**United
      States Securities and Exchange Commission**


**Washington,
      D.C. 20549**


**FORM
      10–KSB**





(Mark
      one)


X     Annual
      Report Pursuant to Section 13 or 15 (d) of the Securities Exchange Act
      of
      1934


**For
      the Fiscal Year Ended September 30, 2007**


_____    Transition
      Report Pursuant to Section 13 or 15 (d) of the of the Securities Exchange
      Act of 1934





Commission
      File Number:  0-11914


**CAPRIUS,
      INC.**


(Name
      of
      Small Business Issuer in its charter)





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





OneUniversityPlaza,Suite400,Hackensack,NJ07601


(Address
      of principal executive offices)  (Zip Code)





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





Securities
      registered under Section 12 (b) of the Exchange Act:  None





Securities
      registered under Section 12 (g) of the Exchange Act:  Common Stock,
      par value $ .01 per share


(Title
      of
      Class)





Check
      whether the issuer (1) filed all
      reports required to be filed under Section 13 or 15 (d) of the Exchange Act
      during the past 12 months (or for such shorter period that the Registrant was
      required to file such reports), and (2) has been subject to such filing
      requirements for the past 90
      days.   Yes   X    No
      __





Check
      if there is no disclosure of
      delinquent filers in response to Item 405 of Regulation S-B contained in this
      form, and no disclosure will be contained, to the best of the Registrant’s
      knowledge, in definitive proxy or information statements incorporated by
      reference in Part III of this Form 10-KSB or any amendment to this Form 10–KSB
      [X].





Revenues
      for the fiscal year ended September 30,
      2007:   $2,664,404





Indicate
      by checkmark whether the
      Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
      Act)?  Yes __  No  X





The
      aggregate market value of the
      voting stock held by non-affiliates of the Registrant computed by reference
      to
      the price at which the stock was sold, or the average bid and ask prices of
      such
      stock as of   December  14,
      2007:  $1,274,350





The
      number of shares outstanding of
      Registrant’s Common Stock, $ .01 par value, outstanding on December 14,
      2007:   3,849,662 shares










Documents
      Incorporated by Reference:  None


Transitional
      Small Business Disclosure
      Format:   Yes __  
No  X





Index





**INDEX**


Page
      No.





PART
                IItem
                1.
            Description
                of Business
            3Item
                2.
            Description
                of Property
            13Item
                3.
            Legal
                Proceedings
            13Item
                4.
            Submission
                of Matters to a Vote of Security
                Holders
            13PART
                IIItem
                5.
            Market
                for Common Equity, Related Stockholder
                Matters, and Small Business Issuer Purchases of Equity
                Securities
            13Item
                6.
            Management’s
                Discussion and Analysis or Results of
                Operations
            14Item
                7.
            Financial
                Statements
            22Item
                8.
            Changes
                In and Disagreements with
                Accountants on Accounting and Financial Disclosure
            22Item
                8A.
            Controls
                and
                Procedures
            22Item
                8B.
            Other
                Information
            22PART
                IIIItem  9.
            Directors,
                Executive Officers,
                Promoters and Control Persons; Compliance with Section 16 (a) of
                the
                Exchange Act.
            23Item
                10.
            Executive
                Compensation
            25Item
                11.
            Security
                Ownership of Certain Beneficial Owners
                and Management and Related Stockholder Matters
            27Item
                12.
            Certain
                Relationships and Related
                Transactions
            30Item
                13.
            Exhibits
            30Item
                14.
            Principal
                Accountant Fees and
                Services
            33SIGNATURES
            34




2
 Index





**PART
      I**





**ITEM
      1.DESCRIPTION
      OF BUSINESS**





General





Caprius,
      Inc. (“Caprius”, the “Company”, “we”, “us” and “our”) is engaged in the
      infectious medical waste disposal business, through our subsidiary M.C.M.
      Environmental Technologies, Inc. (“MCM”) which developed, markets and sells the
      SteriMed and SteriMed Junior compact systems that simultaneously shred and
      disinfect Regulated Medical Waste.  The SteriMed Systems are sold and
      leased in both the domestic and international markets.





In
      December 2002, we closed the acquisition of our initial investment of 57.53%
      of
      the capital stock of MCM for a purchase price of $2.4 million.  MCM
      wholly-owns MCM Environmental Technologies Ltd., an Israeli corporation, which
      initially developed the SteriMed Systems.  Upon closing, our designees
      were elected to three of the five seats on MCM’s Board of Directors, with George
      Aaron, our chairman, and Jonathan Joels, our CFO, filling two seats.
      Additionally, as part of the acquisition, certain debt of MCM to its existing
      stockholders and to certain third-parties was converted to equity in MCM or
      restructured. Pursuant to our Letter of Intent with MCM, we had provided MCM
      with loans totaling $565,000, which loans were repaid upon closing by a
      reduction in the cash portion of the purchase price.  The Stockholders
      Agreement among us and the other MCM stockholders contained certain provisions
      relating to performance adjustments for the twenty-four month period
      post-closing.  As a consequence, our ownership interest in MCM
      increased by 5% in the fiscal year ended September 30, 2004 and by an additional
      5% in the fiscal year ended September 30, 2005.  Furthermore, our MCM
      equity ownership increased with the conversion of various loans we made to
      MCM
      and our meeting cash calls made by MCM during the fiscal year ended September
      30, 2005.  As of September 30, 2005, our interest in MCM increased to
      96.66%.  Our interest remains unchanged through September 30,
      2007.





Caprius,
      Inc. was founded in 1983. By June 1999, Caprius essentially operated in the
      business of developing specialized medical imaging systems as well as operating
      a comprehensive breast imaging center.  In June 1999, we ceased the
      development of developing the imaging systems and acquired Opus Diagnostics,
      Inc. and began manufacturing and selling medical diagnostic assays constituting
      the therapeutic drug monitoring (“TDM”) Business.  In October 2002, we
      sold the TDM business to Seradyn, Inc.   The imaging center was
      sold in September 2003.




**Description
      of MCM Environmental Technologies Inc. Business**





**Background
      of the Regulated Medical Waste Industry in the United
      States**





In
      1988,
      the Federal Government passed the Medical Waste Tracking Act
      (“MWTA”).  MWTA defined medical waste and the types of medical waste
      that were to be regulated.  In addition to defining categories of
      medical waste, the law mandated that generators of Regulated Medical Waste
      (“RMW”) be responsible for and adhere to strict guidelines and procedures when
      disposing of RMW.  The mandates included a “cradle to grave”
responsibility for any RMW produced by a facility, the necessity to track the
      disposal of RMW and defined standards for segregating, packaging, labeling
      and
      transporting of RMW.




The
      MWTA
      led to the development of individual state laws regulating how RMW is to be
      disposed of.  As a result of these laws, it became necessary for
      medical waste generating facilities to institute new procedures and processes
      for transporting medical waste from the facility to an offsite treatment and
      disposal center, or obtain their own on-site system for treatment and disposal
      acceptable to the regulators.  By 1999, Health Care Without Harm, a
      coalition of 440 member organizations, estimated that 250,000 tons of RMW was
      produced annually in the United States of America or worldwide.




The
      other
      major impact on the RMW market was the adoption of the Clean Air Amendments
      of
      1997.  This Act dramatically reduced or eliminated the type of
      emissions that are permitted from the incineration of RMW.  Due to
      this, those generators of RMW, which were incinerating their waste, were forced
      into costly




3
 Index




upgrades
      of their incinerators or to find other methods of disposal.  Hospital
      incinerators decreased from 6,200 in 1988 to 115 in 2003 (Mackinac Chapter,
      Sierra Club Newsletter Aug-Oct 2003).




Most
      generators of RMW use waste management firms to transport, treat and dispose
      of
      their waste.  Due to legislative and other market factors, the costs
      for this type of service have been increasing at a dramatic pace.  At
      the same time, many medical waste generators are coming under increasing
      pressure to reduce expenses as a result of the decreasing percentage of
      reimbursement from Medicare and other third party
      providers.  Additionally, the added liability of RMW generators as a
      result of the “cradle to grave” manifest requirement has made it more attractive
      to use on-site medical waste disinfection methods that do not require manifest
      systems as the resultant waste is disinfected.  The combination of
      these pressures is forcing medical waste generators to seek innovative methods
      for their waste disposal.  MCM has identified and is working with
      specific segments and niches within the RMW market on which it feels it might
      capitalize.  The specifics of these will be discussed in the Marketing
      section.




**Background
      of the Regulated Medical Waste Industry Outside of the United
      States**





The
      industrialized countries of the European Union and Japan are implementing
      medical waste laws that are or will be similar to U.S.
      regulations.  In 1994, the European Commission implemented a directive
      where member states had to adhere to the provisions of the United Nations
      Economic Commission for Europe (“UNECE”) European Agreement on the International
      Carriage of Dangerous Goods by Road.  This requires that clinical or
      medical waste would be packed, marked, labeled and documented according to
      defined specifications including provisions of weight.  Regulations
      and cost factors have prompted European RMW generators to seek alternative
      medical waste disposal options.  MCM recognizes an excellent
      opportunity for SteriMed sales in Europe, and is working with regulators,
      potential joint venture partners and distributors.




Throughout
      the less industrialized and third world countries, the disposal of hospital
      waste is coming under increasing scrutiny and regulations.  Many
      countries are in the process of updating and enforcing regulations regarding
      the
      disposal of RMW.  MCM has been establishing relationships worldwide
      directly or through distributors in many of these countries. Additional
      information will be addressed in the Marketing section.




**The
      MCM SteriMed Systems**





We
      developed and market worldwide the SteriMed and SteriMed Junior compact
      units.  These units simultaneously shred and disinfect RMW, reducing
      its volume up to 90%, and rendering it harmless for disposal as ordinary
      waste.  The SteriMed Systems are patented, environmentally-friendly,
      on-site disinfecting and destruction units that can process regulated clinical
      waste, including sharps, dialysis filters, pads, bandages, plastic tubing and
      even glass, in a 15 minute cycle. The units, comparable in size to a
      washer-dryer, simultaneously shred, grind, mix and disinfect the waste with
      the
      proprietary Ster-Cid® solution. After treatment, the material may be discarded
      as conventional solid waste, in accordance with appropriate regulatory
      requirements.




The
      SteriMed Systems enable generators of RMW, such as clinics and hospitals, to
      significantly reduce cost for treatment and disposal of RMW, eliminate the
      potential liability associated with the regulated “cradle to grave” tracking
      system involved in the transport of RMW, and treat in-house RMW on-site in
      an
      effective, safe and easy manner.  As the technology for disinfection
      is chemical-based, within the definitions used in the industry, it is considered
      as an alternative treatment technology.




The
      SteriMed Systems are comprised of two different sized units, and the required
      Ster-Cid® disinfectant solution can be utilized with both units.  The
      larger SteriMed can treat up to 18.5 gallons (70 liters) of medical waste per
      cycle.  The smaller version, the SteriMed Junior, can treat 4 gallons
      (15 liters) per cycle.




Ster-Cid®
      is our proprietary disinfectant solution used in the SteriMed Systems. Ster-Cid®
is biodegradable and is registered with the U.S. Environmental Protection Agency
      (“U.S. EPA”) in accordance with the Federal Insecticide, Fungicide, Rodenticide
      Act of 1972 (“FIFRA”).  During the SteriMed disinfecting cycle, the
      concentration of Ster-Cid® is approximately 0.5% of the total volume of
      liquids.  The Ster-Cid®




4
 Index




disinfectantin
      conjunction
      with the SteriMed Systems has been tested in independent
      laboratories.  Results show that disinfection levels specified in the
      U.S. EPA guidance document, “Report on State and Territorial Association on
      Alternate Treatment Technologies” (“STAATT”), are met.  Furthermore,
      it is accepted by the waste water treatment authorities to discharge the
      SteriMed effluent containing a low concentration of the disinfectant into the
      sewer system. STAATT is a worldwide organization involved in setting criteria
      for efficacy of alternative medical waste treatment technologies.




Both
      SteriMed units are safe and easy to operate requiring only a half day of
      training.  Once the cycle commences, the system is locked, and water
      and Ster-Cid® are automatically released into the treatment
      chamber.  The shredding, grinding and mixing of the waste is then
      initiated exposing all surfaces of the medical waste to the chemical solution
      during a processing cycle which takes approximately 15 minutes.  At
      the end of each cycle, the disinfected waste is ready for disposal as regular
      solid waste.




In
      the
      United States, the initial focus of marketing the SteriMed Systems has been
      to
      dialysis clinics.  We have also begun initial installations in other
      new sectors such as surgical centers, laboratories, plasmapheresis centers,
      and
      hospitals. Other potential markets include blood banks, cruise ships and
      military medical facilities.




Internationally,
      we continue to market our SteriMed Systems both directly and indirectly through
      distributors.  Our distributors are trained by us to enable them to
      take on the responsibility for the installation and maintenance that are
      required for the SteriMed Systems.




**Regulations
      and Regulatory Compliance for Alternative Medical Waste Treatment Technologies
      in the United States**





Our
      use
      of the Ster-Cid® disinfectant in the SteriMed Systems is registered by the U.S.
      EPA under FIFRA.  The Ster-Cid® disinfectant is considered a
      pesticide, and is registered under FIFRA Number 71814.  FIFRA gives
      the federal government control over the distribution, sale and use of
      pesticides.  All pesticides used in the U.S. must be registered
      (licensed) by the U.S. EPA under FIFRA.  Registration of pesticides is
      to seek assurance that they will be properly labeled, and if used in accordance
      with label specifications, will not cause unreasonable harm to the
      environment.




The
      SteriMed Systems are regulated at the state level by the individual states’
Environmental, Conservation, Natural Resources, or Health
      Department.  Each state has its own specific approval requirements for
      alternative treatment technologies.  Generally, most states require an
      application for registration or approval be submitted along with back up
      information, including but not limited to operating manuals, service manuals,
      and procedures.  Additionally, many states require contingency and
      safety plans be submitted, and that efficacy testing be
      performed.  MCM has demonstrated through efficacy testing that it can
      inactivate the 4Log10 concentration of *Bacillus atrophaeus
      (*formerly*Bacillus subtilis)* spores and a 6Log10 concentration of
      Geobacillus stearothermophillus. This meets or exceeds most state regulatory
      requirements.




The
      SteriMed has been approved for marketing in 46 states and the SteriMed
      Junior in 42 states.  The Ster-Cid® disinfectant has been registered
      in 50 states.  We are currently seeking approvals for marketing in the
      remaining states.




Local
      and
      county level authorities generally require that discharge permits be obtained
      from waste water treatment authorities by all facilities that discharge a
      substantial amount of liquids or specifically regulated substances into the
      sewer system.  The SteriMed Systems process effluent has been
      characterized and found to be within the lower range of the general discharge
      limits set forth by the National Pollutant Discharge Elimination System (NPDES)
      Permitting Program, which are used to establish waste water treatment
      authorities’ discharge limits.




These
      approvals allow the SteriMed Systems effluent to be discharged into a municipal
      sewer and the treated disinfected shredded waste to be disposed of in a
      municipal landfill.




5
 Index




The
      process used by the SteriMed Systems, unlike many other waste medical disposal
      technologies, is not subject to the Clean Air Act Amendments of 1990 because
      there is no incineration or generation of toxic





**Regulations
      and Regulatory Compliance for Alternative Medical Waste Treatment Technologies
      outside of the United States**




CE
      Mark
      compliancy is a requirement for equipment sold in the European Union
      (“EU”).  The SteriMed Systems are CE Mark compliant as well as ISO
      Certified, 9001:2000 and 14001:2004.  In order to meet the specific
      regulatory requirements of the individual members of the EU, MCM will undertake
      further efficacy testing where necessary in order to demonstrate that the
      SteriMed Systems conform to all the standards in the specific EU member
      country.  Outside of the EU, we are required to review and meet
      whatever the specific standards a country may impose.  In countries
      where we have distributors, they are required to obtain the necessary regulatory
      approvals on our behalf at their expense.  The Company has
      received approval to market its SteriMed Systems in the United Kingdom and
      Hungary.




**Competition**




RMW
      has
      routinely been treated and disposed of by of incineration.  Due to the
      pollution generated by medical waste incinerators, novel technologies have
      been
      developed for the disposal of RMW.  Some of the issues confronting
      these technologies are: energy requirements, space requirements, unpleasant
      odor, radiation exposure, excessive heat, volume capacity and reduction, steam
      and vapor containment, and chemical pollution.  The use of the
      SteriMed Systems eliminates concern about these issues: space and energy
      requirements are minimal, there are no odors, radiation, steam, vapor or heat
      generated, solid waste volume is reduced by up to 90% and the disinfecting
      chemical is biodegradable.  The following are the various competitive
      technologies:




Autoclave
      (steam under pressure):  Autoclaves and retort systems are the most
      common alternative method to incineration used to treat medical
      waste.  Autoclaves are widely accepted because they have historically
      been used to sterilize medical instruments.  However, there are
      drawbacks as autoclaves may have limitations on the type of waste they can
      treat, the ability to achieve volume reduction, and odors generated as a result
      of the process. During the December 2005 meeting of STAATT, the efficacy of
      autoclaves has come under scrutiny due to inherent inability of autoclaves
      to
      physically destroy the waste.




Microwave
      Technology:  Microwave technology is a process of disinfection that
      exposes material to moist heat and steam generated by microwave
      energy.  The waves of microwave energy cycle rapidly between positive
      and negative at very high frequency, around 2.45 billion times per second.
      This
      generates the heat needed to change water to steam and carry out the
      disinfection process at a temperature between 95 and 100 degrees
      centigrade.  Use of this technology requires that proper precautions
      be taken to exclude the treatment of hazardous material so that toxic emissions
      do not occur.  Also offensive odors may be generated around the
      unit.  The capital cost is relatively high.




Thermal
      Processes:  Thermal processes are dry heat processes and do not use
      water or steam, but forced convection, circulating heated air around the waste
      or using radiant heaters.  Companies have developed both large and
      small dry-heat systems, operating at temperatures between 350oF-700oF.  Use
      of
      dry heat requires longer treatment times as the fluids trapped in the medical
      waste must be heated to create the steam required for disinfection.




High
      Heat
      Thermal Processes: High heat thermal processes operate at or above incineration
      temperatures, from 1,000oF to 15,000oF.  Pyrolysis,
      which does not include combustion or burning, contains chemical reactions that
      create gaseous and residual waste products.  The emissions are lower
      than that created by incineration, but the pyrolysis demands heat generation
      by
      resistance heating such as with bio-oxidation, induction heating, natural gas
      or
      a combination of plasma, resistance hearing and superheated steam.




Radiation:  Electron
      beam technology creates ionized radiation, damaging cells of
      microorganisms.  Workers must be protected with shields and remain in
      areas secured from the radiation.




6
 Index




Chemical
      Technologies: Disinfecting chemical agents that integrate shredding and mixing
      to ensure adequate exposure are used by a variety of
      competitors.  Chlorine based chemicals, using sodium hypochlorite and
      chlorine dioxide, are somewhat controversial as to their environmental effects
      and their impact on wastewater.  Non-chloride technologies are varied
      and include peracetic acid, ozone gas, lime based dry powder, acid and metal
      catalysts as well as alkaline hydrolysis technology used for tissue and animal
      waste.




Among
      the
      competitors in the infectious medical waste business are Stericycle, Inc.,
      Sanitec, Inc. Saniflash PTY LTD, AduroMed Corp., MedServe, Inc., Meteka GmbH,
      Tecno Service First Srl (Newster srl), Ecodas, Waste Processing Solutions
      Company, and Waste Reduction, Inc.




**Competitive
      Features of the SteriMed Systems**




Seizing
      the opportunity afforded by the regulatory changes and pricing pressures in
      the
      healthcare industry, we have positioned our products as viable alternatives
      to
      the traditional medical waste disposal methods.  The SteriMed Systems
      seek to offer medical waste generators a true on-site option that is less risky,
      less expensive, and more environmentally friendly than the
      alternatives.  The main competitive advantages of the SteriMed Systems
      are:





*Safety*


a)
            No
                need to pack containers of medical
                waste


b)
            No
                need to transport infectious waste through facilities with
                patients


c)
            No
                need to ship infectious medical waste on public
                roads


d)
            Environmentally
                sound approach for disinfection – uses biodegradable chemicals; does not
                release smoke, odor, steam or other emissions to the air; removes
                the need
                for incineration


e)
            Quiet
                system - noise level during cycle is approx. 64.1dB(A), regarded
                below
                levels of noise safety concerns by most government
                regulations





*Labor*


a)
            Reduce
                the exposure to infectious medical waste by limiting the time an
                employee
                handles, stores and packs the waste


b)
            No
                need to administer and track waste that is shipped from the
                facility


c)
            Ease
                of use


d)
            Employees
                can continue to perform their regular functions while the SteriMed
                Systems
                treatment cycle is operational





*Convenience*


a)
            Rapid
                deployment through our system designs that enable “same day” installation
                and start up at a client’s site


b)
            Easily
                installed requiring only electricity, water and sewage outlet which
                are
                usually which are usually readily available. No special ventilation
                or
                lighting required


c)
            Fast
                cycle process times (approximately 15 minutes) that enables even
                our
                smallest system to generate a rapid throughput
                capability


d)
            Limited
                training required for operators due to the fully automated systems
                based
                upon a one-touch start method


e)
            Due
                to their compact size, units can be strategically placed in a health
                care
                facility close to the waste generation
                sites


f)
            Due
                to its compact size, the SteriMed System is also appropriate for
                mobile
                facilities such as cruise ships and naval
                vessels.





*Cost
      Saving*


a)
            One
                of the lowest capital costs for comprehensive onsite medical waste
                systems


b)
            Reduced
                labor time as packaging for off-site transportation is
                eliminated


c)
            No
                additional packaging or transportation costs to incineration
                site





7
 Index





d)
            Our
                business model allows for the SteriMed Systems to be leased to U.S.
                facilities generating the infectious clinical waste.  This model
                obviates the need for capital investment by users, and should also
                reduce
                previous operating expenses in disposing of medical
                waste.


e)
            Cellemetry
                monitoring system which allows for real time monitoring of the SteriMed
                Systems through wireless communication with technical support personnel,
                thus enabling same or next day support to our valued
                customers.


f)
            Ability
                to fix costs for a given period of time, avoiding future price increases
                and surcharges, while allowing for additional capacity at a low variable
                cost


g)
            Energy
                efficient systems that consume just pennies per cycle in electricity
                and
                water





*Compliant
      with Domestic and International Regulations*


a)
            Enable
                infectious medical waste generating facilities to replace existing
                systems
                while meeting federal, state and local environmental as well as health
                regulations.


b)
            Proprietary,
                environmentally safe, 90% biodegradable chemical for disinfection
                which
                has been cleared for use in many foreign countries and which is registered
                in most states.





These
      features are intended to make the use of the SteriMed Systems a very attractive
      solution to health care organizations, especially those that are forced to
      reconsider their current medical waste management programs.  This is
      primarily due to federal and state regulations or the ongoing pressures to
      reduce their ever increasing operating costs.





**Marketing
      Strategy**




We
      have
      designed and are implementing a marketing program based upon our SteriMed
      Systems and their cost saving ability. Our overall marketing campaigns are
      also
      focused on the value statement “.....*Is Green.......Saves Green*......”; a
      statement that defines our business as one which helps our clients
      simultaneously achieve their goals of sustainability through environmental
      responsibility, and improved financial performance through the reduction in
      operating costs associated with waste treatment and disposal.




Our
      marketing strategy is driven by a sales program with a four pronged approach
      consisting of the following channels for product distribution: direct selling
      to
      end users of our products in the commercial market, direct selling to end users
      of our products in the government and defense industry, sales to US based and
      foreign distributors of our products, and agent-based
      representatives.




**Direct
      Selling to End Users in the Commercial Market**




In
      the
      United States we employ sales personnel who are responsible for selling to
      key
      customers in our key applications.  Our definition of a “key” customer
      group are generators of medical waste with sites which best fit the capabilities
      and capacity of our SteriMed Systems. Within the United States these “key”
applications are dialysis centers, small hospitals, surgical centers,
      plasmapheresis centers, blood banks, commercial laboratories (both research
      and
      clinical) as well as independent physician group practices.




Many
      of
      these facilities are owned by regional, national or international corporations
      operating numerous facilities. Focusing our sales efforts on this customer
      profile affords us the opportunity to achieve multiple sales within the same
      organization and enhances our ability to service and support our
      customers.  We are presently deploying our SteriMed Systems at several
      dialysis centers in the implementation of this strategy which includes two
      companies that are leaders in the field both domestically and
      overseas.




Our
      business marketing models in the U.S. are either lease or purchase of the
      SteriMed Systems.  A typical SteriMed lease (which, at the customer’s
      option, can also include installation costs) is for a five year period. We
      have
      contacts with several leasing companies that offer this facility to our
      customers, including options for both capital leases and off balance sheet
      operating leases.




8
 Index




**Direct
      Selling to End Users in the Government and Defense
      Industry**




We
      have
      continued to build on our initiative to capture business with the government
      and
      defense industry.   In Fiscal 2006, we shipped two SteriMed
      Juniors to the United States Department of Defense for use by the U.S.
      Navy.  The first unit was for laboratory test and evaluation as part
      of the U.S. Navy’s Shipboard Medical Waste Management Program. In September
      2007, the second unit was deployed for shipboard evaluation on an LHD Class
      flagship vessel within the U.S. Navy’s Expeditionary Strike Group. The SteriMed
      System as deployed is a modified version of our commercial-off-the-shelf (COTS)
      system. The program for the Navy represents a significant opportunity for us
      in
      that the Navy is actively seeking a “total fleet solution” to medical waste
      management problems.  Of the medical waste processing systems
      considered by the Navy, the SteriMed System ranked among the highest to meet
      the
      needs (sterilization capability, size, ability to reduce the volume of waste
      and
      ability to render the waste non-recognizable) identified for evaluation aboard
      ship.  Our SteriMed Junior was identified as a solution that achieved
      the Navy’s cost, ship impact, and performance metrics.  We are
      actively supporting the Navy project in an attempt to earn this business which
      could result in the sales of multiple SteriMed systems. In September 2007,
      the
      Navy recently placed an order for an additional SteriMed System as they continue
      their evaluation program.




In
      addition to these opportunities, we are actively marketing to other branches
      of
      the military, including ground based operations where the need to reduce cost
      and to improve the environmental impact of medical waste management are key
      issues.




**Sales
      to Domestic and International Distributors**




To
      maximize and augment our sales efforts in the U.S., we have been actively
      recruiting distributors.  Ideally, we are seeking local and regional
      distributors who will have the right to sell the SteriMed Systems and related
      products within their prescribed geographical areas or business
      sectors.  In order to gain exclusivity, the distributor must commit to
      minimum annual purchases.  The distributor is obligated to work within
      the guidelines and regulatory approvals set up and maintained by
      us.




In
      addition, we have a non-exclusive distribution agreement with certain divisions
      of Fresenius Medical Care North America (“FMC”).  FMC is permitted to
      distribute our consumables, i.e. SterCid® and SteriMed
      Filter
      Bags throughout the U.S., Canada and the Caribbean Basin. This arrangement
      provides an efficient logistical system for customers to access our consumables
      as FMC has excellent penetration in the renal care market.  FMC has
      numerous distributions sites throughout its territory which speeds delivery
      of
      these critical consumables to our clients, while reducing our need to provide
      a
      costly, distribution network for this supply chain solution.




In
      April
      2007, we entered into a five year non-exclusive distribution agreement with
      McKesson Medical-Surgical, a leading provider of healthcare products and
      services to surgical centers, granting McKesson distribution rights to market
      our SteriMed systems for on-site medical waste processing to ambulatory surgical
      centers in the United States.





In
      May 2007, we entered into a non-exclusive distribution agreement granting Henry
      Schein, Inc., one of the largest providers of healthcare products and services
      to office-based practitioners in the combined North American and European
      markets, distribution rights to market MCM’s SteriMed line of on-site medical
      waste processing units to dialysis clinics in the United States.





Internationally,
      we market our SteriMed Systems predominantly through distributors.  In
      order to gain exclusivity, the distributor must commit to minimum annual
      purchases.  In those countries where we have distributors, it is their
      responsibility to market and support the sales of the SteriMed Systems at their
      own expense as well as obtain all regulatory approvals which will be registered
      in the name of MCM.





We
      currently have international
      distributorship arrangements in Mexico, South Africa (defined as South Africa
      Development Countries) and the Caribbean. We also have distributor agreements
      in
      Hungary, Japan, Portugal and Russia.




9
 Index




**Selling
      Agents**





Concurrent
      to our direct sales in the U.S, we continue to actively recruit agents who
      will
      act as our selling representatives, thus reducing our cost of
      sales.  We presently utilize the services of these agents on both the
      Eastern and Western coasts of the Unites States. These agents seek out
      opportunities for SteriMed in their local markets and are compensated for these
      sales through an agent based commission fee.  The criteria for the
      selection of these agents is that they must have existing, strong, long-term
      relationships with clients that are within our “key” applications as defined
      herein.





**Manufacturing**





We
      recognize that to be successful, we need to be able to supply manufactured
      units
      that are robust, cost effective, reliable intrinsically safe, and of world
      class
      quality




We
      manufacture components for the SteriMed systems globally at several key
      suppliers. These components are then assembled at either our facility in Moshav
      Moledet, Israel or at a contract manufacturing partner.  The SteriMed
      Junior is assembled by a third-party contract assembly company in
      Israel.  The SteriMed is assembled in house at our engineering
      facility in Israel or at a contract assembly company as volume warrants. We
      continue to seek sub-assembly manufacturers to enable us to reduce the cost
      of
      both SteriMed systems as well as seek alternative solutions for the manufacture
      of their components in lower cost regions. This also includes seeking
      alternatives to counteract the recent decline of the US dollar. We are also
      evaluating alternative manufacturing and/or assembly in closer proximity to
      our
      customer base.




Our
      assembly facility in Israel is operated under the strictest guidelines of the
      global quality standard of ISO 9001:2000 and ISO 14001:2004.




Approximately
      half of the SteriMed Systems’ components are commercially available from
      third-party suppliers. The remaining components are either generic with
      modification or customized specifically for the SteriMed.  Presently
      we maintain an inventory of spare parts and supplies in our Hackensack, NJ
      warehouse and at our facility in Moledet, Israel.




**Maintenance
      and Customer Service Model**




Critical
      to the successful use of the SteriMed Systems is the proper training of the
      personnel carrying out the installation, operation and service of the equipment.
      Our technical service staff assists clients in the installation of units and
      the
      training of their staff and on-site operators.  This training program
      is strongly geared to safety and maintenance to assure ongoing safe and smooth
      operation of the unit. After installation and training, operation of the unit
      is
      monitored by our technical staff to assure proper performance.  In the
      U.S., our technical staff is on call around the clock to assist with any
      questions or issues relating to the operation of our SteriMed Systems. Our
      goal
      is to minimize problems through ongoing training and strict adherence to
      maintenance schedules. We provide our customers with a warranty covering
      non-wear parts and labor for one year. In the U.S., an extended warranty program
      is available to our customers upon purchasing or leasing unit.




In
      the
      U.S., we recently launched an industry’s first, real time Cellemetry
      program.  The latest versions of the SteriMed systems have embedded
      wireless communication systems which communicate machine performance data to
      technical support personnel.  This system provides us with real time
      reporting on machine performance data, including service data, to enable us
      to
      provide same or next business day onsite support to the waste processing
      equipment.  The Cellemetry system has resulted in improved machine
      availability and customer satisfaction.  Cellemetry is a part of our
      overall customer service model and will be available as an annual subscription
      service to our customers after the expiration of the one year machine warranty
      period.




**Proprietary
      Rights**




There
      exist various medical waste treatment technologies that can be combined and
      employed in different ways, making trademarks and patents very important pieces
      of intellectual property to possess in the medical waste treatment
      industry.




10
 Index




MCM
      acquired and/or applied for trademarks and patents for our SteriMed and
      Ster-Cid®
      products as indicated in the following tables.  The validation for
      patents is extended to fifteen years, provided an annual fee (on renewal dates)
      is paid in the respective country;




**MCM
      STERIMED – INTERNATIONAL CLASS 10 TRADEMARK:**




**File
                  No.**
              **Country**
              **Application
                  No.**
              **Application
                  Date**
              **Trademark
                  No.**99211
              Australia
              813208
              11/9/1999
              81320899208
              Canada
              1035659
              11/12/1999
              TMA
                  596,53899209
              Common
                  European Market Trademarks (CTM)
              1380146
              11/11/1999
              138014699216
              Hungary
              m-9905278
              11/10/1999
              16515899200
              Israel
              113,697
              7/20/1997
              113,69799210
              Japan
              11-103145
              11/12/1999
              446225899212
              Mexico
              472508
              2/23/2001
              70186299218
              Poland
              Z-209695
              11/10/1999
              14808699214
              Russia
              99719243
              11/18/1999
              20961899207
              U.S.A
              75/904,419
              1/28/2000
              2,724,738





**MCM
      STER-CID®INTERNATIONAL CLASS 5 TRADEMARK:**




**File
                  No.**
              **Country**
              **Application
                  No.**
              **Application
                  Date**
              **Trademark
                  No.**99205
              Australia
              813207
              11/9/1999
              81320799202
              Canada
              1035658
              11/12/1999
              TMA
                  596,32999203
              Common
                  European Market Trademarks (CTM)
              1380195
              11/11/1999
              138019599215
              Hungary
              M-9905279
              11/10/1999
              16468299200
              Israel
              131893
              11/1/1999
              13189399204
              Japan
              11-103144
              11/12/1999
              456218599206
              Mexico
              412940
              2/23/2001
              65660399217
              Poland
              Z-209696
              11/10/1999
              14576099213
              Russia
              99719294
              11/18/1999
              20027699201
              U.S.A
              75/904,150
              01/29/2000
              2,713,884




11
 Index


**STERIMED
      PATENTS & PATENT APPLICATIONS:**




**File
                    No.**
                **Country**
                **Application
                    No.**
                **Application
                    Date**
                **Patent
                    No.**
                **Dates
                    Patent Valid**9454
                U.S.A
                08/369,533
                1/5/1995
                5,620,654
                4/15/1997
                    - 4/15/20149456
                Canada
                2,139,689
                1/6/1995
                2,139,689
                10/5/1999
                    - 1/6/20159452
                Australia
                10096/95
                1/9/1995
                684,323
                4/2/1998-1/9/20159453
                Japan
                7-011844
                1/23/1995
                3058401
                4/21/2000-
                    1/27/20159346
                Israel
                108,311
                1/10/1994
                108,311
                12/23/1999-1/10/20149455
                Europe
                95630001.6
                1/5/1995
                EP0662346
                3/28/2001
                    - 1/5/2015
                  or
                    according to National Phase6.1
                    - 2114
                Austria
                
                1/5/1995
                E200039
                2/15/2001-1/5/20156.2
                    - 2115
                Belgium
                
                1/5/1995
                10662346
                2/15/2001-1/5/20156.3
                    - 2116
                Germany
                
                1/5/1995
                DE69520458T2
                2/15/2001-1/5/20156.4
                    - 2117
                Spain
                
                1/5/1995
                EP0662346
                2/15/2001-1/5/20156.5
                    - 2118
                France
                
                1/5/1995
                EP0662346
                2/15/2001-1/5/20156.6
                    - 2119
                United
                    Kingdom
                
                1/5/1995
                EP(UK)662346
                2/15/2001-1/5/20156.7
                    - 2120
                Italy
                
                1/5/1995
                0662346
                2/15/2001-1/5/20156.8
                    - 2121
                Netherlands
                
                1/5/1995
                EP0662346
                2/15/2001-1/5/2015


**MCM
      STERIMED PATENT CORPORATION TREATY (“PCT”) INTERNATIONAL PHASE PATENTS
–PCT/IL02/00093:**




**File
                  No.**
              **Country**
              **Application
                  No.**
              **Application
                  Date**
              **Patent
                  No.**
              **Dates
                  Valid (Patent or Application)**2338
              Brazil
              P10206913-0
              7/31/2003
              Pending
              7/31/2003
                  - 2/4/20222339
              Mexico
              PA/a/2003/
                006946
              8/4/2003
              Pending
              8/4/2003
                  - 2/4/20222340
              Russia
              2003127023
              9/4/2003
              2290268
              12/17/2006
                  - 2/4/20222341
              South
                  Africa
              2003/5602
              7/21/2003
              2003/5602
              9/23/2003
                  - 2/4/20222342
              Canada
              2437219
              8/1/2003
              Pending
              8/1/2003
                  - 2/4/20222343
              China
              02806986.2
              9/19/2003
              CN
                  1259146C
              9/19/2003
                  - 2/4/20222712
              Hong
                  Kong
              4106248.3
              8/20/2004
              HK1063441
                  B
              6/14/2006-2/4/20222344
              India
              01389/
                chenp/03
              9/2/2003
              Pending
              9/2/2003
                  - 2/4/20222313/354
              Europe
              02711185.5
              9/5/2003
              P210477
                PCT/EP
              9/5/2003-
                  2/4/20222337
              Australia
              2002230065
              2/4/2002
              2002230065
              9/28/2006
                  - 2/4/20222373
              USA
              09/824,685
              4/4/2001
              6494391
              12/17/2002
                  - 4/4/2021





We
      maintain, in-house, a system that tracks all expiration dates for our trademarks
      and patents.  This internal tracking system alerts us when renewal
      submissions are required.




**Employees**





As
      of
      December 1, 2007, we employed 19 full time employees and one part-time employee,
      including four senior managers.  Of these, nine employees are located
      at our facility in Israel.




12
 Index




None
      of
      our employees is represented by any labor organization and we are not aware
      of
      any activities seeking such organization.  We consider our relations
      with employees to be good.




As
      the
      level of our activities grow, additional personnel may be required.




**ITEM
      2.DESCRIPTION
      OF PROPERTY**





We
      lease
      approximately 4,200 square feet of office space in Hackensack, New Jersey for
      executive and administrative personnel pursuant to a lease that expires on
      September 30, 2011 at a base monthly rental of approximately $7,500, plus
      escalation.  We also lease on a month to month basis approximately 400
      square feet of space in Hackensack, NJ for warehousing purposes at a monthly
      cost of $575.




In
      Israel, we lease 2,300 square feet of industrial space at a monthly cost of
      approximately $1,000 and the lease expires on March 31, 2008.




**ITEM
      3.LEGAL
      PROCEEDINGS**





In
      May
      2006, Andre Sassoon and Andre Sassoon International, Inc. (the “Plaintiffs”),
      filed a complaint against Caprius Inc., MCM Environmental Technologies, and
      George Aaron, (collectively, the “Company Defendants”) in the Supreme Court of
      the State of New York, New York County, claiming that the Defendants had
      breached an agreement entered into as part of the December 2002 MCM acquisition
      to pay $400,000 as settlement of a note previously issued by MCM.  The
      complaint also names all persons who were stockholders of MCM at the time of
      Caprius’ original investment in MCM in December 2002.  In June 2006,
      the Plaintiffs filed an amended complaint to include additional counts, alleging
      certain misrepresentations by the Company Defendants related to the agreement
      with the Plaintiffs.  The Plaintiffs are seeking damages in excess of
      $400,000 or the stock interest of the MCM stockholders at the time of Caprius’
acquisition.  Discovery has been undertaken, and the final depositions
      are scheduled for January 2008.  Based upon our review of the amended
      complaint, we continue to believe the Plaintiffs’ claims have no merit, and the
      Company Defendants will vigorously defend this action.  Accordingly,
      we have not recorded any accrual for this litigation as of September 30,
      2007.




Our
      independent directors have authorized us to indemnify Mr. Aaron with respect
      to
      the Sassoon litigation, subject to limitations under applicable law and our
      by-laws.




**ITEM
      4.SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
      HOLDERS**





None





**PART
      II**


**ITEM
        5.**MARKET
        FOR COMMON EQUITYAND RELATED STOCKHOLDER
        MATTERS****




(a) 
      Our Common Stock is traded on the OTC Bulletin Board  under the
      trading symbol CAPS.





The
      following table sets forth, for the calendar quarters indicated, the reported
      high and low bid quotations per share of the Common Stock as reported on the
      OTCBB.   Such quotations reflect inter-dealer prices, without
      retail mark-up, markdown or commission, and may not necessarily represent actual
      transactions.




13
 Index




Common
                Stock
            
            High
            
            
            Low**2007**
            (year
                ended September 30, 2007)Fourth
                Quarter
            
            $
            0.85
            
            
            $
            0.70Third
                Quarter
            
            
            1.05
            
            
            
            0.60Second
                Quarter
            
            
            1.08
            
            
            
            0.45First
                Quarter
            
            
            0.65
            
            
            
            0.51**2006**
            (year
                ended September 30, 2006)Fourth
                Quarter
            
            $
            0.80
            
            
            $
            0.55Third
                Quarter
            
            
            1.69
            
            
            
            0.80Second
                Quarter
            
            
            2.35
            
            
            
            1.30First
                Quarter
            
            
            2.45
            
            
            
            1.05





We
      have
      not paid any dividends on our shares of Common Stock since inception and do
      not
      expect to declare any dividends on our Common Stock in the foreseeable
      future.  Any declared dividend in the future would be subject to the
      terms of the outstanding preferred stock at that time.





On
      September 30, 2007, there were approximately 1100 holders of record of the
      Common Stock.  Since a large number of shares of Common Stock are held
      in street or nominee name, it is believed that there are a substantial number
      of
      additional beneficial owners of the Company's Common Stock.





(b)  Not
      applicable





(c) 
During
      the fourth quarter of
      the fiscal year ended September 30, 2007, we did not make any repurchases of
      our
      common stock.




**ITEM
        6.**MANAGEMENT'S
        DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR
        PLAN OF OPERATIONS****





MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF
      OPERATIONS





The
      following discussion should be read in conjunction with the audited consolidated
      financial statements and notes thereto for the years ended September 30,
      2007 and 2006.





**Results
      of Operations**





*Fiscal
      Year Ended September 30, 2007 Compared to Fiscal Year Ended September 30,
      2006*





Revenues
      generated for fiscal year ended September 30, 2007 (“Fiscal 2007”) were
      primarily generated by MCM product sales which totaled $2,540,439 as compared
      with $1,069,902 for fiscal year ended September 30, 2006 (“Fiscal
      2006”).  For Fiscal 2007, two customers accounted for approximately
      33% and 15% respectively of the consolidated total revenue.  For
      Fiscal 2006, three customers accounted for approximately 24%, 19% and 13%
      respectively of the consolidated total revenue.  Product sales for the
      Fiscal 2007 increased due to our penetration into different geographical areas
      and our technologies growing acceptance in the market.





Consulting
      and royalty revenue from the TDM Business which was sold in 2002 to Seradyn,
      Inc.( as a condition of the sale, we received a royalty agreement) totaled
      approximately $124,000 and $166,000 for fiscal years ended September 30, 2007
      and 2006, respectively. This decrease of approximately $42,000 was attributable
      to the sale of the royalty agreement during the 3rd quarter of Fiscal
      2007.





Cost
      of
      product sales aggregated approximately $1,860,000 and $803,000 during Fiscal
      2007 and Fiscal 2006, respectively. The increased costs correlate to the
      increase in revenues and the absorption of certain production expenses incurred
      in Fiscal 2007 in order to enhance production efficiencies.




14
 Index




Research
      and development costs amounted to approximately $264,000 and $343,000 for Fiscal
      2007 and Fiscal 2006, respectively.  This decrease is due primarily to
      the completion of the development work necessary for the ramp up of production
      of the SteriMed and SteriMed Junior.





Selling,
      general and administrative expenses totaled $4,272,118 for Fiscal 2007 versus
      $3,064,084 for Fiscal 2006.  This increase is principally due to
      increased personnel costs ( hiring of additional employees and increased benefit
      costs), our adoption of FAS 123R which requires the recording of stock based
      compensation as part of the statement of operations, in which $278,381 was
      recorded during Fiscal 2007 as well as the related increase in travel, marketing
      expenses and participation in multiple trade shows incurred in order to
      facilitate the development of additional sales markets both domestically and
      internationally for our units.





In
      2007,
      management assessed the underlying fair value of the Company and determined
      the
      carrying value, including goodwill did not exceed its fair value and as such
      management recorded no impairment charge to goodwill for Fiscal 2007 as compared
      to $452,000 in Fiscal 2006.





Proceeds
      from settlement of Royalty Agreement totaled $ 500,000 for Fiscal 2007 as
      compared to $0 for Fiscal 2006. This was attributable to an amendment to Royalty
      Agreement (the “Amendment”) with Seradyn, Inc. regarding the Royalty Agreement
      of October 9, 2002 whereby we received a lump sum payment of $500,000 from
      Seradyn to the Company for the termination of the Royalty
      Agreement.





Interest
      (expense) income, net totaled ($18,056) for Fiscal 2007 versus $29,693 in Fiscal
      2006.





The
      net
      loss totaled $3,249,673 for Fiscal 2007 versus $3,396,041 for Fiscal
      2006.





**Liquidity
      and Capital Resources**





At
      September 30, 2007, our cash and cash equivalents position approximated $635,000
      versus $1,069,000 at September 30, 2006.  However, based upon the net
      proceeds from a December 2007 placement we believe that our cash position will
      be sufficient through September 30, 2008 based upon current
      projections.





On
      December 6, 2007, we closed on a $4.7 million Series F Convertible Preferred
      Stock equity financing before financing related fees and expenses of
      approximately $300,000.  As part of this financing transaction, we
      issued 78,334 shares of Series F Convertible Preferred Stock at $60 a share,
      and
      we issued warrants to purchase an aggregate of 3,133,360 shares of common stock
      at an exercise price of $0.80 per share for a period of five
      years.  Each share of the Series F preferred stock is convertible into
      100 shares of common stock, subject to customary anti-dilution provisions,
      or an
      aggregate of 7,833,400 shares of common stock. We also granted the Placement
      agent warrants to purchase 400,000 shares of common stock at an exercise price
      of $0.85 per share for a period of five years.  The net proceeds will
      be used for general working capital purposes.





On
      August
      18, 2007 as per the agreement, the outstanding shares of the Series B Preferred
      Stock were automatically converted into 57,989 shares of common
      stock





In
      June
      2007, we received $500,000 from Seradyn, Inc. as a lump sum payment upon the
      termination of the Royalty Agreement, plus an additional $29,500 representing
      royalties due for prior periods.





Financing
      during Fiscal 2007 included a financing on March 1, 2007, whereby we closed
      on a
      $2.5 million Series E Preferred Stock equity financing before financing related
      fees and expenses of approximately $106,000.  This placement consisted
      of 10,000 shares of Series E Convertible Preferred Stock at $250 a share.,
      and
      we issued warrants to purchase an aggregate of 3,125,000 shares of common stock
      at an exercise price of $0.50 per share for a period of five
      years.  Each share of the Series E Preferred Stock is convertible into
      625 shares of common stock, subject to customary anti-dilution provisions,
      or an
      aggregate of 6,250,000 shares of common stock. We also issued warrants to
      purchase an aggregate of 70,000 shares of common stock at an exercise price
      of
      $0.60 per share for a period of five years as part of the placement fee, to
      a
      placement agent and its designees, and warrants to purchase an aggregate of
      112,500 shares of common stock at an exercise price of




15
 Index




$0.60
      per
      share for a period of five years as part of the placement fee to a financial
      advisor. Commencing October 1, 2007, the holders of the Series E Preferred
      Stock
      are entitled to receive a cash dividend at a per share rate equal to $13.50
      per
      annum, and a liquidation preference of $250 per share plus accrued and unpaid
      dividends, and ranking pari passu with the Series B and Series D Preferred
      Stock.  The Series E Preferred Stock votes on an as-converted basis
      with the common stock, and has a separate vote with respect to matters directly
      affecting this Series.  Neither we nor the holders of the
      Series E Preferred Stock have the right to cause the redemption
      thereof.  The net proceeds were used for general working capital
      purposes and the repayment of the January 30, 2007 10% Promissory Note as
      outlined above.




On
      January 30, 2007, we borrowed the principal amount of $100,000 through the
      issuance of a 10% promissory note, payable on April 30, 2007.  This
“bridge” loan was used for general working capital, until additional funding was
      secured.  This note, plus interest, was repaid in March 2007 upon the
      placement of Series E Preferred Stock. – as discussed above.




Financing
      during Fiscal 2006 included a financing on February 17, 2006, whereby we closed
      a $3.0 million Series D Preferred Stock equity financing transaction before
      financing fees and expenses of approximately $293,000. On this financing
      transaction, we issued 241,933 shares of Series D Convertible Preferred Stock,
      convertible into 2,419,330 shares of Common Stock, together with Series A
      Warrants to purchase an aggregate of 223,881 shares of Common Stock at an
      exercise price of $1.50 per share for a period of five years, and Series B
      Warrants to purchase an aggregate of 447,764 shares of Common Stock at an
      exercise price of $2.00 per share for a period of five years.  As
      placement fees, we issued warrants to purchase an aggregate of 119,403 shares
      of
      Common Stock at an exercise price of $1.68 per share for a period of five years
      and warrants to purchase an aggregate of 59,702 shares of Common Stock at an
      exercise price of $2.00 per share for a period of five years.




Net
      cash
      used in operations for fiscal year 2007 amounted to $2,785,972.  Net
      cash used in investing activities amounted to­­­
$42,325.  Net cash flows provided by financing activities for Fiscal
      2007 amounted to $2,394,000 which resulted from the issuance of the Series
      E
      Convertible Preferred Stock.





Net
      cash
      used in operations for fiscal year 2006 amounted to $2,850,047.  Net
      cash used in investing activities amounted to­­­
$45,507.  Net cash flows provided by financing activities for Fiscal
      2006 amounted to $2,707,350, which resulted from the issuance of the Series
      D
      Convertible Preferred Stock





The
      Company has incurred substantial recurring losses.  In addition, the
      Company is a defendant in an action seeking damages in excess of
      $400,000.  Although management believes the Company has a meritorious
      defense against such a lawsuit, an unfavorable outcome of such action could
      have
      a materially adverse impact on our business.  The consolidated
      financial statements do not include any adjustments that might result from
      the
      outcome of this uncertainty  The net cash proceeds from the Series F
      equity financing provided the funds necessary to satisfy specific outstanding
      obligations and accrued expenses outstanding at the time of the financing and
      increase our marketing effort both in the US and overseas markets. These funds
      also will enable us to build up our inventory to fulfill our current backlog
      of
      orders and future demand arising from our increased marketing efforts. With
      our
      growing market penetration in the U.S., we will need to expand our customer
      service and technical support capabilities to meet the needs of our clients.
      Similarly, in overseas markets, resources will continue to be required to obtain
      regulatory approvals in markets where we believe there exists great
      opportunities for our business. Our working capital is currently projected
      to
      meet the needs of our business plan for the current fiscal year.





**Contractual
      Obligations**





Our
      principal contractual commitments include payments under operating leases (see
      Note H of the accompanying consolidated financial statements).




16
 Index


**Critical
      Accounting Policies**





The
      preparation of financial statements requires management to make estimates and
      judgments that affect the reported amounts of assets, liabilities, revenues,
      expenses and related disclosures.  On an on-going basis, management
      evaluates our estimates and assumptions, including but not limited to those
      related to revenue recognition and the impairment of long-lived assets, goodwill
      and other intangible assets.  Management bases its estimates on
      historical experience and various other assumptions that it believes to be
      reasonable under the circumstances, the results of which form the basis for
      making judgments about the carrying values of assets and liabilities that are
      not readily apparent from other sources.  Actual results may differ
      from these estimates under different assumptions or conditions.




1.           Revenue
      recognition




The
      infectious medical waste business recognizes revenues from the sale or lease
      of
      our SteriMed Systems.  Revenues for sales or lease are recognized at
      the time that the unit is shipped to the customer. Revenues
      for  consulting and royalty fees are recognized on a quarterly
      basis.




2.           Goodwill
      and other intangibles




Goodwill
      and other intangibles associated with the MCM acquisition will be subject to
      an
      annual assessment for impairment by applying a fair-value based test as of
      September 30.  The valuation will be based upon estimates of the
      market value of the unit.




3.           Off-balance
      sheet arrangements




We
      have
      no off-balance sheet arrangements, financings or other relationships with
      unconsolidated entities known “Special Purpose Entities.”




**Recent
      Accounting Pronouncements**




In
      February 2006, the Financial Accounting Standards Board (“FASB”) issued
      Statement of Financial Accounting Standard 155 - Accounting for Certain Hybrid
      Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
      SFAS 133 to interests in securitized financial assets so that similar
      instruments are accounted for similarly regardless of the form of the
      instruments. SFAS 155 also allows the election of fair value measurement at
      acquisition, at issuance, or when a previously recognized financial instrument
      is subject to a re-measurement event. Adoption is effective for all financial
      instruments acquired or issued after the beginning of the first fiscal year
      that
      begins after September 15, 2006. Early adoption is permitted. The adoption
      of SFAS 155 is not expected to have a material effect on the Company’s
      consolidated results of operations and  financial
      condition





In
      March 2006, the FASB issued Statement of Financial Accounting Standard 156
      - Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
      separately recognized servicing assets and servicing liabilities be initially
      measured at fair value. SFAS 156 permits, but does not require, the subsequent
      measurement of servicing assets and servicing liabilities at fair value.
      Adoption is required as of the beginning of the first fiscal year that begins
      after September 15, 2006. Early adoption is permitted. The adoption of SFAS
      156 is not expected to have a material effect on the Company’s consolidated
      results of operations and financial condition.





In
      July
      2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
      in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48
      clarifies the accounting and reporting for uncertainties in income tax law.
      This
      Interpretation prescribes a comprehensive model for the financial statement
      recognition, measurement, presentation and disclosure of uncertain tax positions
      taken or expected to be taken in income tax returns. This Interpretation shall
      be effective for fiscal years beginning after December 15, 2006. Earlier
      adoption is permitted as of the beginning of an enterprise’s fiscal year,
      provided the enterprise has not yet issued financial statements, including
      financial statements for any interim period for that fiscal year.




17
 Index




The
      cumulative effects, if any, of applying this Interpretation will be recorded
      as
      an adjustment to retained earnings as of the beginning of the period of
      adoption.  The adoption of FIN 48 is not expected to have a material
      effect on the Company’s consolidated results of operations and financial
      condition.





In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      157,
*“Fair Value Measurements”* (“SFAS No. 157”).  SFAS No. 157 defines
      fair value, establishes a framework for measuring fair value and expands
      disclosure of fair value measurements.  SFAS No. 157 applies under other
      accounting pronouncements that require or permit fair value measurements and
      accordingly, does not require any new fair value measurements.  SFAS No.
      157 is effective for financial statements issued for fiscal years beginning
      after November 15, 2007.  The Company is in the process of evaluating
      the impact of the adoption of SFAS No. 157 will have on the Company’s
      consolidated results of operations and financial condition and is currently not
      in a position to determine such effect.





In
      September 2006, the staff of the SEC issued Staff Accounting Bulletin No. 108
      ("SAB 108") which provides interpretive guidance on how the effects of the
      carryover or reversal of prior year misstatements should be considered in
      quantifying a current year misstatement. SAB 108 becomes effective in fiscal
      2007. Adoption of SAB 108 is not expected to have a material impact on the
      Company's consolidated results of operations and financial
      position.





In
      December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
      Registration Payment Arrangements,” which specifies that the contingent
      obligation to make future payments or otherwise transfer consideration under
      a
      registration payment arrangement should be separately recognized and measured
      in
      accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
      00-19-02 is required for fiscal years beginning after December 15, 2006. We
      are
      currently evaluating the expected effect of EITF 00-19-02 on our consolidated
      financial statements and are currently not yet in a position to determine such
      effects.





On
      February 15, 2007, FASB issued SFAS No. 159, entitled “The Fair Value Option for
      Financial Assets and Financial Liabilities.”  The guidance in SFAS No.
      159 “allows” reporting entities to “choose” to measure many financial
      instruments and certain other items at fair value.  The objective
      underlying the development of this literature is to improve financial reporting
      by providing reporting entities with the opportunity to reduce volatility in
      reported earnings that results from measuring related assets and liabilities
      differently without having to apply complex hedge accounting provisions, using
      the guidance in SFAS No. 133, as amended, entitled “Accounting for Derivative
      Instruments and Hedging Activities”.  The provisions of SFAS No. 159
      are applicable to all reporting entities and is effective as of the beginning
      of
      the first fiscal year that begins subsequent to November 15, 2007. We do not
      believe this new accounting standard will have a material impact on our
      financial condition or results of operations





**Forward
      Looking Statements**





We
      are including the following
      cautionary statement in this Annual Report of Form 10-KSB 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 in the next several
      months,  delays in the manufacture of  new and existing
      products by us or




18
 Index




third
      party contractors, the loss of
      any key employees, the outcome of existing litigations, delays in obtaining
      federal, state or local regulatory clearance for new installations and
      operations, changes in governmental regulations, the location of the
      manufacturing in Israel, and availability of capital on terms satisfactory
      to
      us.  We are also subject to numerous Risk Factors relating to
      manufacturing, regulatory, financial resources and personnel as described in
      the
      Company’s Form SB-2  (File No. 333-132849) as filed with the
      Securities and Exchange Commission, on November 13, 2007.  We disclaim
      any obligation to update any forward-looking statements to reflect events or
      circumstances after the datehereof.





**Risks**





The
      medical infectious waste disposal industry is subject to extensive federal,
      state and local laws and regulations, both in the US and
      overseas.  Our business requires us to obtain many different approvals
      and permits or other types of governmental authorizations for each jurisdiction
      in which we operate.  In addition, there can be no assurance that
      business will become profitable in the future and that additional losses and
      negative cash flows from operations may require us to obtain additional funds.
      No assurance can be given that we will be successful in obtaining additional
      funds, whether publicly or privately or through equity or debt.  Any
      such financing could be highly dilutive to stockholders. Other risks that we
      face are more specifically defined as follows:





**Manufacturing**





At
      present, the SteriMed is manufactured at our own facility in
      Israel.  The SteriMed Junior is currently manufactured by a
      third-party manufacturer in Israel.  While we expect our manufacturing
      and product development work to continue in Israel, due to the limited capacity
      as well as the high costs of transportation from Israel, we continue to seek
      sub-assembly manufacturers to enable us to reduce the cost of the SteriMed
      Junior as well as alternative locations for the manufacture of our SteriMed
      Junior.  As we receive interest from these manufacturers, we will then
      undertake a detailed analysis to ensure that they are sufficiently qualified
      to
      manufacture our unit and that their costs are acceptable to us.  If we
      fail to effectively manufacture or cause the manufacture of or fail to develop
      a
      market to increase the manufacturing needs for our SteriMed Systems, we will
      likely be unable to recover the losses we will have incurred in attempting
      to
      produce and market these products and technologies and may be unable to make
      sales or ever become profitable.




We
      are
      dependent on third-party suppliers for the components of our SteriMed and
      SteriMed Junior Systems and also for the Ster-Cid® disinfectant.  At
      present there are no supply contracts in place and our requirements are
      fulfilled against purchase orders.  There can be no assurances that we
      will have adequate supplies of materials.  Although we believe that
      the required components are readily available and can be provided by other
      suppliers, delays may be incurred in establishing relationships or in waiting
      for quality control assurance with other manufacturers for substitute
      components




**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.  Our
      business requires us to comply with these extensive laws and regulations and
      also to obtain permits, authorizations, approvals, certificates or other types
      of governmental permission from all states and some local jurisdictions where
      we
      sell or lease the SteriMed Systems.  The SteriMed has been approved
      for marketing in 46 states and the SteriMed Junior in 42 states.  It
      is our objective to obtain approvals for marketing in the remaining
      states.  The Ster-Cid® has been registered in 50
      states.  Our ability to obtain such approvals in the remaining states
      and the timing and cost to do so, if successful, cannot be easily determined
      nor
      can the receipt of ultimate approval be assumed.




In
      markets outside the U.S., our ability to market the SteriMed Systems is governed
      by the regulations of the specific country.  In foreign countries, we
      primarily market through distributors and we rely on them to




19
 Index




obtain
      the necessary regulatory approvals to permit the SteriMed Systems to be marketed
      in that country.  We are therefore dependent on the distributors to
      process these applications where required.  In many of these
      countries, we have no direct control or involvement in the approval process,
      and
      therefore we cannot estimate when our product will be available in that
      market.




State
      and
      local regulations often change and new regulations are frequently
      adopted.  Changes in the applicable regulations could require us to
      obtain new approvals or permits, to change the way in which we operate or to
      make changes to our SteriMed Systems.  We might be unable to obtain
      the new approvals or permits that we require and the cost of compliance with
      new
      or changed regulations could be significant.  In the event we are not
      in compliance, we can be subject to fines and administrative, civil or criminal
      sanctions or suspension of our business.




The
      approvals or permits that we require in foreign countries may be difficult
      and
      time-consuming to obtain.  They may also contain conditions or
      restrictions that limit our ability to operate efficiently, and they may not
      be
      issued as quickly as we need (or at all).  If we cannot obtain the
      approval or permits that we need when we need them, or if they contain
      unfavorable conditions, it could substantially impair our ability to sell the
      SteriMed Systems in certain jurisdictions or to import the system into the
      United States.




**Intellectual
      Property**





We
      regard
      certain aspects of our products, processes, services and technology as
      proprietary, and we have trademarks and patents for certain aspects of the
      SteriMed Systems.  Our ability to compete successfully will depend in
      part on our ability to protect our proprietary rights and to operate without
      infringing on the proprietary right of others, both in the United States and
      abroad. Our proprietary rights to Ster-Cid® relate to an exclusive worldwide
      license that we had obtained from a third party manufacturer in Europe to
      purchase the Ster-Cid® disinfectant.  The patent positions of medical
      waste technology companies generally involve complex legal and factual
      questions.  While patents are important to our business, the
      regulatory approvals are more critical in permitting us to market our
      products.  We may also apply in the future for patent protection for
      uses, processes, products and systems that we develop.  There can be
      no assurance that any future patent for which we apply will be issued, that
      any
      existing patents issued will not be challenged, invalidated or circumvented,
      that the rights granted thereunder will provide any competitive advantage,
      that
      third-parties will not infringe or misappropriate our proprietary rights or
      that
      third parties will not independently develop similar products, services and
      technology.  We may incur substantial costs in defending any patent or
      license infringement suits or in asserting any patent or license rights,
      including those granted by third parties, the expenditure of which we might
      not
      be able to afford.  An adverse determination could subject us to
      significant liabilities to third parties, require us to seek licenses from
      or
      pay royalties to third parties or require us to develop appropriate alternative
      technology.  There can be no assurance that any such licenses would be
      available on acceptable terms or at all, or that we could develop alternate
      technology at an acceptable price or at all.  Any of these events
      could have a material adverse effect on our business and
      profitability.




We
      may
      have to resort to litigation to enforce our intellectual property rights,
      protect our trade secrets, determine the validity and scope of the proprietary
      rights of others, or defend ourselves from claims of infringement, invalidity
      or
      unenforceability.  Litigation may be expensive and divert resources
      even if we win.  This could adversely affect our business, financial
      condition and operating results such that it could cause us to reduce or cease
      operations.




Developing
      products based upon new technologies can result in litigation based on
      allegations of patent and other intellectual property
      infringement.  While no infringement claims have been made or
      threatened against us, we cannot assure you that third parties will not assert
      infringement claims against us in the future, that assertions by such parties
      will not result in costly litigation, or that they will not prevail in any
      such
      litigation.  In addition, we cannot assure you that we will be able to
      license any valid and infringed patents from third parties on commercially
      reasonable terms or, alternatively, be able to redesign products on a
      cost-effective basis to avoid infringement.




20
 Index




**Marketing**





Our
      future growth and profitability depend in part on our ability to respond to
      technological changes and successfully develop and market new products that
      achieve significant market acceptance.  This industry has been
      historically marked by very rapid technological change and the frequent
      introductions of new products.  There is no assurance that we will be
      able to develop new products that will realize broad market
      acceptance.




Competition




There
      are
      numerous methods of handling and disposing of RMW, of which our technology
      is
      one of the available systems.  We believe that our SteriMed Systems,
      due to their ability to be used on site, competitive cost and ease of use,
      offer
      a significant advantage over RMW systems offered by our
      competitors.  We realize, however, there can be no assurance that a
      different or new technology may not supplant us in the
      market.  Further, we cannot guarantee that in the event that we are
      successful in the deployment of our systems in the marketplace, the predominant
      companies in the field, which have substantially greater resources and market
      visibility than us, will not try to develop similar systems.




**Liability**





The
      malfunction or misuse of our SteriMed Systems may result in damage to property
      or persons, as well as violation of various health and safety regulations,
      thereby subjecting us to possible liability.  Although our insurance
      coverage is in amounts and deductibles customary in the industry, there can
      be
      no assurance that such insurance will be sufficient to cover any potential
      liability.  We currently retain a claims made worldwide product
      liability insurance policy.  Further, in the event of either adverse
      claim experience or insurance industry trends, we may in the future have
      difficulty in obtaining product liability insurance or be forced to pay very
      high premiums, and there can be no assurance that insurance coverage will
      continue to be available on commercially reasonable terms or at
      all.  In addition, there can be no assurance that insurance will
      adequately cover any product liability claim against us.  A successful
      product liability, environmental or other claim with respect to uninsured
      liabilities or in excess of insured liabilities could have a material adverse
      effect on our business, financial condition and operations.  To date,
      no claims have been made against us.  We believe that our insurance
      coverage is adequate to cover any claims made, and we review our insurance
      requirement with our insurance broker on an annual basis.




**Financial**




We
      raised
      net proceeds of $4.4 million in a placement of Series F Convertible Preferred
      Stock in December 2007. These funds will be utilized to support our marketing
      efforts, obtain additional regulatory approvals both domestically and overseas
      as well as to provide for our increased manufacturing. The net proceeds from
      this placement should fulfill our capital needs for the upcoming fiscal year,
      based upon our present business plan.




In
      the
      past, we have experienced significant losses and negative cash flows from
      operations.  If these trends continue in the future, it could
      adversely affect our financial condition.  For the years ended
      September 30, 2007 and September 30, 2006, we experienced net losses of
      approximately $3.25 and $3.4 million from operations
      respectively.  Further, we have incurred negative cash flows from
      operations of approximately $2.8 million and $2.9 million for the years ended
      September 30, 2007 and 2006, respectively.   These results have
      had a negative impact on our financial condition.  There can be no
      assurance that our business will become profitable in the future or that
      additional losses and negative cash flows from operations will not be
      incurred.  If these trends continue in the future, it could have a
      material adverse effect on our financial condition




Our
      working capital balance decreased to $1,153,116 at September 30, 2007 as
      compared to $1,653,302 as of September 30, 2006. This balance is still lower
      than our optimal requirements which may continue to impact our ability to
      produce Sterimed units and attract new customers, and could have a material
      adverse effect on our business.




21
 Index




**Personnel**





Our
      success is highly dependent on the continued efforts of Dwight Morgan,
      Chairman, President and Chief Executive Officer, Jonathan Joels, Chief
      Financial Officer, Treasurer and Secretary, and George Aaron, Executive Vice
      President – International Business Development, who are our key management
      persons.  Should operations expand, we will need to hire persons with
      a variety of skills and competition for these skilled individuals could be
      intense.  Neither Mr. Mr. Morgan, Mr.; Aaron nor Mr. Joels plan to
      retire or leave us in the near future.  However, there can be no
      assurance that we will be successful in attracting and/or retaining key
      personnel in the future.  Our failure to do so could adversely affect
      our business and financial condition.  We do not have employment
      agreements with or carry any “key-man” insurance on the lives of any of our
      officers or employees.




**ITEM
      7.FINANCIAL
      STATEMENTS**





**Index
                to Consolidated Financial Statement**
            **Page**
              **Number**Report
                of Independent Registered Public Accounting
                Firm
            F-2Consolidated
                Balance Sheet as of September 30,
                2007
            F-3Consolidated
                Statements of Operations for
                the years ended September 30, 2007 and 2006
            F-4Consolidated
                Statements of
                Stockholders' Equity for the years ended September 30, 2007 and
                2006
            F-5Consolidated
                Statements of Cash Flows for the
                years ended September 30, 2007 and 2006
            F-6Notes
                to the Consolidated Financial
                Statements
            F-7
                to F-20




**ITEM
        8.**CHANGES
        IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURE****


None




**ITEM
        8A.**CONTROLS
&
        PROCEDURES****





Our
      principal executive officer and principal financial officer, based on their
      evaluation of our disclosure controls and procedures (as defined in Rules 13a-15
      (c) and 15d-15 (c) of the Securities Exchange Act of 1934) as of September
      30,
      2007 have concluded that our disclosure controls and procedures are
      effective to ensure that material information relating to us and our
      consolidated subsidiaries are recorded, processed, summarized and reported
      within the time periods specified by the SEC’s rules and forms, particularly
      during the period in which this annual report has been prepared.




Our
      principal executive officer and principal financial officer have concluded
      that
      there were no significant changes in our internal controls or in other factors
      that could significantly affect these controls during the fourth quarter ended
      September 30, 2007, the date of their most recent evaluation of such
      controls, and that there were no significant deficiencies or material weaknesses
      in our internal controls.




**ITEM
      8B.OTHER
      INFORMATION**





None




22
 Index





**PART
      III**




**ITEM
        9.**DIRECTORS,
        EXECUTIVE OFFICERS, PROMOTERS
        AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16 (a) OF THE EXCHANGEACT****




**Directors
      and Executive Officers**





As
      of
      December 10, 2007, the directors and executive officers of the Company
      were:





Name
            Age
            PositionDwight
                Morgan
            46
            Chairman,
                President and Chief Executive OfficerGeorge
                Aaron
            55
            Executive
                Vice President – International Business DevelopmentJonathan
                Joels
            51
            Chief
                Financial Officer, Treasurer, Secretary and DirectorKenneth
                C. Leung (1)(2)
            63
            DirectorRoger
                W. Miller (1)
            61
            Director


____________________


(1)           Member
      of the Audit Committee


(2)           Member
      of the Compensation/Option Committee





The
      principal occupations and brief summary of the background of each Director
      and
      executive officer is as follows:





**Dwight
      Morgan**.  Mr. Morgan has been Chairman of the Board since
      February 2007 and became President and CEO in November 2006. Mr. Morgan has
      served as our Chief Engineering Consultant since 2003.  From 1999 to 2003,
      he was a founder, President and Chief Operating Officer of POM Group, which
      had
      developed an alternative metal fabricating technology.  For 17 years
      to 1999, he served in various management positions at FANUC Robotics North
      America, with his last position being General Manager – Automation System
      Group.  Mr. Morgan began his career in 1982 as a systems engineer at
      General Motor Technical Center. Mr. Morgan is a member of the Michigan Economic
      Development Corporation’s Advanced Manufacturing Strategic Roundtable and is
      Chairman of the Corporate Development Committee of the American Diabetes
      Association. Mr. Morgan received a BS in Mechanical Engineering from Cornell
      University.




**George
      Aaron****.**  Mr. Aaron has been Executive
      Vice President – International Business Development since February 2007. Prior
      thereto Mr. Aaron had served as Chairman of the Board since June 1999 and as
      President and CEO from 1999 to November 2006.  He has served as a
      Director since 1999 and had previously served as a Director from 1992 until
      1996.  From 1992 to 1998, Mr. Aaron was the co-Founder and CEO of
      Portman Pharmaceuticals, Inc. and in 1994 co-founded CBD Technologies, Inc.
      of
      which he remains a Director.  Mr. Aaron also serves on the Board of
      Directors of DeveloGen AG, who merged with Peptor Ltd. (the company that had
      acquired Portman Pharmaceuticals).  From 1983 to 1988, Mr. Aaron was
      the Founder and CEO of Technogenetics Inc. (a diagnostic
      company).  Prior to 1983, Mr. Aaron was Founder and Partner in Portman
      Group, Inc. and headed international business development at Schering Plough.
      Mr. Aaron is a graduate of the University of Maryland.




23
 Index




**Jonathan
      Joels****.**  Mr. Joels has been CFO,
      Treasurer, Secretary and a Director since June 1999.  From 1992 to
      1998, Mr. Joels was the co-founder and CFO of Portman Pharmaceuticals, Inc.
      and
      in 1994 co-founded CBD Technologies, Inc.  Mr. Joels’ previous
      experience included serving as a principal in Portman Group, Inc., CFO of London
      & Leeds Corp. and Chartered Accountant positions with both Ernst & Young
      and Hacker Young between 1977 and 1981.  Mr. Joels qualified and was
      admitted as a Chartered Accountant to the Institute of Chartered Accountants
      in
      England and Wales in 1981 and holds a BA Honors Degree in Accountancy (1977)
      from the City of London.




**Kenneth
      C. Leung.******Mr. Leung has been a Director since
      December 6, 2006**.**Since 1995, Mr. Leung has been a Managing
      Director of Sanders Morris Harris Group and is engaged in investment banking
      in
      environmental and alternative energy, and is the Chief Investment Officer of
      its
      Environmental Opportunity Funds.  From 1978 to 1994, Mr. Leung had
      served as a Managing Director at Smith Barney, and for more than ten years
      prior
      he served in different positions at other investment banking
      institutions.  He currently serves as Chairman of the Board of
      American Ecology Corp., (NASDAQ: ECOL), and a director of SystemOne Technologies
      Inc. (other OTC: STEK.PK) and AeroGrowth International, Inc.  Mr.
      Leung received an MBA in Finance from Columbia University and a BA in History
      from Fordham University.




**Roger
      W. Miller.******Mr. Miller has been a Director
      since February 23, 2007.  Since 1992, Mr. Miller has been actively
      involved as a manager of personal portfolios of investments in private
      venture-stage companies and small public companies.  Mr. Miller had
      served as a director at some of these companies. He is also a financial
      consultant and expert witness in valuation cases, merger-related transactions
      and work-out and restructuring situations.  Prior to 1992, Mr. Miller
      held positions at Cambridge Capital where he was Co-Chairman of the private
      equity affiliate of Baker, Nye and held the position of General Partner and
      Managing Director at Salomon Brothers.  Mr. Miller holds degrees in
      both Law and Economics from Cambridge University and London University,
      respectively.




Effective
      December 4, 2007, Dr. Sol
      Triebwasser has resigned his directorship with the Company.  He will
      commence the role of Director Emeritus.  Dr. Triebwasser will continue
      his directorship on the board of the Company’s subsidiary M.C.M. Environmental
      Technologies, Inc.





Mr.
      Aaron
      and Mr. Joels are brothers-in-law.




The
      Board
      of Directors met either in person or telephonically seven times in the fiscal
      year ended September 30, 2007.  Each of the Directors attended at
      least 75% of the meetings.




The
      Board
      of Directors has standing Audit and Compensation/Option Committees.





The
      Audit
      Committee reviews with our independent public accountants the scope and timing
      of the accountants' audit services and any other services they are asked to
      perform, their report on our financial statements following completion of their
      audit and our policies and procedures with respect to internal accounting and
      financial controls.  In addition, the Audit Committee reviews the
      independence of the independent public accountants and makes annual
      recommendations to the Board of Directors for the appointment of independent
      public accountants for the ensuing year.  The Audit Committee met four
      times during the fiscal year ended September 30, 2007.  The Audit
      Committee has not designated an Audit Committee Financial Expert.  We
      are in the process of revising the Committee Charters and the Code of Ethics,
      as
      well as reorganizing the Committees.





The
      Compensation/Option Committee reviews and recommends to the Board of Directors
      the compensation and benefits of all officers of the Company, reviews general
      policy matters relating to compensation and benefits of employees of the Company
      and administers our Stock Option Plans.  The compensation/Option
      committee met three times during the fiscal year ended September 30,
      2007.




24
 Index


**Compensation
      of Directors**




Directors
      who are also employees are not paid any fees or additional compensation for
      services as members of our Board of Directors or any committee
      thereof.  Non-employee Board members are entitled to an annual fee of
      $20,000 and 20,000 options under our 2002 Stock Option Plan, and may receive
      additional option grants at the discretion of the Board. On January 4,
      2006, we granted options for the purchase of 20,000 shares each of common stock
      exercisable at $2.20 per share under our 2002 Stock Option Plan to Dr.
      Triebwasser and Dr. Jeffrey Hymes, who were then outside
      directors.  On March 5, 2007, these options were re-priced to $1.10
      per share, representing 110% of the then market price of the common
      stock.  On December 1, 2006, we granted options for the purchase of
      20,000 shares each of common stock at an exercise price of $0.55 per share
      to
      Dr. Triebwasser and Dr. Hymes (who resigned his directorship in February 2007).
       On December 6, 2006 and February 23, 2007, respectively, we granted
      options for the purchase of 20,000 shares each of common stock at exercise
      prices $0. 55 and $0.52 per share, respectively, to Mr. Leung and Mr. Miller
      upon becoming directors.   All of these options are for a 10 year
      term, vesting after six months from grant as to one-eighth of the options
      granted, and the balance vesting in equal monthly installments over the next
      forty-two months.  There are no deferred compensation arrangements
      with any of our independent directors.




**Compliance
      with Section 16 (a)**




Based
      solely in our review of copies of Forms 3 and 4 received by us or
      representations from certain reporting persons, we believe that, during the
      fiscal year ended September 30, 2007, there was compliance with Section 16
      (a)
      filing requirements applicable to our officers, directors and 10%
      stockholders.




**ITEM
      10.EXECUTIVE
      COMPENSATION**





The
      following table sets forth the aggregate cash compensation paid by us to (i)
      our
      Chief Executive Officer and (ii) our most highly compensated officers whose
      cash
      compensation exceeded $100,000 for services performed during the year ended
      September 30, 2007.




**Annual
                    Compensation**
                **Long
                    Term Compensation**Awards
                PayoutsName
                    and
                  Principal
                    Position
                Year
                Salary
                  ($)
                Bonus
                  ($)
                Other
                    Annual
                  Compensation
                  ($)
                Restricted
                    Stock
                  Award(s)
                  ($)
                Securities
                  Underlying
                  Options
                  SARs
                  (#)
                LTIP
                  Payouts
                  ($)
                All
                    Other
                  compensation
                  ($)Dwight
                    Morgan
                  Chairman,
                    President & CEO
                2007
                  2006
                221,154
                  -0-
                20,000
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-Jonathan
                    Joels
                  CFO
                2007
                  2006
                  2005
                220,000
                  220,000
                  176,000
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
                -0-
                  -0-
 George
                        Aaron
                      Exec.
                        VP –
                      Int'l
                        Business Development
                    2007
                      2006
                      2005
                    178,596
                      240,000
                      240,000
                    -0-
                      -0-
                      -0-
                    60,000
                      -0-
                      -0-
                    -0-
                      -0-
                      -0-
                    -0-
                      -0-
                      -0-
                    -0-
                      -0-
                      -0-
                    60,000
                      -0-
                      -0-


We
      do not
      have any written employment agreements with any of our executive
      officers.  Mr. Morgan, Mr. Joels and Mr. Aaron have been paid annual
      base salaries of $250,000, $220,000, and $137,000 respectively and each receives
      a monthly car allowance in the amount of $1,000.  Messrs. Morgan,
      Joels and Aaron are reimbursed for other expenses incurred by them on behalf
      of
      the Company in accordance with Company policies.  Mr. Morgan’s annual
      compensation in the table above is pro-rated based on his start date of November
      13, 2006.  In February 2007, upon becoming Executive Vice President –
International Business Development, Mr. Aaron’s compensation was changed to an
      annual base salary of $137,000, plus incentives. Mr. Aaron’s annual compensation
      in the table above is based on his position of President & CEO prior to
      February 2007, and his position of Executive Vice President, for the balance
      of
      the fiscal year.




25
 Index




Upon
      commencement of his employment, in November 2006, Mr. Morgan also received
      a
      sign-on bonus of $20,000, and was granted an option for 350,000 shares of our
      common stock at an exercise price of $0.60 per share (the fair market value
      on
      the date of grant), with vesting after six months as to 1/8 of the options
      granted and the balance vesting at 1/48 per month (of the total granted) over
      the next 42 months under our 2002 Stock Option Plan.





On
      January 25, 2007, Messrs. Joels and Aaron were granted options of 350,000 shares
      of our common stock at an exercise price of $0.60 per share (the fair market
      value on the date of grant) with vesting after six months as to 1/8 of the
      options granted and the balance vesting at 1/48 per month (of the total granted)
      over the next 42 months under our 2002 Stock Option Plan.





We
      do not
      have any annuity, retirement, pension or deferred compensation plan or other
      arrangements under which any executive officers are entitled to participate
      without similar participation by other employees.  As of September 30,
      2007, under our 401(k) plan there was no matching contribution by the
      Company.




Individual
                Grants
 
 (a)
              (b)
              (c)
              (d)
              (e)Name
              Number
                  of
                Securities
                Underlying
                Options/SARS
                Granted
                  (#)
              %
                  of Total
                Options/SARS
                Granted
                  to
                Employee(s)
                in
                  Fiscal Year
              Exercise
                On
                  Base
                Price
                  ($/Sh) *
              Expiration
                  DateDwight
                  Morgan
              350,000
              31.8
              $0.60
              11/12/16Jonathan
                  Joels
              350,000
              31.8
              $0.60
              01/25/17George
                  Aaron
              350,000
              31.8
              $0.60
              01/25/17
  
 **Fiscal
                  Year End Option Value**
 
 **Name**
              **Number
                  of Securities**
                **Underlying
                  Unexercised**
                **Options
                  at Sept. 30, 2007**
                **Exercisable/Unexercisable**
              **Value
                  of****Unexercised**
                **In-the
                  Money****Options**
                **at
                  Sept. 30, 2007**
                **Exercisable
                  ($)**Dwight
                  Morgan
              89,569/300,431
              $-
                  0  -Jonathan
                  Joels
              134,565/335,435
              $-
                  0  -George
                  Aaron
              134,565/335,435
              $-
                  0  -
  26
 Index
  **Stock
      Option Plan**





In
      May
      2002, our Board of Directors adopted the 2002 Stock Option Plan (“2002 Plan”)
      which was ratified at our stockholder meeting of June 26, 2002. At September
      30,
      2006, 700,000 shares of common stock were reserved for issuance under the 2002
      Plan, of which options for an aggregate of 506,050 shares were granted and
      outstanding, and 193,950 shares were available for future
      grants.  Between October 1, 2006 and March 31, 2007, options were
      granted under the 2002 Plan for an aggregate of 1,180,000 shares, of which
      1,036,050 shares were granted subject to stockholder approval of an increase
      in
      the number of shares of common stock underlying the 2002 Plan. These options
      which were granted to officers, directors and employees are at an exercise
      price
      ranging from $0.52 to $0.80 per share. They are for a 10 year term, vesting
      after six months as to one-eighth of the options granted, and the balance
      vesting in equal monthly installments over the next forty-two
      months.  The vesting schedule of these options begins, on the date
      approved by our Board of Directors. On December 1, 2006, the Board of Directors
      voted to amend the 2002 Plan by increasing to 1,500,000 the total number of
      shares of common stock reserved for issuance thereunder, subject to stockholder
      approval, and on February 23, 2007, the Board raised the number of shares to
      2,500,000, subject to stockholder approval.  Stockholder approval was
      obtained as of February 26, 2007 by the written consent of the holders of more
      than a majority of outstanding voting shares, and notice thereof was given
      to
      the other stockholders. Under the 2002 Plan, options may be awarded to
      employees, directors and consultants.  These options may be qualified
      or not qualified pursuant to the regulations of the Internal Revenue
      Code.




On
      January 4, 2006, we granted options for the purchase of an aggregate of 458,000
      shares (consisting of 393,000 to employees/directors and 65,000 to
      non-contractual consultants) of common stock under the
      2002  Plan.  These options are for a 10 year term, vesting
      after six months as to one-eighth of the options granted, and the balance
      vesting in equal monthly installments over the next forty-two months at an
      exercise price of $2.20 per share.





On
      March
      5, 2007, we re-priced an aggregate of 458,000 shares which were originally
      granted on January 4, 2006.  The options were originally issued at an
      exercise price of $2.20 per share and were re-priced at $1.10 per share,
      representing 110% of the then market price of the common stock.





During
      1993, we adopted an employee stock option plan and a stock option plan for
      non-employee directors.  The employee stock option plan provides for
      the granting of options to purchase not more than 50,000 shares of common
      stock.  The options issued under the plan may be incentive or
      nonqualified options.  The exercise price for any incentive options
      cannot be less than the fair market value of the stock on the date of the grant,
      while the exercise price for nonqualified options will be determined by the
      option committee.  The Directors’ stock option plan provides for the
      granting of options to purchase not more than 10,000 shares of common
      stock.  The exercise price for shares granted under the Directors’
plan cannot be less than the fair market value of the stock on the date of
      the
      grant.  The 1993 plan expired May 25, 2003.  As of September
      30, 2007, there remain options for 31,500 shares outstanding there under, which
      terminate in 2010.





As
      of
      September 30, 2007, we had outstanding options granted outside our plans for
      an
      aggregate of 130,000 shares of common stock at exercise prices ranging from
      $0.70 to $1.75 per share, with expiration dates of September 2009 and July
      2011.




**Compensation
      Committee Interlocks and Insider Participation**





During
      Fiscal 2007 members of the Company’s Compensation/Option Committee were Sol
      Triebwasser, Ph.D. and Kenneth C. Leung, neither is an executive officer or
      employee of the Company or its subsidiaries.




**ITEM
        11.**SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
        MANAGEMENT AND RELATED STOCKHOLDER
        MATTERS****





The
      following table sets forth, as of December 1, 2007, certain information
      regarding the beneficial ownership of Common Stock by (i) each person who is
      known by the Company to own beneficially more than




27
 Index




five
      percent of the outstanding Common Stock, (ii) each director and executive
      officer of the Company, and (iii) all directors and executive officers as a
      group:





Name
                of
              Beneficial
                Owner*
            Position
                with Company
            Amount
                and
              Nature
                of
              Beneficial
              Ownership
                (1) of
              Common
                Stock
            Percentage
                of
              Securities
                ***Austin
                W. Marxe and
              David
                M. Greenhouse
              527
                Madison Ave.
              NY,
                NY 10002
            Holder
                of over five percent
            9,440,037
                (2)
            79.3%Dolphin
                Offshore Partners LP
              120
                East 17th
                Street
              New
                York, NY 10003
            Holder
                of over five percent
            3,375,000
                (3)
            46.7%Bonanza
                Master Fund Ltd.
              300
                Crescent Ct Ste. 250
              Dallas,
                TX 75201
            Holder
                of over five percent
            2,799,977(4)
            44.6%Vision
                Opportunity Master Fund Ltd.
              20
                West 55th
                Street
              New
                York, NY 10019
            Holder
                of over five percent
            423,000(5)
            9.9%Shrikant
                Mehta
              Combine
                International
              354
                Indusco Court
              Troy,
                Michigan 48083
            Holder
                of over five percent
            210,894
            5.5%Dwight
                Morgan
            Chairman
                of the Board; Chief Executive Officer; President
            105,832
                (6)
            2.7%George
                Aaron
            Director,
                Executive Vice President –Int’l Business Development
            393,341
                (7)
            9.8%Jonathan
                Joels
            Director;
                ChiefFinancial
                Officer; Vice President; Treasurer;Secretary
            388,055
                (8)
            9.7%Sol
                Triebwasser, Ph.D.
            Director
            19,236(9)
            **Kenneth
                C. Leung
            Director
            10,582(10)
            **Roger
                W. Miller
            Director
            40,474(11)
            1.1%All
                executive officers and Directors as a group
              (6
                persons)
            
            957,520(12)
            22.2%





*
            Address
                of all holders except  those listed with a specific address
                above is, One University Plaza, Suite 400, Hackensack, New Jersey
                07601.


**
            Less
                than one percent (1%)


***
            The
                ownership as reflected above does not take into consideration the
                Company’s Series F Preferred Stock Placement of December 6,
                2007.





28
 Index




(1)
            Includes
                voting and investment power, except where otherwise noted.  The
                number of shares beneficially owned includes shares each beneficial
                owner
                and the group has the right to acquire within 60 days of September
                30,
                2007 pursuant to stock options, warrants and convertible
                securities.




(2)
            Consists
                of (A)(i)1,034,482 shares direct, (ii)2,656,092 shares underlying
                warrants
                presently exercisable, (iii) 1,045,718 shares underlying Series D
                Convertible Preferred Stock and (iv) 2,343,750 shares underlying
                Series E
                Convertible Preferred Stock held by Special Situations Private Equity
                Fund, L.P., (B)(i) 317,037 shares direct, (ii) 814,274 shares underlying
                warrants presently exercisable, (iii) 320,685 shares underlying Series
                D
                Convertible Preferred Stock and (iv) 718,750 shares underlying Series
                E
                Convertible Preferred Stock held by Special Situations Fund III,
                QP, L.P.,
                and (C)(i) 27,790 shares direct, (ii) 71,088 shares underlying warrants
                presently exercisable, (iii) 27,871 shares underlying Series D Convertible
                Preferred Stock and (iv) 62,500 shares underlying Series E Convertible
                Preferred Stock held by Special Situations Fund III,
                L.P.   MGP Advisors Limited (“MGP”) is the general partner
                of the Special Situations Fund III, QP, L.P. and the general partner
                of
                and investment adviser to the Special Situations Fund III,
                L.P.  AWM Investment Company, Inc. (“AWM”) is the general
                partner of MGP and the investment adviser to the Special Situations
                Fund
                III, QP, L.P. and the Special Situations Private Equity Fund,
                L.P.  Austin W. Marxe and David M. Greenhouse are the principal
                owners of MGP and AWM.  Through their control of MGP and AWM,
                Messrs. Marxe and Greenhouse share voting and investment control
                over the
                portfolio securities of each of the funds listed
                above.




(3)
            Consists
                of (i) 2,250,000 shares underlying Series E Convertible Preferred
                Stock
                and (ii) 1,125,000 shares underlying warrants presently
                exercisable.




(4)
            Consists
                of (i) 376,200 shares, (ii) 1,976,012 shares underlying Series D
                Convertible Preferred Stock and (iii) 447,765 shares underlying warrants
                presently exercisable.




(5)
            Includes
                423,000 shares underlying Series E Convertible Preferred Stock. Excludes
                (i) 327,000 shares underlying Series E Convertible Preferred Stock
                and
                (ii) 375,000 shares underlying warrants. Pursuant to a Letter Agreement,
                dated February 27, 2007, between us and Vision Opportunity Master
                Fund,
                Ltd. (“Vision”), Vision covenanted not to convert its Series E Convertible
                Preferred Stock or exercise its warrants if such conversion or exercise
                would cause its beneficial ownership to exceed 9.99%, which provision
                Vision may waive, upon not less than 61 days prior notice to us,
                as
                reported in its Schedule 13G filed on March 12,
                2007.




(6)
            Includes
                105,832 shares underlying options presently exercisable and excludes
                284,168 shares underlying options which are currently not
                exercisable.




(7)
            Includes
                (i) 353 shares in retirement accounts, (ii) 8,199 shares underlying
                warrants presently exercisable, (iii) 5 shares jointly owned with
                his wife
                and (iv)153,330 shares underlying options presently exercisable,
                and
                excludes 316,670 shares underlying options which are currently not
                exercisable.




(8)
            Includes
                (i) 48,000 shares as trustee for his children, (ii) 8,116 shares
                underlying warrants presently exercisable, (iii) 153,330 shares underlying
                options presently exercisable, (iv) 17,241 shares in a retirement
                account,
                and excludes 316,670 shares underlying options which are currently
                not
                exercisable.




29
 Index




(9)
            Includes
                19,166 shares underlying options presently exercisable and excludes
                25,834
                shares underlying options which are currently not
                exercisable.




(10)
            Includes
                4,582 shares underlying options presently exercisable and excludes
                15,418
                shares underlying options which are currently not
                exercisable.




(11)
            Includes
                3,750 shares underlying options presently exercisable and excludes
                16,250
                shares underlying options which are currently not
                exercisable.




(12)
            Includes
                (i) 16,315 shares underlying warrants and (ii) 439,990 shares underlying
                options presently exercisable, and excludes 975,010 shares underlying
                options which are currently not
                exercisable.




**ITEM
      12.CERTAIN
      RELATIONSHIPS AND RELATED
      TRANSACTIONS**





On
      January 30, 2007, we borrowed the principal amount of $100,000 from Special
      Situations Private Equity Fund L.P, which is a principal stockholder, through
      the issuance of a 10% promissory note.  This note plus interest of
      $805.56 was repaid on the closing of the 2007 placement, which occurred during
      the month of March 2007.





We
      believe that the above referenced transaction was made on terms no less
      favorable to us than could have been obtained from an unaffiliated third
      party.  Furthermore, any future transactions or loans between us and
      our officers, directors, principal stockholders or affiliates will be on terms
      no less favorable to us than could be obtained from an unaffiliated third party,
      and will be approved by a majority of disinterested directors.


**ITEM
        13.**EXHIBITS
        AND REPORTS ON FORM
        8-K****


All
      references to Registrant’s Forms 8-K, 10-K, 10-QSB and 10-KSB include reference
      to File No. 0-11914.




2.1
            Agreement
                and Plan of Merger, dated January 20, 1997, by and among Registrant,
                Medical Diagnostics, Inc. (“Strax”), Strax Acquisition Corporation and US
                Diagnostic Inc. (incorporated by reference to Exhibit 1 to Registrant’s
                Form 8-K filed January 23, 1997).




2.2
            Agreement
                and Plan of Merger dated as of June 28, 1999 among Registrant, Caprius
                Merger Sub, Opus Diagnostics Inc. (“Opus”), George Aaron and Jonathan
                Joels (incorporated by reference to Exhibit 2.1 to Registrant’s Form 8-K,
                filed July 1, 1999 (the “July 1999 Form
                8-K”)).




3.1
            Certificate
                of Incorporation of Registrant. (incorporated by reference to Exhibit
                3
                filed with Registrant’s Registration Statement on Form S-2, and amendments
                thereto, declared effective August 18, 1993 (File No. 033-40201)
                (“Registrant’s Form S-2”)).




3.2
            Amendment
                to Certificate of Incorporation of Registrant filed November 5, 1993
                (incorporated by reference to Exhibit 3.2 to Registrant’s Form S-4, filed
                October 9, 1997(File No.
                333-37481)).




3.3
            Amendment
                to Certificate of Incorporation of Registrant, filed August 31, 1995,
                (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K for an
                event of August 31, 1995 (the “August 1995 Form
                8-K”)).




3.4
            Amendment
                to Certificate of Incorporation of Registrant, filed September 21,
                1995
                (incorporated by reference to Exhibit 3.1 to Registrant’s Annual Report on
                Form 10-K for the nine months ended September 30, 1995 (the “ANMR 1995
                Form 10-K”)).




30
 Index




3.5
            Certificate
                of Merger, filed on June 28, 1999 with the Secretary of State of
                the State
                of Delaware (incorporated by reference to Exhibit 3.1 of Form 8-K
                dated
                June 28, 1999).




3.6
            Certificate
                of Amendment to Certificate of Incorporation, filed April 1, 2005
                (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K, filed
                April 5, 2005 (the “April 2005 Form
                8-K”).




3.7
            Certificate
                of Designation of Series B Convertible Redeemable Preferred Stock
                of
                Registrant (incorporated by reference to Exhibit 3.1 to Registrant’s Form
                8-K, filed September 2, 1997).




3.8
            Certificate
                of Designations Preferences and Rights of Series D Convertible Preferred
                Stock (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K,
                filed for an event of February 17, 2006 (the “February 2006 Form
                8-K”)).




3.9
            Certificate
                of Designations, Preferences and Rights of Series E Convertible Preferred
                Stock, filed on February 27, 2007 with the Secretary of State of
                Delaware
                (incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed
                March 1, 2007 (the “March 2007 Form
                8-K”)).




3.10
            Certificate
                of Designations, Preferences and Rights of Series F Convertible Preferred
                Stock, filed on December 6, 2007 with the Secretary of State of Delaware
                (incorporated by reference to Exhibit 3.1 to Registrant’s Form
                8-K,  filed  December 10, 2007 (the “December 2007
                Form 8-K) 20




3.11
            Amended
                and Restated By-laws of Registrant (incorporated by reference to
                Exhibit
                3.4 to Registrant’s Form S-4).




4.1
            Form
                of Common Stock Purchase Warrants for up to 300,000 shares of Common
                Stock, expiring February 28, 2006 (incorporated by Reference to Exhibit
                10.3 to the Registrant’s Form 10-QSB for the fiscal quarter ended March
                31, 2001).




4.2
            Form
                of 2006 Series A Warrant (granted February 17, 2006) incorporated
                by
                reference to Exhibit 4.1 to Registrant’s February 2006 Form
                8-K).




4.3
            Form
                of 2006 Series B Warrant (granted February 17, 2006) incorporated
                by
                reference to Exhibit 4.2 to Registrant’s February 2006 Form
                8-K).




4.4
            Placement
                Agent Warrant, dated February 17, 2006 (incorporated by reference
                to
                Exhibit 4.3 to Registrant’s February 2006 Form
                8-K).




4.5
            Placement
                Agent Warrants, dated February 17, 2006 (incorporated by reference
                to
                Exhibit 4.1 to Registrant’s March 2006 Form
                8-K/A-1).




4.6
            Form
                of Warrant issued to the Investors in the 2007 placement (incorporated
                by
                reference to Exhibit 4.1 to Registrant’s March 2007 Form
                8-K).




4.7
            Placement
                Warrant Agreement, dated as of March 1, 2007, for 70,000 shares of
                Common
                Stock (incorporated by reference to Exhibit 4.2 to Registrants March
                2007
                Form 8-K).




4.8
            Warrant
                Agreement, dated as of March 1, 2007, for 112,500 shares of Common
                Stock
                (incorporated by reference to Exhibit 4.3 to Registrant’s March 2007 Form
                8-K).




4.9
            Form
                of Warrant issued to the Investors in the December 2007 placement
                (incorporated by reference to Exhibit 4.1 of the Registrant’s December
                2007 Form 8-K).




4.10
            Placement
                Agent Warrant Agreement dated December 6, 2007 (incorporated by reference
                to Exhibit 4.2 of the Registrant’s December 2007 Form
                8-K).




31
 Index




10.1.1
            Registration
                Rights Agreement, dated August 18, 1997, between Registrant and General
                Electric Company (“GE”) (incorporated by reference to Exhibit 10.2 to
                Registrant’s Form 8-K, filed September 2, 1997 (the “September 1997 Form
                8-K”)).




10.1.2
            Stockholders
                Agreement, dated August 18, 1997, between Registrant and GE (incorporated
                by reference to Exhibit 10.3 to Registrant’s September 1997 Form
                8-K).




10.1.3
            Settlement
                and Release Agreement, dated August 18, 1997, between the Registrant
                and
                GE (incorporated by reference to Exhibit 10.4 to Registrant’s September
                1997 Form 8-K).




10.1.4
            License
                Agreement, dated August 18, 1997, between Registrant and GE (incorporated
                by reference to Exhibit 10.4 to Registrant’s September 1997 Form
                8-K).




10.2.1
            Purchase
                and Sale Agreement, dated as of October 9, 2002, Among Registrant,
                Opus
                and Seradyn, Inc. (“Seradyn”) (incorporated by reference to Exhibit 10.1
                to Registrant’s Form 8-K for an event of October 9, 2002 (the “October
                2002 Form 8-K”)).




10.2.2
            Royalty
                Agreement, dated as of October 9, 2002, between Opus and Seradyn
                (incorporated by reference to Exhibit 10.2 to Registrant’s October 2002
                Form 8-K).




10.2.3
            Amendment
                to Royalty Agreement dated June 19, 2007, among Registrant, Opus
                and
                Seradyn (incorporated by reference to Exhibit 10.1 to Registrant’s Form
                8-K for an event of June 19, 2007).




10.3.1
            Stock
                Purchase Agreement, dated December 17, 2002, among Registrant, M.C.M.
                Technologies, Ltd. and M.C.M. Environmental Technologies,
                Inc.(incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K
                for an event of December 17, 2002 (the “December 2002 Form
                8-K”).




10.3.2
            Stockholders
                Agreement, dated December 17, 2002, among M.C.M. Technologies, Inc.
                and
                the holders of its outstanding capital stock (incorporated by reference
                to
                Exhibit 10.2 to Registrant’s December 2002 Form
                8-K).




10.4
            License
                and Manufacturing Agreement between M.C.M. Environmental Technologies
                Inc.
                and CID Lines, dated November 26, 2002 (incorporated by reference
                to
                Exhibit 10.14 to Amendment No. 1 to Registrant’s September 2004 Form SB-2,
                filed November 5, 2004 (File No. 333-118869) (“November 2004 Form
                SB-2/A-1”)).




10.5
            Distribution
                Agreement between M.C.M. Environmental Technologies, LTD and Euromedic
                Group, dated November 1, 2002 (incorporated by reference to Exhibit
                10.15
                to Registrant’s November 2004 Form
                SB-2/A-1).




10.6
            Distribution
                Agreement between M.C.M. Environmental Technologies, LTD and Lysmed,
                L.L.C., dated January 12, 2001 (incorporated by reference to Exhibit
                10.16
                to  Registrant’s November 2004  Form
                SB-2/A1).




10.7
            Form
                of Agreement of Lease between Venture Hackensack Holding, Inc. and
                Caprius, Inc. dated January 1, 2006 (incorporated by reference to
                Exhibit
                10.1 to Registrant’s December 31, 2005 Form
                10-QSB.)




10.8.1
            Purchase
                Agreement for sale of Series D Convertible Preferred Stock (incorporated
                by reference to Exhibit 10.1 to Registrant’s February 2006 Form
                8-K).




10.8.2
            Registration
                Rights Agreement dated February 16, 2006, by and among Registrant
                and the
                purchasers (incorporated by reference to Exhibit 10.2 to Registrant’s
                February 2006 Form 8-K).




32
 Index




10.9
            Form
                of Letter Agreement, dated October 30, 2006, between the Caprius,
                Inc. and
                Dwight Morgan (incorporated by reference to Registrant’s November 2006
                Form 8-K).




10.10.1
            Purchase
                Agreement for sale of Series E Preferred Stock dated as of February
                27,
                2007 (incorporated by reference to Exhibit 10.1 to Registrant’s March 2007
                Form 8-K)




10.10.2
            Registration
                Rights Agreement dated March 1, 2007, by and among Registrant and
                the
                purchasers (incorporated by reference to Exhibit 10.2 to Registrant’s
                March 2007 Form 8-K)




10.10.3
            Letter
                Agreement, dated February 27, 2007, between the Company and Vision
                Opportunity Master Fund Ltd. (incorporated by reference to Exhibit
                10.3
                top Registrant’s March 2007 Form
                8-K).




10.11.1
            Purchase
                Agreement (without schedules) dated December 6, 2007, by and among
                the
                Company and the Investors thereto (incorporated by reference to Exhibit
                10.1 to Registrant’s December 2007 Form
                8-K).




10.11.2
            Registration
                Rights Agreement, dated December 6, 2007, by and among the Registrant
                and
                the Investors thereto (incorporated by reference to Exhibit 10.2
                to
                Registrant’s December 2007 Form
                8-K).




21*
            List
                of Company’s
                subsidiaries




31.1*
            Rule
                13a-14(a)/15d-14(a)
                Certification


31.2*
            Rule
                13a-14(a)/15d-14(a)
                Certification


32.1*
            Section
                1350 -
                Certification


32.2*
            Section
                1350 -
                Certification




_________________




*           Filed
      herewith





(b)
            Reports
                on Form 8-K:




None





**ITEM
      14.PRINCIPAL
      ACCOUNTANT FEES AND
      SERVICES**





September
                30,2007
            
            
            2006AUDIT
                FEES
            
            $
            137,208
            
            
            $
            117,750TAX
                FEES
            
            
            -0-
            
            
            
            -0-AUDIT
                RELATED FEES
            
            
            -0-
            
            
            
            -0-TOTAL
                FEES
            
            **$**
            **137,208**
            
            
            **$**
            **117,750**





The
      Audit
      Fees as stated above represent professional services rendered in regards to
      our
      Form #10-KSB, Form 10-QSB filings, Form S-8 and the Form SB-2 Registration
      Statements.




33
 Index




**SIGNATURES**








Pursuant
      to the requirements of the Section 13 or 15(d) 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 on the 18th day of December
      2007.








CAPRIUS,
                INC.By:
            /s/
                Jonathan JoelsJonathan
                Joels, CFO and Treasurer








Pursuant
      to the requirements of the Securities Exchange Act of 1934 this report has
      been
      signed by the following persons in the capacities and on the dates
      indicated.








**Signature**
            **Title**
            **Date**/s/
                Dwight Morgan
              Dwight
                Morgan
            Chairman,
                President & CEO
            December
                18, 2007/s/
                Jonathan Joels
              Jonathan
                Joels
            Director,
                CFO and Treasurer
            December
                18, 2007/s/
                George Aaron
              George
                Aaron
            Director
                & Executive Vice President, Int’l Business Development
            December
                18, 2007/s/
                Kenneth C. Leung
              Kenneth
                C. Leung
            Director
            December
                18, 2007/s/
                Roger W. Miller
              Roger
                W. Miller
            Director
            December
                18, 2007





34
 Index




**CAPRIUS,
        INC. AND SUBSIDIARIES**
  **I
        N D E X**
   **Page**Report
                  of Independent Registered Public Accounting
                  Firm.
              F-2Consolidated
                  Balance Sheet as of September 30,
                  2007
              F-3Consolidated
                  Statements of Operations for
                  the years ended September 30, 2007 and 2006.
              F-4Consolidated
                  Statement of
                  Stockholders’ Equity for the years ended September 30, 2007 and
                  2006.
              F-5Consolidated
                  Statements of Cash Flows for the
                  years ended September 30, 2007 and 2006.
              F-6Notes
                  to the Consolidated Financial
                  Statements.
              F-7
                  – F-20
 
 F-1
 Index
  REPORT
        OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
        FIRM
 
 
 To
        the
        Audit Committee of the
 Board
        of
        Directors and Shareholders
 Caprius,
        Inc.
 
 
 We
        have
        audited the accompanying consolidated balance sheet of Caprius, Inc. and
        Subsidiaries (the “Company”) as of September 30, 2007 and the related
        consolidated statements of operations, stockholders’ equity and cash flows for
        the years ended September 30, 2007 and 2006.  These consolidated
        financial statements are the responsibility of the Company’s management. Our
        responsibility is to express an opinion on these consolidated financial
        statements based on our audits.
 
 We
        conducted our audits in accordance with the standards of the Public Company
        Accounting Oversight Board (United States).  Those standards require that
        we plan and perform the audits to obtain reasonable assurance about whether
        the
        financial statements are free of material misstatement.  The Company is not
        required to have, nor were we engaged to perform, an audit of its internal
        control over financial reporting. Our audits included consideration of internal
        control over financial reporting as a basis for designing audit procedures
        that
        are appropriate in the circumstances, but not for the purpose of expressing
        an
        opinion on the effectiveness of the Company’s internal control over financial
        reporting. Accordingly, we express no such opinion.  An audit also includes
        examining, on a test basis, evidence supporting the amounts and disclosures
        in
        the financial statements, assessing the accounting principles used and
        significant estimates made by management, as well as evaluating the overall
        financial statement presentation.  We believe that our audits provide a
        reasonable basis for our opinion.
 
 In
        our
        opinion, the consolidated financial statements referred to above present
        fairly,
        in all material respects, the consolidated financial position of Caprius,
        Inc.
        and Subsidiaries, as of September 30, 2007, and the consolidated results
        of its
        operations and its cash flows for the years ended September 30, 2007 and
        2006 in
        conformity with United States generally accepted accounting
        principles.
 
 
 Marcum
        & Kliegman LLP
 New
        York,
        New York
 November
        15, 2007, except for Note L
 as
        to
        which the date is December 6, 2007
 
 F-2
 Index
  **CAPRIUS,
                    INC. AND SUBSIDIARIES****CONSOLIDATED
                    BALANCE
                    SHEET****September
                    30, 2007**
 
 **ASSETS****Current
                    Assets:**Cash
                
                
                $
                634,657Accounts
                    receivable, net of allowance for doubtful accounts of $
                    5,163
                
                
                833,033Inventories
                
                
                911,244Other
                    current assets
                
                
                76,678Total
                    current assets
                
                
                2,455,612**Property
                    and Equipment:**Office
                    furniture and equipment
                
                
                275,115Leasehold
                    improvements
                
                
                31,101306,216Less:  accumulated
                    depreciation and amortization
                
                
                200,712Property
                    and equipment, net
                
                
                105,504**Other
                    Assets:**Goodwill
                
                
                285,010Intangible
                    assets, net
                
                
                22,083Other
                
                
                
                16,486Total other assets
                
                
                323,579**Total
                    Assets**
                
                $
                2,884,695**LIABILITIES
                    AND STOCKHOLDERS’ EQUITY****Current
                    Liabilities:**Accounts
                    payable
                
                $
                741,681Customer
                    deposits
                
                
                271,375Accrued
                    expenses
                
                
                84,537Accrued
                    compensation
                
                
                204,903Total current liabilities
                
                
                1,302,496**Commitments
                    and Contingencies**
                
                
                -**Stockholders’
                    Equity:**Preferred
                    stock, $.01 par valueAuthorized - 1,000,000 sharesIssued and outstanding - Series A, none; Series B, none, Series
                    C,
                    noneSeries D, stated value $12.40, convertible, 194,933 shares
                
                
                2,417,200Series E, stated value $250, convertible, 10,000 shares
                
                
                2,500,000Common
                    stock, $.01 par valueAuthorized - 50,000,000 shares, issued  3,850,787 shares and
                      outstanding 3,849,662 shares
                
                
                38,508Additional
                    paid-in capital
                
                
                77,451,648Accumulated
                    deficit
                
                
                (80,822,907
                )Treasury
                    stock (1,125 common shares, at cost)
                
                
                (2,250
                )Total
                    stockholders’ equity
                
                
                1,582,199**Total
                    Liabilities and Stockholders' Equity**
                
                $
                2,884,695
   The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
 F-3
 Index
  **CAPRIUS,
                    INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF
                    OPERATIONS**
 
 For
                    the year endedSeptember
                    30, 2007
                
                
                September
                    30, 2006**Revenues:**Product
                    sales
                
                $
                2,540,439
                
                
                $
                1,069,902Consulting
                    and royalty fees
                
                
                123,965
                
                
                
                165,567Total
                    revenues
                
                
                2,664,404
                
                
                
                1,235,469**Operating
                    Expenses:**Cost
                    of product sales
                
                
                1,859,911
                
                
                
                802,532Research
                    and development
                
                
                263,992
                
                
                
                342,587Selling,
                    general and administrative, includes stock-basedcompensation
                    of $ 278,381 and $52,642 for the years endedSeptember
                    30, 2007 and September 30, 2006, respectively
                
                
                4,272,118
                
                
                
                3,064,084Goodwill
                    impairment
                
                
                -
                
                
                
                452,000Total
                    operating expenses
                
                
                6,396,021
                
                
                
                4,661,203Operating
                    loss
                
                
                (3,731,617
                )
                
                
                (3,425,734
                )Proceeds
                    from settlement of royalty agreement
                
                
                500,000
                
                
                
                -Interest
                    (expense) income, net
                
                
                (18,056
                )
                
                
                29,693Net
                    loss
                
                
                (3,249,673
                )
                
                
                (3,396,041
                )Deemed
                    Dividend - Series D Convertible Preferred Stock
                
                
                -
                
                
                
                (1,317,061
                )Deemed
                    Dividend - Series E Convertible Preferred Stock
                
                
                (2,346,938
                )
                
                
                -Net
                    loss attributable to common stockholders
                
                $
                (5,596,611
                )
                
                $
                (4,713,102
                )Net
                    loss per basic and diluted common share
                
                $
                (1.51
                )
                
                $
                (1.42
                )Weighted
                      average number of common shares outstanding, basic and
                      diluted
                
                
                3,716,252
                
                
                
                3,321,673
   The
                    accompanying notes are an integral part of these  consolidated
                    financial statements.
  F-4
 Index
 **CAPRIUS,
                    INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENT OF STOCKHOLDERS'
                    EQUITY**
 
 Series
                    B Convertible
                
                
                Series
                    D Convertible
                
                
                Series E ConvertiblePreferred
                    Stock
                
                
                Preferred
                    Stock
                
                
                Preferred
                    Stock
                
                
                Common
                    Stock
                
                
                
                
                
                
                
                
                Treasury
                    StockAdditional
                
                
                
                
                
                
                
                
                
                
                
                TotalNumber
                
                
                
                
                
                Number
                
                
                
                
                
                Number
                
                
                
                
                
                Number
                
                
                
                
                
                Paid-in
                
                
                Accumulated
                
                
                Number
                
                
                
                
                
                Stockholders'of
                    Shares
                
                
                Amount
                
                
                of
                    Shares
                
                
                Amount
                
                
                of
                    Shares
                
                
                Amount
                
                
                of
                    Shares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                of
                    Shares
                
                
                Amount
                
                
                Equity**Balance,**
                  **September
                    30, 2005**
                
                
                27,000
                
                
                $
                2,700,000
                
                
                
                -
                
                
                $
                -
                
                
                
                -
                
                
                $
                -
                
                
                
                3,322,798
                
                
                $
                33,228
                
                
                $
                74,241,755
                
                
                $
                (74,177,193
                )
                
                
                1,125
                
                
                $
                (2,250
                )
                
                $
                2,795,540Issuance
                    of
                  Series
                    D
                  Convertible
                  Preferred
                    Stock, net
                
                
                
                
                
                
                
                
                
                
                241,933
                
                
                
                3,000,000.00
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (292,650
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,707,350Grant
                    of stock options to consultants for Services
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                52,642
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                52,642**Net
                    loss**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,396,041
                )
                
                
                
                
                
                
                
                
                
                
                (3,396,041
                )**Balance,**
                  **September
                    30, 2006**
                
                
                27,000
                
                
                $
                2,700,000
                
                
                
                241,933
                
                
                $
                3,000,000
                
                
                
                -
                
                
                $
                -
                
                
                
                3,322,798
                
                
                $
                33,228
                
                
                $
                74,001,747
                
                
                $
                (77,573,234
                )
                
                
                1,125
                
                
                $
                (2,250
                )
                
                $
                2,159,491Conversion
                    of Series D
                  Preferred
                    Stock toCommon
                    Shares
                
                
                
                
                
                
                
                
                
                
                (47,000
                )
                
                $
                (582,800
                )
                
                
                
                
                
                
                
                
                
                
                470,000
                
                
                
                4,700
                
                
                
                578,100
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                -Issuance
                    of
                  Series
                    E
                  Preferred
                    Stock, net
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                10,000
                
                
                
                2,500,000
                
                
                
                
                
                
                
                
                
                
                
                (106,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                2,394,000Conversion
                    of Series B
                  Preferred
                    Stock toCommon
                    Shares
                
                
                (27,000
                )
                
                $
                (2,700,000
                )
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                57,989
                
                
                
                580
                
                
                
                2,699,420
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                0Adoption
                    of
                  SFAS
                    123 (R)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                44,262
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                44,262Stock-based
                    Compensation pursuant to SFAS 123(R)
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                234,119
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                234,119**Net
                    loss**
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                
                (3,249,673
                )
                
                
                
                
                
                
                
                
                
                
                (3,249,673
                )**Balance,**
                  **September
                    30, 2007**
                
                
                -
                
                
                $
                -
                
                
                
                194,933
                
                
                $
                2,417,200
                
                
                
                10,000
                
                
                $
                2,500,000
                
                
                
                3,850,787
                
                
                $
                38,508
                
                
                $
                77,451,648
                
                
                $
                (80,822,907
                )
                
                
                1,125
                
                
                $
                (2,250
                )
                
                $
                1,582,199
   The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
 
 F-5
 Index
 
 **CAPRIUS,
                    INC. AND SUBSIDIARIES****CONSOLIDATED
                    STATEMENTS OF CASH
                    FLOWS**
 
 Year
                    Ended September 30,2007
                
                
                2006**Cash
                    Flows from Operating Activities:**Net
                    loss
                
                $
                (3,249,673
                )
                
                $
                (3,396,041
                )Adjustments
                    to reconcile net loss to net cash used in operating
                    activities:Depreciation
                    and amortization
                
                
                119,431
                
                
                
                177,671Goodwill
                    impairment
                
                
                -
                
                
                
                452,000Stock-based
                    compensation
                
                
                278,381
                
                
                
                52,642Changes
                    in operating assets and liabilities:Accounts
                    receivable, net
                
                
                (583,272
                )
                
                
                (122,509
                )Inventories
                
                
                40,872
                
                
                
                (283,500
                )Other
                    assets
                
                
                (76,678
                )
                
                
                29,758Customer
                    deposits
                
                
                271,375
                
                
                
                -Accounts
                    payable
                
                
                358,223
                
                
                
                174,306Accrued
                    expenses
                
                
                55,369
                
                
                
                65,626Net
                    cash used in operating activities
                
                
                (2,785,972
                )
                
                
                (2,850,047
                )**Cash
                    Flows from Investing Activities:**Acquisition
                    of property and equipment
                
                
                (46,609
                )
                
                
                (42,147
                )Decrease/(Increase)
                    in security deposit
                
                
                4,284
                
                
                
                (3,360
                )Net
                    cash used in investing activities
                
                
                (42,325
                )
                
                
                (45,507
                )**Cash
                    Flows from Financing Activities:**Proceeds
                    from short term loan
                
                
                100,000
                
                
                
                -Repayment
                    of short term loan
                
                
                (100,000
                )
                
                
                -Net
                    proceeds from issuance of Series E Preferred Stock
                
                
                2,394,000
                
                
                
                -Net
                    proceeds from issuance of Series D Preferred Stock
                
                
                -
                
                
                
                2,707,350Net
                    cash provided by  financing activities
                
                
                2,394,000
                
                
                
                2,707,350**Net
                    decrease in cash**
                
                
                (434,297
                )
                
                
                (188,204
                )**Cash
                    and cash equivalents, beginning of year**
                
                
                1,068,954
                
                
                
                1,257,158**Cash
                    and cash equivalents, end of year**
                
                $
                634,657
                
                
                $
                1,068,954**Supplemental
                    Disclosures of Cash Flow Information:**Cash
                    paid for interest
                
                $
                806
                
                
                $
                -Cash
                    paid for taxes
                
                $
                5,338
                
                
                $
                3,110**Non
                    Cash-Flow Items:**Conversion
                      of 47,000 shares of Series D Preferred Stock to common
                      shares
                
                $
                582,800
                
                
                $
                -Conversion
                    of  Series B Preferred Stock to common shares
                
                $
                2,700,000
                
                
                $
                -
 
  The
                    accompanying notes are an integral part of these consolidated
                    financial
                    statements.
 F-6
 Index
 **CAPRIUS,
        INC. AND SUBSIDIARIES**
 **Notes
        to the Consolidated Financial
        Statements**
  (NOTE
        A) - Business and Basis of Presentation
  Caprius,
        Inc. (“Caprius”, the “Company”, “we”, “us” and “our”) is engaged in the
        infectious medical waste disposal business, through our subsidiary M.C.M.
        Environmental Technologies, Inc. (“MCM”) which developed, markets and sells the
        SteriMed and SteriMed Junior compact systems that simultaneously shred and
        disinfect Regulated Medical Waste.  The SteriMed Systems are sold and
        leased in both the domestic and international markets.
 
 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.
 
 Management
        Plans
 
 The
        Company has incurred substantial recurring losses.  In addition, the
        Company is a defendant in an action seeking damages in excess of
        $400,000.  Although management believes the Company has a meritorious
        defense against such a lawsuit, an unfavorable outcome of such action could
        have
        a materially adverse impact on our business.  The consolidated
        financial statements do not include any adjustments that might result from
        the
        outcome of this uncertainty. The Company has available cash of approximately
        $635,000 at September 30, 2007.  The Company raised net proceeds
        of $4.4 million in a placement of Series F Convertible Preferred Stock in
        December 2007. These funds will be utilized to support our marketing efforts,
        obtain additional regulatory approvals both domestically and overseas as
        well as
        to provide for our increased manufacturing. The net proceeds from this placement
        should fulfill our capital needs for the upcoming fiscal year, based upon
        our
        present business plan.
  (NOTE
        B) - Summary of Significant Accounting Policies
  [1] 
        Principles of Consolidation
  The
        consolidated financial statements include the accounts of the Company and
        its
        wholly or majority owned subsidiaries. All significant intercompany balances
        and
        transactions have been eliminated in consolidation.
  [2]
         Revenue Recognition
  Revenues
        from the MCM medical waste business are recognized at the time when the SteriMed
        units are  shipped to the customer.   Revenues
        for  consulting and royalty fees are recognized as
        earned..
  [3]  Cash
        Equivalents
  The
        Company considers all highly liquid debt instruments purchased with a maturity
        of three months or less to be cash equivalents.  As of September 30, 2007,
        the Company has no instruments that would classify as a cash
        equivalent.
  [4] 
        Accounts Receivable and Allowance for Doubtful Accounts:
 
 The
        Company recognizes an allowance for doubtful accounts to ensure that accounts
        receivable are not overstated due to
        uncollectibility.   Allowances for doubtful accounts are
        maintained for all customers based on a variety of factors, including the
        length
        of time the receivables are past due, significant one-time events and historical
        experience.  An additional reserve for individual accounts is recorded
        when the Company becomes aware of a customer’s inability to meet its financial
        obligation, such as in the case of bankruptcy filings or deterioration in
        the
        customer’s operating results or financial position.  If the
        circumstances related to customers change, estimates of the recoverability
        of
        receivables would be further adjusted.
 
 [5]
         Product Warranties
 
 The
        estimated future warranty obligations related to the product sales are provided
        by charges to operations in the period in which the related revenue is
        recognized. The basic warranty covers parts and
  F-7
 Index
  labor
        for
        one year, thereafter extended warranties are available. These charges were
        immaterial in each of the years ended September 30, 2007 and 2006.
 
 [6] 
        Shipping and Handling Costs
  The
        Company includes shipping and handling costs in the statement of operations
        as
        part of cost of product sales. These costs were immaterial for the years
        ended
        September 30, 2007 and 2006.
  [7]  
        Inventories
  Inventories
        are accounted for at the lower of cost or market using the first-in, first-out
        (“FIFO”) method.The Company's policy is to reserve or write-off surplus or
        obsolete inventory. Inventory is comprised of materials, labor and manufacturing
        overhead costs.
  [8]  
        Property and Equipment
  Office
        furniture and equipment, and leasehold improvements are recorded at
        cost.  Depreciation and amortization are computed by the straight-line
        method over the estimated lives of the applicable assets, or term of the
        lease,
        if applicable.   Expenditures for maintenance and repairs that do
        not improve or extend the life of the expected assets are expensed to
        operations, while expenditures for major upgrades to existing items are
        capitalized.
  Asset
                    Classification
                Useful
                    LivesOffice
                    furniture and equipment
                  Leasehold
                    improvements
                3-5
                    years
                  Term
                    of Lease
 
 [9]
        Impairment of Long-Lived Assets
  In
        accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
        “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company
        and its subsidiaries review the carrying values of their long-lived assets
        (other than goodwill) for possible impairment whenever events or changes
        in
        circumstances indicate that the carrying amounts of the assets may not be
        recoverable.  Any long-lived assets held for disposal are reported at
        the lower of their carrying amounts or fair values less costs to
        sell.
  [10]  
        Goodwill and Other Intangibles
  At
        September 30, 2007, goodwill results from the excess of cost over the fair
        value
        of net assets acquired related to the MCM business.  SFAS No. 142
        provides, among other things, that goodwill and intangible assets with
        indeterminate lives shall not be amortized.  Goodwill shall be
        assigned to a reporting unit and annually tested for
        impairment.  Intangible assets with determinate lives shall be
        amortized over their estimated useful lives, with the useful lives reassessed
        continuously, and shall be assessed for impairment under the provisions of
        SFAS
        No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived
        Assets to be Disposed Of”. Goodwill is also assessed for impairment on an
        interim basis when events and circumstances warrant.  The Company
        assesses whether an impairment loss should be recognized and measured by
        comparing the fair value of the “reporting unit” to the carrying value,
        including goodwill.  If the carrying value exceeds fair value, then
        the Company will compare the implied fair value of the goodwill (as defined
        in
        SFAS No. 142) to the carrying amount of the goodwill.  If the carrying
        amount of the goodwill exceeds the implied fair value, then the goodwill
        will be
        adjusted to the implied fair value.
  [11] 
         Net Loss Per Share
  Net
        loss
        per share is computed in accordance with Statement of Financial Standards
        No.
        128, “Earning Per Share” (“SFAS No. 128”).  SFAS No. 128 requires the
        presentation of both basic and diluted earnings per share.
  Basic
        net
        loss per common share was computed using the weighted average common shares
        outstanding during the period.  Diluted loss per share reflects the
        potential dilution that could occur through the effect of common shares issuable
        upon the exercise of stock options, warrants and convertible
  F-8
 Index
  securities.  For
        the year ended September 30, 2007, potential common shares amount to 17,775,741
        shares, as compared to 4,804,015 for the year ended September 30, 2006 and
        as
        such, have not been included in the computation of diluted loss per share
        since
        the effect would be anti-dilutive.
  [12] 
        Income Taxes
  The
        Company provides for federal and state income taxes currently payable, as
        well
        as for those deferred because of timing differences between reporting income
        and
        expenses for financial statement purposes versus tax
        purposes.  Deferred tax assets and liabilities are recognized for the
        future tax consequences attributable to differences between the carrying
        amount
        of assets and liabilities for financial reporting purposes and the amounts
        used
        for income tax purposes.  Deferred tax assets and liabilities are
        measured using the enacted tax rates expected to apply to taxable income
        in the
        years in which those temporary differences are expected to be recoverable
        or
        settled.  The effect of a change in tax rates is recognized as income
        or expense in the period of the change.  A valuation allowance is
        established, when necessary, to reduce deferred income tax assets to the
        amount
        that is more likely than not to be realized.
  [13] 
        Use of Estimates
  The
        preparation of financial statements in conformity with accounting principles
        generally accepted in the United States of America, requires management to
        make
        estimates and assumptions that affect the reported amounts of assets and
        liabilities and disclosure of contingent assets and liabilities at the date
        of
        the financial statements and the reported amounts of revenues and expenses
        during the reporting period.  Actual results could differ from those
        estimates.
  [14] 
        Fair Value of Financial Instruments
  The
        carrying amounts of cash, accounts receivable, accounts payable and accrued
        expenses are reasonable estimates of their fair values because of the short-term
        nature of those instruments.
 [15]  Reclassifications
  Certain
          reclassifications have been made to prior period amounts to conform to
          the
          current year presentation.
 [16]
         Foreign Currency
  The
        Company follows the provisions of SFAS No. 52, “Foreign Currency
        Translation.”  The functional currency of the Company’s foreign
        subsidiary is the U.S. dollar.  All foreign currency asset and
        liability amounts are re-measured into U.S. dollars at end-of-period exchange
        rates, except for certain assets, which are measured at historical
        rates.  Foreign currency income and expense are re-measured at average
        exchange rates in effect during the year, except for expenses related to
        balance
        sheet amounts re-measured at historical exchange rates.  Exchange
        gains and losses arising from re-measurement of foreign currency-denominated
        monetary assets and liabilities are included in operations in the period
        in
        which they occur.  Exchange gains and losses included in the
        accompanying consolidated statements of operations are immaterial for the
        years
        ended September 30, 2007 and 2006.
  [17] 
        Research and Development Costs
  All
        research and development costs are
        charged to operations as incurred.  Research and development
        expenditures were approximately $264,000 and $343,000 for the fiscal years
        ended
        September 30, 2007 and 2006, respectively.
  [18]  Recent  Accounting
        Pronouncements
  In
        February 2006, the Financial Accounting Standards Board (“FASB”) issued
        Statement of Financial Accounting Standards 155 - Accounting for Certain
        Hybrid
        Financial Instruments (“SFAS 155”), which eliminates the exemption from applying
        SFAS 133 to interests in securitized financial assets so that similar
        instruments are accounted for similarly regardless of the form of the
        instruments. SFAS 155 also allows the election of fair value measurement
        at
        acquisition, at issuance, or when a previously recognized financial instrument
        is subject to a re-measurement event. Adoption is effective for all financial
        instruments acquired or issued after the beginning of the first fiscal year
        that
        begins after September 15, 2006. Early adoption is permitted. The adoption
        of SFAS 155 is not expected to have a material effect on the Company’s
        consolidated results of operations and  financial
        condition
 F-9
 Index
  In
          March 2006, the FASB issued Statement of Financial Accounting Standard 156
          - Accounting for Servicing of Financial Assets (“SFAS 156”), which requires all
          separately recognized servicing assets and servicing liabilities be initially
          measured at fair value. SFAS 156 permits, but does not require, the subsequent
          measurement of servicing assets and servicing liabilities at fair value.
          Adoption is required as of the beginning of the first fiscal year that
          begins
          after September 15, 2006. Early adoption is permitted. The adoption of SFAS
          156 is not expected to have a material effect on the Company’s consolidated
          results of operations and  financial condition.
 
 In
        July
        2006, the FASB released FASB Interpretation No. 48, “Accounting for Uncertainty
        in Income Taxes, an interpretation of FASB Statement No. 109” (FIN 48). FIN 48
        clarifies the accounting and reporting for uncertainties in income tax law.
        This
        Interpretation prescribes a comprehensive model for the financial statement
        recognition, measurement, presentation and disclosure of uncertain tax positions
        taken or expected to be taken in income tax returns. This Interpretation
        shall
        be effective for fiscal years beginning after December 15, 2006. Earlier
        adoption is permitted as of the beginning of an enterprise’s fiscal year,
        provided the enterprise has not yet issued financial statements, including
        financial statements for any interim period for that fiscal year. The cumulative
        effects, if any, of applying this Interpretation will be recorded as an
        adjustment to retained earnings as of the beginning of the period of
        adoption.  The adoption of FIN 48 is not expected to have a material
        effect on the Company’s consolidated results of operations
        and  financial condition.
 
 In
        September 2006, the FASB issued Statement of Financial Accounting Standard
        157,
*“Fair Value Measurements”* (“SFAS No. 157”).  SFAS No. 157 defines
        fair value, establishes a framework for measuring fair value and expands
        disclosure of fair value measurements.  SFAS No. 157 applies under other
        accounting pronouncements that require or permit fair value measurements
        and
        accordingly, does not require any new fair value measurements.  SFAS No.
        157 is effective for financial statements issued for fiscal years beginning
        after November 15, 2007.  The Company is in the process of evaluating
        the impact of the adoption of SFAS No. 157 will have on the Company’s
        consolidated results of operations and  financial condition and is
        currently not in a position to determine such effect.
 
 In
        September 2006, the staff of the SEC issued Staff Accounting Bulletin No.
        108
        ("SAB 108") which provides interpretive guidance on how the effects of the
        carryover or reversal of prior year misstatements should be considered in
        quantifying a current year misstatement. SAB 108 becomes effective in fiscal
        2008. Adoption of SAB 108 is not expected to have a material impact on the
        Company's consolidated results of operations and  financial
        position.
 
 In
        December 2006, FASB issued FASB Staff Position EITF 00-19-2 “Accounting for
        Registration Payment Arrangements,” which specifies that the contingent
        obligation to make future payments or otherwise transfer consideration under
        a
        registration payment arrangement should be separately recognized and measured
        in
        accordance with SFAS No. 5, “Accounting for Contingencies.” Adoption of EITF
        00-19-02 is required for fiscal years beginning after December 15, 2006.
        We are
        currently evaluating the expected effect of EITF 00-19-02 on our consolidated
        financial statements and are currently not yet in a position to determine
        such
        effects.
 
 On
        February 15, 2007, FASB issued SFAS No. 159, entitled “The Fair Value Option for
        Financial Assets and Financial Liabilities.”  The guidance in SFAS No.
        159 “allows” reporting entities to “choose” to measure many financial
        instruments and certain other items at fair value.  The objective
        underlying the development of this literature is to improve financial reporting
        by providing reporting entities with the opportunity to reduce volatility
        in
        reported earnings that results from measuring related assets and liabilities
        differently without having to apply complex hedge accounting provisions,
        using
        the guidance in SFAS No. 133, as amended, entitled “Accounting for Derivative
        Instruments and Hedging Activities”.  The provisions of SFAS No. 159
        are applicable to all reporting entities and is effective as of the beginning
        of
        the first fiscal year that begins subsequent to November 15, 2007. We do
        not
        believe this new accounting standard will have a material impact on our
        financial condition or results of operations.
 
 [19] 
        Stock-Based Compensation
 
 On
        October 1, 2006, the Company adopted Statement of Financial Accounting Standards
        (“SFAS”) No. 123 (revised 2004), "Share-Based Payment," ("SFAS 123R"), which is
        a revision of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No.
        123”).  SFAS No. 123R supersedes APB No. 25, “Accounting for Stock
        Issued to Employees”, and amends SFAS No. 95, “Statement of Cash
        Flows.”  SFAS No. 123R requires all share-based payments to employees,
        including grants of employee stock options, to be recognized in the financial
        statements based upon their fair values.  As a result, the intrinsic
        value method of accounting for stock options with pro forma footnote disclosure,
        as allowed for under SFAS No. 123, is no longer
        permitted.
 F-10
 Index
  The
        Company adopted SFAS No. 123R using the modified prospective method, which
        requires the Company to record compensation expense for all awards granted
        after
        the date of adoption, and for the unvested portion of previously granted
        awards
        that remain outstanding at the date of adoption.  Accordingly, prior
        period amounts have not been restated to reflect the adoption of SFAS No.
        123R.  After assessing alternative valuation models and amortization
        assumptions, the Company chose to continue using the Black-Scholes valuation
        model and recognition of compensation expense over the requisite service
        period
        of the grant.
 
 The
        Company recorded total stock-based compensation of $278,381 for the fiscal
        year
        ended September 30, 2007 for options granted and vested. The $278,381 has
        been
        included in selling, general and administrative expense.  As of
        September 30, 2007 the fair value of the unvested stock options amounted
        to
        $731,885 which is expected to be recognized over a weighted average period
        of
        approximately 2.71 years.
 
 Transactions
        under the various stock option plans during the fiscal year ended September
        30,
        2007 are summarized as follows:
 
 Number
                  of Options
              
              
              Weighted
                  Average Exercise PriceOutstanding
                  at October 1, 2005
              
              139,275
              
              
              $
              3.32Granted
              
              588,000
              
              
              $
              1.92Forfeited
                  / Expired
              
              (59,725
              )
              
              $
              3.45Outstanding
                  at September 30, 2006
              
              667,550
              
              
              $
              2.08Granted
              
              1,180,000
              
              
              $
              0.61Forfeited
                  / Expired
              
              -
              
              
              
              -Outstanding
                  at September 30, 2007
              
              1,847,550
              
              
              $
              0.86
 
 Prior
        to
        October 1, 2006, the Company's stock-based employee compensation plans were
        accounted for under the recognition and measurement provisions of Accounting
        Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
        Employees" ("APB 25"), and related Interpretations, as permitted by Financial
        Accounting Standards Board ("FASB") Statement No. 123, "Accounting for
        Stock-Based Compensation," ("SFAS 123").
 
 For
        the
        fiscal year ended September 30, 2006, as was permitted under SFAS No. 148,
        "Accounting for Stock-Based Compensation - Transition and Disclosure," which
        amended SFAS No. 123, "Accounting for Stock-Based Compensation," the Company
        elected to continue to follow the intrinsic value method in accounting for
        its
        stock-based employee compensation arrangements as defined by APB No. 25,
        "Accounting for Stock Issued to Employees," and related interpretations
        including FASB Interpretation No. 44, "Accounting for Certain Transactions
        Involving Stock Compensation, an interpretation of APB No. 25." Under the
        intrinsic value method, no stock-based compensation expenses had been recognized
        as the exercise price of the grants equaled the fair market value of the
        underlying stock at the date of grant. The following table illustrates the
        effect on net loss per share as if the Company had applied the fair value
        recognition provisions of SFAS No. 123 to stock-based employee compensation
        for
        the fiscal year ended September 30, 2006
  Fiscal
                  year ended
                September
                  30, 2006Net
                  loss attributable to common stockholders as reported
              
              $
              (4,713,102
              )Deduct:
                  Stock-based employee compensation determined under fair value method
                  for
                  all awards, net of related tax effects
              
              
              (91,668
              )Pro
                  forma net loss attributable to common stockholders
              
              $
              (4,804,770
              )Net
                  Loss per share:Basic
                  and diluted loss attributable to common stockholders - as
                  reported
              
              $
              (1.42
              )Basic
                  and diluted loss attributable to common stockholders - pro
                  forma
              
              $
              (1.45
              )
 
  F-11
 Index
  [20]  Concentration
        of Credit Risk and Significant Customers
  Statement
        of Financial Accounting Standards No. 105, “Disclosure of Information About
        Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments
        with
        Concentrations of Credit Risk,” requires disclosure of any significant
        off-balance-sheet and credit risk concentrations.  Although collateral
        is not required, the Company periodically reviews its accounts receivable
        and
        provides estimated reserves for potential credit losses.
  Financial
        instruments which potentially expose the Company to concentration of credit
        risk
        are mainly comprised of trade accounts receivable.  Management
        believes its credit policies are prudent and reflect normal industry terms
        and
        business risk.  The Company does not anticipate non-performance by the
        counter parties and, accordingly, does not require collateral.  The
        Company maintains reserves for potential credit losses and historically such
        losses, in the aggregate, have not exceeded management’s
        expectations.  The Company purchases a substantial amount of its
        inventory products from one principal supplier.  If in the future the
        supplier were to cease to supply these inventory products, management believes
        there are alternative vendors available to meet its needs. For the year ended
        September 30, 2007, two customers accounted for 1,285,714 of the consolidated
        total revenue, which represented approximately 33% and 15% respectively of
        the
        total revenue. The customer with sales of 15% of the total revenue 
for the year ended September 30, 2007 has an outstanding accounts receivable
        balance as of September 30, 2007 of approximately $322,000 or
        39%.  For the year ended September 30, 2006, three customers accounted
        for approximately 24%, 19% and 13% respectively of the consolidated total
        revenue.
  The
        Company maintains cash deposits with financial institutions, which from time
        to
        time may exceed Federally insured limits.  The Company has not
        experienced any losses and believes it is not exposed to any significant
        credit
        risk from cash.  At September 30, 2007, the Company has cash balances
        on deposit with a financial institution in excess of the Federally insured
        limits by a total of approximately $158,000.
  [21] 
        Goodwill
  At
        September 30, 2007, as defined under SFAS No, 142, the Company has assessed
        the
        carrying value of goodwill.  The Company has determined that the
        carrying amount of the goodwill  does not exceed the implied fair
        value and as such no impairment charge to goodwill has been
        recorded.
  [22]  Intangible
        Assets
 
 Intangible
        assets consist of technology, customer relationships and permits, and are
        amortized on a straight-line basis over their estimated useful lives of three
        to
        five years. The carrying value of intangible assets will be reviewed annually
        by
        the Company to ensure that impairments are recognized when the future operating
        cash flows expected to be derived from such intangible assets are less than
        carrying value.  Total amortization expense related to the other
        intangible assets was approximately $98,000 for the year ended September
        30,
        2007 and $144,000 for the year ended September 30,
        2006.     Intangible assets are summarized as
        follows:
  **Accumulated**
                
                
                **Sept
                    30,2007****Asset
                    Type**
                
                **Cost**
                
                
                **Amortization**
                
                
                **Net
                    Book Value**Technology
                
                $
                550,000
                
                
                $
                550,000
                
                
                $
                -Permits
                
                
                290,000
                
                
                
                277,917
                
                
                
                12,083Customer
                    Relationships
                
                
                200,000
                
                
                
                190,000
                
                
                
                10,000**$**
                **1,040,000**
                
                
                **$**
                **1,017,917**
                
                
                **$**
                **22,083**
 
 Expected
        amortization over the next year is as follows:
  **Fiscal
                    Period**
                **Amortization**2008
                22,083$22,083
  F-12
 Index
  (NOTE
        C) -Inventories
  Inventories
        consist of the following, as of September 30, 2007:
 Raw
                    materials
                $858,244Finished
                    goods
                53,000911,244
 (NOTE
        D) – Promissory Note
 
 On
        January 30, 2007, the Company borrowed the principal amount of $100,000,
        from
        Special Situations Private Equity Fund L.P., which is a principal stockholder,
        through the issuance of a 10% promissory note.  This note and all
        accrued and unpaid interest, matured and became payable on April 30,
        2007.  These funds were borrowed for general working capital, until
        additional funding was secured.  As outlined below, the Company
        secured additional funding on March 1, 2007 through the issuance of Series
        E
        Preferred Stock.  At that time the Company repaid the promissory note
        inclusive of interest for the total amount of approximately
        $101,000.
 
 (NOTE
        E) - Equity Financing
 
 On
        February 17, 2006, the Company closed on a $3.0 million preferred stock equity
        financing transaction before financing fees and expenses of approximately
        $293,000. As part of this financing transaction, the Company issued 241,933
        shares of Series D Convertible Preferred Stock, convertible into 2,419,330
        shares of common stock, par value $0.01 per share.  The Company also
        issued Series A Warrants to purchase an aggregate of 223,881 shares of common
        stock at an exercise price of $1.50 per share for a period of five
        years.  In addition, the Company issued Series B Warrants to purchase
        an aggregate of 447,764 shares of common stock at an exercise price of $2.00
        per
        share for a period of five years.  The Company has determined that the
        preferred stock was issued with an effective beneficial conversion feature
        of
        approximately $1,300,000 based upon the relative fair values of the preferred
        stock and warrants using the Black Scholes valuation model. As such, this
        beneficial conversion feature is recorded as a deemed Preferred Stock
        dividend.  Pursuant to the Company’s obligation to register the Series
        D Convertible Preferred Stock, the Company filed a Registration Statement
        which
        was declared effective on April 6, 2006.  The Company has also issued
        warrants to purchase an aggregate of 119,403 shares of common stock at an
        exercise price of $1.68 per share for a period of five years as part of the
        placement fee, to a placement agent and warrants to purchase an aggregate
        of
        59,702 shares of common stock at an exercise price of $2.00 per share for
        a
        period of five years as part of the placement fee, to another selected dealer
        and its designees for this placement.
 
 On
        March
        1, 2007, the Company closed on a $2.5 million preferred stock equity financing
        before financing related fees and expenses of approximately
        $106,000.  As part of this financing transaction, the Company issued
        10,000 shares of Series E convertible preferred stock at $250 a
        share.  Each share of the Series E preferred stock is convertible into
        625 shares of common stock, subject to customary anti-dilution provisions,
        or an
        aggregate of 6,250,000 shares of common stock.  The Company also
        issued warrants to purchase an aggregate of 3,125,000 shares of common stock
        at
        an exercise price of $0.50 per share for a period of five years.  The
        Company has determined that the preferred stock was issued with an effective
        beneficial conversion feature of approximately $2,347,000 based upon the
        relative fair values of the preferred stock and warrants using the Black
        Scholes
        valuation model.  As such, this beneficial conversion feature is
        recorded as a deemed preferred stock dividend.  The Company has also
        issued warrants to purchase an aggregate of 70,000 shares of common stock
        at an
        exercise price of $0.60 per share for a period of five years as part of the
        placement fee, to a placement agent and its designees, and warrants to purchase
        an aggregate of 112,500 shares of common stock at an exercise price of $0.60
        per
        share for a period of five years as part of the placement fee to a financial
        advisor. Using the Black Scholes valuation model the Company has determined
        that
        the fair value of these warrants is $0.33 per share which equates to a fair
        value of approximately $61,000. The fair valuation of these warrants has
        been
        accounted for in the Company’s additional paid-in-capital and has no impact on
        its statement of operations.
 
 Pursuant
        to the 2006 preferred stock placement on February 17, 2006, the Company issued
        241,933 shares of Series D preferred stock yielding net proceeds of $2,707,350
        (net of $292,650 of financing costs), whereby each share was initially
        convertible into ten shares of common stock, subject to customary anti-dilution
        provisions.  By reason of these anti-dilution provisions, after the
        Series E preferred
  F-13
 Index
  stock
        placement, each non-converted shares of Series D preferred stock is convertible
        into 17.29 shares of common stock or an aggregate of 3,370,286 shares of
        common
        stock. Accordingly, upon the conversion of the remaining shares of Series
        D
        preferred stock, the Company will issue an additional 1,420,956 shares of
        common
        stock.
 
 Pursuant
        to the anti-dilution provisions of the 2005 Series C Preferred Stock placement
        on June 1, 2007, the Company issued an additional 1,102,559 Series A warrants
        and 251,200 Series B warrants.  The original exercise price at the
        time of the placement for the Series A warrants was $5.80 and for the Series
        B
        warrants was $2.90.  In accordance with these provisions, the exercise
        price of both the newly issued and originally issued warrants was modified
        on
        June 1, 2007 to $1.66 and $1.11 for the Series A and Series B
        respectively.  Also, in accordance with certain milestone provisions
        of the 2006 Series D Preferred Stock placement, on January 1, 2007 the Company
        adjusted the exercise price of the warrants associated with this placement
        from
        a range of $1.50 to $2.00 to a range of $0.90 to $1.40.  There was no
        accounting effect of this transaction to the financial statements.
 
 (NOTE
        F) - Employee Benefits
 
 The
        Company sponsors a Qualified Retirement Plan under section 401(k) of the
        Internal Revenue Code.  Caprius employees become eligible for
        participation after completing 3 months of service and attaining the age
        of
        twenty-one.  For the years ended September 30, 2007 and 2006, the
        Company has not made any matching contributions to the plan.
  (NOTE
        G)- Income Taxes
  At
        September 30, 2007, the Company had a deferred tax asset totaling approximately
        $13,962,000 due primarily to net operating loss carryovers in the United
        States.  A valuation allowance was recorded in 2007 for the full
        amount of this asset due to uncertainty as to the realization of the
        benefit.  The change in the valuation allowance in 2007 decreased by
        approximately $380,000.
  The
        Company does not file its tax return on a consolidated basis as United States
        tax rules prohibit the consolidation of its foreign subsidiary.  The
        Company’s Israeli subsidiary has net operating loss carryforwards for tax
        purposes in the amount of approximately $ 9,000,000.  The Company
        recorded a full valuation allowance for these foreign carryforward
        losses.
  At
        September 30, 2007, the Company had available net operating loss carryforwards
        for United States tax purposes, expiring through 2026 of approximately $41.1
        million.  The Internal Revenue Code contains provisions which will
        limit the net operating loss carry forward available for further use if
        significant changes in ownership interest of the Company occurs. Due to the
        significance of the Company’s historical losses it has not undertaken an
        evaluation to determine whether the Company has triggered any limitations
        on the
        use of the net operating loss carryforwards.
  As
        a
        result of the Company’s significant operating loss carryforwards and the
        corresponding valuation allowance, no income tax benefit has been recorded
        at
        September 30, 2007 and 2006.  The provision for income taxes using the
        statutory Federal tax rate as compared to the Company’s effective tax rate is
        summarized as follows:
  September
                  30,2007
              
              
              2006Tax
                  benefit at Federal statutory rate
              
              
              (34.0%)
              
              
              
              (34.0%)Adjustments
                  for change in valuation allowance
              
              
              34.0%
              
              
              
              34.0%-
              
              
              
              -
  F-14
 Index
  (NOTE
        H) - Commitments and Contingencies
  [1]  Operating
        leases
  The
        Company leases facilities under non-cancelable operating leases expiring
        at
        various dates through fiscal 2011.  Facility leases require the
        Company to pay certain insurance, maintenance and real estate
        taxes.  Lease expense for all facility leases totaled approximately
        $143,000 and $122,000 for the years ended September 30, 2007 and 2006,
        respectively, and was recorded as part of selling, general and administrative
        expenses within the  consolidated statement of
        operations.
  Future
        minimum rental commitments under operating leases are as follows:
  Fiscal
                      Year
                  Amount2008
                  93,9832009
                  96,0712010
                  98,1602011
                  100,248
  On
        June
        16, 2006, the Company entered into an agreement for certain services related
        to
        investor relations and financial media programs for a one year period, whereby
        either party may cancel upon 30 days written notice. As consideration, the
        Company granted options on July 28, 2006 to purchase an aggregate of 30,000
        shares of common stock at an exercise price of $1.75 per share for a period
        of
        five years. These options were granted with a valuation of $10,500 using
        the
        Black-Scholes model and have vested at 50% after six months, and additional
        25%
        after nine months and the remaining 25% after one year.  The Company
        recorded the stock-based compensation of $10,500 and $0 for the years ended
        September 30, 2007 and 2006, respectively.
 
 [2]  Legal
        proceedings
  In
        May
        2006, Andre Sassoon and Andre Sassoon International, Inc. (the “Plaintiffs”),
        filed a complaint against Caprius Inc., MCM Environmental Technologies, and
        George Aaron, (collectively, the “Company Defendants”) in the Supreme Court of
        the State of New York, New York County, claiming that the Defendants had
        breached an agreement entered into as part of the December 2002 MCM acquisition
        to pay $400,000 as settlement of a note previously issued by MCM.  The
        complaint also names all persons who were stockholders of MCM at the time
        of
        Caprius’ original investment in MCM in December 2002.  In June 2006,
        the Plaintiffs filed an amended complaint to include additional counts, alleging
        certain misrepresentations by the Company Defendants related to the agreement
        with the Plaintiffs.  The Plaintiffs are seeking damages in excess of
        $400,000 or the stock interest of the MCM stockholders at the time of Caprius’
acquisition.  Discovery has been undertaken, and the final depositions
        are scheduled for January 2008.  Based upon our review of the amended
        complaint, we continue to believe the Plaintiffs’ claims have no merit, and the
        Company Defendants will vigorously defend this action.  Accordingly,
        we have not recorded any accrual for this litigation as of September 30,
        2007.
  Our
        independent directors have authorized us to indemnify Mr. Aaron with respect
        to
        the Sassoon litigation, subject to limitations under applicable law and our
        by-laws.
  [3]
        Manufacturing
 
 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. We are dependent on third-party suppliers for the components
        of our
        SteriMed and SteriMed Junior Systems and also for the Ster-Cid®
disinfectant.  At present there are no supply contracts in place and
        our requirements are fulfilled against purchase orders.  There can be
        no assurances that we will have adequate supplies of
        materials.  Although we believe that the required components are
        readily available and can be provided by other suppliers, delays may be incurred
        in establishing relationships or in waiting for quality control assurance
        with
        other manufacturers for substitute components.
  F-15
 Index
  [4]
        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.  Our
        business requires us to comply with these extensive laws and regulations
        and
        also to obtain permits, authorizations, approvals, certificates or other
        types
        of governmental permission from all states and some local jurisdictions where
        we
        sell or lease the SteriMed Systems.
  In
        markets outside the U.S., our ability to market the SteriMed Systems is governed
        by the regulations of the specific country.  In foreign countries, we
        primarily market through distributors and we rely on them to obtain the
        necessary regulatory approvals to permit the SteriMed Systems to be marketed
        in
        that country.  We are therefore dependent on the distributors to
        process these applications where required.  In many of these
        countries, we have no direct control or involvement in the approval process,
        and
        therefore we cannot estimate when our product will be available in that
        market.
  (NOTE
        I)
– Capital Transactions
  [1]  Preferred
        Stock – Class B
  On
        August
        18, 2007 as per the agreement entered into with General Electric Company
        (“GE”)
        when they purchased the Series B Convertible Redeemable Preferred Stock,
        these
        shares of Series B Preferred Stock were automatically converted into 57,989
        shares of common stock.
  [2]  Warrants
  On
        March
        1, 2007, the Company closed on a 2.5 million preferred stock equity financing
        transaction before financing fees and expenses of approximately
        $106,000.  In association with this financing the Company issued
        warrants to purchase an aggregate of 3,125,000 shares of common stock at
        an
        exercise price of $0.50 per share for a period of five years.  The
        Company has also issued warrants to purchase an aggregate of 70,000 shares
        of
        common stock at an exercise price of $0.60 per share for a period of five
        years
        as part of the placement fee, to a placement agent and its designees, and
        warrants to purchase an aggregate of  112,500 shares of common stock
        at an exercise price of $0.60 per share for a period of five years as part
        of
        the placement fee to a financial advisor.  All warrants associated
        with this transaction are for a period of five years, and expire in February
        2012.
  Pursuant
        to the anti-dilution provisions of the 2005 Series C Preferred Stock placement,
        the Company has issued on June 1, 2007 an additional 1,102,559 Series A warrants
        and 251,200 Series B warrants.  The original exercise price at the
        time of the placement for the Series A warrants was $5.80 and for the Series
        B
        warrants was $2.90.  In accordance with these provisions, the exercise
        price of both the newly issued and originally issued warrants was modified
        on
        June 1, 2007 to $1.66 and $1.11 for the Series A and Series B
        respectively.  Also, in accordance with certain milestone provisions
        of the 2006 Series D Preferred Stock placement, on January 1, 2007 the Company
        adjusted the exercise price of the warrants associated with this placement
        from
        a range of $1.50 to $2.00 to a range of $0.90 to $1.40.  There was no
        accounting effect of this transaction to the financial statements.
 
 On
        February 17, 2006, the Company closed on a $3.0 million preferred stock equity
        financing transaction before financing fees and expenses of approximately
        $293,000.  In association with this financing the Company issued
        Series A Warrants to purchase and aggregate of 223,881 shares of common stock
        at
        an exercise price of $1.50 for a period of five years.  In addition,
        the Company issued Series B Warrants to purchase an aggregate of 447,764
        shares
        of common stock at an exercise price of $2.00 per share for a period of five
        years. The Company has also issued warrants to purchase an aggregate of 119,403
        shares of common stock at and exercise price of $1.68 per share and an aggregate
        of 59,702 shares of common stock at an exercise price of $2.00 per share
        as part
        of the placement fee for the transaction.  All warrants associated
        with this transaction are for a period of five years, and expire in February
        2011.
  F-16
 Index
  Warrants
        issued are as follows:
  Number
                  of
                Shares
              
              
              Warrant
                  Price
                Per
                  Share
              
              
              Weighted
                  Average
                Exercise
                  Price
                Per
                  ShareBalance
                  October 1, 2005
              
              
              823,396
              
              
              
              $1.60
                  - $5.60
              
              
              
              $4.95Granted
                  in 2006
              
              
              850,750
              
              
              
              $1.50
                  - $2.00
              
              
              
              $1.82Forfeited/Expired
                  in 2006
              
              
              (15,000
              )
              
              
              $1.60
              
              
              
              $1.60Balance,
                  September 30, 2006
              
              
              1,659,146
              
              
              
              $1.50
                  - $5.60
              
              
              
              $3.38Granted
                  in 2007
              
              
              4,661,259
              
              
              
              $0.50 -
                  $1.66
              
              
              
              $0.81Forfeited/Expired
                  in 2007
              
              
              (12,500
              )
              
              
              $1.80
              
              
              
              $1.80Balance,
                  September 30, 2007
              
              
              6,307,905
              
              
              
              $0.50 -
                  $5.60
              
              
              
              $1.07
 
 [3]   Stock
        options
  In
        May
        2002, our Board of Directors adopted the 2002 Stock Option Plan (“2002 Plan”)
        which was ratified at our stockholder meeting of June 26, 2002. At September
        30,
        2006, 700,000 shares of common stock were reserved for issuance under the
        2002
        Plan, of which options for an aggregate of 506,050 shares were granted and
        outstanding, and 193,950 shares were available for future
        grants.  Between October 1, 2006 and February 23, 2007, options were
        granted under the 2002 Plan for an aggregate of 1,180,000 shares, of which
        1,036,050 shares were granted subject to stockholder approval of an increase
        in
        the number of shares of common stock underlying the 2002 Plan.  On
        December 1, 2006, the Board of Directors voted to amend the 2002 Plan by
        increasing to 1,500,000 the total number of shares of common stock reserved
        for
        issuance there under, subject to stockholder approval, and on February 23,
        2007,
        the Board raised the number of shares to 2,500,000, subject to stockholder
        approval.  Stockholder approval was obtained as of February 26, 2007
        by the written consent of the holders of more than a majority of outstanding
        voting shares, and notice thereof was given to the other stockholders. Under
        the
        2002 Plan, options may be awarded to employees, directors and
        consultants.  These options may be qualified or not qualified pursuant
        to the regulations of the Internal Revenue Code.
  On
        February 26, 2007, those options that were granted subject to stockholder
        approval were issued by the Company.  These options which were granted
        to officers, directors and employees are at an exercise price ranging from
        $0.52
        to $0.80 per share. Options granted are for a 10 year term, vesting after
        six
        months as to one-eighth of the options granted, and the balance vesting in
        equal
        monthly installments over the next forty-two months.  The vesting
        schedule of these options begins, on the date approved by the Company’s Board of
        Directors. Using the Black Scholes Option pricing model the Company has
        determined that the fair value of these options range from $0.32 to $0.38
        per
        share which equates to a fair value of approximately $371,000.
  On
        March
        5, 2007, the Company re-priced options for the purchase of an aggregate of
        458,000 shares which were originally granted on January 4, 2006.  The
        options were originally issued at an exercise price of $2.20 per share and
        were
        repriced at $1.10 per share, representing 110% of the then market price of
        the
        common stock.  Using the Black Scholes Option pricing model, the
        Company has determined that the additional fair value of these options due
        to
        the re-pricing is approximately $53,700.  The Company has taken an
        immediate charge of $15,652 for those options which have previously vested
        and
        the balance will be expensed over the remaining vesting period of these
        options.
  Effective
        October 1, 2006, the Company adopted the provision of FAS No. 123R “Share-Based
        Payment” using the modified prospective method and the Black-Scholes option
        pricing model and records stock-based compensation expense as part of the
        statement of operations. As of September 30, 2007, there were 1,686,050 options
        outstanding under the 2002 plan, exercisable at prices from $0.52 to $4.00
        per
        share
  F-17
 Index
  During
        1993, the Company adopted an employee stock option plan and a stock option
        plan
        for non-employee directors.  The employee stock option plan provides
        for the granting of options to purchase not more than 50,000 shares of common
        stock.  The options issued under the plan may be incentive or
        nonqualified options.  The exercise price for any incentive options
        cannot be less than the fair market value of the stock on the date of the
        grant,
        while the exercise price for nonqualified options will be determined by the
        option committee.  The Directors’ stock option plan provides for the
        granting of options to purchase not more than 10,000 shares of common
        stock.  In accordance with the Plan, the exercise price for shares
        granted under the Directors’ plan cannot be less than the fair market value of
        the stock on the date of the grant.
  Stock
        option transactions under the 2002 plan are as follows:
  Number
                  of
                Shares
              
              
              Option
                  Price
                Per
                  Share
              
              
              Weighted
                  Average
                Exercise
                  Price
                Per
                  ShareBalance
                  October 1, 2005
              
              
              51,800
              
              
              
              $3.00
                  - $4.00
              
              
              
              $3.07Granted
                  in 2006
              
              
              458,000
              
              
              
              $1.10
              
              
              
              $1.10Forfeited/Expired
                  in 2006
              
              
              (3,750
              )
              
              
              $3.00
              
              
              
              $3.00Balance,
                  September 30, 2006
              
              
              506,050
              
              
              
              $2.20
                  - $4.00
              
              
              
              $2.28Granted
                  in 2007
              
              
              1,180,000
              
              
              
              $0.52
                  - $0.80
              
              
              
              $0.61Balance,
                  September 30, 2007
              
              
              1,686,050
              
              
              
              $0.52
                  - $4.00
              
              
              
              $0.81
 
 Stock
        option transactions not covered under the years 2002 and 1993 option plans
        in
        the fiscal year 2006 and 2007 are as follows:
  Number
                  of
                Shares
              
              
              Option
                  Price
                Per
                  Share
              
              
              Weighted
                  Average
                Exercise
                  Price
                Per
                  ShareBalance,
                  October 1, 2005
              
              
              52,500
              
              
              
              $2.00
                  - $3.00
              
              
              
              $2.95Granted
                  in 2006
              
              
              130,000
              
              
              
              $0.70
                  - $1.75
              
              
              
              $0.94Forfeited/Expired
                  in 2006
              
              
              (52,500
              )
              
              
              $2.00 -
                  $3.00
              
              
              
              $2.95Balance,
                  September 30, 2006 and September 30, 2007
              
              
              130,000
              
              
              
              $0.70
                  - $1.75
              
              
              
              $0.94
 
 Stock
        option transactions under the 1993 plan:
  Number
                  of
                Shares
              
              
              Option
                  Price
                Per
                  Share
              
              
              Weighted
                  Average
                Exercise
                  Price
                Per
                  ShareBalance,
                  October 1, 2005
              
              
              34,975
              
              
              
              $3.00
                  - $100.00
              
              
              
              $4.27Forfeited/Expired
                  in 2006
              
              
              (3,475
              )
              
              
              $3.00
                  - $100.00
              
              
              
              $11.48Balance,
                  September 30, 2006 and September 30, 2007
              
              
              31,500
              
              
              
              $3.00
                  - $5.00
              
              
              
              $3.48
  F-18
 Index
  The
        following  table summarizes information about stock options
        outstanding at September 30, 2007:
  Outstanding
                  OptionsWeighted-Number
              
              
              Average
              
              
              Weighted-Range
                  of
              
              
              Outstanding
                  at
              
              
              Remaining
              
              
              AverageExercise
              
              
              September
                  30,
              
              
              Contractual
              
              
              Exercise
              
              
              IntrinsicPrices
              
              
              2007
              
              
              Life
                  (years)
              
              
              Price
              
              
              Value$0.52
                  - $0.80
              
              
              
              1,280,000
              
              
              
              8.51
              
              
              
              $0.61
              
              
              
              64,0001.10
              
              
              
              458,000
              
              
              
              8.33
              
              
              
              1.10
              
              
              
              01.75
              
              
              
              30,000
              
              
              
              3.83
              
              
              
              1.75
              
              
              
              03.00
                  – 5.00
              
              
              
              79,550
              
              
              
              4.03
              
              
              
              3.24
              
              
              
              0$0.52
                  - $5.00
              
              
              
              1,847,550
              
              
              
              8.20
              
              
              
              $0.86
              
              
              
              64,000
 
 Exercisable
                  OptionsWeighted-Number
              
              
              Average
              
              
              Weighted-Range
                  of
              
              
              Outstanding
                  at
              
              
              Remaining
              
              
              AverageExercise
              
              
              September
                  30,
              
              
              Contractual
              
              
              Exercise
              
              
              IntrinsicPrices
              
              
              2007
              
              
              Life
                  (years)
              
              
              Price
              
              
              Value$0.52
                  - $0.80
              
              
              
              347,461
              
              
              
              6.97
              
              
              
              $0.63
              
              
              
              10,4241.10
              
              
              
              190,803
              
              
              
              8.33
              
              
              
              1.10
              
              
              
              01.75
              
              
              
              30,000
              
              
              
              3.83
              
              
              
              1.75
              
              
              
              03.00
                  – 5.00
              
              
              
              79,550
              
              
              
              4.03
              
              
              
              3.24
              
              
              
              0$0.52
                  - $5.00
              
              
              
              647,814
              
              
              
              6.87
              
              
              
              $1.14
              
              
              
              10,424
 The
        intrinsic value is calculated as the
        difference between the market value of
 the
        Company’s common stock at September 30, 2007,
        which was $0.66 per share and the
 exercise
        price of the options.
  
  Total
                    stock options vested and exercisable at
                  September
                    30, 2007
              
              Number of
                  Shares
              
              
              Range of
                  Exercise Price
                  Per Share
              
              
              Weighted
                  Average
                  Exercise
                    Price
                  Per SharePlan
                  shares
              
              
              517,814
              
              
              
              $0.52
                  - $5.00
              
              
              
              $1.19Non-plan
                  shares
              
              
              130,000
              
              
              
              $0.70
                  - $1.75
              
              
              
              $0.94647,814
              
              
              
              $0.52
                  - $5.00
              
              
              
              $1.14
 
 (NOTE
        J) -  Royalty Agreement
 
 On
        June
        19, 2007, the Company entered into an amendment to Royalty Agreement (the
        “Amendment”) with Seradyn, Inc. (“Seradyn) with regard to the Royalty Agreement
        dated October 9, 2002, among them.  The Amendment provides for a lump
        sum payment of $500,000 by Seradyn to the Company, plus payment of any royalties
        due for the period from April 1, 2007 to May 15, 2007, for
  F-19
 Index
  termination
        by the Company of the Royalty Agreement.  The payments were due within
        ten business days from the entry into the Amendment and were received by
        the
        Company on June 28, 2007
 
 (NOTE
        K) –Geographic Information
 
 The
        Company does not have reportable operating Segments as defined in the SFAS
        No.131 “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 years ended September
        30,
        2007 and 2006.
 
 **For
                  the years ended September 30,**
              
              **2007**
              
              
              **2006**Net
                  Revenues:Israel
              
              $
              1,465,190
              
              
              $
              490,096United
                  States
              
              
              1,199,214
              
              
              
              745,373Total
              
              $
              2,664,404
              
              
              $
              1,235,469
  September
                  30,2007Identifiable
                  Assets:Israel
              
              $
              1,369,461United
                  States
              
              
              1,515,234Total
              
              $
              2,884,695
 (NOTE
        L) –Subsequent Event
 
 On
        December 6, 2007, the Company closed on a $4.7 million preferred stock equity
        financing before financing related fees and expenses of approximately
        $300,000.  As part of this financing transaction, the Company issued
        78,334 shares of Series F convertible preferred stock at $60 a
        share.  Each share of the Series F preferred stock is convertible into
        100 shares of common stock, subject to customary anti-dilution provisions,
        or an
        aggregate of 7,833,400 shares of common stock.  The Company also
        issued warrants to purchase an aggregate of 3,133,360 shares of common stock
        at
        an exercise price of $0.80 per share for a period of five years.  The
        Company has determined that the preferred stock was issued with an effective
        beneficial conversion feature of approximately $2,370,000 based upon the
        relative fair values of the preferred stock and warrants using the Black
        Scholes
        valuation model.  As such, this beneficial conversion feature is
        recorded as a deemed preferred stock dividend.  The Company has also
        issued warrants to purchase an aggregate of 400,000 shares of common stock
        at an
        exercise price of $0.85 per share for a period of five years as part of the
        placement fee, to a placement agent and its designees. Using the Black Scholes
        valuation model the Company has determined that the fair value of these warrants
        is $0.29 per share which equates to a fair value of approximately
        $117,500.


F-20
 Index