<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
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 incorporation (IRS Employer
or organization) Identification No.)
46 JONSPIN ROAD, WILMINGTON, MA 01887
----------------------------------------
(Address of principal executive offices)
(978) 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 16, 1999, there were 7,346,540 shares of Common Stock, $.01 par
value, outstanding.
<PAGE> 2
CAPRIUS, INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<S> <C>
Consolidated Balance Sheets - September 30, 1998 and December 31, 1998 3
Consolidated Statements of Operations - for the three months ended
December 31, 1998 and 1997 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows - for the three months ended
December 31, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II - OTHER INFORMATION 12
ITEM 1. LEGAL PROCEEDINGS 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
EXHIBIT INDEX
</TABLE>
2
<PAGE> 3
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
------------ -------------
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 1,522,074 $ 1,791,476
Accounts receivable, net of reserve for bad debts of $682,184 at
December 31, 1998 and $663,314 at September 30, 1998 2,788,917 2,899,282
Inventories 720,898 720,858
Other current assets 639,109 584,875
------------ -----------
Total current assets 5,670,998 5,996,491
------------ -----------
PROPERTY AND EQUIPMENT:
Medical equipment 2,300,835 2,145,674
Office furniture and equipment 257,148 251,199
Other equipment 1,517,674 1,518,874
Leasehold improvements 1,152,852 1,153,576
------------ -----------
5,228,509 5,069,323
Less: accumulated depreciation and amortization 2,034,639 1,824,946
------------ -----------
Net property and equipment 3,193,870 3,244,377
------------ -----------
OTHER ASSETS:
Goodwill, net of accumulated amortization of $2,401,041 at
December 31, 1998 and $2,357,703 at September 30, 1998 1,010,459 1,053,797
Other intangibles, net of accumulated amortization of $451,870 at
December 31, 1998 and $371,698 at September 30, 1998 1,160,506 1,240,678
Other 33,136 32,037
------------ -----------
Total other assets 2,204,101 2,326,512
------------ -----------
$ 11,068,969 $11,567,380
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 549,280 $ 810,990
Accrued expenses 920,056 964,922
Accrued compensation 355,374 388,748
Other current liabilities -- 53,664
Current portion of long-term debt and capital lease obligations 1,035,696 915,608
------------ -----------
Total current liabilities 2,860,406 3,133,932
------------ -----------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 1,181,739 1,207,624
STOCKHOLDERS' EQUITY:
Preferred stock
Authorized - 1,000,000 shares
Issued - Series A, none; Series B, convertible,
27,000 shares at December 31, 1998 and September 30, 1998
Liquidation preference $2,700,000 2,700,000 2,700,000
Common stock, $.01 par value
Authorized - 50,000,000 shares
Issued and outstanding - 7,369,040 shares at December 31, 1998
and September 30, 1998 73,690 73,690
Additional paid-in capital 63,561,672 63,561,672
Accumulated deficit (59,306,288) (59,107,288)
Treasury stock (22,500 common shares, at cost) (2,250) (2,250)
------------ -----------
Total stockholders' equity 7,026,824 7,225,824
------------ -----------
$ 11,068,969 $11,567,380
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE> 4
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
----------- -----------
REVENUES:
<S> <C> <C>
Net patient service revenues $ 1,144,529 $ 842,110
----------- -----------
Total revenues 1,144,529 842,110
----------- -----------
OPERATING EXPENSES:
Cost of service operations 970,675 823,484
Research and development 425,002 560,535
Purchased research and development -- 7,168,647
Selling, general and administrative 869,398 1,205,894
Provision for bad debt and collection costs 123,020 35,592
Loss (gain) on sale of imaging business 12,670 (195,357)
----------- -----------
Total operating expenses 2,400,765 9,598,795
----------- -----------
Operating loss from continuing operations (1,256,236) (8,756,685)
Interest income 16,158 120,127
Interest expense (58,922) (33,552)
----------- -----------
Loss from continuing operations before equity in
loss of subsidiary and provision for income taxes (1,299,000) (8,670,110)
Equity in net loss of unconsolidated subsidiary -- (67,358)
Loss from continuing operations before provision
for income taxes (1,299,000) (8,737,468)
Provision for income tax (expense) benefit -- --
----------- -----------
Loss from continuing operations (1,299,000) (8,737,468)
Income on disposal of discontinued operations 1,100,000 --
----------- -----------
Net Loss $ (199,000) $(8,737,468)
=========== ===========
Income (loss) per basic and diluted common share:
Loss from continuing operations $ (0.18) $ (1.45)
Income (loss) on disposal of discontinued division 0.15 --
Net loss per share $ (0.03) $ (1.45)
=========== ===========
Weighted average number of common shares outstanding 7,369,040 6,045,965
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
-------------------------------------------------------------------------------------------------------------
Additional Total
Number Number $0.01 Number $0.01 Paid-in Accumulated Stockholders'
of Shares Amount of Shares Par Value of Shares Par Value Capital Deficit Equity
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
SEPTEMBER 30, 1997 27,000 $2,700,000 4,374,763 $43,748 22,500 $(2,250) $56,170,271 $(41,588,585) $17,323,184
Issuance of
common stock
related to AMS
merger -- -- 2,956,741 29,567 -- -- 7,362,287 -- 7,391,854
Conversion of
note payable -- -- 27,429 274 -- -- 20,725 -- 20,999
Exercise of
stock options -- -- 10,107 101 -- -- 8,389 -- 8,490
Net loss -- -- -- -- -- -- -- (17,518,703) (17,518,703)
-------------------------------------------------------------------------------------------------------------
BALANCE,
SEPTEMBER 30, 1998 27,000 2,700,000 7,369,040 73,690 22,500 (2,250) 63,561,672 (59,107,288) 7,225,824
Net loss (199,000) (199,000)
-------------------------------------------------------------------------------------------------------------
27,000 $2,700,000 7,369,040 $73,690 22,500 $(2,250) $63,561,672 $(59,306,288) $ 7,026,824
=============================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended December 31,
1998 1997
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (199,000) $(8,737,468)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Equity in net loss of unconsolidated subsidiary -- 67,358
Gain on disposal of discontinued operations (1,100,000) --
Gain on sale of imaging business -- (195,357)
Purchased research and development -- 7,168,647
Depreciation and amortization 333,203 231,491
Changes in operating assets and liabilities:
Decrease in restricted cash 1,109,348
Accounts receivable, net 110,365 (171,975)
Inventories (70) (10,555)
Other current assets (55,333) (195,806)
Accounts payable and accrued expenses (393,614) (275,669)
----------- -----------
Net cash provided by (used in) operating activities (1,304,449) (1,009,986)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of imaging business -- 195,357
Income on disposal of discontinued operations 1,100,000
Cash used in AMS merger -- (199,487)
Advances to unconsolidated subsidiaries -- (479,673)
Purchase of equipment, furniture and leasehold improvements (159,186) (326,363)
Other assets -- --
----------- -----------
Net cash provided by (used in) investing activities 940,814 (810,166)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 297,484 413,348
Repayment of long-term debt and capital lease obligations (203,281) (137,500)
----------- -----------
Net cash provided by financing activities 94,203 275,848
----------- -----------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (269,432) (1,544,304)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,791,506 9,752,768
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,522,074 $ 8,208,464
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period $ 79,228 $ 37,037
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE> 7
CAPRUIS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The results of operations of Caprius, Inc. ("Caprius" or the "Company")
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,
1998.
NOTE 2 - THE COMPANY
Caprius, 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 (see below) with Advanced Mammography Systems, Inc. ("AMS"), the Company
is developing, and has begun marketing and commercializing a dedicated MRI
system for breast imaging known as the Aurora system. The Company is also
engaged in rehabilitation services, consisting of comprehensive physician care,
physical therapy and case management for motor vehicle accident patients.
In December 1998, Caprius announced that it was pursuing a strategy of
identifying a strategic alliance to either acquire or joint venture its Aurora
technology (the "Strategic Partner"). At this point in time, Caprius lacks
sufficient funds to continue necessary research and development or to fund
manufacturing costs to produce its next systems. A Letter of Intent to sell the
technology was entered into in December 1998, but was terminated on December 17,
1998. At that time, the Company announced that it would reopen discussions with
other interested parties and would continue to identify and pursue the
acquisition of comprehensive breast imaging centers. The Company anticipates
that any sale or joint venture of the Aurora technology may include some form of
cash, royalty payments and ownership. There can be no assurances that any such
sole or joint venture can be entered into or completed. Furthermore, unless a
Strategic Partner is identified, near term, to acquire its Aurora technology,
the Company's viability could be threatened. The financial statements do not
include any adjustments relating to the recoverability of assets and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
In July 1998, the Company acquired its first comprehensive breast
imaging center, the Strax Institute, located in Lauderhill, Florida. The Strax
Institute is a multi-modality breast care center that treats approximately
15,000 patients per year offering x-ray mammography, ultrasound, stereotactic
biopsy and bone densitometry. The Company believes that there is an opportunity
to acquire and consolidate similar breast care centers.
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"). AMS was
originally formed on July 2, 1992 as a wholly owned subsidiary of Caprius to
develop a dedicated breast MRI system.
COMPREHENSIVE BREAST CARE CENTERS
Caprius' focus is to acquire and operate comprehensive breast-imaging
centers. Such a center would contain, at a minimum, conventional x-ray
mammography, ultrasound, stereotactic biopsy, bone densitometry, MRI, and a
cadre of support staff for conducting clinical breast exams, genetic counseling
and pre and post surgical guidance and counsel.
Most imaging centers do not focus on breast disease. In today's medical
service environment there exist numerous examples of disease specific centers.
Convenience of treatment and accessibility to diagnostic tools are the hallmark
of quality care in current medical practices. Breast imaging centers therefore
must possess all the essential modalities coupled
7
<PAGE> 8
with efficient patient handling and care for the resolution and swift diagnosis
of breast disease.
A comprehensive breast imaging center with the above performance
capacities responds to the needs and concerns of women. It provides overall
comprehensive care for women; their medical needs, personal concerns and
psychological well being. It provides immediate and unhampered access to a range
of modalities which address, resolve, diagnose and provide complete and
dedicated focus on breast disease. In a fragmented market, such as exists today
in the U.S., a comprehensive breast imaging center provides the care,
efficiency, access and immediate resolution which should serve as a model for
the amalgamation of breast imaging centers.
The Company intends to identify specific geographic markets within the
U.S. in which to consolidate breast imaging centers. In doing so, the Company,
with its experience in the medical service industry and expertise in breast
disease, should be able to provide better care and treatment of breast disease
and more efficiently utilize medical technology, including MRI, through sharing
resources and cross-referring among centers.
MEDICAL DEVICE TECHNOLOGY
Caprius' technology consists of the development and commercialization
of the Aurora System, the only dedicated breast MRI imaging system cleared by
the U.S. Food and Drug Administration ("FDA"). It has received worldwide acclaim
and attracted General Electric Company ("GE") to acquire a thirteen-percent
(13%) stake in the Company. The product has achieved a stable performance level,
however, further investment in the development of the Aurora System has been
slowed. The Company has approached and is currently in discussions with a number
of strategic corporate prospects who it believes will have interest in assuming
the technology in order to market and sell the Aurora in the U.S. and
international markets and to assume responsibility for manufacturing, further
product enhancement and upgrades. Caprius may benefit from the expected revenue
stream that could flow from placing the system under the umbrella of a larger
corporate partner. There can be no assurances that any such sole or joint
venture can be entered into or completed.
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. MRI
systems present no currently known risks to patients in contrast to other
diagnostic techniques that subject the patient to potentially harmful ionizing
radiation (including Positron Emission Tomography ("PET"), Computerized Axial
Tomography ("CT") and conventional x-ray).
The Company has contracted with most of the third party payers in
Massachusetts, further supporting the clinical acceptance of MRI in breast care.
However, in order to fully commercialize the Aurora System and to demonstrate
its 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, maximum clinical efficacy and cost effectiveness must be
demonstrated. The System has been placed at the University of Texas Medical
Branch at Galveston, TX, the Faulkner-Sagoff Centre for Breast Health Care in
Boston, MA, The University of Arkansas Teaching Hospital in Little Rock, AR, the
Breast Care Center at the Englewood Hospital and Medical Center in Englewood,
NJ, and at the Magee Women's Hospital in Pittsburgh, PA.
[This space intentionally left blank.]
8
<PAGE> 9
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, for imaging dense breast tissue use of a patent
pending technique, the Aurora System can suppress fat in breast images, for
possible earlier diagnostic intervention among high risk individuals, for
characterizing breast lesions, for staging cancer treatment and for post surgery
and post radiation follow-up. As broader diagnostic applications are
established, the 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, which
will drive patient demand and should exceed the capacity of currently available
whole body MRI systems. The Aurora MRI solution is a technology dedicated to
breast imaging to 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 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 equipment and siting costs. With future
expanded applications and the identification of a potential Strategic Partner to
help fund and distribute the Aurora System, the Company expects sales will
increase. The Aurora System will be marketed to mammography clinics and
practices where patient volume is sufficient to justify the cost of adding MR
breast imaging to the diagnostic workup of certain breast patients.
NOTE 3 - PREFERRED STOCK - SERIES B
On August 18, 1997, the Company entered into various agreements with
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.
It 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 affect the rights of the
holders of the Series B Preferred Stock, and is initially convertible into
1,597,930 shares of Common Stock, 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 4 - PATENT INFRINGEMENT SETTLEMENT
During the three months ended December 31, 1998, the Company received
$1,100,000 from a major MRI manufacturer to resolve outstanding patent issues
unrelated to the patents protecting its Aurora technology.
[This space intentionally left blank.]
9
<PAGE> 10
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
THREE MONTHS ENDED DECEMBER 31, 1998, COMPARED TO THREE MONTHS ENDED DECEMBER
31, 1997
The results of operations for the three months ended December 31, 1998 and
1997 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
fiscal year ended September 30, 1998.
Net patient service revenue totaled $1,144,529 for the three months ended
December 31, 1998 versus $842,110 for the three months ended December 31, 1997.
Cost of service operations totaled $970,675 for the three months December 31,
1998 versus $823,484 for the three months ended December 31, 1997. These
increases were largely the result of the additional net patient revenue and
operating expenses from the Faulkner and Strax centers. This revenue stream is
expected to increase with increased patient volume.
Purchased research and development reflects the portion of the AMS purchase
price allocated to research and development projects in progress.
Selling, general and administrative expenses totaled $869,398 for the three
months ended December 31, 1998 versus $1,205,894 for the three months ended
December 31, 1997. This decrease reflects the Company's efforts to streamline
costs while trying to identify a strategic partner for its Aurora technology.
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.
Equity in net loss of unconsolidated subsidiary reflects the Company's
share of losses in AMS prior to the AMS Merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company had available cash and cash equivalents of $1,522,074 at
December 31, 1998. The Company intends to utilize the funds for the continuing
development of the Aurora dedicated breast imaging system while the Company
continues its efforts to identify a Strategic partner for its Aurora technology
and for the opening of breast imaging centers. Unless the Company successfully
identifies a Strategic Partner, the Company will have difficulty in pursuing its
plans to acquire comprehensive breast care centers. Furthermore, if no Strategic
Partner is identified, the Company may be unable to implement its plan to
acquire breast care centers and the Company's viability could be threatened.
Accordingly, the auditors' report on the Company's September 30, 1998 financial
statements contained an explanatory paragraph expressing substantial doubt about
the Company's ability to continue as a going concern.
The significant cash flows used for investing activities for the three
months ended December 31, 1998 consists primarily of $159,200 for medical
equipment additions. Cash flows from financing activities include $297,500 of
proceeds from financing of medical equipment, offset by principal payments on
equipment debt. Cash used for operations amounted to $1,304,400.
Since February 1997, the Company has funded its operations principally
through the cash obtained from the MDI merger.
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
Form 10-Q to make applicable and take
10
<PAGE> 11
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 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.
[This space intentionally left blank]
11
<PAGE> 12
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On January 7, 1998, the Company and Jack Nelson, the Company's Chairman
and Chief Executive Officer were served with a complaint in connection with a
purported class action brought against them by Dorothy L. Lumsden in the United
States District Court of the District of Massachusetts. The complaint contains
claimed for alleged violations of Sections 10(b) and 20(a) under the Securities
Exchange Act and for common law. Ms. Lumsden purported 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". 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 was brought by Robert Curry and the
complaint alleged the same purported class and contained similar allegations and
claims as the class action complaint discussed above. On April 24, 1998, the
District Court consolidated the two class actions claims into one for pre-trial
purposes. On January 7, 1999, the Company announced that it has reached a
preliminary settlement in the shareholder class action in Federal Court in
Boston. Under the terms of the settlement, Caprius will make a cash payment of
$150,000 and issue 325,000 shares of common stock to Plaintiffs. Caprius'
insurance carrier will contribute $100,000 of the cash payment. The settlement
also stipulates that in the event Caprius sells all or part of its business
within 12 months an additional payment of $75,000 and issuance of 100,000
additional shares will be made by Caprius to plaintiffs. The agreement is
subject to final court approval.
On October 19, 1998, the Company filed a complaint in the Middlesex
Superior Court against Eric T. Shebar, M.D. ("Shebar"), the former Chief
Operating Officer and Medical Director for the Company's motor vehicle accident
rehabilitation ("MVA") business, and MVA Center for Rehabilitation, Inc. ("MVA,
Inc.") whereby the Company alleges breach of contract and certain
misrepresentations and seeks damages in an amount to be determined at trial. The
Company filed a preliminary injunction to reach and apply a secured promissory
note to MVA, Inc. against damages sought from Shebar and to enjoin against any
remedies under default of the Note. The final Note payment of $347,000 was due
October 15, 1998. The ruling on the injunction is pending.
During the three months ended December 31, 1998, the Company received
$1,100,000 from a major MRI manufacturer to resolve outstanding patent issues
unrelated to the patents protecting its Aurora technology.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports of Form 8-K
None
12
<PAGE> 13
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 16, 1999 /s/ Jack Nelson
-----------------------------------
Jack Nelson
Chief Executive Officer
Date: February 16, 1999 /s/ Steven J. James
-----------------------------------
Steven J. James
Chief Financial Officer
13
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000722567
<NAME> CAPRIUS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,522
<SECURITIES> 0
<RECEIVABLES> 3,471
<ALLOWANCES> (682)
<INVENTORY> 721
<CURRENT-ASSETS> 639
<PP&E> 5,229
<DEPRECIATION> (2,035)
<TOTAL-ASSETS> 11,069
<CURRENT-LIABILITIES> 2,860
<BONDS> 0
0
2,700
<COMMON> 74
<OTHER-SE> 7,027
<TOTAL-LIABILITY-AND-EQUITY> 11,069
<SALES> 1,145
<TOTAL-REVENUES> 1,145
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,401
<LOSS-PROVISION> (1,256)
<INTEREST-EXPENSE> 59
<INCOME-PRETAX> (199)
<INCOME-TAX> 0
<INCOME-CONTINUING> (199)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (199)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
