGE>
<TABLE>
Note 4 Other Pro Forma Adjustments
Twelve months ended Twelve months ended
September 30, 1997 September 30, 1996
(In Thousands, except in text) (In Thousands, except in text)
Debit (Credit) Debit (Credit)
<S> <C> <C>
Amortization of purchased contracts and other
intangible assets
Selling, general and administrative $300 $300
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
----------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
The following discussion should be read in conjunction with the audited
consolidated financial statements and notes thereto for the nine-month period
ended September 30, 1995, the twelve-month periods ended September 30, 1997 and
1996, and the unaudited consolidated financial statements for the twelve months
ended September 30, 1995. Effective January 1, 1995, the Company changed its
fiscal year from December 31 to September 30.
Results of Operations
Fiscal Year Ended September 30, 1997 Compared to Fiscal Year Ended September 30,
1996
Net patient service revenue totaled $12,436,000 for the twelve months
ended September 30, 1997 versus $25,481,000 for the twelve months ended
September 30, 1996. Cost of service operations totaled $8,915,000 for the twelve
months ended September 30, 1997 versus $16,206,000 for the twelve months ended
September 30, 1996. These decreases were largely the result of the MDI Merger in
February 1997 partially offset by increased rehabilitation service revenues and
expenses associated with the new MVA centers established in the second and third
quarters of fiscal 1996.
Management fees and other revenues for the twelve months ended
September 30, 1997, included a $70,000 settlement with an equipment manufacturer
associated with the delay in delivery of imaging equipment.
Selling, general and administrative expenses totaled $3,870,000 for the
twelve months ended September 30, 1997 versus $4,255,000 for the twelve months
ended September 30, 1996. This decrease is due to the change in the accounting
treatment of the Company's investment in AMS from consolidation to equity
accounting and due to the MDI Merger.
Other income includes a gain of $223,000 from the sale of certain
equipment.
Minority interests in net income of consolidated entities consists of
earnings allocated to MDI's joint venture partners. Prior to September 1996, the
allocated earnings were offset by losses allocated to the AMS minority
shareholders. The equity in net loss of unconsolidated subsidiary reflects the
Company's equity share of the AMS loss subsequent to September 1996. Due to the
MDI Merger in February 1997, most of the categories included in the statements
of operations will decrease substantially compared to prior year periods.
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September 30,
1995 (unaudited)
During fiscal 1996, 1,748,364 shares of AMS Common Stock were issued in
connection with the conversion of convertible debentures issued in May 1996. As
a result of these conversions, the Company's percentage ownership of AMS was
reduced to approximately 48% at September 30, 1996. Accordingly the Company
switched from consolidation of AMS in 1995 to the equity method of accounting
for fiscal 1996.
-25-
<PAGE>
Loss from operations of Imaging Systems business segment includes all
activity associated with the August 1996 plan to suspend the operations of a
significant portion of such segment. Based on management's' periodic review of
the assumptions used in determining the estimated loss from the disposal of the
Imaging System business segment, the Company recorded a provision of $3,510,563
for the loss of disposal of the discontinued business in the fourth quarter of
1996.
As a result of the change in accounting method for AMS and the
discontinued Imaging System business segment, all fiscal 1996 revenues and
operating expenses represent those of the Imaging and Rehabilitation Services
business segment exclusively.
Net patient service revenue of $25,481,000 for fiscal 1996 represents a
full year of operations from the Imaging and Rehabilitation Services business
acquired on August 31, 1995. The cost of service operations of $16,206,000 and
provision for bad debt and collection costs of $2,126,000 similarly represent a
full year of operations of the service segment. The year ended September 30,
1995 includes only one month of the Imaging and Rehabilitation Services
business.
Management fees and other revenues of $653,000 in fiscal 1996 is
primarily attributable to fees earned from an entity managed by MDI.
Selling, general and administrative expenses increased from $2,449,000
to $4,255,000 from the year ended September 30, 1995 to fiscal 1996. This
increase was primarily due to a full twelve months of Imaging and Rehabilitation
Services operations is fiscal 1996 versus only one month in 1995 offset by the
consolidation of AMS in 1995 versus an equity accounting for AMS in fiscal 1996.
Interest expense increased from $139,000 to $1,848,000 reflecting the
full twelve months of Imaging and Rehabilitation Services operations during
fiscal 1996 as well as the financing of the MDI acquisition, effective August
31, 1995.
Minority interests in net income of consolidated MDI entities for
fiscal 1996 totaled $1,006,000. During the year ended September 30, 1995 the
minority interests in net loss of consolidated entities included the Company's
proportionate share of AMS' losses incurred in that period, partially offset by
one month's allocation of income from certain subsidiaries of MDI.
Equity in loss of unconsolidated subsidiary reflects the Company's
equity accounting for AMS losses during fiscal 1996.
Liquidity and Capital Resources
The Company had available cash and cash equivalents of $11,498,000 at
September 30, 1997 (including $1,745,000 of restricted cash). The Company
intends to utilize the funds for the continuing development of the Aurora
System, for the clinical research study being conducted on the role of MRI in
breast care and for the opening of breast imaging centers.
-26-
<PAGE>
The significant cash flows from investing activities for the twelve
months ended September 30, 1997 include approximately $7,800,000 in proceeds
from the MDI Merger, $2,000,000 used for medical imaging equipment additions and
$1,500,000 used for the acquisition of the minority interest in the Company's
rehabilitation business. Cash flows from financing activities include $1,843,000
of proceeds from financing of medical equipment, $1,300,000 for the purchase of
the minority interest in the rehabilitation business, and $2,700,000 from the
issuance of the redeemable preferred stock to GE, offset by principal payments
on equipment debt.
The Company currently funds its operations principally through the cash
obtained from the MDI Merger. The Company anticipates that it will begin earning
revenues from its first breast imaging center in the first quarter of fiscal
1998 and such revenues will increase significantly as more systems are
installed. The Company is currently negotiating with several unaffiliated
parties to establish credit facilities for the capital expenditures at its new
sites. However, there can be no assurances that any agreements can be
consummated or that such agreement will be in amounts sufficient to fund all the
Company's installations.
In addition, management believes that, if necessary, additional funds
could be obtained through various funding options, including equity offerings,
commercial and other borrowings, strategic corporate alliances and joint
ventures. However, there can be no assurance that such funding initiatives would
be successful.
Inflation
To date, inflation has not had a material effect on the Company's
business. The Company believes that the effects of future inflation may be
minimized by controlling costs and increasing efficiency through an increase in
the volume of MRI examinations performed.
The Company is including the following cautionary statement in this
Annual Report on Form 10-K to make applicable and take advantage of the safe
harbor provisions of the Private Securities Litigation Reform Act of 1995 for
any forward-looking statements made by, or on behalf of, the Company.
Forward-looking statements include statements concerning plans, objectives,
goals, strategies, future events or performance and underlying assumptions and
other statements which are other than statements of historical facts. Certain
statements contained herein are forward-looking statements and accordingly
involve risks and uncertainties which could cause actual results or outcomes to
differ materially from those expressed in the forward-looking statements. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitations, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to other
factors and matters discussed elsewhere herein, the following are important
factors that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements: technological
advances by the Company's competitors, changes in health care reform, including
reimbursement programs, capital needs to fund any delays or extensions of
research
-27-
<PAGE>
programs, delays in product development, lack of market acceptance of technology
and the availability of capital on terms satisfactory to the Company. The
Company disclaims any obligation to update any forward-looking statements to
reflect events or circumstances after the date hereof.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
-------------------------------------------
See Item 14 and the index therein for a listing of the financial
statements and supplementary data as a part of this report.
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
No change in the Registrant's accountants occurred during the 24 months
prior to the date of the Registrant's most recent financial statements, nor did
any disagreements occur on any matter of accounting principles or practices or
financial statement disclosure that would be required to be reported on a Form
8-K.
-28-
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
--------------------------------------------------
The directors and executive officers of the Company are:
Name Age Position
- ---- --- --------
Jack Nelson(1) 46 Chairman of the Board,
Executive Officer
and Treasurer
Robert Spira, MD(1)(3) 48 Vice Chairman of the Board
Enrique Levy (1) 59 President, Chief Operating
Officer, and Director
Steven J. James 42 Chief Financial Officer and
Accounting Officer
Sol Triebwasser, Ph.D.(2) 75 Director
Alison Estabrook, M.D.(2) 45 Director
Bernard Weiner, M.D. (3) 49 Director
Susan S. Bailis(2) 52 Director
Daniel E. Straus (3) 40 Director
- --------------------
(1) Member of the Executive Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation/Option Committee.
The principal occupations and brief summary of the background of each
Director and executive officer the Company during the past five years is as
follows:
Jack Nelson. Mr. Nelson has been Chairman of the Board since June 1991
and Chief Executive Officer and Treasurer since November 1990. From 1976 through
1993, Mr. Nelson had been engaged in the private practice of law as senior
partner with the law firm of Zaslowsky, Marx & Nelson in New York, New York for
more than five years prior to December 31, 1993. Since January 1994, he has been
employed full-time with the Company. Mr. Nelson serves on the Board of Directors
of Advanced Machine Vision, Inc., a publicly traded company (NASDAQ: AMVC). Mr.
Nelson holds a B.A. degree from Yeshiva University and J.D. degree from Hofstra
University School of Law.
-29-
<PAGE>
Robert Spira, M.D. Dr. Spira has been a director of the Company since
September 1990, and Vice Chairman since February 1994. Since October 1992, he
has been the Director of the Department of Gastroenterology at St. Michael's
Medical Center in Newark, New Jersey, and for more than five years prior
thereto, he served as Chief of Gastrointestinal Endoscopy at St. Michael's
Medical Center. Dr. Spira is a graduate of New York University Medical School, a
past president of the New Jersey Society for Gastrointestinal Endoscopy and
President-elect of the New Jersey Society of Gastroenterology
Enrique Levy. Mr. Levy has been President and Chief Operating Officer
since October 1995 and a Director since August 31, 1995. From May 1994 to
October 1995 he was Manager, manufacturing for Xerox Graphic Systems, Harrison,
New York, a venture of Xerox Corporation. From April 1989 to May 1994, he was
Executive Vice President of Worldwide Process Technologies, Allendale, New
Jersey, a manufacturer of process systems and equipment for the web handling and
film and paper coating industries. Prior to 1989, he was President and Chief
Executive Officer of Polychrome Corporation, in international manufacturer of
supplies to the graphic arts and printing industry. He holds a B.S. in Chemical
Engineering from the Louisiana State University.
Steven J. James. Mr. James has been Chief Financial and Accounting
Officer since February 1997. From December 1993 through February 1997, he served
a Chief Financial Officer of MDI. Mr. James joined MDI as controller in 1988 and
served as MDI's Vice President of Finance from September 1992 to December 1993.
Mr. James is a Certified Public Accountant and a member of the AICPA and the
Massachusetts Society of CPA's. He is a graduate of Bentley College with a B.S.
in Accounting.
Sol Triebwasser, Ph.D. Dr. Triebwasser has been a director of the
Company since July 1984. Until recently, Dr. Triebwasser was Director of
Technical Journals and Professional Relations for the IBM Corporation in
Thornwood, New York. Since receiving his Ph.D. in physics from Columbia in 1952,
he has managed various projects in device research and applications at IBM. Dr.
Triebwasser is a fellow of the Institute for Electrical and Electronic
Engineers, the American Physical Society and the American Association for the
Advancement of Science.
Alison Estabrook, M.D. Dr. Estabrook was a director of AMS for the
period from August 29, 1996 through November 10, 1997, where upon she became a
director of the Company. Since 1992, she has been an Associate Attending
Physician at Columbia Presbyterian Hospital and an Associate Professor of
Clinical Surgery at Columbia University. From 1985 through 1995, Dr. Estabrook
served as Director of the Breast Clinic and since 1991 she has been the Chief of
Breast Service at Columbia University. Dr. Estabrook serves on the quality
assurance committee of the Division of Breast Surgery at Columbia Presbyterian
Hospital. She received the Outstanding Woman Doctor of the Year Award in 1989.
Dr. Estabrook holds a B.A. degree from Barnard College and is a graduate of New
York University School of Medicine.
Bernard Weiner, M.D. Dr. Weiner was a director of AMS for the period
from June 29, 1995 through November 10, 1997, where upon he became a director of
Company. Since
-30-
<PAGE>
1985, Dr. Weiner has been the Director of Nephrology and Hemodialysis at
Westchester Square Medical Center. Since 1980 Dr. Weiner has been Assistant
Clinical Professor in the Department of Medicine at Albert Einstein College of
Medicine. Dr. Weiner has written articles in several medical publications and is
a member of American College of Physicians, the National Kidney Foundation, the
American Society of Internal Medicine and the International Society of
Nephrology.
Susan S. Bailis. Ms. Bailis was elected a director of the Company on
November 10, 1997. Ms. Bailis has served since 1985 as President and Chief
Executive Officer of The A-D-S group, a wholly-owned subsidiary of The Multicare
Companies, Inc. ("Multicare"), a NYSE listed company that was acquired by
Genesis Health Ventures. Prior to her employment with The A-D-S Group, Ms.
Bailis served as Associate Director (1983-1985) and Director of Social Services
(1977-1985), of the New England Medical Center. Ms. Bailis serves as President
of the Massachusetts Extended Care Federation and a Trustee of Simmons College
and also serves as a board member of numerous charitable organizations. She
received her B.S. from Brandeis University and her M.S.W. from Simmons College.
Daniel E. Straus. Mr. Straus was elected a director of the Company on
November 10, 1997. Mr. Straus has served as President, Co-Chief Executive
Officer and director of Multicare since September 1992. From 1978 to 1984 he was
involved in the business of Multicare's predecessors. Mr. Straus received his
B.A. degree in 1978 from Columbia University and his J.D. degree in 1981 from
the New York University School of Law School.
All directors hold office until the next annual meeting of stockholders
of the Company or until their successors are elected and qualified. Executive
officers hold office until their successors are chosen and qualified, subject to
earlier removal by the Board of Directors. See "Security Ownership of Certain
Beneficial Owners and Management."
Board of Directors Meetings and Committees
The Board of Directors met, either in person or telephonically, twelve
times in fiscal 1997. Each of the directors attended or participated in 75% or
more of the meetings.
The Board of Directors has standing Executive, Audit and
Compensation/Option Committees. The Strategic Development Committee, organized
on August 31, 1995 was disbanded.
The Executive Committee exercises all the powers and authority of the
Board of Directors in the management and affairs of the Company between meetings
of the Board of Directors, to the extent permitted by law. The Executive
Committee met on a bi-weekly basis during fiscal 1997.
The Audit Committee reviews with the Company's independent accountants
the scope and timing of the accountants' audit services and any other services
they are asked to perform, their report on the Company's financial statements
following completion of their audit and the Company's policies and procedures
with respect to internal accounting and financial controls.
-31-
<PAGE>
In addition, the Audit Committee reviews the independence of the independent
public accountants and makes annual recommendations to the Board of Directors
for the appointment of independent public accountants for the ensuing year. The
Audit Committee met once in fiscal 1997.
The Compensation/Option Committee reviews and recommends to the Board
of Directors the compensation and benefits of all officers of the Company,
reviews general policy matters relating to compensation and benefits of
employees of the Company and administers the Company's Stock Option Plans. The
Compensation/Option Committee met once in fiscal 1997.
ITEM 11. EXECUTIVE COMPENSATION
----------------------
The following table sets forth the aggregate cash compensation paid by
the Company to (i) its Chief Executive Officer and (ii) its most highly
compensated officers whose cash compensation exceeded $100,000 for services
performed during the year ended September 30, 1997. The Company was reimbursed
by AMS for a portion of the executive salaries pursuant to the now terminated
Shared Services Agreement, as discussed below.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricted Stock
Name and Other Annual Stock Options LTIP All Other
Principal Salary Bonus Compensation Award(s) Award(s)(8) Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Jack
Nelson(1)
Chairman/CEO 1997(4) 247,201 -0- -0- -0- -0- -0- 16,200(3)
- ----------------------------------------------------------------------------------------------------------------------------------
1996 234,999 50,000 -0- -0- 25,000 -0- 16,200(3)
- ----------------------------------------------------------------------------------------------------------------------------------
1995 176,250 -0- -0- -0- -0- -0- 12,150(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Enrique
Levy
President/COO 1997(4) 242,740 -0- -0- -0- -0- -0- 8,400(3)
- ----------------------------------------------------------------------------------------------------------------------------------
1996(5) 246,346 -0- -0- -0- 25,000 -0- 8,400(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Steven
James (7)
CFO 1997(4) 215,685 -0- -0- -0- 2,500 -0- -0-
- ---------------------------------------------------------------------------------------------------------------------------------
David
Gaynor (2)
President/MDI 1997(4) 322,500 -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
1996 212,538 -0- -0- -0- 15,000 -0- 1,500(3)
- ----------------------------------------------------------------------------------------------------------------------------------
Robert
Kwolyk(6)
VP/Sales&
Marketing 1997(4) 168,490 -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
1996 170,769 -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
1995 109,615 -0- -0- -0- -0- -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
(1) Mr. Nelson became a full-time employee beginning January 1, 1994.
</TABLE>
-32-
<PAGE>
(2) Mr. Gaynor became President of MDI beginning December 1, 1995 and
terminated his Employment Agreement effective January 31, 1997, whereupon
pursuant to the MDI Merger, he received $247,500 in severance, plus accrued
salary and vacation pay in the amount of $60,380.
(3) Paid to Mr. Nelson for the purpose of reimbursing him for transportation
and other expenses; and to Messrs. Levy, Gaynor and Kwolyk for the purpose
of reimbursing them for transportation.
(4) Salary, all other compensation and stock options awarded during the year
ended September 30, 1997.
(5) Mr. Levy became President and COO beginning October 1, 1995. Mr. Levy's
salary includes a "signing" bonus of $30,000.
(6) Mr. Kwolyk was Vice President, Sales and Marketing until May 1, 1997 when
his contract was terminated.
(7) Mr. James became Chief Financial and Accounting Officer on March 31, 1997.
Total salary includes $150,000 in satisfaction of severance payments due
from the sale of MDI.
(8) These Option numbers take into account the Company's 1-for-10 Reverse Stock
Split.
Employment Agreements
As of December 20, 1995, both the Company and AMS entered into
employment agreements with Jack Nelson (the "Nelson Employment Agreements"),
employing him as Chairman of the Board, Chief Executive Officer and Treasurer of
the Company and AMS, respectively through December 31, 2000 at an aggregate base
salary of $235,000, with a 10% increase in base salary from both companies
effective during the second year and with any additional increases in base
salary from both companies thereafter being instituted by the Board of Directors
subject to the Company meeting revenue and net income budget projections.
Mr. Nelson was granted options to purchase 25,000 shares of the
Company's Common Stock, with 5,000 shares, on a post-Reverse Stock Split basis,
to vest each year AMS did not grant any stock options as part of Mr. Nelson's
employment agreement with AMS. The Nelson Employment Agreements further provide
that if Mr. Nelson terminates his employment "for cause" or the Company or AMS,
as the case may be, terminates his employment "without cause" (as each such term
is defined in the Nelson Employment Agreements), or upon Mr. Nelson's death or
disability, Mr. Nelson or his representative shall receive his annual base
salary as paid by the Company or AMS, as the case may be for two full years from
the date of his termination, less any amounts received under the Company's or
AMS' insurance policies, as the case may be. In the event that the Company or
AMS, as the case may be, without the consent of Mr. Nelson, assigns its rights
and obligations under either of the Nelson Employment Agreements to any company
with or into which the Company or AMS may merge or consolidate, or to which the
Company or AMS may sell or transfer all or substantially all of its assets or of
which 50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by the Company or AMS, and if the assignee was not
previously part of a consolidated group with the Company or AMS, then Mr. Nelson
may terminate the applicable Nelson Employment Agreement within thirty days
after notice of
-33-
<PAGE>
assignment, and he shall receive 2.99 times his full annual base salary plus any
bonuses, but not to exceed such amount which would result in an excise tax.
As of September 1995, the Company entered into an Employment Agreement
with Enrique Levy (the "Levy Employment Agreement"), employing him as President
and Chief Operating Officer of the Company commencing October 1, 1995, through
December 31, 2000, at a base salary of $225,000 per annum with a 10% increase in
base salary effective during the second year, with any additional increases
during the third, fourth and fifth years to be based upon increasing net income
of the Company and AMS in excess of the annual budgeted net income. Mr. Levy
also received a $30,000 "signing" bonus and is entitled to receive annual cash
bonuses based upon Mr. Levy's overall performance and the performance of each of
the companies based on a comparison of the actual annual financial results of
each of the Company and AMS as compared to budgets for the year. Mr. Levy was
also granted options to purchase (i) 25,000 shares of the Common Stock, on a
post-Reverse Stock Split basis, of the Company to vest over a three year period
and (ii) 40,000 shares of Common Stock of AMS, on a post-merger conversion
basis, to vest over a three year period. The Levy Employment Agreement further
provides that if Mr. Levy terminates his employment "for cause" or the Company
terminates his employment "without cause" (as such term is defined in the Levy
Employment Agreement), or upon Mr. Levy's death or disability, Mr. Levy or his
representative shall receive his annual base salary for two full years from the
date of his termination, less any amounts received under the Company's insurance
policies. In the event that the Company, without the consent of Mr. Levy,
assigns its rights and obligations under the Levy Employment Agreement to any
company with or into which the Company may merge or consolidate, or to which the
Company may sell or transfer all or substantially all of its assets or of which
50% or more of the equity investment and of the voting control is owned,
directly or indirectly, by the Company, and if the assignee was not previously
part of a consolidated group with the Company, then Mr. Levy may terminate the
Levy Employment Agreement within thirty days after notice of assignment, and he
shall receive 2.99 times his full annual base salary plus any bonuses, but not
to exceed such amount which would result in an excise tax.
On November 1, 1996, each member of senior management accepted the
opportunity to have the exercise price of all outstanding stock options held by
him repriced to the market price of the Company's Common Stock as of August 22,
1996 ($0.50) if, in exchange for such repricing, such member of senior
management agreed to defer 17% of his salary for one year, at which time the
Compensation Committee would determine whether additional deferrals were
necessary. Messrs. Nelson, Levy and Gaynor agreed to the repricing of options
held by them on such terms.
As of March 31, 1997, Steven J. James' employment agreement was amended
to provide that upon the MDI Merger, his employment as Vice President of
Finance/CFO would be with both Caprius and AMS, instead of MDI, at an annual
base salary of $125,000 split between the two companies, terminating on June 30,
1999. Under the terms of the agreement each company granted to him options for
the purchase (2,500 shares of the Company's Common Stock on a post-Reverse Stock
Split basis and 10,000 shares of AMS Common Stock on a post-conversion basis) of
its Common Stock at the market price upon the respective date
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of grant. The change of control provisions in his employment agreement were
terminated upon payment of $150,000 to Mr. James in satisfaction of the
application of such provisions to the MDI Merger.
Upon the Merger, the Company assumed all obligations pursuant to the
above employment agreements.
The Company does not have any annuity, retirement, pension or deferred
compensation plan or other arrangement under which any executive officers are
entitled to participate without similar participation by other employees.
- --------------------------------------------------------------------------------
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of Alternative
Individual Stock Price Appreciation to (f) and
Grants for Option Term (g) Grant
Date Value
(a) (b) (c) (d) (e) (f) (g) (h)
% of Total
Number of Options/ Exercise on Grant Date
Securities SARS Granted Base Price Expiration Present
Name Underlying to Employees ($/Sh) Date 5% 10% Value
Option/ in Fiscal ($) ($) ($)
SARs Granted Year
(#)
(1) (1)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jack Nelson -0-
Enrique Levy -0-
Steven James 2,500 100.0 .50 9/8/02 $2,000 $3,000 0
David Gaynor -0-
Robert Kwolyk -0-
(1) Reflects the Company's 1-for-10 Reverse Stock Split.
</TABLE>
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Fiscal Year End Option Value
Value of Unexercised In-
Number of Unexercised Options the-Money Options at
at Sept. 30, 1997 Sept. 30, 1997
Name Exercisable/Unexercisable* Exercisable
- ---- -------------------------- -----------
Jack Nelson........... 35,000/15,000 $ 0
David Gaynor (1)...... 24,179/0 0
Steven J. James....... 5,800/0 0
Robert Kwolyk(2)...... 20,000/0 0
Enrique Levy.......... 8,333/16,667 0
* After the effect of the 1-for-10 Reverse Stock Split.
(1) Employment Agreement terminated January 31, 1997.
(2) Employment Agreement terminated May 1, 1997.
Compensation of Directors
Directors who are employees of the Company are not paid any fees or
additional compensation for services as members of the Company's Board of
Directors or any committee thereof. Although non-employee Directors do not
receive Board fees, they are entitled to Options to purchase shares of the
Company's Common Stock. Each person that becomes a member of the Board is
granted Options to purchase 15,000 shares of Common Stock. Thereafter, a
Director is granted Options to purchase 10,000 shares annually if that person
has been a Director of the Company for more than six months. Pursuant to the
1993 Directors Stock Option Plan for Non-Employee Directors (the "1993 Directors
Plan"), which was amended in December 1997, the number of shares available under
the 1993 Directors Plan has been increased to 200,000 shares, on a post-Reverse
Stock Split basis. See "Submission of Matters to a Vote of Security Holders."
Compensation Committee Interlocks and Insider Participation
The members of the Company's Compensation/Option Committee are Robert
Spira, M.D., Bernard Weiner, M.D. and Daniel E. Straus, none of whom is an
executive officer or employee of the Company or its subsidiaries.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth, as of December 31, 1997, certain
information regarding the beneficial ownership of Common Stock by (i) each
person who is known by the Company to own beneficially more than five percent of
the outstanding Common Stock, (ii) each director of the Company, and (iii) all
directors and executive officers as a group:
<TABLE>
<CAPTION>
Name and Address of Beneficial Position with Company Amount and Nature of Percentage of Common Stock
Owner Beneficial Ownership (1)
- ----------------------------------- ---------------------------- ----------------------------- ----------------------------
<S> <C> <C> <C>
Jack Nelson Chairman of the Board; 219,500 (2) 2.8%
Chief Executive Officer
Treasurer
Enrique Levy President; Chief Operating 122,000 (3) 1.6%
Officer; Director
Steven J. James Chief Financial and 16,300 (4) *
Accounting Officer
Robert Spira, M.D. Director 18,417 (5) *
Sol Triebwasser, Ph.D. Director 18,750 (6) *
Alison Estabrook, M.D. Director 6,500 (7) *
Bernard Weiner, M.D. Director 8,250 (8) *
Susan S. Bailis Director 0 (9) *
Daniel E. Straus Director 0 (10) *
All directors and executive 409,717 5%
officers as a group (9 persons)
(3)(4)(5)(6)(7)(8)(9)(10)
</TABLE>
- ------------------------------
* Less than one percent (1%).
(1) All shares of Caprius Common Stock are beneficially owned, and the sole
voting and investment power is held by the persons named, except as set
forth in the notes below. A person is deemed to be the beneficial owner of
shares that can be acquired within 60 days of the date of this table upon
exercise of options or warrants.
(2) Includes 32,500 shares owned and 99,000 shares underlying presently
exercisable options granted under the 1993 Employee Stock Option Plan (the
"1993 Employee
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<PAGE>
Plan"). Excludes (i) 30,200 shares owned by Mr. Nelson's wife and children,
as to which shares he disclaims beneficial ownership, and (ii) 39,000
shares underlying options granted under the 1993 Employee Plan which are
subject to vesting thereunder. Underlying options include 88,000 options
granted under the 1993 Employee Plan pursuant to the Merger.
(3) Includes 12,000 shares owned and 50,000 shares underlying presently
exercisable options granted under the 1993 Employee Plan. Excludes 35,000
shares underlying options granted under the 1993 Employee Plan which are
subject to vesting thereunder. Underlying options include 60,000 options
granted under the 1993 Employee Plan pursuant to the Merger.
(4) Includes 16,300 shares underlying presently exercisable options granted
under the 1993 Employee Plan including 10,000 options granted under the
1993 Employee Plan pursuant to the Merger.
(5) Includes 18,417 shares underlying options presently exercisable granted
under the Incentive and Non-Qualified Stock Option Plan (the "1983 Plan")
and the 1993 Directors Plan and excludes 7,583 shares underlying options
granted under the 1993 Directors Plan, which are currently not exercisable.
Underlying options include 14,000 options granted under the 1993 Directors
Plan pursuant to the Merger.
(6) Includes 18,750 shares underlying options presently exercisable granted
under the 1983 Plan and the 1993 Directors Plan and excludes 2,250 shares
underlying options granted under the 1993 Directors Plan, which are
currently not exercisable. Underlying options include 14,000 options
granted under the 1993 Directors Plan pursuant to the Merger.
(7) Includes 6,500 shares underlying options presently exercisable granted
under the 1993 Directors Plan and excludes 7,500 shares underlying options
granted under the 1993 Directors Plan, which are currently not exercisable,
all of which were granted under the 1993 Directors Plan pursuant to the
Merger.
(8) Includes 8,250 shares underlying options presently exercisable granted
under the 1993 Directors Plan and excludes 5,750 shares underlying options
granted under the 1993 Directors Plan, which are currently not exercisable,
all of which were options granted under the 1993 Directors Plan pursuant to
the Merger.
(9) Includes 15,750 shares underlying options presently exercisable granted
under the 1983 Plan and the 1993 Directors Plan and excludes 2,250 shares
underlying options granted under the 1993 Directors Plan, which are
currently not exercisable. Underlying options include 14,000 options
granted under the 1993 Directors Plan pursuant to the Merger.
(10) Includes 15,750 shares underlying options presently exercisable granted
under the 1983 Plan and the 1993 Directors Plan and excludes 2,250 shares
underlying options granted under the 1993 Directors Plan, which are
currently not exercisable. Underlying options include 14,000 options
granted under the 1993 Directors Plan pursuant to the Merger.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
Agreements with AMS. The Company was party to several agreements with AMS which
were terminated at or before the consummation of the Merger. Pursuant to the
License Agreement, dated July 29, 1992, between the Registrant and AMS (the
"License Agreement"), the Company licensed AMS proprietary technology for the
MRI breast imaging system. For such license, AMS paid $1,680,000 and issued to
the Company 4,000,000 shares of AMS Common Stock, of which 2,750,000 shares were
subject to an Escrow Agreement, among the Company, AMS and American Stock
Transfer & Trust Company, which was terminated on May 1, 1997. In order to share
common expenses and functions, on January 25, 1993 the Company and AMS entered
into a shared services agreement (the "Shared Services Agreement"). The original
Shared Services Agreement was replaced by a subsequent Shared Services Agreement
on August 29, 1996. Both the License Agreement and the Shared Services Agreement
were terminated upon consummation of the Merger.
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<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
(a)(1) The following financial statements are filed herewith:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Financial Statements
(a)(2) The following Financial Statement Schedules are filed herewith: None.
All schedules have been omitted because they are inapplicable or
not required, or the information is included in the financial
statements or notes thereto.
(a)(3) Exhibits, including those incorporated by reference:
Exhibit No. Description
- ----------- -----------
2.1 Agreement and Plan of Merger among Registrant, ANMR
Acquisition Corp. and MDI, dated May 2, 1995 (incorporated by
reference to Annex A to the Joint Proxy Statement/Prospectus
to Registrant's Registration Statement on Form S-4, declared
effective August 3, 1995 (File No. 33-95302)("Registrant's
Form S-4").
2.2 Agreement and Plan of Merger, dated January 20, 1997, by and
among Registrant, MDI, MDI Acquisition Corporation and US
Diagnostic (incorporated by reference to Exhibit 1 to
Registrant's Report of Form 8-K filed January 23, 1997).
2.3 Agreement and Plan of Merger, dated as of June 23, 1997,
among Registrant, ANMR/AMS Merger Corp. and AMS (incorporated
by reference to Annex A to the Joint Proxy Statement
Prospectus that forms part of Registrant's Registration
Statement on Form S-4 filed on October 9, 1997).
3.1 Certificate of Incorporation of Registrant (incorporated by
reference to Exhibit 3 filed with Registrant's Registration
Statement on Form S-2, and amendments thereto, declared
effective August 18, 1993 (File No. 2-084785 ("Registrant's
Form S-2")).
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Exhibit No. Description
- ----------- -----------
3.2 Amendment to Certificate of Incorporation of Registrant filed
November 5, 1993 (incorporated by reference to Exhibit 3.2 to
Registrant's Form S-4).
3.3 Amendment to Certificate of Incorporation of Registrant,
filed August 31, 1995 (incorporated by reference to Exhibit
3.1 to Registrant's Form 8-K for an event of August 31, 1995
(the "August 1995 Form 8-K")).
3.4 Amendment to Certificate of Incorporation of Registrant,
filed September 21, 1995 (incorporated by reference to
Exhibit 3.4 to Registrant's Annual Report on Form 10-K for
the nine months ended September 30, 1995 (the "ANMR 1995 Form
10-K")).
3.4.1 Amendment to Certificate of Incorporation of Registrant,
dated November 10, 1997 (incorporated by reference to
Registrant's Report on Form 8-K, filed November 20, 1997).
3.4.2 Certificate of Merger, dated November 10, 1997 (incorporated
by reference to Registrant's Report on Form 8-K, filed
November 20, 1997). 3.5 Amended and Restated By-laws of
Registrant (incorporated by reference to Exhibit 3.4 to
Registrant's Form S-4).
4.1.1 Form of Warrant Agreement between Registrant and American
Stock Transfer & Trust Company, as Warrant Agent
(incorporated by reference to Exhibit 4 to the August 1995
Form 8-K).
4.1.2 Form of Warrant Certificate (incorporated by reference to
Annex B to the Registrant's Form S-4).
4.2 Specimen Certificate for Common Stock, par value $.01 per
share, of Registrant (incorporated by reference to Exhibit
4.2 to Registrant's Form S-4).
4.3.1 Form of Supplemental Agreement relating to Registrant's
assumption of MDI's Obligations under the Warrant Agreement
between MDI and First Albany Corporation and Janney
Montgomery Scott, Inc. (incorporated by reference to Exhibit
4.3.1 to Registrant's Form S-4).
4.3.2 Form of Supplemental Agreement relating to Registrant's
assumption of MDI's Obligations under the Warrant Agreement
between MDI and Jacob Agam (incorporated by reference to
Exhibit 4.3.2 to Registrant's Form S-4).
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<PAGE>
4.4 Form of Warrant Certificate, dated as of March 6, 1994,
issued to Dominick & Dominick Incorporated (incorporated by
reference to Exhibit 4.4 to Registrant's Form S-4).
4.5 Certificate of Designation of Series A Preferred Stock of the
Company (incorporated by reference to the Registrant's Report
on Form 8-K, filed on March 31, 1996).
4.6 Certificate of Designation of Series B Convertible Redeemable
Preferred Stock of Registrant (incorporated by reference to
Registrant's Report of Form 8-K, filed September 2, 1997).
10.1 Registrant's 1983 Incentive and Non-Qualified Stock Option
Plan, Amended and Restated as of February 1, 1988, and form
of incentive stock option (incorporated by reference to
Exhibit 10.4 to Registrant's Form S-2).
10.2 Registrant's 1993 Employee Stock Option Plan (incorporated by
reference to Exhibit A of the Proxy Statement for
Registrant's 1993 Annual Meeting of Stockholders).
10.3 Registrant's 1993 Directors Stock Option Plan for
Non-Employee Directors (incorporated by reference to Exhibit
B of the Proxy Statement for Registrant's 1993 Annual Meeting
of Stockholders).
10.4.1 Amended and Restated Agreement between the Registrant and GE,
dated November 30, 1989 (incorporated by reference to Exhibit
10.6 filed with Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1990).
10.4.2 Amended 1989 Agreement with GE, dated March 5, 1993
(incorporated by reference to Exhibit 10.12 filed with
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1992).
10.4.3 Amended 1993 Agreement with GE, dated March 5, 1993
(incorporated by reference to Exhibit 10.4.2 filed with
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 (the "ANMR 1994 Form 10-K")).
10.4.4 1994 Agreement between Registrant and GE, dated July 29, 1994
(incorporated by reference to Exhibit 10.4.5 to Registrant's
Form S-4).
10.4.6 Purchase Agreement, dated August 18, 1997, between the
Registrant and GE (incorporated by reference to Exhibit 10.1
to Registrant's Report of Form 8-K, filed September 2, 1997).
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<PAGE>
10.4.7 Registration Rights Agreement, dated August 18, 1997, between
the Registrant and GE (incorporated by reference to Exhibit
10.2 to the Registrant's Report on Form 8-K, filed September
2, 1997).
10.4.8 Stockholders Agreement, dated August 18, 1997, between the
Registrant and GE (incorporated by reference to Exhibit 10.3
to the Registrant's Report on Form 8-K, filed September 2,
1997).
10.4.9 Settlement and Release Agreement, dated August 18, 1997,
between the Registrant and GE (incorporated by reference to
Exhibit 10.4 to the Registrant's Report on Form 8-K, filed
September 2, 1997).
10.4.10 License Agreement, dated August 18, 1997, between the
Registrant and GE (incorporated by reference to Exhibit 10.4
to the Registrant's Report on Form 8-K, filed September 2,
1997).
10.5 Employment Agreement between Registrant and Jack Nelson,
dated as of December 6, 1993 (incorporated by reference to
Exhibit 10.5 filed with the ANMR 1994 Form 10-K).
10.6 Employment Agreement among Registrant, AMS and Enrique Levy,
dated September 17, 1995 (incorporated by reference to the
ANMR 199k Form 10-K).
10.7 Employment Agreement between Registrant and Robert L. Kwolyk,
dated as of April 25, 1994 (incorporated by reference to
Exhibit 10.8 to Registrant's Form S-4).
10.8 Employment Agreement among Registrant, MDI and John A. Lynch,
dated May 2, 1995 (incorporated by reference to Exhibit 47 to
MDI's Schedule 14D-9 (Amendment No. 18) filed on May 3,
1995).
10.9 Lease Agreement between Registrant and John T. Spinelli,
dated May 5, 1991 (incorporated by reference to Exhibit 10.9
filed with Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995).
10.10 License Agreement between Registrant and AMS, dated July 29,
1992 (incorporated by reference to Exhibit 10.13 to
Registrant's Form S-2).
10.11 Shared Services Agreement between Registrant and AMS dated
August 29, 1996 (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996).
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<PAGE>
10.12 Escrow Agreement among Registrant, AMS and American Stock
Transfer & Trust Company, dated December 1992 (incorporated
by reference to Exhibit 10.15 to Registrant's Form S-2).
10.13 Loan and Security Agreement, dated as of August 31, 1995,
between MDI and Chemical Bank (without exhibits)
(incorporated by reference to Exhibit 10.2 to the August 1995
Form 8-K).
10.14 Guaranty and Security Agreement, dated as of August 31, 1995,
between Registrant and Chemical Bank (without exhibits)
(incorporated by reference to Exhibit 10.3 to the August 1995
Form 8-K).
10.15 Guaranty and Security Agreement, dated as of August 31, 1995,
between certain subsidiaries of MDI and Chemical Bank
(without exhibits) (incorporated by reference to Exhibit 10.4
to the August 1995 Form 8-K).
10.16 Pledge Agreement, dated as of August 31, 1995, between
Registrant and Chemical Bank (incorporated by reference to
Exhibit 10.5 to the August 1995 Form 8-K).
10.17 Pledge Agreement, dated as of August 31, 1995, between MDI
and Chemical Bank (incorporated by reference to Exhibit 10.6
to the August 1995 Form 8-K).
10.18 Amended and Restated Joint Venture Agreement among MDI and
Medical Imaging Partners, L.P., dated August 6, 1990
(incorporated by reference to Exhibit 10(b)(1) to MDI's
Registration Statement on Form S-1 as amended on October 30,
1991 (File No. 33-42748) (the "MDI Registration Statement")).
10.19 Restated Management Agreement between MDI and Mass. Mobile
Imaging Venture, dated August 6, 1990 (incorporated by
reference to Exhibit 10(b)(2) to the MDI Registration
Statement).
10.20 Restated and Amended Medical Imaging Lease and Services
Agreement between Western Mass. Magnetic Resonance Services,
Inc. and Mass. Mobile Imaging Venture, dated August 6, 1990
(incorporated by reference to Exhibit 10(b)(3) to the MDI
Registration Statement).
10.21 Medical Imaging Lease and Services Agreement between Mobile
MRI of Western Massachusetts Associates and Mass. Mobile
Imaging Venture, dated August 6, 1990 (incorporated by
reference to Exhibit 10(b)(4) to the MDI Registration
Statement).
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<PAGE>
10.22 Lease Agreement between Medical Imaging Partners, L.P. and
Mass. Mobile Imaging Venture, dated December 31, 1986
(incorporated by reference to Exhibit 10(b)(9) to the MDI
Registration Statement).
10.23 MRI Management Services Agreement between Merrimack Valley
Health Services, Inc. and MDI dated October 1, 1990
(incorporated by reference to Exhibit 10(f)(1) to the MDI
Registration Statement).
10.24 Joint Venture Agreement of Mobile MRI of Western
Massachusetts Associates, between Mobile MRI of Western
Massachusetts, Inc. and MRI Associates Inc., dated December
22, 1986 (incorporated by reference to Exhibit 10(h)(1) to
the MDI Registration Statement).
10.25.1 Lease Agreement between MDI and the Trustees of Six New
England Executive Park, dated January 22, 1988 (incorporated
by reference to Exhibit 10(j) to the MDI Registration
Statement).
10.25.2 First Amendment to Lease Agreement between MDI and the
Trustees of Six New England Executive Park, dated October 15,
1992.
10.25.3 Second Amendment to Lease Agreement between MDI and the
Trustees of Six New England Executive Park, dated April 6,
1993.
10.26 Severance Agreements between MDI and each of Judy C.
Erbstein, David C. Gaynor, Steven J. James, Eileen H.
Kirrane, Elaine H. McCarthy, Ruselle W. Robinson and John F.
Sweeney, each dated February 16, 1995 (incorporated by
reference to Exhibit 35 to MDI's Schedule 14D-9 (Amendment
No. 13) filed with the Commission on February 23, 1995).
10.27 Stock Purchase Agreement between MDI, John W. Hammer and
Hi-Chicago Trust, dated October 12, 1988 (incorporated by
reference to Exhibit 10(o) to the MDI Registration
Statement).
10.28 Clinical License for MRI Services by Western Mass. Magnetic
Resonance Services, Inc. (incorporated by reference to
Exhibit 10(p)(1) to the MDI Registration Statement).
10.29 Clinical License for MRI Services by Mobile MRI of Western
Massachusetts Associates (incorporated by reference to
Exhibit (10(p)(2) to the MDI Registration Statement).
10.30 Clinical License for MRI Services by Central Mass. MRI
Limited Partnership ("Central Mass.") (incorporated by
reference to Exhibit 10(p)(4) to the MDI Registration
Statement).
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<PAGE>
10.31 Clinical License for MRI Services by Greater Boston MRI
Limited Partnership ("Greater Boston") (incorporated by
reference to Exhibit 10(p)(3) to the MDI Registration
Statement).
10.32.1 Determination of Need issued to Western Mass. Magnetic
Resonance Services, Inc., to provide Mobile MRI Services,
dated May 29, 1986 (incorporated by reference to Exhibit
10(q)(1) to the MDI Registration Statement).
10.32.2 Determination of Need issued to Western Mass. Magnetic
Resonance Services, Inc., to provide free-standing, fixed
site MRI services, dated April 3, 1989 (incorporated by
reference to Exhibit 10(q)(2) to the MDI Registration
Statement).
10.33 Determination of Need issued to Central Mass., dated July 20,
1988 (incorporated by reference to Exhibit 10(q)(3) to the
MDI Registration Statement).
10.34.1 Determination of Need issued to Greater Boston MRI Services,
Inc. ("Greater Boston"), dated April 8, 1988, with letter
transferring ownership of the Determination of Need to
Greater Boston (incorporated by reference to Exhibit 10(q)(4)
to the MDI Registration Statement).
10.34.2 Determination of Need issued to Greater Boston, dated October
12, 1989 (incorporated by reference to Exhibit 10(q)(5) to
the MDI Registration Statement).
10.35 Determination of Need issued to Mobile MRI of Western
Massachusetts Associates, dated August 28, 1989 (incorporated
by reference to Exhibit 10(q)(6) to the MDI Registration
Statement).
10.36 Agreement between Stephen O. Dell, Seacoast Scanning, Inc.,
MDI and Casco Bay MR Services, Inc., dated June 20, 1987
(incorporated by reference to Exhibit 10(u) to the MDI
Registration Statement).
10.37 Agreement in principle between MDI and Toshiba America
Medical Systems, Inc., dated November 8, 1991 (incorporated
by reference to Exhibit 10(ae)(7) to the MDI Registration
Statement).
10.38 "Maxiservice" MRI Lease Agreement between General Electric
Company and Mass. Mobile Imaging Venture, dated February 21,
1991 (incorporated by reference to Exhibit 10(af)(1) to the
MDI Registration Statement).
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<PAGE>
10.39 "Masterline" Van Lease Agreement between General Electric
Company and Mass. Mobile Imaging Venture, dated February 21,
1991 (incorporated by reference to Exhibit 10(af)(2) to the
MDI Registration Statement).
10.40 Asset Purchase Agreement and Support Services Agreement
(incorporated by reference to Exhibit E-1 and E-2 to MDI's
Report on Form 8-K filed on November 17, 1993 (File No.
0-11914)).
10.41 Stock Purchase Agreement and First Amendment to Stock
Purchase Agreement (incorporated by reference to Exhibit E-1
and E-2 to MDI's Report on Form 8-K/A filed on July 25, 1994
(File No. 0-11914)).
10.42 Amended License and Services Agreement between Burlington
Imaging Associates, Inc., P.C. and MDI (incorporated by
reference to Exhibit 10 to MDI's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994 (File No.
0-19736)).
10.43 Purchase and Sale Agreement dated November 17, 1994 between
MDI Rehab, Inc. and MVA Center for Rehabilitation, P.C.
(incorporated by reference to Exhibit 2 to MDI's Report on
Form 8-K filed on February 15, 1995).
10.44 Amended Management Agreement between MDI and ICI dated
October 30, 1987 and amended October 1, 1991 (incorporated by
reference to Exhibit 10(a)(1) and 10(a)(2) to the MDI
Registration Statement).
10.45 Key Employment Agreement between MVA Rehabilitation
Associates and Eric T. Shebar, M.D. dated as of January 31,
1995 (incorporated by reference to Exhibit 10(b) to MDI's
Report on Form 8-K filed on February 15, 1995).
10.46 Amended and Restated Agreement of Partnership of MVA
Rehabilitation Associates (incorporated by reference to
Exhibit 10(a) to MDI's Report on Form 8-K filed on February
15, 1995).
10.47 Employment Agreement, dated December 20, 1995, between ANMR
and Jack Nelson (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996).
10.48 Employment Agreement, dated December 1, 1995, between MDI and
David Gaynor. (incorporated by reference to Registrant's
Annual Report on Form 10-K for the fiscal year ended
September 30, 1996).
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10.49 Form of Regulation S Securities Subscription Agreement
relating to the Company's Series A Preferred Stock
(incorporated by reference to the Company's current report on
Form 8-K, dated March 31, 1996).
21* List of Company's subsidiaries.
23* Consent of Richard A. Eisner & Company, LLP, independent
public accountants for Company.
27* Financial Data Schedule.
(b) Reports on Form 8-K
On August 6, 1997, the Company filed a Form 8-K/A, to amend the February
27, 1997 Form 8-K which reflects a change in accounting for the May 1996
issuance of Convertible Preferred Stock and Debentures.
On September 2, 1997, the Company filed a Form 8-K announcing agreements
with GE, whereby (i) GE purchased all of the Company's 3T, 4T and InstaScan
business, (ii) GE purchased 27,000 shares of newly issued Series B
Convertible Redeemable Preferred Stock (the "Series B Preferred Stock") for
$2,700,000, (iii) the Company and GE entered into a license agreement
pursuant to which the Company granted certain license rights to GE, and
(iv) the Company and GE entered into releases of any claims either may have
had against the other.
On September 22, 1997, the Company filed a Form 8-K/A to amend pro forma
financial information to reflect a change in accounting for the Series B
Preferred Stock issued to GE.
On October 16, 1997, the Company filed a Form 8-K announcing the Raytel
Settlement.
On November 20, 1997, the Company filed a Form 8-K announcing (i) the
closing of the Merger, (ii) the approval by the Company's stockholders of
the one-for-ten Reverse Stock Split, which was a condition of the Merger,
and (iii) the approval by the Company's stockholders of the change of the
Company's name from "Advanced NMR Systems, Inc." to "Caprius, Inc."
- -------------------
* Filed herewith
-48-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on the 12th day of
January 1998.
CAPRIUS, INC.
By: /s/ Jack Nelson
Name: Jack Nelson
Title: Chairman, Chief Executive Officer
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons in the capacities and on the dates
indicated.
Signature Title Date
- --------- ----- ----
/s/ Jack Nelson Chairman of the Board, January 12, 1998
Jack Nelson Chief Executive
Officer and Treasurer
/s/ Enrique Levy President, Chief Operating
Enrique Levy Officer and Director January 12, 1998
/s/ Robert Spira Vice Chairman of the Board January 12, 1998
Robert Spira, M.D.
/s/ Steven J. James Chief Financial and
Steven J. James Accounting Officer January 12, 1998
/s/ Sol Triebwasser Director January 12, 1998
Sol Triebwasser, Ph.D.
/s/ Alison Estabrook Director January 12, 1998
Alison Estabrook, M.D.
/s/ Bernard Weiner Director January 12, 1998
Bernard Weiner, M.D.
/s/ Susan S. Bailis Director January 12, 1998
Susan S. Bailis
/s/ Daniel E. Straus Director January 12, 1998
Daniel E. Straus
-49-
<PAGE>
CAPRIUS, INC. AND SUBSIDIARIES
- I N D E X -
-------------
PAGE
NUMBER
------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS F-3
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
NOTES TO FINANCIAL STATEMENTS F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Caprius, Inc.
We have audited the accompanying consolidated balance sheets of
Caprius, Inc. (formerly Advanced NMR Systems, Inc.) and subsidiaries as at
September 30, 1997 and September 30, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for years ended
September 30, 1997 and September 30, 1996 and the nine months ended September
30, 1995. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements enumerated above
present fairly, in all material respects, the consolidated financial position of
Caprius, Inc. and subsidiaries at September 30, 1997 and September 30, 1996, and
the results of their operations and their cash flows for the years ended
September 30, 1997 and September 30, 1996 and the nine months ended September
30, 1995 in conformity with generally accepted accounting principles.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
November 28, 1997
F-2
<PAGE>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30, 1997 September 30, 1996
- ------ ------------------ ------------------
Current assets:
<S> <C> <C>
Cash and cash equivalents.......................... $ 9,752,768 $ 3,287,880
Cash, restricted (Note J).......................... 1,744,967 0
Accounts receivable, net of reserve for bad
debts of $612,500 at September 2,691,858 8,015,083
30, 1997 and $2,459,000 at September 30, 1996......
Inventory.......................................... 526,597
Other current assets............................... 163,433 1,002,846
----------- ------------
Total current assets................... 14,353,026 12,832,406
----------- ------------
Equipment, building, furniture and leasehold improvements
(Note C):
Medical equipment................................... 494,725 8,633,505
Office furniture and equipment...................... 624,245 685,133
Other equipment..................................... 48,597 899,983
Leasehold improvements.............................. 751,394 1,912,115
Building............................................ 0 210,739
----------- ------------
1,918,961 12,341,475
Less: accumulated depreciation and amortization.... 618,263 2,759,911
----------- ------------
1,300,698 9,581,564
----------- ------------
Goodwill, net of accumulated amortization (Note J)....... 2,383,377 26,205,525
Investment in and advances to unconsolidated subsidiary
(Note G)................................................. 1,525,387 1,440,191
Other.................................................... 272,113 664,844
----------- ------------
TOTAL.................................................... $19,834,601 $ 50,724,530
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................................... $ 462,118 $ 1,870,274
Accrued expenses...................................... 949,277 2,335,028
Accrued compensation.................................. 212,522 762,028
Due to shareholders................................... 0 46,102
Current portion of long-term debt and capital lease
obligations (Note C) 550,000 14,495,637
Other current liabilities............................. 0 59,326
----------- ------------
Total current liabilities........................ 2,173,917 19,568,395
----------- ------------
Long-term debt and capital lease obligations,
less current portion (Note C)....... 337,500 5,682,719
Minority interest in net assets of consolidated entities... 0 1,654,993
Commitments and contingencies (Note E)
Stockholders' equity (Note F):
Preferred stock, $.01 par value; authorized
1,000,000 shares:
Class A, issued none in 1997 and 2,194 shares
in 1996
Class B, convertible; issued 27,000 shares in 22
1997 (liquidating preference $2,700,000).............. 2,700,000
Common stock, $.01 par value; authorized, 50,000,000
shares; issued,
4,374,763 shares in 1997 and 3,418,078 shares
in 1996.................... 43,748 34,181
Additional paid-in capital............................ 56,170,271 55,700,283
Accumulated deficit................................... 41,588,585) (31,913,813)
----------- -------------
17,325,434 23,820,673
Less: treasury stock, at cost -22,500 common shares.. 2,250 2,250
----------- ------------
Total stockholders' equity....................... 17,323,184 23,818,423
----------- ------------
TOTAL...................................................... $19,834,601 $ 50,724,530
=========== ============
The accompanying notes to financial statements are an
integral part hereof.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended
Year Ended September 30, September 30,
1997 1996 1995 1995
------------ ----------- ----------- -------------
Revenues: (unaudited)
<S> <C> <C> <C> <C>
Net patient service revenue............... $12,436,463 $25,480,813 $1,934,322 $1,934,322
Management fees and other................. 287,315 653,425 40,220 40,220
----------- ----------- --------- ----------
Total revenues............................ 12,723,778 26,134,238 1,974,542 1,974,542
----------- ----------- ---------- ----------
Operating expenses:
Cost of service operations................ 8,914,513 16,205,961 1,203,497 1,203,497
Research and development.................. - - 940,141 664,786
Selling, general and administrative....... 3,869,788 4,254,964 2,449,364 2,002,075
Provision for bad debt and collection
costs..................................... 926,507 2,126,471 162,377 162,377
------- --------- ------- -------
Total operating expenses.................. 13,710,808 22,587,396 4,755,379 4,032,735
---------- ---------- --------- ---------
Operating income (loss) from continuing
operations................................ (987,030) 3,546,842 (2,780,837) (2,058,193)
Loss on sale of imaging business............. (9,515,903) - - -
Other income (Note F)........................ 214,120 126,263 579,758 579,758
Interest income.............................. 274,593 212,814 195,191 265,208
Interest expense............................. (977,909) (1,847,910) (139,020) (139,020)
--------- ----------- --------- ---------
Income (loss) from continuing operations (10,992,129) 2,038,009 (2,144,908) (1,352,247)
before minority interests, equity in loss
of subsidiary and provision for income
taxes.....................................
Minority interests in net (income) losses (202,234) (1,005,831) 783,520 569,354
of consolidated entities...............
Equity in net loss of unconsolidated subsidiary.. (1,304,496) (2,373,580) - -
----------- ----------- - -
Loss from continuing operations before (12,498,859) (1,341,402) (1,361,388) (782,893)
provision for income taxes...............
Provision for income tax benefit (expense)... 103,444 (42,288) - -
------- -------- ---------- ----------
Loss from continuing operations.............. (12,395,415) (1,383,690) (1,361,388) (782,893)
Discontinued operations (Note K) Income 30,181 (3,928,706) (2,521,580) (894,865)
(loss) from operations of discontinued
division..................................
Income (loss) on disposal of discontinued
division.................................. 2,690,462 (3,510,563) - -
--------- ----------- ------------ ----------
Net loss..................................... $(9,674,772) $(8,822,959) $(3,882,968) $(1,677,758)
============= ============= ============ ============
Income (loss) per common share:
Loss from continuing operations.............. $(3.00) $(.45) $(.57) $(.32)
Loss from operations of discontinued division .01 (1.28) (1.05) (.37)
Income (loss) on disposal of discontinued
division.................................. .65 (1.15) - -
------- ------ ------- -------------
Net loss per share........................... $(2.34) $(2.88) $(1.62) $(.69)
============== ============ =========== ==============
Weighted average number of common shares 4,126,587 3,058,332 2,402,065 2,424,390
outstanding
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-4
<PAGE>
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Preferred Stock
------------ ---------------
Additional
Shares Amount Shares Amount Paid-in Capital
<S> <C> <C> <C> <C> <C>
Balance-- December 31, 1994 .......... 2,377,954 $ 23,780 - $ - $ 39,215,127
Exercise of stock options ........... 1,512 15 - - 9,816
Cancellation of common stock
issued for services (Note F)......... (6,300) (63) - - (392,187)
Increase in proportionate ........... - - - - 1,769,259
share of Subsidiary's
equity related to sale
Of subsidiary's stock (Note F) ......
Cancellation of note received
for Stock issued (Note F)............ (25,000) (250) - - (687,250)
Common stock issued related
to Service business .................
acquisition (Note J) ................. 667,016 6,670 - - 18,603,290
Net loss for the period ............. - - - - -
--------- --------- -------- -------- ----------
Balance-- September 30, 1995 ......... 3,015,182 $ 30,152 - $ - $ 58,518,055
Exercise of stock options .......... 10,749 108 - - 130,559
Issuance of convertible
preferred stock (Note F) ........... - - 3,700 37 3,316,608
Increase in proportionate
share of subsidiary's
equity related to sale of
subsidiary's stock (Note F) ......... - - - - 633,404
Cumulative effect of change
in accounting for
subsidiary from
consolidation to the equity
method Note G)...................... - - - - (8,670,367)
Conversion of preferred
stock (Note F) ..................... 392,147 3,921 (1,506) (15) (3,906)
Deemed preferred stock
dividend Related to
beneficial conversion
Feature of convertible
preferred Stock .................... - - - - 1,233,230
Increase in proportionate
share of Subsidiaries capital....... - - - - 542,700
Net loss for the period ............. - - - - -
-------- ------ ------ ---- ----------
Balance-- September 30, 1996 ......... 3,418,078 $ 34,181 2,194 22 $ 55,700,283
Issuance of redeemable
preferred stock (Note F) ........... - - 27,000 2,700,000 -
Increase in proportionate share
of Subsidiary's equity
related to sale of
subsidiary's stock (Note F)......... - - - - 934,615
Change in ownership in ...............
subsidiary (Note G) ................ - - - - (455,082)
Conversion of preferred
stock (Note F) ..................... 956,685 9,567 (2,194) (22) (9,545)
Net loss for the period .............. - - - - -
--------- ------ ------ --------- ------
Balance-- September 30, 1997.......... 4,374,763 $ 43,748 27,000 $ 2,700,000 $56,170,271
=========== ======== ====== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Treasury Stock
--------------
Note
Receivable For
stock Issued Accumulated Deficit Shares Amount Total
<S> <C> <C> <C> <C> <C>
Balance-- December 31, 1994 .......... $ (687,500) $(28,850,233) 22,500 $ (2,250) $ 9,698,924
Exercise of stock options ........... - - - - 9,831
Cancellation of common stock
issued for services (Note F)......... - - - - (392,250)
Increase in proportionate ........... - - - - 1,769,259
share of Subsidiary's
equity related to sale
Of subsidiary's stock (Note F) ......
Cancellation of note received
for Stock issued (Note F)............ 687,500 - - - -
Common stock issued related
to Service business .................
acquisition (Note J) ................. - - - - 18,609,960
Net loss for the period ............. - (1,677,758) - - (1,677,758)
-------- ----------- ---------- --------- -----------
Balance-- September 30, 1995 ......... $ - $(30,527,991) 22,500 $ (2,250) $ 28,017,966
Exercise of stock options .......... - - - - 130,667
Issuance of convertible
preferred stock (Note F) ........... - - - - 3,316,645
Increase in proportionate
share of subsidiary's
equity related to sale of
subsidiary's stock (Note F) ......... - - - - 633,404
Cumulative effect of change
in accounting for
subsidiary from
consolidation to the equity
method Note G)...................... - 8,670,367 - - -
Conversion of preferred
stock (Note F) ..................... - - - - -
Deemed preferred stock
dividend Related to
beneficial conversion
Feature of convertible
preferred Stock .................... - (1,233,230) - - -
Increase in proportionate
share of Subsidiaries capital....... - - - - 542,700
Net loss for the period ............. - (8,822,959) - - (8,822,959)
-------- ----------- ---------- -------- -----------
Balance-- September 30, 1996 ......... $ - $(31,913,813) 22,500 $(2,250) $ 23,818,423
Issuance of redeemable
preferred stock (Note F) ........... - - - - 2,700,000
Increase in proportionate share
of Subsidiary's equity
related to sale of
subsidiary's stock (Note F)......... - - - - 934,615
Change in ownership in ...............
subsidiary (Note G) ................ - - - - (455,082)
Conversion of preferred
stock (Note F) ..................... - - - - -
Net loss for the period .............. - (9,674,772) - - (9,674,772)
-------- ----------- ---- ---- -----------
Balance-- September 30, 1997.......... $ $(41,588,585) 22,500 $ (2,250) $ 17,323,184
========== ============= ====== ========= ============
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-5
<PAGE>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
Nine Months
<CAPTION>
Year Ended Ended
September 30, September 30,
------------------------------------------- -------------
1995
Cash flows from operating activities: 1997 1996 (unaudited) 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net loss ............................................ $ (9,674,772) $ (8,822,959) $ (3,882,968) $ (1,677,758)
Adjustments to reconcile net loss to net cash used
in operating activities:
Minority interest in net income (loss) of ........... 202,234 1,005,831 783,520 (569,353)
subsidiaries
Equity in loss of unconsolidated subsidiary ......... 1,304,496 2,373,580 -- --
Loss (gain) on disposal of discontinued operations .. (2,690,462) 3,510,563 -- --
Loss on sale of imaging business .................... 9,515,903 -- -- --
Depreciation and amortization ....................... 1,271,862 3,373,278 779,007 633,948
Gain on sale of assets .............................. -- (174,891) -- --
Common stock and warrant for services cancelled ..... -- -- (357,250) (392,250)
Changes in assets and liabilities:
Accounts receivable, net ....................... 146,143 1,726,809 (667,558) (669,710)
Inventories .................................... 526,597 (50,949) (1,131,285) (360,735)
Other assets ................................... 481,301 249,001 (49,174) 25,193
Accounts payable and accrued expenses .......... (1,499,325) (2,375,539) 267,211 780,867
------------- ------------- ------------- -------------
Net cash provided by (used) in operating activities . (416,023) 814,724 (4,258,497) (2,229,798)
------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchase of imaging and rehabilitation business ..... (1,500,000) (254,249) (12,055,201)
(Note J)
Proceeds from sale of equipment ..................... -- 344,527 -- --
Proceeds from sale of imaging business .............. 7,800,297 -- -- --
Proceeds from sale of discontinued division ......... 2,432,580 -- -- --
Cash of formerly consolidated subsidiary (Note G) ... -- (1,832,563) -- --
Advances to unconsolidated subsidiaries ............. (910,159) -- -- --
Patent costs ........................................ -- (39,998) (137,172) (91,057)
Purchase of equipment, furniture and leaseholds ..... (2,711,873) (5,537,275) (254,056) (198,328)
improvements
Other Assets ........................................ 118,821 -- -- --
------------- ------------- ------------- -------------
Net cash provided by (used) in investing activities ... 5,229,666 (7,319,558) (12,344,586)
------------- ------------- ------------- -------------
Cash flows from financing activities:
Exercise of stock options ........................... -- 130,667 9,831 9,831
Proceeds from issuance of preferred stock (Note F) .. -- 3,316,645 -- --
Proceeds from issuance of redeemable preferred stock 2,700,000 -- -- --
(Note F)
Proceeds from issuance of long-term debt ............ 3,142,707 3,949,658 13,500,000 13,500,000
Repayment of long-term debt and capital lease ....... (1,975,834) (4,324,764) (219,731) (222,772)
obligations
Distributions to minority interests ................. (470,661) (822,000) (37,500) (37,500)
Contributions from minority interests ............... -- -- 67,593 67,593
Sale of subsidiary stock ............................ -- -- 3,909,400 3,199,885
Payments received on note receivable (Note F) ....... -- -- 110,000 --
------------- ------------- ------------- -------------
Net cash provided by financing activities ........... 3,396,212 2,250,206 17,339,593 16,517,037
------------- ------------- ------------- -------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
8,209,855 (4,254,628) 634,667 1,942,653
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........ 3,287,880 7,542,508 6,907,841 5,599,855
------------- ------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............. $ 11,497,735 $ 3,287,880 $ 7,542,508 $ 7,542,508
============= ============= ============= =============
Supplemental disclosures of cash flow information:
Interest paid during the period ..................... $ 977,909 $ 1,842,591 $ 50,584 $ 47,390
Additions to capital leases ......................... -- $ 1,870,874 -- --
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
F-6
<PAGE>
(NOTE A) - Business
- -------------------
Caprius, Inc. ("Caprius" or the "Company") (formerly Advanced NMR
Systems, Inc.) was founded in 1983 and through August 1996, operated under two
segments (one of which was discontinued during fiscal 1996) consisting of
Imaging Systems and Imaging and Rehabilitation Services. Pursuant to the merger
with Advanced Mammography Systems, Inc. ("AMS"), the company is now developing,
marketing and commercializing a dedicated MRI system for breast imaging known as
the Aurora system and in September 1997 opened its first breast imaging center
at the Faulkner-Sagoff Center for Breast Health Care in Boston, Massachusetts
("Faulkner Center"). The Company is also engaged in rehabilitation services,
consisting of comprehensive physician care, physical therapy and case management
for motor vehicle accident patients.
Effective November 10, 1997, the Company completed a merger with AMS,
whereby AMS merged into AMS Merger Corp., a wholly owned subsidiary of Caprius,
and became a wholly owned subsidiary of Caprius (the "Merger"). In connection
with the Merger, the Company effected a one-for ten reverse stock split, which
is shown retroactively in the accompanying financial statements. AMS was
originally formed on July 2, 1992 as a wholly owned subsidiary of Caprius to
develop a dedicated breast MRI system. AMS obtained its mammography technology
from Caprius and retained certain rights to other dedicated MRI systems
utilizing the technology rights. AMS then completed an initial public offering
of its securities in 1993 generating net cash proceeds of approximately $7.4
million. Subsequently, certain warrants and options were exercised, AMS closed a
private placement and 2,750,000 shares of AMS common stock owned by Caprius were
forfeited from escrow, such that the Company's interest in AMS was approximately
14% immediately preceding the merger.
On February 27, 1997, Medical Diagnostics, Inc. ("MDI") a wholly owned
subsidiary of Caprius merged (the "MDI Merger") MDI Acquisition Corporation, a
newly formed wholly-owned subsidiary of US Diagnostic, Inc. ("US Diagnostics")
and became a wholly-owned subsidiary of US Diagnostic. The Company had acquired
MDI, which provided imaging and Rehabilitation Services, on August 31, 1995.
Pursuant to the US Diagnostic merger, Caprius retained three rehabilitation
centers formerly operated by MDI. At the time of the sale of MDI to US
diagnostic, Caprius was in covenant default under its credit agreement with its
senior lender. Caprius sold MDI principally to pursue its strategy of developing
and installing its breast imaging system and to repay all the indebtedness to
the senior lender. Accordingly, the covenant defaults are no longer applicable.
In August 1996, Caprius announced a new strategic direction to focus on
the development of breast imaging centers and on its Imaging and Rehabilitation
Services businesses. From its inception through November 1992, the Company
engaged exclusively in research and development activities for its InstaScan
ultrafast magnetic resonance imaging system. The Company had also provided very
high field MRI systems for clinical applications
F-7
<PAGE>
and advanced research through its agreements with GE Medical Systems ("GEMS").
In 1992, Caprius received FDA clearance and commenced commercial marketing
activities up until August 1996, when the Company discontinued the manufacture
of its InstaScan product because of the lack of sales of the product. On August
18, 1997, Caprius and General Electric ("GE") entered into a purchase agreement
whereby GE purchased all inventory, equipment, and other assets, and assumed
liabilities relating to the 3T, 4T and InstaScan business, in exchange for
$2,432,580 in cash and the purchase by GE of $2.7 million stated value of a
newly issued class of convertible redeemable preferred stock.
(NOTE B) - Summary of Significant Accounting Policies
- -----------------------------------------------------
[1] Principles of consolidation:
The consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries All significant intercompany
transactions have been eliminated in consolidation.
[2] Revenue recognition:
The breast imaging and rehabilitation services business recognizes
revenue as services are provided to patients. Reimbursements for services
provided to patients covered by Blue Cross/Blue Shield, Medicare, Medicaid,
HMO's and other contracted insurance programs are generally less than rates
charged by the Company. Differences between gross charges and estimated
third-party payments are recorded as contractual allowances in determining net
patient service revenue during the period that the services are provided
[3] Cash equivalents:
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
[4] Inventories:
Inventories are accounted for at the lower of cost or market using the
first-in, first-out ("FIFO") method.
[5] Equipment, building, furniture and leasehold improvements:
Property, equipment, furniture and leasehold improvements are recorded
at cost. Expenditures for repairs and maintenance are charged to expense as
incurred, whereas major betterments are capitalized. Depreciation and
amortization are computed by the straight-line method over the estimated lives
of the applicable assets, or term of the lease, if applicable. Assets are
written off when they become fully depreciated.
F-8
<PAGE>
Property and equipment under capital lease is stated at the lower of
the fair market value or the net present value of the minimum lease payments at
the inception of the lease. Capitalized lease equipment is amortized over the
shorter of the term of the lease or the estimated useful life.
Asset Classification Useful Lives
-------------------- ------------
Medical and other equipment 5-8 years
Office furniture and equipment 5 years
Leasehold improvements Term of lease
Building 30 years
[6] Patents and goodwill:
-------------------------
All patent costs have been written off in connection with the
discontinued Imaging Systems business segment. Goodwill as of September 30, 1997
is related to the Company's Rehabilitation Services business. The Company
periodically reviews the carrying amount of goodwill to determine whether an
impairment has been incurred based on undiscounted future cash flows.
[7] Net loss per share:
-----------------------
Net loss per common share was computed using the weighted average
common shares outstanding during the period. Outstanding warrants and options
had an anti-dilutive effect and were therefore excluded from the computation of
net loss per common share.
[8] Minority interests in net income (losses) of consolidated entities
----------------------------------------------------------------------
Minority interests in net income (losses) of consolidated entities
represents the allocation of net income or losses from certain consolidated
entities to the respective minority interest shareholders and joint venture
partners.
[9] Fiscal year end
-------------------
During 1995, the Company changed it fiscal year from December 31 to
September 30.
[10] Use of Estimates
---------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
<PAGE>
[11] Recent pronouncements
--------------------------
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earning Per Share, effective for interim and
annual periods ending after December 15, 1997. The Company believes adoption of
this pronouncement will not have a material effect on its earnings per share.
F-10
<PAGE>
(NOTE C) - Long-term Debt and Capital Lease Obligations
- -------------------------------------------------------
Long-term debt and capital lease obligations at September 30, 1997 and
1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Term loan and revolver loan payable to a bank, paid off from the
proceeds from the sale of MDI ............................. $ -- $11,855,000
Note payable to a leasing company, interest at 11.5%, monthly
payments of principal and interest of $40,147 transferred
pursuant to the MDI merger with US Diagnostic ............. -- 1,803,000
Note payable to a leasing company, interest at 9.5%, monthly
payments of principal and interest of $55,762 transferred
pursuant to the MDI merger with US Diagnostic ............. -- 1,214,077
Note payable to a leasing company, interest at the prime rate plus
0.5%, monthly principal payments of $22,917 transferred
pursuant to the MDI merger with US Diagnostic ............. -- 804,061
Note payable to former minority owner of rehabilitation business,
interest at 12%, quarterly principal payments of $137,500
plus interest through October 1998 with a balloon payment of
$200,000, collateralized by certain assets of the
rehabilitation business ................................... 887,500 --
Note payable to a bank, interest at 8.7%, monthly payments of
principal and interest of $10,415 payable through January
1997, collateralized by certain business assets
of the Company ............................................ -- 30,797
Other notes payable .............................................. -- 384,021
Capital lease obligations with interest rates ranging primarily from
9.6% to 16% transferred pursuant to the MDI merger
with US Diagnostic ........................................ -- 4,086,510
Total long-term debt and capital lease obligations ............... 887,500 20,178,356
Less: Current maturities ........................................ 550,000 14,495,637
----------- -----------
$ 337,500 $ 5,682,719
=========== ===========
</TABLE>
Pursuant to the Merger of MDI with US Diagnostic, substantially all of the debt
and lease obligations of the Company were transferred.
F-11
<PAGE>
(NOTE C) - Long-term Debt and Capital Lease Obligations - Continued
- -------------------------------------------------------------------
Future minimum debt payments for the next five years are as follows:
Fiscal Year
1998 $550,000
1999 337,500
(NOTE D) - Income Taxes
- -----------------------
As of September 30, 1997 and 1996, the components of the net deferred
tax asset and liability are as follows:
<TABLE>
<CAPTION>
September 30, 1997 September 30, 1996
------------------ ------------------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforward........... $ 7,400,000 $ 10,280,000
Provision for discontinued operations 1,404,000
Deferred gains 13,000
Capital lease............................. 22,000
Other..................................... 57,000
Valuation Allowance....................... $ (7,400,000) (11,260,000)
----------------- -----------------
$ 0 $ 516,000
---------------- ----------------
Deferred tax liabilities:
Depreciation.............................. $ $ 296,000
Amortization.............................. 184,000
---------------- ----------------
0 $ 480,000
---------------- ---------------
$ 0 $ 36,000
================ ===============
</TABLE>
At September 30, 1997 and September 30, 1996, the valuation allowance
relates principally to uncertainty surrounding the realization of the net
operating loss carryforward benefit.
As discussed in Note A, during the year ended September 30, 1997, the
Company sold MDI. This sale resulted in a taxable gain for the Company, which
was offset by utilization of net operating losses, resulting in a lower net
operating loss carryforwards.
At September 30, 1996, the majority of the assets and liabilities
underlying the deferred tax assets and deferred tax liabilities were owned by
MDI. Therefore, at September 30, 1997, the only material deferred tax asset of
the Company is due to the net operating loss
F-12
<PAGE>
of the Company. Accordingly, the valuation allowance of the Company has
decreased to reflect the current position of the Company as of September 30,
1997.
At September 30, 1997 and September 30, 1996, the Company had available
net operating loss carry forwards for tax purposes, expiring through 2012 of
approximately $19,000,000 and $27,500,000, respectively. The Internal Revenue
Code contains provisions which may limit the net operating loss carry forward
available for use in any given year if significant changes in ownership interest
of the Company occur.
The Company and MDI have filed a consolidated tax return. The Company
and AMS filed separate income tax returns prior to the Merger. Accordingly,
losses incurred by AMS prior to the Merger are not available to the Company to
offset its future income.
The following table reconciles the tax provision per the accompanying
statements of operations with the expected provision obtained by applying
statutory tax rates to the pretax loss:
<TABLE>
<CAPTION>
Year Ended Year Ended Nine Months Ended
September 30, September 30, September 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Pretax Loss $ (9,778,216) $ (8,780,671) $ (1,677,758)
Loss attributable to AMS 1,304,496 2,373,580 1,671,468
------------- ------------- -------------
Parent company pretax income (loss) $ (8,473,720) $ (6,407,091) $6,290
============== ============== ======
Expected tax (benefit) at 34% $ (2,881,065) $ (2,178,411) $2,000
Adjustment due to increase in
valuation reserve 2,881,065 2,178,411
Other 103,444 (42,488)
Utilization of available net
operating loss carryforward - - (2,000)
------------- -------------- --------------
Tax benefit (expense) per
financial statements $ 103,444 $ (42,288) $ 0
============= ============== =============
</TABLE>
(NOTE E) - Commitments and Contingencies
- ----------------------------------------
[1] Operating leases:
----------------------
The Company leases facilities and equipment under non-cancelable
operating leases expiring at various dates through fiscal 2001. Facility leases
require the Company to pay certain insurance, maintenance and real estate taxes.
Rental expenses totaled approximately $587,462 and $2,349,000 for the years
ended September 30, 1997 and 1996, respectively.
F-13
<PAGE>
Future basic rental commitments under operating leases are as follows:
Fiscal Year Amount
-----------------------------------------
1998 $434,479
1999 423,031
2000 406,476
2001 153,935
[2] Legal proceedings:
----------------------
MDI, as general partner of Mass. Mobile Imaging Venture ("MMIV"), and
Western Massachusetts Magnetic Resonance Services, Inc. ("WMMRS") filed a
complaint in September 1992 in Middlesex County Superior Court, Cambridge,
Massachusetts against Medical Imaging Partners, L.P. ("MIP"), which is wholly
owned by Raytel Medical Corporation ("Raytel"), and certain of its affiliates,
seeking a declaration, unspecified monetary damages and equitable relief
relating to an alleged breach by MIP of certain fiduciary and contractual
obligations with respect to the business of MMIV. MIP filed a counterclaim
against MDI also seeking a declaratory judgment, unspecified monetary damages
and equitable relief on the basis of an alleged breach of fiduciary and
contractual obligations by MDI with respect to the business of MMIV. On August
12, 1997, the judge decided the remaining pre-trial motions in this action and
denied MIP's motion for summary judgment on its tender offer claims and granted
part of MDI's summary judgment motion ruling that MIP's interest in the MMIV
joint venture ended on December 31, 1996. On November 29, 1994, Raytel filed a
complaint in Delaware Chancery Court naming MDI as a defendant. The lawsuit
relates to matters arising in conjunction with a tender offer launched by Raytel
to acquire MDI's predecessor. Raytel sought injunctive relief against certain
actions that MDI's predecessor took or may have taken to defend itself against
Raytel's tender offer. On December 22, 1994, Raytel filed an amended complaint.
On May 4, 1995, Raytel terminated its tender offer. On September 12, 1997, the
parties entered into a settlement agreement (the "Raytel Settlement") to settle
their disputes in the above-described actions. Pursuant to the Raytel
Settlement, MDI and Raytel dismissed all actions between them and provided each
other with mutual releases and divided all funds in an escrow account between
themselves, such that pursuant to its arrangement with US Diagnostic, Caprius
received the MDI portion, or $ 270,000.
Effective November 28, 1995, the Company terminated the Key Employment
Agreement, dated May 2, 1995, of John A. Lynch, Chief Executive Officer of MDI
("Lynch Employment Agreement"). In March 1996, Mr. Lynch filed a demand for
arbitration seeking a declaratory ruling, equitable relief, monetary damages of
approximately $2.0 million and legal fees related to claims arising out of the
Lynch Employment Agreement. The Lynch Employment Agreement provides that Lynch
may recover his reasonable legal fees and expenses if he is successful in this
action. Hearings have been held and the proceeding is
F-14
<PAGE>
anticipated to terminate during fiscal 1998. On September 23, 1997, the
arbitration panel ruled in favor of the Company and MDI on substantially all of
Mr. Lynch's claims such that the only issues remaining in the Lynch arbitration
are for performance unit payments defined in the Lynch Employment Agreement and
reasonable attorneys' fees. The Company believes that the results of the
remaining two issues in this arbitration should not have a material adverse
effect on its business, results of operations or financial condition.
During 1996, the Company became engaged in litigation with
International Magnetic Imaging, Inc. ("IMI"), one of its customers regarding the
performance of its enhancement package for five MRI systems sold to the customer
for approximately $1,500,000. The suit, entitled International Magnetic Imaging,
Inc. vs. Advanced NMR Systems, Inc. (Case No. 96-014750(03)), was filed in the
Circuit Court of the 17th Judicial Circuit in and for Broward County, Florida.
On August 4, 1997, the Company and IMI entered into a settlement agreement
pursuant to which (i) IMI retained three InstaScan systems, for which the
Company would license to IMI its software to be used in such systems; (ii) IMI
transferred to Caprius two InstaScan systems; and (iii) IMI paid $15,940 to the
Company and the Company retained certain equipment deposits. The receivable
balance due from IMI of $751,500 was previously written off in September 1996.
The settlement payment of $15,940 was recorded as a gain in fiscal 1997. The two
systems transferred to the Company were not valued, as they had no use within
the Company, and ultimately were transferred to GEMS as part of the GE Purchase
Agreement.
NOTE F - Capital Transactions
- -----------------------------
[1] Preferred Stock - Class A:
- ------------------------------
In May 1996, the Company closed a private placement (the "Placement")
of $3.7 million principal amount of newly issued Series A Convertible Preferred
Stock, $.01 par value, (the "Preferred Stock"). Each share of Preferred Stock
was converted into shares of common stock at a conversion price equal to the
lesser of 125% of the market price on the issuance date, or 75% of the market
price on the conversion date. At September 30, 1997, all of the Preferred Stock
Class A had been converted into a total 1,348,832 shares of common stock.
[2] Preferred Stock - Class B:
- ------------------------------
On August 18, 1997, the Company entered into various agreements with
the General Electric Company ("GE") including an agreement whereby GE purchased
27,000 shares of newly issued Series B Convertible Redeemable Preferred Stock
(the "Series B Preferred Stock") for $2,700,000.
The Series B Preferred Stock consists of 27,000 shares, ranks senior to
any other shares of preferred stock which may be created and the Common Stock,
has a liquidation value of $100.00 per share, plus accrued and unpaid dividends,
is non-voting except if the Company proposes an amendment to its Certificate of
Incorporation which would adversely
F-15
<PAGE>
affect the rights of the holders of the Series B Preferred Stock, and is
initially convertible into 1,159,793 shares of Common Stock, subject to
anti-dilution provisions, commencing on August 18, 1998, or earlier upon a
change of control as defined. No fixed dividends are payable on the Series B
Preferred Stock, except that if a dividend is paid on the Common Stock,
dividends are paid on the shares of Series B Preferred Stock as if they were
converted into shares of Common Stock.
[3] Warrants:
- -------------
In connection with the acquisition of MDI (see Note J), the Company
issued warrants to purchase 233,172 shares of the Company's stock at a purchase
price of $37.50 per share at any time up to the expiration date on August 31,
2000.
In connection with various debt and equity financing arrangements prior
to 1994, the Company issued warrants to purchase the Company's common stock.
During 1993, all such outstanding warrants were either exercised or expired. The
warrants exercised resulted in the Company issuing 626,275 shares of common
stock for net proceeds of approximately $10,600,000.
In 1993, a consultant was engaged to assist the Company in connection
with the exercise of the above warrants. In lieu of a cash payment, the
consultant was granted 18,900 shares of common stock and an option to purchase
25,000 shares of common stock at a purchase price of $25.00 per share. The
difference between the fair market value of the common stock and the amount to
be paid therefore, amounting to $801,750, was recorded as a consulting expense
in the financial statements for the year ended December 31, 1993. The Company
canceled all the options and 6,300 of the shares previously granted resulting in
other income of approximately $392,000 during the nine months ended September
30, 1995.
During 1994, in connection with an agreement with a financial advisory
firm, the Company issued a warrant to the advisory firm to purchase 35,000
shares of the Company's common stock. The warrant is exercisable at $50.00 per
share at any time up to the time up to the expiration date of March 6, 2005. The
number of shares under the warrant and the exercise price are subject to
adjustment in the events of stock dividends or splits. The warrant was sold to
the investment advisor for $200 and has been valued at $35,200 in the
accompanying financial statements. In addition to the warrant, the advisory firm
received a quarterly retainer fee of $15,000 and received an additional fee for
specific financing, merger or acquisition services. The agreement is cancelable
by either party at any time.
[4] Related party transactions:
- -------------------------------
One of the Company's former directors, who is the president and sole
shareholder of the underwriting firm used in the Company's initial public
offering in 1983, was a director at the time of the offering. The underwriting
firm has also assisted the Company in other financing transactions, including
the public offering of the Company's subsidiary. The underwriting firm has
received substantial fees, commission and expenses for its services.
F-16
<PAGE>
During 1993, the underwriting firm exercised the remaining portion of a
unit purchase option granted in connection with a private placement of
securities whereby the underwriter purchased 14,600 shares of common stock and
14,600 Class A warrants for $348,000. The warrants were also exercised in 1993
as indicated in Note F (3).
[5] Stock options:
- ------------------
The Company has an Incentive and Nonqualified Stock Option Plan which
provides for the granting of options to purchase not more than 100,000 shares of
common stock. Exercise prices for any incentive options are at prices not less
than the fair market value at the date of grant, while exercise prices for
nonqualified options may be at any price in excess of $.01. When fair market
value at the date of issuance is in excess of the option exercise price, the
excess is recorded as compensation expense. The total number of shares
authorized for grant under this plan were reached during 1993 and no additional
options can be granted. During fiscal 1996, certain options were canceled and
replaced with options exercisable at the then fair market value.
Stock option transactions under the above plan for the past three
fiscal periods are as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Balance, December 31, 1994 32,164 $6.50 - $43.80
Granted in 1995 600 $31.80
Exercised in 1995 (1,512) $6.50
Canceled in 1995 (1,630) $31.30 - $31.80
------
Balance, September 30, 1995 29,622 $6.50 - $43.80
Granted in 1996 12,500 $5.00
Exercised in 1996 (3,163) $6.50
Canceled in 1996 (23,750) $26.30 - $43.80
-------
Balance, September 30, 1996 15,209 $5.00 - $43.80
Canceled in 1997 (10,709) $5.00 - $43.80
-------
Balance, September 30, 1997 4,500 $5.00 - $31.30
=========
</TABLE>
F-17
<PAGE>
(NOTE F) - Capital Transactions - (Continued)
- ---------------------------------------------
During 1993, the Company adopted a new employee stock option plan and a
stock option plan for nonemployee directors. The employee stock option plan
provides for the granting of options to purchase not more than 225,000 shares of
common stock. The options issued under the plan may be incentive or nonqualified
options. The exercise price for any incentive options cannot be less than the
fair market value of the stock on the date of the grant, while the exercise
price for nonqualified options will be determined by the option committee. The
Directors' stock option plan provides for the granting of options to purchase
not more than 62,500 shares of common stock. The exercise price for shares
granted under the Directors' plan cannot be less than the fair market value of
the stock on the date of the grant. Both plans expire May 25, 2003. Stock option
transactions under the 1993 plans are as follows:
[5] Stock options:
- -------------------
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Balance, December 31, 1994 170,900 $23,80 - $52.50
Granted in 1995 102,124 $7.90 - $39.40
Canceled in 1995 (34,120) $23.80 - $31.30
--------
Balance, September 30, 1995 238,904 $7.90 - $52.50
Granted in 1996 44,000 $5.00 - $21.90
Exercised in 1996 (7,586) $14.50 - $25.60
Canceled in 1996 (62,249) $15.80 - $52.50
--------
Balance, September 30, 1996 213,069 $5.00 - $52.50
Granted in 1997 2,500 $2.80
Canceled in 1997 (33,802) $5.00 - $25.60
--------
Balance, September 30, 1997 181,767 $2.80 - $52.50
=======
</TABLE>
F-18
<PAGE>
Stock transactions not covered under the option plans in 1997, 1996 and
1995 are as follows:
<TABLE>
<CAPTION>
Number of Option Price
Shares Per Share
--------- ------------
<S> <C> <C>
Balance, December 31, 1994 27,675 $31.80 - $33.80
Granted in 1995 86,032 $7.90 - $20.10
Canceled in 1995 (26,175) $7.90 - $33.80
--------
Balance, September 30, 1995 87,532 $7.90 - $33.80
Granted in 1996 13,000 $5.00 - $14.10
Canceled in 1996 (15,000) $25.60
--------
Balance, September 30, 1996 85,532 $7.90 - $33.80
Canceled in 1997 (4,500) $33.80
--------
Balance, September 30, 1997 81,032 $7.90 - $33.80
=======
</TABLE>
Under all plan and nonplan stock options, as of September 30, 1997,
options to purchase 105,732 shares were available for grant and options to
purchase 267,299 shares at a weighted average price of $11.90 per share were
exercisable. The outstanding options expire at various dates within ten years
from the date of grant. All of the above stock option data reflect the number of
options and option prices before the effect of the Reverse Stock Split and the
merger with AMS.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation," but applies Accounting Principles
Board Opinion No. 25 and related interpretations in accounting for its plans.
There was no compensation expense recognized in 1997, 1996, or 1995. If the
Company had elected to recognize compensation cost for the plans based on the
fair value at the grant date for awards under the plans, consistent with the
method prescribed by SFAS No. 123, net loss per share would have been changed to
the pro forma amounts indicated below:
F-19
<PAGE>
<TABLE>
Year Ended September 30, Nine Months Ended
<CAPTION>
1997 1996 September 30, 1995
---- ---- ------------------
<S> <C> <C> <C>
Net loss:
As reported $(9,674,772) $(8,822,959) $(1,677,758)
Pro forma (9,782,703) (9,881,236) (1,690,660)
Net loss per share
As reported $(2.34) $(2.88) $(.69)
Pro forma (2.37) (3.23) (.70)
</TABLE>
The fair value of the Company's stock options used to compute pro forma
net loss and net loss per share disclosures is the estimated present value at
grant date using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1997 and 1996: dividend yield of 0%; expected
volatility of 0.30; a risk free interest rate of 6.50%; and an expected holding
period of 5-10 years.
The weighted-average grant-date fair value of options granted was $1.09
per share, $4.39 per share and $4.70 per share for the years ended September 30,
1997, September 30, 1996, and the nine months ended September 30, 1995,
respectively.
Subsequent to September 30, 1997, the stockholders of the Company
approved a 1 for 10 reverse stock split and an increase of shares authorized
under the 1993 plans to 1,200,000 shares on a post-reverse stock split basis.
(NOTE G) - Unconsolidated Subsidiary (AMS)
- ------------------------------------------
AMS completed its initial public offering of stock in 1993 which
generated net cash proceeds to AMS of approximately $7,400,000. As a result of
the offering, the Company's percentage ownership of AMS was reduced to 73%.
Prior to the offering, AMS issued bridge notes with warrants to purchase shares
of common stock at a price of one-half the public offering price. In connection
with the offering, AMS also granted an option to the underwriter to purchase
shares at a price of 130% of the public offering price. AMS has also established
an employee stock option plan under which certain options have been granted. As
the warrants and options are exercised, the Company's percentage ownership of
AMS will be further reduced. During 1994 and 1995, most of the above warrants
and options were exercised whereby the Company's percentage ownership of AMS was
reduced to approximately 61% at September 30, 1995.
F-20
<PAGE>
On May 15, 1996, AMS closed a private placement (the "AMS Placement")
of $3 million principal 4% convertible debentures. Net proceeds from the AMS
Placement was approximately $2,752,000 after payment of fees and related
expenses. As of January 31, 1997, an additional 1,748,364 shares of common stock
had been issued in connection with the conversion of these debentures at which
time the Company's percentage ownership of AMS was reduced to approximately 48%.
Accordingly, as of September 30, 1996, the Company changed from consolidation of
AMS to the equity method of accounting for its investment in AMS.
In connection with the AMS public offering, the Company, which was the
sole stockholder of AMS, placed in escrow an aggregate of 2,750,000 (the "Escrow
Shares") of the 4,000,000 shares of Common Stock it owned. On May 1, 1997, all
shares subject to the escrow were forfeited as a result of AMS' failure to
achieve certain financial milestones, which if achieved would have resulted in
the release of the escrow shares to the Company. Upon forfeiture of the escrow
shares, the Company's interest in AMS was reduced to approximately 16%.
As of September 30, 1997, an additional 1,025,600 shares of common
stock had been issued in connection with the conversion of the May 1996
convertible debentures reducing ownership of AMS to approximately 14%.
On November 10, 1997, shareholders of the Company and AMS agreed to
merge, and AMS became a wholly-owned subsidiary of the Company.
Based on unaudited data, AMS had revenues of $825,000 for the year
ended September 30, 1997 and a net loss of approximately $4.2 million. At
September 30, 1997, AMS had total assets of approximately $1.6 million and a
capital deficit of $400,000.
The following unaudited pro forma financial information sets forth the
results of the Company as if the AMS merger and the MDI merger had occurred
prior to October 1, 1996. The pro forma financial information does not purport
to be indicative of what would have occurred had the acquisition been made as of
October 1, 1996 or results that may occur in the future.
Twelve months ended
September 30, 1997
------------------
(000's)
Net revenues $ 4,437
Operating expenses (11,512)
-------
Operating loss from continuing $ (7,075)
operations
Loss from continuing operations $ (6,578)
Loss per common share $ (0.93)
F-21
<PAGE>
(NOTE H) - Related Party Transactions
- -------------------------------------
MDI has a management agreement with a professional corporation owned by
an officer/director of MDI (the "Professional Corporation"). Pursuant to the
management agreement, MDI manages all business and administrative aspects of the
Professional Corporation, excluding medical and related services. Management
fees under this contract totaled $15,000 for each of the years ended September
30, 1997 and 1996, respectively.
Certain of the consolidated entities have entered into an agreement
with the Professional Corporation whereby the Professional Corporation provided
overall supervision and direction of medical services provided by the
consolidated entities. Each of the agreements was for a five-year period, and
required the payment of an annual fee and an initial training fee. Currently,
each agreement renews automatically for one-year periods unless terminated by
either party with appropriate advance notice.
(NOTE I) - Joint Venture
- ------------------------
MDI and an unrelated party (the "Joint Venture Partner") formed a joint
venture (the "Joint Venture") under an agreement dated December 31, 1986, as
amended (the "Joint Venture Agreement"). The Joint Venture was organized to
license an MRI unit to an MDI operating entity (the "MDI Operating Entity") and
to manage the MDI Operating Entity. The Joint Venture Partner was entitled to
46% of the net earnings of the Joint Venture during the ten-year term of the
Joint Venture Agreement.
The Joint Venture Partner purchased, for approximately $2,620,000, the
necessary MRI equipment/van and leasehold improvements which it licenses to the
Joint Venture. The Joint Venture Agreement requires licensing fees to be paid as
weekly priority payments to the Joint Venture Partner. Licensing fees have
aggregated approximately $132,000 and $530,000 for the year ended September 30,
1997 and year ended September 30, 1996, respectively. The Joint Venture in turn
sublicenses the equipment/van and leasehold improvements to the MDI Operating
Entity on the same terms under a Restated and Amended Medical Imaging Lease and
Services Agreement dated August 6, 1990 and expiring on December 31, 1996 (the
"Lease and Services Agreement"). These transactions have been accounted for as a
capital lease in the accompanying consolidated financial statements and are
included in the disclosures in Note C.
In 1990, the parties agreed to amend and restate various existing
agreements and to sign a Medical Imaging Lease and Services Agreement, effective
June 1, 1990 and expiring on December 31, 1996, between the Joint Venture and a
second MDI operating entity. Also, the Joint Venture Partner agreed to loan MDI
up to $487,500, which amount was, on December 20, 1990, converted to purchase
from MDI an additional 5% interest in the earnings of the Joint Venture. In
connection with this transaction, MDI deferred a $445,730 gain, which is being
amortized on a straight-line basis over the remaining term of the Joint Venture
F-22
<PAGE>
Agreement as an offset to minority interest in consolidated partnerships' net
income in the accompanying consolidated statements of income.
The Company filed a complaint in September 1992 against the Joint
Venture Partner and certain of its affiliates, seeking a declaration, damages,
and equitable relief relating to an alleged breach by the Joint Venture Partner
of certain fiduciary and contractual obligations with respect to the business of
the Company. The Joint Venture Partner filed a counterclaim against the Company
also seeking damages and equitable relief while alleging breach of fiduciary and
contractual obligations by the Company. On September 12, 1997, the parties
entered into a settlement agreement to settle all disputes. See (Note E) - Legal
Proceedings.
Deferred gains, including $60,000 per year related to the Joint Venture
Agreement, of approximately $34,000 and $134,000 related to the above
transactions have been amortized during the year ended September 30, 1997 and
the year ended September 30, 1996, respectively.
(NOTE J) - Medical Diagnostics, Inc.
- ------------------------------------
Effective August 31, 1995, Medical Diagnostics, Inc. merged with a
wholly-owned subsidiary of the Company. In connection with the MDI Merger, MDI
entered into a loan and security agreement with a bank to finance the cash
portion of the MDI Merger (see Note C). The acquisition was accounted for under
the purchase method of accounting and the purchase price of $29,806,000,
exclusive of related costs, consisted of cash of approximately $11,196,000 and
stock valued at approximately $18,610,000. In addition, warrants to purchase
233,172 shares of the Company's stock at $37.50 per share were issued to MDI
shareholders (see Note F). The purchase price and costs associated with the
acquisition exceeded the fair value of the net assets acquired by approximately
$26,933,000 which was assigned to goodwill and was being amortized on a
straight-line basis over thirty years.
On February 27, 1997, MDI merged with MDI Acquisition Corporation and
became a wholly-owned subsidiary of USD. The MDI Merger was effected pursuant to
an Agreement and Plan of Merger, dated January 20, 1997.
At the effective time of the MDI Merger, USD paid the Company
$22,000,000 (the "Merger Consideration") as follows: (i) to Chase Manhattan Bank
N.A. (the "Bank"), on behalf of obligations of MDI which were guaranteed by the
Company, an amount sufficient to fully satisfy all of MDI's obligations to the
Bank (approximately $12,000,000) and (ii) the remainder of the Merger
Consideration (approximately $10,000,000) to the Company. As a result of the MDI
Merger, USD assumed approximately $9,000,000 in payment obligations under MDI's
capital leases. The Company paid a financial advisor fee to Leeds Group Inc. and
other expenses related to the MDI Merger.
In addition, the Company maintained letters of credit in the aggregate
amount of $700,000 securing certain of the capital leases assumed by USD, for
which the Company
F-23
<PAGE>
received a $700,000 note from USD repayable on December 31, 1997 in the event
the letters of credit are not replaced or removed. Such note is currently in the
process of being extended for 60 to 90 days. USD agreed to use its best efforts
to replace those letters of credit or to remove the requirement for them. There
are also mutual indemnifications between the Company and USD whereby the Company
has indemnified USD from any claims arising from the termination of the Key
Employment Agreement of John A. Lynch, MDI's former Chief Executive Officer and
from any losses arising from the lawsuits between MDI and Raytel Medical
Corporation, et al. In connection with the Raytel litigation $1,000,000 of the
Merger Consideration and all of the Company's unescrowed shares in AMS had been
placed in a blocked account as security until the litigation was settled or
decided by a trial court. Pursuant to the Raytel Settlement, the $1 million and
the shares in AMS held in escrow will be released.
(NOTE K) - Discontinued Operations
- ----------------------------------
In August 1996, the Company's Board of Directors adopted a formal plan
to discontinue its Imaging Systems business segment. The segment has been
accounted for as discontinued operations in accordance with APB 30.
F-24
<PAGE>
The operating results of the discontinued operations are summarized as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Revenues: $ 454,567 $ 4,847,648
----------- -----------
Imaging systems sales and other Revenue
Operating expenses:
Cost of goods sold 424,386 3,914,329
Research and development 0 1,320,044
Selling, general and administrative ______0 3,541,981
----------- -----------
Total operating expenses 424,386 8,776,354
----------- -----------
Income (loss) from discontinued operations $ 30,181 $(3,928,706)
=========== ===========
</TABLE>
The net assets of discontinued operations are summarized as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Current assets $ 11,491 $ 3,263,394
Equipment, building, furniture and
leasehold improvements, net 0 511,109
Other assets 0 1,487,367
Current liabilities 0 (1,000,000)
Provision for estimated loss on
disposal of discontinued operations . 0 (400,000)
Long-term debt 0 (133,440)
Net assets of discontinued operations $ 11,491 $ 3,728,430
=========== ===========
</TABLE>
F-25
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
21 Subsidiaries of the Registrant
23 Independent Auditor's Consent
27 Financial Data Schedule
<PAGE>
SUBSIDIARIES OF THE REGISTRANT
Subsidiary State of Incorporation Percentage of Ownership
- --------------------------------------------------------------------------------
Advanced Mammography Delaware 100%
Systems, Inc.
Middlesex MRI Center, Inc. Massachusetts 100%
MDI Rehab, Inc. Massachusetts 100%
ANMR Imaging Corp. Massachusetts 100%
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements
No. 33-47517, 33-70834 and 33-78928 of Caprius, Inc. (the "Company") on Form S-8
of our report dated November 28, 1997 on the consolidated financial statements
of the Company and its subsidiaries for the year ended September 30, 1997, the
year ended September 30, 1996, and the nine month period ended September 30,
1995 appearing in this Annual Report on Form 10-K of the Company.
/s/ Richard A. Eisner & Company, LLP
Richard A. Eisner & Company, LLP
Cambridge, Massachusetts
January 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CAPRIUS INC.
FORM 10-K FOR THE PERIOD ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000722567
<NAME> CAPRIUS INC.
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<CASH> 11,498
<SECURITIES> 0
<RECEIVABLES> 3,297
<ALLOWANCES> (605)
<INVENTORY> 0
<CURRENT-ASSETS> 14,353
<PP&E> 1,919
<DEPRECIATION> 618
<TOTAL-ASSETS> 19,835
<CURRENT-LIABILITIES> 2,174
<BONDS> 338
<COMMON> 437
0
2,700
<OTHER-SE> 14,186
<TOTAL-LIABILITY-AND-EQUITY> 19,835
<SALES> 12,724
<TOTAL-REVENUES> 12,724
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 13,711
<LOSS-PROVISION> (987)
<INTEREST-EXPENSE> 978
<INCOME-PRETAX> (12,499)
<INCOME-TAX> 104
<INCOME-CONTINUING> (12,395)
<DISCONTINUED> 2,720
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,675)
<EPS-PRIMARY> (2.34)
<EPS-DILUTED> (2.34)
</TABLE>
