Prospectus filed pursuant to Rule 424(b)(3)
Filed
pursuant to Rule 424(b)(3)
Registration
Statement No. 333-132849
PROSPECTUS
3,597,088
shares of common stock
CAPRIUS,
INC.
This
prospectus relates to the sale or other disposition by the selling stockholders
identified on pages 31 to 33 of this prospectus, or their transferees, of up
to
3,597,088
shares
of our common stock, or interests therein, including 2,419,330 shares underlying
shares of Series D Preferred Stock and 850,750 shares issuable upon exercise
of
warrants,
plus an additional 327,008 shares by reason of provisions in the Registration
Rights Agreement pursuant to which the registration statement of which this
prospectus is a part is being filed.
These
dispositions
may be
at fixed prices, at prevailing market prices at the time of sale, at prices
related to the prevailing market price, at varying prices determined at the
time
of sale, or at negotiated prices.
We
will
receive no proceeds from the sale or other disposition of the shares, or
interests therein, by the selling stockholders. However, we will receive
proceeds in the amount of $1,551,351 assuming the cash exercise of all of the
warrants held by the selling stockholders, subject to certain of the warrants
being exercised under a “cashless exercise” right.
Our
common stock is traded on the over-the-counter electronic bulletin board. Our
trading symbol is CAPS. On April 5, 2006, the closing price as reported was
$1.65.
The
selling stockholders, and any participating broker-dealers may be deemed to
be
“underwriters” within the meaning of the Securities Act of 1933, and any
commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Securities Act. The selling
stockholders have informed us that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
common stock.
Brokers
or dealers effecting transaction in the shares should confirm the registration
of these securities under the securities laws of the states in which
transactions occur or the existence of our exemption from registration.
An
investment in shares of our common stock involves a high degree of risk. We
urge
you to carefully consider the Risk Factors beginning on page
4.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
April
6,
2006
This
summary highlights selected information contained elsewhere in this prospectus.
This summary does not contain all the information that you should consider
before investing in the common stock. You should carefully read the entire
prospectus, including “Risk Factors” and the Consolidated Financial Statements,
before making an investment decision.
Background
Caprius,
Inc. is engaged in the infectious medical waste disposal business. In the first
quarter of Fiscal 2003, we acquired a majority interest in M.C.M. Environmental
Technologies, Inc. (“MCM”), which develops, markets and sells the SteriMed and
SteriMed Junior compact units (together, the “SteriMed Systems”) that
simultaneously shred and disinfect regulated medical waste (“RMW”). The SteriMed
Systems are sold and leased in both the domestic and international
markets.
Our
principal business office is located at One University Plaza, Suite 400,
Hackensack, New Jersey 07601, and our telephone number at that address is (201)
342-0900.
In
this
prospectus, “Caprius,” the “Company,” “we,” “us” and “our” refer to Caprius,
Inc. and, unless the context otherwise indicates, our subsidiary
MCM.
History
In
June
1999, we acquired Opus Diagnostics Inc. (“Opus”) and began manufacturing and
selling medical diagnostic assays constituting the Therapeutic Drug Monitoring
Business (“TDM”). In October 2002, we sold the assets of the TDM business to
Seradyn, Inc., an unrelated company. We were founded in 1983 and, through June
1999, essentially operated in the business of seeking to develop specialized
medical imaging systems, as well as operating the Strax Institute (“Strax”), a
comprehensive breast imaging center. The Strax Institute was sold in September
2003 to an unrelated company.
Acquisition
of M.C.M. Environmental Technologies, Inc.
In
December 2002, we closed the acquisition of our initial investment of 57.53%
of
the capital stock of MCM for a purchase price of $2.4 million. MCM wholly-owns
MCM Environmental Technologies Ltd., an Israeli corporation, which initially
developed the SteriMed Systems. Upon closing, our 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 had provided MCM with loans totaling
$565,000, which loans
were repaid upon closing by a reduction in the cash portion of the purchase
price. As part of the Stockholders Agreement dated December 17, 2002, there
were
certain provisions relating to performance adjustments for the twenty-four
month
period post-closing. As a consequence, our ownership interest increased by
5% in
the fiscal year 2004 and by an additional 5% in the fiscal year 2005.
Furthermore, our equity ownership increased with the conversion of various
loans
made to MCM and cash calls made by MCM during Fiscal 2005. As of September
30,
2005, our interest in MCM increased to 96.66%.
SteriMed
Systems
We
developed and market worldwide the SteriMed and SteriMed Junior compact units
that simultaneously shred and disinfect RMW, reducing its volume up to 90%,
and
rendering it harmless for disposal as ordinary waste. The SteriMed Systems
are
patented, environmentally-friendly, on-site disinfecting and disposal units
that
can process regulated clinical waste, including sharps, dialysis filters, pads,
bandages, plastic tubing and even glass, in a 15 minute cycle. The units,
comparable in size to a washer-dryer, simultaneously shred, grind, mix and
disinfect the
waste
with the proprietary Ster-Cid®
solution. After treatment, the material may be discarded as conventional solid
waste, in accordance with appropriate regulatory
requirements.
The
SteriMed Systems enable generators of RMW, such as clinics and hospitals, to
significantly reduce cost for treatment and disposal of RMW, eliminate the
potential liability associated with the regulated “cradle to grave” tracking
system involved in the transport of RMW, and treat in-house RMW on-site in
an
effective, safe and easy manner. As the technology for disinfection is
chemical-based, within the definitions used in the industry, it is considered
as
an alternative treatment technology.
The
SteriMed Systems are comprised of two different sized units, and the required
Ster-Cid® disinfectant solution can be utilized with both units. The larger
SteriMed can treat up to 18.5 gallons (70 liters) of medical waste per cycle.
The smaller version, the SteriMed Junior, can treat 4 gallons (15 liters) per
cycle.
Ster-Cid®
is our proprietary disinfectant solution used in the SteriMed Systems. Ster-Cid®
is approximately 90% biodegradable and is registered with the U.S. Environmental
Protection Agency (“U.S. EPA”) in accordance with the Federal Insecticide,
Fungicide, Rodenticide Act of 1972 (“FIFRA”). During the SteriMed disinfecting
cycle, the concentration of Ster-Cid® is approximately 0.5% of the total volume
of liquids. The Ster-Cid® disinfectant in
conjunction with the SteriMed Systems has been tested in independent
laboratories. Results show that disinfection levels specified in the U.S. EPA
guidance document, “Report on State and Territorial Association on Alternate
Treatment Technologies”, are met. Furthermore, it is accepted by Publicly Owned
Treatment Works (“POTW”) allowing for its discharge into the sewer
system.
Both
SteriMed units are safe and easy to operate requiring only a half day of
training. Once the cycle commences, the system is locked, and water and
Ster-Cid® are automatically released into the treatment chamber. The shredding,
grinding and mixing of the waste is then initiated exposing all surfaces of
the
medical waste to the chemical solution during the 15 minute processing cycle.
At
the end of each cycle, the disinfected waste is ready for disposal as regular
solid waste.
In
the
United States, the initial focus of marketing the SteriMed Systems has been
to
the medium-term to larger chains of dialysis clinics on a lease or sales basis.
In addition, we are also pursuing other potential users, including laboratories,
plasma phoresis centers, blood banks, surgical centers and
hospitals.
Internationally,
we continue to market our SteriMed Systems both directly and indirectly through
distributors. Our distributors are trained by us to enable them to take on
the
responsibility for the installation and maintenance that are required for the
SteriMed Systems.
On
February 17, 2006, we closed a private placement of 241,933 shares of Series
D
Convertible Preferred Stock and warrants for net proceeds of $2,700,000. The
Series D Convertible Preferred Stock is convertible into 2,419,330 shares of
common stock. The warrants consist of 2006 Series A Warrants for the purchase
of
223,881 shares of Common Stock at $1.50 per share and 2006 Series B Warrants
for
the purchase of 447,764 shares of common stock at $2.00 per share, exercisable
for five years.
Securities
Covered Hereby
|
3,597,088
shares, includes 2,419,330 shares underlying Series D convertible
preferred stock and 850,750 shares subject
to warrants, and an additional 327,008 shares that may become issuable
by
reason of provisions in the Registration Rights Agreement pursuant
to
which this prospectus is being filed to register 110% of the registrable
shares.
|
Common
Stock to be
Outstanding after the Offering |
6,592,878
shares, assuming the selling stockholders convert all of their
Series D
Preferred Stock and exercise all their warrants.
|
Use
of
Proceeds
|
We
will receive no proceeds from the sale or other disposition
of the shares
of common stock covered hereby, or interests therein, by the
selling
stockholders. However, we will receive $1,551,351 if all of
the warrants
for underlying shares included in this prospectus are exercised
for cash.
We will use these proceeds for general corporate purposes.
|
OTC
Electronic Bulletin Board Symbol
|
“CAPS”
|
See
“RISK
FACTORS” for a discussion of certain factors that should be considered in
evaluating an investment in the common stock.
The
following selected financial information is derived from the Consolidated
Financial Statements appearing elsewhere in this Prospectus and should be read
in conjunction with the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus.
|
|
Year
Ended September 30,
|
|
Three
Months Ended December 31, (Unaudited)
|
|
Summary
of Operations
|
|
|
2005
|
|
|
2004
|
|
|
2005
|
|
|
2004
|
|
Total
revenues
|
|
$
|
848,802
|
|
$
|
885,461
|
|
$
|
240,888
|
|
$
|
262,659
|
|
Loss
from continuing operations
|
|
|
(2,538,408
|
)
|
|
(3,249,963
|
)
|
|
(693,438
|
)
|
|
(797,072
|
)
|
Loss
from operations of discontinued Strax Business
|
|
|
-
|
|
|
(105,806
|
)
|
|
-
|
|
|
-
|
|
Net
loss
|
|
|
(2,538,408
|
)
|
|
(3,355,769
|
)
|
|
(693,438
|
)
|
|
(797,072
|
)
|
Loss
from continuing operations per share
|
|
|
(1.16
|
)
|
|
(3.18
|
)
|
|
(0.21
|
)
|
|
(0.78
|
)
|
Income
(loss) from discontinued operations per
share
|
|
|
-
|
|
|
(0.10
|
)
|
|
-
|
|
|
-
|
|
Net
loss per common share (basic and diluted)
|
|
$
|
(1.16
|
)
|
$
|
(3.28
|
)
|
$
|
(0.21
|
)
|
$
|
(0.78
|
)
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
2,288,543
|
|
|
1,022,328
|
|
|
3,321,673
|
|
|
1,022,328
|
|
Statement
of Financial Position
|
|
As
of
September
30, 2005
|
|
As
of
December
31, 2005
|
|
|
|
|
|
(Unaudited)
|
|
Cash
and cash equivalents
|
|
$
|
1,257,158
|
|
$
|
620,934
|
|
Total
assets
|
|
|
3,173,137
|
|
|
2,506,755
|
|
Working
capital
|
|
|
1,705,187
|
|
|
1,086,326
|
|
Long-term
debt
|
|
|
-
|
|
|
-
|
|
Stockholders’
equity
|
|
|
2,795,540
|
|
|
2,102,102
|
|
RISK
FACTORS
The
shares of our common stock being offered for resale by the selling stockholders
are highly speculative in nature, involve a high degree of risk and should
be
purchased only by persons who can afford to lose the entire amount invested
in
the common stock. Before purchasing any of the shares of common stock, you
should carefully consider the following factors relating to our business and
prospects. If any of the following risks actually occurs, our business,
financial condition or operating results could be materially adversely affected.
In such case, the trading price of our common stock could decline and you may
lose all or part of your investment.
Business
Risks
We
Have a History of Losses
To
date,
we have been unable to generate revenue sufficient to be profitable. We had
a
net loss of approximately $2,538,000, or $(1.16) per share, for the fiscal
year
ended September 30, 2005, compared to a net loss of approximately $3,356,000,
or
$(3.28) per share, for the fiscal year ended September 30, 2004, and a net
loss
of approximately $694,000, or $(0.21) per share, for the three month period
ended December 31, 2005. We can expect to incur losses for the immediate
foreseeable future. There can be no assurance that we will achieve the level
of
revenues
needed to be profitable in the future or, if profitability is achieved, that
it
will be sustained. Due to these losses, we have a continuing need for additional
capital.
Risk
of Need for Additional Financing
We
raised
gross proceeds of $3.0 million in a placement of Series D Convertible Preferred
Stock in the second quarter of fiscal 2006, and gross proceeds of $4.5 million
in a placement of Series C Preferred Stock and warrants in the second quarter
of
fiscal 2005. The net proceeds from these placements should fulfill our capital
needs through March 31, 2007 based upon our present business plan. However,
we
expect to require additional working capital or other funds in the near future
should we need to modify our business plan. These funds are required to support
our marketing efforts, obtain additional regulatory approvals both domestically
and overseas as well as to provide for our manufacturing purposes. In the event
we are unable to achieve any market penetration in the near term, secure
regulatory approvals or build inventory available for immediate delivery, our
ability to secure additional funding could be severely jeopardized. No assurance
can be given that we will be successful in obtaining additional funds, whether
publicly or privately or through equity or debt. Any such financing could be
highly dilutive to stockholders.
Our
Lack of Operating History Makes Evaluation of our Business Difficult.
The
MCM
business, our primary business, is at an early stage of commercialization and
there is no meaningful historical financial or other information available
upon
which you can base your evaluation of this business and its prospects. We
acquired the MCM business in December 2002 and have generated insubstantial
revenues to date from it.
In
addition, our early
stage of
commercialization means that we have less insight into how market and technology
trends may affect our business. This includes our ability to attract and
convince customers to switch from their current method of dealing with the
disposal of their medical waste to a new technology and to adjust their current
in-house system to adapt to our SteriMed Systems. As a consequence,
the revenue and income potential of our business is unproven. Further, we cannot
estimate the expenses for operating the business. If we are incorrect in our
estimates, it could be detrimental to our business.
We
Expect our Manufacturing and Marketing Development Work for our MCM Business
to
Continue for Some Time, and our Manufacturing and Marketing may not Succeed
or
may be Significantly Delayed.
At
present, the SteriMed is manufactured at our own facility in Israel. The
SteriMed Junior is currently manufactured by a third-party manufacturer in
Israel. While we expect our manufacturing and product development work to
continue in Israel, due to the limited capacity as well as the high costs of
transportation from Israel, we continue to seek sub-assembly manufacturers
to
enable us to reduce the cost of the SteriMed Junior as well as alternative
locations in North America for the manufacture of our SteriMed
Junior.
As we
receive interest from these manufacturers, we will then undertake a detailed
analysis to ensure that they are sufficiently qualified to manufacture our
unit
and that their costs are acceptable to us. If we fail to effectively manufacture
or cause the
manufacture of or fail to develop a market for our SteriMed Systems, we will
likely be unable to recover the losses we will have incurred in attempting
to
produce and market these products and technologies and may be unable to make
sales or become profitable. As a result, the market price of our securities
may
decline, causing you to lose some or all of your investment.
Dependence
on Our Third-Party
Component Suppliers
We
are
dependent on third-party suppliers for the components of our SteriMed and
SteriMed Junior Systems and also for the Ster-Cid®
disinfectant. At present there are no supply contracts in place and our
requirements are fulfilled against purchase orders. There can be no assurances
that we will have adequate supplies of materials. Although we believe that
the
required components are readily available and can be provided by other
suppliers, delays may be incurred in establishing relationships or in waiting
for quality control assurance with other manufacturers for substitute
components.
We
Are Subject to Extensive Governmental Regulation with which it is Frequently
Difficult, Expensive And Time-Consuming to Comply.
The
medical waste management industry is subject to extensive U.S. EPA, state and
local laws and regulations relating to the collection, packaging, labeling,
handling, documentation, reporting, treatment and disposal of regulated medical
waste. The use of the Ster-Cid® disinfectant
in the SteriMed Systems is registered with the U.S. EPA under FIFRA, however,
the SteriMed Systems are not subject to U.S. EPA registration. Our business
requires us to comply with these extensive laws and regulations and also to
obtain permits, authorizations, approvals, certificates or other types of
governmental permission from all states and some local jurisdictions where
we
sell or lease the SteriMed Systems. The SteriMed has been cleared for marketing
in 47 states and the SteriMed Junior in 42 states. It is our objective to obtain
approvals from the remaining states. The Ster-Cid® has been registered in 49
states. Our ability to obtain such approvals in the remaining states and the
timing and cost to do so, if successful, cannot be easily determined nor can
the
receipt of ultimate approval be assumed.
In
markets outside the U.S., our ability to market the SteriMed Systems is governed
by the regulations of the specific country. In foreign countries, we primarily
market through distributors and we rely on them to obtain the necessary
regulatory approvals to permit the SteriMed Systems to be marketed in that
country. We are therefore dependent on the distributors to process these
applications where required. In many of these countries, we have no direct
control or involvement in the approval process, and therefore we cannot estimate
when our product will be available in that market.
We
believe that we currently comply in all material respects with all applicable
laws, regulations and permitting requirements. State and local regulations
change often, however, and new regulations are frequently adopted. Changes
in
the applicable regulations could require us to obtain new approvals or permits,
to change the way in which we operate or to make changes to our SteriMed
Systems. We might be unable to obtain the new approvals or permits that we
require and the cost of compliance with new or changed regulations could be
significant. In the event we are not in compliance, we can be subject to fines
and administrative, civil or criminal sanctions or suspension of our
business.
The
approvals or permits that we require in foreign countries may be difficult
and
time-consuming to obtain. They may also contain conditions or restrictions
that
limit our ability to operate efficiently, and they may not be issued as quickly
as we need (or at all). If we cannot obtain the approval or permits that we
need
when we need them, or if they contain unfavorable conditions, it could
substantially impair our ability to sell the SteriMed Systems in certain
jurisdictions or to import the system into the United States.
We
May Not Be Able to Effectively Protect Our Intellectual Property Rights and
Proprietary Technology, Which Could Have a
Material Affect on Our Business and Make It Easier For Our Competitors to
Duplicate Our Products.
We
regard
certain aspects of our products, processes, services and technology as
proprietary, and we have trademarks and patents for certain aspects of the
SteriMed Systems. Our ability to compete successfully will depend in part on
our
ability to protect our proprietary rights and to operate without infringing
on
the proprietary right of others, both in the United States and abroad. Our
proprietary rights to Ster-Cid® relate to an exclusive worldwide license that we
had obtained from a third party manufacturer in Europe to purchase the Ster-Cid®
disinfectant. The patent positions of medical waste technology companies
generally involve complex legal and factual questions. While patents are
important to our business, the regulatory approvals are more critical in
permitting us to market our products. We may also apply in the future for patent
protection for uses, processes, products and systems that we develop. There
can
be no assurance that any future patent for which we apply will be issued, that
any existing patents issued will not be challenged, invalidated or circumvented,
that the rights granted thereunder will provide any competitive advantage,
that
third-parties will not infringe or misappropriate our proprietary rights or
that
third parties will not independently develop similar products, services and
technology. We may incur substantial costs in defending any patent or license
infringement suits or in asserting any patent or license rights, including
those
granted by third parties, the expenditure of which we might not be able to
afford. An adverse determination could subject us to significant liabilities
to
third parties, require us to seek licenses from or pay royalties to third
parties or require us to develop appropriate alternative technology. There
can
be no assurance that any such licenses would be available on acceptable terms
or
at all, or that we could develop alternate technology at an acceptable price
or
at all. Any of these events could have a material adverse effect on our business
and profitability.
We
may
have to resort to litigation to enforce our intellectual property rights,
protect our trade secrets, determine the validity and scope of the proprietary
rights of others, or defend ourselves from claims of infringement, invalidity
or
unenforceability. Litigation may be expensive and divert resources even if
we
win. This could adversely affect our business, financial condition and operating
results such that it could cause us to reduce or cease operations.
We
May Not Be Able to Develop New Products That Achieve Market
Acceptance
Our
future growth and profitability depend in part on our ability to respond to
technological changes and successfully develop and market new products that
achieve significant market acceptance. This industry has been historically
marked by very rapid technological change and the frequent introductions of new
products. There is no assurance that we will be able to develop new products
that will realize broad market acceptance.
The
Nature of Our Business Exposes Us to Professional and Product Liability Claims,
Which Could Materially Adversely Impact Our Business and
Profitability
The
malfunction or misuse of our SteriMed Systems may result in damage to property
or persons, as well as violation of various health and safety regulations,
thereby subjecting us to possible liability. Although our insurance coverage
is
in amounts and deductibles customary in the industry, there can be no assurance
that such insurance will be sufficient to cover any potential liability. We
currently retain a claims made $2 million worldwide product liability insurance
policy. Further, in the event of either adverse claim experience or insurance
industry trends, we may in the future have difficulty in obtaining product
liability insurance or be forced to pay very high premiums, and there can be
no
assurance that insurance coverage will continue to be available on commercially
reasonable terms or at all. In addition, there can be no assurance that
insurance will adequately cover any product liability claim against us. A
successful product liability, environmental or other claim with respect to
uninsured liabilities or in excess of insured liabilities could have a material
adverse effect on our business, financial condition and operations. To date,
no
claims have been made against us. We believe that our insurance coverage is
adequate to cover any claims made, and we review our insurance requirement
with
our insurance broker on an annual basis.
Other
Parties May Assert That Our Technology Infringes On Their Intellectual Property
Rights, Which Could Divert Management Time and
Resources and Possibly Force Us To Redesign Our Products.
Developing
products based upon new technologies can result in litigation based on
allegations of patent and other intellectual property infringement. While no
infringement claims have been made or threatened against us, we cannot assure
you that third parties will not assert infringement claims against us in the
future, that assertions by such parties will not result in costly litigation,
or
that they will not prevail in any such litigation. In addition, we cannot assure
you that we will be able to license any valid and infringed patents from third
parties on commercially reasonable terms or, alternatively, be able to redesign
products on a cost-effective basis to avoid infringement. Any infringement
claim
or other litigation against or by us could have a material adverse effect on
us
and could cause us to reduce or cease operations, and even if we are successful
in a litigation to defend such claim, there may be adverse effects due to the
significant expenses related to defending the litigation.
The
Loss of Certain Members of Our Management Team Could Adversely Affect Our
Business.
Our
success is highly dependent on the continued efforts of George Aaron, Chairman,
President and Chief Executive Officer, and Jonathan Joels, Chief Financial
Officer, Treasurer and Secretary, who are our key management persons. Should
operations expand, we will need to hire persons with a variety of skills and
competition for these skilled individuals could be intense. Neither Mr. Aaron
nor Mr. Joels plan to retire or leave us in the near future. However, there
can
be no assurance that we will be successful in attracting and/or retaining key
personnel in the future. Our failure to do so could adversely affect our
business and financial condition. We do not have employment agreements with
or
carry any “key-man” insurance on the lives of any of our officers or
employees.
Dependence
on Principal Customers
Two
principal customers, Advanced Washroom and a major U.S. dialysis company
accounted
for
approximately 39% of our revenues from our SteriMed business for fiscal year
2005. Four principal customers,
Euromedic,
which is a foreign distributor in Central and Eastern Europe, the U.S. Navy
and
two major U.S. dialysis companies accounted for approximately 70% of our
revenues in the three months ended December 31, 2004. We are presently working
on the expansion of our sales, both internationally and domestically. In fiscal
year 2005, we received our first significant order for the SteriMed Junior
from
a major U.S. dialysis company. The loss of any one of our principal customers
would have a significant adverse impact to our business.
Competition
There
are
numerous methods of handling and disposing of RMW, of which our technology
is
one of the available systems. We are not aware of any competitive product that
is similar to the SteriMed Systems with respect to its design and compactness.
We believe that our SteriMed Systems, due to their ability to be used on site,
competitive cost and ease of use, offer a significant advantage over RMW systems
offered by our competitors. We realize, however, there can be no assurance
that
a different or new technology may not supplant us in the market. Further, we
cannot guarantee that in the event that we are successful in the deployment
of
our systems in the marketplace, the predominant companies in the field, which
have substantially greater resources and market visibility than us, will not
try
to develop similar systems.
Control
by a Lead Investor
An
investor group beneficially owns approximately 49.3% of the outstanding common
stock, including shares of common stock underlying Series D Preferred Stock
and
warrants currently held by them. Accordingly, they could exercise a significant
voting block in the election of directors and other matters to be acted upon
by
stockholders.
Market
Risks
There
is Only a Volatile Limited Market for Our Common Stock
Recent
history relating to the market prices of public companies indicates that, from
time to time, there may be periods of extreme volatility in the market price
of
our securities because of factors unrelated to the operating performance of,
or
announcements concerning, the issuers of the affected stock, and especially
for
stock traded on the OTC Bulletin Board. Our common stock is not actively traded,
and the bid and asked prices for our common stock have fluctuated significantly.
Since 2003, the common stock has traded on the OTC Bulletin Board from a high
of
$6.80 to a low of $1.00 per share. See “MARKET FOR OUR COMMON STOCK.” General
market price declines, market volatility, especially for low priced securities,
or factors related to the general economy or to us in the future could adversely
affect the price of the common stock. With the low price of our common stock,
any securities placement by us would be very dilutive to existing stockholders,
thereby limiting the nature of future equity placements.
The
Number of Shares Being Registered for Sale is Significant in Relation to our
Trading Volume
All
of
the shares registered for sale on behalf of the selling stockholders are
“restricted securities” as that term is defined in Rule 144 under the Securities
Act. At March 1, 2006, we had 3,321,673 outstanding shares of common stock
and
an aggregate of 4,681,190 shares of common stock reserved for the conversion
of
Preferred Stock and the exercise of options and warrants. Of the 8,002,863
shares, an aggregate of 3,270,080 shares have been included in this prospectus.
We have filed this registration statement to register these restricted shares
for sale into the public market by the selling stockholders. We previously
filed
a separate registration statement for the restricted shares issuable in our
February 2005 placement (see Form SB-2 No. 333-124096). These restricted
securities, if sold in the market all at once or at about the same time, could
depress the market price during the period the registration statement remains
effective and also could affect our ability to raise equity capital. Any
outstanding shares not sold by the selling stockholders pursuant to this
prospectus will remain as “restricted shares” in the hands of the holder, except
for those held by non-affiliates for a period of two years, calculated pursuant
to Rule 144.
We
Have Never Paid Dividends and We Do Not Anticipate Paying Dividends in the
Future
We
do not
believe that we will pay any cash dividends on our common stock in the future.
We have never declared any cash dividends on our common stock, and if we were
to
become profitable, it would be expected that all of such earnings would be
retained to support our business. Since we have no plan to pay cash dividends,
an investor would only realize income from his investment in our shares if
there
is a rise in the market price of our common stock, which is uncertain and
unpredictable.
Shares
Eligible for Future Sale Could Negatively Affect Your Investment in
Us
The
fact
that we are seeking additional capital through the sale of our securities,
including shares of our preferred stock, which include granting certain
registration rights to the investors, could negatively impact us. At March
1,
2006, we had 44,474,456 shares of common stock and 731,067 shares of preferred
stock which our Board of Directors could issue without any approval of existing
holders. The issuance of these shares, as well as the issuance of any new
shares, and any attempts to resell them could depress the market for the shares
being registered under this prospectus.
We
Are Subject to Penny Stock Regulations and Restrictions
The
Securities and Exchange Commission has adopted regulations which generally
define Penny Stocks to be an equity security that has a market price less than
$5.00 per share or an exercise price of less than $5.00 per share, subject
to
certain exemptions. As of March 17, 2006, the closing price for our common
stock
was $2.00 per share and therefore, it is designated a “Penny Stock.” As a Penny
Stock, our common stock may become subject to Rule 15g-9 under the Securities
Exchange Act of 1934, as amended (“Exchange Act”), or the Penny Stock Rule. This
rule imposes additional sales practice requirements on broker-dealers that
sell
such securities to persons other than established customers and “accredited
investors” (generally, individuals with a net worth in excess of $1,000,000 or
annual incomes exceeding $200,000, or $300,000 together with their spouses).
For
transactions covered by Rule 15g-9, a broker-dealer must make a special
suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to sale. As a result, this rule may
affect the ability of broker-dealers to sell our securities and may affect
the
ability of purchasers to sell any of our securities in the secondary
market.
For
any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared
by
the Securities and Exchange Commission (“SEC”) relating to the penny stock
market. Disclosure is also required to be made about sales commissions payable
to both the broker-dealer and the registered representative and current
quotations for the securities. Finally, monthly statements are required to
be
sent disclosing recent price information for the penny stock held in the account
and information on the limited market in penny stock.
There
can
be no assurance that our common stock will qualify for exemption from the penny
stock restrictions. In any event, even if our common stock were exempt from
the
Penny Stock restrictions, we would remain subject to Section 15(b)(6) of the
Exchange Act, which gives the SEC the authority to restrict any person from
participating in a distribution of penny stock, if the SEC finds that such
a
restriction would be in the public interest.
Certain
Provisions of Our Charter Could Discourage Potential Acquisition Proposals
or
Change in Control
Certain
provisions of our Certificate of Incorporation and of Delaware law could
discourage potential acquisition proposals and could make it more difficult
for
a third-party to acquire or discourage a third party from attempting to acquire
control of us. These provisions could diminish the opportunities for a
stockholder to participate in tender offers, including tender offers at a price
above the then current market value of the common stock. Our Board of Directors,
without further stockholder approval, may issue preferred stock that would
contain provisions that could have the effect of delaying or preventing a change
in control or which may prevent or frustrate any attempt by stockholders to
replace or remove the current management. The issuance of additional shares
of
preferred stock could also adversely affect the voting power of the holders
of
common stock, including the loss of voting control to others.
Information
included or incorporated by reference in this prospectus may contain
forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from the future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by
use
of the words “may,” “should,” “expect,” “anticipate,” “estimate,” “believe,”
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
This
prospectus contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
technology, (c) our manufacturing, (d) the regulation to which we are subject,
(e) anticipated trends in our industry and (f) our needs for working capital.
These statements may be found under “Management’s Discussion and Analysis or
Plan of Operations” and “Business,” as well as in this prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under “Risk Factors” and matters described in
this prospectus generally. In light of these risks and uncertainties, there
can
be no assurance that the forward-looking statements contained in this prospectus
will in fact occur.
We
will
not receive any portion of the proceeds from the sale of the shares of common
stock covered hereby, or interests therein, by the selling stockholders. We
may
receive proceeds of up to $1,551,351 if all the warrants held by the selling
stockholders are exercised for cash. Management currently anticipates that
any
such proceeds will be utilized for working capital and other general corporate
purposes. We cannot estimate how many, if any, warrants and options may be
exercised as a result of this offering.
We
are
obligated to bear the expenses of the registration of the shares. We anticipate
that these expenses will be approximately $90,000.
We
have
never declared dividends or paid cash dividends on our common stock. The Series
D Preferred Stock provides for a cumulative dividend of $0.67 per share
commencing October 1, 2007. We intend to retain and use any future earnings
for
the development and expansion of our business and do not anticipate paying
any
cash dividends on the common stock or the Series B Preferred Stock in the
foreseeable future.
Principal
Market and Market Prices
Our
common stock has traded in the over-the-counter market on the OTC Electronic
Bulletin Board (OTCBB) under the symbol CAPR until the April 5, 2005 reverse
split when our trading symbol was changed to CAPS.
The
following table sets forth, for the calendar quarters indicated, the reported
high and low bid quotations per share of the common stock as reported on the
OTCBB. These quotations reflect inter-dealer prices, without retail mark-up,
markdown or commission, and may not necessarily represent actual transactions.
These tables give retroactive effect to our 1-for-20 reverse common stock split
on April 5, 2005.
Fiscal
Period
|
Fiscal
Year Ending
9/30/06
|
Fiscal
Year Ending
9/30/05
|
Fiscal
Year Ended
9/30/04
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
First
Quarter
|
$2.45
|
$1.05
|
$3.80
|
$2.20
|
$6.00
|
$2.20
|
Second
Quarter
|
2.35
|
1.30
|
6.80
|
2.60
|
5.00
|
2.00
|
Third
Quarter *
|
1.65
|
1.65
|
5.00
|
2.10
|
6.00
|
1.00
|
Fourth
Quarter
|
—
|
—
|
2.98
|
2.00
|
5.00
|
2.20
|
*Reflects
prices through April 5, 2006
We
have
not paid any dividends on our shares of common stock since inception and do
not
expect to declare any dividends on our common stock in the foreseeable
future.
Approximate
Number of Holders of Our Common Stock
On
March
1, 2006, there were approximately 1,100 holders of record of the common stock.
Since a large number of shares of common stock were held in street or nominee
name, it is believed that there are a substantial number of additional
beneficial owners of our common stock.
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto and the other financial information
appearing elsewhere in this prospectus. In addition to historical information
contained herein, the following discussion and other parts of this prospectus
contain certain forward-looking statements that involve risks and uncertainties.
Our actual results could differ materially from those discussed in the
forward-looking statements due to factors discussed under “Risk Factors”, as
well as factors discussed elsewhere in this prospectus. The cautionary
statements made in this prospectus should be read as being applicable to all
related forward-looking statements wherever they appear in this
prospectus.
Results
of Operations
Fiscal
Year Ended September 30, 2005 Compared to Fiscal Year Ended September 30,
2004
Revenues
generated for fiscal 2005 were primarily generated by MCM product sales and
rental revenues which totaled $740,796 for fiscal year ended 2005 as compared
with $835,461 for fiscal year ended 2004. For fiscal year ended September 30,
2005, three customers accounted for approximately 51% of the consolidated total
revenue. For the year
ended September 30, 2004, two customers, other than those in fiscal year 2005,
accounted for approximately 72% of the consolidated total revenue. Product
sales
and equipment rental income for the fiscal year 2005 moderately decreased as
we
were negatively impacted by the consolidation in the dialysis clinic market
by
several of our customers which caused them to place their purchasing decisions
on hold during the calendar year of 2005.
Consulting
and royalty income from the TDM Business which was sold in 2002 to Seradyn,
Inc.
totaled approximately $108,000 as compared to $50,000 for fiscal years ended
September 30, 2005 and 2004, respectively. The increase of approximately $58,000
was attributable to royalty income earned
of
approximately $100,000 in fiscal year 2005 (none in fiscal year 2004) under
the
provisions of a
Royalty
Agreement between Seradyn, Inc. and the Company. Pursuant to the terms of the
sale of the TDM business, we received consulting fees of approximately $5,000
in
fiscal year 2005 versus $50,000 in fiscal year 2004. The consulting fee
agreement expired in October 2004.
Cost
of
product sales and equipment rental income aggregated approximately $491,000
as
compared to $619,000 during fiscal years ended September 30, 2005 and 2004,
respectively. The lower costs of approximately $128,000 were a result of lower
revenues
and
increased efficiencies in purchasing production materials and manufacturing
the
SteriMed systems.
Research
and development costs amounted to approximately $325,000 versus $284,000 for
fiscal years ended September 30, 2005 and 2004, respectively. The increased
costs are attributed to research and development activities relating to our
production scale-up of components used to upgrade the SteriMed systems.
Selling,
general and administrative expenses totaled $2,730,071 for fiscal year ended
2005 versus $3,020,212 for fiscal year
ended
2004. This decrease is a result of a reduction in professional fees of
approximately $347,000, primarily due to expenses incurred in defending prior
litigations, offset by the additional hiring of two employees.
Other
income totaled $482,200 for fiscal year ended September 30, 2005 as compared
to
$0 for the year ended September 30, 2004. This income resulted from the
favorable settlement of certain outstanding liabilities as well as an insurance
settlement of $350,000 for expenses incurred in defending prior litigations
which were settled
in fiscal year 2005.
Interest
expense, net totaled $323,026 for fiscal year ended September 30, 2005 versus
$212,571 for the fiscal year ended September 30, 2004. The principal reason
for
the increase of interest expense incurred during the fiscal year ended September
30, 2005 related to the write-off of debt issuance costs and debt discount
of
approximately $125,000 due to the early extinguishment of debt. This debt which
was principally converted to equity in 2005 was in connection with the secured
convertible notes and bridge financing (approximately $2.2 million) which
occurred in the fiscal year ended September 30, 2004.
The
loss
from continuing operations totaled $2,538,408 for fiscal year ended 2005 versus
$3,249,963 for fiscal year ended 2004.
Three
Months Ended December 31,
2005 Compared to Three Months Ended December 31, 2004
Revenues
generated from MCM product sales totaled $217,282 for the three months ended
December 31, 2005 as compared to $236,908 for the three months ended December
31, 2004. Revenues generated from MCM rentals totaled $0 as compared to $5,326
for the comparable period. Consulting and royalty income from the TDM Business,
which was sold in 2002, totaled $23,606 for the three months ended December
31,
2005 as compared to $20,425 for the three months ended December 31,
2004.
Cost
of
product sales and leased equipment amounted to $168,662 or 78% of total related
revenues versus $161,794 or 67% of total related revenues for the three month
period ended December 31, 2005 and 2004, respectively. The increase in the
percentage of cost of goods sold to related revenue is related to the sales
mix
of the units sold in the three months ended December 31, 2005, versus December
31, 2004 as well as higher costs of materials and adverse exchange rate
movement. We have not advanced to a level of sales for us to fully absorb the
fixed costs related to our revenues.
Research
and development expense increased to $81,839 versus $76,580 for the three month
period ended December 31, 2005 as compared to the same period in
2004.
Selling,
general and administrative expenses totaled $687,554 for the three months ended
December 31, 2005 versus $672,278 for the three months ended December 31, 2004.
This difference is principally due to the hiring of an investor relations firm,
commencing May 1, 2005 at a monthly cost of $8,000, offset by certain reductions
in other operating expenses.
Interest
income, net totaled $3,729 for the three months ended December 31, 2005 versus
$149,079 interest expense, net totaled for the three months ended December
31,
2004. There was no outstanding debt during the three months ended December
31,
2005.
The
net
loss amounted to $693,438 and $797,072 for the three month periods ended
December 31, 2005 and 2004, respectively.
Liquidity
and Capital Resources
At
December 31, 2005, our cash and cash equivalents position approximated $621,000
versus $1,257,000 at September 30, 2005.
On
February 15, 2005, we closed on a $4.5 million preferred stock equity financing
before financing related fees and expenses of approximately $435,000. We issued
45,000 shares of Series C Mandatory Convertible Preferred Stock (“Series C
Preferred Stock”) at a stated value of $100 per share, together with Series A
Warrants to purchase an aggregate of 465,517 shares of common stock at an
exercise price of $5.60 per share for a period of five years, and Series B
Warrants to purchase an aggregate of 155,172 shares of common stock at an
exercise price of $2.90 per share for a period of five years exercisable after
nine months, subject to a termination condition as defined in the warrant.
Simultaneously, the outstanding short-term secured debt in the aggregate of
approximately $2.1 million inclusive of interest, together with $72,962 of
unsecured indebtedness, were converted into 21,681 shares of Series C Preferred
Stock. Under the terms of the Series C Preferred Stock, upon the reverse stock
split, effective April 5, 2005, the outstanding Series C Preferred Stock was
converted into 2,299,345 shares of common stock at a conversion price of $2.90
per share.
The
proceeds from this capital raising transaction was principally used to finance
the net cash used in operating activities, during the year ended September
30,
2005 ($2.9 million) and for the quarter ended December 31, 2005 ($633,000).
The
remaining funds of approximately $600,000 are targeted to finance the needs
of
our business through June 30, 2006, based upon our present business plan.
Specifically, the funds are being used to increase our marketing effort both
in
the U.S. and overseas markets. The availability of this working capital has
enabled us to build inventory to fulfill current needs arising from our
increased marketing efforts. In addition, as we start to increase our
penetration in the U.S. market, we will need to expand our customer service
and
technical support capabilities to meet the needs of our clients. Similarly,
in
overseas markets, resources will be required to obtain regulatory approvals
in
markets where we believe there exists great opportunities for our
business.
On
February 17, 2006, we closed on a $3 million Series D Preferred Stock equity
financing before financing related fees and expenses of approximately $300,000.
The net proceeds will be used for general working capital purposes.
We
believe that after the February 2006 placement we should have sufficient cash
requirements to support our working capital needs through March 31, 2007.
However, to further develop the MCM business, we will need to seek additional
funding. We will continue its efforts to seek additional funds through funding
options, including private and public equity offerings, banking facilities,
equipment financing, and government-funded grants. There can be no assurance
that such funding initiatives will be successful due to the difficulty in
raising equity from third parties given our low stock price and current revenue
base, and if successful, will be highly dilutive to existing stockholders.
These
funds are required to permit us to expand our marketing efforts and for the
manufacture of its SteriMed System as well as for general working capital
requirements. Accordingly, the auditors’ report on the 2005 financial statements
contains an explanatory paragraph expressing a substantial doubt about our
ability to continue as a going concern.
Contingent
Obligations
Our
principal contractual commitments include payments under operating
leases.
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
our
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
infectious medical waste business recognizes revenues from either the sale
or
rental of our SteriMed Systems. Revenues for sales are recognized at the time
that the unit is shipped to the customer. Rental revenues are recognized based
upon either services provided for each month of activity or evenly over the
year
in the event that a fixed rental agreement is in place.
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.
3. Off-balance
sheet arrangements
The
Company has no off-balance sheet arrangements, financings or other relationships
with unconsolidated entities known “Special Purpose Entities.”
Recent
Accounting Pronouncements
In
September 2005, the Financial Accounting Standards Board (“FASB”) ratified the
Emerging Issues Task Force’s (“EITF”) Issue No. 05-7. “Accounting for
Modifications to Conversion Options Embedded in Debt Instruments and Related
Issues”, which addresses whether a modification to a conversion option that
changes its fair value affects the recognition of interest expense for the
associated debt instrument after the modification, and whether a borrower should
recognize a beneficial conversion feature, not a debt extinguishments, if a
debt
modification increases the intrinsic value of the debt. In September 2005,
the
FASB ratified the following consensus reached in EITF Issue 05-08 (“Income Tax
Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature”):
a) the issuance of convertible debt with a beneficial conversion feature results
in a basis difference in applying FASB Statement of Financial Accounting
Standards SFAS No. 109, Accounting for Income Taxes. Recognition of such a
feature effectively creates a debt instrument and a separate equity instrument
for book purposes, whereas the convertible debt is treated entirely as a debt
instrument for income tax purposes; b) the resulting basis difference should
be
deemed a temporary difference because it will result in a taxable amount when
the recorded amount of the liability is recovered or settled; and c) recognition
of deferred taxes for the temporary difference should be reported as an
adjustment to additional paid-in capital. These issues are effective in the
first interim or annual reporting period commencing after December 15, 2005,
with early application permitted. The effect of applying the consensus should
be
accounted for retroactively to all debt instruments containing a beneficial
conversion feature that are subject to EITF Issue 00-27, “Application of Issue
No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to
debt instruments converted or extinguished in prior periods but which are still
presented in the financial statements). Management does not believe these
pronouncements will have a material impact on the Company’s consolidated
financial statements.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction.”
This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change
in
accounting principle. The statements apply to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement
is
effective for accounting changes and corrections of errors made in the fiscal
years beginning after December 15, 2005. Management does not believe this
pronouncement will have a material impact on the Company’s consolidated
financial statements.
In
December 2004, the FASB issued its final standard on accounting for share-based
payments (“SBP”), FASB Statement No. 123 (R) (revised 2004) “Share-Based
Payment.” This statement requires companies to expense the value of employee
stock options and similar awards. Under FASB Statement No. 123 (R), SBP awards
result in a cost that will be measured at fair value of the awards’ grant date,
based on the estimated number of awards that are expected to vest. Compensation
cost for awards that vest would not be reversed if the awards expire without
being exercised. Public entities that are small business issuers will be
required to apply Statement No. 123
(R)
as of
the first annual reporting period that begins after December 15, 2005. Although
the adoption of FASB No. 123 (R) will have no adverse impact on the Company’s
balance sheet or total cash flows, it will affect the Company’s net income and
earning per share. The actual effects of adopting FASB No. 123 (R) will depend
on numerous factors, including the amount of share-based payments granted in
the
future, the Company’s future stock price volatility, estimated forfeiture rates
and employee stock option exercise behavior.
In
November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of
ARB No. 43, Chapter 4.” The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The Company
does not believe the adoption of SFAS 151 will have a significant impact on
the
Company’s overall results of operations or financial position.
In
October 2004, the FASB ratified the consensus reached in EITF Issue No. 04-8,
“The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share.” The EITF reached a consensus that contingently convertible instruments,
such as contingently convertible debt, contingently convertible preferred stock,
and other such securities should be included in diluted earnings per share
(if
dilutive) regardless of whether the market trigger price has been met. The
consensus became effective for reporting periods ending after December 15,
2004.
The adoption of this statement did not have a significant impact on the
Company’s consolidated financial statements.
Inflation
To
date,
inflation has not had a material effect on our business. We believe that the
effects of future inflation may be minimized by controlling costs and increasing
our manufacturing efficiency through the increase of our product
sales.
Background
Caprius,
Inc. is engaged in the infectious medical waste disposal business. In the first
quarter of Fiscal 2003, we acquired a majority interest in M.C.M. Environmental
Technologies, Inc. (“MCM”) which develops, markets and sells the SteriMed and
SteriMed Junior compact units that simultaneously shred and disinfect Regulated
Medical Waste. The SteriMed Systems are sold and leased in both the domestic
and
international markets.
In
December 2002, we closed the acquisition of our initial investment of 57.53%
of
the capital stock of MCM for a purchase price of $2.4 million. MCM wholly-owns
MCM Environmental Technologies Ltd., an Israeli corporation, which initially
developed the SteriMed Systems. Upon closing, our 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 had provided MCM with loans totaling
$565,000, which loans
were repaid upon closing by a reduction in the cash portion of the purchase
price. As part of the Stockholders Agreement dated December 17, 2002, there
were
certain provisions relating to performance adjustments for the twenty four
month
period post closing. As a consequence, the Company’s ownership interest
increased by 5% in the fiscal year 2004 and an additional 5% in the fiscal
year
2005. Furthermore, our equity ownership increased with the conversion of various
loans made to MCM and cash calls made by MCM during Fiscal 2005. As of September
30, 2005, our interest in MCM increased to 96.66%.
Caprius,
Inc. was founded in 1983 and through June 1999 essentially operated in the
business of developing specialized medical imaging systems, as well as operating
the Strax Institute, a comprehensive breast imaging center. In June 1999, we
acquired Opus and began manufacturing and selling medical diagnostic assays
constituting the TDM Business. In October 2002, we sold the TDM business to
Seradyn, Inc. The Strax Institute was sold in September 2003.
Background
of the Regulated Medical Waste Industry in the United
States
In
1988,
the Federal Government passed the Medical Waste Tracking Act (“MWTA”). This Act
defined medical waste and the types of medical waste that were to be regulated.
In addition to defining categories of medical waste, the law mandated that
generators of Regulated Medical Waste (“RMW”) be responsible for and adhere to
strict guidelines and procedures when disposing of RMW. The mandates included
a
“cradle to grave” responsibility for any RMW produced by a facility, the
necessity to track the disposal of RMW and defined standards for segregating,
packaging, labeling and transporting of RMW.
The
MWTA
led to the development of individual state laws regulating how RMW is to be
disposed of. As a result of these laws, it became necessary for medical waste
generating facilities to institute new procedures and processes for transporting
medical waste from the facility to an offsite treatment and disposal center,
or
obtain their own on-site system for treatment and disposal acceptable to the
regulators. By 1999, Health Care Without Harm, a coalition of 240 member
organizations, estimated that 250,000 tons of RMW was produced
annually.
The
other
major impact on the RMW market was the adoption of the Clean Air Amendments
of
1997. This Act dramatically reduced or eliminated the type of emissions that
are
permitted from the incineration of RMW. Due to this, generators of RMW, which
were incinerating their waste, were forced into costly upgrades of their
incinerators or to find other methods of disposal. Hospital incinerators
decreased from 6,200 in 1988 to 115 in 2003 (Mackinac Chapter, Sierra Club
Newsletter Aug-Oct 2003).
Most
generators of RMW use waste management firms to transport, treat and dispose
of
their waste. Due to legislative and other market factors, the costs for this
type of service have been increasing at a dramatic pace. At the same time,
many
medical waste generators are coming under increasing pressure to reduce expenses
as a result of the decreasing percentage of reimbursement from Medicare and
other third party providers. Additionally, the added liability of RMW generators
as a result of the “cradle to grave” manifest requirement has made it more
attractive to use medical waste management methods that do not require manifest
systems. The combination of
these
pressures is forcing medical waste generators to seek innovative methods for
their waste disposal. MCM believes these factors create a demand for an onsite
RMW treatment option. MCM has identified and is working with specific segments
and niches within the RMW market on which it feels it might capitalize. The
specifics of these will be discussed in the Marketing section.
Background
of the Regulated Medical Waste Industry Outside of the United
States
The
industrialized countries of the European Union and Japan are implementing
medical waste laws that are or will be similar to U.S. regulations. In 1994,
the
European Commission implemented a directive where member states had to adhere
to
the provisions of the United Nations Economic Commission for Europe (“UNECE”)
European Agreement on the International Carriage of Dangerous Goods by Road.
This requires that clinical or medical waste would be packed, marked, labeled
and documented according to defined specifications. Regulations and cost factors
have prompted European RMW generators to seek alternative medical waste disposal
options. MCM recognizes an excellent opportunity for SteriMed sales in Europe,
and is working with regulators, potential joint venture partners and
distributors.
Throughout
the less industrialized and third world countries, the disposal of hospital
waste is coming under increasing scrutiny and regulations. Many countries are
in
the process of updating and enforcing regulations regarding the disposal of
RMW.
MCM is attempting to establish relationships worldwide directly or through
distributors, in many of these countries.
The
MCM SteriMed Systems
The
SteriMed Systems are patented, environmentally friendly, on-site disinfecting
and disposal units that can process regulated clinical waste, including sharps,
dialysis filters, pads, bandages, plastic tubing and even glass, in a 15 minute
cycle. The units, comparable in size to a washer-dryer, simultaneously shred,
grind, mix and disinfect the waste with the proprietary Ster-Cid® solution.
After treatment, the material may be discarded as unrecognizable conventional
solid waste, in accordance with appropriate regulatory requirements. The
resultant treated waste is as low as 10% of the original volume.
The
SteriMed Systems are comprised of two different sized units, and the required
Ster-Cid® disinfectant solution which can be utilized with both units. The
larger SteriMed can treat up to 20 gallons (75 liters) of medical waste per
cycle. The smaller version, SteriMed Junior, can treat 4 gallons (15 liters)
per
cycle. As the technology for disinfection is chemical based, within the
definitions used in the industry, it is considered as an alternative treatment
technology.
We
have
the worldwide exclusive rights for the manufacture, use and sale of the
Ster-Cid® proprietary disinfectant used in the SteriMed Systems. The Ster-Cid®
is currently manufactured solely for us by a licensor. In the event that the
licensor is unable to manufacture the Ster-Cid®, we have the right to have
Ster-Cid® manufactured by an alternative manufacturer. Ster-Cid® is
approximately 90% biodegradable. Ster-Cid® is considered a pesticide by the U.S.
EPA and, in compliance with Federal Insecticide, Fungicide, Rodenticide Act
of
1973 (“FIFRA”); it is registered with the U.S. EPA. The process of registering a
pesticide under FIFRA involves submission of an application package to the
U.S.
EPA. The EPA’s review of this application includes assessment of the hazards to
human health and the environment that may be posed by the pesticide. This
process can take up to a year or more to complete. MCM had assigned an agent
experienced with the FIFRA registration process to carry out this process for
Ster-Cid®. This process was completed in September 1999 at which time the
Ster-Cid® was
assigned a FIFRA Registration number.
During
the SteriMed disinfecting cycle, the concentration of Ster-Cid® is approximately
0.5% of the total volume of liquids. The Ster-Cid® disinfectant has been tested
in independent laboratories and shown to meet U.S. EPA guidelines for
disinfection. Furthermore, it is accepted by Publicly Owned Treatment Works
(“POTW”) allowing for its discharge into the sewer system.
Both
the
SteriMed and SteriMed Junior are safe and easy to operate, involving ½ day of
training provided by our technical support staff to operators as designated
by
the end-user. The operator is trained to handle the daily and weekly
responsibilities for the routine preparation, maintenance, and minor
troubleshooting of the SteriMed
Systems.
Daily maintenance includes filling the system with the Ster-Cid®, removal and
replacement of the filter bags, and disposing of the filter bag as black bag
waste.
The
trained operator places the red bag waste containing RMW into the SteriMed
receiver chamber and activates the start button. The water and Ster-Cid® are
then automatically released into the treatment chamber. The shredding, grinding
and mixing of the waste is then initiated to expose all surfaces of the medical
waste to the chemical solution during the 15 minute processing cycle. At the
end
of each specified number of cycles, trained operator then puts the residue
into
a regular black bag, ready for disposal as regular solid waste.
Both
SteriMed and the SteriMed Junior are equipped with an integrated monitoring
system, including a PLC display, which indicates each of the system’s functions
to guide the operator through its operations. Access to the PLC program is
secured, accessible only by MCM’s technicians to prevent operators from
overriding the treatment process. Relevant information concerning treatment
parameters may be electronically forwarded, at the end of each treatment cycle,
to a designated printer at any location within the facility. In addition, the
system is capable, at the option of the facility, to have the treatment
parameters for all cycles in a day forwarded to MCM’s maintenance
center.
Regulations
and Regulatory Compliance for Alternative Medical Waste Treatment Technologies
in the United States
Our
use
of the Ster-Cid® disinfectant in the SteriMed Systems is registered by the U.S.
EPA under FIFRA. The Ster-Cid® disinfectant is considered a pesticide, and is
registered under FIFRA Number 71814. FIFRA gives the federal government control
over the distribution, sale and use of pesticides. All pesticides used in the
U.S. must be registered (licensed) by the U.S. EPA under FIFRA. Registration
of
pesticides is to seek assurance that they will be properly labeled, and if
used
in accordance with label specifications, will not cause unreasonable harm to
the
environment.
The
SteriMed Systems are regulated at the state level by the individual states’
Environmental, Conservation, Natural Resources, or Health Department. Each
state
has its own specific approval requirements. Generally, most states require
an
application for registration or approval be submitted along with back up
information, including but not limited to operating manuals, service manuals,
and procedures. Additionally, many states require contingency and safety plans
be submitted, and that efficacy testing be performed. MCM has demonstrated
through efficacy testing that it can inactivate the 4Log10 concentration of
Bacillus
atrophaeus (formerly
Bacillus subtilis)
spores.
This meets or exceeds most state regulatory requirements.
The
SteriMed has been cleared for marketing in 47 states and the SteriMed Junior
in
42 states. The Ster-Cid® disinfectant has been registered in 49 states. We are
currently seeking approvals from the remaining states.
Local
and
county level authorities generally require that discharge permits be obtained
from POTW by all facilities that discharge a substantial amount of liquids
or
specifically regulated substances to the sewer system. The SteriMed Systems
process effluent has been characterized and found to be within the lower range
of the general discharge limits set forth by the National Pollutant Discharge
Elimination System (NPDES) Permitting Program, which are used to establish
POTW’s discharge limits.
These
approvals allow the SteriMed Systems effluent to be discharged to a municipal
sewer and the treated disinfected waste to be disposed of in a municipal
landfill.
The
process used by the SteriMed Systems, unlike many other waste medical disposal
technologies, is not subject to the Clean Air Act Amendments of 1990 because
there is no incineration or generation of toxic fumes in the process. It is
also
not subject to the Hazardous Materials Transportation Authorization Act of
1994
as there is no transportation of hazardous waste involved.
Regulations
and Regulatory Compliance for Alternative Medical Waste Treatment Technologies
outside of the United States
CE
Mark
compliancy is an expected requirement for equipment sold in the European Union
(“EU”). The SteriMed Systems are CE Mark compliant as well as ISO Certified,
9001:2000 and 14001:1996. In order to meet
the
specific regulatory requirements of the individual members of the EU, MCM will
undertake further efficacy testing where necessary in order to demonstrate
that
the SteriMed Systems conform to all the standards in the specific EU member
country. Outside of the EU, we are required to review and meet whatever the
specific standards a country may impose. In countries where we have
distributors, they are required to obtain the necessary regulatory approvals
on
our behalf at their expense.
Competition
RMW
has
routinely been treated and disposed of by of incineration. Due to the pollution
generated by medical waste incinerators, novel technologies have been developed
for the disposal of RMW. Some of the issues confronting these technologies
are:
energy requirements, space requirements, unpleasant odor, radiation exposure,
excessive heat, volume capacity and reduction, steam and vapor containment,
and
chemical pollution. The use of the SteriMed Systems eliminates concern about
these issues: space and energy requirements are minimal, there are no odors,
radiation, steam, vapor or heat generated, solid waste volume is reduced by
up
to 90% and the disinfecting chemical is 94% biodegradable. The following are
the
various competitive technologies:
Autoclave
(steam under pressure): Autoclaves and retort systems are the most common
alternative method to incineration used to treat medical waste. Autoclaves
are
widely accepted because they have historically been used to sterilize medical
instruments. However, there are drawbacks as autoclaves may have limitations
on
the type of waste they can treat, the ability to achieve volume reduction,
and
odor problems.
Microwave
Technology: Microwave technology is a process of disinfection that exposes
material to moist heat and steam generated by microwave energy. The waves of
microwave energy operate at a very high frequency of around 2.45 billion times
per second. This generates the heat needed to change water to steam and carry
out the disinfection process at a temperature between 95 and 100 degrees
centigrade. Use of this technology requires that proper precautions be taken
to
exclude the treatment of hazardous material so that toxic emissions do not
occur. Also offensive odors may be generated around the unit. The capital cost
is relatively high.
Thermal
Processes: Thermal processes are dry heat processes and do not use water or
steam, but forced convection, circulating heated air around the waste or using
radiant heaters. Companies have developed both large and small dry-heat systems,
operating at temperatures between 350oF-700oF.
Use of
dry heat requires longer treatment times.
High
Heat
Thermal Processes: High heat thermal processes operate at or above incineration
temperatures, from 1,000oF
to
15,000oF.
Pyrolysis, which does not include combustion or burning, contains chemical
reactions that create gaseous and residual waste products. The emissions are
lower than that created by incineration, but the pyrolysis demands heat
generation by resistance heating such as with bio-oxidation, induction heating,
natural gas or a combination of plasma, resistance hearing and superheated
steam.
Radiation:
Electron beam technology creates ionized radiation, damaging cells of
microorganisms. Workers must be protected with shields and remain in areas
secured from the radiation.
Chemical
Technologies: Disinfecting chemical agents that integrate shredding and mixing
to ensure adequate exposure are used by a variety of competitors. Chlorine
based
chemicals, using sodium hypochlorite and chlorine dioxide, are somewhat
controversial as to their environmental effects and their impact on wastewater.
Non-chloride technologies are varied and include peracetic acid, ozone gas,
lime
based dry powder, acid and metal catalysts as well as alkaline hydrolysis
technology used for tissue and animal waste.
Among
the
competitors are Stericycle, Inc., Steris Corporation, Sanitec, Inc. Positive
Impact Waste Solutions, Inc., Waste Processing Solutions Company, Global
Environmental Technologies, LLC, and Waste Reduction, Inc.
Competitive
Features of the SteriMed Systems
Seizing
the opportunity afforded by the regulatory changes and pricing pressures in
the
healthcare industry, we are positioning our products as viable alternatives
to
the traditional medical waste disposal methods. The
SteriMed
Systems seek to offer medical waste generators a true on-site option that is
less risky, less expensive, and more environmentally friendly than the
alternatives. The main competitive advantages of the SteriMed Systems
are:
Safety
|
a)
|
No
need to pack containers of medical
waste
|
|
b)
|
No
need to transport infectious waste through facilities with patients
|
|
c)
|
No
need to ship infectious medical waste on public
roads
|
|
d)
|
Environmentally
sound approach for disinfection - uses biodegradable chemicals; does
not
release smoke, odor, steam or other emissions to the air; removes
the need
for incineration
|
|
e)
|
Noise
level during cycle is approx. 70.1dB(A), regarded below levels of
noise
safety concerns by most government
regulations
|
Labor
|
a)
|
Reduce
the exposure to infectious waste by limiting the time an employee
handles,
stores and packs the waste
|
|
b)
|
No
need to administer and track waste that is shipped from the
facility
|
|
d)
|
Employee
can continue to perform their regular functions while the SteriMed
treatment cycle is operational
|
Convenience
|
a)
|
Easily
installed requiring only electricity, water and sewage outlet. No
special
ventilation or lighting required
|
|
b)
|
Can
fit through regular doorway
|
|
c)
|
Limited
training required for operators
|
|
d)
|
Due
to size, units can be strategically placed in a health care facility
near
high waste generation sites
|
Cost
Saving
|
b)
|
No
transportation
costs to incineration site
|
|
c)
|
Our
preferred business model is to rent the SteriMed Systems to U.S.
facilities generating the infectious clinical waste. This model obviates
the need for capital investment by users, and should also reduce
previous
operating expenses in disposing of medical
waste
|
|
d)
|
Ability
to fix costs for a given period of time, avoiding future price increases
and surcharges
|
Compliant
with Federal and States regulations
|
a)
|
Enable
infectious
medical waste generating facilities to replace existing systems while
meeting federal, state and local environmental as well as health
regulations.
|
These
features are intended to make the use of the SteriMed Systems a very attractive
solution to health care organizations, especially those that are forced to
reconsider their current medical waste management programs because of federal
and state regulations or because of pressures to reduce operating
costs.
Marketing
Strategy
We
have
designed and are implementing a marketing program which maximizes the uniqueness
and strengths of the SteriMed Systems while enhancing our customers’ cash flow
and minimizing their financial restraints. Our sales focus is to those sites
which best fit the capabilities and requirements of our systems. These include
those sites generating approximately 2,000 to 12,000 pounds of RMW per month
and
are able to provide a room with a minimum of 75 square feet with proper plumbing
and electricity for the storage and operation of the machine. Within the United
States these facilities include dialysis centers, surgical centers, plasma
phoresis centers, blood banks, commercial laboratories (both research and
clinical), large physician group practices and specific sites within hospitals.
Many
of
these facilities are owned by national or international corporations operating
many facilities. By focusing our sales efforts on these corporations, we will
be
able to have multiple machine placements within the
same
organization. This offers many advantages to the customer and to us. Not only
will we be able to maximize our selling efforts, we will also be able to
compound our warranty and service effectiveness. This strategy should enable
us
to maximize resources and quickly obtain market penetration. We are presently
working with a number of these customers in the implementation of this strategy
and in fiscal year 2005, we received our first significant order in the U.S.
for
the SteriMed Junior from
a
major dialysis company. In addition, in December 2005, the Company received
an
order for two SteriMed Junior Systems from the United States Department of
Defense for use by the U.S. Navy. The units are for laboratory test and
evaluation as part of the U.S. Navy’s Shipboard Medical Waste Management
Program.
We
do not
have the depth of marketing or financial capacity that many of our competitors
have and thus are reliant upon generating interest in our products by virtue
of
our technical advantages. This aspect is emphasized in our limited budget
allocated for marketing.
Our
business marketing models in the U.S. are either lease or purchase of the
SteriMed Systems. The basic lease terms are a single monthly fee which includes
the cost of the SteriMed, disposables and service for the life of the lease.
Lease terms are usually five years. In the rest of the world, only the purchase
option is available. Leasing is not available outside of the U.S. because of
the
potential difficulty in monitoring and collecting monthly leasing fees. Our
distributors, however, are free to sell or lease the SteriMed Systems in their
respective markets. Regulatory approvals are required prior to marketing in
any
country, whether the business is conducted by us or our distributors.
To
maximize and augment our sales efforts in the U.S., we have been actively
recruiting distributors. Ideally, we are seeking local and regional distributors
who will have the exclusive right to sell the SteriMed Systems and related
products with their prescribed geographical areas or business sectors. In order
to gain exclusivity, the distributor must commit to minimum annual purchases.
The distributor is obligated to work within the guidelines and regulatory
approvals set up and maintained by us.
Internationally,
we have distribution agreements in the following countries: Argentina, Brazil,
Columbia, Costa Rica, Cyprus, Greece, Japan, Mexico, Paraguay, Poland,
Scandinavia (Norway, Sweden, Finland and Iceland), Singapore, Taiwan, Tunisia
and Uruguay. In January 2006, we entered into a three-year exclusive
distributorship agreement for the Caribbean. In February 2006, we entered into
a
five-year exclusive distributorship agreement for the territories of Australia
and New Zealand. In each of the countries, it is the distributors’
responsibility to obtain, at their own expense, all regulatory approvals which
will be registered in the name of MCM.
Manufacturing
We
recognize that to be successful, we need to manufacture units that
are:
1) Robust
2) Reliable
3) Reproducible
in their activity
Presently,
we manufacture the SteriMed at our facility in Moshav Moledet, Israel. The
SteriMed Junior is currently manufactured by a third-party manufacturer in
Israel. We continue to seek sub-assembly manufacturers to enable us to reduce
the cost of the SteriMed Junior as well as alternative locations in North
America for the manufacture of our SteriMed Junior.
Approximately
half of the SteriMed Systems’ components are commercially available from
third-party suppliers. The remaining components are either generic with
modification or customized specifically for the SteriMed. We presently have
depots for parts and supplies located in Ridgefield, NJ and Moledet, Israel.
Maintenance
and Customer Service Model
Critical
to the successful use of the SteriMed Systems is the proper training of the
personnel carrying out the installation, operation and service of the equipment.
The
Company provides our customers with a warranty covering parts and labor for
one
year. Thereafter, we offer an extended warranty program. Our
technical service staff assists clients in the installation of units and the
training of their staff and on-site operators. This training
program
is strongly geared to safety and maintenance to assure ongoing safe and smooth
operation of the unit. After installation and training, operation of the unit
is
monitored by our technical staff to assure proper performance. Our technical
staff is on call to assist in fixing problems or perform repairs. Our goal
is to
minimize problems through ongoing training and strict adherence to maintenance
schedules. Our Customer Service staff is available to help with any questions
or
issues our customers might have.
Proprietary
Rights
There
exist various medical waste treatment technologies that can be combined and
employed in different ways, making trademarks and patents very important pieces
of intellectual property to possess in the medical waste treatment industry.
MCM
acquired and/or applied for trademarks and patents for our SteriMed and
Ster-Cid® products as indicated
in the following tables. The validation for patents is extended to fifteen
years, provided an annual fee (on renewal dates) is paid in the respective
country.
SteriMed
Systems has an International Class 10 Trademark for Israel, United States,
Canada, Japan, Australia, Mexico, Russia, Hungary, Poland, and for Community
Trademark (“CTM” - European).
MCM
STERIMED - INTERNATIONAL CLASS 10 TRADEMARK:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Trademark
No.
|
Renewal
Date
|
99200
|
Israel
|
113,697
|
7/20/1997
|
113,697
|
07/20/2007
|
99207
|
U.S.A.
|
75/904,419
|
01/28/2000
|
2,724,738
|
10/20/2013
|
99208
|
Canada
|
1035659
|
11/12/1999
|
TMA
596,538
|
12/04/2018
|
99209
|
CTM(European)
|
1380146
|
11/11/1999
|
1380146
|
11/11/2009
|
99210
|
Japan
|
11-103145
|
11/12/1999
|
4462258
|
03/23/2011
|
99211
|
Australia
|
813208
|
11/09/1999
|
813208
|
11/09/2009
|
99212
|
Mexico
|
472508
|
02/23/2001
|
701862
|
02/23/2011
|
99214
|
Russia
|
99719243
|
11/18/1999
|
209618
|
11/18/2009
|
99216
|
Hungary
|
m-9905278
|
11/10/1999
|
165158
|
11/10/2009
|
99218
|
Poland
|
Z-209695
|
11/10/1999
|
148086
|
11/10/2009
|
The
Ster-Cid® disinfectant has an International Class 5 Trademark for Israel, United
States, Canada, Japan, Australia, Mexico, Russia, Hungary, Poland, and CTM.
MCM
STER-CID®
INTERNATIONAL CLASS 5 TRADEMARK:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Trademark
No.
|
Renewal
Date
|
99200
|
Israel
|
131893
|
11/01/1999
|
131893
|
11/01/2006
|
99201
|
U.S.A.
|
75/904,150
|
01/29/2000
|
2,713,884
|
05/06/2013
|
99202
|
Canada
|
1035658
|
11/12/1999
|
TMA
596,329
|
12/03/2018
|
99203
|
CTM(European)
|
1380195
|
11/11/1999
|
1380195
|
11/11/2009
|
99204
|
Japan
|
11-103144
|
11/12/1999
|
4562185
|
04/19/2007
|
99205
|
Australia
|
813207
|
11/09/1999
|
813207
|
11/09/2009
|
99206
|
Mexico
|
412940
|
02/23/2001
|
656603
|
02/25/2010
|
99213
|
Russia
|
99719294
|
11/18/1999
|
200276
|
11/17/2009
|
99215
|
Hungary
|
M-9905279
|
11/10/1999
|
164682
|
11/10/2009
|
99217
|
Poland
|
Z-209696
|
11/10/1999
|
145760
|
11/10/2009
|
The
SteriMed has patents in Australia, Japan, United States, Canada, Europe and
South Africa. Additionally, there are patent applications pending in the United
States (provisional), Australia, Brazil, Mexico, Russia, Canada, China, India,
and Patent Corporation Treaty (“PCT”).
MCM
STERIMED PATENTS:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Patent
No.
|
Patent
Date
|
Valid
Until
|
9346
|
Israel
|
108,311
|
01/10/1994
|
108,311
|
12/23/1999
|
01/10/2014
|
9452
|
Australia
|
10096/95
|
01/09/1995
|
684,323
|
04/2/1998
|
01/09/2015
|
9453
|
Japan
|
7-011844
|
01/23/1995
|
3058401
|
04/21/2000
|
01/27/2015
|
9454
|
U.S.A.
|
08/369,533
|
01/05/1995
|
5,620,654
|
04/15/1997
|
04/15/2014
|
9456
|
Canada
|
2,139,689
|
01/06/1995
|
2,139,689
|
10/5/1999
|
01/06/2015
|
9455
|
Europe
|
95630001.6
|
01/05/1995
|
EP0662346
|
03/28/2001
|
01/05/2015
|
MCM
STERIMED PCT INTERNATIONAL PHASE PATENTS:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Patent
No.
|
Patent
Date
|
Valid
Until
|
|
PCT
|
PCT/IL02/00093
|
02/04/2002
|
WO2002/062479
A1
|
N/A
|
N/A
|
2337
|
Australia
|
2002230065
|
02/04/2002
|
Pending*
|
Pending
|
02/04/2022
|
2338
|
Brazil
|
200300398
|
07/31/2003
|
Pending*
|
Pending
|
02/04/2022
|
2339
|
Mexico
|
PA/a/2003/006946
|
08/04/2003
|
Pending*
|
Pending
|
02/04/2022
|
2340
|
Russia
|
2003127023
|
09/04/2003
|
Pending*
|
Pending
|
02/04/2022
|
2341
|
So.
Africa
|
2003/5602
|
07/21/2003
|
2003/5602
|
09/23/2003
|
02/04/2022
|
2342
|
Canada
|
2437219
|
08/01/2003
|
Pending*
|
Pending
|
02/04/2022
|
2343
|
China
|
02806986.2
|
09/22/2003
|
Pending*
|
Pending
|
02/04/2022
|
2712
|
Hong Kong
|
4106248.3
|
08/20/2004
|
Pending*
|
Pending
|
N/A
|
2344
|
India
|
01389/chenp/03
|
09/02/2003
|
Pending*
|
Pending
|
02/04/2022
|
2373
|
USA
|
09/824,685
|
04/04/2001
|
6494391
|
12/17/2002
|
04/04/2021
|
2313/354
|
Europe
|
02711185.5
|
09/05/2003
|
P210477PCT/EP
|
Pending
|
02/04/2022
|
*Applied
for as a temporary patent until the PCT takes effect.
We
maintain, in-house, a system that tracks all expiration dates for our trademarks
and patents. This internal tracking system alerts us when renewal submissions
are required.
Employees
As
of
March 1, 2006, we employed fourteen full-time employees, including three senior
managers, of which five employees are located at our facility in
Israel.
None
of
our employees is represented by any labor organization and we are not aware
of
any activities seeking such organization. We consider our relations with
employees to be good.
As
the
level of our activities grow, additional personnel may be required.
Properties
We
lease
approximately 4,200 square feet of office space in Hackensack, New Jersey for
executive and administrative personnel pursuant to a lease that expires on
September 30, 2011 at a base monthly rental of approximately $7,500, plus
escalation. We
also
lease approximately 1,500 square feet of space in Ridgefield, NJ for warehousing
and assembly at a monthly cost of $2,040 pursuant to a lease that expires on
July 31, 2006.
In
Israel, we lease 2,300 square feet of industrial space at a monthly cost of
approximately $865 and the lease expires on March 31, 2006. We are in the
process of renewing this lease agreement for another year.
Litigation
None.
Executive
Officers and Directors
As
of
March 1, 2006, our directors and executive officers were:
Name
|
Age
|
Position
|
Director
Since
|
George
Aaron
|
53
|
Chairman
of the Board, President and Chief Executive Officer
|
1999
|
Jonathan
Joels
|
49
|
Chief
Financial Officer, Treasurer, Secretary and Director
|
1999
|
Elliott
Koppel
|
62
|
VP
Sales and Marketing
|
—
|
Sol
Triebwasser, Ph.D. (1)(2)
|
84
|
Director
|
1984
|
Jeffrey
L. Hymes, M.D. (1)(2)
|
53
|
Director
|
2004
|
____________________
(1) Member
of
the Audit Committee
(2) Member
of
the Compensation/Option Committee
The
principal occupations and brief summary of the background of each director
and
executive officer during the past five years is as follows:
George
Aaron.
Mr.
Aaron has been Chairman of the Board, President and CEO of the Company since
June 1999. He also served as a Director on the Board of the Company from 1992
until 1996. From 1992 to 1998, Mr. Aaron was the co-Founder and CEO of Portman
Pharmaceuticals, Inc. and in 1994 co-founded CBD Technologies, Inc. of which
he
remains a Director. Mr. Aaron also serves on the Board of Directors of DeveloGen
AG, who recently merged with Peptor Ltd. (the company that had acquired Portman
Pharmaceuticals). From 1983 to 1988, Mr. Aaron was the Founder and CEO of
Technogenetics Inc. (a diagnostic company). Prior to 1983, Mr. Aaron was Founder
and Partner in the Portman Group, Inc. and headed international business
development at Schering Plough. Mr. Aaron is a graduate of the University of
Maryland.
Jonathan
Joels.
Mr.
Joels has been CFO, Treasurer and Secretary of the Company since June 1999.
From
1992 to 1998, Mr. Joels was the co-founder and CFO of Portman Pharmaceuticals,
Inc. and in 1994 co-founded CBD Technologies, Inc. Mr. Joels’ previous
experience included serving as a principal in Portman Group, Inc., CFO of London
& Leeds Corp. and Chartered Accountant positions with both Ernst & Young
and Hacker Young between 1977 and 1981. Mr. Joels qualified and was admitted
as
a Chartered Accountant to the Institute of Chartered Accountants in England
and
Wales in 1981 and holds a BA Honors Degree in Accountancy (1977) from the City
of London.
Elliott
Koppel.
Mr.
Koppel has been VP of Marketing and Sales of the Company since June 1999. From
1996 to June 1999 he served as CEO of ELK Enterprises, a consulting and
advertising company for the Medical Device industry. From 1993 to 1996, he
was
VP Sales and Marketing for Clark Laboratories Inc. From 1992 to 1993, Mr. Koppel
was Director of the Immunology Business Unit at Schiapparelli BioSystems. From
1990 to 1992, he was VP of Sales and Marketing at Enzo BioChem. From 1986 to
1990, Mr. Koppel was VP of Clinical Sciences, Inc. Between 1974 and 1986 he
held
the positions of Sales Representative, Regional Manager, and International
Marketing Manager at Warner Lambert Diagnostics. Prior to 1974 Mr. Koppel was
Sales Representative and Product Manager with Ortho Diagnostics. Mr. Koppel
holds a BS in Commerce from Rider University.
Jeffrey
L. Hymes, M.D.
Dr.
Hymes has been a Director of the Company since May 2004. In 1998 Dr. Hymes
co-founded National Nephrology Associates (NNA), a privately-held dialysis
company, and until its acquisition by Renal Care Group in April 2004 he had
served as NNA’s President and Chief Medical Officer. Prior to that time, Dr.
Hymes was a co-founder of REN Corporation, a publicly-traded dialysis company
that was sold to GAMBRO in 1995. Dr. Hymes is currently the President of
Nephrology Associates, P.C., Nashville, TN, a 19-physician nephrology practice.
Dr. Hymes is a graduate of Yale College and received his MD degree from the
Albert Einstein College of Medicine of Yeshiva University.
Sol
Triebwasser, Ph.D.
Dr.
Triebwasser has been a Director of the Company’s since 1984. Until his
retirement in 1996, Dr. Triebwasser was Director of Technical Journals and
Professional Relations for the IBM Corporation in Yorktown Heights, New York,
which he joined after receiving his Ph.D. in physics from Columbia in 1952.
He
had managed various projects in device research and applications at IBM, where
he is currently a Research Staff member emeritus. Dr. Triebwasser is a fellow
of
the Institute for Electrical and Electronic Engineers, the American Physical
Society and the American Association for the Advancement of
Science.
Mr.
Aaron
and Mr. Joels are brothers-in-law.
The
Board
of Directors met either in person or telephonically five times in fiscal 2005.
Each of the Directors attended at least 75% of the meetings.
Board
Committees
The
Board
of Directors has standing Audit and Compensation Committees.
The
Audit
Committee reviews with our independent accountants the scope and timing of
the
accountants’ audit services and any other services they are asked to perform,
their report on our financial statements following completion of their audit
and
our policies and procedures with respect to internal accounting and financial
controls. In addition, the Audit Committee reviews the independence of the
independent public accountants and makes annual recommendations to the Board
of
Directors for the appointment of independent public accountants for the ensuing
year. The Audit Committee was involved in the selection of new auditors for
the
2004 fiscal year. The
Audit
Committee met 5 times during both fiscal 2005 and 2004.
The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all our officers of the Company, reviews general
policy matters relating to compensation and benefits of employees of the Company
and administers the Company’s Stock Option Plans.
Director
Compensation
Directors
who are also employees are not paid any fees or additional compensation for
services as members of our Board of Directors or any committee thereof.
Non-employee Board members are entitled to an annual fee of $5,000 and 3,750
options under our 2002 Stock Option Plan, and may receive additional option
grants at the discretion of the Board.
Executive
Compensation
Summary
Compensation Table
The
following table sets forth the aggregate cash compensation paid by the Company
to (i) its Chief Executive Officer and (ii) its most highly compensated officers
whose cash compensation exceeded $100,000 for services performed during the
years ended September 30, 2005, 2004 and 2003, respectively.
Annual
Compensation
|
|
Long
Term Compensation
|
|
|
|
|
|
|
|
|
|
|
|
Awards
|
|
Payouts
|
|
Name
and Principal Position
|
|
|
Year
|
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Other
Annual Compensation
($)
|
|
|
Restricted
Stock Award(s)
($)
|
|
|
Securities
Underlying Options SARs
(#)
|
|
|
LTIP
Payouts
($)
|
|
|
All
Other compensation
($)
|
|
George
Aaron
President/CEO
|
|
|
2005
2004
2003
|
|
|
240,000
240,000
240,000
|
|
|
-0-
-0-
160,000
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
Jonathan
Joels
CFO
|
|
|
2005
2004
2003
|
|
|
176,000
176,000
176,000
|
|
|
-0-
-0-
112,000
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
Elliott
Koppel
|
|
|
2005
2004
2003
|
|
|
92,000
92,000
92,000
|
|
|
-0-
-0-
28,000
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
5,000
-0-
|
|
|
-0-
-0-
-0-
|
|
|
-0-
-0-
-0-
|
|
We
do not
have any written employment agreements with any of our executive officers.
Mr.
Aaron, Mr. Joels and Mr. Koppel have been paid annual base salaries of $240,000,
$176,000, and $92,000, respectively and we lease automobiles for Messrs. Aaron
and Joels in amounts not to exceed $1,000 and $750 per month, respectively,
and
also pay their automobile operating expenses. Mr. Koppel is reimbursed $700
per
month for automobile expenses excluding insurance. Messrs. Aaron, Joels and
Koppel are reimbursed for other expenses incurred by them on our behalf in
accordance with Company policies. In October 2002, Messrs. Aaron, Joels and
Koppel were paid performance-related bonuses of $160,000, $112,000 and $28,000,
respectively.
We
do not
have any annuity, retirement, pension or deferred compensation plan or other
arrangements under which any executive officers are entitled to participate
without similar participation by other employees. For the years ended September
30, 2005, and 2004, under our 401(k) plan there were no matching contributions
by the Company.
Stock
Options
The
following tables set forth contain certain information concerning the grant
of
stock options and the number and value of securities underlying exercisable
and
unexercisable stock options as of and for the fiscal year ended September 30,
2005 by the executive officers listed in the Summary Compensation Table
above.
|
|
Individual
Grants
|
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
Name
|
Number
of Securities Underlying Options/
SARs
Granted (#)
|
%
of Total Options/
SARS
Granted to
Employee(s)
in
Fiscal Year
|
Exercise
on Base
Price
($/sh)
|
Expiration
Date
|
George
Aaron
|
-0-
|
-0-
|
-0-
|
-0-
|
Jonathan
Joels
|
-0-
|
-0-
|
-0-
|
-0-
|
Elliott
Koppel
|
-0-
|
-0-
|
-0-
|
-0-
|
Fiscal
Year End Option Value
|
Name
|
Number
of Securities Underlying Unexercised Options at Sept. 30,
2005
Exercisable/Unexercisable
|
Value
of Unexercised In-the- Money Options At Sept. 30,
2005 Exercisable
($)
|
George
Aaron
|
20,000/0
|
$-0-
|
Jonathan
Joels
|
20,000/0
|
$-0-
|
Elliott
Koppel
|
20,000/0
|
$-0-
|
Due
to
the pending expiration of both the 1993 Employee Stock Option Plan and 1993
Non-Employee Stock Option Plan, in 2002 we adopted the 2002 Stock Option Plan
(“2002 Plan”). As of December 28, 2005, the 2002 Plan was amended to increase to
700,000 shares from 75,000 shares the number of shares of common stock reserved
for issuance pursuant to the exercise of options granted thereunder. Under
the
2002 Plan, options may be
awarded
to both employees and directors. These options may be qualified or non-qualified
pursuant to the regulations of the Internal Revenue Code.
In
January 2006, we granted options to officers, directors, and employees under
the
2002 Plan for an aggregate of 458,000 shares of common stock. Of these, 100,000
options each were granted to Messrs. Aaron and Joels, 25,000 to Mr. Koppel
and
20,000 to each of Dr. Hymes and Dr. Triebwasser. All of these options were
priced at $2.20 per share, vesting six months after the grant date as to
one-eighth of the options granted, and the balance vesting in equal monthly
installments over the next 42 months. All of these options expire 10 years
after
the date of grant and were granted at fair market value or higher at time of
grant.
The
following table sets forth, as of March 1, 2006, certain information regarding
the beneficial ownership of our common stock by (i) each person who is known
by
us to own beneficially more than five percent of the outstanding common stock,
(ii) each of our directors and executive officers, and (iii) all directors
and
executive officers as a group:
Name
of
Beneficial
Owner*
|
|
Position
with Company
|
|
Amount
and Nature of Beneficial Ownership (1) of Common
Stock
|
|
Amount
of Nature and Beneficial Ownership (1) of Preferred
Stock
|
|
Percentage
of Securities ***
|
|
Austin
W. Marxe and David M. Greenhouse
527
Madison Ave.
New
York, NY 10022
|
|
|
Holder
of over five percent
|
|
|
2,961,342(2
|
)
|
|
-
|
|
|
60.4
|
%
|
General
Electric Company
Medical
Services Division
3000
No. Grandview Blvd.
Waukesha
WI 53188
|
|
|
None
|
|
|
57,989(3
|
)
|
|
27,000
|
|
|
1.7
|
%
|
Shrikant
Mehta
Combine
International
354
Indusco Court.
Troy,
Michigan 48083
|
|
|
Holder
of over five percent
|
|
|
210,894
|
|
|
-
|
|
|
6.4
|
%
|
George
Aaron
|
|
|
Chairman
of the Board;
Chief
Executive Officer; President
|
|
|
260,012(4
|
)
|
|
-
|
|
|
7.8
|
%
|
Jonathan
Joels
|
|
|
Director;
Chief
Financial
Officer; Vice President; Treasurer; Secretary
|
|
|
255,226(5
|
)
|
|
-
|
|
|
7.6
|
%
|
Elliott
Koppel
|
|
|
VP
Sales & Marketing
|
|
|
24,444(6
|
)
|
|
-
|
|
|
**
|
|
Sol
Triebwasser, Ph.D.
|
|
|
Director
|
|
|
5,495(7
|
)
|
|
-
|
|
|
**
|
|
Jeffrey
L. Hymes, M.D.
|
|
|
Director
|
|
|
2,500(8
|
)
|
|
-
|
|
|
**
|
|
All
executive officers and Directors as a group (5 persons)
|
|
|
|
|
|
547,677(9
|
)
|
|
-
|
|
|
16.4
|
%
|
*
|
Address
of all holders except Special Situations Private Equity Fund, L.P.,
Special Situations Fund III, L.P. and Mr. Mehta is c/o Caprius Inc.,
One
University Plaza, Suite 400, Hackensack, New Jersey
07601.
|
**
|
Less
than one percent (1%)
|
***
|
Does
not include the Series B Preferred Stock, as it is non-voting except
on
matters directly related to such
series.
|
(1)
|
Includes
voting and investment power, except where otherwise noted. The number
of
shares beneficially owned includes shares each beneficial owner and
the
group has the right to acquire within 60 days of March 1, 2006 pursuant
to
stock options, warrants and convertible
securities.
|
(2)
|
Consists
of (i) 1,034,482 shares, 581,703 shares underlying warrants presently
exercisable and 604,830 shares underlying Series D Convertible Preferred
Stock held by Special Situations Private Equity Fund, L.P., (ii)
317,037
shares, 178,307 shares underlying warrants presently exercisable
and
185,480 shares underlying Series D Convertible Preferred Stock held
by
Special Situations Fund III, QP, L.P. and (iii) 27,790 shares, 15,593
shares underlying warrants presently exercisable and 16,120 shares
underlying Series D Preferred Stock held by Special Situations Fund
III,
L.P. MGP Advisors Limited (“MGP”) is the general partner of Special
Situations Fund III, QP, L.P. and Special Situations Fund III, L.P.
AWM
Investment Company, Inc. (“AWM”) is the general partner of MGP. MG
Advisers, L.L.C. (“MG”) is the general partner of and investment adviser
to the Special Situations Private Equity Fund, L.P. Austin W. Marxe
and
David M. Greenhouse are the principal owners of MGP, AWM and MG.
Through
their control of MGP, AWM, and MG, Messrs. Marxe and Greenhouse share
voting and investment control over the portfolio securities of each
of the
funds listed above.
|
(3)
|
Includes
57,989 shares underlying 27,000 shares of Series B Preferred Stock.
|
(4)
|
Includes
(i) 353 shares in retirement accounts, (ii) 8,200 shares underlying
warrants presently exercisable, (iii) 5 shares jointly owned with
his wife
and (iv) 20,000 shares underlying options presently exercisable and
excludes 100,000 shares underlying options which are currently not
exercisable
|
(5)
|
Includes
(i) 48,000 shares as trustee for his children, (ii) 8,618 shares
underlying warrants presently exercisable, (iii) 20,000 shares underlying
options presently exercisable and (iv) 17,241 shares in a retirement
account, and excludes 100,000 shares underlying options which are
currently not exercisable.
|
(6) |
Includes
(i) 3,894 shares underlying warrants and (ii) 20,000 shares underlying
options presently exercisable, and excludes 25,000 shares underlying
options which are currently not
exercisable.
|
(7)
|
Includes
5,425 shares underlying options presently exercisable, and excludes
20,000
shares underlying options which are currently not
exercisable.
|
(8)
|
Includes
2,500 shares underlying options presently exercisable and excludes
21,250
shares underlying options which are currently not
exercisable.
|
(9)
|
Includes
(i) 20,712 shares underlying warrants and (ii) 67,925 shares underlying
options presently exercisable, and excludes 266,250 shares underlying
options which are currently not
exercisable.
|
During
the first two quarters of fiscal 2005, we were advanced the principal amount
of
$145,923 through short-term loans until additional equity funding was secured.
The terms of the loans are identical to the terms of the $100,000 8% Senior
Secured Convertible Promissory Note of February 2005. The lenders also received
warrants to purchase 7,295 shares of the Company’s common stock exercisable at
$5.60 per share for a period of five years.
The
allocated fair value of the warrants associated with this advance is deemed
to
be immaterial. These short-term loans were provided by executive officers,
Messrs. Aaron, Joels and Koppel who advanced $64,000, $62,357 and $19,566,
respectively. As a condition of this financing the holders of the Notes
exchanged 50% of the Company’s indebtedness for 728 shares of Series C Mandatory
Convertible Preferred Stock and on February 15, 2005 were paid the balance
of
their notes inclusive of interest.
During
the second quarter of fiscal 2004, we authorized a short-term bridge loan for
an
aggregate of $500,000 through the issuance of loan notes due on July 31, 2005.
The funds were utilized primarily for working capital. These funds were provided
by Mr. Aaron ($150,000), Mr. Joels ($150,000), Mr. Koppel ($65,000), Mr. Joels’
brother ($85,000) and others. The loan notes bore interest at a rate of 11%
per
annum and were secured by a first lien on the royalties due to Opus from
Seradyn, in accordance with their Royalty Agreement. For every sixty dollars
($60.00) loaned, the lender received two warrants to purchase one share of
our
common stock, exercisable at $5.00 per share for a period of five years. The
exercise price was in excess of the then market price. Pursuant to the preferred
stock placement, these notes were exchanged for 5,000 shares of Series C
Preferred Stock, and the security interest was released. Upon the Reverse Split,
these shares of Series C Preferred Stock converted into 172,414 shares of our
common stock.
We
believe that each of the above referenced transactions was made on terms no
less
favorable to us than could have been obtained from an unaffiliated third party.
Furthermore, any future transactions or loans between us and our officers,
directors, principal stockholders or affiliates will be on terms no less
favorable to us than could be obtained from an unaffiliated third party, and
will be approved by a majority of disinterested directors.
Common
Stock
We
are
authorized to issue 50,000,000 shares of common stock, $0.01 par value, of
which
3,321,673 shares were issued and outstanding as of March 1, 2006.
The
holders of common stock are entitled to one vote for each share held of record
on all matters to be voted by stockholders. There is no cumulative voting with
respect to the election of directors with the result that the holders of more
than 50% of the shares of common stock and other voting shares voted for the
election of directors can elect all of the directors.
The
holders of shares of common stock are entitled to dividends when and as declared
by the Board of Directors from funds legally available therefore, and, upon
liquidation are entitled to share pro rata in any distribution to holders of
common stock, subject to the right of holders of outstanding preferred stock.
No
dividends have ever been declared by the Board of Directors on the common stock.
See “Dividend Policy.” Holders of our common stock have no preemptive rights.
There are no conversion rights or redemption or sinking fund provisions with
respect to our common stock. All of the outstanding shares of common stock
are,
and all shares sold hereunder will be, when issued upon payment therefore,
duly
authorized, validly issued, fully paid and non-assessable.
Preferred
Stock
We
are
authorized to issue 1,000,000 shares of preferred stock, par value $.01 per
share, of which 27,000 shares of Series B Preferred Stock and 241,933 shares
of
Series D Preferred Stock were outstanding at March 1, 2006. The Series B
Preferred Stock 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 we propose an
amendment to our Certificate of Incorporation which would adversely affect
the
rights of the holders of the Series B Preferred Stock, and is convertible into
57,989 shares of our common stock, subject to customary anti-dilution
provisions. 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. The Series B Preferred Stock is convertible for ten years from
the
date of purchase, August 18, 1997, and subject to mandatory conversion upon
a
change of control or the expiration of the ten-year period.
On
February 16, 2006, we filed a Certificate of Designations authorizing the Series
D Convertible Preferred Stock, consisting of 250,000 shares at a stated value
of
$12.40 per share. Pursuant to the 2006 preferred stock placement, we issued
241,933 shares of the Series D Preferred Stock, each share is convertible into
ten shares of common stock, subject to customary anti-dilution provisions.
These
shares are subject to a mandatory conversion commencing after the effective
date
of a registration statement covering the underlying common stock if the average
closing bid price of the common stock for 15 days in any 20 consecutive trading
days (including the last five trading days) exceeds $2.68 per share and if
the
average daily trading volume during such period exceeds 30,000 shares (subject
to adjustment). The holders of the Series D Preferred Stock are entitled to
an
annual cumulative dividend of $0.67 per share, payable semi-annually, commencing
October 1, 2007. Neither we nor the holders of the Series D Preferred Stock
have
the right to cause the redemption thereof.
We
may
issue the remaining authorized preferred stock in one or more series having
the
rights, privileges, and limitations, including voting rights, conversion rights,
liquidation preferences, dividend rights and redemption rights, as may, from
time to time, be determined by the Board of Directors. Preferred stock may
be
issued in the future in connection with acquisitions, financings, or other
matters, as the Board of Directors deems appropriate. In the event that we
determine to issue any shares of preferred stock, a certificate of designation
containing the rights, privileges and limitations of this series of preferred
stock will be filed with the Secretary of State of the State of Delaware. The
effect of this preferred stock designation power is that our Board of Directors
alone, subject to Federal securities laws, applicable blue sky laws, and
Delaware law, may be able to authorize the issuance of preferred stock which
could have the effect of delaying, deferring, or preventing a change in control
without further action by our stockholders, and may adversely affect the voting
and other rights of the holders of our common stock.
Transfer
Agent
American
Stock Transfer and Trust Company, New York, New York, is the transfer agent
for
our common stock.
The
selling stockholders are comprised of: (i) the four investors in the Series
D
Preferred Stock placement, consisting of 2,419,330 shares underlying their
Series D Preferred Stock and 671,645 shares underlying Series A and Series
B
Warrants that were part of the placement, (ii) eight designees of Laidlaw &
Co. (UK) Ltd. (“Laidlaw”) for 59,702 shares underlying warrants issued in
connection with our Series D Preferred Stock private placement and (iii) Carter
Securities, LLC (“Carter”), for 119,403 shares underlying warrants issued as
part of its placement fee in connection with our Series D Preferred Stock
private placement and (iv) an additional 327,008 shares by reason of provisions
in the Registration Rights Agreement pursuant to which all of the shares herein
are being registered. None of the selling stockholders has held any position
or
office or had any material relationship with us or any of our predecessors
or
affiliates within three years of the date of this prospectus other than for
Carter and Laidlaw having served as placement agents for us.
In
accordance with the terms of the Registration Rights Agreement with the selling
stockholders, the registration statement of which this prospectus is a part
registers, in addition to shares beneficially owned by the selling stockholders,
for sale hereunder an additional 10% of the shares of common stock initially
issuable upon conversion of their Series D Preferred Stock and exercise of
the
warrants (or an additional 327,008 shares) in the event of any future
adjustments in the number of shares that may be issuable thereunder. Because
the
conversion price of the Series D Preferred Stock and the exercise price of
the
warrants may be adjusted, the number of shares that will actually be issued
may
be more or less than the number of shares being offered by this prospectus.
Except where otherwise indicated, the second numerical column to the table
below
assumes the sale of all of the shares covered by this prospectus.
The
following table sets forth, as of March 1, 2006, information with regard to
the
beneficial ownership of our common stock by each of the selling stockholders.
The term “Selling Stockholder” includes the stockholders listed below and their
respective transferees, assignees, pledges, donees and other
successors.
Because
the selling stockholders may offer all, some or none of their common stock,
no
definitive estimate as to the number of shares thereof that will be held by
the
selling stockholders after such offering can be provided and the following
table
has been prepared on the assumption that all shares of common stock offered
under this prospectus will be sold.
Name(1)
|
|
|
Shares
Beneficially Owned Prior To Offering(1)
|
|
|
Percent
Beneficially Owned Before Offering
|
|
|
Shares
to
be Offered
|
|
|
Amount
Beneficially Owned After Offering(2)
|
|
|
Percent
Beneficially Owned After Offering
|
|
Francis
Anderson (3)
|
|
|
1,000
|
|
|
*
|
|
|
1,000
|
|
|
-
|
|
|
*
|
|
Bonanza
Master Fund Ltd. (4)
|
|
|
2,060,664
|
|
|
38.29
|
%
|
|
2,060,664
|
|
|
-
|
|
|
*
|
|
Bonanza
Trust (5)
|
|
|
36,701
|
|
|
1.09
|
%
|
|
7,451
|
|
|
29,250
|
|
|
*
|
|
Carter
Securities, LLC (6)
|
|
|
119,403
|
|
|
3.47
|
%
|
|
119,403
|
|
|
-
|
|
|
*
|
|
Dianthus
Trust (7)
|
|
|
19,951
|
|
|
*
|
|
|
7,451
|
|
|
12,500
|
|
|
*
|
|
Harvey
Kohn (8)
|
|
|
30,844
|
|
|
*
|
|
|
13,000
|
|
|
17,844
|
|
|
*
|
|
Lewis
Mason (9)
|
|
|
8,400
|
|
|
*
|
|
|
8,400
|
|
|
-
|
|
|
*
|
|
Special
Situations Fund III, L.P.(10)(11)
|
|
|
59,503
|
|
|
1.77
|
%
|
|
20,597
|
|
|
38,906
|
|
|
1.16
|
%
|
Special
Situations Fund III QP, L.P. (10)(12)
|
|
|
680,824
|
|
|
18.47
|
%
|
|
236,973
|
|
|
443,851
|
|
|
12.04
|
%
|
Special
Situations Private Equity Fund, L.P. (10)(13)
|
|
|
2,221,015
|
|
|
49.27
|
%
|
|
772,741
|
|
|
1,448,274
|
|
|
32.13
|
%
|
Mary
Ellen Spedale (14)
|
|
|
2,250
|
|
|
*
|
|
|
1,000
|
|
|
1,250
|
|
|
*
|
|
Cary
W. Sucoff (15)
|
|
|
25,172
|
|
|
*
|
|
|
13,000
|
|
|
12,172
|
|
|
*
|
|
Scott
Sucoff (16)
|
|
|
8,400
|
|
|
*
|
|
|
8,400
|
|
|
-
|
|
|
*
|
|
* Less
than
one percent (1%).
|
1.
|
Unless
otherwise indicated in the footnotes to this table, the persons and
entities named in the table have sole voting and sole investment
power
with respect to all shares beneficially owned, subject to community
property laws where applicable. Beneficial ownership includes shares
of
common stock underlying the Series D Preferred Stock, and warrants,
regardless of when exercisable. Ownership is calculated based upon
3,321,673 shares outstanding as of March 1,
2006.
|
|
2.
|
Assumes
the sale of all shares covered hereby. A portion of the shares to
be
beneficially owned after the offering herein, have been registered
for
sale in a separate Registration Statement on form SB-2 (No. 333-124096)
previously filed by us.
|
|
3.
|
Consists
of 1,000 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share. This does not include 2,000 shares underlying warrants beneficially
owned by Mr. Anderson’s wife. Mr. Anderson disclaims any beneficial
interest in such shares.
|
|
4.
|
Includes
(i) 1,612,900 shares underlying Series D Preferred Stock and (ii)
447,764
shares issuable upon exercise of warrants at exercise prices ranging
from
$1.50 to $2.00. Bernay Box holds voting and/or dispositive power
over the
shares held by the selling stockholder. This selling stockholder
may not
convert its Series D Preferred Stock nor exercise its warrants to
the
extent such conversion or exercise would cause this selling stockholder,
together with its affiliates, to beneficially own a number of shares
of
common stock in excess of 4.99% of our then outstanding shares following
such conversion and/or exercise, excluding for purposes of such
determination shares of common stock issuable upon conversion of
the
Series D Preferred Stock or exercise of warrants which have not been
exercised. This selling stockholder has the right to increase its
blocker
percentage to between 5.0% and 9.99%, but it cannot waive its
blocker.
|
|
5.
|
Consists
of 7,451 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share. Jeff Zaluda holds voting and/or dispositive power over the
shares
held by the selling stockholder.
|
|
6.
|
Consists
of 119,403 shares issuable upon exercise of warrants at exercise
prices of
$1.68 per share. John Lipman holds voting and/or dispositive power
over
the shares held by the selling
stockholder.
|
|
7.
|
Consists
of 7,451 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share. Deidre Henderson holds voting and/or dispositive power over
the
shares held by the selling
stockholder.
|
|
8.
|
Consists
of (i) 13,000 shares issuable upon exercise of warrants (initially
granted
to Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share, and (ii) 17,844 shares held in a retirement account. This
does not
include 27,500 shares underlying warrants beneficially owned by Mr.
Kohn’s
wife. Mr. Kohn disclaims any beneficial interest in such
shares.
|
|
9.
|
Consists
of 8,400 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share. This does not include 9,000 shares underlying warrants beneficially
owned by Mr. Mason’s wife. Mr. Mason disclaims any beneficial interest in
such shares.
|
|
10.
|
MGP
Advisors Limited (“MGP”) is the general partner of Special Situations Fund
III, QP, L.P. and Special Situations Fund III, L.P. AWM Investment
Company, Inc. (“AWM”) is the general partner of MGP. MG Advisers, L.L.C.
(“MG”) is the general partner of and investment adviser to the Special
Situations Private Equity Fund, L.P. Austin W. Marxe and David M.
Greenhouse are the principal owners of MGP, AWM and MG. Through their
control of MGP, AWM and MG, Messrs. Marxe and Greenhouse share voting
and
investment control over the portfolio securities of each of the funds
listed above.
|
|
11.
|
Includes
(i) 16,120 shares underlying Series D Preferred Stock and (ii) 4,477
shares issuable upon exercise of warrants at exercise prices ranging
from
$1.50 to $2.00.
|
|
12.
|
Includes
(i) 185,480 shares underlying Series D Preferred Stock and (ii) 51,493
shares issuable upon exercise of warrants at exercise prices ranging
from
$1.50 to $2.00.
|
|
13.
|
Includes
(i) 604,830 shares underlying Series D Preferred Stock and (ii) 167,911
shares issuable upon exercise of warrants at exercise prices ranging
from
$1.50 to $2.00.
|
|
14.
|
Consists
of 1,000 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share
|
|
15.
|
Includes
(i) 13,000 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share and (ii) 12,172 shares held in a retirement account. This does
not
include 27,500 shares underlying warrants beneficially owned by Mr.
Sucoff’s wife. Mr. Sucoff disclaims any beneficial interest in such
shares.
|
|
16.
|
Consists
of 8,400 shares issuable upon exercise of warrants (initially granted
to
Laidlaw as placement agent warrants) at an exercise price of $2.00
per
share. This does not include 13,000 share underlying warrants beneficially
owned by Mr. Sucoff’s wife. Mr. Sucoff disclaims any beneficial interest
in such shares.
|
Carter
was retained by us to act as the placement agent for the February 2006 Series
D
Preferred Stock placement. As
part
of its compensation in this placement, we granted warrants to Carter as set
forth in the table above. Laidlaw was also issued warrants in connection with
the February 2006 Series D Preferred Stock Placement. Laidlaw has transferred
its warrants to certain designees consisting of employees, family members and
employee related trusts. These warrants were issued to Carter and Laidlaw in
the
ordinary course of business and at the time of receiving such securities,
neither Carter nor Laidlaw had any agreements or understandings, directly or
indirectly, with any person to distribute them. These securities are subject
to
a 180-day lock-up agreement in accordance with the requirements of NASD Rule
2710(g)(1).
Under
the
terms of the Registration Rights Agreements entered into as part of the Series
D
Preferred Stock placement, we were obligated to file this registration statement
by April 3, 2006 and to cause it to become effective by June 19, 2006, subject
to certain adjustments. In the event this registration statement is not filed
by
April 3, 2006 or not declared effective by June 19, 2006, we are obligated
to
make pro rata cash payments to each of the investors in the placement and each
of the note holders, as liquidated damages, in an amount equal to 1.5% of the
aggregate amount invested by such investor under the Purchase Agreement, until
such time that the registration statement is filed or declared effective, as
the
case may be. Under the terms of the Registration Rights Agreements, we have
agreed to keep the registration statement effective until all the shares from
the preferred stock placement have been sold or such shares may be sold without
the volume restrictions under Rule 144(k) of the Securities Act.
We
are
subject to various registration rights agreements with the other selling
stockholders under which we have certain obligations to include their shares
of
common stock in this prospectus. We have separately filed a registration
statement for the resale of shares of our common stock issued or issuable in
connection with our February 2005 Series C Preferred Stock placement (No.
333-124096).
The
selling stockholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock
or
interests in shares of common stock received after the date of this prospectus
from a selling shareholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any
or
all of their shares of common stock or interests in shares of common stock
on
any stock exchange, market or trading facility on which the shares are traded
or
in private transactions. These dispositions may be at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market price, at varying prices determined at the time of sale,
or at
negotiated prices. The selling stockholders may use any one or more of the
following methods when disposing of shares or interests therein:
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchases;
|
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
|
·
|
privately
negotiated transactions;
|
|
·
|
settlement
of short sales effected after the date the registration statement
of which
this prospectus is a part is declared effective by the
SEC;
|
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or
otherwise;
|
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
|
·
|
a
combination of any such methods of sale;
and
|
|
·
|
any
other method permitted pursuant to applicable
law.
|
The
selling stockholders may, from time to time, pledge or grant a security interest
in some or all of the shares of common stock owned by them and, if they default
in the performance of their secured obligations, the pledgees or secured parties
may offer and sell the shares of common stock, from time to time, under this
prospectus, or under an amendment to this prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this prospectus. The selling stockholders also
may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
Broker-dealers
engaged by the selling stockholders may arrange for other broker-dealers to
participate in sales. Broker-dealers may receive commissions or discounts from
the selling stockholders (or, if any broker-dealer acts as agent for the
purchaser of shares, from the purchaser) in amounts to be negotiated. The
selling stockholders do not expect these commissions and discounts to exceed
what is customary in the types of transactions involved.
In
connection with the sale of our common stock or interests therein, the selling
stockholders may enter into hedging transactions with broker-dealers or other
financial institutions, which may in turn engage in short sales of the common
stock in the course of hedging the positions they assume. The selling
stockholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
stockholders may also enter into option or other transactions with
broker-dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such
transaction).
The
aggregate proceeds to the selling stockholders from the sale of the common
stock
offered by them will be the purchase price of the common stock less discounts
or
commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole
or
in part, any proposed purchase of common stock to be made directly or through
agents. We will not receive any of the proceeds from this offering. Upon any
exercise of the warrants by payment of cash, however, we will receive the
exercise price of the warrants.
The
selling stockholders also may resell all or a portion of the shares in open
market transactions in reliance upon Rule 144 under the Securities Act of 1933,
provided that they meet the criteria and conform to the requirements of that
rule.
The
selling stockholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
"underwriters" within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling stockholders who are "underwriters" within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of
the Securities Act. Each selling stockholder has informed the Company that
it
does not have any written or oral agreement or understanding, directly or
indirectly, with any person to distribute the Common Stock.
To
the
extent required, the shares of our common stock to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agents, dealer or underwriter, any applicable commissions
or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement that includes this prospectus. Each
selling stockholder has informed the Company that it does not have any written
or oral agreement or understanding, directly or indirectly, with any person
to
distribute the Common Stock.
In
order
to comply with the securities laws of some states, if applicable, the common
stock may be sold in these jurisdictions only through registered or licensed
brokers or dealers. In addition, in some states the common stock may not be
sold
unless it has been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied
with.
We
have
advised the selling stockholders that the anti-manipulation rules of Regulation
M under the Exchange Act may apply to sales of shares in the market and to
the
activities of the selling stockholders and their affiliates. In addition, we
will make copies of this prospectus (as it may be supplemented or amended from
time to time) available to the selling stockholders for the purpose of
satisfying the prospectus delivery requirements of the Securities Act. The
selling stockholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
We
have
agreed to indemnify the selling stockholders against liabilities, including
liabilities under the Securities Act and state securities laws, relating to
the
registration of the shares offered by this prospectus.
We
have
agreed with the selling stockholders to keep the registration statement of
which
this prospectus constitutes a part effective until the earlier of (1) such
time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or (2) the date on which
the shares may be sold pursuant to Rule 144(k) of the Securities
Act.
Notwithstanding
anything contained herein to the contrary, the shares of common stock underlying
warrants held by Carter and Laidlaw or their “associated persons” are subject to
a 180 day lock-up agreement in accordance with the requirements of NASD Rule
2710(g)(1).
We
were
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We agreed to indemnify the selling stockholders
against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
Thelen
Reid & Priest LLP, New York, New York passed upon the validity of the common
stock being offered hereby .
Included
in the Prospectus constituting part of this Registration Statement are
consolidated financial statements for fiscal 2005 and 2004, which have been
audited by Marcum & Kliegman LLP, an independent registered public
accounting firm, to the extent and for the periods set forth in their respective
report appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firms as experts in accounting and
auditing.
We
have
filed with the SEC a registration statement on Form SB-2 under the Securities
Act with respect to the common stock offered hereby. This
prospectus, which constitutes part of the registration statement, does not
contain all of the information set forth in the registration statement and
the
exhibits and schedule thereto, certain parts of which are omitted in accordance
with the rules and regulations of the SEC. For
further information regarding our common stock and our company, please review
the registration statement, including exhibits, schedules and reports filed
as a
part thereof. Statements
in this prospectus as to the contents of any contract or other document filed
as
an exhibit to the registration statement, set forth the material terms of such
contract or other document but are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit
to
the registration statement, each such statement being qualified in all respects
by such reference.
We
are
also subject to the informational requirements of the Exchange Act which
requires us to file reports, proxy statements and other information with the
SEC. Such
reports, proxy statements and other information along with the registration
statement, including the exhibits and schedules thereto, may be inspected at
public reference facilities of the SEC at Station Place, 450 Fifth Street,
N.W.,
Washington D.C. 20549. Copies
of
such material can be obtained from the Public Reference Section of the SEC
at
Judiciary Plaza, Station Place, 450 Fifth Street, N.W., Washington D.C. 20549
at
prescribed rates. Because we file documents electronically with the SEC, you
may
also obtain this information by visiting the SEC’s Internet website at
http://www.sec.gov.
|
Page
|
|
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
- F-19
|
|
|
|
F-20
|
|
|
|
F-21
|
|
|
|
F-22
|
|
|
|
F-23
|
|
|
|
F-24
- F-27
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
To
the
Board of Directors of
Caprius,
Inc. and Subsidiaries
We
have
audited the accompanying consolidated balance sheet of Caprius, Inc. and
Subsidiaries (the “Company”) as of September 30, 2005, and the related
consolidated statements of operations, stockholders’ (deficiency) equity, and
cash flows for the year then ended September 30, 2005 and 2004. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control
over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures
in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In
our
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of Caprius,
Inc.
and Subsidiaries as of September 30, 2005, and the consolidated results of
their
operations and their cash flows for the year then ended September 30, 2005
and
2004 in conformity with accounting principles generally accepted in the United
States of America.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note A to the
consolidated financial statements, the Company has suffered recurring losses
from operations which raises substantial doubt about its ability to continue
as
a going concern. Management’s plans in regard to this matter are also described
in Note A. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Marcum
& Kliegman LLP
New
York,
New York
November
18, 2005
CONSOLIDATED
BALANCE SHEET
September
30, 2005
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,257,158
|
|
Accounts
receivable, net of reserve for bad debts of $7,841
|
|
|
127,252
|
|
Inventories,
net
|
|
|
668,616
|
|
Other
current assets
|
|
|
29,758
|
|
Total
current assets
|
|
|
2,082,784
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
furniture and equipment
|
|
|
197,924
|
|
Equipment
for lease
|
|
|
23,500
|
|
Leasehold
improvements
|
|
|
19,536
|
|
|
|
|
240,960
|
|
Less:
accumulated depreciation
|
|
|
168,944
|
|
Net
property and equipment
|
|
|
72,016
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Goodwill
|
|
|
737,010
|
|
Intangible
assets, net
|
|
|
263,917
|
|
Other
|
|
|
17,410
|
|
Total
other assets
|
|
|
1,018,337
|
|
Total
Assets
|
|
$
|
3,173,137
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
209,152
|
|
Accrued
expenses
|
|
|
63,663
|
|
Accrued
compensation
|
|
|
104,782
|
|
Total
current liabilities
|
|
|
377,597
|
|
|
|
|
|
|
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.
Liquidation preference $2,700,000
|
|
|
2,700,000
|
|
Common
stock, $.01 par value
|
|
|
|
|
Authorized
- 50,000,000 shares, issued 3,322,798 shares and outstanding
3,321,673
shares
|
|
|
33,228
|
|
Additional
paid-in capital
|
|
|
74,241,755
|
|
Accumulated
deficit
|
|
|
(74,177,193
|
)
|
Treasury
stock (1,125 common shares, at cost)
|
|
|
(2,250
|
)
|
Total
stockholders’ equity
|
|
|
2,795,540
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
3,173,137
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
Years
Ended September 30,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Product
sales
|
|
$
|
727,491
|
|
$
|
766,119
|
|
Equipment
rental income
|
|
|
13,305
|
|
|
69,342
|
|
Consulting
and royalty fees
|
|
|
108,006
|
|
|
50,000
|
|
Total
revenues
|
|
|
848,802
|
|
|
885,461
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Cost
of product sales and equipment rental income
|
|
|
490,827
|
|
|
618,944
|
|
Research
and development
|
|
|
325,486
|
|
|
283,697
|
|
Selling,
general and administrative
|
|
|
2,730,071
|
|
|
3,020,212
|
|
Total
operating
expenses
|
|
|
3,546,384
|
|
|
3,922,853
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(2,697,582
|
)
|
|
(3,037,392
|
)
|
|
|
|
|
|
|
|
|
Other
Income
|
|
|
482,200
|
|
|
-
|
|
Interest
expense, net
|
|
|
(323,026
|
)
|
|
(212,571
|
)
|
Loss
from continuing operations
|
|
|
(2,538,408
|
)
|
|
(3,249,963
|
)
|
|
|
|
|
|
|
|
|
Loss
from operations of discontinued Strax business segment
|
|
|
-
|
|
|
(105,806
|
)
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(2,538,408
|
)
|
|
(3,355,769
|
)
|
|
|
|
|
|
|
|
|
Beneficial
Conversion feature - Series C Mandatory Convertible Preferred
Stock
|
|
|
(124,528
|
)
|
|
-
|
|
Net
loss attributable to common stockholders
|
|
$
|
(2,662,936
|
)
|
$
|
(3,355,769
|
)
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted common share
|
|
|
|
|
|
|
|
Continuing
operations
|
|
$
|
(1.16
|
)
|
$
|
(3.18
|
)
|
Discontinued
operations
|
|
|
-
|
|
|
(0.10
|
)
|
Net
loss per basic and diluted common share
|
|
$
|
(1.16
|
)
|
$
|
(3.28
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
2,288,543
|
|
|
1,022,328
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ (DEFICIENCY) EQUITY
|
|
Series
B Convertible Preferred Stock
|
|
Series
C Mandatory Convertible Preferred Stock
|
|
Common
Stock
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
Number
of Shares
|
|
Amount
|
|
Number
of Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Number
of Shares
|
|
Amount
|
|
Total
Stockholders’
(Deficiency)
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2003
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
-
|
|
$
|
-
|
|
|
1,023,453
|
|
$
|
10,235
|
|
$
|
67,775,714
|
|
$
|
(68,283,016
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,200,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of warrants issued in connection with bridge financing-
related
parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
27,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
value of warrants issued in connection with secured convertible
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial
conversion feature in connection with secured convertible
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,355,769
|
)
|
|
|
|
|
|
|
|
(3,355,769
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2004
|
|
|
27,000
|
|
|
2,700,000
|
|
|
-
|
|
|
-
|
|
|
1,023,453
|
|
|
10,235
|
|
|
68,031,614
|
|
|
(71,638,785
|
)
|
|
1,125
|
|
|
(2,250
|
)
|
|
(899,186
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series C Mandatory Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
45,000
|
|
|
4,500,000
|
|
|
|
|
|
|
|
|
(434,966
|
)
|
|
|
|
|
|
|
|
|
|
|
4,065,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of secured convertible notes and bridge financing into Series
C Mandatory
Convertible Preferred Stock
|
|
|
|
|
|
|
|
|
21,681
|
|
|
2,168,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,168,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C Preferred into common stock
|
|
|
|
|
|
|
|
|
(66,681
|
)
|
|
(6,668,100
|
)
|
|
2,299,345
|
|
|
22,993
|
|
|
6,645,107
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,538,408
|
)
|
|
|
|
|
|
|
|
(2,538,408
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2005
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
-
|
|
$
|
-
|
|
|
3,322,798
|
|
$
|
33,228
|
|
$
|
74,241,755
|
|
$
|
(74,177,193
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,795,540
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Year
Ended September 30,
|
|
|
|
2005
|
|
2004
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(2,538,408
|
)
|
$
|
(3,355,769
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Bad
debt expense
|
|
|
-
|
|
|
77,381
|
|
Amortization
of debt discount
|
|
|
165,220
|
|
|
73,617
|
|
Amortization
of deferred financing cost
|
|
|
89,542
|
|
|
63,958
|
|
Depreciation
and amortization
|
|
|
310,693
|
|
|
350,181
|
|
Write-off
of other receivable
|
|
|
-
|
|
|
101,992
|
|
Interest
on secured convertible notes
|
|
|
95,300
|
|
|
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(53,769
|
)
|
|
6,177
|
|
Inventories
|
|
|
108,079
|
|
|
109,966
|
|
Other
assets
|
|
|
(14,536
|
)
|
|
(38,580
|
)
|
Accounts
payable and accrued expenses
|
|
|
(1,100,161
|
)
|
|
(231,286
|
)
|
Net
cash used in operating activities
|
|
|
(2,938,040
|
)
|
|
(2,842,363
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of Strax business
|
|
|
66,000
|
|
|
268,629
|
|
Increase
of security deposits
|
|
|
(4,080
|
)
|
|
|
|
Acquisition
of property and equipment
|
|
|
(32,139
|
)
|
|
(48,502
|
)
|
Net
cash provided by investing activities
|
|
|
29,781
|
|
|
220,127
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from issuance of notes payable - related party
|
|
|
-
|
|
|
500,000
|
|
Proceeds
from issuance of secured convertible notes
|
|
|
-
|
|
|
1,500,000
|
|
Financing
fees in connection with convertible notes
|
|
|
|
|
|
(125,000
|
)
|
Proceeds
from short term loan
|
|
|
100,000
|
|
|
-
|
|
Repayment
from short term loan
|
|
|
(100,000
|
)
|
|
-
|
|
Proceeds
from short term loans - related party
|
|
|
145,923
|
|
|
-
|
|
Repayment
of short term loans - related party
|
|
|
(73,123
|
)
|
|
-
|
|
Net
proceeds from issuance of Series C Mandatory Preferred
Stock
|
|
|
4,065,034
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
4,137,834
|
|
|
1,875,000
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
1,229,575
|
|
|
(747,236
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
27,583
|
|
|
774,819
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
1,257,158
|
|
$
|
27,583
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
49,541
|
|
$
|
25,697
|
|
Cash
paid for income taxes
|
|
$
|
192,672
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non
Cash Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of warrants attached with debt issuance
|
|
$
|
-
|
|
$
|
55,900
|
|
Beneficial
conversion feature in connection with debt issuance
|
|
$
|
-
|
|
$
|
200,000
|
|
Transfer
of net
book value of certain equipment for leases to inventory
|
|
$
|
66,177
|
|
$
|
-
|
|
Conversion
of
secured convertible notes and interest into equity
|
|
$
|
1,595,300
|
|
$
|
-
|
|
Conversion
of notes payable - related party into equity
|
|
$
|
500,000
|
|
$
|
-
|
|
Conversion
of
short-term loans payable - related party into equity
|
|
$
|
72,800
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
Notes
to the Consolidated Financial Statements
(NOTE
A) - Business and Basis of Presentation
Caprius,
Inc. and Subsidiaries (“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. After the close of the 2002 fiscal year, 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”) which developed, markets and sells the SteriMed and SteriMed Junior
compact systems that simultaneously shred and disinfect Regulated Medical
Waste.
Until the end of 2003 fiscal year, the Company continued to own and operate
a
comprehensive imaging center located in Lauderhill, Florida. On September
30,
2003, the Company completed the sale of the Strax Institute (“Strax”) to Eastern
Medical Technologies. The sale consisted of the business of the Strax Institute
comprehensive breast imaging center located in Lauderhill, Florida. During
the
fiscal year ended September 30, 2005, and September 30, 2004, the Company’s
operations were in the infectious medical waste disposal business.
The
Company has business operations located in Israel. Although the region is
considered to be economically stable, it is always possible that unanticipated
events in foreign countries could disrupt the Company’s operations.
During
the fiscal year ended September 30, 2005, an agreement was reached between
the
Company and the 20% minority ownership of an MCM subsidiary which had been
dormant since inception. The minority shareholders shall be repaid their
initial
investment, by the use of a credit towards the site installation expense
of
SteriMed units that they are purchasing for their dialysis centers. This
subsidiary was dissolved on February 9, 2005.
This
annual report gives retroactive effect to the Company’s 1 for 20 reverse common
stock split of April 5, 2005.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern, which contemplates the realization
and satisfaction of liabilities and commitments in the normal course of
business. The Company has incurred substantial recurring losses, which raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The Company has available cash
and
cash equivalents of $1,257,158 at September 30, 2005. The Company intends
to
utilize these funds for working capital purposes to continue developing the
business of MCM. Based upon the Company’s present business plan, management
anticipates that the Company should have sufficient cash resources through
March
31, 2006. In order to fund the cash requirements of the Company beyond such
date, the Company continues to pursue efforts to identify additional funds
through various funding options, including banking facilities and equity
offerings. There can be no assurance that such funding initiatives will be
successful and any equity placement could result in substantial dilution
to
current stockholders.
(NOTE
B) - Summary of Significant Accounting Policies
[1]
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and
its
wholly or majority owned subsidiaries. All significant intercompany balances
and
transactions have been eliminated in consolidation.
[2]
Revenue Recognition
Revenues
from the MCM medical waste business are recognized when SteriMed units are
either sold or rented to customers. Revenues for sales are recognized at
the
time that the unit is shipped to the customer. Rental revenues are recognized
based upon either services provided for each month of activity or evenly
over
the year in the event that a fixed rental agreement is in place.
[3]
Cash
Equivalents
The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
[4]
Accounts Receivable and
Allowance for Doubtful Accounts:
The
Company recognizes an allowance for doubtful accounts to ensure that accounts
receivable are not overstated due to uncollectibility. Bad debt reserves
are
maintained for all customers based on a variety of factors, including the
length
of time the receivables are past due, significant one-time events and historical
experience. An additional reserve for individual accounts is recorded when
the
Company becomes aware of a customer’s inability to meet its financial
obligation, such as in the case of bankruptcy filings or deterioration in
the
customer’s operating results or financial position. If the circumstances related
to customers change, estimates of the recoverability of receivables would
be
further adjusted.
[5]
Product Warranties
The
estimated future warranty obligations related to the product sales are provided
by charges to operations in the period in which the related revenue is
recognized. The basic warranty covers parts and labor for one year, thereafter
extended warranties are available. These charges were deemed to be immaterial
in
each of the years ended September 30, 2005 and 2004.
[6]
Shipping and Handling Costs
The
Company includes shipping and handling costs in the statement of operations
as
part of cost of sales. These costs were deemed immaterial for the years ended
September 30, 2005 and 2004.
[7]
Inventories
Inventories
are accounted for
at the
lower of cost or market using the first-in, first-out (“FIFO”)
method. The
Company's policy is to reserve or write-off surplus or obsolete inventory.
Inventory is comprised of materials, labor and manufacturing overhead
costs.
[8]
Equipment, Furniture and Leasehold Improvements
Equipment,
furniture and leasehold improvements are recorded at cost. Depreciation and
amortization are computed by the straight-line method over the estimated
lives
of the applicable assets, or term of the lease, if applicable. Expenditures
for
maintenance and repairs that do not improve or extend the life of the expected
assets are expensed to operations, while expenditures for major upgrades
to
existing inventory are capitalized.
Asset
Classification
|
Useful
Lives
|
Office
furniture and equipment
|
3-5
years
|
Leasehold
improvements
|
Term
of Lease
|
Equipment
for lease
|
5
years
|
[9]
Impairment of Long-Lived Assets
In
accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company and its subsidiaries review the carrying values
of their long-lived assets (other than goodwill) for possible impairment
whenever events or changes in circumstances indicate that the carrying amounts
of the assets may not be recoverable. Any long-lived assets held for disposal
are reported at the lower of their carrying amounts or fair values less costs
to
sell.
[10]
Goodwill and Other Intangibles
At
September 30, 2005, goodwill results from the excess of cost over the fair
value
of net assets acquired related to the MCM business. SFAS No. 142 provides,
among
other things, that goodwill and intangible assets with indeterminate lives
shall
not be amortized. Goodwill shall be assigned to a reporting unit and annually
tested for impairment. Intangible assets with determinate lives shall be
amortized over their estimated useful lives, with the useful lives reassessed
continuously, and shall be assessed for impairment under the provisions of
SFAS
No. 121,
“Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of”. Goodwill is also assessed for impairment on an interim basis when events
and circumstances warrant. The Company assesses whether an impairment loss
should be recognized and measured by comparing the fair value of the “reporting
unit” to the carrying value, including goodwill. If the carrying value exceeds
fair value, then the Company will compare the implied fair value of the goodwill
(as defined in SFAS No. 142) to the carrying amount of the goodwill. If the
carrying amount of the goodwill exceeds the implied fair value, then the
goodwill will be adjusted to the implied fair value.
[11]
Net
Loss Per Share
Net
loss
per share is computed in accordance with Statement of Financial Standards
No.
128, “Earning Per Share” (“SFAS No. 128”). SFAS No. 128 requires the
presentation of both basic and diluted earnings per share.
Basic
net
loss per common share was computed using the weighted average common shares
outstanding during the period. Diluted loss per share reflects the potential
dilution that could occur through the effect of common shares issuable upon
the
exercise of stock options, warrants and convertible securities. For the year
ended September 30, 2005, potential common shares amount to 1,020,660 shares,
as
compared to 909,311 for the year ended September 30, 2004 and have not been
included in the computation of diluted loss per share since the effect would
be
anti-dilutive.
[12]
Income Taxes
The
Company provides for federal and state income taxes currently payable, as
well
as for those deferred because of timing differences between reporting income
and
expenses for financial statement purposes versus tax purposes. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts used for income
tax
purposes. Deferred tax assets and liabilities are measured using the enacted
tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recoverable or settled. The effect of a change
in
tax rates is recognized as income or expense in the period of the change.
A
valuation allowance is established, when necessary, to reduce deferred income
tax assets to the amount that is more likely than not to be
realized.
[13]
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America, requires management to
make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
[14]
Fair
Value of Financial Instruments
The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued expenses are reasonable estimates of their fair values
because of the short-term nature of those instruments.
[15]
Reclassifications
Certain
reclassifications have been made to prior period amounts to conform to the
current year presentation.
[16]
Foreign Currency
The
Company follows the provisions of SFAS No. 52, “Foreign Currency Translation.”
The functional currency of the Company’s foreign subsidiary is the U.S. dollar.
All foreign currency asset and liability amounts are re-measured into U.S.
dollars at end-of-period exchange rates, except for certain assets, which
are
measured at historical rates. Foreign currency income and expense are
re-measured at average exchange rates in effect during the year, except for
expenses related to balance sheet amounts re-measured at historical exchange
rates. Exchange gains and losses arising from re-measurement of foreign
currency-denominated monetary assets and liabilities are included in operations
in the period in which they occur. Exchange gains and losses included in
the
accompanying consolidated statements of operations are deemed immaterial
for the
years ended September 30, 2005 and 2004.
[17]
Research and Development Costs
All
research and development costs are charged to operations as incurred. Research
and development expenditures were approximately $325,000 and $284,000 for
fiscal
2005 and 2004, respectively.
[18]
Recent Accounting Pronouncements
In
September 2005, the Financial Accounting Standards Board (“FASB”) ratified the
Emerging Issues Task Force’s (“EITF”) Issue No. 05-7. “Accounting for
Modifications to Conversion Options Embedded in Debt Instruments and Related
Issues”, which addresses whether a modification to a conversion option that
changes its fair value affects the recognition of interest expense for the
associated debt instrument after the modification, and whether a borrower
should
recognize a beneficial conversion feature, not a debt extinguishments, if
a debt
modification increases the intrinsic value of the debt. In September 2005,
the
FASB ratified the following consensus reached in EITF Issue 05-08 (“Income Tax
Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature”):
a) the issuance of convertible debt with a beneficial conversion feature
results
in a basis difference in applying FASB Statement of Financial Accounting
Standards SFAS No. 109, Accounting for Income Taxes. Recognition of such
a
feature effectively creates a debt instrument and a separate equity instrument
for book purposes, whereas the convertible debt is treated entirely as a
debt
instrument for income tax purposes; b) the resulting basis difference should
be
deemed a temporary difference because it will result in a taxable amount
when
the recorded amount of the liability is recovered or settled; and c) recognition
of deferred taxes for the temporary difference should be reported as an
adjustment to additional paid-in capital. These issues are effective in the
first interim or annual reporting period commencing after December 15, 2005,
with early application permitted. The effect of applying the consensus should
be
accounted for retroactively to all debt instruments containing a beneficial
conversion feature that are subject to EITF Issue 00-27, “Application of Issue
No. 98-5 to Certain Convertible Debt Instruments” (and thus is applicable to
debt instruments converted or extinguished in prior periods but which are
still
presented in the financial statements). Management does not believe these
pronouncements will have a material impact on the Company’s consolidated
financial statements.
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Correction.”
This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change
in
accounting principal. The statements apply to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed. This statement
is
effective for accounting changes and corrections of errors made in the fiscal
years beginning after December 15, 2005. Management does not believe this
pronouncement will have a material impact on the Company’s consolidated
financial statements.
In
December 2004, FASB issued its final standard on accounting for share-based
payments (“SBP”), FASB Statement No. 123 (R) (revised 2004) “Share-Based
Payment.” This statement requires companies to expense the value of employee
stock options and similar awards. Under FASB Statement No. 123 (R), SBP awards
result in a cost that will be measured at fair value of the awards’ grant date,
based on the estimated number of awards that are expected to vest. Compensation
cost for awards that vest would not be reversed if the awards expire without
being exercised. Public entities that are small business issuers will be
required to apply Statement No. 123 (R) as of the first annual reporting
period
that begins after December 15, 2005. Although the adoption of FASB No. 123
(R)
will have no adverse impact on the Company’s balance sheet or total cash flows,
it will affect the Company’s net income and earning per share. The actual
effects of adopting FASB No. 123 (R) will depend on numerous factors, including
the
amount of share-based payments granted in the future, the Company’s future stock
price volatility, estimated forfeiture rates and employee stock option exercise
behavior.
In
November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of
ARB No. 43, Chapter 4.” The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. The Company
does not believe the adoption of SFAS 151 will have a significant impact
on the
Company’s overall results of operations or financial position.
In
October 2004, the FASB ratified the consensus reached in EITF Issue No. 04-8,
“The Effect of Contingently Convertible Instruments on Diluted Earnings Per
Share.” The EITF reached a consensus that contingently convertible instruments,
such as contingently convertible debt, contingently convertible preferred
stock,
and other such securities should be included in diluted earnings per share
(if
dilutive) regardless of whether the market trigger price has been met. The
consensus became effective for reporting periods ending after December 15,
2004.
The adoption of this statement did not have a significant impact on the
Company’s consolidated financial statements.
[19]
Stock-Based Compensation
The
Company accounts for stock-based compensation under the intrinsic value method
in accordance with the provisions of APB Opinion No. 25, “Accounting for Stock
Issued to Employees” and related interpretations.
FASB
issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and
Disclosure.” SFAS No. 148, which amends SFAS No. 123, requires the measurement
of the fair value of stock options or warrants to be included in the statement
of operations or disclosed in the notes to financial statements. The Company
records its stock-based compensation under the Accounting Principles Board
(APB)
No. 25 and elected the disclosure-only alternative under SFAS No. 148. The
Company has computed the pro forma disclosures under SFAS No. 148 for options
and warrants granted using the Black-Scholes option pricing model for the
years
ended September 30, 2005 and 2004. The assumptions used during the years
ended
September 30, 2005 and 2004 were as follows:
|
September
30,
|
|
2005
|
2004
|
Risk
free interest rate
|
4.00-
5.00%
|
4.00
-5.00%
|
Expected
dividend yield
|
--
|
--
|
Expected
lives
|
10
years
|
10
years
|
Expected
volatility
|
29-
80%
|
29
- 80%
|
Weighted
average value of grants per share
|
$3.32
|
$1.80
|
Weighted
average remaining contractual life of options outstanding
(years)
|
6.35
|
7.3
|
The
pro
forma effect of applying FAS No. 148 is as follows:
|
|
For
the years ended
|
|
|
|
September
30,
|
|
|
|
2005
|
|
2004
|
|
Net
loss attributable to common stockholders as reported
|
|
$
|
(2,662,936
|
)
|
$
|
(3,355,769
|
)
|
Add:
Stock based employee compensation expense, included in reported
loss.
|
|
|
--
|
|
|
--
|
|
Less:
Stock-based employee compensation as determined under fair value
based
method for all awards.
|
|
|
(2,991
|
)
|
|
(56,371
|
)
|
Pro
forma net loss
|
|
$
|
(2,665,927
|
)
|
$
|
(3,412,140
|
)
|
|
|
|
|
|
|
|
|
Net
Loss per share:
|
|
|
|
|
|
|
|
Basic
and diluted loss attributable to common stockholders - as
reported
|
|
$
|
(1.16
|
)
|
$
|
(3.28
|
)
|
Basic
and diluted loss attributable to common stockholders - pro
forma
|
|
$
|
(1.17
|
)
|
$
|
(3.33
|
)
|
[20]
Concentration of Credit Risk and Significant Customers
Statement
of Financial Accounting Standards No. 105, “Disclosure of Information About
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
with
Concentrations of Credit Risk,” requires disclosure of any significant
off-balance-sheet and credit risk concentrations. Although collateral is
not
required, the Company periodically reviews its accounts receivable and provides
estimated reserves for potential credit losses.
Financial
instruments which potentially expose the Company to concentration of credit
risk
are mainly comprised of trade accounts receivable. Management believes its
credit policies are prudent and reflect normal industry terms and business
risk.
The Company does not anticipate non-performance by the counter parties and,
accordingly, does not require collateral. The Company maintains reserves
for
potential credit losses and historically such losses, in the aggregate, have
not
exceeded management’s expectations. The Company purchases a substantial amount
of its inventory products from one principal supplier. If in the future the
supplier were to cease to supply these inventory products, management believes
there are alternative vendors available to meet its needs. For the year ended
September 30, 2005, three customers accounted for $231,000, $108,000 and
$91,000
of the consolidated total revenue, which represented approximately 51% of
the
total revenue. For the year ended September 30, 2004, two customers, other
than
those in Fiscal 2005, accounted for approximately 72% of the consolidated
total
revenue.
The
Company maintains cash deposits with financial institutions, which from time
to
time may exceed Federally insured limits. The Company has not experienced
any
losses and believes it is not exposed to any significant credit risk from
cash.
At September 30, 2005, the Company has cash balances on deposit in two accounts
with a financial institution in excess of the Federally insured limits by
a
combined total of $437,235.
[21]
Intangible Assets
Intangible
assets consist of technology, customer relationships and permits, and are
amortized on a straight-line basis over their estimated useful lives of three
to
five years. The carrying value of intangible assets will be reviewed annually
by
the Company to ensure that impairments are recognized when the future operating
cash flows expected to be derived from such intangible assets are less than
carrying value. Total amortization expense related to the other intangible
assets was approximately $281,000 for each of the years ended September 30,
2005
and 2004. Intangible assets are summarized as follows:
|
|
|
|
Accumulated
|
|
Sept
30,2005
|
|
Asset
Type
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
Book Value
|
|
Technology
|
|
$
|
550,000
|
|
$
|
504,166
|
|
$
|
45,834
|
|
Permits
|
|
|
290,000
|
|
|
161,917
|
|
|
128,083
|
|
Customer
Relationships
|
|
|
200,000
|
|
|
110,000
|
|
|
90,000
|
|
|
|
$
|
1,040,000
|
|
$
|
776,084
|
|
$
|
263,917
|
|
Expected
amortization over the next three years is as follows:
Fiscal
Period
|
|
Amortization
|
|
2006
|
|
$
|
143,834
|
|
2007
|
|
|
98,000
|
|
2008
|
|
|
22,083
|
|
|
|
$
|
263,917
|
|
Inventories
consist of the following, net of reserve of approximately $12,000 as of
September 30, 2005:
Raw
materials
|
|
$
|
314,850
|
|
Finished
goods
|
|
|
353,766
|
|
|
|
$
|
668,616
|
|
(NOTE
D) - Notes Payable
On
February 2, 2005, the Company raised $100,000 through the issuance of 8%
Senior
Secured Convertible Promissory Notes, repayable, together with interest to
April
3, 2005, subject to prepayment in the event
of
an
equity financing in excess of $2 million, or conversion by the investors
into
shares of the Company’s common stock at a conversion price of $3.00 per share.
The lenders also received warrants to purchase 5,000 shares of the Company’s
common stock exercisable at $5.60 per share for a period of five years. The
allocated fair value of these warrants are deemed to be immaterial. On February
17, 2005, the Company repaid this loan together with interest.
During
the third quarter of fiscal 2004, the Company raised an aggregate of $1.5
million through the issuance of 8% Senior Secured Convertible Promissory
Notes
(the “Notes”), prior to underwriting fees and expenses. The Company granted a
security interest in substantially all of the assets of the Company. The
Notes
were to mature in one year and convert into shares of common stock at the
election of the investor at any time using a conversion price of $4.00 per
share, subject to reduction if certain conditions were not met as of September
30, 2004. The conditions were not met and the conversion price was reduced
to
$3.00 per share. The beneficial conversion feature of the Notes amounted
to
$200,000 and as such, the amount was recorded as a debt discount and a
corresponding increase to paid-in capital. This amount was being amortized
over
the life of the loan (which was accelerated to February 15, 2005). Amortization
for the year ended September 30, 2005 amounted to $150,000, and such amount
is
included in interest expense, net in the statement of operations. The financing
was arranged through Sands Brothers International Ltd. (“Sands”) which has been
retained by the Company to act as selected dealer for the sale and issuance
of
the Notes. Based upon the funds raised, Sands received a six percent fee
and an
expense allowance of one percent of the gross proceeds and the warrants were
valued at $28,500 using the Black Scholes Model to purchase 71,250 shares
of the
Company’s common stock at an exercise price of $5.60 per share for a period of
five years. The total fees for the offering were $125,000. The debt issuance
costs were being amortized over the term of the loan (which was accelerated
to
February 15, 2005). Amortization for the year ended September 30, 2005 amounted
to $89,542, and such amount is included in interest expense, net in the
statement of operations. On February 15, 2005, the Company closed on a $4.5
million preferred stock equity financing (see Note E). As a condition of
this
financing, the holders of the Notes amended and converted their Notes together
with accrued interest, into an aggregate of 15,953 shares of Series C Mandatory
Convertible Preferred Stock and the security interest was
terminated.
Notes
Payable - Related Party
During
the first two quarters of fiscal 2005, the Company was advanced the principal
amount of $145,923 through short term loans until additional equity funding
was
secured. The terms of the loans are identical to the terms of the $100,000
8%
Senior Secured Convertible Promissory Note outlined above. The lenders also
received warrants to purchase 7,295 shares of the Company’s common stock
exercisable at $5.60 per share for a period of five years. The allocated
fair
value of the warrants associated with this advance is deemed to be immaterial.
These short-term loans were provided by executive officers, Messrs. Aaron,
Joels
and Koppel who advanced $64,000, $62,357 and $19,566, respectively. As a
condition of this financing, the holders of the Notes exchanged 50% of the
Company’s indebtedness for 728 shares of Series C Mandatory Convertible
Preferred Stock and on February 15, 2005, were paid the balance of their
notes
inclusive of interest.
During
the second quarter of fiscal 2004, the Company authorized a short-term bridge
loan for an aggregate of $500,000 through the issuance of loan notes due
on July
31, 2005. The funds were utilized primarily for general working capital.
The
majority of the funds were provided by management of the Company. The loan
notes
bear interest at a rate of 11% per annum and were secured by a first lien
on any
royalties received by Opus Diagnostics Inc. from Seradyn, Inc. in accordance
with their Royalty Agreement. For every sixty dollars ($60.00)loaned,
the lender received two warrants to purchase one share of Common Stock,
exercisable at $5.00 per share for a period of five years. The warrants were
valued at $27,400 using the Black Scholes Model and such amount was recorded
as
a debt discount and a corresponding increase to paid-in capital. The discount
was being amortized over the life of the loan (which was accelerated to February
15, 2005). For the year ended September 30, 2005, the Company recorded an
additional interest expense related to this discount of approximately $15,200,
and that amount is included in interest expense, net in the statement of
operations. On February 15, 2005, the Company closed on a $4.5 million preferred
stock equity financing (see Note E). As a condition of this financing, the
holders of the Notes converted their notes into an aggregate of 5,000 shares
of
Series C Mandatory Convertible Preferred Stock and the security interest
was
terminated.
(NOTE
E) - Equity Financing
On
February 15, 2005, the Company closed on a $4.5 million preferred stock
equity
financing transaction before financing fees and expenses of approximately
$435,000. As part of this financing transaction, the Company issued 45,000
shares of Series C Mandatory Convertible Preferred Stock (“Series C Stock”) at a
stated value of $100 per share. The Company also issued Series A Warrants
to
purchase an aggregate of 465,517 shares of common
stock
at
an exercise price of $5.60 per share for a period of five years. In addition,
the Company issued Series B Warrants to purchase an aggregate of 155,172
shares
of common stock at an exercise price of $2.90 per share for a period of
five
years exercisable after nine months, subject to a termination condition
as
defined in the warrant agreement. The conversion of the Series C Stock
was
subject to the effectiveness of a 1:20 reverse split of the Company’s common
stock. The Company determined that the preferred stock was issued with
an
effective beneficial conversion feature of approximately $125,000 based
upon the
relative fair values of the preferred stock and warrants. The Company calculated
the fair value of the warrants using the Black Scholes valuation method.
Upon
conversion of the Series C stock to common shares on April 5, 2005 the
Company
recorded a deemed preferred stock dividend of approximately $125,000, which
represents the beneficial conversion feature of the Series C Stock (see
Note
F).
Simultaneously,
the Company converted the short-term secured debt outstanding in the aggregate
of approximately $2.1 million inclusive of interest, together with $72,962
of
unsecured indebtedness, into 21,681 shares of Series C Stock. As part of
the
condition for raising the equity financing, holders of a majority of the
outstanding shares irrevocably undertook to effect a 1:20 reverse stock split
of
any outstanding shares of common stock (the “Reverse Split”). Upon the
effectiveness of the Reverse Split (the “Mandatory Conversion Date”), the new
equity investors and the debt holders who converted their debt agreed to
automatically convert their Series C Stock into common shares at a conversion
price of $2.90 per share and/or 2,299,345 shares of the Company’s common stock
(post reverse split), subject to adjustment in certain circumstances (see
Note
F). The Company also agreed to increase the number of independent directors
by
one additional director.
(NOTE
F) - Reverse Split
On
April
5, 2005, the Company effected the Reverse Split. On such date, the 66,681
outstanding shares of Series C Stock automatically converted into 2,299,345
shares of the Company’s common stock. As a result of the Reverse Split, the
Company has outstanding 3,321,673 shares of common stock. The reverse split
did
not change the number of authorized shares of common and preferred stock.
All
share and per share information in the accompanying financial statements
have
been restated to reflect the 1 for 20 reverse stock split.
(NOTE
G) - Employee Benefits
The
Company sponsors a Qualified Retirement Plan under section 401(k) of the
Internal Revenue Code. Caprius employees become eligible for participation
after
completing 3 months of service and attaining the age of twenty-one. For the
years ended September 30, 2005 and 2004, the Company has not adopted a matching
option to the plan.
(NOTE
H) - Income Taxes
At
September 30, 2005, the Company had a deferred tax asset totaling approximately
$13,670,000, due primarily to net operating loss carryovers in the United
States. A valuation allowance was recorded in 2005 for the full amount of
this
asset due to uncertainty as to the realization of the benefit. The change
in the
valuation allowance in 2005 increased by approximately $570,000.
The
Company does not file its tax return on a consolidated basis; United States
tax
rules prohibit the consolidation of its foreign subsidiary. The Company’s
Israeli subsidiary had carried forward net operating losses for tax purposes
in
the amount of approximately $7,400,000. The Company recorded a full valuation
allowance for these carryforward losses.
At
September 30, 2005, the Company had available net operating loss carryforwards
for United States tax purposes, expiring through 2024 of approximately $40.0
million. The Internal Revenue Code contains provisions which will limit the
net
operating loss carry forward available for further use if significant changes
in
ownership interest of the Company occur. Due to the significance of the
Company’s historical losses, it has not undertaken an evaluation
to determine whether the Company has triggered any limitations on the use
of the
net operating loss carryforwards.
As
a
result of the Company’s significant operating loss carryforwards and the
corresponding valuation allowance, no income tax benefit has been recorded
at
September 30, 2005 and 2004. The provision for income taxes using the statutory
Federal tax rate as compared to the Company’s effective tax rate is summarized
as follows:
|
September
30,
|
|
2005
|
|
2004
|
Tax
benefit at statutory rate
|
(34.0%)
|
|
(34.0%)
|
Adjustments
for change in valuation allowance
|
34.0%
|
|
34.0%
|
|
-
|
|
-
|
(NOTE
I) - Commitments and Contingencies
[1]
Operating leases
The
Company
leases facilities under non-cancelable operating leases expiring at various
dates through fiscal 2006. Facility leases require the Company to pay certain
insurance, maintenance and real estate taxes. Lease expense for all facility
leases totaled approximately $126,175 and $122,843 for the years ended September
30, 2005 and 2004, respectively, and was recorded as part of selling, general
and administrative expenses within the statement of operations.
Future
minimum
rental commitments under operating leases are as follows:
Fiscal
Year
|
|
Amount
|
2006
|
|
$
43,100
|
On
April
18, 2005, the Company entered into an agreement, commencing May 1, 2005 for
certain services related to investor relations and financial media program
for a
one-year period. The agreement is renewable unless terminated by either party.
According to the agreement, the Company agreed to pay fees of $96,000 per
annum
in equal monthly installments of $8,000. Investor relations and financial
media
expense totaled approximately $45,000 and $13,000 for the years ended September
30, 2005 and 2004, respectively, and were recorded as part of selling, general
and administrative expenses within the statement of operations.
[2]
Legal
proceedings
In
June
2002, Jack Nelson, a former Caprius executive officer and director, commenced
two legal proceedings against the Company, and George Aaron and Jonathan
Joels,
executive officers, directors and principal stockholders. The two complaints
alleged that the individual defendants made misrepresentations to the plaintiff
upon their acquisition of a controlling interest in the Company in 1999 and
thereafter made other alleged misrepresentations and engaged in mismanagement
and other misconduct and took other actions as to the plaintiff to the supposed
detriment of the plaintiff and Caprius. One action was brought in Superior
Court
of New Jersey, Bergen
County (“State Court Action”), and the other was brought as a derivative action
in Federal District Court in New Jersey (“Federal Derivative Action”). In
September 2003, the Company resolved the State Court Action by making an
Offer
of Judgment which was accepted by the plaintiff. Under the terms of the Offer
of
Judgment, which was made without any admission or finding of liability on
part
of the defendants, the Company paid $125,000 to the plaintiff and the action
was
discontinued.
On
May 3,
2004, the Court in the Federal Derivative Action granted the motion made
by the
Company and Messrs. Aaron and Joels for judgment on the pleadings based upon
the
pre-suit demand requirement and dismissed the plaintiff’s complaint without
prejudice, but denied defendants’ motion for judgment on the pleadings based
upon the
Private Securities Litigation Reform Act. The Court also granted the plaintiff’s
cross-motion to file an amended complaint to add allegations of insider trading.
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 “Class Action”). The allegations in the
complaint cover the period between February 14, 2000 and June 20, 2002.
The
initial plaintiff is a relative of the wife of the plaintiff in the State
Court
Action and Federal Derivative Action. The allegations in the purported
Class
Action were substantially similar to those in the other two Actions. The
complaint sought an unspecified amount of monetary damages, as well as
the
removal of the defendant officers as shareholders.
On
May 3,
2004, in a decision separate from the decision in the Federal Derivative
Action,
the Court granted the defendants’ motion and dismissed the Class Action. The
Federal securities claims asserted by the plaintiffs were dismissed with
prejudice, and having dismissed all Federal law claims, the Court declined
to
exercise jurisdiction over the remaining state law claims and dismissed those
claims without prejudice. On May 14, 2004, the plaintiffs filed a motion
for
reconsideration, which defendants opposed and subsequently this motion for
reargument was denied. The plaintiff did not file a notice of appeal during
the
statutory time period.
In
July
2005, the Company entered into a Settlement Agreement and Policies Release
with
the carrier of the Company’s Directors and Company Reimbursement Policies and
received a payment of $350,000 under such Policies as a settlement of the
Company’s claim for expenses incurred in the litigations described above. The
settlement fee received in July 2005 from the insurance company has been
recorded as part of other income in the statement of operations. At that
time,
the independent directors determined that the Company will not seek contribution
from Messrs. Aaron and Joels for any portion of our net costs in defending
those
litigations. The Company did not advance any amounts to such individuals
in
connection with the litigations.
(NOTE
J) - Capital Transactions
[1]
Preferred
Stock - Class 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 convertible into 57,989 shares of Common
Stock,
subject to customary anti-dilution provisions. 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.
[2]
Stock
options
During
2002, the Company adopted a stock option plan for both employees and
non-employee directors. The employee and non-employee Directors stock option
plan provides for the granting of options to purchase not more than 75,000
shares of common stock. The options issued under the plan may be incentive
or
nonqualified options. The exercise price for any options will be determined
by
the option committee. The plan expires May 15, 2012. During October 2002,
the
Company granted a total of 48,050 options to officers, directors, and employees
under the 2002 plan. During May 2004, 3,750 options priced at $4.00 were
granted
to a director of the Company. These
options vested one third on the grant date with the balance vesting over
a
two-year period in equal installments. All of these options expire ten years
after the date of grant and were granted at fair market value or higher at
the
time of grant. All options are exercisable at $3.00 per share vesting one
third
immediately and the balance equally over a two year period. As of September
30,
2005, there were 51,800 options outstanding under the 2002 plan, exercisable
at
prices from $3.00 to $4.00 per share.
During
1993, the Company adopted a employee stock option plan and a stock option
plan
for non-employee directors. The employee stock option plan provides for the
granting of options to purchase not more than 50,000 shares of common stock.
The
options issued under the plan may be incentive or nonqualified options. The
exercise price for any incentive options cannot be less than the fair market
value of the stock on the date of the grant, while the exercise price for
nonqualified options will be determined by the option committee. The Directors’
stock option
plan provides for the granting of options to purchase not more than 10,000
shares of common stock. In accordance with the Plan, the exercise price for
shares granted under the Directors’ plan cannot be less than the fair market
value of the stock on the date of the grant.
Stock
option transactions under the 2002 plan are as follows:
|
|
Number
of
Shares
|
|
Option
Price
Per
Share
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
|
|
|
Balance,
September 30, 2003
|
|
48,050
|
|
$3.00
|
|
$3.00
|
|
|
|
|
|
|
|
Granted
in 2004
|
|
3,750
|
|
$4.00
|
|
$4.00
|
|
|
|
|
|
|
|
Balance,
September 30, 2004
|
|
51,800
|
|
$3.00
- $4.00
|
|
$3.07
|
|
|
|
|
|
|
|
Granted
in 2005
|
|
0
|
|
-
|
|
-
|
Balance,
September 30, 2005
|
|
51,800
|
|
$3.00
- $4.00
|
|
$3.07
|
Stock
option transactions not covered under the years 2002 and 1993 option plans
in
the fiscal year 2004 and 2005 are as follows:
|
|
Number
of
Shares
|
|
Option
Price
Per
Share
|
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
|
|
|
Balance,
September 30, 2003
|
|
102,628
|
|
$2.00-$402.00
|
|
$10.40
|
|
|
|
|
|
|
|
Cancelled
in 2004
|
|
(50,064)
|
|
$15.00-316.00
|
|
$18.00
|
|
|
|
|
|
|
|
Balance,
September 30, 2004
|
|
52,654
|
|
$2.00-$402.00
|
|
$3.40
|
|
|
|
|
|
|
|
Cancelled
in 2005
|
|
(64)
|
|
$402.00
|
|
$402.00
|
|
|
|
|
|
|
|
Balance,
September 30, 2005
|
|
52,500
|
|
$2.00
- $3.00
|
|
$2.95
|
Stock
option transactions under the 1993 plan:
|
|
Number
of
Shares
|
|
Option
Price
Per
Share
|
|
Weighted
Average Exercise Price
Per
Share
|
|
|
|
|
|
|
|
Balance,
September 30, 2003
|
|
36,475
|
|
$3.00
-$100.00
|
|
$4.80
|
|
|
|
|
|
|
|
Cancelled
in 2004
|
|
(125)
|
|
$58.60
-$100.00
|
|
$83.40
|
|
|
|
|
|
|
|
Balance,
September 30, 2004
|
|
36,350
|
|
$3.00
-$100.00
|
|
$4.60
|
|
|
|
|
|
|
|
Cancelled
in 2005
|
|
(1,375)
|
|
$3.00
-$100.00
|
|
$10.32
|
|
|
|
|
|
|
|
Balance,
September 30, 2005
|
|
34,975
|
|
$3.00
-$100.00
|
|
$4.27
|
The
following table summarizes information about stock options outstanding at
September 30, 2005:
|
|
Outstanding
Options
|
|
|
|
Weighted-
|
|
|
|
Number
|
Average
|
Weighted-
|
Range
of
|
|
Outstanding
at
|
Remaining
|
Average
|
Exercise
|
|
September
30,
|
Contractual
|
Exercise
|
Prices
|
|
2005
|
Life
(years)
|
Price
|
|
|
|
|
|
$2.00
- $5.00
|
|
138,800
|
6.37
|
3.12
|
58.60
|
|
400
|
.85
|
58.60
|
100.00
|
|
75
|
.70
|
100.00
|
|
|
|
|
|
$2.00
- $100.00
|
|
139,275
|
6.35
|
3.32
|
|
|
Exercisable
Options
|
|
|
|
Weighted-
|
|
|
|
Number
|
Average
|
Weighted-
|
Range
of
|
|
Outstanding
at
|
Remaining
|
Average
|
Exercise
|
|
September
30,
|
Contractual
|
Exercise
|
Prices
|
|
2005
|
Life
(years)
|
Price
|
|
|
|
|
|
$2.00
- $5.00
|
|
137,550
|
6.35
|
3.11
|
58.60
|
|
400
|
.85
|
58.60
|
100.00
|
|
75
|
.70
|
100.00
|
|
|
|
|
|
$2.00
- $100.00
|
|
138,025
|
6.33
|
3.32
|
Total
stock options vested and exercisable at
September
30, 2005
|
Number
of Shares
|
Range
of Exercise Price Per Share
|
Weighted
Average Exercise Price
Per
Share
|
|
|
|
|
Plan
shares
|
85,525
|
$3.00-$100.00
|
$3.54
|
Non-plan
shares
|
52,500
|
$2.00-
$3.00
|
$2.95
|
|
138,025
|
$2.00-$100.00
|
$3.32
|
(NOTE
K) - Acquisition of majority interest in MCM Environmental Technologies,
Inc.
In
December 2002, the Company closed the acquisition of its
initial investment of 57.53% of the capital stock of MCM Environmental
Technologies Inc (“MCM”) for a purchase price of $2.4 million. MCM wholly-owns
MCM Environmental Technologies Ltd., an Israeli corporation, which initially
developed the SteriMed Systems. Upon closing, the Company 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. As part of the Stockholders Agreement dated December 17, 2002,
there were certain provisions relating to performance adjustments for the
twenty-four month period post closing. As a consequence, the Company’s ownership
interest increased by 5% in the fiscal year 2004 and by an additional 5%
in the
fiscal year 2005. Furthermore, the Company’s equity ownership increased with the
conversion of various loans made to MCM and cash calls made by MCM during
fiscal
2005. As of September 30, 2005, the Company’s interest in MCM increased to
96.66%.
(NOTE
L) - Sale of Strax
Effective
September 30, 2003, the Company sold its comprehensive breast imaging business,
to Eastern Medical Technologies, Inc., a Delaware corporation (“EMT”), pursuant
to a Stock Purchase Agreement dated September 30, 2003 (the “Purchase
Agreement”) among the Company, EMT and the other parties thereto. The purchase
price was $412,000. In addition, the Company was required to provide certain
specified transitional services for up to 180 days pursuant to a Management
Services Agreement. During
the first quarter of fiscal year 2005, the parties agreed to settle the net
outstanding balance in a lump sum payment of $66,000 which was paid in two
equal
installments in December 2004 and January 2005. The
sale
of the Strax business has been reflected as discontinued operations in the
accompanying consolidated financial statements.
(NOTE
M) -Geographic Information
The
Company does not have reportable operating Segments as defined in the Statements
of Financial Accounting No.131 “Disclosures about Segments of an Enterprise and
related information”. The method for attributing revenues to individual
customers is based as to the destination to which finished goods are shipped.
The
Company operates facilities in the United States of America and Israel. The
following is a summary of information
by area for the years ended September 30, 2005 and 2004.
For
the years ended September 30,
|
|
2005
|
|
2004
|
|
Net
Revenues:
|
|
|
|
|
|
Israel
|
|
$
|
398,215
|
|
$
|
766,119
|
|
United
States
|
|
|
450,587
|
|
|
119,342
|
|
Revenues
as reported in the accompanying financial statements
|
|
$
|
848,802
|
|
$
|
885,461
|
|
|
|
|
|
|
|
|
|
Loss
from continuing operations:
|
|
|
|
|
|
|
|
Israel
|
|
$
|
(322,161
|
)
|
$
|
(414,890
|
)
|
United
States
|
|
|
(2,216,247
|
)
|
|
(2,835,073
|
)
|
Loss
from continuing operations as reported in the accompanying financial
statements
|
|
$
|
(2,538,408
|
)
|
$
|
(3,249,963
|
)
|
|
September
30, 2005
|
Identifiable
Assets:
|
|
Israel
|
$
471,865
|
United
States
|
2,701,272
|
Total
Assets as reported in the accompanying financial
statements
|
$3,173,137
|
CONDENSED
CONSOLIDATED BALANCE SHEET
December
31, 2005
(Unaudited)
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
620,934
|
|
Accounts
receivable, net of reserve for bad debts of $11,410
|
|
|
163,320
|
|
Inventories,
net
|
|
|
699,285
|
|
Other
current assets
|
|
|
7,440
|
|
Total
current assets
|
|
|
1,490,979
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
furniture and equipment
|
|
|
199,494
|
|
Equipment
for lease
|
|
|
23,500
|
|
Leasehold
improvements
|
|
|
20,970
|
|
|
|
|
243,964
|
|
Less:
accumulated depreciation
|
|
|
176,191
|
|
Net
property and equipment
|
|
|
67,773
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Goodwill
|
|
|
737,010
|
|
Intangible
assets, net
|
|
|
193,583
|
|
Other
|
|
|
17,410
|
|
Total
other assets
|
|
|
948,003
|
|
Total
Assets
|
|
$
|
2,506,755
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
216,612
|
|
Accrued
expenses
|
|
|
61,774
|
|
Accrued
compensation
|
|
|
126,267
|
|
Total
current liabilities
|
|
|
404,653
|
|
|
|
|
|
|
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.
Liquidation preference $2,700,000
|
|
|
2,700,000
|
|
Common
stock, $.01 par value
|
|
|
|
|
Authorized
- 50,000,000 shares, issued 3,322,798 shares and outstanding 3,321,673
shares
|
|
|
33,228
|
|
Additional
paid-in capital
|
|
|
74,241,755
|
|
Accumulated
deficit
|
|
|
(74,870,631
|
)
|
Treasury
stock (1,125 common shares, at cost)
|
|
|
(2,250
|
)
|
Total
stockholders’ equity
|
|
|
2,102,102
|
|
Total
Liabilities and Stockholders’ Equity
|
|
$
|
2,506,755
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
|
|
For
the three months ended,
|
|
|
|
December
31, 2005
|
|
December
31, 2004
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
217,282
|
|
$
|
236,908
|
|
Equipment
rental income
|
|
|
-
|
|
|
5,326
|
|
Consulting
and royalty fees
|
|
|
23,606
|
|
|
20,425
|
|
Total
revenues
|
|
|
240,888
|
|
|
262,659
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Cost
of product sales and equipment rental income
|
|
|
168,662
|
|
|
161,794
|
|
Research
and development
|
|
|
81,839
|
|
|
76,580
|
|
Selling,
general and administrative
|
|
|
687,554
|
|
|
672,278
|
|
Total
operating expenses
|
|
|
938,055
|
|
|
910,652
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(
697,167
|
)
|
|
(647,993
|
)
|
|
|
|
|
|
|
|
|
Interest
income (expense), net
|
|
|
3,729
|
|
|
(149,079
|
)
|
Net
loss
|
|
$
|
(693,438
|
)
|
$
|
(797,072
|
)
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted common share
|
|
$
|
(0.21
|
)
|
$
|
(0.78
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
|
|
|
|
|
|
|
|
3,321,673
|
|
|
1,022,328 |
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(Unaudited)
|
Series
B Convertible Preferred Stock
|
|
Common
Stock |
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
Number
of Shares
|
|
Amount
|
|
Number
of Shares
|
|
Amount
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Number
of Shares
|
|
Amount
|
|
Total
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2005
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
3,322,798
|
|
$
|
33,228
|
|
$
|
74,241,755
|
|
$
|
(74,177,193
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,795,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(693,438
|
)
|
|
|
|
|
|
|
|
(693,438
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2005
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
3,322,798
|
|
$
|
33,228
|
|
$
|
74,241,755
|
|
$
|
(74,870,631
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,102,102
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Three
Months Ended December 31,
|
|
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
Net
Loss
|
|
$
|
(693,438
|
)
|
$
|
(797,072
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
54,567
|
|
Amortization
of deferred financing cost
|
|
|
-
|
|
|
38,375
|
|
Depreciation
and amortization
|
|
|
77,581
|
|
|
81,422
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(36,068
|
)
|
|
15,654
|
|
Inventories
|
|
|
(30,669
|
)
|
|
22,011
|
|
Other
assets
|
|
|
22,318
|
|
|
8,999
|
|
Accounts
payable and accrued expenses
|
|
|
27,056
|
|
|
397,250
|
|
Net
cash used in operating activities
|
|
|
(633,220
|
)
|
|
(178,794
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of Strax business
|
|
|
-
|
|
|
33,000
|
|
Acquisition
of property and equipment
|
|
|
(3,004
|
)
|
|
(1,436
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(3,004
|
)
|
|
31,564
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from short term loans - related party
|
|
|
-
|
|
|
138,793
|
|
|
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
|
-
|
|
|
138,793
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(636,224
|
)
|
|
(8,437
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,257,158
|
|
|
27,583
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
620,934
|
|
$
|
19,146
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
3,110
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
Non
Cash -Flow Item:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of net book value of certain equipment for leases to
inventory
|
|
$
|
-
|
|
$
|
66,177
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES
TO
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE
1
- BASIS OF PRESENTATION
The
condensed consolidated balance sheet as of December 31, 2005, the condensed
consolidated statements of operations for the three months ended December
31,
2005 and 2004, the condensed consolidated statement of stockholders’ equity for
the three month period ended December 31, 2005 and the condensed consolidated
statements of cash flows for the three months ended December 31, 2005 and
2004,
have been prepared by the Company without audit. In the opinion of management,
the information contained herein reflects all adjustments necessary to make
the
presentation of the Company’s condensed financial position, results of
operations and cash flows not misleading. All such adjustments are of a normal
recurring nature. This quarterly report gives retroactive effect to the
Company’s 1 for 20 reverse common stock split on April 5, 2005.
The
accompanying condensed consolidated financial statements do not contain all
of
the information and disclosures required by accounting principles generally
accepted in the United States of America and should be read in conjunction
with
the consolidated financial statements and related notes for the fiscal year
ended September 30, 2005, as included elsewhere within this
document.
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization and satisfaction of liabilities and commitments in the normal
course of business. The Company has incurred substantial recurring losses,
which
raises substantial doubt about its ability to continue as a going concern.
The
condensed consolidated financial statements do not include any adjustments
that
might result from the outcome of this uncertainty. The Company has available
cash and cash equivalents of $620,934 at December 31, 2005. The Company intends
to utilize these funds for working capital purposes to continue developing
the
business of MCM. Based upon the Company’s present business plan, management
anticipates that the Company should have sufficient cash resources through
June
30, 2006. In order to fund the cash requirements of the Company beyond such
date, the Company continues to pursue efforts to identify additional funds
through various funding options, including banking facilities and equity
offerings. There can be no assurance that such funding initiatives will be
successful and any equity placement could result in substantial dilution
to
current stockholders.
NOTE
2 - THE COMPANY
Caprius,
Inc. (“Caprius”, the “Company”) is engaged in the infectious medical waste
disposal business. In the first quarter of Fiscal 2003, we acquired a majority
interest in M.C.M. Environmental Technologies, Inc. (“MCM”) which developed,
markets and sells the SteriMed and SteriMed Junior compact systems that
simultaneously shred and disinfect Regulated Medical Waste. The SteriMed
Systems
are sold and leased in both the domestic and international markets.
In
December 2002, we closed the acquisition of our initial investment of 57.53%
of
the capital stock of MCM for a purchase price of $2.4 million. MCM wholly-owns
MCM Environmental Technologies Ltd., an Israeli corporation, which initially
developed the SteriMed Systems. Upon
closing, our 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 our Letter of Intent with MCM,
we had
provided MCM with loans totaling $565,000, which loans were repaid upon closing
by a reduction in the cash portion of the purchase price.
As part
of the Stockholders Agreement dated December 17, 2002, there were certain
provisions relating to performance adjustments for the twenty four month
period
post closing. As a consequence, our ownership interest increased by 5% in
the
fiscal year 2004 and
by an
additional 5% in the fiscal year 2005. Furthermore, our equity ownership
increased with the conversion of various loans made to MCM and cash calls
made
by MCM during Fiscal 2005. As of December 31, 2005, our interest in MCM is
96.66%.
During
the first quarter of fiscal year 2005, an agreement was reached between the
Company and the 20% minority ownership of an MCM subsidiary which had been
dormant since inception. The minority shareholders shall be
repaid
their initial investment, by way of a credit towards the site installation
expense of SteriMed units that they are purchasing for their dialysis centers.
The subsidiary was dissolved on February 9, 2005.
Caprius,
Inc. was founded in 1983 and through June 1999 essentially operated in the
business of developing specialized medical imaging systems, as well as operating
the Strax Institute, a comprehensive breast imaging center. In June 1999,
the
Company acquired Opus and began manufacturing and selling medical diagnostic
assays constituting the TDM Business. In October 2002, we sold the TDM business
to Seradyn, Inc. The Strax Institute was sold in September 2003.
NOTE
3 - SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES
Stock
Based Compensation
At
December 31, 2005, the Company had three stock based compensation plans (one
incentive and nonqualified, one employee and one non-employee director plan).
The Company accounts for these plans under the recognition and measurement
principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees,”
and complies with the disclosure requirements of Statement of Financial
Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-based Compensation”
as amended by SFAS No. 148, “Accounting for Stock-based Compensation -
Transition and Disclosure, an amendment of SFAS No. 123, issued in December
2002. Under APB Opinion No. 25, compensation expense is based on the difference,
if any, generally on the date of grant, between the fair value of our stock
and
the exercise price of the option. No stock-based employee compensation cost
is
reflected within the statement of operations for the three month period ended
December 31, 2005.
If
the
Company had elected to recognize compensation costs for the Company's option
plans using the fair value method at the grant dates, the effect on the
Company's net loss and loss per share for the periods shown below would have
been as follows:
|
|
Three
months ended December 31,
|
|
|
|
2005
|
|
2004
|
|
Net
loss attributable to common
stockholders as reported
|
|
$
|
(693,438
|
)
|
$
|
(797,072
|
)
|
Deduct:
Stock-based
employee compensation
determined under
fair value method for
all awards, net of related
tax effects
|
|
|
(610
|
|
|
(818
|
)
|
Pro
forma net loss attributable to common
stockholders
|
|
$
|
(694,048
|
)
|
$
|
(797,890
|
)
|
|
|
|
|
|
|
|
|
Basic
and diluted loss attributable to
common stockholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
reported
|
|
$
|
(0.21
|
)
|
$
|
(0.78
|
)
|
Pro
forma
|
|
$
|
(0.21
|
)
|
$
|
(0.78
|
)
|
Loss
Per
Share
The
Company follows Statement of Financial Accounting Standards (SFAS) No. 128,
“Earnings Per Share”, which provides for the calculation of “basic” and
“diluted” earnings (loss) per share. Basic loss per share is computed by
dividing loss available to common stockholders by the weighted-average number
of
common shares
outstanding
for the period. Diluted loss per share reflects the potential dilution that
could occur through the effect of common shares issuable
upon the exercise of stock options and warrants and convertible securities.
For
the periods ended December 31, 2005 and 2004, potential common shares amounted
to 968,110 and 895,000 respectively, and have not been included in the
computation of diluted loss per share since the effect would be antidilutive.
Revenue
Recognition
The
medical infectious waste business recognizes revenues from either the sale
or
rental of its SteriMed units. Revenues for sales are recognized at the time
that
the unit is shipped to the customer. Rental revenues are recognized based
upon
either services provided for each month of activity or evenly over the year
in
the event that a fixed rental agreement is in place.
NOTE
4 - INVENTORIES
Inventories
consist of the following, net of reserve of approximately $12,000 at December
31, 2005
Raw
materials
|
$396,528
|
Finished
goods
|
302,757
|
|
$699,285
|
NOTE
5 - REVERSE SPLIT
On
April
5, 2005, the Company effected a 1 for 20 Reverse Split. On such date, the
Company’s 66,681 outstanding shares of Series C Stock automatically converted
into 2,299,345 shares of the Company’s common stock. As a result of the Reverse
Split on April 5, 2005, the Company had outstanding 3,321,673 shares of common
stock. The reverse split did not change the number of authorized shares of
common and preferred stock. All share and per share information in the
accompanying financial statements have been restated to reflect the 1 for
20
reverse stock split.
NOTE
6 - ECONOMIC DEPENDENCY
For
the
three months ended December 31, 2005, revenue from four customers
was approximately $57,000, $46,000, $40,000 and $25,000 which represented
approximately 70% of the total revenue. At December 31, 2005 accounts receivable
from these customers were approximately $0, $33,750, $40,000 and $25,000
respectively.
For
the
three months ended December 31, 2004, revenue from three customers was
approximately $91,000, $42,000 and $41,000. In addition, revenue from a fourth
customer generated approximately $56,000 (same customer generated revenues
of
$57,000 for the same period in 2005). The revenues generated from these four
customers approximated 88% of the Company’s total revenue.
NOTE
7- COMMITMENTS AND CONTINGENCIES
On
December 19, 2005 the Company entered into an Engagement Agreement (“Agreement”)
retaining Carter Securities, LLC (“Carter”) for the purpose of advisory and
consulting services, including assistance in raising capital in the private
market. Under the terms of the Agreement, Carter will serve as the Company’s
financial consultant in connection with an equity offering and Carter shall
be
paid upon closing a fee equal to 8% of the gross proceeds received for the
sale
of securities. Furthermore, the Company will grant Carter five (5) year warrants
for the purchase of 8% of the shares of Common Stock underlying a new series
of
Preferred Stock at an exercise price of one hundred and twenty-five percent
(125%) of the price established in the offering. The shares underlying the
warrants shall contain the same registration rights afforded to the investors.
In addition, the Company agrees to reimburse Carter with a reasonable
non-accountable expense allowance of up to two percent (2%) of the securities
sold in the offering, not to exceed $35,000. This Agreement expires on February
17, 2006.
NOTE
8 - SUBSEQUENT EVENT
On
February 17, 2006, the Company closed on a placement of $3 million of its
securities to two institutional investors. The net proceeds from this placement
are approximately $2,700,000. The securities consisted of 241,933 shares
of
Series D Convertible Preferred Stock, convertible into 2,419,330 shares
of
common stock, par
value
$0.01 per share, 2006 Series A Warrants to purchase 223,881 shares of common
stock at an exercise price of $1.50 per share for a period of five years,
and
2006 Series B Warrants to purchase 447,764 shares of common stock at an
exercise
price of $2.00 per share for a period of five years. The Company will record
a
deemed preferred stock dividend of approximately $1,300,000 based upon
the
relative fair value of the preferred stocks and warrants using the Black-Scholes
model. The Company will issue warrants to purchase 59,702 shares of common
stock
of the Company at an exercise price of $2.00 per share for a period of
5 years
as part of the placement fee, to a placement agent and its designees. The
Company also will issue warrants to purchase 119,403 shares of common stock
at
an exercise price of $1.68 per share for a period of 5 years as part of
the
placement fee, to another selected dealer for this placement. Based on
the
Black-Scholes model, the offering cost of the dealer warrants will be calculated
at approximately $140,000.
On
January 4, 2006, the Company granted options for the purchase of an aggregate
of
458,000 shares (consisting of 393,000 to employees/directors and 65,000 to
non-contractual consultants) of Common Stock under the Company’s 2002 Stock
Option Plan. These options are for a 10 year term, vesting after six months
as
to one-eighth of the options granted, and the balance vesting in equal monthly
installments over the next forty-two months at an exercise price of $2.20
per
share. Using the Black Scholes Option pricing model the Company has determined
that the fair value of these awards is $1.36 per share which equates to a
combined fair value of $535,366 for the options granted to employees/directors
and $88,547 for options granted to non-contractual consultants.
Effective
January 1, 2006, the Company entered into a new lease for its corporate offices
in Hackensack, New Jersey expiring on September 30, 2011. Under the terms
of
this agreement, the Company will lease 4,177 square feet at a base monthly
rental of approximately $7,500 plus escalations.
No
dealer, salesperson or other person has been authorized to give
any
information or to make any representations other than those contained
in
this Prospectus in connection with the offering made by this Prospectus,
and, if given or made, such information or representations must
not be
relied upon as having been authorized by the Company or the selling
stockholders. This Prospectus does not constitute an offer to sell
or a
solicitation of an offer to buy any securities other than those
specifically offered hereby or an offer to sell or a solicitation
of an
offer to buy any of these securities in any jurisdiction to any
person to
whom it is unlawful to make such offer or solicitation. Except
where
otherwise indicated, this Prospectus speaks as of the effective
date of
the Registration Statement. Neither the delivery of this Prospectus
nor
any sale hereunder shall under any circumstances create any implication
that there has been no change in the affairs of the Company since
the date
hereof.
|
3,597,088
Shares
of
Common
Stock
CAPRIUS,
INC.
|
|
|
PROSPECTUS
|
|
Page
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
2
|
|
|
4
|
|
|
4
|
|
|
4
|
|
|
10
|
April
6, 2006
|
|
10
|
|
|
10
|
|
|
10
|
|
|
11
|
|
|
16
|
|
|
24
|
|
|
27
|
|
|
28
|
|
|
29
|
|
|
31
|
|
|
33
|
|
|
35
|
|
|
35
|
|
|
36
|
|
|
F-1
|
|