<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended December 31, 1997
or
[ ] 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.
-------------
(Exact name of registrant as specified in its charter)
Delaware 22-2457487
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
46 Jonspin Road, Wilmington, Massachusetts 01887
---------------------------------------------------------
(Address or principal executive offices) (Zip Code)
(508) 657-8876
--------------
(Registrant's telephone number, including area code)
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
requirements for the past 90 days.
Yes X No ___
As of February 12, 1998, there were 7,331,505 shares of Common Stock, $.01 par
value, outstanding.
Page 1 of 16 Pages
1
<PAGE>
CAPRIUS, INC. AND SUBSIDIARIES
------------------------------
INDEX
-----
PART I. FINANCIAL INFORMATION Page No.
--------------------- --------
Item 1. Unaudited Consolidated Financial Statements
Consolidated Balance Sheets:
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Operations:
Three Months Ended December 31, 1997
and December 31, 1996 4
Consolidated Statement of Stockholders' Equity 5
Consolidated Statements of Cash Flows:
Three Months Ended December 31, 1997
and December 31, 1996 6
Notes to Consolidated Financial Statements 7-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12-13
PART II. OTHER INFORMATION
-----------------
Item 1. Legal proceedings 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Exhibit Index 16
2
<PAGE>
FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
- ----------------------------
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS December 31, 1997 September 30, 1997
----------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,118,464 $ 9,752,768
Cash, restricted 725,619 1,744,967
Accounts receivable, net of reserve for bad debts of $625,300 at
December 31, 1997 and $612,500 at September 30, 1997 2,863,832 2,691,858
Inventory 819,389
Other current assets 496,465 163,433
---------- ----------
Total current assets 13,023,769 14,353,026
---------- -----------
Equipment, furniture and leasehold improvements
Medical equipment 763,412 494,725
Office furniture and equipment 185,373 624,245
Other equipment 1,319,540 48,597
Leasehold improvements 1,087,001 751,394
---------- ---------
3,355,326 1,918,961
Less: accumulated depreciation and amortization 1,241,488 618,263
---------- ---------
2,113,838 1,300,698
---------- ---------
Other intangible, net of accumulated amortizaiton of $129,800 at
December 31, 1997 and $800 at September 30, 1997 1,541,954 58,595
Goodwill, net of accumulated amortization of $345,600 at
December 31, 1997 and $311,200 at September 30, 1997 2,348,999 2,383,377
Investment in and advances to unconsolidated subsidiary -- 1,525,387
Other 22,818 213,518
----------- -----------
TOTAL ASSETS $19,051,378 $19,834,601
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 477,257 $ 462,118
Accrued expenses 997,952 949,277
Accrued compensation 431,290 212,522
Current portion of long-term debt and capital lease obligations 731,043 550,000
--------- ---------
Total current liabilities 2,637,542 2,173,917
--------- ---------
Long-term debt and capital lease obligations, less current portion 436,266 337,500
Stockholders' equity
Preferred stock, $.01 par value authorized 1,000,000 shares:
Series A, issued none in 1997 and Series B, convertible,
issued 2,700 shares at December 31, 1997 and September 30, 1997 2,700,000 2,700,000
Common stock, $.01 par value, authorized 50,000,000 shares:
issued 7,331,505 at December 31, 1997 and September 30, 1997 73,315 43,748
Additional paid-in capital 63,532,558 56,170,271
Accumulated deficit (50,326,053) (41,588,585)
----------- -----------
15,979,820 17,325,434
Less: treasury stock, at cost - 22,500 common shares 2,250 2,250
----------- ----------
Total stockholders' equity 15,977,570 17,323,184
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $19,051,378 $19,834,601
=========== ===========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
3
<PAGE>
FORM 10-Q
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended December 31,
1997 1996
------ -----
<S> <C> <C>
Revenues:
Net patient service revenue $ 842,110 $ 6,413,921
Management fees and other -- 208,121
---------- ----------
Total revenues 842,110 6,622,042
--------- ----------
Operating expenses:
Cost of service operations 823,484 4,330,768
Research and development 560,535 --
Purchased research and
development (See Note2) 7,168,647 --
Selling, general and administrative 1,205,894 1,257,299
Provision for bad debt
and collection costs 35,592 562,364
--------- --------
Total operating expenses 9,794,152 6,150,431
--------- ---------
Operating income (loss)
from continuing operations (8,952,042) 471,611
Gain (loss) on sale of
imaging business 195,357 --
Other income -- 222,860
Interest income 120,127 14,549
Interest expense (33,552) (501,540)
---------- ----------
Income (loss) from continuing
operations before minority
interests, equity in loss of
subsidiary and provision for
income taxes (8,670,110) 207,480
Minority interests in net (income)
losses of consolidated entities -- (174,139)
Equity in net loss of unconsolidated
subsidiary (67,358) (474,630)
----------- -----------
Loss from continuing
operations before provision (8,737,468) (441,289)
for income taxes
Provision for income tax
benefit (expense) -- (20,542)
----------- ------------
Loss from continuing operations (8,737,468) (461,831)
Discontinued operations
Income (loss) from
operations of discontinued division -- 42,212
--------- --------
Net loss $(8,737,468) $ (419,619)
============ =========
Income (loss) per common shares:
Loss from continuing operations $(1.45) $(.13)
Income (loss) from operations of -- .01
discontinued division ------- ------
Net loss per share $(1.45) $(.12)
======= ======
Weighted average number of
common shares outstanding 6,045,965 3,533,429
========= =========
</TABLE>
The accompanying notes to financial statements are an
integral part hereof.
4
<PAGE>
FORM 10-Q
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
Common Stock Preferred Stock
------------ ---------------
Additional
Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance - September
30, 1996 3,418,078 $34,181 2,194 $22 $55,700,283 $(31,913,813)
Issuance of redeemable
preferred stock -- -- 2,700 2,700,000 -- --
Increase in proportionate
share of Subsidiary's
equity related to sale
of subsidiary's stock -- -- -- -- 934,615 --
Change in ownership in
subsidiary -- -- -- -- (455,082) --
Conversion of preferred
stock 956,685 9,567 (2,194) (22) (9,545) --
Net loss for the period -- -- -- -- -- (9,674,772)
-------- ------ ------- ------- --------- ------------
Balance-September 30, 1997 4,374,763 43,748 2,700 2,700,000 56,170,271 (41,588,585)
Issuance of common
stock related to AMS
merger 2,956,742 29,567 -- -- 7,362,287 --
Net loss for the period -- -- -- -- -- (8,737,468)
---------- -------- ------ --------- --------- ------------
Balance - December
31, 1997 7,331,505 $73,315 2,700 $2,700,000 $63,532,558 ($50,326,053)
========== ======== ======= ========== ========== ===========
<CAPTION>
Treasury Stock
--------------
Shares Amount Total
------ ------ -----
<S> <C> <C> <C>
Balance - September
30, 1996 22,500 $(2,250) $23,818,423
Issuance of redeemable
preferred stock -- -- 2,700,000
Increase in proportionate
share of Subsidiary's
equity related to sale
of subsidiary's stock -- -- 934,615
Change in ownership in
subsidiary -- -- (455,082)
Conversion of preferred
stock -- -- --
Net loss for the period -- -- (9,674,772)
------- ------- -----------
Balance-September 30, 1997 22,500 $(2,250) 17,323,184
Issuance of common
stock related to AMS
merger -- -- 7,391,854
Net loss for the period -- -- (8,737,468)
------- -------- ----------
Balance - December
31, 1997 22,500 $(2,250) $15,977,570
====== ========= ===========
</TABLE>
The accompanying notes to financial statements are integral part hereof.
5
<PAGE>
FORM 10-Q
<TABLE>
<CAPTION>
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(8,737,468) $ (419,619)
Adjustments to reconcile net loss to net cash
used in operating activities:
Equity in net loss of unconsolidated subsidiary 67,358 174,139
Loss (gain) on sale of imaging business (195,357) --
Purchased research and development 7,168,647 --
Depreciation and amortization 231,491 776,742
Changes in assets and liabilities:
Decrease in restricted cash 1,109,348 --
Accounts receivable, net (171,975) 83,734
Inventories (10,555) 60,622
Other assets (195,806) 259,747
Accounts payable (275,669) (1,168,374)
--------- -----------
Net cash provided by (used in) operating activities (1,099,986) (233,009)
--------- -----------
Cash flows from investing activities:
Proceeds from sale of imaging business 195,357 --
Cash used in AMS Merger (199,487) --
Advances to unconsolidated subsidiaries (479,673) --
Purchase of equipment, furniture and leasehold
improvements (326,363) (1,878,912)
Other assets -- (609)
--------- ----------
Net cash provided by (used in) investing activities (810,166) (1,879,521)
--------- ----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 413,348 1,842,707
Repayment of long-term debt and capital lease
obligations (137,500) (1,015,004)
Distribution to minority interests -- (177,000)
--------- ----------
Net cash provided by financing activities 275,848 650,703
--------- ----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,634,304) (1,461,827)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,752,768 3,287,880
--------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $8,118,464 $1,826,053
========== ==========
Supplemental disclosures of cash flow information:
Interest paid during the period $37,037 $544,565
Additions to capital leases -- $ 1,233,230
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
- -----------------------------------------------------
Note 1 - Basis of Presentation
- -------------------------------
The results of operations of Caprius, Inc. ("Caprius" or the "Company")
(formerly Advanced NMR Systems, Inc.) for the interim periods shown in this
report are not necessarily indicative of results to be expected for the fiscal
year. In the opinion of management, the information contained herein reflects
all adjustments necessary to make the results of operations for the interim
periods a fair statement of such operations. All such adjustments are of a
normal recurring nature.
The accompanying financial statements do not contain all of the disclosures
required by generally accepted accounting principles and should be read in
conjunction with the financial statements and related notes included in the
Company's annual report on form 10-K for the fiscal year ended September 30,
1997.
Note 2 - The Company
- ---------------------
The Company 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 Magnetic Resonance Imaging ("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 ("the 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 "AMS Merger"). AMS was
originally formed on July 2, 1992 as a wholly owned subsidiary of Caprius to
develop a dedicated breast MRI system. Also, effective November 10, 1997, the
Company changed its name to Caprius, Inc. and effected a one-for-ten Reverse
Stock Split, which has been retroactively reflected in the financial statements.
The Merger was accounted for under the purchase method of accounting with the
majority of the purchase price allocated to the value of research and
development on the Aurora 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 operations.
On February 27, 1997, Medical Diagnostics, Inc. ("MDI"), a wholly owned
subsidiary of Caprius, merged with MDI Acquisition Corporation, a newly formed
wholly-owned subsidiary of US Diagnostic, Inc. ("US Diagnostic"), and became a
wholly-owned subsidiary of US Diagnostic (the "US Diagnostic Merger"). The
Company had acquired MDI, which provided imaging and rehabilitation services, on
August 31, 1995. Pursuant to the US Diagnostic merger, Caprius retained the
rehabilitation centers formerly operated by MDI.
7
<PAGE>
Magnetic Resonance Imaging Technology
A majority of the Company's business is based on MRI. 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.
In February 1996, the U.S. Food and Drug Administration (the "FDA") cleared
the commercial use of the 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
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. The Aurora System has been placed at the
University of Texas Medical Branch at Galveston and at the Faulkner-Sagoff
Centre for Breast Health Care in Boston, MA, and the Company has agreements to
install the Aurora System in March 1998 at The University of Arkansas Teaching
Hospital in Little Rock, Arkansas and in May 1998 at the Magee Women's Hospital
in Pittsburgh, Pennsylvania and the Breast Care Center at the Englewood Hospital
and Medical Center in Englewood, New Jersey. 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.
The Aurora Breast Imaging System
The Company believes the 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, for imaging dense breast tissue using a patent
pending technique that can suppress fat in breast images, for earlier diagnostic
intervention among high risk individuals, for characterizing breast lesions, for
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.
As broader diagnostic applications are established, the next Company 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 which will derive patient demand that should
exceed the capacity of currently available whole body MRI systems. The Aurora
System uses a technology dedicated to breast imaging to address this probable
future demand and meet patient needs that are distinct from and not adequately
served by whole body MRI systems. The Aurora System for breast imaging 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 to the
diagnostic workup of certain breast patients.
8
<PAGE>
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.
It also provides for scheduling and screening of patients, maintaining medical
and administrative records, establishing charges and billing and collecting
revenues from patients and third-party payers. In these instances, host
hospitals generally function as a landlord for the Company.
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 the Aurora System under a shared revenue agreement,
whereby the Company provides the Aurora 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.
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 the 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.
Note 3 - Preferred Stock -Series 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, par value $.01 per share, (the "Series A Preferred Stock"). Each share of
Series A Preferred Stock was convertible 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. As of September 30,
1997, all of the Series A Preferred Stock had been converted into a total
1,348,832 shares of common stock adjusted for the Reverse Stock Split.
9
<PAGE>
Note 4 - Preferred Stock - Series B
- -----------------------------------
On August 18, 1997, the Company entered into various agreements with the
General Electric Company ("GE") including an agreement whereby GE purchased
2,700 shares of newly issued Series B Convertible Redeemable Preferred Stock par
value $.01 per share (the "Series B Preferred Stock"), adjusted for the Reverse
Stock Split, for $2,700,000.
The Series B Preferred Stock consists of 2,700 shares, ranks senior to any
other shares of preferred stock which may be created and the Common Stock, has a
liquidation value of $1,000.00 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 affect the rights of the holders of the
Series B Preferred Stock, and is initially convertible into 1,159,793 shares of
Common Stock adjusted for the Reverse Stock Split, subject to customary
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.
Note 5 - Medical Diagnostics, Inc.
- ----------------------------------
Effective August 31, 1995, Medical Diagnostics, Inc. ("MDI") merged (the
"MDI Merger") 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 merger. 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, 233,172 warrants to
purchase the Company's common stock at $37.50 per share adjusted for the Reverse
Stock Split were issued to MDI shareholders. 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.
At the effective time of the US Diagnostic Merger (see Note 2), US
Diagnostic paid the Company $22,000,000 (the "Merger Consideration") as follows:
(1) 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 (2) to the
Company (approximately $10,000,000). As a result, US Diagnostic 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 US Diagnostic Merger.
The Company maintained letters of credit in the aggregate amount of
$700,000 securing certain of the capital leases assumed by US Diagnostic, for
which the Company received a $700,000 note from US Diagnostic repayable on
December 31, 1997, in the event the letters of credit are not replaced or
removed, which repayment date has been extended to March 31, 1998. US Diagnostic
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 US Diagnostic whereby the Company has indemnified US Diagnostic from
any claims arising from the termination of the Key Employment Agreement of John
A. Lynch, MDI's former Chief Executive Officer. The Company had also indemnified
US Diagnostic from any losses arising from the lawsuit between MDI and Raytel
Medical Corporation, et al ("Raytel"). In September 1997, the Raytel litigation
was settled whereby all actions between the parties were dismissed.
Consequently, the $1,000,000 of the Merger Consideration and the Company's
unescrowed shares in AMS placed in a blocked account as security has been
released.
10
<PAGE>
Note 6 - Pro Forma Information
- ------------------------------
The following unaudited pro forma financial information sets forth the
results of the Company as if the AMS Merger and the US Diagnostic Merger had
occurred prior to October 1, 1997 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, 1997 or results that may occur in the future.
Three months ended
December 31, 1997
-----------------
(000's)
Net revenues $ 842
Operating expenses (3,091)
Operating loss from continuing operations $(2,249)
Loss from continuing operations $(2,162)
Loss per common share $ (0.29)
11
<PAGE>
Form 10-Q
Item 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
---------------------------------------------------------------
The results of operations for the three months ended December 31, 1997 and 1996
are not necessarily indicative of the results for future periods. The following
discussion should be read in conjunction with the attached notes thereto, and
with the audited financial statements and notes thereto for the year ended
September 30, 1997.
Results of Operations
- ---------------------
Net patient service revenue totaled $842,000 for the three months ended
December 31, 1997 versus $6,413,000 for the three ended months December 31,
1996. Cost of service operations totaled $823,000 for the three months December
31, 1997 versus $4,331,000 for the three months ended December 31, 1996. These
decreases were largely the result of the US Diagnostic 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. The Company also recorded approximately $55,000 in net patient
revenue from its start-up at the Faulkner Centre, which is expected to increase
significantly with increased patient volume and with the new sites expected in
the second and third quarter. Cost of service operations should also increase as
these additional sites commence operations.
Management fees and other revenues for the three months ended December 31,
1997, include a $70,000 settlement with an equipment manufacturer associated
with the delay in delivery of imaging equipment.
Research and development reflects the change in the accounting treatment of
AMS from equity to consolidation accounting. Purchased research and development
reflects the portion of the AMS purchase price allocated to R&D projects in
progress (see Note 2).
Selling, general and administrative expenses totaled $1,206,000 for the
three months ended December 31, 1997 versus $1,257,000 for the three months
ended December 31, 1996. This decrease reflects the effects of the US Diagnostic
Merger offset by the increased efforts in marketing, promoting and developing
Aurora System installations.
Other income for the three months ended December 31, 1996 includes a gain
of $223,000 from the sale of certain equipment.
Gain (loss) on sale of imaging business reflects the accounting for the US
Diagnostic Merger in February 1997. The gain for the three months ended December
31, 1997, consists of certain proceeds received pursuant to the Raytel
litigation offset by continuing costs incurred related to the US Diagnostic
indemnifications.
Minority interests in net income of consolidated entities reflects the
share of income allocated to MDI's joint venture partners. Equity in net loss of
unconsolidated subsidiary reflects the Company's share of losses in AMS prior to
the AMS Merger.
12
<PAGE>
Liquidity and Capital Resources
The Company had available cash and cash equivalents of $8,844,000 at
December 31, 1997 (including $1,726,000 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.
The significant cash flows used in operating activities for the three
months ended December 31, 1997 reflect the Company's continuing investment in
the development of the Aurora System and in marketing to and developing future
breast imaging centers offset by the decrease in restricted cash from the funds
released from the blockd account.
The Company currently funds its operations principally through the cash
obtained from the US Diagnostic merger. The Company anticipates that revenues
from the Faulkner Centre and future sites will increase significantly as more
systems are installed. The Company is also 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 or that revenues from future sites will be sufficient to
fund operations.
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 Report
of Form 10-Q 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 limitation, management's examination
of historical operating trends, data contained in the Company's records and
other data available from third parties, however, there can be no assurance that
management's expectation, beliefs or projections will 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 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.
13
<PAGE>
PART II : OTHER INFORMATION
Item 1. Legal proceedings
- --------------------------
On January 7, 1998, the Company and Jack Nelson, the Company's Chairman and
CEO, were served with a complaint in connection with a purported class action
brought against them by Dorothy L. Lumsden in the United Stated District Court
for the District of Massachusetts. The complaint contains claims for alleged
violations of Sections 10(b) and 20(a) under the Securities Exchange Act and for
common law fraud, and seeks unspecified compensatory damages sustained as a
result of the defendants' alleged wrongdoing. Ms. Lumsden purports to bring her
action "on behalf of herself and all other persons who purchased or otherwise
acquired the common stock of [the Company] during the period August 10, 1994
through and including December 12, 1997." The complaint alleges that during the
class period the defendants "issued to the investing public false and misleading
financial statements, press releases and sales projections" concerning the
Company's revenues and future business prospects.
On February 2, 1998, the Company and Mr. Nelson were served with a second
class action complaint naming them as defendants in connection with another
action brought in the United States District Court for the District of
Massachusetts. This action has been brought by Robert Curry and the complaint
alleges the same purported class and contains similar allegations and claims.
The Company believes it has meritorious defenses to these allegations and
intends to vigorously contest all claims.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
27. Financial Data Schedule
(b) Reports of Form 8-K
None
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Caprius, Inc.
-------------
(Registrant)
Date: February 12, 1998 /s/ Jack Nelson
----------------- ---------------
Jack Nelson
Chief Executive Officer
Date: February 12, 1998 /s/ Steven J. James
----------------- -------------------
Steven J. James
Chief Financial Officer
15
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
27 Financial Data Schedule
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Caprius,
Inc. Form 10-Q for the period ended December 31, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1997
<CASH> 8,844
<SECURITIES> 0
<RECEIVABLES> 3,489
<ALLOWANCES> (625)
<INVENTORY> 819
<CURRENT-ASSETS> 13,024
<PP&E> 3,355
<DEPRECIATION> 1,241
<TOTAL-ASSETS> 19,051
<CURRENT-LIABILITIES> 2,638
<BONDS> 436
0
2,700
<COMMON> 73
<OTHER-SE> 13,207
<TOTAL-LIABILITY-AND-EQUITY> 19,051
<SALES> 842
<TOTAL-REVENUES> 842
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 9,794
<LOSS-PROVISION> (8,953)
<INTEREST-EXPENSE> 33
<INCOME-PRETAX> (8,737)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,737)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> ( 8,737)
<EPS-PRIMARY> (1.45)
<EPS-DILUTED> (1.45)
</TABLE>
