UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

T	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~December 3031, 2010

o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________.

Commission file number 000-11914

CAPRIUS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	22-2457487 (I.R.S. Employer Identification No.)

10 Forest Avenue, Suite 220 Paramus, NJ (Address of principal executive offices)	07652 (Zip Code)

Registrant’s telephone number: (201) 342-0900

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes oT No To

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No T

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company T

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No T

As of ~~August~~February 121, ~~2010,~~2011 there were 5,431,865 shares of the issuer’s common stock outstanding.

CAPRIUS, INC.

Table of Contents

Page No.

		Page No.

PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and September 30, 2010	2

	Condensed Consolidated Statements of Operations for the three months ended December 31, 2010 and 2009 (unaudited)	3

	Condensed Consolidated Statement of Stockholders’ Deficiency for the three months ended December 31, 2010 (unaudited)	4

	Condensed Consolidated Statement of Cash Flows for the three months ended December 31, 2010 and 2009 (unaudited)	5

	Notes to the Unaudited Condensed Consolidated Financial Statements	6-15

PART I	FINANCIAL INFORMATION
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 1.	Financial Statements:
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	20
	Condensed Consolidated Balance Sheets as of June 30, 2010 (unaudited) and September 30, 2009	2
Item 4T.	Controls and Procedures	20
	Condensed Consolidated Statements of Operations for the three months and nine months ended June 30, 2010 and 2009 (unaudited)	3
	Condensed Consolidated Statement of Stockholders’ Deficiency for the nine months ended June 30, 2010 (unaudited)	4
	Condensed Consolidated Statement of Cash Flows for the nine months ended June 30, 2010 and 2009 (unaudited)	5
	Notes to the Unaudited Condensed Consolidated Financial Statements	6-16
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	21
Item 4T.	Controls and Procedures	21
Part II	OTHER INFORMATION
Item 6.	Exhibits	2221

Table of Contents

PART 1

FINANCIAL INFORMATION

Item 1. Financial Statements.

CAPRIUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS

CONDENSED CONSOLIDATED BALANCE SHEETS

ASSETS
	As of December 31, 2010			As of September 30, 2010
Current Assets:	(Unaudited)
Cash	$	322,668		$	208,376
Accounts receivable, net		142,086			45,001
Inventories		977,578			1,153,845
Other current assets		15,310			17,508
Total current assets		1,457,642			1,424,730

Property and Equipment:
Property and equipment, net		43,965			59,023

Other Assets:
Deferred financing cost, net		73,847			273,949
Other		5,200			5,200
Total other assets		79,047			279,149
Total Assets	$	1,580,654		$	1,762,902

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current Liabilities:

Short term loans payable, net of debt discount	$	75,000		$	100,000
Notes payable , net of deferred debt discount		5,829,436			4,269,263
Accounts payable		317,128			455,083
Advances from customers		213,166			200,798
Accrued expenses		151,655			224,765
Accrued interest		799,083			546,978
Accrued compensation		387,468			597,947
Total current liabilities		7,772,936			6,394,834

Long-term Liabilities
Derivative liabilities		786,056			396,144
Dividends payable		785,577			722,802
Total long-term liabilities		1,571,633			1,118,946

Total Liabilities		9,344,569			7,513,780

Stockholders’ Deficiency:
Preferred stock, $.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - Series A, none; Series B, none, Series C, none
Series D, none
Series E, stated value $250, convertible, 4,200 at December 31, 2010 and		42			42
September 30, 2010
Series F, stated value $60, convertible, 60,000 at December 31, 2010 and		600			600
September 30, 2010
Common stock, $.01 par value
Authorized - 250,000,000 shares, issued 5,432,990 shares and
outstanding 5,431,865 shares at December 31, 2010 and
September 30, 2010		54,330			54,330
Additional paid-in capital		85,341,155			85,317,648
Accumulated deficit		(93,157,792	)		(91,121,248	)
Treasury stock (1,125 common shares, at cost)		(2,250	)		(2,250	)
Total stockholders’ deficiency		(7,763,915	)		(5,750,878	)
Total Liabilities and Stockholders' Deficiency	$	1,580,654		$	1,762,902

	As of June 30, 2010			As of September 30, 2009
Current Assets:	(Unaudited)
Cash	$	181,011		$	87,174
Accounts receivable, net		28,966			30,725
Inventories		1,052,160			1,151,460
Other current assets		11,522			111,326
Total current assets		1,273,659			1,380,685
Property and Equipment:
Property and equipment, net		64,561			82,297
Other Assets:
Deferred financing cost, net		296,993			593,840
Other		21,686			23,186
Total other assets		318,679			617,026
Total Assets	$	1,656,899		$	2,080,008
LIABILITIES AND STOCKHOLDERS’ DEFICIENCY
Current Liabilities:
Short term loans payable, net of debt discount	$	100,000		$	99,466
Notes payable , net of deferred debt discount		3,112,145			1,111,132
Accounts payable		535,694			965,301
Advances from customers		177,646			414,539
Accrued expenses		503,460			457,272
Accrued compensation		499,902			568,678
Total current liabilities		4,928,847			3,616,388
Long-term Liabilities
Derivative liabilities		140,112			-
Dividends payable		803,374			933,248
Total long-term liabilities		943,486			933,248
Total Liabilities		5,872,333			4,549,636
Stockholders’ Deficiency:
Preferred stock, $.01 par value
Authorized - 1,000,000 shares
Issued and outstanding - Series A, none; Series B, none, Series C, none
Series D, stated value $12.40, convertible, 65,290 at June 30, 2010 and
144,321 at September 30, 2009		653			1,443
Series E, stated value $250, convertible, 4,200 at June 30, 2010 and
9,100 at September 30, 2009		42			91
Series F, stated value $60, convertible, 60,000 at June 30, 2010 and
77,966 at September 30, 2009		600			780
Common stock, $.01 par value
Authorized - 250,000,000 shares, issued 5,432,990 shares and
outstanding 5,431,865 shares at June 30, 2010 and
September 30, 2009		54,330			54,330
Additional paid-in capital		85,290,566			87,389,310
Accumulated deficit		(89,559,375	)		(89,913,332	)
Treasury stock (1,125 common shares, at cost)		(2,250	)		(2,250	)
Total stockholders’ deficiency		(4,215,434	)		(2,469,628	)
Total Liabilities and Stockholders' Deficiency	$	1,656,899		$	2,080,008

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~CAPRIUS,~~Table ~~INC.~~of ~~AND SUBSIDIARIES~~Contents

CAPRIUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Unaudited)

	For the three months ended
	December 31, 2010			December 31, 2009

Revenues:
Product sales	$	481,846		$	695,564

Operating Expenses:
Cost of product sales		294,780			575,634
Research and development		-			14,778
Selling, general and administrative		1,112,336			855,908

Total operating expenses		1,407,116			1,446,320

Operating loss		(925,270	)		(750,756	)

Other income (expense):
Other income		2,974			10,525
Interest expense		(661,561	)		(68,117	)
Change in fair value of derivative liaibilities		(389,912	)		4,649
		-
Net loss		(1,973,769	)		(803,699	)

Dividend - Convertible Preferred Stock		(62,775	)		(118,040	)

Net loss attributable to common stockholders	$	(2,036,544	)	$	(921,739	)

Net loss per basic and diluted common share	$	(0.09	)	$	(0.17	)

Weighted average number of common shares outstanding, basic and diluted		22,201,426			5,431,865

	For the three months ended						For the nine months ended
	June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Revenues:
Product sales	$	152,964		$	423,580		$	874,435		$	1,063,476
Total revenues		152,964			423,580			874,435			1,063,476
Operating Expenses:
Cost of product sales		78,783			268,705			671,166			694,067
Research and development		8,335			4,281			29,365			119,817
Selling, general and administrative, includes stock-based
compensation of $ 31,427 and $68,684 for the three
months ended June 30, 2010 and 2009 and
$150,792 and $212,999 for the nine months ended
June 30, 2010 and 2009		631,111			705,420			1,964,582			2,394,598
Total operating expenses		718,229			978,406			2,665,113			3,208,482
Operating loss		(565,265	)		(554,826	)		(1,790,678	)		(2,145,006	)
Other income		2,868			159			177,610			70,376
Interest expense		(494,014	)		(6,152	)		(1,118,179	)		(16,995	)
Gain on change in fair value of derivative liabilities		298,486			-			728,481			-
Net loss		(757,925	)		(560,819	)		(2,002,766	)		(2,091,625	)
Dividend - Convertible Preferred Stock		(118,038	)		(118,945	)		(354,116	)		(357,514	)
Waiver of previosuly accrued and unpaid dividends		483,990			-			483,990			-
Net loss attributable to common stockholders	$	(391,973	)	$	(679,764	)	$	(1,872,892	)	$	(2,449,139	)
Net loss per basic and diluted common share	$	(0.01	)	$	(0.13	)	$	(0.10	)	$	(0.46	)
Weighted average number of common shares outstanding,
basic and diluted		29,194,130			5,301,242			19,524,432			5,276,273

The accompanying notes are an integral part of these condensed consolidated financial statements.

~~CAPRIUS,~~Table ~~INC.~~of ~~AND SUBSIDIARIES~~Contents

CAPRIUS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' ~~EQUITY (~~DEFICIENCY)

	Series D Convertible							Series E Convertible								Series F Convertible
	Series E Convertible						Series F Convertible
	Preferred Stock						Preferred Stock	~~Preferred Stock~~							Common Stock	~~Preferred Stock~~								~~Common Stock~~					Treasury Stock									~~Treasury Stock~~					~~Total~~
																							Additional							~~Additional~~							Total						~~Stockholders'~~
	Number						Number	~~Number~~							Number	~~Number~~							Paid-in	~~Number~~		Accumulated			Number	~~Paid-in~~				~~Accumulated~~			Stockholders'	~~Number~~					~~Equity~~
	of Shares			Amount			of Shares	~~of Shares~~			Amount	~~Amount~~			of Shares	~~of Shares~~			Amount	~~Amount~~			Capital	~~of Shares~~		Deficit	~~Amount~~		of Shares	~~Capital~~			Amount	~~Deficit~~			Deficiency	~~of Shares~~		~~Amount~~			~~(Deficiency)~~
Balance October 1, 2009		144,321		$	1,443				9,100			$	91				77,966			$	780				5,432,990		$	54,330		$	87,389,310			$	(89,913,332	)			1,125	$	(2,250	)	$	(2,469,628	)
Balance October 1, 2010		4,200		$	42			60,000			$	600				5,432,990			$	54,330			$	85,317,648		$	(91,121,248	)		1,125			$	(2,250	)		$	(5,750,878	)
Dividend ($0.51 per Series D convertible preferred stock,
Dividend ($3.37 per Series E convertible preferred stock and $0.81 per Series F convertible preferred stock)																											(62,775	)										(62,775	)
$10.14 per Series E convertible preferred stock and $2.43
Stock-based Compensation																								23,507														23,507
per Series F convertible preferred stock)																																			(354,116	)								(354,116	)
Net loss																											(1,973,769	)										(1,973,769	)
Stock-based Compensation																															150,792													150,792
Balance December 31, 2010		4,200		$	42			60,000			$	600				5,432,990			$	54,330			$	85,341,155		$	(93,157,792	)		1,125			$	(2,250	)		$	(7,763,915	)
Preferred stock repurchase (See Note 9)		(79,031	)		(790	)			(4,900	)			(49	)			(17,966	)			(180	)									(8,981	)			483,990									473,990
Cumulative effect of change in accounting principle
Ocotber 1, 2009, Adoption of ASC 815, reclassification
of equity-linked financial instruments to derivative
liabiliites																															(2,240,555	)			2,226,849									(13,706	)
Net loss																																			(2,002,766	)								(2,002,766	)
Balance June 30, 2010		65,290		$	653				4,200			$	42				60,000			$	600				5,432,990		$	54,330		$	85,290,566			$	(89,559,375	)			1,125	$	(2,250	)	$	(4,215,434	)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CAPRIUS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the nine months ended
	For the three months ended
	June 30, 2010			June 30, 2009
	December 31, 2010			December 31, 2009
Cash Flows from Operating Activities:
Net loss	$	(21,~~002~~973,~~766~~769	)	$	(2803,~~091,625~~698	)
Adjustments to reconcile net loss to net cash used in
Adjustments to reconcile net loss to net cash used in operating activities:
operating activities:
Depreciation and amortization		14,326			6,564
Depreciation and amortization		18,893			23,126
Stock-based compensation		23,507			72,739
Stock-based compensation		150,792			212,999
Amortization of debt discount		174,863			534
Amortization of debt discount		389,119			-
Amortization of deferred financing costs		228,682			118,768
Amortization of deferred financing costs		407,094			-
Change in fair value of derivative liabilities		389,912			(4,649	)
Gain on change in fair value of derivative liabilities		(728,481	)
Share issuance adjustment		-			(14,396	)
Provision for doubtful accounts		-			32,219
Changes in operating assets and liabilities:
Accounts receivable		1(97,~~759~~085	)		~~794~~(21,~~689~~533	)
Inventories		99176,~~300~~267			~~529~~119,~~465~~003
Other assets		99,804			2,570
Other current assets		2,198			59,901
Accounts payable		(~~429~~137,~~607~~955	)		(~~428~~60,~~798~~734	)
Advances from customers		~~(236~~12,~~893~~368	)		~~295~~(259,~~766~~652	)
Accrued expenses and compensation		(22,588	)		295,780
Accrued interest, expenses and compensation		(31,484	)		(157,712	)
Net cash used in operating activities		(21,~~253~~218,~~574~~170	)		(~~348~~930,~~205~~469	)
Cash Flows from Investing Activities:
Acquisition of property and equipment		(1,157	)		-
Disposal / (Acquisition) of property and equipment		733			(1,157	)
Decrease/(Increase) in security deposit		1,500			(4,700	)
Net cash provided by (used in) investing activities		733			(1,157	)
Net cash provided by (used in) investing activities		343			(4,700	)
Cash Flows from Financing Activities:
Proceeds from short term loan		-			137,100
Repayment of short term loan		(25,000	)		-
Repurchase of preferred stock and warrants		(10,000	)		-
Net proceeds from issuance of notes payable		1,356,729			968,726
Net proceeds from issuance of notes payable		2,357,068			-
Net cash provided by financing activities		1,331,729			968,726
Net cash provided by financing activities		2,347,068			137,100
Net increase in cash		114,292			37,100
Net increase (decrease) in cash		93,837			(215,805	)
Cash, beginning of period		208,376			87,174
Cash, beginning of period		87,174			254,350
Cash, end of period	$	322,668		$	124,274
Cash, end of period	$	181,011		$	38,545
Supplemental Disclosures of Cash Flow Information:
Cash paid for income taxes	$	-		$	600
Cash paid for interest	$	4,764		$	-
Non Cash-Flow Items:
Cash paid for income taxes	$	-		$	-
Conversion of 27,000 shares of Series D Preferred Stock to
common shares	$	-		$	4,974

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

CAPRIUS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Organization and Nature of Business

Caprius, Inc. through its wholly-owned subsidiary M.C.M. Environmental Technologies, Inc. (“MCM”), is engaged in the infectious medical waste disposal business. MCM which developed, markets and sells the SteriMed and SteriMed Junior compact systems (together, the “SteriMed Systems”) that simultaneously shred and chemically disinfect regulated medical waste (“RMW”), utilizing its proprietary, EPA registered, bio-degradable chemical known as Ster-Cid. The SteriMed Systems are sold in both the domestic and international markets.

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.

Note 2. Liquidity and Going Concern

The Company has incurred substantial recurring losses. 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 available cash of approximately $~~181~~323,000 at ~~June~~December 3031, 2010. During the ~~nine~~three months ended ~~June~~December 3031, 2010, the Company used cash flows from operating activities of approximately $21,~~254~~218,000. The Company’s working capital deficiency was approximately $36,~~655~~315,000 as of ~~June~~December 3031, 2010. The Company’s accumulated deficit was approximately $8993,~~559~~158,000 as of ~~June~~December 3031, 2010. In addition the Company has a stockholders’ ~~deficiency~~deficit of approximately $47,~~215~~764,000 at ~~June~~December 3031, 2010. As of ~~August~~January 1028, ~~2010,~~2011 the Company has available cash of approximately $~~175~~35,000 and has received advances under the Vintage Loan Facility ofaggregating $~~3,076,000~~5.0 million in cash and $~~719,000~~0.9 million in payments in kind. Vintage Capital Group LLC (“Vintage) fees, costs and expenses were to be accrued in addition to these amounts and not deemed a part of the cash advances. Under the Vintage Loan Facility (“Loan Facility) the funds to be advanced to the Company in cash comprised an initial term maximum amount of $1 million and a subsequent term maximum amount of $2 million. ~~Currently,~~The ~~the~~maturity ~~cash~~date ~~advances~~of ~~exceed~~ the ~~Loan~~loan ~~Facility~~facility bywas ~~$76~~December 16,~~000. The~~ ~~Company~~2010, iswhich inhas ~~discussions~~been ~~with~~extended ~~Vintage~~ to ~~revise~~April ~~the~~30, ~~original~~2011. ~~Loan~~Under ~~Facility~~the ~~and~~amendment ~~there~~to isthis noagreement ~~assurance~~in ~~that~~September 2010, the ~~Company~~maximum ~~will~~amount beunder ~~successful in~~ this ~~regard.~~Loan InFacility ~~order~~has tobeen ~~fund~~increased ~~the~~by ~~Company’s~~$1 ~~current and future cash requirements~~million, ~~the~~to ~~Company~~a istotal ~~dependent~~of ~~solely~~$4 ~~upon~~million ~~Vintage~~in ~~for~~cash. ~~one~~During ~~year from~~ the ~~closing~~three ~~date~~months ofended ~~September~~December 1631, ~~2009~~2010, ~~under~~ the ~~terms~~Company ofhas ~~their~~entered ~~Loan~~into ~~Facility. Thereafter,~~further ~~the~~amendments ~~Company~~which ishave ~~permitted~~increased tothe ~~seek~~Loan ~~alternative~~Facility ~~funding~~by ~~provided~~an noadditional ~~event~~$1.5 ofmillion, ~~default~~to ~~has~~a ~~occurred~~total ~~and~~of is$5.5 ~~continuing~~million ~~under~~in ~~the Vintage Loan Facility~~cash. The Company has pledged all of its assets including its intellectual property to Vintage as security for the Vintage Loan Facility and is subject to negative and affirmative covenants thereunder. Currently, the Company is in default under the terms and covenants of the Vintage Loan Facility for the initial and subsequent funding as the Company was obliged to fulfill certain defined covenants and achieve specific milestones, including those relating to unit sales, relocation of manufacturing ~~and the provision and filing of specific financial information~~. To date, these aforementioned covenants and milestones have not been met and the Company has been put on notice by Vintage of these defaults. Notwithstanding, while Vintage ~~have~~has not waived these defaults, the Company is endeavoring to cure them~~, where possible~~. The Company is working on a parallel track to relocate ~~our~~the Company’s manufacturing to ensure the supply of finished units. In the interim, the Company is endeavoring to convert the Company’s existing inventory into units for sale while the Company identifies a suitable manufacturing location to ramp up production at a manufacturer acceptable to both the Company and Vintage under the terms of their Loan Facility. There can be no assurance that Vintage will continue to fund the Company’s operations or that any of the Company’s alternative funding initiatives as permitted will be successful.

IfOn November 10, 2010, the Company ~~runs~~entered ~~out~~into an Agreement and Plan of ~~available~~Merger ~~capital,~~(the it“Merger ~~might~~Agreement”) bewith ~~required~~Vintage and its newly-formed wholly-owned subsidiary Capac Co.(“Merger Sub”), for Vintage to ~~pursue~~acquire ~~highly~~the ~~dilutive~~Company ~~equity~~whereby orMerger ~~debt~~Sub ~~issuances~~would merge (the “Merger”) with and into the Company, and the Company would become a wholly-owned subsidiary of Vintage. The Merger is a “going-private” transaction whereby after the Merger is completed, the Company would cease to ~~finance~~be ~~its~~a ~~business~~SEC inreporting ancompany ~~unpredictable~~and the trading market for the Company’s Common Stock would terminate. At the effective time of the Merger, ~~including~~the ~~possible~~Company’s ~~equity~~outstanding ~~financings~~capital atstock a(other ~~price~~than ~~per~~shares owned by Vintage or Merger Sub, treasury shares or shares for which stockholders have duly exercised their statutory appraisal rights) would be exchanged whereby each share ~~that~~of ~~might~~the Company’s Common Stock, and each share of the Company’s Series E Convertible Preferred Stock and Series F Convertible Preferred Stock on an “as-converted” basis into Common Stock, will automatically be ~~much~~cancelled ~~lower~~and ~~than~~converted into the right to receive $0.065 per share, ~~price~~in ~~invested~~cash, byand ~~current~~without ~~shareholders~~interest and subject to applicable withholding taxes. If noStock ~~source~~options and warrants to purchase shares of ~~additional~~the ~~cash~~Company’s isCommon ~~available~~Stock will terminate immediately prior to the ~~Company~~effective time of the Merger. In addition, ~~then~~the accrued dividend on the ~~Company~~Series ~~would~~E Preferred and the Series F Preferred will be ~~forced~~cancelled. The Merger Agreement sets forth several conditions to ~~significantly~~the ~~reduce~~closing of the ~~scope~~Merger, including approval by the Company’s stockholders at a special meeting to be called at a future date after clearance of ~~its~~proxy ~~operations~~material. The Company has filed a preliminary proxy statement and other materials with the SEC that will describe in detail the background of the Merger, the terms and conditions of the Merger Agreement, the proposals to be adopted at the special meeting and other related information. The Merger Agreement also provides that in certain situations either party may terminate that Agreement in the event the Merger is not consummated by June 30, 2011.

~~There~~Table 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. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of ~~the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.~~Contents

If the Company runs out of available capital, it might be required to pursue highly dilutive equity or debt issuances to finance its business in a difficult market, including possible equity financings at a price per share that might be much lower than the per share price invested by current shareholders. No assurance can be given that any source of additional cash would be available to the Company. If no source of additional cash is available to the Company, then the Company would be forced to significantly reduce the scope of its operations.

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. The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplate the realization of assets and satisfaction of liabilities in the normal course of business. The condensed consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

Note 3. Summary of Significant Accounting Policies

Basis of Presentation. The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with Form 10-Q and Article 10 of Regulation S-X of the United States Securities and Exchange Commission (“SEC”). Accordingly, they do not contain all information and footnotes required by accounting principles generally accepted in the United States of America for annual financial statements. The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all the adjustments necessary (consisting only of normal recurring accruals) to present the financial position of the Company, as of ~~June~~December 3031, 2010 and the results of operations and cash flows for the periods presented. The results of operations for the three ~~and nine~~ months ended ~~June~~December 3031, 2010 are not necessarily indicative of the operating results for the full fiscal year or any future period.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, ~~2009~~2010. The Company’s accounting policies are described in the Notes to Consolidated Financial Statements in its Annual Report on Form 10-K for the year ended September 30, ~~2009~~2010, and updated, as necessary, in this Quarterly Report on Form 10-Q.

Revenue Recognition. Revenues from the MCM medical waste business are recognized at the time when the SteriMed units are shipped to the customer. Occasionally, the Company may sell its product directly to equipment leasing companies. The Company is not a lessor in these type of transactions since the leasing company has no right to return the equipment after the lease with a third party has ended, nor does the Company have any obligations to repurchase the equipment at the end of the lease. The leasing company is the end user as title and risk of ownership passes as products are shipped. The Company is not a party to any leasing arrangements between the leasing company and its ultimate customer. The Company recognizes revenue for extended warranty contracts over the period that the extended warranty covers. The length of these extended warranty contracts are anywhere from one to four years. The Company applies the revenue recognition principles set forth under SEC Staff Accounting Bulletin 104, (“SAB 104”) which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured.

Foreign Currency Translation. The Company follows the provisions of ASC 830, “Foreign Currency Translation.” The functional currency of our 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. Foreign currency income and expense are re-measured at average exchange rates in effect during the year. Exchange gains and losses arising from foreign currency transactions are included in operations in the period in which they occur. Foreign currency translations are included in other comprehensive income. Foreign currency transactions and translations were not material during the three and nine months ended June 30, 2010 and 2009. A determination that our functional currency is the U.S. Dollar is based on the following facts:

1- For product sales, payment is required in equivalent US prices on the date of payment.

2- All cost of goods sold are denominated in US Dollar. All other expenses are generally local currency; however, payroll is administered to the extent possible on an equivalent US Dollar basis to allow for the moving of assets from one country to another.

3-Table ~~All financing is done by the parent company via sale~~ of ~~equity security in the US. There is no financing done in Israel.~~Contents

Foreign Currency Translation. The Company follows the provisions of ASC 830, “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. Foreign currency income and expense are re-measured at average exchange rates in effect during the year. Exchange gains and losses arising from foreign currency transactions are included in operations in the period in which they occur. Foreign currency translations gains or losses are included in other comprehensive income. Foreign currency transactions and translations were not material during the three months ended December 31, 2010 and December 31, 2009. A determination that the Company’s functional currency is the U.S. Dollar is based on the following facts:

For product sales, payment is required in equivalent US prices on the date of payment.

All cost of goods sold are denominated in US Dollars. All other expenses are generally local currency; however, payroll is administered to the extent possible on an equivalent US Dollar basis to allow for the moving of assets from one country to another.

All financing is done by the parent company via sale of equity securities in the US. There is no financing done in Israel.

The foreign subsidiary is run as a country unit; however, the main management functions are performed by the U.S. management.

Inventories. Inventories are accounted for at the lower of cost or market using the first-in, first-out (“FIFO”) method. The Company's policy is to reserve or write-off surplus or obsolete inventory. Inventory is comprised of materials, labor and manufacturing overhead costs. Inventory consists of raw materials ~~and work in process~~ of $~~996~~957,~~720~~578 and finished goods of $5520,~~440~~000 as of ~~June~~December 3031, 2010 as compared to raw materials ~~and work in process~~ of $1,~~032~~055,~~988~~030 and finished goods of $~~118~~98,~~472~~815 as of September 30, ~~2009~~2010.

Basic and Diluted as Per Share. Basic and diluted net loss per share has been calculated by dividing net loss by the weighted average number of common shares outstanding during the period. All potentially dilutive common shares have been excluded since their inclusion would be anti-dilutive.

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 period ended ~~June~~December 3031, 2010, potential common shares amount to 2119,~~445~~722,~~714~~476 shares, as compared to 32,~~023~~968,~~257~~634 for the period ended ~~June~~December 3031, 2009 as such, have not been included in the computation of diluted loss per share since the effect would be anti-dilutive. Potential common shares are summarized as follows:

		June 30, 2010		June 30, 2009
	December 31, 2010	December 31, 2009
Options	3,322,924	3,330,424	~~3,330,424~~		~~2,954,424~~
Warrants	7,774,552	13,351,314	~~8,222,317~~		~~12,651,314~~
Underlying Preferred Stock	8,625,000	16,286,896	~~9,892,973~~		~~16,417,519~~
Totals	19,722,476	32,968,634	~~21,445,714~~		~~32,023,257~~

The weighted average number of common shares outstanding for the three ~~and nine~~ months ended ~~June~~December 3031, 2010 include the underlying shares exercisable with respect to the issuance and subsequent adjustments of warrants exercisable at $0.01 per share. In accordance with ASC 260, Earnings per Share, the Company has given effect to the issuance of these warrants in computing basic net loss per share. These $0.01 warrants totaled 16,769,561 as of December 31, 2010.

Derivative Financial Instruments. The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the ~~condensed~~ consolidated statement of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model which approximates the fair value measured using the Binomial Lattice model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. (See Note 8)

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. The significant estimates and assumptions of the company are stock-based compensation, the useful life of fixed assets, depreciation and amortization, warrants, foreign currency and other contingencies.

Concentration of Credit Risk and Significant Customers. Financial instruments that potentially subject the Company to significant concentrations of credit risk consist of cash and trade accounts receivable.

~~Management~~Table 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. For the nine months ended June 30, 2010, two customers accounted for $676,882 of the consolidated total revenue, individually they accounted for approximately 53% (customer A) and 25% (customer B) respectively of the consolidated total revenue. There was no accounts receivable for these two major customers at June 30, 2010. For the nine months ended June 30, 2009, two customers accounted for approximately 48% (customer A), and 12% (customer C) respectively of the consolidated total revenue. There was no accounts receivable for these two major customers at June 30, 2009.Contents

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. The significant estimates and assumptions of the Company are stock-based compensation, the useful life of fixed assets, depreciation and amortization, fair value of derivative liabilities, warrants, income taxes and foreign currency.

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. For the three months ended December 31, 2010, three customers accounted for $384,092 of the consolidated total revenue, individually they accounted for approximately 46% (customer A), 21% (customer B) and 13% (customer C) respectively of the consolidated total revenue. There was accounts receivable of $113,000 for these three major customers at December 31, 2010. For the three months ended December 31, 2009, two customers accounted for approximately 64% (customer A), and 31% (customer D) respectively of the consolidated total revenue.

The Company maintains cash accounts at financial institutions, which are insured by the Federal Deposit Insurance Corporation (“FDIC”). At times, cash balances may exceed federally insured limits. Periodically, the Company evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.

Stock-Based Compensation. The Company accounts for stock-based awards issued to employees in accordance with FASB guidance. Such awards primarily consist of options to purchase shares of common stock. The fair value of stock-based awards is determined on the grant date using a valuation model. The fair value is recognized as compensation expense, net of estimated forfeitures, on a straight line basis over the service period, which is normally the vesting period.

Recent Accounting Pronouncements. The Company does not expect that adoption of recently issued accounting pronouncements will have a material impact on the Company’s condensed consolidated financial statements.

In February 2010, the FASB issued an accounting standard that amended certain recognition and disclosure requirement related to subsequent events. The accounting standard requires an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement that a SEC filer disclose the date through which subsequent events have been evaluated. This guidance was effective upon issuance. The adoption of this standard had no effect on the Company’s condensed consolidated financial position or results of operations. The Company evaluated subsequent events through the date the accompanying condensed consolidated financial statements were issued.

Note 4. Debt Financing

On September 16, 2009, the Company entered into a Securities Purchase and Sale Agreement ~~(together~~ with ~~all collateral documents and promissory notes there under, the “Loan Facility”) with~~ Vintage Capital Group, LLC ~~(“Vintage”)~~, whereby Vintage extended a loan facility to the Company maturing on December 16, 2010. Vintage agreed to extend the maturity date of the loan to February 1, 2001 and has subsequently extended it to April 30, 2011.

Under the Loan Facility which contains certain operational covenants, Vintage will advance to the Company up to an aggregate of $3.0 million in cash. Interest on advances under the Loan Facility accrues at a rate of 14% per annum (subject to a default rate of 17% per annum). Advances under the Loan Facility, including any subsequent fundings are secured by the grant to Vintage of a first priority lien, pledge and security interest in substantially all of the Company’s assets. As discussed in Note 2 the Company is in violation of certain covenants.

~~Currently,~~On ~~the~~September ~~cash~~8, ~~advances~~2010, ~~exceed~~ the ~~Loan~~Company ~~Facility~~entered byinto ~~$76,000~~Amendment No. ~~The~~ ~~Company~~1 isto inthe ~~discussions~~Securities ~~with~~Purchase ~~Vintage~~and toSale ~~revise~~Agreement ~~the~~as ~~original~~described ~~Loan~~above ~~Faciility. There~~with isVintage, nowhereby ~~assurance~~the ~~that~~maximum ~~the~~availability ~~Company~~thereunder ~~will~~was beincreased ~~successful~~to in$4.0 ~~this~~million ~~regard~~in cash.

InOn ~~connection~~November ~~with~~4, ~~the Loan facility~~2010, the Company entered into anAmendment ~~Investment~~No. ~~Monitoring~~2 ~~Agreement~~(“the ~~with~~Amendment”) ~~Vintage, providing for an Operating Committee initially composed of its Chief Executive Officer and Chief Financial Officer as well as two persons~~ to bethe ~~selected~~Loan byFacility from Vintage~~. The~~ ~~Operating~~Capital ~~Committee was established to review budgets~~Group, ~~strategic~~whereby ~~planning,~~the ~~financial~~maximum ~~performance~~availability ~~and~~thereunder ~~similar~~was ~~matters~~increased ~~and has the right~~ to ~~make~~an ~~recommendations~~aggregate toof ~~the~~$4.5 ~~Company’s~~million ~~Board~~in ~~of Directors~~cash.

As of June 30, 2010, under the Loan facility Vintage has advanced to the Company approximately $3.8 million, which the Company has used to satisfy certain liabilities as well as related fees and expenses associated with this agreement.

OnTable ~~January 22, 2010, as a post-closing obligation under the September 2009 Loan Facility, the Company issued a warrant to Vintage (the “Vintage Warrant”) to purchase 40%~~ of its common stock, $.01 par value (“Common Stock”), on a fully diluted basis at an exercise price of $0.01 per share for a term of seven years. Based upon the Company’s capitalization at the time of the grant, the Vintage Warrant would be exercisable into 25,602,333 shares of Common Stock (this number of shares may change based upon the capitalization representing 40% of the Company’s common stock at the time of exercise). Using the Black Scholes valuation model with the following assumptions: common stock based on a closing market price of $0.04 per share, exercise price of $0.01 per share, zero dividends, expected volatility of 173.90%, risk free interest rate of 0.30% and an expected life of 1 year, the Company has determined that the fair value of these warrants is $0.033 per share or $854,887. This fair value was recorded as a debt discount and is to be amortized over the life of the loan. As of June 30, 2010 the Company has recorded amortization of approximately $388,585 on this debt discount. In addition, Vintage received certain rights to register under the Securities Act of 1933, as amended, the shares underlying the Vintage Warrant, pursuant to a Registration Rights Agreement. Further, the Company granted Vintage certain preemptive rights and observer rights for meetings of the Companies Board of Directors pursuant to an Equity Rights Agreement. The expiration of certain warrants and the repurchase of the SSF preferred stock and warrants reduced the Company’s capitalization, which reduced the number of shares exercisable on the Vintage Warrant. On June 30, 2010 and August 10, 2010 the number of shares exercisable on the Vintage Warrant were 17,918,386.Contents

~~During~~On ~~August~~November ~~2009~~10, 2010, the Company ~~received~~entered ~~$25,000~~into ~~subject~~an toAgreement ~~the~~and ~~short-term~~Plan ~~Bridge~~of ~~Loan~~Merger ~~agreement~~with ~~outlined~~Vintage ~~below.~~and ~~The~~its ~~Company~~newly-formed ~~issued~~wholly-owned subsidiary Capac Co., for Vintage to aacquire ~~short~~the ~~term~~Company ~~investor,~~whereby ~~warrants~~Merger toSub ~~purchase~~would anmerge ~~aggregate~~with ofand ~~750~~into the Company,~~000~~ ~~shares~~and ofthe ~~common~~Company ~~stock~~would atbecome ana ~~exercise~~wholly-owned ~~price~~subsidiary of $0Vintage.10 ~~per~~The ~~share~~Merger ~~for~~is a ~~period~~“going-private” oftransaction ~~five~~whereby ~~years.~~after ~~Using~~ the ~~Black~~Merger ~~Scholes~~is ~~valuation~~completed, ~~model~~the ~~with~~Company ~~the~~would ~~following~~cease ~~assumptions:~~to ~~common~~be ~~stock~~a ~~based~~SEC onreporting acompany ~~closing~~and the trading market ~~price~~for ofthe $0Company’s Common Stock would terminate.04 ~~per~~At ~~share,~~the ~~exercise~~effective ~~price~~time of ~~$0.10~~the ~~per share~~Merger, ~~zero~~the ~~dividends,~~Company’s ~~expected~~outstanding ~~volatility~~capital ofstock ~~93.85%,~~(other ~~risk~~than ~~free~~shares ~~interest~~owned ~~rate~~by ofVintage ~~2.69%~~or ~~and~~Merger anSub, ~~expected~~treasury ~~life~~shares ofor 5shares ~~years,~~for ~~the~~which ~~Company~~stockholders ~~has~~have ~~determined~~duly ~~that~~exercised ~~the~~their ~~fair~~statutory ~~value~~appraisal ofrights) ~~these~~would ~~warrants~~be isexchanged ~~$0.02~~whereby ~~per~~each share. ~~The~~of ~~relative~~the ~~fair~~Company’s ~~value~~Common Stock, and each share of ~~these~~the ~~warrants~~Company’s ~~was~~Series ~~$10,271. This~~E ~~relative~~Convertible ~~fair~~Preferred ~~value~~Stock ~~was~~and ~~recorded~~Series F Convertible Preferred Stock on an “as-converted” abasis ~~debt~~into ~~discount~~Common ~~and~~Stock, iswill toautomatically be ~~amortized~~cancelled ~~over~~and converted into the ~~life~~right ofto ~~the~~receive ~~loan~~$0. ~~The~~065 ~~maturity~~per ~~date~~share, ofin ~~these~~cash, ~~loans~~and iswithout 90interest ~~days~~and ~~from~~subject ~~issuance~~to applicable withholding taxes. Stock options and aswarrants ~~such~~to purchase shares of the Company’s ~~has~~Common ~~amortized~~Stock ~~the~~will ~~full~~terminate ~~amount~~immediately ofprior ~~$10,271~~to asthe ofeffective ~~December~~time ~~31,~~of ~~2009~~the Merger. ~~The~~ ~~balance~~In ofaddition, ~~this~~the ~~short-term~~accrued ~~loan~~dividend ason ofthe ~~June~~Series ~~30,~~E ~~2010~~Preferred ~~net~~and ofthe ~~debt~~Series ~~discount~~F isPreferred ~~$25,000~~will be cancelled. ~~These~~ ~~notes~~The ~~will~~Merger ~~continue~~Agreement sets forth several conditions to ~~accrue~~the ~~interest~~closing atof ~~14%~~the ~~per~~Merger, ~~annum~~including ~~until~~approval by the Company’s ~~can~~stockholders ~~repay~~at ~~the~~a ~~note~~special ~~and~~meeting ~~accrued~~to ~~interest~~be called at a future date after clearance of proxy material.

InOn ~~June~~November ~~2009~~18, 2010, the Company entered into ~~short~~Amendment ~~term~~No. ~~Bridge~~3 ~~Loans pursuant to Unsecured Promissory Notes~~ (“the ~~“Notes~~Amendment”) to ~~borrow up to a sum of $150,000 subject to interest at 14%. The holders of~~ the ~~Notes~~Loan ~~were~~Facility ~~granted~~from ~~Thirty~~Vintage ~~(30~~Capital ~~) warrants for each One Dollar ($1.00) invested to purchase an aggregate of up to 4~~Group,~~500,000~~ ~~shares~~whereby ~~of Common Stock at an exercise price of Ten Cents ($0.10) per share for a period of five years pursuant to Stock Purchase Warrant Agreement. During June 2009,~~ the ~~Company~~maximum ~~received~~availability ~~$75,000~~thereunder ~~subject~~was toincreased ~~this agreement. The Company issued~~ to ~~this group of short term investors, warrants to purchase~~ an aggregate of ~~2,250,000 shares of common stock at an exercise price of~~ $05.~~10 per share for a period of five years. Using the Black Scholes valuation model with the following assumptions: common stock based on a closing market price of $~~0~~.06~~ ~~per~~million ~~share,~~in ~~exercise price of $0~~cash.10 per share, zero dividends, expected volatility of 83.82%, risk free interest rate of 2.85% and an expected life of 5 years, the Company has determined that the fair value of these warrants is $0.04 per share. The relative fair value of these warrants was $38,458. This relative fair value was recorded as a debt discount and is to be amortized over the life of the loan. The maturity date of these loans is 90 days from issuance and as such the Company had amortized the full amount of $38,458 as of September 30, 2009. The balance of this short-term loan as of June 30, 2010 net of debt discount is $75,000. These notes will continue to accrue interest at 14% per annum until the Company can repay the note and accrued interest.

~~Note~~On December 16, 2010, the Company entered into Amendment No. 4 (“the Amendment”) to the Loan Facility from Vintage Capital Group, whereby the maximum availability thereunder was increased to an aggregate of $5. ~~Derivative~~5 ~~Liabilities~~million in cash.

In ~~June~~connection ~~2008,~~with the ~~FASB~~Loan ~~finalized ASC 815~~facility, ~~“Determining~~the ~~Whether~~Company anentered ~~Instrument~~into ~~(or Embedded Feature) is indexed to~~ an ~~Entity’s~~Investment ~~Own~~Monitoring ~~Stock.” Under~~Agreement ~~ASC~~with ~~815,~~Vintage ~~instruments~~providing ~~which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that it needs to account~~ for ~~those~~an ~~warrants~~Operating ~~issued~~Committee toinitially ~~investors~~composed inof ~~2005 and 2007 for~~ its ~~Series~~Chief C,Executive EOfficer and FChief ~~Convertible~~Financial ~~Preferred~~Officer ~~Stock,~~ as ~~derivative~~well ~~liabilities,~~as ~~and~~two ~~apply~~persons the provisions of ASC 815. The instruments have a ratchet provision (the Series C, E and F warrants each have provisions that adjust either the exercise price and/or quantity of the warrants in the event of a subsequent offer of equity at a lower effective price than the then applicable exercise price of the warrants). Also, the warrants issued on January 22, 2010 (“2010 Warrants”) to ~~Vintage~~be ~~Capital~~selected ~~Group~~by ~~LLC in connection with the Loan Facility do not contain fixed settlement provisions~~Vintage. ~~(See note 4).~~ AsThe aOperating ~~result,~~Committee ~~the~~was ~~instruments~~established ~~need~~ to bereview ~~accounted for as derivative liabilities. In accordance with ASC 815~~budgets, ~~these~~strategic ~~warrants have been re-characterized as derivative liabilities. ASC 815~~planning, ~~“Accounting~~financial ~~for~~performance ~~Derivative Instruments~~ and ~~Hedging~~similar ~~Activities”~~matters ~~(“ASC~~and ~~815”)~~has ~~requires that~~ the ~~fair~~right ~~value~~to ofmake ~~these~~recommendations ~~liabilities~~to ~~be re-measured at~~ the ~~end~~Company’s ofBoard ~~every reporting period with the change in fair value reported in the consolidated statement~~ of ~~operations~~Directors. ~~As of February 2010 the 2005 Series C warrants have expired.~~

As of December 31, 2010, under the Loan facility and Amendment Vintage has advanced to the Company approximately $5.9 million ($5.0 million in cash and $0.9 million in payments in kind) which the Company has used to satisfy certain liabilities, working capital and related fees and expenses associated with this agreement.

During August 2009, the Company received $25,000 subject to the short-term Bridge Loan agreement outlined below. The Company issued to a short term investor, warrants to purchase an aggregate of 750,000 shares of common stock at an exercise price of $0.10 per share for a period of five years. Using the Black Scholes valuation model with the following assumptions: common stock based on a closing market price of $0.04 per share, exercise price of $0.10 per share, zero dividends, expected volatility of 93.85%, risk free interest rate of 2.69% and an expected life of 5 years, the Company has determined that the fair value of these warrants is $0.02 per share. The relative fair value of these warrants was $10,271. This relative fair value was recorded as a debt discount and was amortized over the life of the loan. The maturity date of these loans was 90 days from issuance and as such the Company has amortized the full amount of $10,271 as of December 31, 2009. The balance of this short-term loan along with accrued interest of approximately $4,764 was repaid during the three months ended December 31, 2010.

In June 2009, the Company entered into short term Bridge Loans pursuant to Unsecured Promissory Notes (the “Notes”) to borrow up to a sum of $150,000 subject to interest at 14%. The holders of the Notes were granted Thirty (30) warrants for each One Dollar ($1.00) invested to purchase an aggregate of up to 4,500,000 shares of Common Stock at an exercise price of Ten Cents ($0.10) per share for a period of five years pursuant to Stock Purchase Warrant Agreement. During June 2009, the Company received $75,000 subject to this agreement. The Company issued to this group of short term investors, warrants to purchase an aggregate of 2,250,000 shares of common stock at an exercise price of $0.10 per share for a period of five years. Using the Black Scholes valuation model with the following assumptions: common stock based on a closing market price of $0.06 per share, exercise price of $0.10 per share, zero dividends, expected volatility of 83.82%, risk free interest rate of 2.85% and an expected life of 5 years, the Company has determined that the fair value of these warrants is $0.04 per share. The relative fair value of these warrants was $38,458. This relative fair value was recorded as a debt discount and was amortized over the life of the loan. The maturity date of these loans was 90 days from issuance and as such the Company had amortized the full amount of $38,458 as of September 30, 2009. The balance of this short-term loan as of December 31, 2010 net of debt discount is $75,000. These notes will continue to accrue interest at 14% per annum until the Company can repay the note and accrued interest.

~~The~~Table ~~fair value~~ of ~~the warrants were measured using the Black-Scholes option pricing model and the following assumptions:~~Contents

	June 30, 2010			October 1, 2009			Date of issuance
2005 Series C Warrants:
Risk-free rate		-			2.32	%		3.875	%
Annual rate of dividends		-			-			0
Volatility		-			95.89	%		27.01	%
Weighted Average life (years)		0			.42			5
2007 Series E Warrants:
Risk-free rate		0.61	%		2.32	%		4.50	%
Annual rate of dividends		0			0			0
Volatility		144.62	%		95.89	%		78.25	%
Weighted Average life (years)		1.75			2.5			5
2007 Series F Warrants:
Risk-free rate		0.61	%		2.32	%		3.35	%
Annual rate of dividends		0			0			0
Volatility		129.00	%		95.89	%		59.15	%
Weighted Average life (years)		2.5			3.25			5
2010 Warrants:
Risk-free rate		0.32	%		-			0.30	%
Annual rate of dividends		0			-			0
Volatility		179.61	%		-			173.90	%
Weighted Average life (years)		0.58			-			1
Fair Value	$	140,112		$	13,706		$	3,095,442

Note 5. Derivative Liabilities

In June 2008, the FASB finalized ASC 815, “Determining Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own Stock.” Under ASC 815, instruments which do not have fixed settlement provisions are deemed to be derivative instruments. The Company has determined that it needs to account for those warrants issued to investors in 2005 and 2007 for its Series C, E and F Convertible Preferred Stock, as derivative liabilities, and apply the provisions of ASC 815. The instruments have a ratchet provision (the Series C, E and F warrants each have provisions that adjust either the exercise price and/or quantity of the warrants in the event of a subsequent offer of equity at a lower effective price than the then applicable exercise price of the warrants). Also, the warrants issued on January 22, 2010 (“2010 Warrants”) to Vintage Capital Group LLC in connection with the Loan Facility do not contain fixed settlement provisions. As a result, the instruments need to be accounted for as derivative liabilities. In accordance with ASC 815, these warrants have been re-characterized as derivative liabilities. ASC 815, “Accounting for Derivative Instruments and Hedging Activities” (“ASC 815”) requires that the fair value of these liabilities be re-measured at the end of every reporting period with the change in fair value reported in the consolidated statement of operations. As of February 2010 the 2005 Series C warrants have expired.

The fair value of the warrants were measured using the Black-Scholes option pricing model which approximates the fair value measured using the Binomial Lattice Model and the following assumptions

	December 31, 2010			October 1, 2009			Date of issuance
2005 Series C Warrants:
Risk-free rate		-			2.32	%		3.875	%
Annual rate of dividends		-			-			0
Volatility		-			95.89	%		27.01	%
Weighted Average life (years)		0			.42			5

2007 Series E Warrants:
Risk-free rate		0.30	%		2.32	%		4.50	%
Annual rate of dividends		0			0			0
Volatility		212.17	%		95.89	%		78.25	%
Weighted Average life (years)		1.17			2.5			5

2007 Series F Warrants:
Risk-free rate		0.67	%		2.32	%		3.35	%
Annual rate of dividends		0			0			0
Volatility		185.07	%		95.89	%		59.15	%
Weighted Average life (years)		2.0			3.25			5

2010 Warrants:
Risk-free rate		0.14	%		-			0.30	%
Annual rate of dividends		0			-			0
Volatility		281.17	%		-			173.90	%
Weighted Average life (years)		0.25			-			1

Fair Value	$	786,056		$	13,706		$	3,095,442

The risk-free interest rate was based on rates established by the Federal Reserve. The Company based expected volatility on the historical volatility for its common stock. The expected life of the warrants was based on their full term. The expected dividend yield was based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.

On the date of issuance the derivative liability associated with the 2010 warrants was $854,887. At June 30, 2010, the derivative liability associated with the 2010 warrants was revalued to $132,865. The $722,022 decrease in the derivative liability at June 30, 2010 is included as gain (loss) on change in fair value of derivative liabilities in the Company’s condensed consolidated statement of operations for the nine months ended June 30, 2010.

Note 6. Share Based Compensation

The Company uses the Black-Scholes valuation model to value options granted to employees, directors and consultants. Compensation expense, including the effect of forfeitures, is recognized over the period of service, generally the vesting period. The Company recorded total stock-based compensation of $31,427 and $150,792 for the three and nine months ended June 30, 2010 as compared to $68,684 and $212,999 for the three and nine months ended June 30, 2009 for options granted and vested. Stock-based compensation is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. During the three and nine months ended June 30, 2010 the Company did not issue any options.

AsTable of ~~June 30, 2010 the fair value of the unvested stock options amounted to $110,152 which is expected to be recognized over a weighted average period of approximately 1.94 years.~~Contents

ASC 815 was implemented in the first quarter of Fiscal 2010 and is reported as the cumulative effect of a change in accounting principles. At October 1, 2009, the cumulative effect on the accounting for the warrants was recorded as decrease in accumulated deficit by $2,226,849. The difference of $13,706 was recorded as the fair ~~values~~value of ~~stock~~derivative ~~option~~liabilities. ~~grants~~As ~~were~~of ~~calculated~~September on30, 2010, the ~~dates~~fair value of ~~grant~~derivative ~~using~~liabilities associated with the ~~Black-Scholes~~2005 ~~option~~Series ~~valuation~~C ~~model~~warrants, the 2007 Series E warrants and the ~~following~~2007 ~~weighted~~Series ~~average~~F ~~assumption:~~warrants were revalued to $36,535. At December 31, 2010 the fair value of derivative liabilities associated with these warrants was revalued to $87,114. The $50,579 increase in the fair value of derivative liabilities is included as a change in fair value of derivative liabilities in the Company’s condensed consolidated statement of operations for the three months ended December 31, 2010.

	Nine months ended June 30, 2009
Risk-Free Interest Rate	2.31%
Expected volatility	76%
Expected life (in years)	4
Expected dividend yield	0%

On the date of issuance the fair value of derivative liabilities associated with the 2010 warrants was $854,887. At September 30, 2010, the fair value of derivative liabilities associated with the 2010 warrants was revalued to $359,609. At December 31, 2010 the fair value of derivative liabilities associated with the 2010 warrants was revalued to $698,942. The $339,333 increase in the fair value of derivative liabilities at December 31, 2010 is included as a change in fair value of derivative liabilities in the Company’s condensed consolidated statement of operations for the three months ended December 31, 2010.

~~The~~Note ~~risk-free interest rate is based on rates established by the Federal Reserve~~6. ~~The~~Share ~~Company’s~~Based expected volatility was based upon the historical volatility for its common stock. The expected life of the Company’s options was determined using the simplified method as a result of its historical data. The dividend yield is based upon the fact that the Company has not historically paid dividends, and does not expect to pay dividends in the future.Compensation

~~Transactions~~The ~~under~~Company uses the ~~various~~Black-Scholes valuation model to value options granted to employees, directors and consultants. Compensation expense, including the effect of forfeitures, is recognized over the period of service, generally the vesting period. The Company recorded total stock-based ~~option~~compensation ~~plans~~of ~~during~~$23,507 for the ~~nine~~three months ended ~~June~~December 3031, 2010 ~~are~~as ~~summarized~~compared asto ~~follows:~~$72,739 for the three months ended December 31, 2009 for options granted and vested. Stock-based compensation is included in selling, general and administrative expense in the accompanying condensed consolidated statements of operations. The Company did not issue any options during the three months ended December 31, 2010.

	Number of Options	Weighted Average Exercise Price
Outstanding at October 1, 2009	3,354,424	$0.54
Granted	-	-
Expired	(24,000)	$3.00
Outstanding at June 30, 2010	3,330,424	$0.52
Exercisable at June 30, 2010	2,088,434	$0.71

As of December 31, 2010 the fair value of the unvested stock options amounted to $55,215 which is expected to be recognized over a weighted average period of approximately 2.63 years.

The ~~intrinsic~~fair ~~value~~values ~~was~~of $0stock ~~for~~option ~~both~~grants ~~options~~were ~~outstanding~~calculated on the dates of grant using the Black-Scholes option valuation model and ~~exercisable~~the following weighted average assumptions. The ~~intrinsic~~risk-free ~~value~~interest rate is ~~calculated~~based ason rates established by the ~~difference~~Federal ~~between~~Reserve. The Company’s expected volatility was based upon the ~~market~~historical ~~value~~volatility for its common stock. The expected life of the Company’s ~~common~~options ~~stock~~was atdetermined ~~June~~using ~~30,~~the ~~2010,~~simplified ~~which~~method ~~was~~as $0a result of its historical data.~~013~~ The ~~per~~dividend ~~share~~yield ~~and~~is based upon the ~~exercise~~fact ~~price~~that ofthe Company has not historically paid dividends, and does not expect to pay dividends in the ~~options~~future.

Transactions under the various stock option plans during the three months ended December 31, 2010 are summarized as follows:

	Number of Options	Weighted Average Exercise Price
Outstanding at October 1, 2010	3,322,924	$0.51
Granted	-	-
Expired / Forfeited	-	-

Outstanding at December 31, 2010	3,322,924	$0.51
Exercisable at December 31, 2010	2,511,191	$0.63

The intrinsic value was $0 for both options outstanding and exercisable. The intrinsic value is calculated as the difference between the market value of the Company’s common stock at December 31, 2010, which was $0.05 per share and the exercise price of the options

Table of Contents

Note 7. Stock Warrants

Warrants outstanding and exercisable are as follows:

	Number of Shares	Warrant Price Per Share	Weighted Average Exercise Price Per Share
Balance October 1, 2009	13,351,314	$0.10-$5.60	$0.71
Balance October 1, 2010	24,544,113	$0.01-$2.00	$0.16
Granted	~~25,602,333~~-	~~$0.01~~-	~~$0.01~~-
Cancelled (See Note 9)	(2,469,293)	$0.50 - $1.40	$0.65
Expired	-	-	-
Adjusted	(7,683,947)	$0.01	$0.01
Balance, December 31, 2010	24,544,113	$0.01 – $2.00	$0.16
Expired	(2,659,704)	$0.93 - $5.60	$1.33
Balance, June 30, 2010	26,140,703	$0.01 – $2.00	$0.16

12The weighted average remaining contractual life as of December 31, 2010 was 4.79 years.

The weighted average remaining contractual life as of June 30, 2010 was 5.27 years. The warrants granted and adjusted during the nine months ended June 30, 2010 were to Vintage Capital Group LLC. Please refer to Note 4.

Note 8. Fair Value Measurement

Valuation Hierarchy

ASC 820 establishes a valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs into three broad levels as follows. Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument. Level 3 inputs are unobservable inputs based on the Company’s own assumptions used to measure assets and liabilities at fair value. A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The following table provides the assets and liabilities carried at fair value measured on a recurring basis as of ~~June~~December 3031, 2010:

Fair Value Measurements at June 30, 2010

Fair Value Measurements at December 31, 2010

Total Carrying Value at June 30, 2010

Quoted prices in active markets (Level 1)

Significant other observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Total Carrying Value at December 31, 2010

Quoted prices in active markets (Level 1)

Significant other observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Derivative liabilities

$ ~~140,112~~

786,056

~~$ -~~

~~$ 140,112~~-

786,056

The derivative liabilities are measured at fair value using the Black Scholes Pricing Model, using quoted market prices, ~~and~~ estimated volatility factors based on historical quoted market prices for the Company’s common stock, risk free interest rates and an expected term, which approximates the fair value measured using the Binomial Lattice Model and are classified within Level 3 of the valuation hierarchy. (See Note 3)

The following table sets forth a summary of the changes in the fair value of our Level 3 financial liabilities that are measured at fair value on a recurring basis:

	Nine Months Ended June 30,
	December 31,		September 30,
	2010		~~2009~~2010
Beginning balance	$	(13396,~~706~~144)	$	-(13,706)
Net unrealized gain on change in fair value of derivative liabilities		728,481		-
Net unrealized (loss) gain on change in fair value of derivative liabilities		(389,912)		472,449
Derivative liabilities recorded		~~(854,887)~~-		-(854,887)
Ending balance	$	(~~140~~786,~~112~~056)	$	-(396,144)

Table of Contents

Note 9. Capital Stock

Repurchase of SSF Preferred Stock and Warrants

On June 30, 2010, an agreement was reached between the Company and Special Situations Fund III QP, L.P. (“SSFQP”), Special Situations Private Equity Fund, L.P.(“SSFPE”) and Special Situations Fund III, L.P. (“SSFIII” and together with SSFQP and SSFPE, sometimes collectively, the “SSF Funds”), regarding the sale or other disposition by the SSF Funds of all of their equity interests in the Company (the “Company Securities”) to the Company.

Under the terms of the agreement, the SSF Funds sold 79,031 shares of Series D Preferred Stock, 4,900 shares of Series E Preferred Stock and 17,966 shares of Series F Preferred Stock (collectively, the “Preferred Shares”) together with warrants (the “Warrants” and collectively with the Preferred Shares, the “Sale Securities) to purchase an aggregate of 8,863,200 shares (6,393,907 shares underlying the preferred stock and 2,469,293 shares underlying the warrants) of the Company’s Common Stock to the Company, and the Company hereby purchases the Securities from the SSF Funds for an aggregate purchase price of $10,000. As additional consideration in connection with the sale and purchase of the Sale Securities, upon closing the SSF Funds will be deemed to have waived all dividends accrued totaling approximately $484,000 on the Preferred Shares from the respective original issuance dates to the closing hereof. At the time of repurchase the outstanding warrants and the value prescribed to them were not material. Accordingly no gain or loss on the repurchase of the warrants was recorded and this entire transaction was recorded through additional paid-in capital.

Dividends

The Company has never declared dividends or paid cash dividends on the Company’s common stock. The Series ~~D Preferred Stock provides for a cumulative dividend of $0.67 per share commencing October 1, 2007, the Series~~ E Preferred Stock provides for a cumulative dividend of $13.50 per share commencing October 1, 2007, and the Series F Preferred Stock provides for a cumulative dividend of $3.24 per share commencing December 6, 2007. The dividends are payable pari passu on the series of preferred stock. At ~~June~~December 3031, 2010 and September 30, ~~2009~~2010, the accrued dividends aggregated $~~803~~785,~~374~~577 and $~~933~~722,~~248~~802.

Note 10. Related ~~Commitments~~Party ~~and Contingencies~~Transactions

On November 12, 2010, the Company filed an 8-K with the SEC for an event of November 5, 2010, in which the Company entered into a Separation Agreement and General Release with Jonathan Joels, the Company’s former CFO. This agreement also provides for the resignation by Mr. Joels of his position of director on the Board of the Company, as well as of any of its subsidiaries of which he was a director, and as a trustee of the Company’s 401(k) retirement plan. The Agreement also provides for the payment to Mr. Joels by the Company of any accrued compensation at the time of his release along with a gross termination payment of approximately $127,500.

Note 11. Commitments and Contingencies

Operating leases

The Company leases administrative office space in Paramus, New Jersey (prior to June 2009 the Company leased office space in Hackensack, New Jersey) and approximately 2,000 feet of warehouse space in Michigan. The Company currently leases a facility on a month-to-month basis in Tel Yosef, Israel for storage of its inventory and parts prior to their dispatch to the contract assembly partner’s facility. These locations are leased on a month to month basis with a 60 day cancellation notification period by either party at an aggregate monthly rent of approximately $4,~~000~~500. ~~These lease expenses are recorded as part of selling, general and administrative expenses within the consolidated statement of operations.~~

Legal proceedings

~~During~~In September ~~Fiscal 2009~~2008, ~~the~~Goldstar ~~Company~~Medical ~~settled~~Corporation, ~~the~~filed ~~litigation~~a ~~which~~complaint ~~had~~against ~~been~~Caprius ~~instituted~~Inc. ~~by Andre Sassoon~~ and MCM ~~Andre~~Environmental ~~Sassoon International~~Technologies, Inc. , (collectively, the “~~Sassoon~~Defendants”) ~~against~~in ~~Caprius,~~the ~~its~~Supreme ~~subsidiary~~Court of the State of New York, ~~MCM~~County ~~Environmental~~of ~~Technologies~~Rockland, claiming ~~Inc.(“MCM-US”)~~that ~~and~~the ~~George~~Defendants ~~Aaron~~had anbreached ~~executive~~a ~~officer~~letter byagreement for ~~agreeing~~commissions due to them on asales ~~settlement~~of SteriMed Systems to one of the Company's customers. The Plaintiffs are seeking damages in excess of $~~180~~250,000,. Based upon our review of ~~which~~the acomplaint, ~~portion~~we believe ofthe ~~this~~Plaintiffs’ ~~settlement~~claims ~~was~~has ~~provided~~no ~~directly~~merit byand the Company’s ~~insurance~~will ~~carrier~~continue to defend this action. We have filed a motion for summary judgment with the Court requesting that this matter be dismissed. Accordingly, ~~and~~we ~~entering~~have ~~into~~not ~~mutual~~recorded ~~general~~any ~~releases~~accrual ~~and~~for ~~stipulations~~this litigation as of ~~discontinuance~~the ~~with~~date ~~prejudice~~of this filing. On ~~October~~July 1916, ~~2009~~2010, the Plaintiffs filed an opposition motion against the Company,’s ~~along~~motion ~~with~~for ~~its~~summary ~~insurance~~judgment. ~~carrier~~In ~~paid~~response the ~~agreed~~Company ~~upon~~filed ~~settlement~~opposition ~~between~~to the ~~Company~~plaintiff’s ~~and~~motion ~~Andre~~to ~~Sassoon~~dismiss our motion to dismiss the case by way of summary judgment. AsOn ~~part~~August 11, 2010, the plaintiff filed papers in support of its Sur-Reply in furtherance of its opposition to the ~~settlement~~Company’s motion for summary judgment. In October 2010, the ~~Company~~motion ~~received~~for ~~all~~summary ~~previously~~judgment ~~outstanding~~was ~~common~~denied ~~stock~~for issues of ~~MCM-US~~fact ~~owned~~and bythese ~~third~~proceedings ~~parties,~~are ~~which~~now ~~had~~in ~~been~~the ~~pledged~~discovery tostage ~~Sassoon~~with ~~under~~depositions ascheduled ~~previous~~to ~~shareholder~~take ~~agreement~~place during early 2011. AsDuring aJanuary ~~result~~2011, the ~~Company~~Plaintiff ~~now~~requested ~~owns~~a ~~100%~~120 ofday ~~MCM-US~~extension to extend the discovery time period. ~~Previous~~The toCourt ~~this,~~has ~~our~~scheduled ~~interest~~a inconference ~~MCM-US~~to ~~had~~further ~~been~~discuss 96this request.~~66%.~~

In September 2008, Goldstar Medical Corporation, filed a complaint against Caprius Inc. and MCM Environmental Technologies, Inc. , (collectively, the “Defendants”) in the Supreme Court of the State of New York, County of Rockland, claiming that the Defendants had breached a letter agreement for commissions due to them on sales of SteriMed Systems to one of the Company's customers. The Plaintiffs are seeking damages in excess of $250,000. Based upon our review of the complaint, we believe the Plaintiffs’ claims has no merit and the Company will continue to defend this action. We have filed a motion for summary judgment with the Court requesting that this matter be dismissed, this motion is currently pending. Accordingly, we have not recorded any accrual for this litigation as of the date of this filing. On July 16, 2010, the Plaintiffs filed an opposition motion against the Company’s motion for summary judgment. In response the Company filed opposition to the plaintiff’s motion to dismiss our motion to dismiss the case by way of summary judgment. On August 11, 2010, the plaintiff filed papers in support of its Sur-Reply in furtherance of its opposition to the Company’s motion for summary judgment.

In July 2009, Venture Hackensack Holding, Inc (the “Plaintiffs”), filed a complaint against Caprius Inc., in the Superior Court of New Jersey, Bergen County Law Division for non-payment of rent at the Company's previous location to the end of the lease term. The case is at the discovery stage. The potential exposure could be up to $250,000. The Company has accrued $64,000 (prior to offset of $16,000 security deposit) being the past due rent up until the date that it vacated the premises.

Manufacturing

WeThe ~~manufactured~~Company ~~the~~has ~~hundreds~~business ofoperations ~~components~~located ~~used~~ in ~~the~~Israel. ~~SteriMed~~Although ~~units~~the ~~using~~region ~~global~~is ~~component~~considered ~~suppliers.~~to ~~These~~be ~~components~~economically ~~were~~stable, ~~then~~it ~~assembled~~is atalways ~~either~~possible ~~our~~that ~~facility~~unanticipated events in ~~Moledet~~foreign ~~until~~countries ~~September~~could ~~2008~~disrupt ~~when~~ the Company’s ~~elected to close this facility and to outsource these~~ operations ~~to a nearby contract manufacturing partner~~. The ~~SteriMed~~Company ~~Junior~~is ~~historically~~dependent ~~had~~on ~~been assembled by a~~ third-party ~~contract~~suppliers ~~assembly~~for ~~company~~the incomponents ~~Israel,~~of ~~while~~ the Company’s ~~had~~SteriMed ~~historically~~and ~~performed the assembly of the~~ SteriMed ~~Senior~~Junior atSystems ~~its~~and ~~own~~also ~~facility~~for inthe ~~Moledet,~~Ster-Cid® ~~Israel~~disinfectant. AsAt apresent ~~result~~there ofare ~~the~~no ~~global~~supply ~~economic~~contracts ~~downturn~~ in ~~2009,~~place ~~the Israeli contract assembly company, who was unable to provide sufficient working capital to survive the downturn went into receivership~~ and subsequently restructured its own business, resulting in our need to relocate our contract assembly to another supplier. As part of our efforts to resume full-scale manufacturing for our SteriMed Systems, as well as to comply with the ~~terms~~Company’s ofrequirements ~~the Loan Facility, we~~ are ~~actively~~fulfilled ~~seeking~~against ~~new~~purchase ~~manufacturers to produce both SteriMed Systems as well as seeking alternative solutions for the manufacture of their components in lower cost regions~~orders. There ~~Included~~can inbe ~~our~~no ~~evaluation~~assurances ofthat ~~alternative manufacturing, we are also considering assembly in~~ the ~~United~~Company ~~States~~will ~~which~~have isadequate insupplies ~~closer proximity to a large percentage~~ of ~~our customer base~~materials. ~~The~~Although the Company ~~has~~believes ~~reached~~that anthe ~~agreement~~required ~~with~~components aare ~~contract~~readily ~~assembly~~available ~~supplier~~and tocan ~~assemble~~be ~~both~~provided ~~the~~by ~~SteriMed~~other ~~Junior and Senior~~suppliers, ~~under~~delays ~~the~~may ~~direct~~be ~~supervision~~incurred ofin ~~MCM. The~~establishing ~~Company~~relationships ~~has~~or ~~sufficient work~~ in ~~process~~waiting ~~and~~for ~~inventory~~quality ofcontrol ~~components~~assurance towith ~~support~~other ~~its~~manufacturers ~~near-term~~for ~~marketing~~substitute ~~requirements as well as spare parts to its installed base of equipment~~components.

Approximately half of the SteriMed Systems’ components are commercially available from third-party suppliers as COTS (commercial off the shelf) industrial components. The remaining components are either generic with modification or are custom fabrications, such as castings and weldments for the SteriMed. Presently, we maintain an inventory of spare parts and supplies in our Brighton, MI warehouse and in Tel Yosef, Israel.14

OnTable ~~November 30, 2009, the Office~~ of the Chief Scientist (“OCS”) in Israel approved the request of the Company’s Israeli Subsidiary MCM Environmental Technologies LTD to transfer its technology rights to MCM Environmental Technologies Inc, the Company’s US subsidiary upon repayment to the OCS of approximately $240,000 representing the balance of an OCS grant. The OCS grant had been to assist MCM Environmental Technologies LTD in the development of certain technology related to the Company’s SteriMed System.Contents

Regulatory

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. The Companies business requires the Company 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 the Company sells or leases the SteriMed Systems.

In markets outside the U.S., the Company’s ability to market the SteriMed Systems is governed by the regulations of the specific country. In foreign countries, the Company primarily markets through distributors and it relies on them to obtain the necessary regulatory approvals to permit the SteriMed Systems to be marketed in that country. The Company is therefore dependent on the distributors to process these applications where required. In many of these countries, the company has no direct control or involvement in the approval process, and therefore it cannot estimate when its product will be available in that market.

15Note 12. Geographic Information

Note 11. Geographic Information

The Company does not have reportable operating Segments as defined in the ASC 280 “Disclosures about Segments of an Enterprise and related information” The method for attributing revenues to individual customers is based on 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 ~~nine~~three months ended ~~June~~December 3031, 2010 and 2009.

Three months ended June 30, 2010

Three months ended June30, 2009

Nine months ended June 30, 2010

Nine months ended June 30, 2009

Three months ended December 31, 2010

Three months ended December 31, 2009

Net Revenues:

Israel

86358,~~464~~873

~~288~~676,~~269~~712

~~781,685~~

~~754,563~~

United States

66122,~~500~~973

~~135~~18,~~311~~852

~~92,750~~

~~308,913~~

Totals

~~152~~481,~~964~~846

~~423~~695,~~580~~564

~~874,435~~

~~1,063,476~~

	June 30, 2010		September 30, 2009
	December 31, 2010		September 30, 2010
Identifiable Assets:
Israel	$	1,~~003~~097,~~305~~355	$	1,~~204~~113,~~327~~698
United States		~~653~~483,~~594~~299		~~875~~649,~~681~~204
Totals	$	1,~~656~~580,~~899~~654	$	21,~~080~~762,~~008~~902

Note 1213. Subsequent Events

On ~~August~~January 231, ~~2010~~2011, Vintage has agreed to extend the ~~Company~~maturity ~~received~~date ~~additional~~to ~~funding~~the ~~under~~earlier of (i) April 30, 2011 or (ii) the ~~Vintage~~termination of the Merger Agreement, on the Loan Facility, ofwhich ~~approximately~~was ~~$202,000~~previously inextended ~~cash~~to ~~and~~February ~~$14~~1,~~000~~ in2011 ~~payments~~and inoriginally ~~kind~~scheduled to mature on December 16, 2010.

On August 17, 2010, an agreement was reached between the Company and Bonanza Master Fund, Ltd. (“Bonanza”), regarding the sale by Bonanza of all of their Preferred Stock and Warrant interests in the Company (the “Company Securities”) to the Company.

Under the terms of the agreement, Bonanza sold 65,290 shares of Series D Preferred Stock, together with 447,764 warrants to purchase an aggregate of 1,715,696 shares of the Company’s Common Stock to the Company, and the Company purchased such shares of Preferred Stock and Warrants from Bonanza for an aggregate purchase price of $5,000. Included in the terms of the aforementioned agreement, upon closing Bonanza will be deemed to have waived all previously accrued and unpaid dividends on the Preferred Shares from the original issuance date to the closing hereof.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis summarizes the significant factors affecting our condensed consolidated results of operations, financial condition and liquidity position for the three ~~and nine~~ months ended ~~June~~December 3031, 2010. This discussion and analysis should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for our year-ended September 30, ~~2009~~2010 and the condensed consolidated unaudited financial statements and related notes included elsewhere in this filing. The following discussion and analysis contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements.

1615

Table of Contents

Forward Looking Statements

We are including the following cautionary statements in this Quarterly Report of Form 10-Q to make applicable and take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statements made by, or on behalf of, us. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements which are other than statements of historical facts. Certain statements contained herein are forward-looking statements and accordingly involve risks and uncertainties which could cause actual results or outcomes to differ materially from those expressed in the forward-looking statements. Our expectations, beliefs and projections are expressed in good faith and are believed by us to have a reasonable basis, including without limitation, management’s examination of historical operating trends, data contained in our records and other data available from third parties, but there can be no assurance that management’s expectation, beliefs or projections will be achieved or accomplished. In addition to other factors and matters discussed elsewhere herein, the following are important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements: technological advances by our competitors, changes in health care reform, including reimbursement programs, changes to regulatory requirements relating to environmental approvals for the treatment of infectious medical waste, ability to raise additional capital for marketing and manufacturing, delays in the manufacture of new and existing products by us or third party contractors, ability to attract and retain customers, challenges to our intellectual property, the loss of any key employees, the outcome of existing litigations and any future claims, delays in obtaining federal, state or local regulatory clearance for new installations and operations, changes in governmental regulations, and the location and the financial viability of the manufacturer in Israel. You are cautioned not to place undue reliance on forward looking statements, which speak only as of the date of this Quarterly Report. We undertake no obligation to make any revisions to the forward looking statements or reflect events or circumstances after the date of this Quarterly Report Form 10-Q.

Overview

~~The~~We ~~Company~~are engaged in the infectious medical waste disposal business, through ~~its~~our wholly-owned subsidiary M.C.M. Environmental Technologies, Inc., ~~is engaged in the infectious medical waste disposal business. MCM~~ which developed, markets and sells the SteriMed and SteriMed Junior compact systems ~~(together,~~ ~~the “SteriMed Systems”)~~ that simultaneously shred and chemically disinfect regulated medical waste ~~(“RMW”)~~, utilizing ~~its~~our proprietary, EPA registered, bio-degradable chemical known as Ster-Cid. The SteriMed Systems are sold in both the domestic and international markets.

On November 10, 2010, we entered into an Agreement and Plan of Merger with Vintage and its newly-formed wholly-owned subsidiary Capac Co., for Vintage to acquire us whereby Merger Sub would merge with and into us, and we would become a wholly-owned subsidiary of Vintage. Vintage is our primary lender, as described below, and holds warrants exercisable into 40% of our common stock $0.01 par value on a fully-diluted basis. The Merger is a “going-private” transaction whereby after the Merger is completed, we would cease to be a SEC reporting company and the trading market for our Common Stock would terminate.

The maturity date of the Vintage Loan Facility originally was December 16, 2010, which was extended to February 1, 2011. On January 31, 2011, Vintage agreed to further extend the maturity date of the loan to the earlier of (i) April 30, 2011 or (ii) the termination of the Merger Agreement. If the Merger Agreement does not close and the Company continues to be unable to locate a source to refinance the loan, the Company may have no alternative but to cease operations.

Results of Operations

Three Months Ended ~~June~~December 3031, 2010 Compared to Three Months Ended ~~June~~December 3031, 2009

Revenues generated from MCM product sales totaled $~~152~~481,~~964~~846 for the three months ended ~~June~~December 3031, 2010 as compared to $~~423~~695,~~580~~564 for the three months ended ~~June~~December 3031, 2009. ~~This~~For ~~decrease~~the isthree amonths ~~result~~ended December 31, 2010, three customers accounted for approximately 46% (customer A), 21% (customer B) and 13% (customer C) respectively of the consolidated revenue. For the three months ended December 31, 2009, two customers accounted for approximately 64% (customer A) and 31% (customer D) respectively of the consolidated total revenue. The Company’s ~~inability~~ability to obtain and deliver units to its customers ~~due~~has tobeen hampered by the closure of ~~the~~its ~~Company’s~~ third party manufacturer. The Company has affected a program to restore deliveries of units on a limited basis, and is pursuing additional avenues for production.

Cost of product sales amounted to $78,783 or 52% of total related revenues for the three months period ended June 30, 2010 versus $268,705 or 63% of total related revenues for the three month period ended June 30, 2009. The percentage costs correlate to the Company’s inability to fully absorb production overhead.16

~~Research~~Table ~~and~~of ~~development expense totaled $8,335 for the three month period ended June 30, 2010 versus $4,281 for the three month period ended June 30, 2009.~~Contents

~~Selling,~~Cost ~~general~~of ~~and~~product ~~administrative~~sales ~~expenses~~amounted ~~totaled~~to $~~631~~294,~~111~~ 780 or 61% of total related revenues for the three months period ended ~~June~~December 3031, 2010 versus $~~705~~575,~~420~~634 or 83% of total related revenues for the three ~~months~~month period ended ~~June~~December 3031, 2009. ~~This~~The ~~decrease~~decreased ispercentage ~~principally~~costs is due to the ~~reduction~~absorption of the accelerated payment to the Office of the Chief Scientist in ~~personnel~~Israel, ~~personnel~~during ~~related~~the ~~costs~~three ~~and~~months ~~other~~ended ~~corporate~~December ~~activity~~31, 2009. Previously, this repayment had been made on a royalty basis, based upon a percentage of sales for the period. With the repayment in full having been made, the Company no longer is liable for royalty payments in future periods.

~~Other~~Research ~~income~~and development expense totaled $~~2,868~~0 for the three ~~months~~month period ended ~~June~~December 3031, 2010 asversus ~~compared to~~ $~~159~~14,778 for the three ~~months~~month period ended ~~June~~December 3031, 2009. This decrease is from the reduction of customer specific requirements and the available funds for such projects within the company. Given the Company’s current level of operations, we do not anticipate any significant research and development expense in the coming fiscal year unless a specific customer requirement is received that will fund the expense.

~~Interest~~Selling, ~~expense~~general and administrative expenses totaled $~~494~~1,~~014~~112,336 for the three months ended ~~June~~December 3031, 2010 versus $6855,~~152~~908 for the three months ended ~~June~~December 3031, 2009. This ~~variance~~increase ~~was~~is principally due to ~~interest~~expenses ~~accrued~~incurred onin ~~short~~relation ~~term~~to ~~loans~~the ~~and~~proposed ~~notes~~merger ~~payable~~agreement, as well as the ~~amortization~~termination ~~expense~~payment ofmade ~~deferred~~to ~~finance~~the ~~costs~~former ~~and~~CFO, ~~debt~~as ~~discount~~further onoutlined ~~notes~~in ~~payable~~Note ~~which~~10. ~~were~~The Company does not ~~present~~anticipate ~~during~~any ~~the~~significant ~~three~~increase ~~months~~in ~~ended~~operating ~~June~~expenses ~~30,~~until ~~2009~~production and sales volumes increase substantially from their current levels.

~~Gain~~Other onincome ~~change in fair value of derivative liabilities~~ totaled $~~298~~2,~~486~~974 for the three months ended ~~June~~December 3031, 2010 ~~versus~~as compared to $010,525 for the three months ended ~~June~~December 3031, 2009. This ~~gain~~ resulted from the ~~revaluation~~favorable settlement of ~~derivative~~certain outstanding liabilities, during the three months ended December 31, 2010 and 2009.

17Interest expense totaled $661,561 for the three months ended December 31, 2010 versus $68,117 for the three months ended December 31, 2009. Interest expense resulted from interest accrued on short term loans and notes payable, as well as the amortization expense of deferred finance costs and debt discount on notes payable.

Change in fair value of derivative liabilities totaled a loss of $389,912 for the three months ended December 31, 2010 versus a gain of $4,649 for the three months ended December 31, 2009. This change occurred as a result of the revaluation of the fair value of derivative liabilities.

The net loss amounted to $~~757~~1,~~925~~973,769 and $~~560~~803,~~819~~699 for the three month periods ended ~~June~~December 3031, 2010 and 2009, respectively. This increase resulted from expenses related to the Loan Facility (interest expense on a greater liability, amortization of deferred financing costs and amortization of debt discount). Further the variance resulted from the increase to selling, general and administrative expenses as discussed above and the change in the fair value of the derivative liabilities.

Nine Months Ended June 30, 2010 Compared to Nine Months Ended June 30, 2009

Revenues generated from MCM product sales totaled $874,435 for the nine months ended June 30, 2010 as compared to $1,063,476 for the nine months ended June 30, 2009. This increase is a result of the Company’s ability to manufacture and deliver units that were previously on backorder. During the first three months of fiscal 2010 the Company was able to satisfy substantially all of the units on backorder from the previous fiscal year. In this quarter the company has affected a program to restore deliveries of units on a limited basis.

Cost of product sales amounted to $671,166 or 77% of total related revenues for the nine months period ended June 30, 2009 versus $694,067 or 65% of total related revenues for the nine month period ended June 30 2009. The increased percentage cost is due to the absorption of the accelerated payment to the Office of the Chief Scientist in Israel, during the three months ended December 31, 2009. Previously, this repayment had been made on a royalty basis, based upon a percentage of sales for the period. With the repayment in full having been made to the Office of the Chief Scientist, the company will no longer be liable for royalty payments in future periods.

Research and development expense decreased to $29,365 for the nine month period ended June 30, 2010 versus $119,817 for the nine month period ended June 30, 2009. This decrease is due primarily from the reduction of customer specific requirements and the available funds for such projects within the Company during the nine months ended June 30, 2010. Given the Company’s current level of operations, we do not anticipate any significant research and development expense in the current fiscal year unless a specific customer requirement is received that will fund the expense.

Selling, general and administrative expenses totaled $1,964,582 for the nine months ended June 30, 2010 versus $2,394,598 for the nine months ended June 30, 2009. This decrease is principally due to the reduction in personnel, personnel related costs and other corporate activity. The Company does not anticipate any significant increase in operating expenses until production and sales volumes increase substantially from their current levels.

Other income totaled $177,610 for the nine months ended June 30, 2010 as compared to $70,376 for the nine months ended June 30, 2009. The majority of other income in the nine months ended June 30, 2010 resulted from the favorable settlement of certain outstanding liabilities, while other income during the nine months ended June 30, 2009 resulted from an insurance claim.

Interest expense totaled $1,118,179 for the nine months ended June 30, 2010 versus $16,995 for the nine months ended June 30, 2009. This variance was due to interest accrued on short term loans and notes payable, as well as the amortization expense of deferred finance costs and debt discount on notes payable which were not present during the nine months ended June 30, 2009.

Gain on change in fair value of derivative liabilities totaled $728,481 for the nine months ended June 30, 2010 versus $0 for the nine months ended June 30, 2009. This gain resulted from the adoption of ASC 815 during Fiscal 2010 and subsequent revaluation of derivative liabilities.

The net loss amounted to $2,002,766 and $2,091,625 for the nine month periods ended June 30, 2010 and 2009, respectively.

Liquidity and Capital Resources

At ~~June~~December 3031, 2010, our cash position approximated $~~181~~323,000. Our working capital deficiency as of ~~June~~December 3031, 2010 was approximately $36,~~655~~315,000. Net cash used in operations for the ~~nine~~three months ended ~~June~~December 3031, 2010 amounted to approximately $21,~~254~~218,~~000~~200 as compared to approximately $ ~~348~~930,~~000~~500 for the ~~nine~~three months ended ~~June~~December 3031, 2009. ~~The~~This ~~net~~variance ~~cash~~occurred ~~used~~due into ~~operations increased during~~ the ~~nine~~Company’s ~~months~~increased ~~ended~~net ~~June~~loss ~~30,~~during ~~2010 compared to~~ the ~~nine~~three months ended ~~June~~December 3031, ~~2009 as the Company was able to clear a portion of its sales backlog and pay suppliers as a result of the Vintage Loan Facility~~2010. Net cash provided by (used in) investing activities amounted to approximately $~~350~~733 and approximately ($41,~~700~~157) for the ~~nine~~three months ended ~~June~~December 3031, 2010 and 2009 respectively. Net cash provided by financing activities for the ~~nine~~three months ended ~~June~~December 3031, 2010 amounted to approximately $21,~~347~~356,~~000~~730 ~~which~~as ~~mainly~~compared to $968,726 for the three months ended December 31, 2009, both of which resulted from the issuance of ~~the~~ Secured Notes Payable as ~~compared~~part toof ~~$137,100 for~~ the ~~nine~~Vintage ~~months~~Loan ~~ended June 30, 2009~~Facility.

18As of December 31, 2010, accounts receivable, net of allowance for doubtful accounts totaled $142,086 and was 9% of total assets. The normal collection period is between 45 and 90 days. At December 31, 2009, accounts receivable, net of allowance for doubtful accounts totaled $30,725 and was 1.5% of total assets. The Company has been able to keep accounts receivables balances low by adopting polices which require a deposit upon purchase order, and requesting payment on delivery of the Company’s products. However, the Company does offer net terms on products and services, but in most cases has required the deposit at time of purchase order, to prevent excessive collection delays of accounts receivable balances.

As of June 30, 2010, accounts receivable, net of allowance for doubtful accounts totaled $28,966 and was 2% of total assets. The normal collection period is between 45 and 90 days. At June 30, 2009, accounts receivable, net of allowance for doubtful accounts totaled $29,466 and was 2% of total assets. Due to our past history with collections, we are reasonably confident that all of the remaining receivables are collectible.17

InTable September 2009, we entered into a Securities Purchase and Sale Agreement (together with all collateral documents and promissory notes there under, the “Loan Facility”) with Vintage Capital Group, LLC (“Vintage”), whereby Vintage extended a loan facility to the Company. The Loan Facility provides that, Vintage will advance to us up to an aggregate of $3.0 million in cash. Currently, the cash advances exceed the Loan Facility by $76,000. The Company is in discussions with Vintage to revise the original Loan Facility and there is no assurance that the Company will be successful in this regard. Interest on advances under the Loan Facility accrues at a rate of 14% per annum, subject to a default rate of 17% per annum. Advances under the Loan Facility, including any subsequent funding, are secured by the grant to Vintage of a first priority lien, pledge and security interest in substantially all our assets and the assets of our active subsidiaries. As of August 10 2010, under the Loan facility, Vintage advanced approximately $3.8 million($3,076,000 in cash and $719,000 in payments in kind), which the Company used to pay off certain liabilities as well as related fees and expenses associated with the Securities Purchase and Sale Agreement.Contents

In ~~June~~September 2009, we entered into ~~short~~a ~~term~~Loan ~~Bridge~~Facility ~~Loans~~with ~~pursuant~~Vintage toCapital ~~Unsecured~~Group, ~~Promissory~~LLC, ~~Notes~~whereby (Vintage extended a loan facility to the ~~“Notes”)~~Company. The Loan Facility provides that, Vintage will advance to ~~borrow~~us up to aan ~~sum~~aggregate of $~~150~~3.0 million in cash. Interest on advances under the Loan Facility accrues at a rate of 14% per annum,~~000~~ subject to ~~interest~~a atdefault 14rate of 17% per annum. ~~During~~Advances ~~June~~under the Loan Facility, including any subsequent funding, are secured by the grant to Vintage of a first priority lien, pledge and ~~August~~security ~~2009~~interest in substantially all our assets and the assets of our active subsidiaries. On September 8, we2010, ~~received~~the Company entered into Amendment No. 1 (“the Amendment”) to the Loan Facility from Vintage Capital Group, whereby the maximum availability thereunder was increased to an aggregate of $~~100~~4.0 million in cash. On November 4,~~000~~ as2010, ~~Bridge~~the ~~Loans~~Company entered into Amendment No. We ~~issued~~2 (“the Amendment”) to ~~these~~the ~~lenders~~Loan ~~warrants~~Facility tofrom ~~purchase~~Vintage Capital Group, whereby the maximum availability thereunder was increased to an aggregate of 3$4.5 million in cash. On November 18,~~000~~ 2010,~~000~~ ~~shares~~the ofCompany ~~Common~~entered ~~Stock~~into atAmendment anNo. ~~exercise~~3 ~~price~~(“the Amendment”) to the Loan Facility from Vintage Capital Group, whereby the maximum availability thereunder was increased to an aggregate of $5.0 million in cash.10 ~~per~~On ~~share~~December ~~for~~16, a2010, ~~period~~the ofCompany ~~five~~entered ~~years~~into Amendment No. ~~These~~ ~~Notes~~4 ~~remain~~(“the ~~outstanding~~Amendment”) to the Loan Facility from Vintage Capital Group, whereby the maximum availability thereunder was increased to an aggregate of $5. ~~Warrants~~5 ~~issued~~million in ~~connection~~cash. ~~with~~As ~~these~~of ~~short~~December ~~term~~31, ~~bridge~~2010, ~~loans~~under ~~are~~the ~~valued~~Loan ~~used~~facility and the ~~Black~~Amendments, ~~Scholes~~Vintage ~~valuation~~has ~~model~~advanced ~~and~~approximately ~~the~~$5.0 ~~relative~~million ~~fair~~in ~~value~~cash. The original maturity date of ~~these~~this ~~warrants~~note ~~has~~was ~~been~~December ~~recorded~~16, as2010, awhich ~~debt~~Vintage ~~discount~~previously extended to February 1, 2011. Vintage has recently further extended the ~~loans~~maturity date to April 30, 2011.

Liquidity and Going Concern

The Company has incurred substantial recurring losses. 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 available cash of approximately $~~181~~323,000 at ~~June~~December 3031, 2010. During the ~~nine~~three months ended ~~June~~December 3031, 2010, the Company used cash flows from operating activities of approximately $21,~~254~~218,000. The Company’s working capital deficiency was approximately $36,~~655~~315,000 as of ~~June~~December 3031, 2010. The Company’s accumulated deficit was approximately $8993,~~559~~158,000 as of ~~June~~December 3031, 2010. In addition the Company has a stockholders’ ~~deficiency~~deficit of approximately $47,~~215~~764,000 at ~~June~~December 3031, 2010. As of ~~August~~January 1028, ~~2010~~2011, the Company has available cash of approximately $~~175~~35,000 and has received advances under the Vintage Loan Facility of $~~3,076,000~~5.0 million in cash and $~~719,000~~0.9 million in payments in kind. Vintage fees, costs and expenses were to be accrued in addition to these amounts and not deemed a part of the cash advances. Under the Vintage Loan Facility the funds to be advanced to the Company in cash comprised an initial term maximum amount of $1 million and a subsequent term maximum amount of $2 million. ~~Currently,~~ ~~the~~The ~~cash~~maturity ~~advances~~date ~~exceed~~of the ~~Loan~~loan ~~Facility~~facility bywas ~~$76~~December 16,~~000. The~~ ~~Company~~2010, iswhich inhas ~~discussions~~been ~~with~~extended ~~Vintage~~ to ~~revise~~April ~~the~~30, ~~original~~2011. ~~Loan~~Under ~~Facility~~the ~~and~~amendment ~~there~~to isthis noagreement ~~assurance~~in ~~that~~September 2010, the ~~Company~~maximum ~~will~~amount beunder ~~successful in~~ this ~~regard.~~Loan InFacility ~~order~~has tobeen ~~fund~~increased ~~our~~by ~~current~~$1 ~~and future cash requirements~~million, weto ~~are~~a ~~dependent~~total ~~solely~~of ~~upon~~$4 ~~Vintage~~million ~~for~~in ~~one~~cash. ~~year~~During ~~from~~ the ~~closing~~three ~~date~~months ofended ~~September~~December 1631, ~~2009~~2010, ~~under~~ the ~~terms~~Company ofhas ~~their~~entered ~~Loan~~into ~~Facility. Thereafter,~~further weamendments ~~are~~which ~~permitted~~have toincreased ~~seek~~the ~~alternative~~Loan ~~funding~~Facility ~~provided~~by noan ~~event~~additional of$1.5 ~~default~~million, ~~has~~to ~~occurred~~a ~~and~~total isof ~~continuing~~$5.5 ~~under~~million ~~the~~in ~~Vintage Loan Facility~~cash. The Company has pledged all of its assets including its intellectual property to Vintage as security for the Vintage Loan Facility and is subject to negative and affirmative covenants thereunder. Currently, the Company is in default under the terms and covenants of the Vintage Loan Facility for the initial and subsequent funding as wethe ~~were~~Company was obliged to fulfill certain defined covenants and achieve specific milestones, including those relating to unit sales, ~~relocation of manufacturing~~ and ~~the~~relocation ~~provision and filing~~ of ~~specific financial information~~manufacturing. To date, these aforementioned covenants and milestones have not been met and wethe ~~have~~Company has been put on notice by Vintage of these defaults. Notwithstanding, while Vintage ~~have~~has not waived these defaults, wethe ~~are~~Company is endeavoring to cure them ~~where possible~~. The Company is working on a parallel track to relocate ~~our~~the Company’s manufacturing to ensure the supply of finished units. In the interim, wethe ~~are~~Company is endeavoring to convert ~~our~~the Company’s existing inventory into units for sale while wethe ~~identify~~Company identifies a suitable manufacturing location to ramp up production at a manufacturer acceptable to both the Company and Vintage under the terms of their Loan Facility. There can be no assurance that Vintage will continue to fund ~~our~~the Company’s operations or that any of ~~our~~the Company’s alternative funding initiatives as permitted will be successful.

19On November 10, 2010, the Company entered into an Agreement and Plan of Merger with Vintage and its newly-formed wholly-owned subsidiary Capac Co., for Vintage to acquire the Company whereby Merger Sub would merge with and into the Company, and the Company would become a wholly-owned subsidiary of Vintage. The Merger is a “going-private” transaction whereby after the Merger is completed, the Company would cease to be a SEC reporting company and the trading market for the Company’s Common Stock would terminate. At the effective time of the Merger, the Company’s outstanding capital stock (other than shares owned by Vintage or Merger Sub, treasury shares or shares for which stockholders have duly exercised their statutory appraisal rights) would be exchanged whereby each share of the Company’s Common Stock, and each share of the Company’s Series E Convertible Preferred Stock and Series F Convertible Preferred Stock on an “as-converted” basis into Common Stock, will automatically be cancelled and converted into the right to receive $0.065 per share, in cash, and without interest and subject to applicable withholding taxes. Stock options and warrants to purchase shares of the Company’s Common Stock will terminate immediately prior to the effective time of the Merger. In addition, the accrued dividend on the Series E Preferred and the Series F Preferred will be cancelled. The Merger Agreement sets forth several conditions to the closing of the Merger, including approval by the Company’s stockholders at a special meeting to be called at a future date after clearance of proxy material.

If the Company runs out of available capital, it might be required to pursue highly dilutive equity or debt issuances to finance its business in an unpredictable market, including possible equity financings at a price per share that might be much lower than the per share price invested by current shareholders. If no source of additional cash is available to the Company, then the Company would be forced to significantly reduce the scope of its operations.18

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 stock-based compensation, the useful life of fixed assets, depreciation and amortization, ~~goodwill impairment,~~ warrants, income taxes, foreign currency and other contingencies. 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

Revenues from the MCM medical waste business are recognized at the time when the SteriMed units are shipped to the customer. Occasionally, the Company may sell its product directly to equipment leasing companies. The Company is not a lessor in these type of transactions since the leasing company has no right to return the equipment after the lease with a third party has ended, nor does the Company have any obligations to repurchase the equipment at the end of the lease. The leasing company is the end user as title and risk of ownership passes as products are shipped. The Company is not a party to any leasing arrangements between the leasing company and its ultimate customer. The Company recognizes revenue for extended warranty contracts over the period that the extended warranty covers. The length of these extended warranty contracts are anywhere from one to four years. The Company applies the revenue recognition principles set forth under SEC Staff Accounting Bulletin 104, (“SAB 104”) which provides for revenue to be recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery or installation has been completed, (iii) the customer accepts and verifies receipt, and (iv) collectability is reasonably assured.

2. Derivative Liabilities

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. The Company evaluates all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statement of operations. For stock-based derivative financial instruments, the Company uses the Black-Scholes option pricing model which approximates the fair value measured using the Binomial Lattice model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on the term of the underlying derivative instrument. See Note 5 to our condensed consolidated financial statements.

2019

Table of Contents

Recent Accounting Pronouncements

~~In February 2010, the FASB issued an accounting standard that amended certain recognition and disclosure requirement related to subsequent events.~~ The ~~accounting~~Company ~~standard~~does ~~requires~~not anexpect ~~SEC filer to evaluate subsequent events through the date~~ that ~~the~~adoption ~~financial~~of ~~statements~~recently ~~are~~ issued ~~and~~accounting ~~removes~~pronouncements ~~the~~will ~~requirement~~have ~~that~~ a ~~SEC~~material ~~filer~~impact ~~disclose the date through which subsequent events have been evaluated. This guidance was effective upon issuance. The adoption of this standard had no effect~~ on the Company’s condensed consolidated financial ~~position or results of operations. The Company evaluated subsequent events through the date the accompanying condensed consolidated financial~~ statements ~~were issued~~.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Not required as we are a Smaller Reporting Company.

Item 4T. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

It is the responsibility of the Company’s management to establish and maintain adequate internal control over financial reporting. ~~Our~~The Company’s Chief Executive Officer and Chief Financial Officer have ~~evaluated~~reviewed and evaluated the effectiveness of ~~our~~the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Securities Exchange Act of 1934), as of ~~June~~December 3031, 2010. Based on that review and evaluation of the disclosure controls and procedures, such controls were deemed to be ineffective. Due to its limited financial resources, there is only limited segregation of duties within the accounting function, leaving most significant aspects of financial reporting in the hands of the Chief Financial Officer.

A significant deficiency is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of a registrant’s financial reporting.

A material weakness is a significant deficiency (or a combination of significant deficiencies) that result in a more-than-remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s significant deficiency involves a lack of segregation of duties within its internal control function. Due to the inherent issue of segregation of duties in a small company, we have relied heavily on entity or management review controls to lessen the issue of segregation of duties.

Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general, administrative and financial matters. This constitutes a significant deficiency in financial reporting. However, at this time, management has decided that considering the employees involved and the control procedures in place, the risks associated with such lack of segregation of duties are insignificant and the potential benefits of adding additional employees to clearly segregate duties do not justify the expenses associated with such increases. Management will periodically reevaluate this situation. If the volume of the business increases and sufficient capital is secured, it is the Company's intention to further increase staffing to mitigate the current lack of segregation of duties within the general, administrative and financial functions.

2120

Table of Contents

Changes in Internal Control Over Financial Reporting

There have been no changes in internal controls over financial reporting during the ~~nine~~three months ended ~~June~~December 3031, 2010, that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 6. Exhibits.

31.1

Section 302 Certification of Principal Executive Officer

31.2

Section 302 Certification of Principal Financial Officer

32.1

Section 906 Certification of Principal Executive Officer

32.2

Section 906 Certification of Principal Financial Officer

2221

Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Caprius, Inc.
	(Registrant)
Date: August 17, 2010	/s/Dwight Morgan
Date: February 11, 2011	/s/ Dwight Morgan
	Dwight Morgan
	President & Chief Executive Officer
Date: August 17, 2010	/s/Jonathan Joels
Date: February 11, 2011	/s/ Raymond Jackshies
	Jonathan Joels
	Raymond Jackshies
	Chief Financial Officer

2322

Filing Compare · CAPRIUS INC