UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark one)
[X] Quarterly Report under Section 13 or 15 (d) of the
Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2002
[ ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Commission File Number: 0-11914
CAPRIUS, INC.
-------------
(Exact name of small business issuer as specified in its charter)
Delaware 22-2457487
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Parker Plaza, Fort Lee, NJ 07024
------------------------------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (201) 592-8838
N/A
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(Former name, former address, and former fiscal year,
if changed since last report.)
Indicate by check mark whether the registrant (1) filed all reports
required to be filed under Section 13 or 15 (d) of the Exchange Act during the
past 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 __
State the number of shares outstanding of issuer's classes of common
equity, as of the latest practicable date.
Class Outstanding at January 31, 2003
Common Stock. Par value $0.01 20,396,562 shares
CAPRIUS, INC. AND SUBSIDIARIES
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets - December 31, 2002 and September 30, 2002 3
Consolidated Statements of Operations - for the three months ended 4
December 31, 2002 and December 31, 2001
Consolidated Statement of Stockholders' Equity -for the three months 5
ended December 31, 2002
Consolidated Statements of Cash Flows - for the three months ended 6
December 31, 2002 and December 31, 2001
Notes to Consolidated Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
ITEM 3. CONTROLS & PROCEDURES 13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
2
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
December 31, September 30,
2002 2002
------------ -------------
ASSETS
Current Assets:
Cash and cash equivalents, (including $600,000 of restricted funds held in escrow) $ 4,040,239 $ 505,282
Accounts receivable, net of reserve for bad debts of $19,086 and $13,000 at
December 31, 2002 and September 30, 2002 383,753 141,731
Inventories 194,700 --
Other current assets 87,911 6,948
Net assets of TDM business segment -- 2,511,147
------------ ------------
Total current assets 4,706,603 3,165,108
------------ ------------
Property and Equipment:
Medical equipment 314,318 314,318
Office furniture and equipment 497,576 193,469
Leasehold improvements 18,373 950
------------ ------------
830,267 508,737
Less: accumulated depreciation 582,771 478,136
------------ ------------
Net property and equipment 247,496 30,601
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Other Assets:
Note receivable -- 350,000
Deferred financing cost, net of accumulated amortization of $9,204 and $2,301 at
December 31, 2002 and September 30, 2002 35,496 39,049
Deferred acquisition costs -- 189,463
Goodwill 1,777,010 --
Other 43,215 22,794
------------ ------------
Total other assets 1,855,721 601,306
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Total Assets $ 6,809,820 $ 3,797,015
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable, net of unamortized discount of $5,000 at
September 30, 2002 $ -- $ 546,650
Accounts payable 1,199,996 408,841
Accrued expenses 807,858 198,087
Accrued compensation 223,720 86,018
Current maturities of long-term debt and capital lease obligations 13,546 12,806
------------ ------------
Total current liabilities 2,245,120 1,252,402
Long-term Debt and Capital Lease Obligations, net of current maturities 17,588 22,226
------------ ------------
Total Liabilities 2,262,708 1,274,628
------------ ------------
Minority Interest in MCM 315,714 --
------------ ------------
Commitments and contingencies -- --
Stockholders' Equity:
Preferred stock, $.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - Series A, none; Series B, convertible,
27,000 shares at December 31, 2002 and September 30, 2002
Liquidation preference $2,700,000 2,700,000 2,700,000
Common stock, $.01 par value
Authorized - 50,000,000 shares
Issued - 20,419,062 shares at December 31, 2002
and at September 30, 2002 204,191 204,191
Additional paid-in capital 67,579,258 67,579,258
Accumulated deficit (66,249,801) (67,958,812)
Treasury stock (22,500 common shares, at cost) (2,250) (2,250)
------------ ------------
Total stockholders' equity 4,231,398 2,522,387
------------ ------------
Total Liabilities and Stockholders' Equity $ 6,809,820 $ 3,797,015
============ ============
The accompanying notes are an integral part of these
consolidated financial statements.
3
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the three months ended
----------------------------------------------------
December 31, 2002 December 31, 2001
------------------------ ------------------------
Revenues:
Net patient service revenues $ 419,987 $ 442,418
Product sales and rental revenues 134,901 -
Consulting income 12,500 -
------------------------ ------------------------
Total revenues 567,389 442,418
------------------------ ------------------------
Operating Expenses:
Cost of patient service revenues 302,953 227,019
Cost of product sales and rental revenue 162,581 -
Research and development 69,869 41,790
Selling, general and administrative 1,606,244 567,473
Provision for bad debt and collection costs 8,366 9,549
------------------------ ------------------------
Total operating expenses 2,150,013 845,831
------------------------ ------------------------
Operating loss (1,582,625) (403,413)
Interest income (expense) 3,696 (14,363)
------------------------ ------------------------
Loss from continuing operations (1,578,929) (417,776)
Income from operations of discontinued TDM business
segment (including gain on disposal of $3,050,350 in 2002) 3,123,748 352,585
------------------------ ------------------------
Net income (loss) before minority interest 1,544,819 (65,191)
Loss applicable to minority interest (164,192) -
------------------------ ------------------------
Income (loss) $ 1,709,011 $ (65,191)
======================== ========================
Net income (loss) per basic and diluted common share:
Continuing operations $ (0.07) $ (0.02)
Discontinued operations 0.15 0.02
------------------------ ------------------------
Net income (loss) per basic and diluted common share $ 0.08 $ (0.00)
======================== ========================
Weighted average number of common shares outstanding,
basic and diluted 20,396,562 17,098,862
======================== ========================
The accompanying notes are an integral part of these
consolidated financial statements.
4
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Treasury Stock
Preferred Stock $0.01 Par Value $0.01 Par Value
--------------------- ------------------- Additional ------------------ Total
Number Number Paid-in Accumulated Number Stockholders'
of Shares Amount of Shares Amount Capital Deficit of Shares Amount Equity
-------------------------------------------------------------------------------------------------------
BALANCE, SEPTEMBER 30, 2002 27,000 $ 2,700,000 20,419,062 $ 204,191 $ 67,579,258 $(67,958,812) 22,500 $(2,250) $ 2,522,387
Net income - - - - - 1,709,011 - - 1,709,011
-------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 27,000 $ 2,700,000 20,419,062 $ 204,191 $ 67,579,258 $(66,249,801) 22,500 $(2,250) $ 4,231,398
=======================================================================================================
The accompanying notes are an integral part
of these consolidated financial statements.
5
CAPRIUS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended December 31,
2002 2001
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Cash Flows from Operating Activities:
Net income (loss) $ 1,709,011 $ (65,191)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Minority interest in loss of MCM (164,192) -
Gain on sale of TDM business (3,123,748) -
Amortization of discount on bridge financing 6,903 3,000
Depreciation and amortization 25,484 68,986
Changes in operating assets and liabilities:
Accounts receivable, net (190,937) 51,347
Inventories 131,093 34,042
Other assets (88,036) 22,000
Accounts payable and accrued expenses 61,615 (1,396)
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Net cash provided by (used in) operating activities (1,632,807) 112,788
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Cash Flows from Investing Activities:
Proceeds from sale of TDM business 6,000,000 -
Acquisition of MCM, net of cash acquired (63,338) -
Loans to MCM (215,000) -
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Net cash provided by investing activities 5,721,662 -
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Cash Flows from Financing Activities:
Repayment of debt and capital lease obligations (553,898) (21,091)
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Net cash used in financing activities (553,898) (21,091)
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Net increase in cash and cash equivalents 3,534,957 91,697
Cash and cash equivalents, beginning of period 505,282 89,776
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Cash and cash equivalents, end of period $ 4,040,239 $ 181,473
============= ==========
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest during the period $ 6,666 $ 14,761
============= ==========
The accompanying notes are an integral part of these consolidated
financial statements.
6
CAPRIUS, 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 consolidated financial statements do not contain all
of the disclosures required by accounting principles generally accepted in the
United States of America and should be read in conjunction with the financial
statements and related notes included in the Company's annual report on form
10-KSB for the fiscal year ended September 30, 2002.
NOTE 2 - THE COMPANY
--------------------
Caprius, Inc. ("Caprius" or the "Company") was founded in 1983 and
through June 1999 essentially operated in the business of medical imaging
systems as well as healthcare imaging and rehabilitation services. On June 28,
1999, the Company acquired Opus Diagnostics Inc. ("Opus") and began
manufacturing and selling medical diagnostic assays constituting the Therapeutic
Drug Monitoring ("TDM") Business. The Company continues to own and operate a
comprehensive imaging center located in Lauderhill, Florida.. In the first
quarter of Fiscal 2003, the Company made major changes in its business through
the sale of the TDM Business and the purchase of a majority interest in M.C.M.
Environmental Technologies, Inc. ("MCM").
On October 9, 2002, Opus sold the assets of its TDM Business to
Seradyn, Inc., a Delaware corporation ("Seradyn"), pursuant to a Purchase and
Sale Agreement among Opus, Caprius, and Seradyn for a purchase price of
$6,000,000, subject to adjustment, and entered into a Royalty Agreement and a
Consulting Agreement. The sale of the TDM Business has been reflected as
discontinued operations in the Company's consolidated financial statements.
On December 17, 2002, the Company closed the acquisition of 57.53% of
the capital stock of MCM, which is engaged in the medical infectious waste
disposal business, for a purchase price of $2.4 million. Upon closing, Caprius'
designees were elected to three of the five seats on MCM's Board of Directors,
with George Aaron, President and CEO, and Jonathan Joels, CFO, filling two
seats. Additionally, as part of the transaction, certain debt of MCM to its
existing stockholders and to certain third parties was converted to equity in
MCM or restructured. Pursuant to its Letter of Intent with MCM, Caprius provided
MCM with loans totaling $565,000 which loans were repaid upon closing by a
reduction in the cash portion of the purchase price. For a six month period
commencing 19 months and ending 25 months from December 17, 2002, pursuant to a
Stockholders Agreement, the stockholders of MCM (other than the Company) shall
have the right to put all of their MCM shares to MCM, and MCM shall have the
right to call all of such shares, at a price based upon a pre-determined
methodology calculated at such time. At the Company's option, the purchase price
for the remaining MCM shares may be paid in cash or the Company's common stock.
In July 1998, the Company acquired The Strax Institute ("Strax"), a
comprehensive breast imaging center, located in Lauderhill, Florida. Strax is a
multi-modality breast care center that performs approximately 24,000 procedures
per year comprising of x-ray mammography, ultrasound, stereotactic biopsy and
bone densitometry. The Company continues to evaluate the possible sale of Strax.
7
NOTE 3 - INDUSTRY SEGMENTS
--------------------------
The Company operations are classified into two business segments:
imaging and rehabilitation services and the medical waste disposal business (the
"MCM Business").
The following table shows sales, net loss and other unaudited financial
information by industry segment:
Imaging and
Rehabilitation MCM
Corporate Services Business Consolidated
--------------- --------------- -------------- ---------------
Three months ended December 31, 2002
Revenues $12,500 $419,988 $134,901 $567,389
======== ========= ========= ========
Net loss from continuing operations $(1,352,864) $(2,751) $(222,414) $(1,578,029)
============= ======== ========== ============
Identifiable assets at December 31, 2002 $4,468,490 $294,315 $2,047,015 $6,809,820
=========== ========= =========== ==========
Three months ended December 31, 2001
Revenues $0 $442,418 $0 $442,418
=== ========= === ========
Net loss from continuing operations $(419,213) $1,437 $0 $(417,776)
========== ======= === ==========
Identifiable assets at December 31, 2001 $2,930,764 $456,468 $0 $3,387,232
=========== ========= === ==========
NOTE 4 - LITIGATION
-------------------
In June 2002, Jack Nelson, a former executive officer and director of
the Company, commenced two legal proceedings against the Company and George
Aaron and Jonathan Joels, executive officers, directors and principal
stockholders of the Company. The two complaints (refer to Part II, Item 1 for
further explanation) allege that the individual defendants made alleged
misrepresentations to the plaintiff upon their acquisition of a controlling
interest in the Company in 1999 and thereafter made other alleged
misrepresentations and took other actions as to the plaintiff to the supposed
detriment of the plaintiff and the Company. One action was brought in Superior
Court of New Jersey, Bergen County, and the other was brought as a derivative
action in Federal District Court in New Jersey. The counts in the complaints are
for breach of contract, breach of fiduciary duty and misrepresentation. No
amount of damages was specified in either action. The Company has answered the
complaints and has asserted affirmative defenses.
In September 2002, the Company was served with a complaint naming the
Company and its principal officers and directors in the Federal District Court
of New Jersey as a purported class action. The allegations in the complaint
cover the period between February 14, 2000 and June 20, 2002. The plaintiff is a
relative of the wife of the plaintiff in the previously disclosed direct and
derivative actions against the defendants. The allegations in the purported
class action are substantially similar to those in the other two actions. The
complaint (refer to Part II, Item 1 for further explanation) seeks an
unspecified amount of monetary damages, as well as the removal of the defendant
officers as shareholders of the Company. The Company plans to vigorously contest
the allegations in the complaint.
In September 2002, BDC Corp., d/b/a BDC Consulting Corp., brought an
action against the Company and Mr. Aaron in the Circuit Court for the
Seventeenth Judicial Circuit, Broward County, Florida seeking an unspecified
amount of damages arising from the defendants' alleged tortious interference
with a series of agreements between the plaintiff and third party MCM pursuant
to which the plaintiff had planned to purchase MCM. See Item I of this report
for information regarding the Company's investment in MCM. The Company believes
there is no merit to the plaintiff's claim (see Part II, Item 1 for further
explanation).
8
NOTE 5 - ACQUISITION OF MCM
---------------------------
On December 17, 2002, the Company closed the acquisition of 57.53% of
the capital stock of MCM, which is engaged in the medical infectious waste
disposal business, for a purchase price of $2.4 million. The Company's
consolidated financial statements include MCM's results of operations from
December 17, 2002. In June 2002, the Company and MCM had signed a Letter of
Intent to enter into an agreement whereby the Company would have the right to
acquire 51% of the outstanding stock on a fully diluted basis of MCM. Concurrent
with the signing of the Letter of Intent, Caprius provided MCM with a loan
totaling $245,000. At the time of the acquisition of MCM, the Company's
outstanding loans to MCM aggregated $565,000 which were paid by reducing the
cash portion of the purchase price.
The Company accounted for the acquisition as a purchase using the
accounting standards established in Statements of Financial Accounting Standards
No. 141, Business Combinations and No. 142, Goodwill and Other Intangible
Assets. The accounting rules require that the goodwill arising from the purchase
method of accounting not be amortized however it must be tested for impairment
at least annually.
The purchase price has been allocated to net assets acquired based on
the preliminary estimate of their fair values. The excess of the purchase price
over net assets acquired has been allocated to goodwill and other intangibles
for approximately $1,777,010. Additional adjustments to the purchase price
allocations may still be required.
The unaudited pro forma combined results of operations of the Company
and the MCM business acquired in December for the three month periods ended
December 31, 2002 and 2001, assuming that the transaction had occurred on
October 1, 2001 and after giving effect to certain pro forma adjustments are as
follows:
Three months ended December 31, 2002 2001
--------------------------------------------------------------------------
Revenues $ 808,471 $ 526,978
------------ ----------
Loss from operations $ (1,602,818) $(776,083)
------------ ----------
Net income (loss) $ 1,524,254 $ (353,301)
============ ==========
Net income (loss) per basic
and diluted common share $ 0.07 $ (0.02)
============ ==========
NOTE 6 - DISPOSAL OF TDM BUSINESS SEGMENT
-----------------------------------------
Effective October 9, 2002, the Company completed the sale of the assets
and certain liabilities of its TDM business segment for $6,000,000. Pursuant to
a Consulting Agreement, Opus will consult with Seradyn on ongoing projects for a
$50,000 annual fee for a two-year period. The purchased assets included three
diagnostic assays still in development, for which Opus will receive royalty
payments upon the commercialization of any of these assays based upon varying
percentages of net sales. Caprius, Opus and its three executive officers entered
into non-compete agreements with Seradyn restricting them for five years from
competing in the TDM business. The sale of the TDM business has been reflected
as discontinued operations in the accompanying consolidated financial
statements. Revenues from discontinued operations, which have been excluded from
income from continuing operations in the accompanying consolidated statements of
operations for the three months ended December 31, 2002 and 2001, are shown
below. The effects of the discontinued operations on net loss and per share data
are reflected within the accompanying consolidated statements of operations. The
gain on disposal of $3,050,350 is net of applicable taxes totaling $325,000.
9
A summary of net assets of the TDM business segment at September 30, 2002 were
as follows:
2002
-----------------
Current assets $638,609
Property and equipment 34,923
Intangible assets 2,001,937
Liabilities 164,322
-----------------
Net assets $2,511,147
=================
A summary of operations of the TDM business segment for the periods
ended December 31, 2002 and 2001 is as follows:
2002 2001
Revenues $96,698 $475,353
Operating Expenses 23,300 541,981
------- -------
Income (loss) from Operations $73,398 ($66,628)
============= ===============
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As more fully described in the 10-KSB of September 30, 2002, the
Company completed the sale of its TDM business segment effective October 9,
2002. As a result, the Company's consolidated balance sheet as of the three
months ended December 31, 2002 and consolidated statements of operations for the
three months ended December 31, 2001 have been restated to reflect the TDM
business as discontinued operations.
THREE MONTHS ENDED DECEMBER 31, 2002 COMPARED TO THREE MONTHS ENDED DECEMBER 31,
2001
Net patient service revenue at Strax totaled $419,987 for the three
months ended December 31, 2002 versus $442,418 for the three months ended
December 31, 2001. Cost of service operations totaled $302,953 for the three
months ended December 31, 2002 versus $227,019 for the three months ended
December 31, 2001. The increase reflects the continuing efforts at Strax to
change its mix of procedures at a time when reimbursement rates from healthcare
providers have decreased.
Selling, general and administrative expenses totaled $1,606,244 for the
three months ended December 31, 2002 versus $567,473 for the three months ended
December 31, 2001. The increase reflects costs related to the acquisition of
MCM, performance and salary adjustments to employees as well as increased legal
and insurance fees.
MCM product sales and rental revenues totaled $134,901 for the period
commencing December 17, 2002 through December 31, 2002.
LIQUIDITY AND CAPITAL RESOURCES
During October 2002, the Company's subsidiary, Opus, sold the assets of
its TDM Business to Seradyn. The purchase price was $6,000,000, subject to
adjustment on a dollar for dollar basis to the extent the net asset value of the
purchased assets as shown on a post-closing proforma asset statement is greater
the $420,000 or less than $380,000. The Company has received a further payment
of $54,970 from Seradyn as a post closing payment adjustment. $600,000 of the
10
purchase price was deposited into an escrow account to be held for indemnity
claims, of which $300,000 would be released after one year. The Company used the
net cash proceeds to pay down debts and liabilities, repayment of the short-term
loan and, in December 2002, used $1,835,000 as part of the MCM purchase price.
The balance of the funds is being used for general working capital purposes.
During September 2002, warrant holders representing 3,297,700 shares of
Common Stock took the opportunity to exercise their warrants in the Company's
warrant price reduction program. The Company had offered holders of warrants to
purchase 4,319,750 shares of Common Stock, the opportunity to exercise such
warrants at a reduced exercise price for a period of 14 days during September
2002. The reduced exercise price for each of the outstanding warrants was equal
to 20% of its present exercise price, but not less than $0.11 per share. As a
result, the Company raised an aggregate of $409,668 and also substantially
reduced the number of its outstanding warrants. The Company used the proceeds
for general working capital purposes.
Also during September 2002, the Company entered into a short-term line
of credit arrangement with one of its board members, Shrikant Mehta, whereby Mr.
Mehta agreed to extend a $500,000 line of credit to the Company for up to 18
months, expiring March 2004. This line of credit can be utilized for working
capital needs as determined by the Company and agreed with by Mr. Mehta.
Interest would be paid at a rate of 11% per annum on monies drawn down. In
return for the provision of the short-term line of credit, Mr. Mehta was granted
warrants to purchase 500,000 shares of Common Stock, exercisable at $0.11 per
share for a period of five years. The Company has not drawn down on this line of
credit.
During June 2002, the Company obtained a short-term loan from officers
and employees of the Company as well as related family members in the principal
amount of $250,000, with interest at prime plus 3% per annum and due on
September 30, 2003. The proceeds of the short-term loan were used to fund an
initial loan to MCM (the "MCM Loan") totaling $250,000. Subsequent to the
initial loan to MCM, further funds were advanced to MCM in September, October
and December 2002 in the amounts of $100,000, $200,000 and $15,000 respectively.
The MCM Loan, together with subsequent fundings, was secured by MCM's
intellectual properties, bore interest at the rate of prime plus 2% per annum,
and was to be due on June 10, 2003, subject to conversion to equity of MCM upon
the consummation of the Company's investment in MCM. Upon the acquisition of the
interest in MCM, loans totaling $565,000 were converted into equity in MCM. On
October 10, 2002, the holders of the short-term loan were repaid an aggregate of
$250,000 plus accrued interest. For each $1.00 principal amount loaned, the
lender received a warrant to purchase one share of the Company's Common Stock,
exercisable after six months at $0.09 per share for a period of five years.
During February and March 2001, the Company completed a short-term
bridge loan of $300,000 through the issuance of loan notes due on February 28,
2002 together with warrants, the proceeds of which were used principally for
working capital and purchase of raw materials previously owned by Oxis, the
previous manufacturer and owner of the Opus products. The $300,000 bridge loan
notes were secured by the assets of Strax and were due for repayment on February
28, 2002. The bridge loan holders agreed to extend the repayment date to October
31, 2002 and continued to receive interest at the rate of 11%. On October 10,
2002, the Company repaid the bridge loan holders in an aggregate of $300,000
plus accrued interest.
The Company continues in its efforts to secure the sale of the Strax
Institute.
Net cash used in operations for the three months ended December 31,
2002 amounted to $1,632,807. Net cash flows provided by investing activities for
the three months ended December 31, 2002 amounted to $5,721,662.
The Company will continue its efforts to seek additional funds through
funding options, including banking facilities, equipment financing and
government-funded grants in order to provide capital for future expansion. There
can be no assurance that such funding initiatives will be successful.
11
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements requires management to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses and related disclosures. On an on-going basis, management
evaluates the Company's estimates and assumptions, including but not limited to
those related to revenue recognition and the impairment of long-lived assets,
goodwill and other intangible assets. Management bases its estimates on
historical experience and various other assumptions that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
1. Revenue recognition
The breast-imaging center 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.
2. Goodwill and other intangibles
Goodwill and other intangibles associated with the MCM
acquisition will be subject to an annual assessment for
impairment by applying a fair-value based test. The valuation
will be based upon estimates of future income of the reporting
unit and estimates of the market value of the unit.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." This statement superseded EITF No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity". Under this statement, a liability or a cost
associated with a disposal or exit activity is recognized at fair value when the
liability is incurred rather than at the date of an entity's commitment to an
exit plan as required under EITF 94-3. The provision of this statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with early adoption permitted. The Company is currently evaluating the
effect that the adoption of SFAS No. 146 will have on its consolidated financial
position and results of operations
In December 2002, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure ("SFAS No. 148"). SFAS No.
148 amends SFAS No. 123, Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of FSAS No. 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock based employee compensation and the effect of the method
used on reporting results. SFAS No. 148 will be effective for the Company in the
third quarter of fiscal 2003. The Company is currently evaluating the impact of
adoption of SFAS No. 148 and has not yet determined the effect, if any, such
adoption would have on the results of operations or financial position.
In November 2002, the Emerging Issues Task Force (EITD) reached
consensus on Issue No. 00-21, Revenue Arrangements with Multiple Deliverables.
Revenue arrangements with multiple deliverables include arrangements which
provide for the delivery or performance of multiple products, services and/or
rights to use assets where performance may occur at different points in time or
over different periods of time. EITF Issue No. 00-21 is effective for the
Company beginning October 1, 2003. The Company has not completed the evaluation
of the impact of this EITF.
12
FORWARD LOOKING STATEMENTS
The Company is including the following cautionary statement in this
quarterly report of Form 10-QSB 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,
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, changes to regulatory requirements relating to
environmental approvals for the treatment of infectious medical waste, capital
needs to fund any delays or extensions of development programs, delays in the
manufacture of new and existing products by the Company or third party
contractors, the loss of any key employees, the outcome of existing litigations,
delays in obtaining federal, state or local regulatory clearance for new
installations and operations, changes in governmental regulations, the location
of the MCM business in Israel, and 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 3. CONTROLS & Procedures
The Company's principal executive officer and principal financial
officer, based on their evaluation of the Company's disclosure controls and
procedures (as defined in Rules 13a-14 (c) and 15d-14 (c) of the Securities
Exchange Act of 1934) as of December 31, 2002 have concluded that the Company's
disclosure controls and procedures are adequate and effective to ensure that
material information relating to the Company and its consolidated subsidiary is
recorded, processed, summarized and reported within the time periods specified
by the SEC's rules and forms, particularly during the period in which this
quarterly report has been prepared.
The Company's principal executive officer and principal financial
officer have concluded that there were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to December 31, 2002 the date of their most recent
evaluation of such controls, and that there were no significant deficiencies or
material weaknesses in the Company's internal controls.
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In June 2002, Jack Nelson, a former executive officer and director of
the Company, commenced two legal proceedings against the Company and George
Aaron and Jonathan Joels, executive officers, directors and principal
stockholders of the Company. The two complaints allege that the individual
defendants made alleged misrepresentations to the plaintiff upon their
acquisition of a controlling interest in the Company in 1999 and thereafter made
other alleged misrepresentations and took other actions as to the plaintiff to
the supposed detriment of the plaintiff and the Company. One action was brought
in Superior Court of New Jersey, Bergen County, and the other was brought as a
derivative action in Federal District Court in New Jersey. The counts in the
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complaints are for breach of contract, breach of fiduciary duty and
misrepresentation. The complaint in the Federal Court also alleges that certain
actions by the defendants in connection with the 1999 acquisition transaction
and also as Company officers violated the Federal Racketeer Influenced and
Corrupt Organizations Act (RICO). No amount of damages was specified in either
action. The Company has answered the complaints and has asserted affirmative
defenses. The parties are currently engaged in written discovery. No depositions
have been taken. Since January 1, 2003, motions have been made on behalf of the
Company and Messrs. Aaron and Joels to dismiss both the derivative action
pending in the Federal District Court in New Jersey and the individual action
brought by Mr. Nelson in the Superior Court of New Jersey, Bergen County. These
motions are presently pending before the respective courts.
In September 2002, the Company was served with a complaint naming the
Company and its principal officers and directors in the Federal District Court
of New Jersey as a purported class action. The allegations in the complaint
cover the period between February 14, 2000 and June 20, 2002. The plaintiff is a
relative of the wife of the plaintiff in the previously disclosed direct and
derivative actions against the defendants. The allegations in the purported
class action are substantially similar to those in the other two actions. The
complaint seeks an unspecified amount of monetary damages, as well as the
removal of the defendant officers as shareholders of the Company. No answer has
yet been filed to this complaint as the parties agreed to extend the Company's
time to answer the complaint. Since January 1, 2003 an order was entered in the
Federal District Court in New Jersey consolidating the derivative action and the
class action. The order further provides that the time for the defendants to
answer or otherwise move with respect to the complaint in the class action is
extended. The order also provides that all discovery in the consolidated actions
is stayed pending resolution of the motions to dismiss.
The independent directors have authorized the Company to advance the
legal expenses of Messrs. Aaron and Joels in these litigations, subject to
review of the legal bills and compliance with applicable law.
In September 2002, BDC Corp., d/b/a BDC Consulting Corp., brought an
action against the Company and Mr. Aaron in the Circuit Court for the
Seventeenth Judicial Circuit, Broward County, Florida seeking an unspecified
amount of damages arising from the defendants' alleged tortious interference
with a series of agreements between the plaintiff and third party MCM pursuant
to which the plaintiff had planned to purchase MCM. See Item I of this report
for information regarding the Company's investment in MCM. The Company believes
there is no merit to the plaintiff's claim. On January 6, 2003, the Company
answered the complaint. The parties have entered into discussions in an effort
to resolve this litigation. Under the Company's Purchase Agreement with MCM,
MCM, its subsidiaries and certain pre-existing shareholders of MCM have certain
obligations to indemnify the Company with respect to damages, losses,
liabilities, costs and expenses arising out of any claim or controversy in
respect of this proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of George Aaron, President and Executive Officer
99.2 Certification of Jonathan Joels, Chief Financial Officer
(b) Reports on Form 8-K
1) The Company filed a current report on Form 8-K to report that on
October 9, 2002, its wholly owned subsidiary, Opus Diagnostics,
Inc., sold the assets of its TDM Business to Seradyn, Inc.
pursuant to a Purchase and Sale Agreement.
2) The Company filed a current report on Form 8-K to report that on
December 17, 2002, the Company completed its acquisition of 33,191
shares of Series A Preferred Stock of MCM Environmental
Technologies, Inc. ("MCM"), representing 57.53% of the voting stock
of MCM for a purchase price of $2.4 million.
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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 18, 2003 /s/George Aaron
-----------------
George Aaron
President & Chief Executive Officer
Date: February 18, 2003 /s/Jonathan Joels
---------------------
Jonathan Joels
Chief Financial Officer
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