Registration Statement
As
filed
with the Securities and Exchange Commission on March 29, 2007
Registration
No. 333-
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
_______________
CAPRIUS,
INC.
(Name
of
Small Business Issuer in Its Charter)
______________
|
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
3845
(Primary
Standard Industrial
Classification
Code Number)
|
22-2457487
(I.R.S.
Employer
Identification
Number)
|
_______________
|
One
University Plaza, Suite 400
Hackensack,
New Jersey 07601
(201)
342-0900
(Address
and Telephone Number of Principal Executive Offices and Principal
Place of
Business)
|
_______________
|
Jonathan
Joels
Treasurer
and Chief Financial Officer
One
University Plaza, Suite 400
Hackensack,
New Jersey 07601
(201)
342-0900
(Name,
Address and Telephone Number of Agent For Service)
|
_______________
Copies
to:
Bruce
A. Rich, Esq.
Thelen
Reid Brown Raysman & Steiner LLP
875
Third Avenue
New
York, New York 10022
(212)
603-2000
|
_______________
|
Approximate
Date of Proposed Sale to the Public: from
time to time after the effective date of this Registration
Statement.
|
If
this
Form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
CALCULATION
OF REGISTRATION FEE
|
Title
of Each
Class
of Securities
to
be Registered
|
Amount
to
Be
Registered(1)
|
Proposed
Maximum
Offering
Price Per
Share
(2)
|
Proposed
Maximum
Aggregate
Offering
Price
|
Amount
of
Registration
Fee
|
Common
Stock, $01. par value (3)
|
6,250,000
shs.
|
$1.00
|
$6,250,000
|
$191.88
|
Common
Stock, $.01 par value (4)
|
3,125,000
shs.
|
1.00
|
3,125,000
|
95.94
|
Common
Stock, $.01 par value (4)
|
182,500
shs.
|
1.00
|
182,500
|
5.60
|
Total
|
9,557,500
shs.
|
|
9,557,500
|
$293.42
|
|
(1) |
All
shares registered pursuant to this registration statement are to
be
offered by selling stockholders. Pursuant to Rule 416 under the Securities
Act of 1933, this registration statement also covers such number
of
additional shares of common stock to prevent dilution resulting from
stock
splits, stock dividends and similar transactions pursuant to the
terms of
the Series E Convertible Preferred Stock and the warrants referenced
below.
|
|
(2) |
Estimated
solely for the purpose of computing amount of the registration fee
pursuant to Rule 457(c) promulgated under the Securities Act of 1933,
as
amended, based on the average of the bid and asked prices on the
OTC
Bulletin Board on March 23, 2007.
|
|
(3) |
Represents
6,250,000 shares underlying Series E Convertible Preferred
Stock.
|
|
(4) |
Represents
3,307,500 shares of common stock issuable upon exercise of warrants
held
by the selling stockholders.
|
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The
information contained in this prospectus is not complete and may be changed.
The
selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these shares, and the selling stockholders
are not soliciting an offer to buy these shares in any state where the offer
or
sale is not permitted.
Subject
to Completion, March 29, 2007
PROSPECTUS
9,557,500
shares of Common Stock
CAPRIUS,
INC.
This
prospectus relates to the sale or other disposition by the selling stockholders
identified on pages 35 to 37 of this prospectus, or their transferees, of up
to
9,557,500 shares
of
our common stock, including 6,250,000 shares underlying shares of Series E
Preferred Stock and 3,307,500 shares issuable upon exercise of warrants.
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 $1,672,000 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
March 23, 2007, the last bid price as reported was $1.00 per share.
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.
March
__,
2007
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 developed, markets and sells the SteriMed and
SteriMed Junior compact systems (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. Our internet website is www.caprius.com. The information contained
on
our website is not incorporated by reference in this prospectus and should
not
be considered a part of this prospectus.
In
this
prospectus, “Caprius,” the “Company,” “we,” “us” and “our” refer to Caprius,
Inc. and, unless the context otherwise indicates, our subsidiary
MCM.
History
We
were
founded in 1983 and as of June 1999 essentially operated in the business of
developing specialized medical imaging systems, as well as operating the Strax
Institute (“Strax”), a comprehensive breast imaging center. In June 1999, we
acquired Opus Diagnostics, Inc and began manufacturing and selling medical
diagnostic assays constituting the therapeutic drug monitoring (“TDM”) Business.
In October 2002, we sold the TDM business. The Strax Institute was sold in
September 2003.
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, our then
chairman, and Jonathan Joels, our CFO, filling two seats. Additionally, as
part
of the acquisition, 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. The Stockholder’s Agreement among us and the
other MCM stockholders contained certain provisions relating to performance
adjustments for the twenty-four month period post-closing. As a consequence,
our
ownership interest in MCM increased by 5% in the fiscal year ended September
30,
2004 and by an additional 5% in the fiscal year ended September 30, 2005.
Furthermore, our MCM equity ownership increased with the conversion of various
loans we made to MCM and our meeting cash calls made by MCM during the fiscal
year ended September 30, 2005. As of September 30, 2005, our interest in MCM
had
increased to 96.66%. Our interest remains unchanged for the fiscal year ended
September 30, 2006.
SteriMed
Systems
We
developed and market worldwide the SteriMed and SteriMed Junior compact units.
These units 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
destruction 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 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” (STAATT”), are met. Furthermore, it is accepted by the
waste water treatment authorities to discharge the SteriMed effluent containing
a low concentration of the disinfectant into the sewer system. STAATT is a
worldwide organization involved in setting criteria for efficicacy of
alternative medical waste treatment technologies.
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
dialysis clinics on a lease or sales basis. We have also begun initial
installations in other new sectors such as laboratories, plasma phoresis
centers, and hospitals. Other potential markets include blood banks, cruise
ships and military medical facilities.
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
March
1, 2007, we closed a private placement of 10,000 shares of Series E Convertible
Preferred Stock and warrants for net proceeds of approximately $2,350,000.
The
Series E Convertible Preferred Stock is convertible into 6,250,000 shares of
common stock, and the warrants are for the purchase of 3,125,000 shares of
common stock at $0.50 per share, exercisable for five years, subject to
anti-dilution provisions therein.
Securities
Covered Hereby
|
9,557,500
shares, includes 6,250,000 shares underlying Series E convertible
preferred stock and 3,307,500 shares subject
to warrants, including warrants for 182,500 shares of common stock
granted
to placement agent and advisors on the March 2007 placement.
|
Common
Stock to be Outstanding after the Offering
|
13,349,173
shares, assuming the selling stockholders convert all of their
Series E Preferred Stock and exercise all their warrants, and no
conversion of other series of outstanding
|
|
preferred
stock nor exercise of other outstanding warrants and
options.
|
Use
of Proceeds
|
We
will receive no proceeds from the sale or other disposition of the
shares
of common stock covered hereby by the selling stockholders. However,
we
will receive $1,672,000 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.
SUMMARY
FINANCIAL
AND OPERATING
INFORMATION
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
|
|
|
2006
|
|
|
2005
|
|
|
2006
|
|
|
2005
|
|
Total
revenues
|
|
$
|
1,235,469
|
|
$
|
848,802
|
|
$
|
508,424
|
|
$
|
240,888
|
|
Net
loss
|
|
|
(3,396,041
|
)
|
|
(2,538,408
|
)
|
|
(787,275
|
)
|
|
(693,438
|
)
|
Net
loss per common share (basic and
diluted)
|
|
$
|
(1.42
|
)
|
$
|
(1.16
|
)
|
$
|
(0.23
|
)
|
$
|
(0.21
|
)
|
Weighted
average common shares outstanding, basic and diluted
|
|
|
3,321,673
|
|
|
2,288,543
|
|
|
3,464,716
|
|
|
3,321,673
|
|
Statement
of Financial Position
|
|
As
of
September
30, 2006
|
|
As
of
December
31, 2006
(Unaudited)
|
|
Cash
and cash equivalents
|
|
$
|
1,068,954
|
|
$
|
428,338
|
|
Total
assets
|
|
|
2,777,020
|
|
|
2,287,854
|
|
Working
capital
|
|
|
1,653,302
|
|
|
927,764
|
|
Long-term
debt
|
|
|
-
|
|
|
-
|
|
Stockholders’
equity
|
|
|
2,159,491
|
|
|
1,416,478
|
|
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. The risks and uncertainties described
below
are not the only risks facing us.
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 $3,396,000, or $(1.02) per share, for the fiscal
year
ended September 30, 2006, compared to a net loss of approximately $2,538,000,
or
$(1.11) per share, for the fiscal year ended September 30, 2005, and a net
loss
of approximately $787,000, or $(0.23) per share, for the three month period
ended December 31, 2006. 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 $2.5 million in a placement of Series E Convertible Preferred
Stock in the second quarter of fiscal 2007, 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 in the second quarter of 2005. The net proceeds from these
placements should fulfill our capital needs through March 31, 2008 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 working capital 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 future 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, has yet to realize the acceptance in the market
place that we had anticipated, so 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.
We
have
so far been unable 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 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 to increase the manufacturing needs
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 ever become profitable.
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 approved for marketing
in 46 states and the SteriMed Junior in 42 states. It is our objective to obtain
approvals for marketing in the remaining states. The Ster-Cid® has been
registered in 50 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.
State
and
local regulations often change 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 Effect 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 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.
The
Loss of Certain Members of Our Management Team Could Adversely Affect Our
Business.
Our
success is highly dependent on the continued efforts of Dwight Morgan, Chairman,
President and Chief Executive Officer, George Aaron, Executive Vice President
-
International and Business Development, 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. Morgan 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
Three
principal customers, Euromedic, which is a foreign distributor in Central and
Eastern Europe, a major U.S. dialysis company and another U.S. customer
accounted for approximately 56% of our revenues from our SteriMed business
for
fiscal year 2006. One
principal customer, Euromedic, accounted for approximately 67% of our revenues
in the three months ended December 31, 2006. We are presently working on the
expansion of our sales, both internationally and domestically. In the first
quarter of fiscal year 2007, we received orders for several SteriMed Systems
from one of the largest independent providers of dialysis services in the U.S.
However, no assurance can be given that these orders will be shipped and
accepted, or that future orders would be given. The loss of any one of our
principal customers or the inability to obtain or expand our sales to additional
customers would have a significant adverse impact on our business.
Competition
There
are
numerous methods of handling and disposing of RMW, of which our technology
is
one of the available systems. 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 77.4% of the outstanding common
stock, including shares of common stock underlying Series D Preferred Stock
and
Series E Preferred Stock and warrants currently held by them, and has the right
to vote approximately 36.4% of our aggregate voting securities. Accordingly,
this group could exercise a significant voting block in the election of
directors and other matters to be acted upon by stockholders.
See
“SECURITY OWNERSHIP.”
Increased
Cost and Management Time in Seeking Compliance with the Requirements of the
Sarbanes-Oxley Act of 2002
Currently
the SEC’s rules under Section 404 of the Sarbanes-Oxley Act of 2002 will require
us to have our management attest to the adequacy of our internal controls in
the
Form 10-KSB for the year ending September 30, 2008. No member of our management
has any experience in complying with Section 404 and we have not yet prepared
an
internal plan of action for compliance with requirements of Section 404.
Furthermore, we may be required to make substantial changes to our internal
controls in order for our management to be able to attest that as of September
30, 2008, they are effective. Larger public companies which have been required
to comply with Section 404 have encountered significant expenses, both from
diversion of management time and attention, the acquisition of new computer
software, the employing of additional personnel and training and third party
internal controls consultants. While our business is not as sophisticated or
complex as these larger companies, we anticipate it will be time consuming,
costly and difficult for us to develop and implement the internal controls
necessary for our management to attest that they are effective at September
30,
2008. We may need to hire additional financial reporting and internal controls
personnel, acquire software and retain a third party consultant during fiscal
2008. If our management is unable to attest that our internal controls are
effective as of September 30, 2008, investors may react by selling our stock
and
causing its price to fall.
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 $0.45 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, 2007, we had 3,791,673 outstanding shares of common stock
and
an aggregate of 16,442,471 shares of common stock reserved for the conversion
of
Preferred Stock and the exercise of options and warrants. Of the 16,442,471
shares, an aggregate of 9,557,500 shares have been included in this prospectus,
and we plan to file a separate registration statement for 5,473,856 of such
shares. We have filed this registration statement to register these restricted
shares for sale into the public market by the selling stockholders. These
shares, 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.
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. However, the Series D Preferred Stock and the Series E
Preferred Stock require us to accrue dividends for those securities commencing
October 1, 2007. See “DIVIDEND POLICY.”
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,
2007, we had 768,067 shares of preferred stock authorized but not outstanding
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 23, 2007, the closing price for our common
stock
was $1.00 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.
Except
as
otherwise required by applicable laws, we undertake no obligation to publicly
update or revise any forward-looking statements or the risk factors described
in
the prospectus, whether as a result of new information, future events, changed
circumstances or any other reason after the date of this
prospectus.
We
will
not receive any portion of the proceeds from the sale or other disposition
of
the shares of common stock covered hereby, or interests therein, by the selling
stockholders. We may receive proceeds of up to $1,672,000 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
may be exercised as a result of this offering or that they will be exercised
for
cash.
We
are
obligated to bear the expenses of the registration of the shares. We anticipate
that these expenses will be approximately $70,000.
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, and the Series E Preferred Stock provides for a
cumulative dividend of $13.50 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
9/30/07
|
Fiscal
Year Ended
9/30/06
|
Fiscal
Year Ended
9/30/05
|
|
High
|
Low
|
High
|
Low
|
High
|
Low
|
First
Quarter
|
$0.65
|
$0.51
|
$2.45
|
$1.05
|
$3.80
|
$2.20
|
Second
Quarter *
|
1.08
|
0.45
|
2.35
|
1.30
|
6.80
|
2.60
|
Third
Quarter
|
—
|
—
|
1.69
|
0.80
|
5.00
|
2.10
|
Fourth
Quarter
|
—
|
—
|
0.80
|
0.55
|
2.98
|
2.00
|
*Reflects
prices through March 23, 2007
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, 2007, there were approximately 1,100 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.
CONDITION
AND RESULTS OF OPERATIONS
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
The
Company’s product sales growth in the U.S. was negatively impacted by
consolidation in the dialysis clinic market by several of our customers which
caused them to place their purchasing decisions on hold during the period ending
with fiscal 2006. We have been actively pursuing new initiatives and we
anticipate that these will enable the Company to show revenue growth during
Fiscal 2007. There is no assurance that the Company will show revenue growth
during fiscal year 2007.
Fiscal
Year Ended September 30, 2006 Compared to Fiscal Year Ended September 30,
2005
Revenues
generated for fiscal year ended September 30, 2006 (“Fiscal 2006”) were
primarily generated by MCM product sales and rental revenues which totaled
$1,069,902 for Fiscal 2006 as compared with $740,796 for fiscal year ended
September 30, 2005 (“Fiscal 2005”). For Fiscal 2006, three customers accounted
for approximately 56% of the consolidated total revenue. For Fiscal 2005, three
customers accounted for approximately 51% of the consolidated total revenue.
Product sales for the Fiscal 2006 increased due to a change in the product
mix
of units sold together with an increase in the sales of disposables for the
SteriMed units.
Consulting
and royalty income from the TDM Business which was sold in 2002 to Seradyn,
Inc.
totaled approximately $165,600 as compared to $108,000 for fiscal years ended
September 30, 2006 and 2005, respectively. The increase of approximately $58,000
was attributable to the growth in sales of the diagnostic products underlying
our Royalty Agreement, as they become more widely distributed and
utilized.
Cost
of
product sales and equipment rental income aggregated approximately $803,000
as
compared to $491,000 during Fiscal 2006 and Fiscal 2005, respectively. The
increased costs of approximately $312,000 correlate to the increase in revenues
and the absorption of certain production expenses incurred in Fiscal 2006 in
order to enhance production efficiencies.
Research
and development costs amounted to approximately $343,000 versus $325,000 for
Fiscal 2006 and Fiscal 2005, respectively. Research and development costs are
directly attributable to the development of manufacturing efficiencies for
the
SteriMed systems.
Selling,
general and administrative expenses totaled $3,064,000 for Fiscal 2006 versus
$2,730,000 for Fiscal 2005. This increase is a result of additional personnel
costs (hiring of two additional employees and increased benefit costs), as
well
as the related increase in travel and marketing expenses incurred in order
to
facilitate the development of additional sales markets for our units.
In
2006,
management assessed our underlying fair value and determined the carrying value,
including goodwill exceeded its fair value and as such management recorded
an
impairment charge to goodwill of $452,000. In 2005, management recorded no
such
charge.
Other
income totaled $ 0 for Fiscal 2006 as compared to $482,200 for Fiscal 2005.
Other income recorded in fiscal year 2005 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, settled in Fiscal
2005.
Interest
income (expense), net totaled $29,693 for Fiscal 2006 versus ($323,026); net
of
interest income of approximately $30,000 for Fiscal 2005. In Fiscal 2006, we
had
no related debt borrowings.
The
net
loss totaled $3,396,041 for Fiscal 2006 versus $2,538,408 for Fiscal 2005.
Three
Months Ended December 31, 2006 Compared to Three Months Ended December 31,
2005
Revenues
generated from MCM product sales totaled $470,293 for the three months ended
December 31, 2006 as compared to $217,282 for the three months ended December
31, 2005. This increase in sales is attributed to our expanded penetration
into
several markets that we had been developing for our products. Consulting and
royalty income from the TDM Business, which was sold in 2002, totaled $38,131
for the three months ended December 31, 2006 as compared to $23,606 for the
three months ended December 31, 2005.
Cost
of
product sales amounted to $308,636 or 65.6% of total related revenues versus
$168,662 or 77.6% of total related revenues for the three month periods ended
December 31, 2006 and 2005, respectively. We have not advanced to a level of
sales for us to fully absorb the fixed costs related to our revenues. The
reduced percentage cost is due to the sales product mix, as well as our
initiatives to reduce costs as the number of units produced
increases.
Research
and development expense increased to $91,083 versus $81,839 for the three month
period ended December 31, 2006 as compared to the same period in 2005.
Selling,
general and administrative expenses totaled $897,011 for the three months ended
December 31, 2006 versus $687,554 for the three months ended December 31, 2005.
This increase is principally due to increased personnel, our adoption of FAS
123R which requires the recording of stock based compensation as part of the
statement of operations, in which $44,262 was recorded during this period and
other costs in connection with sales and marketing.
Interest
income, net totaled $1,031 for the three months ended December 31, 2006 versus
$3,729 for the three months ended December 31, 2005.
The
net
loss amounted to $787,275 and $693,438 for the three month periods ended
December 31, 2006 and 2005, respectively.
Liquidity
and Capital Resources
At
December 31, 2006, our cash and cash equivalents position approximated
$428,000.
Net
cash
used in operations for the three months ended December 31, 2006 amounted
to
$625,703. Net cash used in investing activities amounted to
$14,913.
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 cash proceeds from the Series D equity financing were used to satisfy
specific outstanding obligations and accrued expenses outstanding at the
time of
the financing and increase our marketing effort both in the US and overseas
markets. These funds enabled us to build inventory to fulfill current needs
arising from our increased marketing efforts. As we increase our penetration
in
the US market, we will need to expand our customer service and technical
support
capabilities to meet the needs of our clients. Similarly, in overseas markets,
where we believe there exists great opportunities for our business, resources
will be required to secure regulatory approvals in these markets.
On
January 30, 2007, we borrowed the principal amount of $100,000 through the
issuance of a 10% promissory note, payable on April 30, 2007. This “bridge” loan
was used for general working capital, until additional funding was secured.
This
note, plus interest, was repaid in March 2007 upon the placement of
Series E Preferred Stock.
The
Company continues to incur significant operating losses. In addition, we
are a
defendant in an action seeking damages in excess of $400,000. Although we
believe we have a meritorious defense against such a lawsuit, an unfavorable
outcome of such action would have a materially adverse impact on our business.
In order to fund the
additional
cash requirements of the Company, the Company continues to pursue efforts to
identify additional funds through various funding options, including sale of
our
royalty income stream and equity offerings. Given the Company’s low share price
and current volume of business, there is no assurance that we will be able
to
obtain such additional funding or on terms not highly dilutive to current
stockholders, and the lack of additional capital could have a material adverse
impact on our business. If we are unable to generate sufficient cash flows
from
our business operations or raise additional funding to continue our operations,
we will have to implement a plan to drastically curtail operations to reduce
operating costs until sufficient additional capital is raised. There can be
no
assurance that such a plan, if implemented, will be successful. The
aforementioned factors raise substantial doubt about our ability to continue
as
a going concern.
On
March
1, 2007, we closed on a $2.5 million Series E Preferred Stock equity financing
before financing related fees and expenses of approximately $150,000. The
net
proceeds will be used for general working capital purposes and the repayment
of
the January 30, 2007 10% Promissory Note as outlined above.
We
believe that after the 2007 placement we should have sufficient cash
requirements to support our working capital needs through March 31, 2008.
However, to further develop the MCM business, we will need to seek additional
funding. There can be no assurance that 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, could 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.
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 as of
September 30. The valuation will be based upon estimates of the market value
of
the unit.
3. Off-balance
sheet arrangements
We
have
no off-balance sheet arrangements, financings or other relationships with
unconsolidated entities known “Special Purpose Entities.”
Recent
Accounting Pronouncements
In
May
2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections.”
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 applies 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 our consolidated results of operations and financial
condition.
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. Both of
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). These pronouncements had a material impact on our consolidated
results of operations and financial condition.
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
SFAS 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments. SFAS 155 also allows the election of fair value measurement at
acquisition, at issuance, or when a previously recognized financial instrument
is subject to a re-measurement event. Adoption is effective for all financial
instruments acquired or issued after the beginning of the first fiscal year
that
begins after September 15, 2006. Early adoption is permitted. The adoption
of SFAS 155 is not expected to have a material effect on our consolidated
results of operations and financial condition
In
March 2006, the FASB issued Statement of Financial Accounting Standard 156
- Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
separately recognized servicing assets and servicing liabilities be initially
measured at fair value. SFAS 156 permits, but does not require, the subsequent
measurement of servicing assets and servicing liabilities at fair value.
Adoption is required as of the beginning of the first fiscal year that begins
after September 15, 2006. Early adoption is permitted. The adoption of SFAS
156 is not expected to have a material effect on our consolidated results of
operations and financial condition.
In
July
2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48
clarifies the accounting and reporting for uncertainties in income tax law.
This
Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. This Interpretation shall
be effective for fiscal years beginning after December 15, 2006. Earlier
adoption is permitted as of the beginning of an enterprise’s fiscal year,
provided the enterprise has not yet issued financial statements, including
financial statements for any interim period for that fiscal year. The cumulative
effects, if any, of applying this Interpretation will be recorded as an
adjustment to retained earnings as of the beginning of the period of adoption.
The adoption of FIN 48 is not expected to have a material effect on our
consolidated results of operations and financial condition.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
157,
“Fair
Value Measurements”
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair
value
and expands disclosure of fair value
measurements. SFAS No. 157 applies under other accounting pronouncements
that require or permit fair value measurements and accordingly, does not require
any new fair value measurements. SFAS No. 157 is effective for financial
statements issued for fiscal years beginning after November 15,
2007. We are in the process of evaluating the impact of the adoption
of SFAS No. 157 will have on our consolidated results of operations and
financial condition and are currently not in a position to determine such
effect.
In
September 2006, the staff of the SEC issued Staff Accounting Bulletin No.
108
(“SAB 108”) which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 becomes effective in fiscal
2007. Adoption of SAB 108 is not expected to have a material impact on our
consolidated results of operations and financial position.
On
October 1, 2006, we adopted Statement of Financial Accounting Standards (“SFAS”)
No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”), which is a
revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.
123”). SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to
Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based upon their
fair values. As a result, the intrinsic value method of accounting for stock
options with pro forma footnote disclosure, as allowed for under SFAS No.
123,
is no longer permitted.
In
December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
Registration Payment Arrangements,” which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under
a
registration payment arrangement should be separately recognized and measured
in
accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
00-19-02 is required for fiscal years beginning after December 15, 2006.
We are
currently evaluating the expected effect of EITF 00-19-02 on our consolidated
financial statements and are currently not yet in a position to determine
such
effects.
On
February 15, 2007, FASB issued SFAS No. 159, entitled “The Fair Value Option for
Financial Assets and Financial Liabilities.” The guidance in SFAS No. 159
“allows” reporting entities to “choose” to measure many financial instruments
and certain other items at fair value. The objective underlying the development
of this literature is to improve financial reporting by providing reporting
entities with the opportunity to reduce volatility in reported earnings that
results from measuring related assets and liabilities differently without
having
to apply complex hedge accounting provisions, using the guidance in SFAS
No.
133, as amended, entitled “Accounting for Derivative Instruments and Hedging
Activities”. The provisions of SFAS No. 159 are applicable to all reporting
entities and is effective as of the beginning of the first fiscal year that
begins subsequent to November 15, 2007. We do not believe this new accounting
standard will have a material impact on our financial condition or results
of
operations.
We
adopted SFAS No. 123R using the modified prospective method, which requires
us
to record compensation expense for all awards granted after the date of
adoption, and for the unvested portion of previously granted awards that remain
outstanding at the date of adoption. Accordingly, prior period amounts have
not
been restated to reflect the adoption of SFAS No. 123R. After assessing
alternative valuation models and amortization assumptions, we chose to continue
using the Black-Scholes valuation model and recognition of compensation expense
over the requisite service period of the grant.
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. (“Caprius”, the “Company”, “we”, “us” and “our”) is engaged in the
infectious medical waste disposal business, through our subsidiary 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, our
chairman, and Jonathan Joels, our CFO, filling two seats. Additionally, as
part
of the acquisition, 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. The Stockholders Agreement among us and the
other
MCM stockholders contained certain provisions relating to performance
adjustments for the twenty-four month period post-closing. As a consequence,
our
ownership interest in MCM increased by 5% in the fiscal year ended September
30,
2004 and by an additional 5% in the fiscal year ended September 30, 2005.
Furthermore, our MCM equity ownership increased with the conversion of various
loans we made to MCM and our meeting cash calls made by MCM during the fiscal
year ended September 30, 2005. Since September 30, 2005, we have had a 96.66%
interest in MCM.
Caprius,
Inc. was founded in 1983, and in 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 Diagnostics, Inc. and began manufacturing and selling medical
diagnostic assays constituting the therapeutic drug monitoring (“TDM”) Business.
In October 2002, we sold the TDM business. 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 440 member
organizations, estimated that 250,000 tons of RMW was produced annually in
the United States of America or worldwide.
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, those 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 on-site medical waste disinfection methods that do not require
manifest systems as the resultant
waste
is
disinfected. The combination of these pressures is forcing medical waste
generators to seek innovative methods for their waste disposal. 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 including provisions of
weight. 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 has been establishing relationships worldwide directly or through
distributors in many of these countries. Additional information will be
addressed in the Marketing section.
The
MCM SteriMed Systems
We
developed and market worldwide the SteriMed and SteriMed Junior compact units.
These units 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
destruction 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 costs 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 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” (STAATT”), are met. Furthermore, it is accepted by the
waste water treatment authorities to discharge the SteriMed effluent containing
a low concentration of the disinfectant into the sewer system. STAATT is a
worldwide organization involved in setting criteria for efficicacy of
alternative medical waste treatment technologies.
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
dialysis clinics on a lease or sales basis. We have also begun initial
installations in other new sectors such as laboratories, plasma phoresis
centers, and hospitals. Other potential markets include blood banks, cruise
ships and military medical facilities.
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.
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 for alternative treatment
technologies. 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
and a 6Log10 concentration of Geobacillus stearothermophillus. This meets or
exceeds most state regulatory requirements.
The
SteriMed has been approved for
marketing in 46 states and the SteriMed Junior in 42 states. The Ster-Cid®
disinfectant has been registered in 50 states. We are currently seeking
approvals for marketing in the remaining states.
Local
and
county level authorities generally require that discharge permits be obtained
from waste water treatment authorities by all facilities that discharge a
substantial amount of liquids or specifically regulated substances into 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 waste water treatment authorities’ discharge
limits.
These
approvals allow the SteriMed Systems effluent to be discharged into a municipal
sewer and the treated disinfected shredded 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 a requirement for equipment sold in the European Union (“EU”). The
SteriMed Systems are CE Mark compliant as well as ISO Certified, 9001:2000
and
14001:2004. 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 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
odors generated as a result of the process. During
the December 2005 meeting of STAATT, the efficacy of autoclaves has come under
scrutiny due to inherent inability of autoclaves to physically destroy the
waste.
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 cycle rapidly between positive and negative at very high
frequency, 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
as the
fluids trapped in the medical waste must be heated to create the steam required
for disinfection.
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 in the infectious medical waste business are Stericycle, Inc.,
Sanitec, Inc. Saniflash PTY LTD, AduroMed Corp., Meteka GmbH, Tecno
Service First Srl (Newster
srl), Ecodas Corp., Waste Processing Solutions Company, 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)
|
Quiet
system - noise level during cycle is approx. 64.1dB(A), regarded
below
levels of noise safety concerns by most government
regulations
|
Labor
a)
|
Reduce
the exposure to infectious medical 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
Systems
treatment cycle is operational
|
Convenience
a)
|
Rapid
deployment through our system designs that enable “same day” installation
and start up at a client’s site
|
b)
|
Easily
installed requiring only electricity, water and sewage outlet which
are
usually which are usually readily available. No special ventilation
or
lighting required
|
c)
|
Fast
cycle process times (approximately 15 minutes) that enables even
our
smallest system to generate a rapid throughput
capability
|
d)
|
Limited
training required for operators due to the fully automated systems
based
upon a one-touch start method
|
e)
|
Due
to their compact size, units can be strategically placed in a health
care
facility close to the waste generation sites
|
f)
|
Due
to its compact size, the SteriMed System is also appropriate for
mobile
facilities such as cruise ships and naval vessels.
|
Cost
Saving
a)
|
One
of the lowest capital costs for comprehensive onsite medical waste
systems
|
b)
|
Reduced
labor time as packaging for off site transportation is eliminated
|
c)
|
No
transportation costs to incineration site
|
d)
|
Our
business model allows for the SteriMed Systems to be leased 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.
|
e)
|
Ability
to fix costs for a given period of time, avoiding future price
increases
and surcharges, while allowing for additional capacity at a low
variable
cost
|
f)
|
Energy
efficient systems that consume just pennies per cycle in electricity
and
water
|
Compliant
with Domestic and International Regulations
a)
|
Enable
infectious medical waste generating facilities to replace existing
systems
while meeting federal, state and local environmental as well as
health
regulations.
|
b)
|
Proprietary,
environmentally safe, 90% biodegradable chemical for disinfection
which
has been cleared for use in many foreign countries and which is
registered
in most states.
|
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. This is primarily
due to federal and state regulations or the ongoing pressures to reduce their
ever increasing operating costs.
Marketing
Strategy
We
have
designed and are implementing a marketing program based upon our SteriMed
Systems and its value proposition. Our overall marketing campaigns are also
focused on the value statement “…..Is
Green…….Saves Green……”;
a
statement that defines our business as one which helps our clients
simultaneously achieve their goals
of
sustainability through environmental responsibility, and improved financial
performance through the reduction in operating costs associated with waste
treatment and disposal.
Our
marketing strategy is driven by a sales program with a four pronged approach
consisting of the following channels for product distribution: direct selling
to
end users of our products in the commercial market, direct selling to end users
of our products in the government and defense industry, Sales to US based and
foreign distributors of our products, and agent-based
representatives.
Direct
Selling to End Users in the Commercial Market
In
the
United States we employ sales personnel who are responsible for selling to
key
customers in our key applications. Our definition of a “key” customer group are
generators of medical waste with sites which best fit the capabilities and
capacity of our SteriMed Systems. Within the United States these “key”
applications are dialysis centers, small hospitals, surgical centers, plasma
phoresis centers, blood banks, commercial laboratories (both research and
clinical) as well as independent physician group practices.
Many
of
these facilities are owned by regional, national or international corporations
operating numerous facilities. Focusing our sales efforts on this customer
profile affords us the opportunity to achieve multiple sales within the same
organization and enhances our ability to service and support our customers.
We
are presently deploying our SteriMed Systems at several dialysis centers in
the
implementation of this strategy which includes two companies that are leaders
in
the field both domestically and overseas.
Our
business marketing models in the U.S. are either lease or purchase of the
SteriMed Systems. A typical SteriMed lease (which, at the customer’s option, can
also include installation costs) is for a five year period. We have contacts
with several leasing companies that offer this facility to our customers.
Direct
Selling to End Users in the Government and Defense
Industry
We
have
continued to build on our initiative to capture business with the government
and
defense industry. In Fiscal 2006, we shipped two SteriMed Juniors to the United
States Department of Defense for use by the U.S. Navy. The first unit was for
laboratory test and evaluation as part of the U.S. Navy’s Shipboard Medical
Waste Management Program and the second unit is scheduled for shipboard
evaluation in the first half of 2007. The program for the Navy represents a
significant opportunity for us in that the Navy is actively seeking a “total
fleet solution” to medical waste management problems. The Navy had identified 21
potential alternative technology solution providers for medical waste treatment.
Our SteriMed Junior was identified as a solution that achieved the Navy’s cost,
ship impact, and performance metrics. We are actively supporting the Navy
project in an attempt to earn this business which could result in the sales
of
multiple SteriMed systems.
In
addition to these opportunities, we are actively marketing to other branches
of
the military, including ground based operations where the need to reduce cost
and to improve the environmental impact of medical waste management are key
issues.
Sales
to US-based and Foreign 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 right to sell the SteriMed Systems and related products within
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.
In
addition, we have a non-exclusive distribution agreement with certain divisions
of Fresenius Medical Care North America (“FMC”). FMC is permitted to distribute
our consumables, i.e. SterCid®
and
SteriMed Filter Bags throughout the U.S., Canada and the Caribbean Basin. This
arrangement provides an efficient logistical system for customers to access
our
consumables as FMC has excellent penetration in the renal care market. FMC
has
numerous distributions sites throughout its territory which speeds delivery
of
these critical consumables to our clients, while reducing our need to provide
a
costly, distribution network for this supply chain solution.
Internationally,
we market our SteriMed Systems both directly and indirectly through
distributors. In order to gain exclusivity, the distributor must commit to
minimum annual purchases. In those countries where we have distributors, it
is
their responsibility to market and support the sales of the SteriMed Systems
at
their own expense as well as obtain all regulatory approvals which will be
registered in the name of MCM.
We
currently have international distributorship arrangements in Australia, New
Zealand, Mexico, Russia and the Caribbean.. We are negotiating with
distributors, and expect to formalize agreements in 2007 with distributors
in
Portugal, Hungary, Greece, Italy, Spain, Colombia, and Japan.
Agent-based
Representatives
Concurrent
to our direct sales in the U.S, we have been actively recruiting agents who
will
act as our selling representatives, thus reducing our cost of sales. We utilize
the services of these agents in key states. These agents seek out opportunities
for SteriMed in their local markets and are compensated for these sales through
an agent based commission fee. The criteria for the selection of these agents
is
that they must have existing, strong, long-term relationships with clients
that
are within our “key” applications as defined herein.
Manufacturing
We
recognize that to be successful, we need to be able to supply manufactured
units
that are robust, cost effective, reliable and safe.
We
manufacture components for the SteriMed systems globally at several key
suppliers. These components are then assembled at either our facility in Moshav
Moledet, Israel or at a contract manufacturing partner. The SteriMed Junior
is
assembled by a third-party contract assembly company in Israel. The SteriMed
is
assembled in house at our engineering facility in Israel or at a contract
assembly company as volume warrants. We continue to seek sub-assembly
manufacturers to enable us to reduce the cost of the SteriMed Junior as well
as
seek alternative locations for its manufacture and/or assembly in closer
proximity to our customer base.
Our
assembly facility in Israel is operated under the strictest guidelines of the
global quality standard of ISO 9000:2000 and ISO 14001:2004.
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. Presently we maintain
an inventory of spare parts and supplies in our Ridgefield, NJ warehouse and
at
our facility in 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.
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. In the U.S. our technical
staff is on call around the clock to assist with any questions or issues
relating to the operation of our SteriMed Systems. Our goal is to minimize
problems through ongoing training and strict adherence to maintenance
schedules.
We
provide our customers with a warranty covering non-wear parts and labor for
one
year. In the U.S., an extended warranty program is available to our customers
upon purchasing the unit.
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.
MCM
STERIMED - INTERNATIONAL CLASS 10 TRADEMARK:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Trademark
No.
|
99205
|
Australia
|
813207
|
11/9/1999
|
813207
|
99202
|
Canada
|
1035658
|
11/12/1999
|
TMA
596,329
|
99203
|
Common
European Market Trademarks (CTM)
|
1380195
|
11/11/1999
|
1380195
|
99215
|
Hungary
|
M-9905279
|
11/10/1999
|
164682
|
99200
|
Israel
|
131893
|
11/1/1999
|
131893
|
99204
|
Japan
|
11-103144
|
11/12/1999
|
4562185
|
99206
|
Mexico
|
412940
|
2/23/2001
|
656603
|
99217
|
Poland
|
Z-209696
|
11/10/1999
|
145760
|
99213
|
Russia
|
99719294
|
11/18/1999
|
200276
|
99201
|
U.S.A
|
75/904,150
|
1/29/2000
|
2,713,884
|
MCM
STER-CID®
INTERNATIONAL CLASS 5 TRADEMARK:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Trademark
No.
|
99205
|
Australia
|
813207
|
11/9/1999
|
813207
|
99202
|
Canada
|
1035658
|
11/12/1999
|
TMA
596,329
|
99203
|
Common
European Market Trademarks (CTM)
|
1380195
|
11/11/1999
|
1380195
|
99215
|
Hungary
|
M-9905279
|
11/10/1999
|
164682
|
99200
|
Israel
|
131893
|
11/1/1999
|
131893
|
99204
|
Japan
|
11-103144
|
11/12/1999
|
4562185
|
99206
|
Mexico
|
412940
|
2/23/2001
|
656603
|
99217
|
Poland
|
Z-209696
|
11/10/1999
|
145760
|
99213
|
Russia
|
99719294
|
11/18/1999
|
200276
|
99201
|
U.S.A
|
75/904,150
|
1/29/2000
|
2,713,884
|
MCM
STERIMED PATENTS & PATENT APPLICATIONS:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Patent
No.
|
Dates
Patent Valid
|
9454
|
U.S.A
|
08/369,533
|
1/5/1995
|
5,620,654
|
4/15/1997
- 4/15/2014
|
9456
|
Canada
|
2,139,689
|
1/6/1995
|
2,139,689
|
10/5/1999
- 1/6/2015
|
9452
|
Australia
|
10096/95
|
1/9/1995
|
684,323
|
4/2/1998-1/9/2015
|
9453
|
Japan
|
7-011844
|
1/23/1995
|
3058401
|
4/21/2000-
1/27/2015
|
9346
|
Israel
|
108,311
|
1/10/1994
|
108,311
|
12/23/1999-1/10/2014
|
9455
|
Europe
|
95630001.6
|
1/5/1995
|
EP0662346
|
3/28/2001
- 1/5/2015 or
according
to National Phase
|
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Patent
No.
|
Dates
Valid (Patent
or
Application)
|
6.1
- 2114
|
Austria
|
|
1/5/1995
|
E200039
|
2/15/2001-1/5/2015
|
6.2
- 2115
|
Belgium
|
|
1/5/1995
|
10662346
|
2/15/2001-1/5/2015
|
6.3
- 2116
|
Germany
|
|
1/5/1995
|
DE69520458T2
|
2/15/2001-1/5/2015
|
6.4
- 2117
|
Spain
|
|
1/5/1995
|
EP0662346
|
2/15/2001-1/5/2015
|
6.5
- 2118
|
France
|
|
1/5/1995
|
EP0662346
|
2/15/2001-1/5/2015
|
6.6
- 2119
|
United
Kingdom
|
|
1/5/1995
|
EP(UK)662346
|
2/15/2001-1/5/2015
|
6.7
- 2120
|
Italy
|
|
1/5/1995
|
0662346
|
2/15/2001-1/5/2015
|
6.8
- 2121
|
Netherlands
|
|
1/5/1995
|
EP0662346
|
2/15/2001-1/5/2015
|
MCM
STERIMED PATENT CORPORATION TREATY (“PCT”) INTERNATIONAL PHASE PATENTS
-PCT/IL02/00093:
File
No.
|
Country
|
Application
No.
|
Application
Date
|
Patent
No.
|
Dates
Valid (Patent or Application)
|
2338
|
Brazil
|
200300398
|
7/31/2003
|
P10206913-0
|
7/31/2003
- 2/4/2022
|
2339
|
Mexico
|
PA/a/2003/
006946
|
8/4/2003
|
Pending
|
8/4/2003
- 2/4/2022
|
2340
|
Russia
|
2003127023
|
9/4/2003
|
Pending
|
9/4/2003
- 2/4/2022
|
2341
|
South
Africa
|
2003/5602
|
7/21/2003
|
2003/5602
|
9/23/2003
- 2/4/2022
|
2342
|
Canada
|
2437219
|
8/1/2003
|
Pending
|
8/1/2003
- 2/4/2022
|
2343
|
China
|
02806986.2
|
9/22/2003
|
Pending
|
9/22/2003
- 2/4/2022
|
2712
|
Hong
Kong
|
4106248.3
|
8/20/2004
|
ZL028069862
|
6/14/2006-2/4/2022
|
2344
|
India
|
01389/
chenp/03
|
9/2/2003
|
Pending
|
9/2/2003
- 2/4/2022
|
2313/354
|
Europe
|
02711185.5
|
9/5/2003
|
P210477
PCT/EP
|
9/5/2003-
2/4/2022
|
2337
|
Australia
|
2002230065
|
2/4/2002
|
Pending
|
2/4/2002
- 2/4/2022
|
2373
|
USA
|
09/824,685
|
4/4/2001
|
6494391
|
12/17/2002
- 4/4/2021
|
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, 2007, we employed 16 full time employees and one part-time employee,
including four senior managers. Of these, eight 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
April 30, 2007.
In
Israel, we lease 2,300 square feet of industrial space at a monthly cost of
approximately $1,000 and the lease expires on March 31, 2008.
Litigation
In
May
2006, Andre Sassoon and Andre Sassoon International, Inc. (the “Plaintiffs”)
commenced an action against us, our subsidiary M.C.M. Environmental
Technologies, Inc. (“MCM”), and George Aaron, then our CEO, in the Supreme Court
of the State of New York in the County of New York. The complaint also names
all
persons who were existing stockholders of MCM at the time of our original
investment in MCM in December 2002. In June 2006, the Plaintiffs filed an
amended complaint to include additional counts. The Plaintiffs are seeking
damages in excess of $400,000 or the stock interest of the existing stockholders
at the time of our acquisition arising from an agreement entered into by Mr.
Sassoon, the then MCM stockholders and MCM, pursuant to which MCM was to pay
certain royalties to Mr. Sassoon, and if by December 31, 2005 the royalties
were
less than $400,000, the individual MCM stockholders were to make up the
difference. Preliminary discovery has been undertaken. Based upon our review
of
the amended complaint, we continue to believe that there is no merit to the
allegations contained within the complaint as to us, MCM and Mr. Aaron, and
we
will continue to vigorously defend this action.
Executive
Officers and Directors
As
of
March 1, 2007, our directors and executive officers were:
Name
|
Age
|
Position
|
Dwight
Morgan
|
46
|
Chairman
of the Board, President & CEO
|
George
Aaron
|
54
|
Executive
Vice President - International Business Development
|
Jonathan
Joels
|
50
|
Chief
Financial Officer, Treasurer, Secretary
and Director
|
Kenneth
C. Leung (1)(2)
|
62
|
Director
|
Roger
W. Miller
|
60
|
Director
|
Sol
Triebwasser, Ph.D. (1)(2)
|
85
|
Director
|
____________________
(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 is as follows:
Dwight
Morgan.
Mr.
Morgan has been Chairman of the Board since February 2007 and became President
and CEO in November 2006. Mr. Morgan has served as our Chief Engineering
Consultant since 2003. From 1999 to 2003, he was a founder, President and
Chief Operating Officer of POM Group, which had developed an alternative metal
fabricating technology. For 17 years to 1999, he served in various management
positions at FANUC Robotics North America, with his last position being General
Manager - Automation System Group. Mr. Morgan began his career in
1982 as a systems engineer at General Motor Technical Center. Mr. Morgan is
a
member of the Michigan Economic Development Corporation’s Advanced Manufacturing
Strategic Roundtable and is Chairman of the Corporate Development Committee
of
the American Diabetes Corporation. Mr. Morgan received a BS in Mechanical
Engineering from Cornell University.
George
Aaron.
Mr.
Aaron has been Executive Vice President - International Business Development
since February 2007. Prior thereto Mr. Aaron had served as Chairman of the
Board
since June 1999 and as President and CEO from 1999 to November 2006. He has
served as a Director since 1999 and had previously served as a Director 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 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 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, Secretary and a Director 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.
Kenneth
C. Leung. Mr.
Leung
has been a Director since December 6, 2006.
Since
1995, Mr. Leung has been a Managing Director of Sanders Morris Harris Group
and
is engaged in investment banking in environmental and alternative energy, and
is
the Chief Investment Officer of its Environmental Opportunity Funds. From 1978
to 1994, Mr. Leung had served as a Managing Director at Smith Barney, and for
more than ten years prior he served in different positions at other investment
banking institutions. He currently serves as Chairman of the Board of American
Ecology Corp., (NASDAQ: ECOL), and a director of SystemOne Technologies
Inc.(other OTC: STEK.PK) and AeroGrowth International, Inc. Mr. Leung received
an MBA in Finance from Columbia University and a BA in History from Fordham
University.
Roger
W. Miller. Mr.
Miller has been a Director since February 23, 2007. Since 1992, Mr. Miller
has
been actively involved as a manager of personal portfolios of investments in
private venture-stage companies and small public companies. Mr. Miller had
served as a director at some of these companies. He is also a financial
consultant and expert witness in valuation cases, merger-related transactions
and work-out and restructuring situations. Prior to 1992, Mr. Miller held
positions at Cambridge Capital where he was Co-Chairman of the private equity
affiliate of Baker, Nye and held the position of General Partner and Managing
Director at Salomon Brothers. Mr. Miller holds degrees in both Law and Economics
from Cambridge University and London University, respectively.
Sol
Triebwasser, Ph.D.
Dr.
Triebwasser has been a Director 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 the fiscal
year ended September 30, 2006. Each of the Directors attended at least 75%
of
the meetings.
Board
Committees
The
Board
of Directors has standing Audit and Compensation/Option Committees.
The
Audit
Committee reviews with our independent public 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 met six times
during the fiscal year ended September 30, 2006. The audit committee has not
yet
designated an “Audit Committee Financial Expert.”
The
Compensation/Option Committee reviews and recommends to the Board of Directors
the compensation and benefits of all of our officers, reviews general policy
matters relating to compensation and benefits of our employees and administers
our 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 $20,000 and 20,000
options under our 2002 Stock Option Plan, and may receive additional option
grants at the discretion of the Board.
Executive
Compensation
The
following table sets forth the aggregate cash compensation paid by us over
the
past three fiscal years to (i) our Chief Executive Officer and (ii) our most
highly compensated officers whose cash compensation exceeded $100,000 for
services performed during the year ended September 30, 2006.
Annual Compensation Long
Term Compensation
Awards Payouts
Name
and
Principal
Position
|
Year
|
Salary ($)
|
Bonus
($)
|
Other Annual Compensation ($)
|
Restricted Stock Award(s) ($)
|
Securities Underlying Options SARs (#)
|
LTIP Payouts ($)
|
All
Other Compensation ($)
|
George
Aaron
Chairman,
President/CEO
|
2006
2005
2004
|
240,000
240,000
240,000
|
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
Jonathan
Joels
CFO
|
2006
2005
2004
|
220,000
176,000
176,000
|
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
|
Elliott
Koppel
VP
Sales &
Marketing
|
2006
2005
2004
|
92,000
92,000
92,000
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
-0-
-0-
-0-
|
In
fiscal
2006 we reimbursed Messrs. Aaron, Joels and Koppel in the amounts of $1,000,
$750 and $700 per month, respectively for automobile expenses excluding
insurance. Messrs. Aaron, Joels and Koppel are reimbursed for other expenses
incurred by them on our behalf in accordance with our policies.
On
November 13, 2006, Dwight Morgan was appointed as our President and CEO at
an
annual base salary of $250,000. In addition, Mr. Morgan received a sign-on
bonus
of $20,000 as well as a car allowance of $1,000 per month. Upon commencement
of
his employment, Mr. Morgan was granted an option for 350,000 shares of our
common stock at an exercise price of $0.60 per share (the fair market value
on
the date of grant), with vesting after six months as to 1/8 of the options
granted and the balance vesting at 1/48 per month (of the total granted) over
the next 42 months under our 2002 Stock Option Plan. Options for 206,050 of
the
350,000 shares are subject to stockholder approval of an increase in the number
of shares of common stock underlying the Plan. As of February 2007, Mr. Morgan
also was appointed Chairman of the Board.
On
January 26, 2007, Mr. Koppel ceased serving as Vice President, Sales and
Marketing and assumed the position of Director of Sales - National
Accounts.
In
February 2007, upon becoming Executive Vice President - International Business
Development, Mr. Aaron’s compensation was changed to an annual base salary of
$137,000, plus incentive payments based upon the achievement of prescribed
sales
milestones up to an additional $192,000.
We
do not
have any annuity, retirement, pension or deferred compensation plan or other
arrangements under which any executive officers are entitled to participate
without similar participation by other employees. As of September 30, 2006,
under our 401(k) plan there was no matching contribution by the
Company.
Listed
below is information with respect to options for the above-named executive
officers as of September 30, 2006:
Options/SAR
Grants in Last Fiscal Year
|
Individual
Grants
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
Name
|
Number
of Securities Underlying Options/SARS Granted
(#)
|
%
of Total Options/SARS Granted to Employee(s) in Fiscal
Year
|
Exercise
On
Base
Price
($/Sh) *
|
Expiration
Date
|
George
Aaron
|
100,000
|
28.3%
|
2.20
|
01/04/16
|
Jonathan
Joels
|
100,000
|
28.3%
|
2.20
|
01/04/16
|
Elliott
Koppel
|
25,000
|
7.1%
|
2.20
|
01/04/16
|
*
Repriced to $1.10 as outlined in the Stock Options section
below
|
Aggregate
Option/SAR Exercises in Last Fiscal Year and Fiscal Year End Option/SAR
Values
|
Fiscal
Year End Option Value
|
Name
|
Shares
Acquired
or
Exercised
|
Value
Realized
|
Number
of Securities
Underlying
Unexercised
Options
at Sept. 30, 2006
Exercisable/Unexercisable
|
Value
of Unexercised
In-the
Money Options
at
Sept. 30, 2006
Exercisable
($)
|
|
|
|
|
|
George
Aaron
|
-
0
-
|
-
0
-
|
36,660/83,340
|
$-
0 -
|
Jonathan
Joels
|
-
0
-
|
-
0
-
|
36,660/83,340
|
$-
0 -
|
Elliott
Koppel
|
-
0
-
|
-
0
-
|
24,165/20,835
|
$-
0 -
|
Stock
Options
In
May
2002, our Board of Directors adopted the 2002 Stock Option Plan (“2002 Plan”)
which was ratified at our stockholder meeting of June 26, 2002. At September
30,
2006, 700,000 shares of common stock were reserved for issuance under the 2002
Plan, of which options for an aggregate of 506,050 shares were granted and
outstanding, and 193,950 shares were available for future grants. Between
October 1, 2006 and December 1, 2006, options were granted under the 2002 Plan
for an aggregate of 460,000 shares, of which 266,050 shares were granted subject
to stockholder approval of an increase in the number of shares of common stock
underlying the 2002 Plan. On December 1, 2006, the Board of Directors voted
to
amend the 2002 Plan by increasing to 1,500,000 the total number of shares of
common stock reserved for issuance thereunder, subject to stockholder approval,
and on February 23, 2007, the Board raised the number of shares to 2,500,000.
Stockholder approval was obtained as of February 26, 2007 by the written consent
of the holders of more than a majority of outstanding voting shares, and notice
thereof is being given to the other stockholders. Under the 2002 Plan, options
may be awarded to both employees, directors and consultants. These options
may
be qualified or not qualified pursuant to the regulations of the Internal
Revenue Code.
On
January 4, 2006, we 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 2002 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.
On
March 5, 2007, all of these options were repriced
at $1.10 per share, representing 110% of the then market price of the common
stock.
On
November 13, 2006, we granted options to Dwight Morgan, our new CEO for the
purchase of an aggregate of 350,000 shares of common stock under our 2002
Plan
at an exercise price of $0.60 per share. Due to the limited
number of options available under the 2002 Plan, options for 206,050 shares
are
conditioned upon amendment to the 2002 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.
On
December 1, 2006 we granted options for the purchase of 20,000 shares each
of
common stock to outside Directors, Dr. Triebwasser and Dr. Hymes at an exercise
price of $0.55 per share. On December 6, 2006, we granted options for the
purchase of 20,000 shares of common stock to Mr. Kenneth Leung upon his
appointment to our Board of Directors. For the same reasons discussed above,
these options are subject to stockholder approval. They 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.
On
January 25, 2007, we granted options for the purchase of 350,000 shares of
common stock to each of Messrs. Aaron and Joels at an exercise price of $0.60
per share. For the same reasons discussed above, these options are conditioned
upon stockholder approval. They 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.
On
February 23, 2007, we granted options for the purchase of 20,000 shares of
common stock to Roger Miller at an exercise price of $0.52 per share upon his
appointment to our Board of Directors, which are subject to stockholder
approval. They 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.
During
1993, we adopted an 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. 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. The 1993 plan expired May 25, 2003. As of February 28, 2007,
there remain options for 31,500 shares outstanding there under at exercise
prices ranging from $3.00 to $5.00 per share, which terminate in
2010.
As
of
March 28, 2007, we had outstanding options granted outside our plans for an
aggregate of 130,000 shares of common stock at exercise prices ranging from
$0.70 to $1.75 per share, with expiration dates of September 2009 and July
2011.
Compensation
Committee Interlocks and Insider Participation
During
Fiscal 2006 members of our Compensation/Option Committee were Sol Triebwasser,
Ph.D. and Jeffrey Hymes, M.D., neither is an executive officer or employee
of
the Company or our subsidiaries.
The
following table sets forth, as of March 5, 2007, 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
and Address
of
Beneficial
Owner*
|
Position
with Company
|
Amount
and
Nature
of Beneficial
Ownership
(1) of
Common
Stock
|
Percentage
of
Securities
***
|
Austin
W. Marxe and David M. Greenhouse
527
Madison Ave.
New
York, NY 10022
|
Holder
of over five percent
|
8,236,686(2)
|
77.4.%
|
Dolphin
Offshore Partners LP
120
East 17th
Street
New
York, NY 10003
|
Holder
of over five percent
|
3,375,000(3)
|
47.1%
|
Bonanza
Master Fund Ltd.
300
Crescent Ct., Suite 250
Dallas,
TX 75201
|
Holder
of over five percent
|
2,881,277(4)
|
46.4.%
|
Vision
Opportunity Master Fund Ltd
20
West 55th
Street
New
York, NY 10019
|
Holder
of over five percent
|
416,621(5)
|
9.9%
|
Shrikant
Mehta
Combine
International
354
Indusco Court
Troy,
Michigan 48083
|
Holder
of over five percent
|
210,894
|
5.6%
|
Dwight
Morgan
|
Chairman
of the Board; Chief Executive Officer; President
|
13,332 (6)
|
**
|
George
Aaron
|
Director;
Executive Vice President
|
293,341(7)
|
7.6%
|
Jonathan
Joels
|
Director;
Chief
Financial
Officer; Vice President; Treasurer; Secretary
|
288,555(8)
|
7.5%
|
Sol
Triebwasser, Ph.D.
|
Director
|
11,736(9)
|
**
|
Kenneth
C. Leung
|
Director
|
- (10)
|
**
|
Roger
W. Miller
|
Director
|
36,724
(11)
|
**
|
All
executive officers and Directors as a group (6 persons)
|
|
643,688(12)
|
16.3%
|
_____________
*
|
Address
of all holders except those listed with a specific address above
is, 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 5, 2007 pursuant
to
stock options, warrants and convertible securities.
|
(2)
|
Consists
of (A)(i)1,034,482 shares direct, (ii)1,753,578 shares underlying
warrants
presently exercisable, (iii) 1,045,718 shares underlying Series D
Convertible Preferred Stock and (iv) 2,343,750 shares underlying
Series E
Convertible Preferred Stock held by Special Situations Private Equity
Fund, L.P., (B)(i) 317,037 shares direct, (ii) 537,682 shares underlying
warrants presently exercisable, (iii) 320,685 shares underlying Series
D
Convertible Preferred Stock and (iv) 718,750 shares underlying Series
E
Convertible Preferred Stock held by Special Situations Fund III,
QP, L.P.,
and (C)(i) 27,790 shares direct, (ii) 46,843 shares underlying warrants
presently exercisable, (iii) 27,871 shares underlying Series D Convertible
Preferred Stock and (iv) 62,500 shares underlying Series E Convertible
Preferred Stock held by Special Situations Fund III, L.P. MGP Advisors
Limited (“MGP”) is the general partner of the Special Situations Fund III,
QP, L.P. and the general partner of and investment adviser to the
Special
Situations Fund III, L.P. AWM Investment Company, Inc. (“AWM”) is the
general partner of MGP and the investment adviser to the Special
Situations Fund III, QP, L.P. and the Special Situations Private
Equity
Fund, L.P. Austin W. Marxe and David M. Greenhouse are the principal
owners of MGP and AWM. Through their control of MGP and AWM, Messrs.
Marxe
and Greenhouse share voting and investment control over the portfolio
securities of each of the funds listed
above.
|
(3)
|
Consists
of (i) 2,250,000 shares underlying Series E Convertible Preferred
Stock
and (ii) 1,125,000 shares underlying warrants presently exercisable.
|
(4)
|
Consists
of (i) 457,500 shares, (ii) 1,976,012 shares underlying Series D
Convertible Preferred Stock and (iii) 447,765 shares underlying warrants
presently exercisable.
|
(5)
|
Includes
416,621 shares underlying Series E Convertible Preferred Stock. Excludes
(i) 333,379 shares underlying Series E Convertible Preferred Stock
and
(ii) 375,000 shares underlying warrants. Pursuant to a Letter Agreement,
dated February 27, 2007, between us and Vision Opportunity Master
Fund,
Ltd. (“Vision”), Vision covenanted not to convert its Series E Convertible
Preferred Stock or exercise its warrants if such conversion or exercise
would cause its beneficial ownership to exceed 9.99%, which provision
Vision may waive, upon not less than 61 days prior notice to us,
as
reported in its Schedule 13G filed on March 12,
2007.
|
(6)
|
Includes
13,332 shares underlying options presently exercisable and excludes
376,668 shares underlying options which are currently not
exercisable.
|
(7)
|
Includes
(i) 353 shares in retirement accounts, (ii) 8,199 shares underlying
warrants presently exercisable, (iii) 5 shares jointly owned with
his wife
and (iv) 53,330 shares underlying options presently exercisable,
and
excludes 416,670 shares underlying options which are currently not
exercisable.
|
(8)
|
Includes
(i) 48,000 shares as trustee for his children, (ii) 8,616 shares
underlying warrants presently exercisable, (iii) 53,330 shares underlying
options presently exercisable, (iv) 17,241 shares in a retirement
account,
and excludes 416,670 shares underlying options which are currently
not
exercisable.
|
(9)
|
Includes
11,666 shares underlying options presently exercisable and excludes
33,334
shares underlying options which are currently not
exercisable.
|
(10)
|
Excludes
20,000 shares underlying options which are currently not
exercisable.
|
(11)
|
Excludes
20,000 shares underlying options which are currently not
exercisable.
|
(12)
|
Includes
(i) 16,815 shares underlying warrants and (ii) 131,658 shares underlying
options presently exercisable, and excludes 1,283,342 shares underlying
options which are currently not
exercisable.
|
CERTAIN
RELATIONSHIPS
AND RELATED
TRANSACTIONS
During
the first two quarters of fiscal 2005, we received advances in the principal
amount of $145,923 through short term loans until additional equity funding
was
secured. The lenders also received warrants to purchase 7,295 shares of 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 are 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
our
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.
On
January 30, 2007, we borrowed the principal amount of $100,000 from Special
Situations Private Equity Fund L.P, which is a principal stockholder, through
the issuance of a 10% promissory note. This note plus interest of $805.56 was
repaid on the closing of the 2007 placement.
We
believe that the above referenced transactions were 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
3,791,673 shares were issued and outstanding as of March 1, 2007.
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, 194,933 shares of
Series D Preferred Stock and 10,000 shares of Series E Preferred Stock were
outstanding at March 1, 2007. 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 August 18,
2007, whichever occurs first
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 was initially
convertible into ten
shares
of
common stock, subject to customary anti-dilution provisions. By reason of these
anti-dilution provisions, after the 2007 placement, each share of Series D
Preferred Stock is convertible into 17.29 shares of common stock, or an
aggregate of 3,370,286 shares of common stock. 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.
On
March
1, 2007, we closed a placement of 10,000 shares of Series E Convertible
Preferred Stock at $250 a share. Each share of the Series E Preferred Stock
is
convertible into 625 shares of common stock, subject to customary anti-dilution
provisions, or an aggregate of 6,250,000 shares of common stock. Commencing
October 1, 2007, the holders of the Series E Preferred Stock are entitled to
receive a cash dividend at a per share rate equal to $13.50 per annum, and
a
liquidation preference of $250 per share plus accrued and unpaid dividends,
and
ranking pari passu with the Series B and Series D Preferred Stock. The Series
E
Preferred Stock votes on an as-converted basis with the common stock, and has
a
separate vote with respect to matters directly affecting this Series. Neither
we
nor the holders of the Series E 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 six investors in the Series
E
Preferred Stock placement (the “Series E Placement”), consisting of 6,250,000
shares underlying their Series E Preferred Stock and 3,125,000 shares underlying
warrants that were part of the Placement, (ii) seven designees of Equity Source
Partners LLC (“Equity”) for 70,000 shares underlying warrants granted as part of
its placement agent fee for the Series E Placement and (iii) John Nesbett for
112,500 shares underlying warrants that were granted to him for his advisory
and
consulting services in the Series E Placement.
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 (i) all of the investors other than
Dolphin Offshore Partners LP and Vision Opportunity Master Fund Ltd having
been
investors in one or more of our prior placements, (ii) Special Situations
Private Equity Fund, L.P. having made a $100,000 bridge loan to us in January
2007 that was repaid on the closing of the Series E Placement, (iii) the
principal of Equity having been the principal of a placement agent for two
of
our prior placements and (iv) Mr. Nesbett being the principal of an investment
relations firm currently retained by us.
The
following table sets forth, as of March 5, 2007, 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)
|
|
|
5,500
|
|
|
*
|
|
|
4,500
|
|
|
1,000
|
|
|
*
|
|
Dolphin
Offshore Partners LP(4)
|
|
|
3,375,000
|
|
|
47.1
|
%
|
|
3,375,000
|
|
|
-
|
|
|
*
|
|
Brian
Gable(5)
|
|
|
1,000
|
|
|
*
|
|
|
1,000
|
|
|
-
|
|
|
*
|
|
Helen
Kohn (6)
|
|
|
42,500
|
|
|
1.1
|
%
|
|
15,000
|
|
|
27,500
|
|
|
*
|
|
Little
Bear Investments LLC (7)
|
|
|
190,258
|
|
|
4.8
|
%
|
|
187,500
|
|
|
2,758
|
|
|
*
|
|
Frayda
Mason (8)
|
|
|
24,000
|
|
|
*
|
|
|
15,000
|
|
|
9,000
|
|
|
*
|
|
John
Nesbett (9)
|
|
|
112,500
|
|
|
2.9
|
%
|
|
112,500
|
|
|
-
|
|
|
*
|
|
Special
Situations Fund III, L.P.(10)(11)
|
|
|
165,004
|
|
|
4.2
|
%
|
|
93,750
|
|
|
71,254
|
|
|
1.8
|
%
|
Special
Situations Fund III QP, L.P. (10)(12)
|
|
|
1,894,154
|
|
|
35.3
|
%
|
|
1,078,125
|
|
|
816,029
|
|
|
15.2
|
%
|
Special
Situations Private Equity Fund, L.P. (10)(13)
|
|
|
6,177,528
|
|
|
69.1
|
%
|
|
3,515,625
|
|
|
2,661,903
|
|
|
29.8
|
%
|
Maryellen
Spedale (14)
|
|
|
6,750
|
|
|
*
|
|
|
4,500
|
|
|
2,250
|
|
|
*
|
|
Lisa
Sucoff (15)
|
|
|
28,000
|
|
|
*
|
|
|
15,000
|
|
|
13,000
|
|
|
*
|
|
Ronit
Sucoff (16)
|
|
|
42,500
|
|
|
1.1
|
%
|
|
15,000
|
|
|
27,500
|
|
|
*
|
|
Vision
Opportunity Master Fund Ltd (17)
|
|
|
1,125,000
|
|
|
22.9
|
%
|
|
1,125,000
|
|
|
_
|
|
|
*
|
|
* 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, Series E Preferred
Stock and warrants, regardless of when exercisable. Ownership is
calculated based upon 3,791,673 shares of common stock outstanding
as of
March 5, 2007.
|
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. 333-132849)
previously filed by us, or will be registered in a separate Registration
Statement on form SB-2.
|
3.
|
Consists
of (i) 4,500 shares issuable upon exercise of warrants (initially
granted
to Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
4.
|
Consists
of (i) 2,250,000 shares underlying Series E Preferred Stock and (ii)
1,125,000 shares issuable upon exercise of warrants at an exercise
price
of $0.50 per share. Peter Salas has investment power and voting power
of
these securities.
|
5.
|
Consists
of 1,000 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
6.
|
Consists
of 15,000 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
7.
|
Includes
(i) 125,000 shares underlying Series E Preferred Stock, (ii) 62,500
shares
issuable upon exercise of warrants at an exercise price of $0.50
per share
and (iii) 2,758 shares issuable upon exercise of warrants at exercise
prices ranging from $2.90 to $5.60 per share. Jeffrey Mann and Zachary
Prensky each has investment power and voting power of the securities
being
registered. Does not include 14,483 shares issuable upon exercise
of
warrants held personally by Mr.
Prensky.
|
8.
|
Consists
of 15,000 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
9.
|
Consists
of 112,500 shares issuable upon exercise of warrants at an exercise
price
of $.60 per share. Does not include 30,000 shares subject to options
held
by a company controlled by Mr.
Nesbett.
|
10.
|
MGP
Advisors Limited (“MGP”) is the general partner of the Special Situations
Fund III, QP, L.P. and the general partner of and investment adviser
to
the Special Situations Fund III, L.P. AWM Investment Company, Inc.
(“AWM”)
is the general partner of MGP and the investment adviser to the Special
Situations Fund III, QP, L.P. and the Special Situations Private
Equity
Fund, L.P. Austin W. Marxe and David M. Greenhouse are the principal
owners of MGP and AWM . Through their control of MGP and AWM, Messrs.
Marxe and Greenhouse share voting and investment control over the
portfolio securities of each of the funds listed
above.
|
11.
|
Includes
(i) 62,500 shares underlying Series E Preferred Stock and (ii) 31,250
shares issuable upon exercise of warrants at an exercise price of
$0.50
per share in the Series E Placement, included in this prospectus,
plus
(iii) 15,593 shares underlying warrants and (iv) 27,871 shares underlying
Series D Convertible Preferred
Stock.
|
12.
|
Includes
(i) 718,750 shares underlying Series E Preferred Stock and (ii) 359,375
shares issuable upon exercise of warrants at an exercise price of
$0.50
per share in the Series E Placement, included in this prospectus,
plus
(iii) 178,307 shares underlying warrants and (iv) 320,685 shares
underlying Series D Convertible Preferred Stock.
|
13.
|
Includes
(i) 2,343,750 shares underlying Series E Preferred Stock, and (ii)
1,171,875 shares issuable upon exercise of warrants at an exercise
price
of $0.50 per share in the Series E Placement, included in this prospectus,
plus (iii) 581,703 shares underlying warrants and (iv) 1,045,718
shares
underlying Series D Convertible Preferred
Stock.
|
14.
|
Consists
of 4,500 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share
|
15.
|
Consists
of 15,000 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
16.
|
Consists
of 15,000 shares issuable upon exercise of warrants (initially granted
to
Equity as placement agent warrants) at an exercise price of $0.60
per
share.
|
17.
|
Consists
of (i) 750,000 shares underlying Series E Preferred Stock and (iii)
375,000 shares is issuable upon exercise of warrants at an exercise
price
of $.50 per share. Adam Benowitz has investment power and voting
power of
these shares.
|
Equity
Source Partners LLC was retained by us to act as the placement agent for the
Series E Placement. As
part
of its compensation in this Placement, we granted warrants to Equity. Equity
has
transferred its warrants to certain designees consisting of employees and family
members. These warrants were issued to Equity in the ordinary course of
business. At the time of receiving the warrants, neither Equity nor any of
its
designees had agreements or understandings, directly or indirectly, with any
person to distribute the warrants or the underlying shares. 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 Agreement entered into as part of the Series
E
Placement, we were obligated to file this registration statement by
April 2, 2007 and to cause it to become effective by June 29, 2007, subject
to certain adjustments. In the event this registration statement is not filed
by
April 2, 2007 or not declared effective by June 29, 2007, we are obligated
to make pro rata cash payments to each of the investors in the Placement, 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 Series E
Placement have been sold or such shares may be sold without the volume
restrictions under Rule 144(k) of the Securities Act.
The
Registration Rights Agreement also provides that we pay all fees and expenses
incident to the registration statement, other than brokerage commissions and
underwriting discounts of the selling stockholders on the sale of their
shares.
We
do not
have any arrangement with any broker-dealer for it to act as an underwriter
for
the sale of the shares included herein for any of the selling stockholders.
Each
of the selling stockholders purchased or received the shares offered by it
in
this prospectus in the ordinary course of business, and at the time of purchase
of such shares, it had no agreements or understandings, directly or
indirectly,with any person for the distribution of such shares.
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 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;
and
|
|
·
|
a
combination of any such methods of sale.
|
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, 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 us 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.
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.
Thelen
Reid Brown Raysman & Steiner 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 2006 and 2005, 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 100 F Street N.E , Washington D.C.
20549. Copies
of
such material can be obtained from the Public Reference Section of the SEC
at
prescribed rates. You may call the SEC at 1-800-SEC-0330 for further information
on the operation of the public reference room. 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.
CAPRIUS,
INC. AND SUBSIDIARIES
|
Page
|
|
F-2
|
|
|
|
F-3
|
|
|
|
F-4
|
|
|
|
F-5
|
|
|
|
F-6
|
|
|
|
F-7
- F-20
|
|
|
|
F-21
|
|
|
|
F-22
|
|
|
|
F-23
|
|
|
|
F-24
|
|
|
|
F-25
- F-29
|
|
|
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, 2006, and the related
consolidated statements of operations, stockholders’ equity (deficiency), and
cash flows for the years ended September 30, 2006 and 2005. 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 audits 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, 2006, and the consolidated results of
their
operations and their cash flows for the years ended September 30, 2006 and
2005
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
17, 2006
|
|
|
|
|
|
CONSOLIDATED
BALANCE SHEET
|
|
September
30, 2006
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,068,954
|
|
Accounts
receivable, net of reserve for bad debts of $ 5,163
|
|
|
249,761
|
|
Inventories,
net
|
|
|
952,116
|
|
Total
current assets
|
|
|
2,270,831
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
furniture and equipment
|
|
|
230,604
|
|
Equipment
for lease
|
|
|
23,500
|
|
Leasehold
improvements
|
|
|
29,003
|
|
|
|
|
283,107
|
|
Less: accumulated
depreciation
|
|
|
202,781
|
|
Property
and
equipment, net
|
|
|
80,326
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Goodwill
|
|
|
285,010
|
|
Intangible
assets, net
|
|
|
120,083
|
|
Other
|
|
|
20,770
|
|
Total
other assets
|
|
|
425,863
|
|
Total
Assets
|
|
$
|
2,777,020
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
383,458
|
|
Accrued
expenses
|
|
|
59,402
|
|
Accrued
compensation
|
|
|
174,669
|
|
Total
current liabilities
|
|
|
617,529
|
|
|
|
|
|
|
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
|
|
Series
D, stated value $12.40, convertible, 241,933 shares
|
|
|
3,000,000
|
|
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
|
|
|
74,001,747
|
|
Accumulated
deficit
|
|
|
(77,573,234
|
)
|
Treasury
stock (1,125 common shares, at cost)
|
|
|
(2,250
|
)
|
Total
stockholders’ equity
|
|
|
2,159,491
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,777,020
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
|
|
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the years ended
|
|
|
|
September
30, 2006
|
|
September
30, 2005
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
Product
sales
|
|
$
|
1,069,902
|
|
$
|
727,491
|
|
Equipment
rental income
|
|
|
-
|
|
|
13,305
|
|
Consulting
and royalty fees
|
|
|
165,567
|
|
|
108,006
|
|
Total
revenues
|
|
|
1,235,469
|
|
|
848,802
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Cost
of product sales and equipment rental income
|
|
|
802,532
|
|
|
490,827
|
|
Research
and development
|
|
|
342,587
|
|
|
325,486
|
|
Selling,
general and administrative; includes stock based compensation
of $52,642
in 2006
|
|
|
3,064,084
|
|
|
2,730,071
|
|
Impairment
of goodwill
|
|
|
452,000
|
|
|
-
|
|
Total
operating expenses
|
|
|
4,661,203
|
|
|
3,546,384
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(3,425,734
|
)
|
|
(2,697,582
|
)
|
|
|
|
|
|
|
|
|
Other
income
|
|
|
-
|
|
|
482,200
|
|
Interest
income
|
|
|
29,693
|
|
|
30,477
|
|
Interest
expense
|
|
|
-
|
|
|
353,503
|
|
Net
loss
|
|
|
(3,396,041
|
)
|
|
(2,538,408
|
)
|
|
|
|
|
|
|
|
|
Deemed
Dividend - Series D Convertible Preferred Stock
|
|
|
(1,317,061
|
)
|
|
-
|
|
Beneficial
Conversion Feature - Series C Convertible
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
-
|
|
|
(124,528
|
)
|
|
|
|
|
|
|
|
|
Net
loss attributable to common stockholders
|
|
$
|
(4,713,102
|
)
|
$
|
(2,662,936
|
)
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted common share
|
|
$
|
(1.42
|
)
|
$
|
(1.16
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
3,321,673
|
|
|
2,288,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financial
statements.
|
|
CONSOLIDATED
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
Series
B Convertible
|
|
Series
C Convertible
|
|
Series
D Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Number
|
|
|
|
Stockholders'
|
|
|
|
of
Shares
|
|
Amount
|
|
of
Shares
|
|
Amount
|
|
of
Shares
|
|
Amount
|
|
of
Shares
|
|
Amount
|
|
Paid-in
Capital
|
|
|
|
of
Shares
|
|
Amount
|
|
Equity
(Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
October 1, 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 Manadatory Convertible
|
|
|
|
|
|
|
|
|
45,000
|
|
|
4,500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(434,966
|
)
|
|
|
|
|
|
|
|
|
|
|
4,065,034
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of secured convertible notes
|
|
|
|
|
|
|
|
|
21,681
|
|
|
2,168,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,168,100
|
|
and
bridge financing into
Series
C Mandatory
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series C Preferred into
|
|
|
|
|
|
|
|
|
(66,681
|
)
|
|
(6,668,100
|
)
|
|
|
|
|
|
|
|
2,299,345
|
|
|
22,993
|
|
|
6,645,107
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
common
stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of Series D Convertible Preferred
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
241,933
|
|
|
3,000,000
|
|
|
|
|
|
|
|
|
(292,650
|
)
|
|
|
|
|
|
|
|
|
|
|
2,707,350
|
|
Stock,
net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant
of stock options to Consultants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,642
|
|
|
|
|
|
|
|
|
|
|
|
52,642
|
|
for
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,396,041
|
)
|
|
|
|
|
|
|
|
(3,396,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September 30, 2006
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
-
|
|
$
|
-
|
|
|
241,933
|
|
$
|
3,000,000
|
|
|
3,322,798
|
|
$
|
33,228
|
|
$
|
74,001,747
|
|
$
|
(77,573,234
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,159,491
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
For
the Years Ended
|
|
|
|
|
September
30, 2006
|
|
|
September
30, 2005
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(3,396,041
|
)
|
$
|
(2,538,408
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Amortization
of debt discount
|
|
|
-
|
|
|
165,220
|
|
Amortization
of deferred financing costs
|
|
|
-
|
|
|
89,542
|
|
Depreciation
and amortization
|
|
|
177,671
|
|
|
310,693
|
|
Impairment
of goodwill
|
|
|
452,000
|
|
|
-
|
|
Stock
based compensation expense
|
|
|
52,642
|
|
|
-
|
|
Interest
on secured convertible notes
|
|
|
-
|
|
|
95,300
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
(122,509
|
)
|
|
(53,769
|
)
|
Inventories,
net
|
|
|
(283,500
|
)
|
|
108,079
|
|
Other
assets
|
|
|
29,758
|
|
|
(14,536
|
)
|
Accounts
payable and accrued expenses
|
|
|
239,932
|
|
|
(1,100,161
|
)
|
Net
cash used in operating activities
|
|
|
(2,850,047
|
)
|
|
(2,938,040
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from sale of Strax business
|
|
|
-
|
|
|
66,000
|
|
Acquisition
of property and equipment
|
|
|
(42,147
|
)
|
|
(32,139
|
)
|
Increase
in security deposit
|
|
|
(3,360
|
)
|
|
(4,080
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(45,507
|
)
|
|
29,781
|
|
|
|
|
|
|
|
|
|
Cash
Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
from short term loan
|
|
|
-
|
|
|
100,000
|
|
Repayment
of 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 Preferred Stock
|
|
|
-
|
|
|
4,065,034
|
|
Net
proceeds from issuance of Series D Preferred Stock
|
|
|
2,707,350
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
2,707,350
|
|
|
4,137,834
|
|
|
|
|
|
|
|
|
|
Net
(decrease) increase in cash and cash equivalents
|
|
|
(188,204
|
)
|
|
1,229,575
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of year
|
|
|
1,257,158
|
|
|
27,583
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of year
|
|
$
|
1,068,954
|
|
$
|
1,257,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$
|
-
|
|
$
|
49,541
|
|
Cash
paid for income taxes
|
|
$
|
3,110
|
|
$
|
192,672
|
|
|
|
|
|
|
|
|
|
Non
Cash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfer
of net book value of certain equipment for leases to
inventory
|
|
$
|
-
|
|
$
|
66,177
|
|
Conversion
of secured convertible notes into equity
|
|
$
|
-
|
|
$
|
1,500,000
|
|
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, ended
September 30, 2002, 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 ended
September 30, 2003, 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 years ended September 30, 2006, and September 30, 2005 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.
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 approximately $1,069,000 at September 30,2006. The Company
intends to utilize these funds for working capital purposes to continue
developing the business of MCM. 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 immaterial in each of
the
years ended September 30, 2006 and 2005.
[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 immaterial for the years ended September
30, 2006 and 2005.
[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 writeoff surplus or
obsolete inventory. Inventory is comprised of materials, labor and manufacturing
overhead costs.
[8]
Property and Equipment
Office
furniture and equipment, equipment for lease 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 items 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, 2006, 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. 144, “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, 2006, potential common shares amount to 4,804,015 shares,
as
compared to 1,020,660 for the year ended September 30, 2005 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]
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 immaterial for the years
ended September 30, 2006 and 2005.
[16]
Research and Development Costs
All
research and development costs are charged to operations as incurred. Research
and development expenditures were approximately $343,000 and $ 325,000 for
the
fiscal years ended September 30, 2006 and 2005, respectively.
[17]
Recent Accounting Pronouncements
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 applies 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 results
of operations and financial condition.
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 extinguishment, 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. Both of 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). These pronouncements had a material
impact on the Company’s consolidated results of operations and financial
condition.
In
February 2006, the Financial Accounting Standards Board (“FASB”) issued
Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
SFAS 133 to interests in securitized financial assets so that similar
instruments are accounted for similarly regardless of the form of the
instruments. SFAS 155 also allows the election of fair value measurement at
acquisition, at issuance, or when a previously recognized financial instrument
is subject to a re-measurement event. Adoption is effective for all financial
instruments acquired or issued after the beginning of the first fiscal year
that
begins after September 15, 2006. Early adoption is permitted. The adoption
of SFAS 155 is not expected to have a material effect on the Company’s
consolidated results of operations and financial condition
In
March 2006, the FASB issued Statement of Financial Accounting Standard 156
- Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
separately recognized servicing assets and servicing liabilities be initially
measured at fair value. SFAS 156 permits, but does not require, the subsequent
measurement of servicing assets and servicing liabilities at fair value.
Adoption is required as of the beginning of the first fiscal year that begins
after September 15, 2006. Early adoption is permitted. The adoption of SFAS
156 is not expected to have a material effect on the Company’s consolidated
results of operations and financial condition.
In
July
2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48
clarifies the accounting and reporting for uncertainties in income tax law.
This
Interpretation prescribes a comprehensive model for the financial statement
recognition, measurement, presentation and disclosure of uncertain tax positions
taken or expected to be taken in income tax returns. This Interpretation shall
be effective for fiscal years beginning after December 15, 2006. Earlier
adoption is permitted as of the beginning of an enterprise’s fiscal year,
provided the enterprise has not yet issued financial statements, including
financial statements for any interim period for that fiscal year. The cumulative
effects, if any, of applying this Interpretation will be recorded as an
adjustment to retained earnings as of the beginning of the period of adoption.
The adoption of FIN 48 is not expected to have a material effect on the
Company’s consolidated results of operations and financial
condition.
In
September 2006, the FASB issued Statement of Financial Accounting Standard
157,
“Fair
Value Measurements”
(“SFAS
No. 157”). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value and expands disclosure of fair value measurements.
SFAS No. 157 applies under other accounting pronouncements that require or
permit fair value measurements and accordingly, does not require any new fair
value measurements. SFAS No. 157 is effective for financial statements
issued for fiscal years beginning after November 15, 2007. The
Company are in the process of evaluating the impact of the adoption of SFAS
No.
157 will have on the Company’s consolidated results of operations and financial
condition and is currently not in a position to determine such
effect.
In
September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108
(“SAB 108”) which provides interpretive guidance on how the effects of the
carryover or reversal of prior year misstatements should be considered in
quantifying a current year misstatement. SAB 108 becomes effective in fiscal
2007. Adoption of SAB 108 is not expected to have a material impact on the
Company’s consolidated results of operations and financial
position.
[18]
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, 2006 and 2005. The assumptions used during the years ended
September 30, 2006 and 2005 were as follows:
|
September
30,
|
|
2006
|
2005
|
Risk
free interest rate
|
4.00
- 5.00%
|
4.00
-5.00%
|
Expected
dividend yield
|
--
|
--
|
Expected
lives
|
3
to 10 years
|
10
years
|
Expected
volatility
|
29
- 77%
|
29
- 80%
|
Weighted
average value of grants per share
|
$2.08
|
$3.32
|
Weighted
average remaining contractual life of
options
outstanding
(years)
|
7.67
|
6.35
|
The
pro
forma effect of applying FAS No. 148 is as follows:
|
For
the years ended
|
|
September
30,
|
|
2006
|
2005
|
Net
loss attributable to common stockholders as
reported
|
$(4,713,102)
|
$(2,662,936)
|
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.
|
(91,668)
|
(2,991)
|
Pro
forma net loss
|
$(4,804,770)
|
$(2,665,927)
|
|
|
|
Net
Loss per share:
|
|
|
Basic
and diluted loss attributable to common
stockholders
- as reported
|
$(1.42)
|
$
(1.16)
|
Basic
and diluted loss attributable to common
stockholders
- pro forma
|
$(1.45)
|
$
(1.16)
|
The
Company will implement FAS 123R in the first quarter of fiscal year 2007. The
statement requires Companies to expense the value of employee stock options
and
similar awards. Under FAS 123R share-based payment awards result in a cost
that
will measure at fair value on the awards’ grant date based on the estimated
number of awards that are expected to vest. Compensation cost for awards that
vest will not be reversed if the awards expire with being exercised. The Company
will adopt FAS 123R using the modified prospective method. The impact of this
statement will require the Company to record a charge for the fair value of
stock options granted on a prospective basis, over the vesting
period.
[19]
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, 2006, three customers accounted for $299,000, $233,000 and
$165,000 of the consolidated total revenue, which represented approximately
56%
of the total revenue. The customer with sales of $165,000 for the year ended
September 30, 2006 has an outstanding accounts receivable balance as of
September 30, 2006 of approximately $46,000. For the year ended September 30,
2005, three customers accounted for approximately 51% of the consolidated total
revenue. There were no outstanding accounts receivable balance due from these
three customers as of September 30, 2005.
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, 2006, the Company has cash balances on deposit in one account
with a financial institution in excess of the Federally insured limits by a
total of approximately $739,000.
[20]
Goodwill
At
September 30, 2006, as defined under SFAS No, 142, the Company has assessed
the
carrying value of goodwill. The Company has determined that the carrying amount
of the goodwill exceeds the implied fair value and as such has recorded an
impairment charge to goodwill of $452,000 at September 30, 2006. The impairment
charge is reflected in the consolidated statement of operations for the year
ended September 30, 2006.
[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 $144,000 for the year ended September 30, 2006 and
$281,000 for the year ended September 30, 2005. Intangible assets are summarized
as follows:
|
|
|
|
Accumulated
|
|
Sept
30,2006
|
|
Asset
Type
|
|
Cost
|
|
Amortization
|
|
Net
Book Value
|
|
Technology
|
|
$
|
550,000
|
|
$
|
550,000
|
|
$
|
-
|
|
Permits
|
|
|
290,000
|
|
|
219,917
|
|
|
70,083
|
|
Customer
Relationships
|
|
|
200,000
|
|
|
150,000
|
|
|
50,000
|
|
|
|
$
|
1,040,000
|
|
$
|
919,917
|
|
$
|
120,083
|
|
Expected
amortization over the next two years is as follows:
Fiscal
Period
|
|
Amortization
|
|
|
|
|
|
|
2007
|
|
|
98,000
|
|
2008
|
|
|
22,083
|
|
|
|
$
|
120,083
|
|
(NOTE
C) -Inventories
Inventories
consist of the following, net of reserve of approximately $31,000 as of
September 30, 2006:
Raw
materials
|
|
$
|
719,116
|
|
Finished
goods
|
|
|
233,000
|
|
|
|
$
|
952,116
|
|
(NOTE
D) - 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 at 8% per annum until additional
equity funding was secured. 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 are 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.
(NOTE
E)
-
Equity Financing
On
February 17, 2006, the Company closed on a $3.0 million preferred stock equity
financing transaction before financing fees and expenses of approximately
$293,000. As part of this financing transaction, the Company issued 241,933
shares of Series D Convertible Preferred Stock, convertible into 2,419,330
shares of common stock, par value $0.01 per share. The Company also issued
Series A Warrants to purchase an aggregate of 223,881 shares of common stock
at
an exercise price of $1.50 per share for a period of five years. In addition,
the Company issued Series B Warrants to purchase an aggregate of 447,764 shares
of common stock at an exercise price of $2.00 per share for a period of five
years. The Company has determined that the preferred stock was issued with
an
effective beneficial conversion feature of approximately $1,300,000 based upon
the relative fair values of the preferred stock and warrants using the Black
Scholes valuation model. As such, this beneficial conversion feature is recorded
as a deemed Preferred Stock dividend. Pursuant to the Company’s obligation to
register the Series D Convertible Preferred Stock, the Company filed a
Registration Statement which was declared effective on April 6, 2006. The
Company has also issued warrants to purchase an aggregate of 119,403 shares
of
common stock at an exercise price of $1.68 per share for a period of five years
as part of the placement fee, to a placement agent and warrants to purchase
an
aggregate of 59,702 shares of common stock at an exercise price of $2.00 per
share for a period of five years as part of the placement fee, to another
selected dealer and its designees for this placement.
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 model.
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, 2006 and 2005 the Company has not adopted a matching
option to the plan.
(NOTE
H) - Income Taxes
At
September 30, 2006, the Company had a deferred tax asset totaling approximately
$14,950,000 due primarily to net operating loss carryovers in the United States.
A valuation allowance was recorded in 2006 for the full amount of this asset
due
to uncertainty as to the realization of the benefit. The change in the valuation
allowance in 2006 increased by approximately $780,000.
The
Company does not file its tax return on a consolidated basis as United States
tax rules prohibit the consolidation of its foreign subsidiary. The Company’s
Israeli subsidiary has net operating loss carryforwards for tax purposes in
the
amount of approximately $ 7,800,000. The Company recorded a full valuation
allowance for these carryforward losses.
At
September 30, 2006, the Company had available net operating loss carryforwards
for United States tax purposes, expiring through 2025 of approximately $40
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 occurs. 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, 2006 and 2005. 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,
|
|
2006
|
2005
|
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 2011. Facility leases require the Company to pay certain
insurance, maintenance and real estate taxes. Lease expense for all facility
leases totaled approximately $122,000 and $126,000 for the years ended September
30, 2006 and 2005, respectively, and was recorded as part of selling, general
and administrative expenses within the consolidated statement of operations.
Future
minimum
rental commitments under operating leases are as follows:
Fiscal
Year
|
Amount
|
2007
|
$105,742
|
2008
|
93,983
|
2009
|
96,071
|
2010
|
98,160
|
2011
|
100,248
|
On
June
16, 2006, the Company entered into an agreement for certain services related
to
investor relations and financial media programs for a one year period, which
either party may cancel upon 30 days written notice. In addition, the Company
will issue options to purchase an aggregate of 30,000 shares of common stock
at
an exercise price of $1.75 per share for a period of five years. On July 28,
2006 these options were granted with a valuation of $10,500 using the
Black-Scholes model and will vest at 50% after six months, and additional 25%
after nine months and the remaining 25% after one year, assuming the agreement
is still in effect.
[2]
Legal
proceedings
On
May
11, 2006, the Company, MCM and George Aaron, as CEO of the Company (the “Company
Defendants”) were served with a complaint by Andre Sassoon and Andre Sassoon
International, Inc. (the “Plaintiffs”) that was filed in the Supreme Court of
the State of New York in the County of New York. The complaint also named all
persons who were existing stockholders of MCM at the time of our original
investment in MCM in December 2002. On June 28, 2006, the Plaintiffs filed
an
amended complaint to include additional counts. The Plaintiffs are seeking
damages in excess of $400,000 or the stock interest of the existing stockholders
at the time of the Company’s acquisition. On July 31, 2006, the Company
Defendants filed an answer denying the allegations in the amended complaint.
Initial discovery requests have been made. The Company Defendants continue
to
believe that there is no merit to the allegations contained in the amended
complaint as to them, and they will vigorously defend this action.
Our
independent directors have authorized us to indemnify Mr. Aaron with respect
to
the Sassoon litigation, subject to limitations under applicable law and our
by-laws.
In
July
2005, we entered into a Settlement Agreement and Polices Release with the
carrier of our Directors and Company Reimbursement Polices and received a
payment of $350,000 under such Policies as a settlement of our claim for
expenses incurred in prior litigations with a former Caprius executive officer
and director. The settlement fee received in July 2005 from the insurance
company has been recorded as part of other income in the consolidated statement
of operations for the year ended September 30, 2005.
(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]
Warrants
On
February 17, 2006, the Company closed on a $3.0 million preferred stock equity
financing transaction before financing fees and expenses of approximately
$293,000. In association with this financing the Company issued Series A
Warrants to purchase and aggregate of 223,881 shares of common stock at an
exercise price of $1.50 for a period of five years. In addition, the Company
issued Series B Warrants to purchase an aggregate of 447,764 shares of common
stock at an exercise price of $2.00 per share for a period of five years. The
Company has also issued warrants to purchase an aggregate of 119,403 shares
of
common stock at and exercise price of $1.68 per share and an aggregate of 59,702
shares of common stock at an exercise price of $2.00 per share as part of the
placement fee for the transaction. All warrants associated with this transaction
are for a period of five years, and expire in February 2011.
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. In association with this financing the Company 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. In addition, the Company issued warrants to purchase
an
aggregate of 75,000 shares of common stock at an exercise price of $5.60 for
a
period of five years, as part of the placement fee for this transaction. All
warrants associated with this transaction expire in 2010.
In
connection with the issuance of 8% Senior Secured Promissory Notes in February
2005, the Company issued warrants to purchase 5,000 shares of the Company’s
common stock at an exercise price of $5.60 per share for a period of five years.
These warrants expire in February 2010.
In
connection with short-term loans received by the Company from related parties
in
Fiscal 2005, the Company issued warrants to purchase 7,295 shares of the
Company’s common stock exercisable at $5.60 per share for a period of five
years. These warrants expire in February 2010.
In
connection with the issuance of 8% Senior Secured Convertible Promissory Notes
in Fiscal 2004, the Company issued warrants 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. These warrants expire at various dates through June
2009.
In
connection with a bridge financing entered into during fiscal 2004, the Company
issued warrants to purchase 16,662 shares of common stock at an exercise price
of $5.00 per share for a period of five years. These warrants expire in January
2009.
In
connection with the MCM financing entered into during fiscal 2002, The Company
issued warrants to purchases 12,500 shares of common stock at an exercise price
of $1.80 per share for a period of five years. These warrants expire in
September 2007.
Warrants
issued are as follows:
|
Number
of
Shares
|
Warrant
Price
Per
Share
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
Balance
October 1, 2004
|
160,519
|
$1.60
- $15.00
|
$5.95
|
Granted
in 2005
|
707,984
|
$2.90
- $5.60
|
$5.01
|
Forfeited/Expired
in 2005
|
(45,107)
|
$4.00
- $15.00
|
$9.45
|
Balance,
September 30, 2005
|
823,396
|
$1.60
- $5.60
|
$4.95
|
Granted
in 2006
|
850,750
|
$1.50
- 2.00
|
$1.82
|
Forfeited/Expired
in 2006
|
(15,000)
|
$1.60
|
$1.60
|
Balance,
September 30, 2006
|
1,659,146
|
$1.50
- $5.60
|
$3.38
|
[3]
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 (amended to 700,000 shares on November 18, 2005) 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 10 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.
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 Amended
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 consultants. Effective
October 1, 2006, the Company will adopt the provision of FAS No. 123R
“Share-Based Payment” using the modified prospective method and the
Black-Scholes option pricing model and record stock-based compensation expense
as part of the statement of operations. As of September 30, 2006, there were
506,050 options outstanding under the 2002 plan, exercisable at prices from
$3.00 to $4.00 per share
During
1993, the Company adopted an 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
October 1, 2004
|
51,800
|
$3.00
- $4.00
|
$3.07
|
Granted
in 2005
|
-
|
-
|
-
|
Balance,
September 30, 2005
|
51,800
|
$3.00
- $4.00
|
$3.07
|
Granted
in 2006
|
458,000
|
$2.20
|
$2.20
|
Forfeited/Expired
in 2006
|
(3,750)
|
$3.00
|
$3.00
|
Balance,
September 30, 2006
|
506,050
|
$2.20
- $4.00
|
$2.28
|
Stock
option transactions not covered under the years 2002 and 1993 option plans
in
the fiscal year 2005 and 2006 are as follows:
|
Number
of
Shares
|
Option
Price
Per
Share
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
Balance,
October 1, 2004
|
52,654
|
$2.00-
$402.00
|
$3.40
|
Forfeited/Expired
in 2005
|
(64)
|
$402.00
|
$402.00
|
Balance,
September 30, 2005
|
52,500
|
$2.00-$3.00
|
$2.95
|
Granted
in 2006
|
130,000
|
$0.70
- $1.75
|
$0.94
|
Forfeited/Expired
in 2006
|
(52.500)
|
$2.00
- $3.00
|
$2.95
|
Balance,
September 30, 2006
|
130,000
|
$0.70
- $1.75
|
$0.94
|
Stock
option transactions under the 1993 plan:
|
Number
of
Shares
|
Option
Price
Per
Share
|
Weighted
Average Exercise Price
Per
Share
|
|
|
|
|
Balance,
October 1, 2004
|
36,350
|
$3.00
- $100.00
|
$4.60
|
Forfeited/Expired
in 2005
|
(1,375)
|
$3.00
- $100.00
|
$10.32
|
Balance,
September 30, 2005
|
34,975
|
$3.00
- $100.00
|
$4.27
|
Forfeited/Expired
in 2006
|
(3,475)
|
$3.00
- $100.00
|
$11.48
|
Balance,
September 30, 2006
|
31,500
|
$3.00
- $5.00
|
$3.48
|
The
following table summarizes information about stock options outstanding at
September 30, 2006:
|
|
Outstanding
Options
|
|
|
|
Weighted-
|
|
|
|
Number
|
Average
|
Weighted-
|
Range
of
|
|
Outstanding
at
|
Remaining
|
Average
|
Exercise
|
|
September
30,
|
Contractual
|
Exercise
|
Prices
|
|
2006
|
Life
(years)
|
Price
|
|
|
|
|
|
$0.70
|
|
100,000
|
3.00
|
0.70
|
1.75
|
|
30,000
|
4.83
|
1.75
|
2.20
|
|
458,000
|
9.33
|
2.20
|
3.00
- 5.00
|
|
79,550
|
5.03
|
3.24
|
|
|
|
|
|
$0.70
- $5.00
|
|
667,550
|
7.67
|
2.08
|
|
|
Exercisable
Options
|
|
|
|
Weighted-
|
|
|
|
Number
|
Average
|
Weighted-
|
Range
of
|
|
Outstanding
at
|
Remaining
|
Average
|
Exercise
|
|
September
30,
|
Contractual
|
Exercise
|
Prices
|
|
2006
|
Life
(years)
|
Price
|
|
|
|
|
|
$0.70
|
|
100,000
|
3.00
|
0.70
|
2.20
|
|
76,303
|
9.33
|
2.20
|
3.00
- 5.00
|
|
79,550
|
5.03
|
3.24
|
|
|
|
|
|
$0.70
- $5.00
|
|
255,853
|
5.37
|
1.94
|
Total
stock options vested and exercisable at
September
30, 2006
|
Number
of Shares
|
Range
of
Exercise
Price
Per
Share
|
Weighted
Average
Exercise
Price
Per
Share
|
|
|
|
|
Plan
shares
|
155,853
|
$2.20-$5.00
|
$2.73
|
Non-plan
shares
|
100,000
|
0.70
|
$0.70
|
|
255,853
|
$0.70
- $5.00
|
$1.94
|
(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 each of the
fiscal years ended September 30, 2004 and 2005. Additionally ,during the fiscal
year ended September 30, 2005 the Company’s ownership interest increased by an
additional 29.13% with the conversion of various loans made to MCM and cash
calls made by MCM, which increased the company’s ownership 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, and is included as consulting
and royalty fees in the statement of operations.
(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,
2006 and 2005.
For
the years ended September 30,
|
|
2006
|
|
2005
|
|
Net
Revenues:
|
|
|
|
|
|
Israel
|
|
$
|
490,096
|
|
$
|
398,215
|
|
United
States
|
|
|
745,373
|
|
|
450,587
|
|
Revenues
as reported in the accompanying financial statements
|
|
$
|
1,235,469
|
|
$
|
848,802
|
|
|
|
September
30, 2006
|
|
Identifiable
Assets:
|
|
|
|
Israel
|
|
$
|
962,732
|
|
United
States
|
|
|
1,814,288
|
|
Total
Assets as reported in the accompanying financial
statements
|
|
$
|
2,777,020
|
|
CONDENSED
CONSOLIDATED BALANCE SHEET
December
31, 2006
(Unaudited)
ASSETS
|
|
|
|
|
|
|
|
Current
Assets:
|
|
|
|
Cash
and cash equivalents
|
|
$
|
428,338
|
|
Accounts
receivable, net
|
|
|
238,670
|
|
Inventories,
net
|
|
|
1,132,132
|
|
Total current assets
|
|
|
1,799,140
|
|
|
|
|
|
|
Property
and Equipment:
|
|
|
|
|
Office
furniture and equipment
|
|
|
244,798
|
|
Leasehold
improvements
|
|
|
29,722
|
|
|
|
|
274,520
|
|
Less:
accumulated depreciation
|
|
|
187,169
|
|
Property
and
equipment, net
|
|
|
87,351
|
|
|
|
|
|
|
Other
Assets:
|
|
|
|
|
Goodwill
|
|
|
285,010
|
|
Intangible
assets, net
|
|
|
95,583
|
|
Other
|
|
|
20,770
|
|
Total other assets
|
|
|
401,363
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
2,287,854
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
Current
Liabilities:
|
|
|
|
|
Accounts
payable
|
|
$
|
610,947
|
|
Accrued
expenses
|
|
|
52,525
|
|
Accrued
compensation
|
|
|
207,904
|
|
Total current liabilities
|
|
|
871,376
|
|
|
|
|
|
|
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
|
|
Series
D, stated value $12.40, convertible, 194,933 shares
|
|
|
2,417,200
|
|
Common
stock, $.01 par value
|
|
|
|
|
Authorized
- 50,000,000 shares, issued 3,792,798 shares and outstanding 3,791,673
shares
|
|
|
37,928
|
|
Additional
paid-in capital
|
|
|
74,624,109
|
|
Accumulated
deficit
|
|
|
(78,360,509
|
)
|
Treasury
stock (1,125 common shares, at cost)
|
|
|
(2,250
|
)
|
Total
stockholders’ equity
|
|
|
1,416,478
|
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
2,287,854
|
|
|
|
|
|
|
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, 2006
|
|
December
31, 2005
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
Product
sales
|
|
$
|
470,293
|
|
$
|
217,282
|
|
Consulting
and royalty fees
|
|
|
38,131
|
|
|
23,606
|
|
Total
revenues
|
|
|
508,424
|
|
|
240,888
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
Cost
of product sales
|
|
|
308,636
|
|
|
168,662
|
|
Research
and development
|
|
|
91,083
|
|
|
81,839
|
|
|
|
|
|
|
|
|
|
Selling,
general and administrative, includes stock-based compensation
of $44,262
in 2006
|
|
|
897,011
|
|
|
687,554
|
|
Total
operating expenses
|
|
|
1,296,730
|
|
|
938,055
|
|
|
|
|
|
|
|
|
|
Operating
loss
|
|
|
(788,306
|
)
|
|
(697,167
|
)
|
|
|
|
|
|
|
|
|
Interest
income, net
|
|
|
1,031
|
|
|
3,729
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(787,275
|
)
|
$
|
(693,438
|
)
|
|
|
|
|
|
|
|
|
Net
loss per basic and diluted common share
|
|
$
|
(0.23
|
)
|
$
|
(0.21
|
)
|
|
|
|
|
|
|
|
|
Weighted
average number of common shares outstanding, basic and
diluted
|
|
|
3,464,716
|
|
|
3,321,673
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
CONDENSED
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
|
|
Series
B Convertible
|
|
Series
D Convertible
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
Preferred
Stock
|
|
Common
Stock
|
|
|
|
|
|
Treasury
Stock
|
|
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
Number
|
|
|
|
|
|
|
|
Number
|
|
|
|
Total
|
|
|
|
of
Shares
|
|
Amount
|
|
of
Shares
|
|
Amount
|
|
of
Shares
|
|
Amount
|
|
|
|
|
|
of
Shares
|
|
Amount
|
|
Stockholders'
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
September
30, 2006
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
241,933
|
|
$
|
3,000,000
|
|
|
3,322,798
|
|
$
|
33,228
|
|
$
|
74,001,747
|
|
$
|
(77,573,234
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
2,159,491
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of Series D Preferred Stock to Common Shares
|
|
|
|
|
|
|
|
|
(47,000
|
)
|
|
(582,800
|
)
|
|
470,000
|
|
|
4,700
|
|
|
578,100
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption
of SFAS 123 (R)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,262
|
|
|
|
|
|
|
|
|
|
|
|
44,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(787,275
|
)
|
|
|
|
|
|
|
|
(787,275
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December
31, 2006
|
|
|
27,000
|
|
$
|
2,700,000
|
|
|
194,933
|
|
$
|
2,417,200
|
|
|
3,792,798
|
|
$
|
37,928
|
|
$
|
74,624,109
|
|
$
|
(78,360,509
|
)
|
|
1,125
|
|
$
|
(2,250
|
)
|
$
|
1,416,478
|
|
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,
|
|
|
|
2006
|
|
2005
|
|
Cash
Flows from Operating Activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(787,275
|
)
|
$
|
(693,438
|
)
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
32,388
|
|
|
77,581
|
|
Stock-based
compensation expense
|
|
|
44,262
|
|
|
-
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts
receivable, net
|
|
|
11,091
|
|
|
(36,068
|
)
|
Inventories,
net
|
|
|
(180,016
|
)
|
|
(30,669
|
)
|
Other
assets
|
|
|
-
|
|
|
22,318
|
|
Accounts
payable and accrued expenses
|
|
|
253,847
|
|
|
27,056
|
|
Net
cash used in operating activities
|
|
|
(625,703
|
)
|
|
(633,220
|
)
|
|
|
|
|
|
|
|
|
Cash
Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of property and equipment
|
|
|
(14,913
|
)
|
|
(3,004
|
)
|
Net
cash used in investing activities
|
|
|
(14,913
|
)
|
|
(3,004
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(640,616
|
)
|
|
(636,224
|
)
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, beginning of period
|
|
|
1,068,954
|
|
|
1,257,158
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents, end of period
|
|
$
|
428,338
|
|
$
|
620,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
Disclosures of Cash Flow Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for income taxes
|
|
$
|
5,338
|
|
$
|
3,110
|
|
|
|
|
|
|
|
|
|
Non
Cash-Flow Items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion
of 47,000 shares of Series D Preferred Stock to common
shares
|
|
$
|
582,800
|
|
$
|
-
|
|
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
NOTES
TO
CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(Unaudited)
NOTE
1 - THE COMPANY
The
Company is engaged in the infectious medical waste disposal business. During
the
first quarter ended December 2002, 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.
NOTE
2 - BASIS OF PRESENTATION
The
condensed consolidated balance sheet of Caprius Inc., and subsidiaries
(“Caprius”, the “Company) as of December 31, 2006, the condensed consolidated
statements of operations for the three month period ended December 31, 2006
and
2005, the condensed consolidated statement of stockholders’ equity for the three
month period ended December 31, 2006 and the condensed consolidated statements
of cash flows for the three month period ended December 31, 2006 and 2005,
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.
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 included elsewhere
here
within this document for the fiscal year ended September 30, 2006, filed on
December 20, 2006.
The
accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and satisfaction of liabilities and commitments in
the
normal course of business. The Company has incurred substantial recurring
losses. In addition, the Company is a defendant in an action seeking damages
in
excess of $400,000. Although management believes the Company has a meritorious
defense against such a lawsuit, an unfavorable outcome of such action would
have
a materially adverse impact on our business. During the three months ended
December 31, 2006 the Company used cash flows from operating activities of
approximately $626,000. In order to fund the future cash requirements of the
Company, the Company continues to pursue efforts to identify additional funds
through various funding options, including bank 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. The above factors raise substantial doubt about the Company’s
ability to continue as a going concern (see Note 9).
NOTE
3 - SUMMARY OF CERTAIN SIGNIFICANT ACCOUNTING POLICIES
Stock-Based
Compensation
On
October 1, 2006, the Company adopted Statement of Financial Accounting Standards
(“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”), which is
a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.
123”). SFAS No. 123R supersedes APB No. 25, “Accounting for Stock Issued to
Employees”, and amends SFAS No. 95, “Statement of Cash Flows.” SFAS No. 123R
requires all share-based payments to employees, including grants of employee
stock options, to be recognized in the financial statements based upon their
fair values. As a result, the intrinsic value method of accounting for stock
options with pro forma footnote disclosure, as allowed for under SFAS No. 123,
is no longer permitted.
The
Company adopted SFAS No. 123R using the modified prospective method, which
requires the Company to record compensation expense for all awards granted
after
the date of adoption, and for the unvested portion of previously granted awards
that remain outstanding at the date of adoption. Accordingly, prior period
amounts have not been restated to reflect the adoption of SFAS No. 123R. After
assessing alternative valuation models and amortization assumptions, the Company
chose to continue using the Black-Scholes valuation model and recognition of
compensation expense over the requisite service period of the
grant.
As
a
result, the Company’s net loss for the three months ended December 31, 2006 is
$33,460 higher than if it had continued to account for share-based compensation
under Accounting Principles Board (“APB”) opinion No. 25. The Company recorded
total stock-based compensation of $44,262 during this period for options granted
and vested which is included in selling, general and administrative expense.
As
of December 31, 2006 the fair value of the unvested stock options amounted
to
$541,340 which are expected to be recognized over a weighted average period
of
approximately 3.1 years.
The
Company uses the Black-Scholes option pricing model to determine the weighted
average fair value of options. The weighted average fair value of options
granted during the three months ended December 31, 2006 was $0.38. There were
no
options issued, during the three months ended December 31, 2005. The assumptions
utilized to determine the fair value of options at the date of grant are
indicated in the following table.
|
|
Three
months ended
December
31, 2006
|
Risk-free
interest rate
|
|
4.60%
|
Expected
volatility
|
|
74%
|
Expected
life (in years)
|
|
5.0
|
Dividend
yield
|
|
-
|
Transactions
under the stock option plan during the three months period ended December 31,
2006 are summarized as follows:
|
Number
of Options
|
Weighted
Average Exercise Price
|
Outstanding
at October 1, 2006
|
667,550
|
$2.08
|
Granted
|
143,950
|
$0.60
|
Forfeited
/ Expired
|
-
|
-
|
|
|
|
Outstanding
at December 31, 2006
|
811,500
|
$1.82
|
The
following table summarizes information concerning currently outstanding and
exercisable stock options:
|
|
Outstanding
Options
|
Options
Exercisable
|
|
|
|
Weighted-
|
|
|
|
|
|
Number
|
Average
|
Weighted-
|
Number
|
Weighted-
|
Range
of
|
|
Outstanding
at
|
Remaining
|
Average
|
Exercisable
at
|
Average
|
Exercise
|
|
December
31,
|
Contractual
|
Exercise
|
December
31,
|
Exercise
|
Prices
|
|
2006
|
Life
(years)
|
Price
|
2006
|
Price
|
|
|
|
|
|
|
|
$0.55
- 0.70
|
|
243,950
|
6.98
|
$0.64
|
100,000
|
$0.70
|
1.75
|
|
30,000
|
4.58
|
1.75
|
15,000
|
1.75
|
2.20
|
|
458,000
|
9.08
|
2.20
|
104,927
|
2.20
|
3.00
- 5.00
|
|
79,550
|
4.78
|
3.24
|
79,550
|
3.24
|
|
|
|
|
|
|
|
$0.55
- $5.00
|
|
811,500
|
7.86
|
$1.82
|
299,477
|
$1.95
|
Prior
to
October 1, 2006, the Company’s stock-based employee compensation plans were
accounted for under the recognition and measurement provisions of Accounting
Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”), and related Interpretations, as permitted by Financial
Accounting Standards Board (“FASB”) Statement No. 123, “Accounting for
Stock-Based Compensation,” (“SFAS 123”).
For
the
three months ended December 31, 2005, as was permitted under SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure,” which
amended SFAS No. 123, “Accounting for Stock-Based Compensation,” the Company
elected to continue to follow the intrinsic value method in accounting for
its
stock-based employee compensation arrangements as defined by APB No. 25,
“Accounting for Stock Issued to Employees,” and related interpretations
including FASB Interpretation No. 44, “Accounting for Certain
Transactions
Involving Stock Compensation, an interpretation of APB No. 25.” Under the
intrinsic value method, no stock-based compensation expenses had been recognized
as the exercise price of the grants equaled the fair market value of the
underlying stock at the date of grant. For the three months ended December
31,
2005, the Company recorded compensation expense in general and administrative
expenses amounting to $610 related to stock options granted to employees. The
following table illustrates the effect on net loss per share as if the Company
had applied the fair value recognition provisions of SFAS No. 123 to stock-based
employee compensation for the three months ended December 31, 2005:
|
|
Three
months ended
December
31, 2005
|
|
Net
loss attributable to common stockholders as reported
|
|
$
|
(693,438
|
)
|
Deduct:
Stock-based employee compensation determined under
fair
value method for all awards, net of related tax effects
|
|
|
(610
|
)
|
Pro
forma net loss attributable to common stockholders
|
|
$
|
(694,048
|
)
|
Pro
forma net loss per share attributable to common stockholders
(basic
and diluted)
|
|
$
|
(0.21
|
)
|
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 three months ended December 31, 2006 and 2005, potential common shares
amounted to 4,477,965 and 968,110 respectively, and have not been included
in
the computation of diluted loss per share since the effect would be
antidilutive. The potential common shares issuable for the three months ended
December 31, 2006 and 2005 are outlined below:
|
|
December
31, 2006
|
|
December
31, 2005
|
|
Options
Outstanding
|
|
|
811,500
|
|
|
86,725
|
|
Warrants
Outstanding
|
|
|
1,659,146
|
|
|
823,396
|
|
Series
B Preferred Stock
|
|
|
57,989
|
|
|
57,989
|
|
Series
D Preferred Stock
|
|
|
1,949,330
|
|
|
-
|
|
Total
|
|
|
4,477,965
|
|
|
968,110
|
|
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 when services are provided for each month of activity or evenly over
the
year in the event that a fixed rental agreement is in place.
Recent
Accounting Pronouncements
In
December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
Registration Payment Arrangements,” which specifies that the contingent
obligation to make future payments or otherwise transfer consideration under
a
registration payment arrangement should be separately recognized and measured
in
accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
00-19-02 is required for fiscal years beginning after December 15, 2006.
We are
currently evaluating the expected effect of EITF 00-19-02 on our consolidated
financial statements and are currently not yet in a position to determine
such
effects.
On
February 15, 2007, FASB issued SFAS No. 159, entitled “The Fair Value Option for
Financial Assets and Financial Liabilities.” The guidance in SFAS No. 159
“allows” reporting entities to “choose” to measure many financial instruments
and certain other items at fair value. The objective underlying the development
of this literature is to improve financial reporting by providing reporting
entities with the opportunity to reduce volatility in reported earnings that
results from measuring related assets and liabilities differently without
having
to apply complex hedge accounting provisions, using the guidance in SFAS
No.
133, as amended, entitled “Accounting for Derivative Instruments and Hedging
Activities”. The provisions of SFAS No. 159 are applicable to all reporting
entities and is effective as of the beginning of the first fiscal year that
begins subsequent to November 15, 2007. We do not believe this new accounting
standard will have a material impact on our financial condition or results
of
operations.
NOTE
4 - INVENTORIES
Inventories
consist of the following, net of reserve of approximately $31,000 at December
31, 2006
Raw
materials
|
|
$
|
810,895
|
|
Finished
goods
|
|
|
321,237
|
|
|
|
$
|
1,132,132
|
|
NOTE
5 - STOCK OPTIONS
On
November 13, 2006, the Company’s Board of Directors granted 350,000 options to
the Company’s CEO for the purchase of an aggregate of 350,000 shares of common
stock under the Company’s 2002 Stock Option Plan. Due to the limited number of
options available under the 2002 Stock Option Plan, only 143,950 of the 350,000
options were effectively granted since the Company needs to obtain stockholder
approval to increase the number of options under the plan. The remaining 206,050
will be effectively granted on the date stockholder approval is received and
will be valued accordingly at that point and time. 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 $0.60 per share. Using the Black Scholes Option pricing
model the Company has determined that the fair value of the 143,950 options
is
$0.38 per share which equates to a fair value of approximately $55,000.
On
December 1, 2006 the Company’s Board of Directors granted options for the
purchase of 20,000 shares each of common stock to Board of Directors members,
Dr. Triebwasser and Dr. Hymes. On December 6, 2006 the Company granted options
for the purchase of 20,000 shares of common stock to Mr. Kenneth Leung upon
his
appointment to our Board of Directors. For the same reasons discussed above,
these options will be effectively granted upon stockholder approval and will
be
valued accordingly at that point and time. They 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 $0.55 per share.
On
December 1, 2006, the Board of Directors voted to amend the 2002 Stock Option
Plan by increasing to 1,500,000 the total number of shares of Common Stock
reserved for issuance there under, subject to stockholder approval. 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.
NOTE
6 - ECONOMIC DEPENDENCY
For
the
three months ended December 31, 2006, revenue from one customer
was approximately $342,000 which represented approximately 67% of the total
revenue. At December 31, 2006 accounts receivable from this customer was $0.
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.
NOTE
7
- COMMITMENTS AND CONTINGENCIES
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 term of
this
agreement, the Company leases 4,177 square feet at a base monthly rental of
approximately $7,500 plus certain escalation charges as defined, under the
lease.
Future
minimum rental payments under the above operating lease are as
follows:
For
the Year Ending September 30,
|
|
Amount
|
|
2007
|
|
|
68,920
|
|
2008
|
|
|
93,983
|
|
2009
|
|
|
96,071
|
|
2010
|
|
|
98,160
|
|
Thereafter
|
|
|
100,248
|
|
|
|
$
|
457,382
|
|
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, 2007. This lease agreement
is renewable annually thereafter.
NOTE
8 - LITIGATION
On
May
11, 2006, the Company, its subsidiary, M.C.M. Environmental Technologies,
Inc.
(“MCM”), and George Aaron, CEO of the Company were served with a complaint by
Andre Sassoon and Andre Sassoon International,
Inc. (the “Plaintiffs”) that was filed in the Supreme Court of the State of New
York in the County of New York. The complaint also names all persons who
were
existing stockholders of MCM at the time of the Company’s original investment in
MCM in December 2002. On June 28, 2006, the Plaintiffs filed an amended
complaint to include additional counts. The Plaintiffs are seeking damages
in
excess of $400,000 or the stock interest of the existing stockholders at
the
time of the Company’s acquisition. Preliminary discovery has been undertaken.
Based upon its review of the amended complaint, the Company continues to
believe
that there is no merit to the allegations contained within the complaint
as to
the Company, MCM and Mr. Aaron, and they will vigorously defend this action,
accordingly, no accrual has been recorded by the Company as of December 31,
2006.
NOTE
9
- SUBSEQUENT EVENT
On
January 30, 2007, the Company borrowed the principal amount of $100,000, from
Special Situations Private Equity Fund L.P, which is a principal stockholder,
through the issuance of a 10% promissory note. This note and all accrued and
unpaid interest, shall mature and become payable on April 30, 2007. In the
event
that any amount due hereunder is not paid when due, such overdue amount shall
bear interest at an annual rate of 15% until paid in full. These funds will
be
utilized for general working capital, until additional funding is
secured.
On
March
1, 2007, we closed a placement of 10,000 shares of Series E Convertible
Preferred Stock at $250 a share. Each share of the Series E Preferred Stock
is
convertible into 625 shares of common stock, subject to customary anti-dilution
provisions, or an aggregate of 6,250,000 shares of common stock. Commencing
October 1, 2007, the holders of the Series E Preferred Stock are entitled to
receive a cash dividend at a per share rate equal to $13.50 per annum, and
a
liquidation preference of $250 per share plus accrued and unpaid dividends,
and
ranking pari passu with the Series B and Series D Preferred Stock. The Series
E
Preferred Stock votes on an as-converted basis with the common stock, and has
a
separate vote with respect to matters directly affecting this Series. Neither
we
nor the holders of the Series E Preferred Stock have the right to cause the
redemption thereof.
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.
|
9,557,500
Shares
of
Common
Stock
CAPRIUS,
INC.
|
|
PROSPECTUS
|
|
Page
|
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|
__________,
2007
|
|
11
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16
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33
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39
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F-1
|
|
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
24. Indemnification of Directors and Officers
The
only
statue, charter provision, by-law, contract, or other arrangement under which
any controlling person, director or officers of the Registrant is insured or
indemnified in any manner against any liability which he may incur in his
capacity as such, is as follows:
Our
certificate of incorporation limits the liability of our directors and officers
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for: (i)
breach of the directors’ duty of loyalty; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the
law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director’s duty of care, and this provision of our certificate of incorporation
has no effect on the availability of equitable remedies, such as injunction
or
rescission, based upon a director’s breach of the duty of care.
The
effect of the foregoing is to require us to indemnify our officers and directors
for any claim arising against such persons in their official capacities if
such
person acted in good faith and in a manner that he or she reasonably believed
to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
or
her conduct was unlawful. We also maintain officers’ and directors’ liability
insurance coverage.
Insofar
as indemnification for liabilities may be permitted to our directors, officers
and controlling persons pursuant to the foregoing provisions, or otherwise,
we
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy and is, therefore,
unenforceable.
Item
25. Other Expenses of Issuance and
Distribution.
The
estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid
by
the Registrant, are as follows:
Registration
Fee
|
|
$
|
293
|
|
Legal
Fees and Expenses
|
|
|
40,000
|
|
Accounting
Fees and Expenses
|
|
|
20,000
|
|
Printing
|
|
|
2,500
|
|
Miscellaneous
Expenses
|
|
|
7,207
|
|
Total
|
|
$
|
70,000
|
|
Item
26. Recent Sales of Unregistered Securities
(1) On
March 1,
2007, we issued (i) 10,000 shares of Series E Convertible Preferred Stock and
(ii) warrants to purchase 3,125,000 shares of common stock to six institutional
investors for aggregate gross proceeds of $2.5 million. As part of the fee
to
the placement agent and an advisor, we granted them warrants to purchase 182,500
shares of common stock at an exercise price of $0.60 per share and paid them
an
aggregate amount of $71,000. We relied on the exemption from the registration
requirements of the Securities Act of 1933 (the “Securities Act”) provided in
Section 4(2) thereof and Rule 506 thereunder.
(2) On
December 4, 2006, we
issued 470,000 shares of common stock to a holder of our Series D Convertible
Preferred Stock upon its conversion of 47,000 shares thereof. We relied on
the
exemption from the registration requirements of the Securities Act provided
in
Section 3(a)(9) thereof.
(3) On
February 17, 2006, we
issued (i) 241,933 shares of Series D Convertible Preferred Stock, (ii) Series
A
Warrants to purchase an aggregate of 223,881 shares of common stock at an
exercise price of $1.50 per share and (iii) Series B Warrants to purchase an
aggregate of 447,764 shares of common stock at an exercise price of $2.00 per
share (which exercise prices were subject to adjustment) to four institutional
investors for aggregate gross proceeds of $3.0 million. As part of the fee
to
the placement agents, we granted them warrants to purchase 119,403 shares
of
common
stock at an exercise price of $1.68 per share and warrants to purchase 59,702
shares of common stock at an exercise price of $2.00 per share. We relied on
the
exemption from the registration requirements of the Securities Act provided
in
Section 4(2) thereof and Rule 506 thereunder.
(4) On
April 5, 2005, we
effected a 1-20 reverse split on our common stock. Upon the reverse split,
the
outstanding Series C Convertible Preferred Stock was mandatorily converted
into
common stock. We relied on the exemption from the registration requirements
of
the Securities Act provided in Section 3(a)(9) thereof for the conversion of
the
Preferred Stock.
(5) On
February 15, 2005, we
issued (i) 45,000 shares of Series C Convertible Preferred Stock, (ii) Series
A
Warrants to purchase an aggregate of 465,517 shares of common stock at an
exercise price of $5.60 per share and (iii) Series B Warrants to purchase an
aggregate of 155,172 shares of common stock at an exercise price of $2.90 per
share to 46 investors (including executive officers) each of represented that
he
was an “accredited investor,” for aggregate gross proceeds of $4.5 million,
including conversion of short-term secured debt. As part of the fee to the
placement agent, we granted it warrants to purchase an aggregate of 75,000
shares of common stock at an exercise price of $5.60 per share. We relied on
the
exemption from the registration requirements of the Securities Act provided
in
Section 4(2) thereof and Rule 506 thereunder.
Item
27. Exhibits.
Exhibit
Number
Description of Exhibit
All
references to Registrant’s Forms 8-K, 10-K, 10-QSB and 10-KSB include reference
to File No. 0-11914.
2.1
|
Agreement
and Plan of Merger, dated January 20, 1997, by and among Registrant,
Medial Diagnostics, Inc. (“Strax”),
Strax Acquisition Corporation and US Diagnostic Inc. (incorporated
by
reference to Exhibit 1 to Registrant’s Form 8-K filed January 23,
1997).
|
2.2
|
Agreement
and Plan of Merger dated as of June 28, 1999 among Registrant, Caprius
Merger Sub, Opus Diagnostics Inc. (“Opus”), George Aaron and Jonathan
Joels (incorporated by reference to Exhibit 2.1 to Registrant’s Form 8-K,
filed July 1, 1999 (the “July 1999 Form
8-K”)).
|
3.1
|
Certificate
of Incorporation of Registrant. (incorporated by reference to Exhibit
3
filed with Registrant’s Registration Statement on Form S-2, and amendments
thereto, declared effective August 18, 1993 (File No. 033-40201)
(“Registrant’s Form S-2”)).
|
3.2
|
Amendment
to Certificate of Incorporation of Registrant filed November 5, 1993
(incorporated by reference to Exhibit 3.2 to Registrant’s Form S-4, filed
October 9, 1997(File No.
333-37481)).
|
3.3
|
Amendment
to Certificate of Incorporation of Registrant, filed August 31, 1995,
(incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K for an
event of August 31, 1995 (the “August 1995 Form
8-K”)).
|
3.4
|
Amendment
to Certificate of Incorporation of Registrant, filed September 21,
1995
(incorporated by reference to Exhibit 3.1 to Registrant’s Annual Report on
Form 10-K for the nine months ended September 30, 1995 (the “ANMR 1995
Form 10-K”)).
|
3.5
|
Certificate
of Merger, filed on June 28, 1999 with the Secretary of State of
the State
of Delaware. (incorporated by reference to Exhibit 3.1 of Form 8-K
dated
June 28, 1999).
|
3.6
|
Certificate
of Amendment to Certificate of Incorporation, filed April 1, 2005
(incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K, filed
April 5, 2005 (the “April 2005 Form
8-K”).
|
3.7
|
Certificate
of Designation of Series B Convertible Redeemable Preferred Stock
of
Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Form
8-K, filed September 2, 1997).
|
3.8
|
Certificate
of Designations, Preferences and Rights of Series C Mandatory Convertible
Preferred Stock (incorporated by reference to Exhibit 3.1 to Registrant’s
Form 8-K, filed for an event of February 15, 2005 (the “February 2005 Form
8-K”)).
|
3.9
|
Certificate
of Designations Preferences and Rights of Series D Convertible Preferred
Stock (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K,
filed for an event of February 17, 2006 (the “February 2006 Form
8-K”)).
|
3.10
|
Certificate
of Designations, Preferences and Rights of Series E Convertible Preferred
Stock, filed on February 27, 2007 with the Secretary of State of
Delaware
(incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed
March 1, 2007 (the “March 2007 Form
8-K”)).
|
3.11
|
Amended
and Restated By-laws of Registrant (incorporated by reference to
Exhibit
3.4 to Registrant’s Form S-4).
|
4.1
|
Form
of Warrant issued to certain employees in connection with Registrant’s
Bridge Financing in March 2000 (incorporated by reference to Exhibit
4.7
to Registrant’s July 2000 Form SB-2, filed July 26, 2000 (File No.
333-42222)).
|
4.2
|
Form
of Series A Warrant from Registrant’s April 2000 private placement of
Units (the “April Private Placement”) (incorporated by reference to
Exhibit 10.2 to Registrant’s Form 8-K, filed April 28, 2000 (the “April
2000 Form 8-K”)).
|
4.3
|
Form
of Series B Warrant from the April Private Placement (incorporated
by
reference to Exhibit 10.3 to Registrant’s April 2000 Form
8-K).
|
4.4
|
Form
of Common Stock Purchase Warrants for up to 300,000 shares of Common
Stock, expiring February 28, 2006 (incorporated by Reference to Exhibit
10.3 to the Registrant’s Form 10-QSB for the fiscal quarter ended March
31, 2001).
|
4.5
|
Form
of 2005 Series A Warrant (granted February 15, 2005) (incorporated
by
reference to Exhibit 4.1 to Registrant’s February 2005 Form
8-K).
|
4.6
|
Form
of 2005 Series B Warrant (granted February 15, 2005) (incorporated
by
reference to Exhibit 4.2 to Registrant’s February 2005 Form
8-K).
|
4.7
|
Form
of Dealer Warrant (granted February 15, 2005) (incorporated by reference
to Exhibit 4.3 to Registrant’s February 2005 Form
8-K).
|
4.8
|
Form
of Lock-Up Agreement with George Aaron and Jonathan Joels (incorporated
by
reference to Exhibit 4.4 to Registrant’s February 2005 Form
8-K).
|
4.9
|
Form
of 2006 Series A Warrant (granted February 17, 2006) incorporated
by
reference to Exhibit 4.1 to Registrant’s February 2006 Form
8-K).
|
4.10
|
Form
of 2006 Series B Warrant (granted February 17, 2006) incorporated
by
reference to Exhibit 4.2 to Registrant’s February 2006 Form
8-K).
|
4.11
|
Placement
Agent Warrant, dated February 17, 2006 (incorporated by reference
to
Exhibit 4.3 to Registrant’s February 2006 Form
8-K).
|
4.12
|
Placement
Agent Warrants, dated February 17, 2006 (incorporated by reference
to
Exhibit 4.1 to Registrant’s March 2006 Form
8-K/A-1).
|
4.13
|
Form
of Warrant issued to the Investors in the 2007 placement (incorporated
by
reference to Exhibit 4.1 to Registrant’s March 2007 Form
8-K).
|
4.14
|
Placement
Warrant Agreement, dated as of March 1, 2007, for 70,000 shares of
Common
Stock (incorporated by reference to Exhibit 4.2 to Registrants March
2007
Form 8-K).
|
4.15
|
Warrant
Agreement, dated as of March 1, 2007, for 112,500 shares of Common
Stock
(incorporated by reference to Exhibit 4.3 to Registrant’s March 2007 Form
8-K).
|
10.1.1
|
Registration
Rights Agreement, dated August 18, 1997, between Registrant and General
Electric Company (“GE”) (incorporated by reference to Exhibit 10.2 to
Registrant’s Form 8-K, filed September 2, 1997 (the “September 1997 Form
8-K”)).
|
10.1.2
|
Stockholders
Agreement, dated August 18, 1997, between Registrant and GE (incorporated
by reference to Exhibit 10.3 to Registrant’s September 1997 Form
8-K).
|
10.1.3
|
Settlement
and Release Agreement, dated August 18, 1997, between the Registrant
and
GE (incorporated by reference to Exhibit 10.4 to Registrant’s September
1997 Form 8-K).
|
10.1.4
|
License
Agreement, dated August 18, 1997, between Registrant and GE (incorporated
by reference to Exhibit 10.4 to Registrant’s September 1997 Form
8-K).
|
10.2.1
|
Form
of Option Agreement granted to Shrikant Mehta with respect to the
April
Private Placement (incorporated by reference to Exhibit 10.17 to
Registrant’s 2000 Form SB-2).
|
10.3.1
|
Purchase
and Sale Agreement, dated as of October 9, 2002, Among Registrant,
Opus
and Seradyn, Inc. (“Seradyn”) (incorporated by reference to Exhibit 10.1
to Registrant’s Form 8-K for an event of October 9, 2002 (the “October
2002 Form 8-K”)).
|
10.3.2
|
Royalty
Agreement, dated as of October 9, 2002, between Opus and Seradyn
(incorporated by reference to Exhibit 10.2 to Registrant’s October 2002
Form 8-K).
|
10.3.3
|
Non-compete
Agreement, dated as of October 9, 2002, between Opus and Seradyn
(incorporated by reference to Exhibit 10.3 to Registrant’s October 2002
Form 8-K).
|
10.3.4
|
Consulting
Agreement, dated as of October 9, 2002, between Opus and Seradyn
(incorporated by reference to Exhibit 10.4 to Registrant’s October 2002
Form 8-K).
|
10.4.1
|
Stock
Purchase Agreement, dated December 17, 2002, among Registrant, M.C.M.
Technologies, Ltd. and M.C.M. Environmental Technologies,
Inc.(incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
for an event of December 17, 2002 (the “December 2002 Form
8-K”).
|
10.4.2
|
Stockholders
Agreement, dated December 17, 2002, among M.C.M. Technologies, Inc.
and
the holders of its outstanding capital stock (incorporated by reference
to
Exhibit 10.2 to Registrant’s December 2002 Form
8-K).
|
10.4.3
|
Form
of Unsecured Promissory Notes, issued for the short-term Loan
(incorporated by reference to Exhibit 10.13.3 to Registrant’s September
2002 Form 10-KSB.)
|
10.4.4
|
Form
of Subscription Agreement relating to the short-term Loan (incorporated
by
reference to Exhibit 10.13.4 to Registrant’s September 2002 Form 10-KSB).
|
10.4.5
|
Form
of Common Stock Purchase Warrant relating to the short-term Loan
(incorporated by reference to Exhibit 10.13.5 to Registrant’s September
2002 Form 10-KSB).
|
10.5
|
Form
of Common Stock Warrant relating to Line of Credit (incorporated
by
reference to Exhibit 10.14 to Registrant’s September 2002 Form
10-KSB).
|
10.6.1
|
Securities
Purchase Agreement, among Registrant and investors dated as of April
26,
2004 (incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
for an event of April 27, 2004 (the “April 2004 Form 8-K”)).
|
10.6.2
|
Form
of 8% Senior Secured Convertible Promissory Note (incorporated by
reference to Exhibit 10.2 to Registrant’s April 2004 Form 8-K).
|
10.6.3
|
Security
and Pledge Agreement by the Registrant in favor of CAP Agent Associates,
LLC, dated April 26, 2004 (incorporated by reference to Exhibit 10.3
to
Registrant’s April 2004 Form 8-K).
|
10.6.4
|
Registration
Rights Agreement, dated April 26, 2004, between Registrant and the
purchasers of the Notes, and Sands Brothers International Ltd. (“SBIL”)
(incorporated by reference to Exhibit 10.4 to Registrant’s April 2004 Form
8-K).
|
10.6.5
|
Dealer
Agreement, dated April 12, 2004, between Registrant and SBIL (incorporated
by reference to Exhibit 10.5 to Registrant’s April 2004 Form
8-K).
|
10.6.6
|
Common
Stock Purchase Warrant Agreement, dated April 26, 2004, between Registrant
and SBIL (incorporated by reference to Exhibit 10.6 to Registrant’s April
2004 Form 8-K).
|
10.7.1
|
Form
of Secured Promissory Note issued for the short-term Bridge Loans
(incorporated by reference to Exhibit 10.11.1 Registrant’s Form 10-KSB for
fiscal year ended September 30, 2003 (the “2003 Form 10-KSB”)).
|
10.7.2
|
Form
of Common Stock Purchase Warrant relating to the short-term Bridge
Loans
(incorporated by reference to Exhibit 10.11.2 to Registrant’s 2003 Form
10-KSB).
|
10.7.3
|
Form
of Guaranty and Security Agreement relating to the short-term Bridge
Loans
(incorporated by reference to Exhibit 10.11.3 to Registrant’s 2003 Form
10-KSB).
|
10.8
|
License
and Manufacturing Agreement between M.C.M. Environmental Technologies
Inc.
and CID Lines, dated November 26, 2002 (incorporated by reference
to
Exhibit 10.14 to Amendment No. 1 to Registrant’s September 2004 Form SB-2,
filed November 5, 2004 (File No. 333-118869) (“November 2004 Form
SB-2/A-1”)).
|
10.9
|
Distribution
Agreement between M.C.M. Environmental Technologies, LTD and Euromedic
Group, dated November 1, 2002 (incorporated by reference to Exhibit
10.15
to Registrant’s November 2004 Form
SB-2/A-1).
|
10.10
|
Distribution
Agreement between M.C.M. Environmental Technologies, LTD and Lysmed,
L.L.C., dated January 12, 2001 (incorporated by reference to Exhibit
10.16
to Registrant’s November 2004 Form SB-2/A-1).
|
10.11.1
|
Purchase
Agreement for the sale of 45,000 shares of Series C Mandatory Convertible
Preferred Stock and Series A and Series B warrants (incorporated
by
reference to Exhibit 10.1 to Registrant’s February 2005 Form
8-K).
|
10.11.2
|
Registration
Rights Agreement, dated February 15, 2005, by and among the Registrant
and
investors (incorporated by reference to Exhibit 10.2 to Registrant’s
February 2005 Form 8-K).
|
10.11.3
|
Amendment
and Conversion Agreement, dated February 15, 2005, by and among the
Registrant and note holders (incorporated by reference to Exhibit
10.3 to
Registrant’s February 2005 Form
8-K).
|
10.11.4
|
Exchange
Agreement, dated February 15, 2005, by and among the Registrant and
certain lenders (incorporated by reference to Exhibit 10.4 to Registrant’s
February 2005 Form 8-K).
|
10.11.5
|
Registration
Rights Agreement, dated February 15, 2005, by and among the Registrant
and
note holders (incorporated by reference to Exhibit 10.5 to Registrant’s
February 2005 Form 8-K).
|
10.12.1
|
Financial
Advisory Agreement, dated January 11, 2005, between the Registrant
and
Laidlaw & Company (UK) Ltd. (incorporated by reference to Exhibit
10.6.1 to Registrant’s February 2005 Form
8-K).
|
10.12.2
|
Amendment
to Financial Advisory Agreement, dated February 9, 2005 (incorporated
by
reference to Exhibit 10.6.2 to Registrant’s February 2005 Form
8-K).
|
10.13
|
Settlement
Agreement and Policies Release by and among Admiral Insurance Company
and
Registrant and certain Caprius directors and officers including George
Aaron, Jonathan Joels, Shrikant Mehta and Sanjay Mody (incorporated
by
reference to Exhibit 10.1 to Registrant’s June 30, 2005 Form 10-QSB).
|
10.14
|
Form
of Agreement of Lease between Venture Hackensack Holding, Inc. and
Caprius, Inc. dated January 1, 2006 (incorporated by reference to
Exhibit
10.1 to Registrant’s December 31, 2005 Form
10-QSB.)
|
10.15.1
|
Purchase
Agreement for sale of Series D Convertible Preferred Stock (incorporated
by reference to Exhibit 10.1 to Registrant’s February 2006 Form
8-K).
|
10.15.2
|
Registration
Rights Agreement dated February 16, 2006, by and among Registrant
and the
purchasers (incorporated by reference to Exhibit 10.2 to Registrant’s
February 2006 Form 8-K).
|
10.16
|
Form
of Letter Agreement, dated October 30, 2006, between the Caprius,
Inc. and
Dwight Morgan (incorporated by reference to Registrant’s
November 2006 Form 8-K).
|
10.17.1
|
Purchase
Agreement for sale of Series E Preferred Stock dated as of February
27,
2007 (incorporated by reference to Exhibit 10.1 to Registrant’s March 2007
Form 8-K)
|
10.17.2
|
Registration
Rights Agreement dated March 1, 2007, by and among Registrant and
the
purchasers (incorporated by reference to Exhibit 10.2 to Registrant’s
March 2007 Form 8-K)
|
10.17.3
|
Letter
Agreement, dated February 27, 2007, between the Company and Vision
Opportunity Master Fund Ltd. (incorporated by reference to Exhibit
10.3
top Registrant’s March 2007 Form
8-K).
|
23.2
|
Consent
of Thelen Reid Brown Raysman & Steiner LLP (filed as part of Exhibit
5)
|
*
Filed
herewith
Item
28. Undertakings
The
undersigned Registrant hereby undertakes:
(1) to
file, during any
period in which offers or sales are being made, a post-effective amendment
to
this Registration Statement:
(i) to
include any prospectus
required by Section 10(a)(3) of the Securities Act of 1933, as amended (the
“Securities Act”).
(ii) to
reflect in the
prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in
the
information set forth in the Registration Statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of a prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the change in volume
and price represents no more than a 20 percent change in the maximum aggregate
offering price set forth in the “Calculation of Registration Fee” table in the
effective registration statement.
(iii) to
include any additional
or changed material information with respect to the plan of
distribution.
(2) that,
for the purpose of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at the time
shall be deemed to be the initial bona fide offering thereof.
(3) to
remove from
registration by means of a post-effective amendment any of the securities being
registered which remain unsold at the termination of the offering.
Insofar
as indemnification for liabilities arising under the Act may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
provisions of its Certificate of Incorporation, By-Laws, the General Corporation
Law of the State of Delaware or otherwise, the Registrant has been advised
that
in the opinion of the Securities and Exchange Commission such indemnification
is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or
paid by a director, officer of controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form SB-2 and authorized this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in
Hackensack, New Jersey, on the 26th
day of March, 2007.
|
Caprius,
Inc.
|
|
|
By:
|
/s/
Jonathan Joels |
|
|
|
Jonathan
Joels
Chief
Financial Officer
|
|
POWER
OF ATTORNEY
Each
director and/or officer of the registrant whose signature appears below hereby
appoints Dwight Morgan or Jonathan Joels as his attorney-in-fact to sign in
his
name and behalf, in any and all capacities stated below, and to file with the
Securities and Exchange Commission, any and all amendments, including
post-effective amendments, to this Registration Statement.
In
accordance with the requirements
of the
Securities Act of 1933, this Registration Statement has been signed by the
following persons in the capacities and on the dates stated:
Signature
|
|
Title
|
Date
|
|
|
|
|
/s/
Dwight Morgan
Dwight
Morgan
|
|
Chairman
of the Board , President and CEO
|
March
26, 2007
|
/s/
Jonathan Joels
Jonathan
Joels
|
|
Director,
Chief Financial Officer and
Chief
Accounting Officer
|
March
26, 2007
|
/s/ George Aaron
George
Aaron
|
|
Director
|
March
23, 2007
|
/s/
Kenneth C. Leung
Kenneth
C. Leung
|
|
Director
|
March
26, 2007
|
/s/
Roger W. Miller
Roger
W. Miller
|
|
Director
|
March
22, 2007
|
Sol
Triebwasser, Ph.D.
|
|
Director
|
March
26, 2007
|