Attached files
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EX-5 - MedClean Technologies, Inc. | v172312_ex5.htm |
EX-23.1 - MedClean Technologies, Inc. | v172312_ex23-1.htm |
As
filed with the Securities and Exchange Commission on January 29,
2010
Registration No.
333-163719
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
AMENDMENT NO. 1
FORM
S-1
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
MEDCLEAN
TECHNOLOGIES, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
4953
|
21-0661726
|
(State
or other jurisdiction of
|
(Primary
Standard Industrial
|
(I.R.S.
Employer
|
incorporation
or organization)
|
Classification
Code Number)
|
Identification
Number)
|
3
Trowbridge Drive
Bethel,
Connecticut 06801
(203)
798-1080
(Address,
including zip code, and telephone number, including area code, of registrant’s
principal executive offices)
Cheryl
Kaine Sadowski
Chief
Financial Officer
1812
Front Street
Scotch
Plains, NJ 07076
(908)
663-2442
(Name,
address, including zip code, and telephone number, including area code, of agent
for service)
Copies
to:
Joseph
M. Lucosky, Esq.
Anslow
& Jaclin LLP
195
Route 9 South, 2nd
Floor
Manalapan,
NJ 07726
(732)
409-1212
Approximate Date of Commencement of
Proposed Sale to the Public: from time to time after the effective date
of this Registration Statement as determined by market conditions and other
factors.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box: x
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. o
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
Large
accelerated filer
|
¨
|
Accelerated
filer
|
¨
|
Non-accelerated
filer
|
¨
|
Smaller
reporting company
|
x
|
CALCULATION
OF REGISTRATION FEE
Title of each class of
securities
to be registered
|
Amount to be
Registered
|
|
|
Proposed Maximum
Offering Price Per
Security (1)
|
|
|
Proposed Maximum
Aggregate Offering
Price
|
|
|
Amount of
Registration
Fee (4)
|
|
|||||
Common
Stock, $.0001 par value per share (2)
|
153,378,718
|
$
|
0.034
|
$
|
5,214,876.41
|
$
|
371.82
|
|||||||||
Common
Stock, $.0001 par value per share (3)
|
19,121,282
|
$
|
0.034
|
$
|
650,123.59
|
$
|
46.35
|
|||||||||
Total
|
172,500,000
|
$
|
0.034
|
$
|
5,865,000
|
$
|
418.17
|
(1)
Estimated solely for purposes of calculating the registration fee pursuant to
Rule 457(c) under the Securities Act of 1933, as amended, using the average of
the high and low prices as reported on the Over-the-Counter Bulletin Board on
December 11, 2009, which was $0.034 per share.
(2)
Represents shares of our common stock to be offered for resale by selling
stockholders upon exercise of outstanding common stock purchase
warrants.
(3)
Represents shares of our common stock, currently issued and to be offered for
resale by the selling stockholders.
(4)
Previously paid by the Company.
The
registrant hereby amends this Registration Statement on such date or dates as
may be necessary to delay its effective date until the registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PRELIMINARY
PROSPECTUS, SUBJECT TO COMPLETION DATED JANUARY 29, 2010
The
information in this prospectus is not complete and may be
changed. The selling stockholders may not sell these securities until
the registration filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and neither we nor the selling stockholders are soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS
MEDCLEAN
TECHNOLOGIES, INC.
172,500,000
Shares of Common Stock
This
Prospectus relates to the resale of up to 172,500,000 shares of our common stock
to be offered by the selling stockholders consisting of (i) 153,378,718
unissued shares of our common stock to be offered for resale by selling
stockholders upon the exercise of outstanding common stock purchase warrants and
(ii) 19,121,282 currently issued shares of our common stock to be offered
for resale by selling stockholders.
The
selling stockholders may sell Common Stock from time to time in the principal
market on which the stock is traded at the prevailing market price or in
negotiated transactions. See “Plan of Distribution” which begins on
page 30.
We
will not receive any of the proceeds from the sale of Common Stock by the
selling stockholders. However, we will generate proceeds from the cash exercise
of the warrants by the selling stockholders, if any. We intend to use those
proceeds for general corporate purposes. We will pay the expenses of
registering these shares.
Our
common stock is quoted on the Over-the-Counter Bulletin Board and trades under
the symbol “MCLN.” The last reported sale price of our common stock on the
Over-the-Counter Bulletin Board on December 11, 2009, was approximately $0.034
per share.
We
may amend or supplement this prospectus from time to time by filing amendments
or supplements as required. You should read the entire prospectus and any
amendments or supplements carefully before you make your investment
decision.
Brokers
or dealers effecting transaction in the securities should confirm the
registration of these securities under the securities laws of the states in
which transactions occur or the existence of our exemption from
registration.
YOU
SHOULD CONSIDER CAREFULLY THE RISKS ASSOCIATED WITH INVESTING IN OUR COMMON
STOCK. BEFORE MAKING AN INVESTMENT, PLEASE READ THE “RISK FACTORS” SECTION OF
THIS PROSPECTUS, WHICH BEGINS ON PAGE 6.
NEITHER
THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS
APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
, 2010
TABLE
OF CONTENTS
|
Page
|
PROSPECTUS
SUMMARY
|
2
|
RISK
FACTORS
|
6
|
FORWARD
LOOKING STATEMENTS
|
9
|
USE
OF PROCEEDS
|
10
|
DIVIDEND
POLICY
|
10
|
MARKET
FOR OUR COMMON STOCK
|
10
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
11
|
BUSINESS
|
16
|
MANAGEMENT
|
22
|
SECURITY
OWNERSHIP
|
26
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
27
|
DESCRIPTION
OF SECURITIES
|
28
|
SELLING
SECURITY HOLDERS
|
29
|
PLAN
OF DISTRIBUTION
|
30
|
LEGAL
MATTERS
|
31
|
EXPERTS
|
31
|
AVAILABLE
INFORMATION
|
32
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
33
|
1
PROSPECTUS
SUMMARY
This
summary highlights selected information contained elsewhere in this Prospectus.
This summary does not contain all the information that a person should consider
before investing in the Company’s securities. A potential investor should
carefully read the entire Prospectus, including “Risk Factors” and the
Consolidated Financial Statements, before making an investment
decision.
Officers
of the Company are included as Selling Holders hereunder whose shares of Common
Stock are being sold pursuant to this Prospectus (See “Selling Holders”
below).
In this
prospectus, “MTI,” the “Company,” “we,” “us” and “our” refers to MedClean
Technologies, Inc. “Aduromed” refers to the Company’s former wholly-owned
subsidiary which was merged with and into the Company effective January 2,
2009.
The
Company
Background
MTI is
in the business of providing solutions for managing medical waste on site
including designing, selling, installing and servicing on site (i.e. “in-situ “) turnkey systems to
treat regulated medical waste. MTI provides these systems to hospitals and
other medical facilities as efficient, safe, cost effective and legally
compliant solutions to incineration, off site hauling of untreated waste and
other alternative treatment technologies and methodologies.
The
principal business offices of MTI are located at 3 Trowbridge Drive, Bethel,
Connecticut 06801, and their telephone number at that address is (203) 798-1080.
On November 1, 2008 the Company commenced leasing a four office suite in Scotch
Plains, NY for 12 twelve months. Also on November 1, 2008, the Company began
leasing the remaining 11,834 sq ft of space at its’ existing facility in Bethel,
CT. to provide additional space for assembling its MedClean systems
(See ‘‘Description of Properties’’ below).
Recent
Developments
Series
C Preferred Shares Transaction
On
December 4, 2009 (the “Effective Date”), the Company entered into a preferred
stock purchase agreement (the “Purchase Agreement”) with Socius Capital Group,
LLC, a Delaware limited liability company, doing business as Socius Life
Sciences Capital Group, LLC (the “Investor”). Pursuant to the Purchase
Agreement:
|
·
|
The Company agreed to sell, and
the Investor agreed to purchase, in one or more purchases from time to
time (“Tranches”) in the Company’s sole discretion (subject to the
conditions set forth therein), (i) up to 750 shares of Series C Preferred
Stock (the “Preferred Shares”) at a purchase price of $10,000 per share,
for an aggregate purchase price of up to $7,500,000, and (ii) five-year
warrants (“Socius Warrants”) to purchase shares of the Company’s common
stock with an aggregate exercise price equal to 135% of the
purchase price paid by the Investor, at an exercise price per share equal
to the closing bid price of the Company’s common stock on the date the
Company provides notice of such Tranche. The Warrants will be issued in
replacement of a five-year warrant to purchase 262,987,013 shares of
common stock with an exercise price per share of $0.038 the Company issued
on the Effective Date.
|
|
·
|
the Company agreed to pay to the
Investor a commitment fee of $375,000 (the “Commitment Fee”), at the
earlier of the closing of the first Tranche or the six month anniversary
of the Effective Date, payable at the Company’s election in cash or common
stock valued at 87% of the volume weighted average price of the Company’s
common stock on the five trading days preceding the payment
date.
|
|
·
|
the Company agreed to use its
best efforts to file within 30 days of the Effective Date, and cause to
become effective as soon as possible thereafter, a registration statement
with the Securities and Exchange Commission for the resale of all shares
of common stock issuable pursuant to the Purchase Agreement, including the
shares of common stock underlying the Warrants, and shares issuable in
payment of the Commitment
Fee.
|
|
·
|
On December 3, 2009 the
Company filed a certificate of designations for the Series C Preferred
Stock (the “Certificate of Designations”). Pursuant to the Certificate of
Designations, the Preferred Shares shall, with respect to
dividend, rights upon liquidation, winding-up or dissolution, rank:
(i) senior to the Company’s common stock, and any other class or series of
preferred stock of the Company; and (ii) junior to all existing and future
indebtedness of the Company. In addition, the Preferred Shares (a) shall
accrue dividends at a rate of 10% per annum, payable in
Preferred Shares, (ii) shall not have voting rights, and (iii)
may be redeemed at the Company’s option, commencing 4 years from the
issuance date at a price per share of (a) $10,000 per share
plus accrued but unpaid dividends (the “Series C Liquidation Value”), or,
at a price per share of: (x) 127% of the Series C Liquidation Value if
redeemed on or after the first anniversary but prior to the second
anniversary of the initial issuance date, (y) 118% of the Series C
Liquidation Value if redeemed on or after the second anniversary but prior
to the third anniversary of the initial issuance date, and (z) 109% of the
Series C Liquidation Value if redeemed on or after the third anniversary
but prior to the fourth anniversary of the initial Issuance
Date
|
2
History
Effective
January 2, 2009, the Company changed its corporate name from Aduromed
Industries, Inc. to MedClean Technologies, Inc. Also effective January 2, 2009,
the Company merged its former wholly-owned subsidiary, Aduromed Corporation,
with and into the Company.
On July
10, 2008, the Company, Aduromed, Pequot Capital Management, Inc. (“Pequot”), on
behalf of various funds managed by Pequot (the “Pequot Funds”), Sherleigh
Associates Inc. Defined Benefit Pension Plan (“Sherleigh”), holders of
$1,225,000 in principal amount of the Company’s 12% Secured Promissory Notes due
July 31, 2008 (the “Bridge Loan Holders”), and Mr. Joseph Esposito, corporate
and business development advisor to the Company (“Esposito”) entered into a
Master Restructuring Agreement (“MRA”) regarding their respective investments in
the Company.
Existing
investments in the Company were restructured pursuant to the terms of the MRA
and certain other changes were implemented and all transactions were deemed to
occur contemporaneously as of August 4, 2008 (the “Effective Time”). The major
terms of the MRA are as follows:
|
·
|
Sherleigh
(i) exchanged its shares of Series A and Series B Preferred Stock
into 20,000,081 shares of common stock of the Company, par value $0.0001
per share (“Common Stock”), (ii) exchanged accumulated dividends payable
on its Preferred Stock as of June 30, 2008 in the amount of $383,576 into
15,343,040 shares of Common Stock and received additional common stock
purchase warrants for 15,343,040 shares of Common Stock at an exercise
price of $0.025 per share, and (iii) exchanged liquidated damages in the
amount of $215,000 payable to Sherleigh by the Company into 8,600,000
shares of Common Stock and received additional common stock purchase
warrants for 8,600,000 shares of Common Stock at an exercise price of
$0.025 per share.
|
|
·
|
The
Pequot Funds surrendered their shares of Series A and Series B Preferred
Stock to the Company which shares were cancelled, and the Pequot Funds
forfeited their right to receive accumulated dividends payable on their
Preferred Stock as of June 30, 2008 in the amount of $690,436 and
liquidated damages in the amount of $387,000 payable to the Pequot Funds
by the Company.
|
|
·
|
The Series A and B Preferred
Warrants were amended such that they collectively represent the right to
purchase 55,999,998 shares of Common Stock at an exercise price of $0.025
per share, of which Pequot Funds hold warrants for the purchase of
36,000,001 shares of Common Stock and Sherleigh holds warrants for the
purchase of 19,999,997 shares of Common Stock and weighted average
anti-dilution rights were
terminated.
|
3
|
·
|
The
Amended and Restated Stockholders Agreement, dated as of January 23, 2006
among the Company, Aduromed, the Pequot Funds and Sherleigh was
terminated.
|
|
·
|
The
Bridge Loan Holders collectively exchanged a deemed principal amount of
$1,275,000 of their notes into 93,750,000 shares of Common Stock and all
such Bridge Loan Holders’ outstanding common stock warrants were
collectively exchanged into warrants for the purchase of 93,750,000 shares
of Common Stock at an exercise price of $0.025 per share and anti-dilution
rights were terminated.
|
|
·
|
All
documents entered into in connection with the bridge loan were
terminated.
|
|
·
|
Esposito
and his new management associates invested $1,046,000 into the Company in
return for 83,680,000 shares of Common Stock and common stock purchase
warrants representing an equal amount of shares of Common Stock at an
exercise price of $0.025 per share.
|
|
·
|
The
Pequot Funds invested an additional $1,300,000 into the Company, with post
restructuring holdings of 131,097,456 shares of Common Stock and warrants
to purchase 131,097,456 shares of Common Stock at $0.025 per
share.
|
|
·
|
Sherleigh
invested an additional $700,000 into the Company, with post restructuring
holdings of 71,943,023 shares of Common Stock and warrants to purchase
71,943,023 shares of Common Stock at $0.025 per
share.
|
|
·
|
The
parties to the MRA agreed to vote their shares of Common Stock from and
after the Effective Time such that Pequot and Sherleigh each have the
right to designate two additional persons to the Company’s board of
directors and Heller Capital Management has the right to designate one
additional person to the Company’s board of directors and the Company’s
board of directors will consist of nine (9)
members.
|
|
·
|
The
employment agreements of Damien R. Tanaka, Chief Executive Officer and
Kevin T. Dunphy, Chief Financial Officer were terminated and new
employment agreements were entered into with such
individuals.
|
Pursuant
to the terms of the MRA, $350,000 of new money was invested into the Company as
of July 11, 2008, $250,000 of new money was invested into the Company as of July
25, 2008, $3,205,000 of new money was invested into the Company as of August 4,
2008, $600,000 of new money was invested into the Company as of August 7, 2008,
$250,000 of new money was invested into the Company as of August 12, 2008,
$210,000 of new money was invested into the Company as of August 22, 2008,
$25,000 of new money was invested into the Company as of August 28, 2008, and
$56,000 of new money was invested into the Company as of August 29, 2008, for a
total gross proceeds to the Company of $4,946,000. The total net proceeds after
placement fees were $4,868,000. These investors received a total of 347,147,890
shares of Common Stock and Common Stock Purchase Warrants to purchase a total
of 64,777,455 shares of Common Stock at a purchase price of $0.025 per
share, exercisable for five years. Existing securities holders of the Company
including the Pequot Funds, Sherleigh and the Bridge Loan Holders converted
their securities into 179,053,415 shares of Common Stock and Common Stock
Purchase Warrants to purchase a total of 124,060,769 shares of Common Stock at a
purchase price of $0.025 per share, exercisable for five years.
Effective
January 30, 2007, the Company changed its corporate name from General Devices,
Inc. to Aduromed Industries, Inc. Effective January 23, 2006, the Company merged
(the “Merger”) with Aduromed, whereby Aduromed became the wholly-owned
subsidiary of the Company and the former holders of the equity in Aduromed
became holders of equity in MTI. Aduromed was the Company’s sole operating
entity before it merged with and into the Company effective January 2,
2009.
During
the past three years prior to the consummation of the Merger, MTI had no
material assets.
Aduromed
was formed in 1997 as a Connecticut limited liability company by Mr. Damien R.
Tanaka and two investors/members under the name ‘‘Automated Process LLC.’’ In
September, 2002, (i) the two investors/members withdrew as members, (ii)
Aduromed was reorganized as a Delaware corporation, changing its name to
‘‘Aduromed Corporation’’, and (iii) several third parties invested funds in
Aduromed to become minority shareholders, warrant holders and
creditors.
MTI’s
Business
The
principal product of MTI is its on-site system (‘‘MedClean® System’’ or
‘‘System’’) to convert RMW into municipal solid waste (MSW). The disposal of
both RMW and MSW is generally regulated on the state and local levels. RMW is
solid non-hazardous waste generated in connection with the diagnosis, treatment
or immunization of human beings or animals, in research pertaining thereto, or
in the production of testing of biologicals, and includes bandages and other
materials containing potentially infectious bodily fluids, culture dishes and
other glassware, discarded surgical gloves and surgical instruments, ‘‘sharps’
(e.g. needles), cultures, stocks, swabs and lancets.
The
System is comprised of integrated equipment installed at the generator’s medical
facility (i.e. an ‘‘on-site’’ or ‘‘in-situ’’ installation) or
provided to the generator’s facility in the form of a containerized system
located at a loading dock or similar area , and is comprised of (i) an autoclave
vessel to sterilize the material, (ii) a shredding device to convert the
material into unrecognizable confetti-like material and (iii) its Auto-Touch®
proprietary control panel. Ancillary equipment include Quiet Carts® with
disposable plastic liners used for intramural collection of the RMW at points of
generation within the medical facility, the containerization of the waste during
the autoclave sterilization process and the mechanical dumping of the waste into
the shredding device. The System is automated to minimize personnel contact with
the material and to assure regulatory compliance in the conversion process (See
“Business of the Company -
Products”
below).
4
MTI’s
consumable supplies, sold periodically to customers, include the liners for the
Quiet Carts ® , cutting blades for the shredder and supplies such as deodorizers
and paper print rolls for use with the autoclaves and control panels. (See “Business of the Company -
Products”
below.)
About
This Offering
This
Prospectus relates to the resale of up to 172,500,000 shares of our common stock
to be offered by the selling stockholders consisting of (i) 153,378,718
unissued shares of our common stock to be offered for resale by selling
stockholders upon the exercise of outstanding common stock purchase warrants and
(ii) 19,121,282 currently issued shares of our common stock to be offered
for resale by selling stockholders.
Summary of the Shares offered by the
Selling Stockholders.
The
following is a summary of the shares being offered by the selling
stockholders:
Securities
Offered
|
172,500,000
shares of our common stock to be offered by the selling
stockholders, of which (i) 153,378,718 represent currently
unissued shares of our common stock to be offered for resale by
selling stockholders upon the exercise of outstanding common stock
purchase warrants and (ii) 19,121,282 represent currently issued shares of
our common stock to be offered for resale by selling
stockholders.
|
|
Use
of Proceeds
|
We
will not receive any proceeds from the sale of the Common Stock offered by
the selling stockholders. However, we will generate proceeds
from the cash exercise of the warrants by the selling stockholders, if
any. We intend to use those proceeds for general corporate
purposes.
|
|
Risk
Factors
|
The
securities offered hereby involve a high degree of risk. See
“Risk Factors” beginning on page 6.
|
|
Offering
Price
|
All
or part of the shares of common stock offered hereby may be sold from time
to time in amounts and on terms to be determined by the selling
stockholders at the time of sale.
|
|
OTCBB
Trading Symbol
|
MCLN.OB
|
SUMMARY
FINANCIAL AND OPERATING INFORMATION
The
following selected financial information is derived from the Company ’ s
Financial Statements appearing elsewhere in this Prospectus and should be read
in conjunction with the Company ’ s Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus.
Summary
of Operations - Aduromed Corporation
For
the Years Ended December 31,
2008
|
2007
|
|||||||
Total
Revenue
|
$
|
2,098,067
|
$
|
2,865,197
|
||||
Loss
from operations
|
$
|
(4,687,125
|
)
|
$
|
(2,597,454
|
)
|
||
Net
loss
|
$
|
(7,829,999
|
)
|
$
|
(4,528,826
|
)
|
||
Net
loss per common share (basic and diluted)
|
$
|
(0.03
|
)
|
$
|
(0.24
|
)
|
||
Weighted
average common shares outstanding
|
237,941,766
|
20,977,732
|
5
Statement
of Financial Position
As
of December 31,
2008
|
2007
|
|||||||
Cash
and cash equivalents
|
$ | 1,992,401 | $ | 212,215 | ||||
Total
assets
|
$ | 3,341,204 | $ | 2,277,510 | ||||
Working
Capital
|
$ | 626,293 | $ | (2,993,449 | ) | |||
Long
term debt
|
$ | — | $ | 62,476 | ||||
Stockholders’
equity ( deficit )
|
$ | 949,857 | $ | (2,686,758 | ) |
Summary
of Interim Financial and Operating Information
The
following selected financial information is derived from the Company's unaudited
Financial Statements appearing elsewhere in this registration statement and
should be read in conjunction with the Company's Financial
Statements.
Summary
of Operations
For the Nine Months Ended September
30,
|
||||||||
2009
|
2008
|
|||||||
Total
Revenue
|
2,328,474
|
1,954,739
|
||||||
Loss
from operations
|
(3,313,457
|
)
|
(2,528,439
|
)
|
||||
Net
loss
|
(4,212,579
|
)
|
(4,354,791
|
)
|
||||
Net
loss per common share (basic and diluted)
|
(0.01
|
)
|
(0.03
|
)
|
||||
Weighted
average common shares outstanding
|
561,542,968
|
127,553,445
|
Statement
of Financial Position
9/30/2009
|
12/31/2008
|
|||||||
Cash
and cash equivalents
|
249,225 | 1,922,401 | ||||||
Total
assets
|
1,685,683 | 3,341,204 | ||||||
Working
Capital
|
(230,858 | ) | 626,293 | |||||
Long
term debt
|
- | - | ||||||
Stockholders’
equity
|
(50,857 | ) | 949,857 |
RISK
FACTORS
The
shares of our Common Stock being offered for resale by the selling holders are
highly speculative in nature, involve a high degree of risk and should be
purchased only by persons who can afford to lose the entire amount invested
therein. Before purchasing any of these securities, you should carefully
consider the following factors relating to our business and prospects. If any of
the following risks actually occurs, our business, financial condition or
operating results could be materially adversely affected. In such case, the
trading price of our Common Stock could decline, and you may lose all or part of
your investment.
Risks
Related To Our Business
We
have a history of losses
To date,
we have been unable to generate revenue sufficient to be profitable. The
Company had a net loss of $(7,829,999), or $(0.03) per share, for the
fiscal year ended December 31, 2008, compared to a net loss of $(4,528,826), or
$(0.24) per share, for the fiscal year ended December 31, 2007. The Company
might not achieve the level of revenues needed to be profitable in the future
or, if profitability is achieved, that it will be sustained.
6
The
Company lacks an operating history making evaluation of its business
difficult.
While the
Company ’ s revenues during the past eight years have been exclusively
derived from sales and servicing of its MedClean Systems, it's business is at an
early stage of commercialization, and there is no meaningful historical
financial or other information available upon which to base an evaluation of the
Company's ability to increase its revenues in accordance with its projections or
to compete effectively with those persons with similar or alternate
systems.
In
addition, the Company ’ s early stage of commercialization means that it has
less insight into how market and technology trends may affect its business. This
includes the ability to attract and convince customers to switch from their
current method of dealing with the disposal of their medical waste to the
Company ’ s technology. As a consequence, the revenue and income potential of
its business is unproven.
The
Company is dependent on third party component suppliers.
The
Company is dependent on third party suppliers for the supply of components of
its MedClean units. At present, the Company relies on a contract with Weima to
supply parts for the shredder portion of the system. (See “Weima Agreement”).
These parts are manufactured under the protection of a U.S. patent owned by an
affiliate of Weima. The contract with Weima may be terminated on thirty (30)
days notice. The Company might not have adequate supplies of materials for these
parts if the contract with Weima is terminated. Although the Company believes
that the required components are 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.
The
Company may not be able to effectively protect its proprietary technology, which
could have a material adverse effect on its business and make it easier for its
competitors to duplicate its products.
The
Company regards certain aspects of its products, processes, services and
technology as proprietary. The Company has registered four of its
trademarks with the United States Patent and Trademark Office, Aduromed®,
MedClean®, AutoTouch® and QuietCart®. On November 24, 2008, the Company filed a
patent application, entitled “Containerized Medical Waste Treatment System and
Related Method,” which focuses on the design and configuration of the Company's
new standard, containerized MedClean Systems. The Company also intends to file a
patent application with respect to its smaller “appliance” system at some point
in the future. Other than these patent filings, the Company does not have nor
does it intend to apply for patent protection with respect to the processes and
technology encompassed by its present Systems. The Company requires all of its
employees to sign Confidentiality and Non-Disclosure Agreements that prohibit
the dissemination or use of the Company’s know-how and technology other than in
the legitimate performance of the employee’s duties. 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 rights of others,
both in the United States and abroad. The Company may apply in the future for
patent protection for uses, processes, products and systems that it develops.
Any future patent for which the Company applies may not be issued; any existing
contractual non-disclosures obligations may be challenged, invalidated or
circumvented; third parties might infringe or misappropriate our proprietary
rights; and third parties might independently develop similar products, services
and technology. The Company may incur substantial costs in asserting or
defending any breach of contract or infringement suits or in asserting any
license rights, including those granted by third parties, the expenditure of
which the Company might not be able to afford. An adverse determination could
subject the Company to significant liabilities to third parties, require it to
seek licenses from or pay royalties to third parties or require it to develop
appropriate alternative technology. Such licenses might not be available on
acceptable terms or at all, and the Company might not develop alternate
technology at an acceptable price or at all. Any of these events could have a
material adverse effect on the Company's business and
profitability.
The
Company may have to resort to litigation to enforce its intellectual property
rights, protect its trade secrets, determine the validity and scope of the
proprietary rights of others, or defend itself from claims of infringement,
invalidity or unenforceability. Litigation may be expensive and divert resources
even if the Company wins. This could adversely affect its business, financial
condition and operating results such that it could cause the Company to reduce
or cease operations.
The
Company may not be able to develop new products that achieve market
acceptance.
Our
future growth and profitability depend, in part, on our ability to respond to
technological advances and to successfully develop and market new products that
achieve market acceptance. This industry has been historically marked by very
rapid technological change and the frequent introduction of new products. While
we have been engaged in development of equipment suitable for on-site treatment
of RMW by small quantity generators (such as doctors' offices and clinics), we
might not be able to develop new products that will realize broad market
acceptance.
7
The
Company's existing products may not be able in the future to meet changes in
environmental laws and regulations regarding regulated medical
waste.
The
future of our business will depend on our ability to respond to any future
changes in the federal, state and local regulatory environment. Since the
Company does not itself generate medical waste and is not itself in control of,
nor does it handle, the medical waste but only sells its equipment to meet its
contractual obligations to its customers, it is not itself currently subject to
regulations with respect to the disposal of RMW; however, any change in this
regulatory regime in the future could have a material adverse effect on the
Company's operations.
The
nature of our business exposes us to professional and product liability claims,
which could materially adversely impact our business and
profitability.
The
malfunction or misuse of our MedClean Systems may result in damage or injury 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 we believe prudent in our business, and
we have not experienced any claims made or lawsuits instituted against us with
regard to any such damage or violations, such insurance might not be sufficient
to cover any potential liability. 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 our present coverage might not continue to be available on commercially
reasonable terms or at all. In addition, insurance might not adequately cover
any product liability claim against us. However, we do believe our insurance
coverage is adequate to cover any claims made, and we review our insurance
requirement with our insurance broker at least annually.
Other
parties may assert that our technology infringes on their intellectual property
rights, which could divert management time and resources and possibly force us
to redesign our products.
Developing
products based upon new technologies can result in litigation based on
allegations of patent and other intellectual property infringement. While no
infringement claims have been made or threatened against us, third parties might
assert infringement claims against us in the future, and such assertions by such
parties might result in costly litigation in which they might prevail. In
addition, we may not be able to license any valid and infringed patents from
third parties on commercially reasonable terms or, alternatively, be able to
redesign products on a cost-effective basis to avoid infringement. Any
infringement claim or other litigation against or by us could have a material
adverse effect on us and could cause us to reduce or cease operations, and even
if we are successful in a litigation to defend such claim, there may be adverse
effects due to the significant expenses related to defending the
litigation.
The
loss of certain members of our management team could adversely affect our
business.
Our
success is highly dependent on the continued efforts of all the members of our
executive management team. Should operations expand, we will need to hire
persons with a variety of skills and competition for these skilled individuals
could be intense. If any of our executive management team should retire or leave
we may not 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 have employment agreements with all of our management personnel
but we do not carry any “key-man” insurance on the lives of any of our officers
or employees.
The
Company is subject to a number of competitive technologies as well as
competition in the medical waste treatment disposal business in
general.
There are
numerous methods of handling and disposing of RMW, of which our technology is
one of the available systems. We are not aware of any competitive product that
is similar to the MedClean Systems with respect to its design, compactness and
customer-friendly use. We believe that our MedClean Systems, due to their
ability to be used on-site, competitive costing and ease of use, offer a
significant advantage over RMW systems offered by our competitors. Nevertheless,
a different or new technology may supplant us in the market. Further, we might
not be successful in the deployment of our systems in the marketplace, and other
companies predominate in the waste removal business, with substantially greater
resources and market visibility than us, may try to develop similar
systems.
The
Company is controlled by certain shareholders.
Three
investor groups, the Pequot Funds, Sherleigh and Heller Capital, beneficially
own more than 50% of the Company’s Common Stock on both an undiluted and
fully-diluted basis. By the terms of the MRA these investors are entitled to
elect five members of the board of directors and have the right to cause the
board of directors to consist of nine members. In most matters submitted to the
stockholders of the Company, these investors, if they were to vote in the same
manner, may determine the resolution of matters to be acted upon by
stockholders. The interests of these investors may conflict with the interests
of the other holders of the Company's Common Stock.
8
Market
Risks
There
is only a volatile limited market for our Common Stock.
Recent
history relating to the market prices of public companies indicates that, from
time to time, there may be periods of extreme volatility in the market price of
our securities because of factors unrelated to the operating performance of, or
announcements concerning, the issuers of the affected stock, and especially for
stock traded on the OTC Bulletin Board. Our Common Stock is not actively traded,
and the bid and asked prices for our Common Stock have fluctuated significantly.
In the last 52 week period, the Common Stock traded on the OTC Bulletin Board
from a high closing price of $0.25 to a low of $0.001 per share. See “Market for
our Common Stock.” General market price declines, market volatility, especially
for low priced securities, or factors related to the general economy or to us in
the future could adversely affect the price of the common stock. With the low
price of our Common Stock, any securities placement by us would be very dilutive
to existing stockholders, thereby limiting the nature of future equity
placements.
We
have never paid dividends and we do not anticipate paying dividends in the
future.
We do not
believe that we will pay any cash dividends on our Common Stock in the future.
We have never declared any cash dividends on our common stock, and if we were to
become profitable, it would be expected that all of such earnings would be
retained to support our business. Since we have no plan to pay cash dividends,
an investor would only realize income from his investment in our shares if there
is a rise in the market price of our Common Stock, which is uncertain and
unpredictable.
We
are subject to penny stock regulations and restrictions.
The
Securities and Exchange Commission (the “SEC”) has adopted regulations which
generally define Penny Stocks to be an equity security that has a market price
less than $5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exemptions. As of December 1, 2009, the closing price for our
Common Stock was $0.027 per share and therefore, it is designated a “Penny
Stock.” As a Penny Stock, our Common Stock may become subject to Rule 15g-9
under the Securities Exchange Act of 1934, as amended (“Exchange Act”), or the
Penny Stock Rule. This rule imposes additional sales practice requirements on
broker-dealers that sell such securities to persons other than established
customers and “accredited investors” (generally, individuals with a net worth in
excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together
with their spouses). For transactions covered by Rule 15g-9, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction prior to sale. As a
result, this rule may affect the ability of broker-dealers to sell our
securities and may affect the ability of purchasers to sell any of our
securities in the secondary market.
For any
transaction involving a penny stock, unless exempt, the rules require delivery,
prior to any transaction in a penny stock, of a disclosure schedule prepared by
the SEC relating to the penny stock market. Disclosure is also required to be
made about sales commissions payable to both the broker-dealer and the
registered representative and current quotations for the securities. Finally,
monthly statements are required to be sent disclosing recent price information
for the penny stock held in the account and information on the limited market in
penny stock.
Our
Common Stock might not qualify for exemption from the penny stock restrictions.
In any event, even if our Common Stock were exempt from the Penny Stock
restrictions, we would remain subject to Section 15(b)(6) of the Exchange Act,
which gives the SEC the authority to restrict any person from participating in a
distribution of penny stock, if the SEC finds that such a restriction would be
in the public interest.
Certain
provisions of our charter could discourage potential acquisition proposals or
change in control.
Our Board
of Directors, without further stockholder approval, may issue preferred stock
that would contain provisions that could have the effect of delaying or
preventing a change in control or which may prevent or frustrate any attempt by
stockholders to replace or remove the current management. The issuance of
additional shares of preferred stock could also adversely affect the voting
power of the holders of Common Stock, including the loss of voting control to
others.
FORWARD
LOOKING STATEMENTS
Information
included or incorporated by reference in this Prospectus may contain
forward-looking statements. This information may involve known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from the future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words ‘‘may,’’ ‘‘should,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’
‘‘believe,’’ ‘‘intend’’ or ‘‘project’’ or the negative of these words or other
variations on these words or comparable terminology.
This
Prospectus contains forward-looking statements, including statements regarding,
among other things, (a) our projected sales and profitability, (b) our
technology, (c) our manufacturing, (d) the regulations to which we are subject,
(e) anticipated trends in our industry and (f) our needs for working capital.
These statements may be found under ‘‘Management's Discussion and Analysis or
Plan of Operations’’ and ‘‘Business,’’ as well as in this Prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under ‘‘Risk Factors’’ and matters described in
this Prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this Prospectus
will in fact occur.
9
USE
OF PROCEEDS
We will
receive no proceeds from the sale of shares of Common Stock offered by the
selling stockholders. However, we will generate proceeds from the
cash exercise of the warrants by the selling stockholders, if any. We intend to
use those proceeds for general corporate purposes.
DIVIDEND
POLICY
We
have never declared dividends or paid cash dividends on our common
stock. We intend to retain and use any future earnings for the development
and expansion of our business and do not anticipate paying any cash dividends on
the common stock in the foreseeable future. The declaration of dividends will be
at the discretion of the Board of Directors and will depend upon MTI’s earnings,
financial position, general economic conditions and other pertinent
factors.
MARKET
FOR OUR COMMON STOCK
The
Company’s Common Stock is listed on the OTC Bulletin Board market and trades
under the symbol MCLN.OB.
The
following table sets forth the range of the high and low bid quotations of the
Common Stock for the past two years in the over-the-counter market, as reported
by the OTC Bulletin Board and in the Pink Sheets. The quotations reflect
inter-dealer prices without retail mark-up, mark-down or commission, and may not
represent actual transactions.
Calendar
Quarter Ended:
High
|
Low
|
|||||||
2009
|
||||||||
March
31
|
$ | 0.026 | $ | 0.002 | ||||
June
30
|
0.002 | 0.001 | ||||||
September
30
|
0.002 | 0.001 | ||||||
2008
|
||||||||
March
31
|
$ | 0.25 | $ | 0.06 | ||||
June
30
|
0.09 | 0.02 | ||||||
September
30
|
0.24 | 0.03 | ||||||
December
31
|
0.25 | 0.025 | ||||||
2007
|
||||||||
March
31
|
$ | 0.24 | $ | 0.22 | ||||
June
30
|
0.30 | 0.29 | ||||||
September
30
|
0.30 | 0.29 | ||||||
December
31
|
0.15 | 0.12 | ||||||
2006
|
||||||||
March
31
|
$ | 0.71 | $ | 0.71 | ||||
June
30
|
1.04 | 0.62 | ||||||
September
30
|
1.02 | 1.02 | ||||||
December
31
|
1.00 | 0.30 |
As of December 14, 2009 the Company had
1,388 stockholders of record.
10
MANAGEMENT’S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION
Forward
Looking Statements
The
Company is including the following cautionary statement in
this Registration Statement for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance
and underlying assumptions and other statements which are other than statements
of historical facts. Certain statements contained herein are forward-looking
statements and accordingly involve risks and uncertainties which could cause
actual results or outcomes to differ materially from those expressed in the
forward-looking statements. 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 result or 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, capital needs to fund any delays or
extensions of development programs, delays in the manufacture of new and
existing products by us or third party contractors, market acceptance of our
products, the loss of any key employees, delays in obtaining federal, state or
local regulatory clearance for new installations and operations, changes in
governmental regulations, 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 our Annual Report
on Form 10-K. We disclaim any obligation to update any forward-looking
statements to reflect events or circumstances after the date
hereof.
Results
of Operations
Three
Months Ended September 30, 2009 Compared to Three Months Ended September 30,
2008
Net
Revenue
Total
revenue for the quarter ended September 30, 2009 was $1,556,292 compared with
$748,758 for the same period in 2008, an increase of $807,534 or
107.8%.
Revenues
derived from the sale of consumables, component parts, service billings and
amortization of maintenance contracts increased $149,416 or 84% in the current
quarter to $326,931. The increase in revenue was attributable to increased
billings for goods and services from an increased install base of hospitals that
have previously purchased our MedClean system.
In the
current quarter, we recognized revenue from two system installations with
revenues of $1,213,069 and $16,291 from the balance of a system install. The
remaining contracts in backlog have not yet been scheduled.
Gross
Profit
The gross
profit for the three months ended September 30, 2009 was $914,249 (58.7% of
total revenue) compared with a gross profit of $266,519 (35.6% of total revenue)
for the same three month period of 2008.
In 2009,
we introduced a revised sale pricing structure for our products with higher
gross profit margins as compared to prior years. In this period we
recognized revenue on two system sales under this new pricing structure and our
gross profit margins increased from 35.6% to 58.7%, or a 65%
increase. In addition, by carefully managing the business we have
been able to ensure that we are invoicing for all services preformed and
therefore, have been able to increase our total gross profit and revenue from
the comparable period, last year.
The
components of costs of revenues for products include direct materials, shipping
and rigging costs and contract labor primarily used to install, repair and
maintain our equipment.
Operating
Expenses
Total
operating expenses for the three months ended September 30, 2009 was $571,577
compared with $1,373,861 for the same three month period in 2008, a decrease of
$802,284. In the three months ended September 30, 2008, we recognized non-cash
equity based compensation to service providers and employee of $785,000 as
compared to $35,424 recorded as equity based compensation for the three months
ended September 30, 2009
11
Interest
and Other Income
Interest
income for the three month period ended September 30, 2009 was $-0- compared to
$7,515 for the same period, last year. In 2008, we recorded a onetime gain of
$32,775 in other income during the period. The Company invests its excess cash
in a money market account.
Interest
expense
Interest
expense and amortization for the three month period ended September 30, 2009 was
$3,366 compared with $253,324 in the same three month period of 2008. In the
three months ended September 30, 2009, we recognized non-cash amortization
expense amounting to $-0- compared to $246,352 in the same three month period of
2008. The decrease was due to the conversion of debt to common stock as a
result of the Master Restructuring Agreement signed on August 4,
2008.
Net
Income (loss)
Net
income for the current quarter was $339,306 compared to a net loss for the same
period in 2008 of $(1,320,376).
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Net
Revenue
Total
revenue for the nine months ended September 30, 2009 was $2,328,474 compared
with $1,954,739 for the same nine month period of 2008, an increase of $373,735
or 19.1%
Revenues
derived from the sale of consumables, component parts, service billings and
amortization of maintenance contracts more than doubled to $1,099,113 in the
first nine months of 2009. The increase in revenue was attributable to increased
billings for goods and services from an increased install base of hospitals that
have previously purchased our MedClean system.
For the
first nine months of 2009, we recognized revenue from two system installations
totaling $1,213,069 and $16,291 from the balance of a system install. The
remaining contracts in backlog have not yet been scheduled.
Orders
for the MedClean system are contracted by purchase order and are billed in 3
increments. Consumables and component parts are billed when shipped and service
contracts are invoiced at the start of the service period and revenue is
pro-rated over the life of the contract.
Gross
Profit
The gross
profit for the nine months ended September 30, 2009 was $1,187,394 (51.0% of
total revenue) compared with a gross profit of $663,418 (33.9% of total revenue)
for the same nine month period of 2008.
In 2009,
we introduced a revised sale pricing structure for our products with higher
gross profit margins as compared to prior years. As such, our gross
profit margins increased from 33.9% to 51.0%, or a 50.4% increase. In
addition, our total gross profit increased due to our increase in revenue from
the comparable period, last year.
The
components of costs of revenues for products include direct materials, shipping
and rigging costs and contract labor primarily used to install, repair and
maintain our equipment.
Operating
Expenses
Total
operating expenses for the nine month period ended September 30, 2009 were
$4,500,851 compared with $3,191,857 for the same nine month period of 2008, an
increase of $1,308,994. In the nine months ended September 30, 2009, we
recognized non-cash equity based compensation expense amounting to $3,313,579
compared to $1,693,261 in the same nine month period of 2008. The increase
was due to the amount of new options issued in the period. On May 1, 2009, the
Company issued options to purchase 461 million shares of MedClean’s common stock
in consideration of employees accepting no and or reduced compensation for a
specified period of time. The option grants as approved by the Compensation
Committee were fully vested when issued with a strike price of $0.004 per
share.
Interest
and Other Income
Interest
income for the nine month period ended September 30, 2009 was $944 compared to
$8,128 for the same period, last year. In 2008, we recorded a onetime gain of
$32,775 in other income during the period. The Company invests its excess cash
in a money market account.
12
Interest
Expense
Interest
expense for the nine months ended September 30, 2009 was $900,066 compared with
$1,867,256 of interest income in the same nine month period of
2008.
In the
nine month period ending September 30, 2009 we recognized non-cash amortization
expense for warrants issued amounting to $889,967 compared to $1,764,178 in the
same nine month period of 2008. The decrease was due to conversion of debt to
common stock as a result of the Master Restructuring Agreement signed on August
4, 2008.
Net
loss
Net loss
for the nine months ended September 30, 2009 was $(4,212.579) compared to a net
loss for the same nine month period in 2008 of $(4,354,791).
Financial Condition
Liquidity
and Capital Resources
The
Company’s cash on hand and working capital as of September 30, 2009 and December
31, 2008 are as follows:
September 30,
|
December 31,
|
|||||||
2009
|
2008
|
|||||||
Cash
on hand
|
$
|
249,225
|
$
|
1,922,401
|
||||
Working
capital
|
$
|
(230,858
|
)
|
$
|
626,293
|
The
Company has purchased $23,308 in new fixed assets in the first nine months of
2009. Under current conditions the Company anticipates purchasing approximately
$10,000 in additional fixed assets in 2009.
Net cash
used in operating activities totaled $1,649,868 for the nine months ended
September 30, 2009.
Our accounts receivable balance
may have dramatic swings from one period to another depending upon the
timing and the amount of milestone billings included in the balance at the
end of any accounting period. There are three milestone billings
representing a percentage of the contract value for each installment and
our payment terms are ``upon receipt''. Receivable balances are typically
paid within 15 days of the invoice date. Billings for maintenance contracts
and consumables are due within 45 days and are more numerous but much
smaller in value than milestone billings. We review our outstanding
receivable balances on a regular basis to ensure that the allowance for bad
debt is adequate. Due to the varying nature in the timing and amounts of
the receivable balances as noted above, the change in the allowance for
doubtful account will not necessarily correlate with the increase or
decrease in the accounts receivable balance. The accounts receivable balance as
of September 30, 2009 was $265,809 net of an allowance of $15,589, an increase
of $89,525 from year end.
Our
inventory balance may have dramatic swings from one period to another
depending upon the expected installation date of our MedClean systems and our
accounts payable balances can have similar swings depending on payment
terms and any volume purchases or discounts we may take advantage of from
time to time. During the nine months ended September 30, 2009, the Company
decreased its inventory on hand by $47,813 to $838,538.
To
supplement its cash resources, the Company has been pursuing a number of
alternative financing arrangements with various investment entities. We are
currently looking to secure additional working capital to provide the necessary
funds for us to execute our business plan through various sources, including
bank facilities, bridge loans and equity offerings. However, we continue to
incur significant operating losses and the resultant reduction of our cash
position. We cannot assure that we will be able to obtain additional
funding, and the lack thereof would have a material adverse impact on our
business. Moreover, any equity funding could be substantially
dilutive to existing stockholders. The aforementioned factors raise substantial
doubt about our ability to continue as a going concern. In the event the Company
is unable to continue as a going concern it may pursue a number of different
options, including, but not limited to, filing for protection under the federal
bankruptcy code.
13
Year Ended December 31, 2008
Compared to the Year Ended December 31, 2007
Net
Revenue
Total
revenue for 2008 was $2,098,067 compared with $2,865,197 for 2007. Of the
revenue decrease, $1,006,762 was attributable to a decrease of revenues derived
from sales of our MedClean system, which was partially offset by a $239,632
increase for the sale of consumables, component parts and service contracts.
Contract backlog as of December 31, 2008 was $1,017,825.
Revenues
from our MedClean system for 2008 were $737,476 compared to $1,744,238 in 2007,
a reduction of $1,006,762. The decreased revenue was attributable to the lack of
new contracts in 2008 and our inability to accelerate system installations into
the second half of 2008 on existing contracts in backlog.
Revenues
derived from the sale of consumables, component parts and service contracts
increased to $1,360,591 compared to $1,120,959 in the prior year. The revenue
was attributable to orders for goods and services from an increased install base
of hospitals that have previously purchased our MedClean system.
Historically,
orders for the MedClean system are contracted by purchase order and are billed
in 3 increments. Typically, we bill our customers for 25% of the contract value
at signing, 50% when the equipment is shipped to the customer and 25% upon
completion of installation and start-up. Consumables and component parts are
billed when shipped and service contracts are invoiced at the start of the
service period and revenue is pro-rated over the life of the
contract.
Gross
Profit
The gross
profit for 2008 was $404,656 (19.3% of total revenue) compared with a gross
profit in 2007 of $1,089,301 (38.0% of total revenue). Diminished installation
activities throughout the year and the recognition in the fourth quarter of
$77,000 in loss contract reserves negatively impacted the gross profit for
2008.
The
components of costs of revenues for products include direct materials, shipping
and rigging costs and contract labor primarily used to install, repair and
maintain our equipment.
Operating
Expenses
Total
operating expenses for 2008 were $5,091,781 compared with $3,686,755 for 2007,
an increase of $1,405,026 or 38.1%. The operating expenses for the year
were primarily the result of increasing the Company’s support from professional
service providers to satisfy anticipated growth and compliance with the Master
Restructuring Agreement (MRA) dated August 4, 2008. The increases included the
issuance of 4.5 million shares of our common stock valued at $675,000 and
$30,000 in cash to an Investment Relations firm as part of their compensation;
recording a severance reserve of $317,892; increased legal, investment, employee
placement costs and professional services amounting to $458,377. All other
categories decreased by a net $58,993.
Interest
(Income) Expense
Interest
income for 2008 was $16,810 compared with $24,794 of interest income in 2007 on
reduced cash balances available for investment. The Company invests
its excess cash in a money market account. As of December 31, 2008 the interest
rate was 1.14%. In 2008, the Company recognized a one-time gain of
$32,775.
Interest
expense and amortization for 2008 was $3,192,459 compared with $1,956,166 in
2007. Interest expense associated with the bridge loan and other interest
bearing notes for 2008 and 2007 was $106,250 and $224,641, respectively. Reduced
borrowings accounted for the interest in 2008. Additionally, in 2008 we
recognized non-cash amortization expense for warrants issued amounting to
$3,086,209 compared to $1,742,525 in 2007. The increase was due to
the amount of new warrants issued as a result of the MRA.
Net
loss
Net loss
for 2008 was $(7,829,999) compared to a net loss in 2007 of
$(4,528,826).
Net
Loss Attributable to Common Stockholders
Net loss
attributable to common stockholders for 2008 was $(8,039,999) or $(0.03) cents
per share (basic and diluted), compared to a net loss of $(4,948,826) or $(0.24)
cents per share (basic and diluted) for 2007.
During
2008, the Company accrued $210,000 in accrued dividends with an interest
rate of 6% on $7,000,000; the total value received for both series A and B
preferred stock and on August 4, 2008, pursuant to the MRA exchanged all
accrued dividends.
14
Financial
Condition
Liquidity and Capital
Resources
The
Company’s cash on hand and working capital as of December 31, 2008 and 2007 are
as follows:
2008
|
2007
|
|||||||
Cash
on hand
|
$
|
1,922,401
|
$
|
212,215
|
||||
Working
capital
|
$
|
626,293
|
$
|
(2,993,449
|
)
|
During
2008, the Company purchased $45,536 in fixed assets. The Company anticipates
purchasing approximately $63,500 in additional fixed assets in
2009.
Net cash
used in operating activities totaled $3,047,493 in 2008.
Our
accounts receivable balance may have dramatic swings from one period to
another depending upon the timing and the amount of milestone billings
included in the balance at the end of any accounting period. There are
three milestone billings representing a percentage of the contract value
for each installment and our payment terms are ``upon receipt''. Receivable
balances are typically paid within 15 days of the invoice date. Billings
for maintenance contracts and consumables are due within 45 days and are
more numerous but much smaller in value than milestone billings. We review
our outstanding receivable balances on a regular basis to ensure that the
allowance for bad debt is adequate. Due to the varying nature in the
timing and amounts of the receivable balances as noted above, the change in
the allowance for doubtful account will not necessarily correlate with the
increase or decrease in the accounts receivable balance. The accounts receivable
balance as of December 31, 2008 was $176,284 net of an allowance of $23,081.
The $551,893 decrease in the accounts receivable balance reflects no
outstanding milestone billings from contracts in backlog.
Our
inventory balance may have dramatic swings from one period to another
depending upon the expected installation date of our MedClean systems and our
accounts payable balances can have similar swings depending on payment
terms and any volume purchases or discounts we may take advantage of from
time to time. During 2008, the Company decreased its inventory on hand by
$14,587 to $886,351. The accounts payable and accrued liabilities
balance as of December 31, 2008 was $653,785.
On March
17, 2008, the Company entered into a factoring agreement with a stockholder of
the Company whereby the Company received $300,000 secured by specific milestone
billings .The Company agreed to pay interest at 15% per annum. As further
incentive the Company issued 600,000 warrants with an exercise price of $0.09.
The warrant agreement expires on March 16, 2013. On May 23, 2008, the Company
repaid $50,000 of principal on this note and on August 7, 2008 repaid the
remaining $250,000 plus accrued interest amounting to $16,200.
On
February 21, 2008, the Company borrowed an additional $50,000 on a $100,000 line
of credit it has with a bank. On September 12, 2008 the entire $100,000 was
repaid and the line of credit closed.
On August
4, 2008 the Company closed on a Master Restructuring Agreement whereby the
Company has received $4,946,000 in equity funding and has retired or exchanged
all of its preferred stock, liquidated damages, accrued dividends on the
preferred stock and a bridge loan in the amount of $1,225,000 into shares of
common stock. Concurrent with the MRA, the Company increased its
authorized common shares to 1.4 billion shares of common stock.
The
Company had an obligation to pay dividends on the value of its preferred stock
at a rate of 6%. We have accrued $1,074,013 in dividends payable. On August 4,
2008, $383,576 was exchanged into 15,343,040 shares of common stock and warrants
to purchase 15,343,040 shares of common stock at $0.025 per share. The balance
of the accrued dividends was surrendered to the Company.
The
Company had accrued $602,000 in liquidated damages payable to its preferred
stockholders. On August 4, 2008, $602,000 was exchanged into 24,080,000 shares
of common stock and warrants to purchase 24,080,000 shares of common stock at
$0.025 per share. The balance of accrued liquidated damages was surrendered to
the Company.
To
supplement its cash resources, the Company has been pursuing a number of
alternative financing arrangements with various investment entities. We are
currently looking to secure additional working capital to provide the necessary
funds for us to execute our business plan through various sources, including
bank facilities, bridge loans and equity offerings. However, we continue to
incur significant operating losses and the resultant reduction of our cash
position. We cannot assure that we will be able to obtain additional
funding, and the lack thereof would have a material adverse impact on our
business.
Controls
and Procedures
As of the
end of the period covered by our 2008 Annual Report on Form 10-K, the Company
carried out, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief
Financial Officer, an evaluation of the effectiveness of the design and
operation of the Company's disclosure controls and procedures (as
defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange
Act of 1934). Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the
design and operation of these disclosure controls and procedures are effective
to ensure information requiring disclosure by the Company in reports which it
files or submits under the Exchange Act is (i) recorded, processed, summarized
and reported within the time periods specified in Securities and Exchange
Commission rules and forms and (ii) accumulated and communicated to management,
including its Chief Executive Officer and Chief Financial Officer, or
persons performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure.
15
The
Company's management is responsible for establishing, designing and maintaining
internal control over financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) under the Securities Exchange Act of 1934) that
provide reasonable assurance to our Board of Directors and shareholders
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. We have set assessment criteria in accordance with the
Committee of Sponsoring Organizations of the Treadway Commission in Internal
Control's Integrated Framework.
As of the
end of the period covered by our 2008 Annual Report on Form 10-K, the Company
carried out, under the supervision and with the participation of the Company's
management, including its Chief Executive Officer and Chief Financial Officer,
an evaluation of the effectiveness of the design and operation of the Company's
internal control over financial reporting. Based upon that evaluation, the Chief
Executive Officer and Chief Financial Officer concluded that the design and
operation of internal control over financial reporting are effective at a
reasonable assurance level based on said criteria. For the last fiscal quarter
of the year ended December 31, 2008 we have made no changes in internal control
over financial reporting.
BUSINESS
General
MTI is
in the business of providing solutions for managing medical waste on site
including designing, selling, installing and servicing on site (i.e. “in-situ”) turnkey systems to
treat regulated medical waste. The Company provides these systems to
hospitals and other medical facilities as efficient, safe, cost effective and
legally compliant solutions to incineration, off site hauling of untreated waste
and other alternative treatment technologies and methodologies.
Products
The
Company’s principal products are the MedClean® series systems. The MedClean®
system employs the following equipment and machinery:
|
·
|
an autoclave vessel to sterilize
the medical waste;
|
|
·
|
a shredding device, the MedClean®
Shredder, to convert sterilized waste material into a harmless,
non-recognizable confetti-like material qualifying the end product as safe
municipal solid waste;
|
|
·
|
a unique AutoTouch® control
station with software and hardware components that integrate and bundle
all operating and data recording functions into a system complying with
regulatory requirements for conversion and disposal of medical waste,
including real time centralized monitoring of the system's
functions;
|
|
·
|
a material transporter to
mechanically transport the processed waste from shredder to the municipal
solid waste compacting dumpster,
and;
|
|
·
|
a
QuietCart ® transport cart system to facilitate a single source
containerization of the infectious waste from generation, sterilization,
processing and return for refill without need for human interaction for
ultimate operator safety.
|
The
control panel of the AutoTouch® Control Station assures regulatory compliance by
means of proprietary software. The software prevents any deviation from the
step-by-step processing of the waste, requires insertion of codes by operators
to access the system and monitors and records on a real time basis. It governs
the various aspects of the system's processes, including the load weight during
each cycle and the calculation and employment of the proper sterilization
parameters of weight, pressure, temperature and time. The ability to shortcut or
over-ride any of the steps in the waste conversion process is circumscribed by
the features of the control panel and its software.
Operation
of the system through the control panel is simple, since it dictates each step
to be taken, once the operator enters the appropriate codes to open up the
control screen, and prohibits the ability of an operator to short cut the
required steps and procedures. Relatively little instruction is required of the
operator. A tutorial is offered by the software through the control panel, and
an operator can be fully trained within a few hours. The AutoTouch® control
system can communicate in multiple languages, including English and
Spanish.
16
The
AutoTouch® software permits real time centralized monitoring of all the
functions and uses of each system by the Company. Additionally, the centralized
monitors track proper operation of a particular system. They also alert the
Company to the need to provide clients with supplies and preventative
maintenance visits.
The
AutoTouch® control panel and software are proprietary properties of the Company
and unique within the industry.
The
MedClean Series System is offered in three configurations:
Container
(modified 40/45’x8’x9’ metal shipping container)
Mobile
(container as trailer)
Fixed
(traditional installation within the facility)
As a
standard product, a containerized System can now be delivered within 4-6 weeks
after receipt of an order and installed in a “plug and play” mode whereby all
utilities required to operate the System are connected via a utility umbilical
cord. The container can either be rigged to a position at grade level
or installed on a simple steel support framework level with the facility’s
loading dock.
The
mobile System can be operated as a true tractor-pulled mobile unit servicing the
needs of several hospitals within a prescribed geographic area and also has the
same utility umbilical cord feature. This System configuration now
expands MTI’s key target market, affording it the opportunity to service smaller
hospitals that produce lower volumes of regulated medical waste on an individual
basis but in the aggregate have sufficient volume to support the
investment.
The fixed
System, MTI’s “traditional” custom installed technology, is still available for
those prospective clients who cannot accommodate a containerized
System.
Both the
container and mobile Systems can be configured with on-board steam and/or
electrical generators to further simplify installation and access to
utilities.
The
Company’s product line is now reflected in the following model designations with
associated annual medical waste volume processing capacities (based on 12 hour
day/6 days/week):
Container
/ Mobile
MC
4300
|
Up
to 600,000 lbs.
|
MC
4400
|
Up
to 800,000 lbs.
|
MC
4500
|
Up
to 1.0 mm
lbs.
|
MedClean
4000 Series (4’ wide autoclave)
MC
4300 (3 cart)
|
Up
to 600,000 lbs.
|
MC
4400 (4 cart)
|
Up
to 800,000 lbs.
|
MC
4500 (5 cart)
|
Up
to 1.0 mm lbs.
|
MedClean
5000 Series (5’ wide autoclave)
MC
5300 (3 cart)
|
Up
to 940,000 lbs.
|
MC
5400 (4 cart)
|
Up
to 1.25 mm lbs.
|
MC
5500 (5 cart)
|
Up
to 1.56 mm
lbs.
|
The Company also sells consumable items
including high temperature cart liners, deodorizers and autoclave validation
test kits. These items, along with a long list of other components
such as printer paper, printer ribbon, autoclave gaskets and replacement cart
wheels are ordered on a monthly or quarterly basis by our clients to ensure
proper operation. Annual revenue generated from consumable items and
services typically represents 5% to 10% of the original capital
cost.
17
The
Medical Waste Treatment Market
The
market for medical waste treatment is segmented by customer size: Large Quantity
Generators (“LQGs”), those who generate large volumes of medical waste (in
excess of 100,000 pounds per year), and Small Quantity Generators (“SQGs”),
those who generate less than that. LQGs are predominantly hospitals. SQGs are
primarily nursing homes, clinics, medical groups, county or city health
departments, laboratories, physicians, dentists and veterinarians in private
practice. Of these SQGs, physicians comprise the highest percentage of
sites.
On-Site
Medical Waste Treatment Equipment Market
Small Quantity Generators
|
Large Quantity Generators
|
|||||||
Number
of Sites
|
476,199 | 6,604 | ||||||
Percentage
Using Haulers
|
100 | % | 87 | % | ||||
Number
specifically suited for MedClean Systems
|
200,000 | * | 6,604 | |||||
*
MedClean “appliance “ or alternative.
|
The
Company currently addresses the top two components of the LQG segment—Very Large
Hospitals >400 beds and Large Hospitals 250-400 beds. However, about 79% of
the LQG targets exist in the bottom two components—Medium Hospitals 100-250 beds
and Small Hospitals <100 beds. The Company ’ s new
container/mobile system configurations will address opportunities in this
segment. Alternatively, the Company may consider product line
extension through licensing and/or reseller agreements to provide its field
sales force and agent network with a solution to penetrate this target rich
environment.
In
addition, for SQGs there has been no realistic alternative to hauling, and any
on-site solutions have been too expensive or inefficient. Because of
this, the SQG segment represents an excellent opportunity for the Company’s
MedClean 1000 appliance or for licensing and/or resale of an existing
technology.
The
current US medical waste market is estimated to be $2.0 billion (3.1 billion
pounds) annually.
The
Company’s current and pending installations, both domestically and
internationally, total 34 locations.
Governmental
Regulations-Federal
Prior to
2002, the principal method of disposing of most regulated medical waste (“RMW”)
was through on-site incineration. Because of the promulgation of regulations by
the Environmental Protection Agency (“EPA”) that came into effect on September
15, 2002, setting minimum emission limits for RMW incinerators for such
pollutants as dioxins, nitrogen oxides, lead, cadmium and mercury, the use of
on-site incinerators in the U.S. has drastically diminished. As a consequence,
the methods of on-site disposal of RMW have been limited to steam sterilization,
chemical treatment and microwave.
Federal
agencies which regulate RMW are the EPA, the Occupational Safety and Health
Administration (“OSHA”), the U.S. Department of Transportation (the “U.S. DOT”)
and the U.S. Postal Service. These agencies regulate RMW under a variety of
statutes and regulations, including the following:
|
·
|
MEDICAL WASTE TRACKING ACT OF
1988 (“MWTA”). The primary objective of the MWTA was to ensure that RMW
generated in a covered state which posed environmental problems, including
an unsightly appearance, was delivered to disposal or treatment facilities
with minimum exposure to waste management workers and the public. The
MWTA's tracking requirements included accounting for all waste transported
and imposed civil and criminal sanctions for violations. The MWTA
demonstration program expired in 1991, but the MWTA established a model
followed by many states in developing their specific medical waste
regulatory frameworks.
|
|
·
|
CLEAN AIR ACT REGULATIONS. In
August 1997, the EPA adopted regulations under the Clean Air Act
Amendments of 1990 that limit the discharge into the atmosphere of
pollutants released by medical waste incineration. These regulations
required every state to submit to the EPA for approval a plan to meet
minimum emission standards for these
pollutants.
|
|
·
|
OCCUPATIONAL SAFETY AND HEALTH
ACT OF 1970. The Occupational Safety and Health Act of 1970 authorizes
OSHA to issue occupational safety and health standards. OSHA regulations
are designed to minimize the exposure of employees to hazardous work
environments, including RMW.
|
18
|
·
|
RESOURCE CONSERVATION AND
RECOVERY ACT OF 1976 (“RCRA”). RCRA required the EPA to promulgate
regulations identifying hazardous wastes. RCRA also created standards for
the generation, transportation, treatment, storage and disposal of solid
and hazardous wastes. These standards included a documentation program for
the transportation of hazardous wastes and a permit system for solid and
hazardous waste disposal facilities. RMW is currently considered
non-hazardous solid wastes under RCRA. However, some substances collected
by some of our customers, including photographic fixer developer
solutions, lead foils and dental amalgam, are considered hazardous
wastes.
|
|
·
|
DOT REGULATIONS. The U.S. DOT has
put regulations into effect under the Hazardous Materials Transportation
Authorization Act of 1994 which requires customers to package and label
RMW in compliance with designated standards, and which incorporate
blood-borne pathogens standards issued by OSHA. Under these standards,
customers must, among other things, identify packaging with a “biohazard”
marking on the outer packaging, and medical waste containers must be
sufficiently rigid and strong to prevent tearing or bursting and must be
puncture-resistant, leak-resistant, properly sealed and impervious to
moisture. DOT regulations also require that a transporter be capable of
responding on a 24-hour-a-day basis in the event of an accident, spill, or
release to the environment of a hazardous
material.
|
|
·
|
COMPREHENSIVE ENVIRONMENTAL
RESPONSE, COMPENSATION AND LIABILITY ACT OF 1980 (“CERCLA”). CERCLA,
established a regulatory and remedial program to provide for the
investigation and cleanup of facilities that have released or threaten to
release hazardous substances into the environment. CERCLA and state laws
similar to it may impose strict, joint and several liabilities on the
current and former owners and operators of facilities from which releases
of hazardous substances have occurred and on the generators and
transporters of the hazardous substances that come to be located at these
facilities. Responsible parties may be liable for substantial site
investigation and cleanup costs and natural resource damages, regardless
of whether they exercised due care and complied with applicable laws and
regulations. If a customer were found to be a responsible party for a
particular site, it could be required to pay the entire cost of the site
investigation and cleanup, even though other parties also may be
liable.
|
|
·
|
UNITED STATES POSTAL SERVICE.
Customers must obtain permits from the U.S. Postal Service to conduct
programs, pursuant to which they mail approved “sharps” (needles, knives,
broken glass and the like) containers directly to treatment
facilities.
|
Governmental
Regulations-State and Local
Each
state has its own regulations related to the handling, treatment and storage of
medical waste. Although there are many differences among the various state laws
and regulations, many states have followed the medical waste model under the
MWTA and have implemented programs under RCRA. State agencies involved in
regulating the medical waste industry are frequently the departments of health
and environmental protection agencies. In addition, many local governments have
ordinances, local laws and regulations, such as zoning and health regulations,
including ordinances relating to the disposition of sterilized effluents into
sewage systems and municipal disposal sites which affect our customers'
operations.
Most
states require segregation of different types of medical waste at the hospital
or other location where they were created. A majority of states require that the
universal biohazard symbol or a label appear on medical waste containers.
Storage regulations may apply to the party generating the waste, the treatment
facility, the transport vehicle, or all three. Storage rules seek to identify
and secure the storage area for public safety as well as set standards for the
manner and length of storage. Many states require employee training for safe
environmental cleanup through emergency spill and decontamination plans. Many
states also require that transporters carry spill equipment in their vehicles.
Those states whose regulatory framework relies on the MWTA model have tracking
document systems in place.
Pursuant
to medical waste incinerator regulations adopted by the EPA in 1997, every state
was required by September 1998 to adopt a plan to comply with federal guidelines
which, among other things, limit the release of some airborne pollutants from
medical waste incinerators to levels prescribed by the EPA. Each state's
implementation plan must be at least as restrictive as the federal emissions
standards.
Effect
of Regulations on the Companies’ Business
The
Company manufactures and sells its MedClean® systems that sterilize RMW by
sterilization in an autoclave chamber and subsequent shredding of the material
enabling the customer to dispose of the residue as municipal solid waste. The
operation of the MedClean® system and the disposal of the waste are the
responsibility of the customer. As a result, the Company is not subject to the
multitude of governmental regulations that typify the handling and disposition
of solid waste. Virtually all of the Company ’ s competitors are subject to one
or more of the various regulatory regimes associated with the medical waste
disposal business as the systems and services offered by these competitors
involve incineration, chemical treatment or transportation of medical
waste.
19
The
Company’s customers use landfills operated by parties unrelated to the Company
to dispose of treated medical waste from medical facilities. The Company does
not own or operate any landfills. Waste is not regulated as hazardous under RCRA
unless it contains hazardous substances exceeding certain quantities or
concentration levels, meets specified descriptions, or exhibits specific
hazardous characteristics. Following treatment, waste from the Company’s
MedClean® systems is disposed of as non-hazardous waste.
Competition
RMW has
historically been disposed of mainly through the use of off-site hauling
contractors and by incineration. Presently, in the U.S. many different types of
technologies have been introduced to meet the new regulatory requirements for
disposal of RMW. Some of these technologies include:
|
·
|
DISINFECTANT. This process
involves the simultaneous shredding and disinfecting of the infectious
medical waste. The process can only handle small batches in each cycle and
has a capacity of approximately 70 to 400 pounds a day, which is not
sufficient to handle the overall requirements of most hospitals ranging
from 500 to 9,000 pounds per
day.
|
|
·
|
CHEMICAL REAGENTS. The use of
chemical reagents is subject to federal laws and regulations of the EPA
that classify the chemicals involved as “pesticides”. Also, there is
considerable limitation on the volumes that can be treated by this method.
It is not suitable for disposal of infectious medical waste generated by
hospitals and other large medical facilities since it does not have the
capacity to handle such
volumes.
|
|
·
|
MICROWAVE TECHNOLOGY. Microwave
technology is a process of disinfection that exposes material to moist
heat generated by microwave energy. Use of this technology requires that
proper precautions be taken to exclude the treatment of hazardous material
so that toxic emissions do not occur. The complete unit must also be
operated under negative pressure as infectious waste is normally shredded
prior to disinfection and may create conditions where infection can be
transformed into an aerosol prior to treatment. Also, offensive odors may
be generated around the unit. The capital cost and space requirement for
this type of system 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 350 ° F-700 ° F. Use of dry heat requires
longer treatment times with precautions required to prevent potential
combustion of the waste material during each
cycle.
|
|
·
|
HIGH HEAT THERMAL PROCESSES
(PYROLYSIS). A pyrolysis system would involve chemical decomposition of
organic medical waste by intense heat (at least 800 degrees F) in an
anaerobic atmosphere that produces combustible gases, including carbon
monoxide, hydrogen and methane. These gases must be flared off or treated
in a secondary combustion chamber. Particulate removal equipment such as
fabric filters or wet scrubbers would also be required. The use of a
pyrolysis system has not been commercialized as a method for converting
infectious medical waste.
|
|
·
|
RADIATION . Electron beam
technology creates ionized radiation, damaging cells of microorganisms.
Workers must be protected with shields and remain in areas secured from
the radiation.
|
|
·
|
CHEMICAL TECHNOLOGIES.
Disinfecting chemical agents that integrate shredding and mixing to ensure
adequate exposure are used by a variety of competitors. Chlorine based
chemicals, using sodium hypochlorite and chlorine dioxide, are somewhat
controversial as to their environmental effects and their impact on
wastewater. Non-chloride technologies are varied and include parasitic
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
Company ’ s competitors are Stericycle, Inc., San-I-Pak, Tempico Inc., Bondtech
Corporation, Red Bag Solutions, Inc. and Caprius Inc.
Sources
and Availability of Raw Materials and Names of Principal Suppliers
Generally,
access to raw materials and third party fabricators for the MedClean® Systems is
available from multiple sources that allow the Company flexibility of
choice.
The
various equipment components of the systems are supplied by the following
principal suppliers:
·
|
Autoclave:
|
SteelCraft Industries Limited
|
·
|
Shredder:
|
Weima America Corporation
|
·
|
Aluminum QuietCarts
® :
|
Specialty Metal Products, Inc.
|
·
|
Cart liners:
|
MPF, Inc.
|
20
The hardware for the control
panel are stock items that may be purchased from any number of distributors for
such manufacturers as Square D, Siemens Corporation, Magnatrol and Cutler
Hammer. The software for the control panel is a proprietary property of the
Company.
Company
Partnerships
During
the past four years, the Company has focused significant time and effort on
developing partnerships with organizations that provide outsourced, non-clinical
managed services to hospitals. These organizations often have long
term relationships with hospitals being targeted by the Company. The
Company established a formal agreement with industry leader Aramark in 2005 and
less formal relationships with other key players, such as
Sodexho. Together, these relationships have assisted the Company in
establishing a number of installations. However, the relationships
have proved neither scalable nor consistent. In fact, the Aramark
relationship has not yielded a new installation since July of 2007, while the
relationships with Sodexho and several other lesser industry participants
continue to be ad hoc.
Effective
June 22, 2009 the Company and Aramark mutually agreed to terminate their formal
agreement. The terms of the termination provide that the Company will
continue to provide maintenance services and consumable products to existing
Aramark customers with installed MedClean systems through existing contract
terms, which range from July 31, 2011 through June 14, 2014. The terms of the
termination further provide that the Company will pay Aramark a ten percent
commission with respect to Aramark customers who are currently considering
purchase of a of MedClean system (“Pipeline Customers”) if such purchase closes
prior to September 30, 2009 (March 31, 2010 in one case). With the termination
of the formal agreement, the Company is free to negotiate and process any sales
of MedClean systems to Aramark customers, including Pipeline Customers, directly
with such customers.
The Company believes that its new
container strategy as well as additional product financing options for
customers provides an excellent opportunity to re-energize and re-define
these partnerships, and the Company is currently working towards continuing to
develop relationships with Aramark, Sodexho and others.
The
Weima Agreement
The
Company is party to an agreement with Weima America, Inc., dated as of April 8,
2004, pursuant to which the Company has the exclusive distribution rights in the
United States to Weima's single-shafted shredder and other shredder
machines for use in medical waste markets (the “Weima Agreement”).
This is
the type of shredder used by the Company in its MedClean® systems. The Weima
Agreement may be terminated by either party on thirty (30) days
notice.
Employees
As
of December 14, 2009 the Company had 5 full time
employees.
Properties
The
Company presently leases approximately 11,856 square feet of combined office and
warehouse space on the upper level of a building at 3 Trowbridge Drive, Bethel,
CT 06801 for a term of ten (10) years under a lease agreement, dated February 3,
2006. At our option, the term of lease may be renewed for an additional five (5)
years. Base rent is set at the rate of $8,151 per month with annual increases of
3% commencing after the second year. Additional rent would be charged on a
“triple net” basis for taxes, insurance and utilities. On November 1, 2008, the
Company began leasing the remaining 11,834 sq ft of space at 3 Trowbridge Drive,
Bethel, CT. The lease is a triple net lease commencing November 1, 2008 and
terminating October 31, 2011. The base rent for the first year is $5.50 per sq.
ft. with 3% increases for each of the following two years. The additional space
will be used to assemble our systems.
On
November 1, 2008, the Company commenced leasing a four office suite in Scotch
Plains, NY for $3,710 per month for twelve months.
21
MANAGEMENT
Executive
Officers and Directors
As of
December 14, 2009 the directors and executive officers of MTI were as
follows:
Scott Grisanti
|
47
|
Director, Chairman
|
Joseph
A. Esposito
|
57
|
Director
|
David
J. Laky
|
45
|
President
and CEO
|
Cheryl
Kaine Sadowski
|
41
|
Chief Financial Officer and Treasurer
|
Jay S. Bendis
|
63
|
Director
|
Elan Gandsman
|
68
|
Director
|
Ronald A. LaMorte
|
70
|
Director
|
Kenneth
L. Londoner
|
41
|
Director
|
Following is a brief summary of the background and experience
of each director and executive officers of MTI:
Mr.
Grisanti was elected as a director and as President and Chief Executive Officer
of MTI on September 2, 2008. Effective as of November 9, 2009, Mr.
Grisanti’s employment agreement was terminated without cause by mutual consent
of the Company and Mr. Grisanti. Also effective November 9, 2009, Mr. Grisanti
was appointed as Chairman of the Company. Prior to joining the Company, Mr.
Grisanti was the Executive Vice President of Sales, Marketing and Services at
Primavera Systems, Inc., a leading provider of program and portfolio management
application software and services solutions used to manage large capital
projects in targeted market segments. Prior to joining Primavera, Grisanti
served as Executive Vice President and Chief Marketing Officer for
eResearchTechnology, Inc., a leading provider of technology and services for the
new drug development industry. Previously, Grisanti served in an executive sales
management capacity at supply chain execution application solution providers
ClearCross, Inc. and Optum, Inc. He received his bachelor degree in English and
Journalism from Rutgers University, where he was elected to Phi Beta
Kappa.
Mr.
Grisanti owns, beneficially and of record, 20,000,000 shares with options and
warrants to purchase currently an additional 142,000,000 shares of Common
Stock at $0.004 per share and additional 10,000,000 shares of Common Stock at
$0.0075 per share.
Mr.
Esposito was elected as a director and as Chairman of the board of directors
effective August 4, 2008. Effective as of November 9, 2009, Mr. Esposito
resigned as Chairman of the Company but remains as a director of the Company.
Mr. Esposito’s consulting agreement dated August 27, 2007 pursuant to which he
acts as corporate and business development advisor to the Company was extended
for an additional three-year period. For the past two years Mr. Esposito has
been providing strategic advisory services to growth companies including several
of the portfolio companies at Insight Venture Partners, a private equity firm
with more than $1.5 billion under management. Prior to this he was President and
CEO of eResearch Technology, Inc., a leading provider of technology and services
to collect, process, and distribute cardiac safety and clinical data for
companies in the life sciences industry.
By the
terms of his consulting agreement, Mr. Esposito will serve for a term continuing
until August 4, 2011. Mr. Esposito’s consulting agreement contains covenants of
confidentiality and assignments of proprietary intellectual property
rights.
Mr.
Esposito owns, beneficially and of record, 28,900,000 shares with options and
warrants to purchase currently an additional 120,000,000 shares of Common Stock
at $0.004 per share and additional 6,158,500 shares of Common Stock at
$0.0075 per share.
Mr. Laky
was appointed to the positions of President and Chief Executive Officer of the
Company effective November 9, 2009. Prior to such appointment Mr. Laky was the
Company’s Senior Vice President of Client Services and Technology since
September 2008. Mr. Laky joined the Company from eResearchTechnology, Inc. where
from 2005 to 2008 he was General Manager & Vice President of eClinical
Group. He served eRT as VP of Professional Services from 1999 to
2005.
By the
terms of his employment agreement, Mr. Laky serves in an at will capacity. Mr.
Laky’s employment agreement contains covenants of confidentiality and
assignments of proprietary intellectual property rights.
Mr. Laky
owns, beneficially and of record, 10,000 shares of Common Stock with options to
purchase currently 54,000,000 shares of Common Stock at $0.004 per share and
8,987,059 shares of Common Stock at $0.00844 per share.
Ms. Kaine
Sadowski has been Vice-President and Controller of MTI since October 2008. From
August 2004 until October 2008 she held several positions at
eResearchTechnology, Inc. in Bridgewater, New Jersey, including Vice President,
Business Management and Senior Director, Business Management, where she was
responsible for the Professional Services, Project Management, Customer Care,
Research & Development, IT and Cardiac Safety Divisions.
By the
terms of her employment agreement, Ms. Sadowski serves in an at will capacity.
Ms. Sadowski’s employment agreement contains covenants of confidentiality and
assignments of proprietary intellectual property rights.
Ms.
Sadowski owns, beneficially and of record, options to purchase
currently 52,666,666 shares of Common Stock at $0.004 per share and
8,987,059 shares of Common Stock at $0.00844 per share.
22
Mr.
Bendis has been President of Transfer Technology Consultants during the past 15
years specializing in transferring new biotech product concepts from design to
commercialization. From 2005 to 2008 he was President and CEO of Clinical
Analysis Corp., which has developed a hand-held diagnostic system for patient
point-of-care testing. He was Managing Partner in the Crystal
Corridor Group which worked with Kent State University's Liquid
Crystal Institute in facilitating liquid crystal technology from 2000 to 2005.
He was Executive Vice President of American BioMedica Corp which develops and
markets on-site drugs of abuse diagnostic kits from 1995 to 2000. He was
President and Co-founder of Emerging Technology Systems which is a research and
development company in the diabetic markets from 1993 to 1999. His prior
management positions had been with XANAR Laser Corp, a division of Johnson &
Johnson as the National Sales Manager and IVAC Corp a division of Eli Lilly as
Sales and Marketing Manager. He has also served as a member of the
Edison BioTechnology Center Advisory Council for the State of Ohio and serves on
the Boards of several private companies. Mr. Bendis owns 269,250 shares held of
record and options to purchase 4,950,000 shares at an exercise price of $0.004
per share.
Dr.
Gandsman has since 1993 been Director of Environmental Health and Safety at Yale
University in New Haven, Connecticut. He holds a BS degree in physics and math
from the University of Buenos Aires, and MSc and PhD degrees in physics from Tel
Aviv University. Mr. Gandsman owns options to purchase currently 4,950,000
shares of the Company’s Common Stock at an exercise price of $0.004 per
share.
Mr.
LaMorte is a Certified Public Accountant. During the period from 1999 through
2003, and for several years prior thereto, he had been a Managing Principal of
Dworken, Hillman, LaMorte & Sterczala, a public accounting firm in Shelton,
Connecticut. He retired from the firm in December 2003. Mr. LaMorte holds a BS
degree from the University of Connecticut. Mr. LaMorte owns options to purchase
currently 4,950,000 shares of the Company’s Common Stock at an exercise price of
$0.004 per share.
Mr.
Londoner has served as the head of Business Development and Corporate Finance
for NewCardio, Inc. (OTC BB: NWCI), a cardiac diagnostic and services company
since November 2006. Previously, he was Co-Founder and Executive Vice President
of Safe Ports, LLC and its wholly-owned subsidiary, Carolina Linkages, Inc., a
Charleston, S.C.-based port security services and intermodal transportation
infrastructure development company since July 2005. From February 1997 until
July 2005 he was the founder, CEO and General Partner of Red Coat Capital
Management, a U.S. equity long/short hedge fund. From June 1991 until February
1997 he was a Vice President and Investment Officer for J. & W. Seligman
& Co. He began his professional career as a mutual fund accountant for State
Street Bank and Trust, Inc. in Boston in September 1989. Mr. Londoner received a
BA Economics from Layfayette College, Easton, PA and a MBA Finance from New York
University, New York, NY.
Mr.
Londoner owns, beneficially and of record, 5,950,000 shares, a warrant issued
August 4, 2008 to purchase 800,000 shares of common stock at an exercise price
of $0.0075 per share and an option to purchase 4,000,000 shares at an exercise
price of $0.004 per share.
The Board
of Directors has standing Audit, Compensation and Nominating
Committees.
The Audit
Committee reviews with our independent public accountants the scope and timing
of the accountants' audit services and any other services they are asked to
perform, their report on our financial statements following completion of their
audit and our policies and procedures with respect to internal accounting and
financial controls. In addition, the Audit Committee reviews the
independence of the independent public accountants and makes annual
recommendations to the Board of Directors for the appointment of independent
public accountants for the ensuing year. Mr. LaMorte serves as a
member of the committee and acts as its “audit committee financial expert” as
that term is used in Item 407 of Regulation S-K (17 CFR 229.407) and is
“independent” as that term is used in Item 7(d)(3)(iv) of Schedule 14A of the
Exchange Act. The Audit Committee met four times during the fiscal year ended
December 31, 2008.
The
Compensation Committee reviews and recommends to the Board of Directors the
compensation and benefits of all officers of the Company, reviews general policy
matters relating to compensation and benefits of employees of the
Company. The Compensation Committee did not meet during the fiscal
year ended December 31, 2008.
The
Nominating Committee reviews and recommends to the Board of Directors nominees
for the position of director for the Board of
Directors. The Nominating Committee did not meet during the
fiscal year ended December 31, 2008.
23
Director
Compensation
The
following table sets forth the aggregate cash and other compensation paid by the
Company to its independent directors for the year ended December 31,
2008.
Name
|
Fees earned or paid
in cash
($)
|
Stock Awards
($)
|
Option Awards
($)
|
||||||
Jay
Bendis
|
17,100
|
-0-
|
34,895
|
||||||
Elan
Gandsman
|
16,700
|
-0-
|
34,895
|
||||||
Ronald
LaMorte
|
16,200
|
-0-
|
34,895
|
||||||
Kenneth
Londoner
|
2,500
|
-0-
|
70,213
|
Directors
also receive customary reimbursement for out-of-pocket expenses. Payments are
made on quarterly basis.
Combined
meetings of the boards of directors of MTI and Aduromed are considered a single
meeting for purposes of the foregoing compensation schedule, while the same
schedule will apply to any separate meetings of Aduromed's board of
directors.
Executive
Compensation
The
following table sets forth the aggregate cash compensation paid by the Company
to (i) its Chief Executive Officer and (ii) its two most highly compensated
officers whose cash compensation exceeded $100,000 for services performed during
the two years ended December 31, 2008.
Annual Compensation
|
Long Term Compensation
|
|||||||||||||||||||||||||||||
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Other Annual
Compensation
($)
|
||||||||||||||||||||||||||
Scott
Grisanti(1)
President/CEO
|
2008
|
92,308
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
2,954
|
(4)
|
|||||||||||||||||||||
|
||||||||||||||||||||||||||||||
Damien
Tanaka(2)
|
2008
|
253,077
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
39,998
|
(5)
|
|||||||||||||||||||||
former
Chief Development Officer
|
2007
|
250,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
38,928
|
(5)
|
|||||||||||||||||||||
Kevin
Dunphy(3)
|
2008
|
161,538
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
19,674
|
(6)
|
|||||||||||||||||||||
CFO
|
2007
|
150,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
23,337
|
(6)
|
(1)
Effective September 2, 2008 the Company and Mr. Grisanti entered into a
three-year employment agreement, which provided that he would act as President
and Chief Executive Officer of the Company and Aduromed at a minimum annual base
salary of $300,000 to be reviewed each year by the board of directors, plus a
cash bonus based upon the Company’s attaining financial objectives determined
annually by the board, not to exceed 60% of his base salary . Effective as of
November 9, 2009, Mr. Grisanti’s employment agreement was terminated without
cause by mutual consent of the Company and Mr. Grisanti.
(2) The
Company had a five-year employment agreement with Mr. Tanaka, dated September
30, 2005, which provided that he would act as President and Chief Executive
Officer of the Company and Aduromed at a minimum annual base salary of $250,000,
to be reviewed each year by the board of directors, plus a cash bonus based upon
the Company’s attaining financial objectives determined annually by the board,
not to exceed 100% of his base salary. Effective September 2, 2008 the Company
and Mr. Tanaka entered into a three-year employment agreement, which provided
that he would act as Chief Development Officer of the Company and Aduromed at a
minimum annual base salary of $260,000, to be reviewed each year by the board of
directors, plus a cash bonus based upon the Company’s attaining financial
objectives determined annually by the board, not to exceed 25% of his base
salary. Mr. Tanaka retired as Chief Development Officer of the Company and
Aduromed and as a director of the Company and Aduromed effective December 31,
2008. The Company has agreed to pay Mr. Tanaka his base salary and certain
benefits through December 31, 2009.
24
(3)The
Company had a five-year employment agreement with Mr. Dunphy, dated September
30, 2005, which provided that he would act as Chief Financial Officer of the
Company and Aduromed at a minimum annual base salary of $150,000, to be reviewed
each year by the board of directors, plus a cash bonus based upon the Company’s
attaining financial objectives determined annually by the board, not to exceed
100% of his base salary. Effective August 4, 2008 the Company and Mr. Dunphy
entered into a one-year employment agreement, which provided that he would act
as Chief Financial Officer of the Company and Aduromed at a minimum annual base
salary of $175,000, to be reviewed each year by the board of directors, plus a
cash bonus based upon the Company’s attaining financial objectives determined
annually by the board, not to exceed 25% of his base salary. Effective August 4,
2009 Mr. Dunphy’s employment agreement was not renewed.
(4)
For the year 2008, includes perquisites for the use of a motor vehicle amounting
to $2,954.
(5) For
the years 2008 and 2007, includes perquisites covering supplemental term life
insurance amounting to $8,279 each year, use of a motor vehicle $2,872 and
$1,498, disability benefits amounting to $20,701 and $22,053 and club membership
amounting to $8,146 and $7,098 respectively. Mr. Tanaka did not receive any
separate compensation for acting as a director of the Company or
Aduromed.
(6) For
the years 2008 and 2007, includes perquisites covering supplemental term life
insurance amounting to $2,858 each year, use of a motor vehicle amounting to
$940 and $2,202, disability benefits amounting to $11,444 and $12,359 and club
membership amounting to $4,432 and $5,918 respectively. Mr. Dunphy did not
receive any separate compensation for acting as a director of the Company or
Aduromed.
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.
|
Option Awards
|
|||||||||||||||
A
|
B
|
C
|
D
|
E
|
F
|
G
|
||||||||||
Name
|
Grant Date
|
Number of
Securities
Underlying
Unexercised
Options
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
|
Equity Incentive
Plan Awards:
Number of
Securities
Underlying
Unexercised
Unearned Options
|
Option Exercise
Price
|
Option
Expiration
Date
|
||||||||||
S.
Grisanti
|
8/4/2008
|
21,328,000
|
10,672,000
|
$
|
.0.025
|
8/4/2016
|
||||||||||
Total
|
21,328,000
|
10,672,000
|
||||||||||||||
D.
Tanaka
|
1/23/2006
|
3,006,625
|
0
|
$
|
0.06
|
9/23/2012
|
||||||||||
8/4/2008
|
13,340,000
|
6,660,000
|
$
|
.0.025
|
8/4/2016
|
|||||||||||
Total
|
16,346,625
|
6,660,000
|
||||||||||||||
K.
Dunphy
|
1/23/2006
|
987,250
|
$
|
0.14
|
5/31/2011
|
|||||||||||
1/23/2006
|
0.14
|
5/31/2011
|
||||||||||||||
8/4/2008
|
6,670,000
|
3,330,000
|
542,034
|
$
|
0.025
|
8/4/2016
|
||||||||||
Total
|
|
7,657,250
|
3,330,000
|
542,034
|
|
|
Vesting
Schedule for Unexercisable Options
Name
|
Grant Date
|
2009
|
2010
|
|||||
S.
Grisanti
|
8/4/2008
|
5,336,000
|
5,336,000
|
|||||
D.
Tanaka
|
8/4/2008
|
3,330,000
|
3,330,000
|
|||||
K.
Dunphy
|
8/4/2008
|
1,665,000
|
1,665,000
|
|||||
Total
|
10,331,000
|
10,331,000
|
Note: the
Company has no stock award program
25
SECURITY
OWNERSHIP
The
following tables and footnotes set forth as of December 14, 2009, the
number and percentage of the outstanding shares of Common Stock, on a fully
diluted basis, which, according to the information supplied to the Company,
were beneficially owned by (i) each person who is currently a director of MTI,
(ii) each executive officer, (iii) all current directors and executive officers
of MTI as a group, and (iv) each person who, to the knowledge of the
Company, is the beneficial owner of more than 5% of the outstanding Common
Stock.
Except as
otherwise noted, the persons named in the table have sole voting and dispositive
power with respect to all shares beneficially owned, subject to community
property laws where applicable.
Security
Ownership of Beneficial Owners of More than 5% of Each Class of MTI’s
Voting Securities
|
||||||||||
Title of
|
Name and Address of
|
Amount and Nature of
|
Percentage of
|
|||||||
Security
|
Beneficial Owner
|
of Beneficial Ownership
|
Class
|
|||||||
Common Stock
|
Manatuck
Hill Partners, LLC(1)
1465
Post Road East
Westport,
CT 06880
|
134,479,465 | 20.68 | % | ||||||
Common
Stock
|
Joseph
Esposito(2)
3
Trowbridge Drive
Bethel,
CT 06801
|
155,058,500 | 23.73 | % | ||||||
Common
Stock
|
Scott
Grisanti(3)
3
Trowbridge Drive
Bethel,
CT 06801
|
172,000,000 | 26.32 | % |
(1)
Consists of (i) 100,312,244 shares owned of record, and (ii) 34,167,221
shares issuable upon exercise of warrants at an exercise price of $0.0075 per
share.
(2)
Consists of (i) 8,900,000 shares of record owned by E4 LLC, which is controlled
by Mr. Esposito, (ii) 20,000,000 shares of record owned by Mr. Esposito’s IRA
account, (iii) 12,000,000 shares issuable upon exercise of warrants held by E4
LLC at an exercise price of $0.004 per share, (iv) 620,000 shares issuable upon
exercise of warrants held by E4 LLC at an exercise price of $0.0075 per share,
(v) 5,538,500 shares issuable upon exercise of warrants held by Mr. Esposito’s
IRA account at an exercise price of $0.0075 per share, (vi) 8,000,000 shares
issuable upon exercise of options held by Mr. Esposito at an exercise price of
$0.004 per share, and (vii) 100,000,000 shares issuable upon exercise
of options held by E4 LLC at an exercise price of $0.004 per share.
(3)
Consists of (i) 20,000,000 shares owned of record, (ii) 10,000,000 shares
issuable upon exercise of warrants at an exercise price of $0.0075 per share,
(iii) 16,000,000 shares issuable upon exercise of warrants at an exercise price
of $0.004 per share, (iv) 16,000,000 shares issuable upon exercise of
options at an exercise price of $0.004 per share, and (v) 110,000,000
shares issuable upon exercise of options held at an exercise price of $0.004 per
share.
26
Security
Ownership of Management (Directors and Executive
Officers)
|
||||||||||
Title of
|
Name and Address of
|
Amount and Nature of
|
Percentage of
|
|||||||
Security
|
Beneficial Owner
|
of Beneficial Ownership
|
Class
|
|||||||
Common
Stock
|
Joseph
Esposito(1) 3 Trowbridge Drive Bethel, CT 06801
|
155,058,500 | 23.73 | % | ||||||
Common
Stock
|
Scott
Grisanti(2) 3 Trowbridge Drive Bethel, CT 06801
|
172,000,000 | 26.32 | % | ||||||
Common
Stock
|
David
Laky, 3 Trowbridge Drive (3) Bethel, CT06801
|
62,997,059 | 9.64 | % | ||||||
Common
Stock
|
Cheryl
Kaine Sadowski (4) 3 Trowbridge Drive Bethel, CT 06801
|
61,653,725 | 9.44 | % | ||||||
Common
Stock
|
Jay
S. Bendis (5) 71 Springcrest Drive Akron, OH 44333
|
5,219,250 | <1 % | |||||||
Common
Stock
|
Ronald
A. LaMorte (6) 336 Haystack Hill Road Orange, CT 06470
|
4,950,000 | <1 % | |||||||
Common
Stock
|
Elan
Gandsman (7) 135 College Street New Haven, CT 06510
|
4,950,000 | <1 % | |||||||
Common
Stock
|
Kenneth
Londoner (8) 10 Red Coat Road Westport, CT 06880
|
10,750,000 | 1.65 | % | ||||||
Common
Stock
|
All
Directors and Executive Officers As a Group
|
467,578,534 | 71.56 | % |
(1)
Consists of (i) 8,900,000 shares of record owned by E4 LLC, which is controlled
by Mr. Esposito, (ii) 20,000,000 shares of record owned by Mr. Esposito’s IRA
account, (iii) 12,000,000 shares issuable upon exercise of warrants held by E4
LLC at an exercise price of $0.004 per share, (iv) 620,000 shares issuable upon
exercise of warrants held by E4 LLC at an exercise price of $0.0075 per share,
(v) 5,538,500 shares issuable upon exercise of warrants held by Mr. Esposito’s
IRA account at an exercise price of $0.0075 per share, (vi) 8,000,000 shares
issuable upon exercise of options held by Mr. Esposito at an exercise price of
$0.004 per share, and (vii) 100,000,000 shares issuable upon exercise
of options held by E4 LLC at an exercise price of $0.004 per share.
(2)
Consists of (i) 20,000,000 shares owned of record, (ii) 10,000,000 shares
issuable upon exercise of warrants at an exercise price of $0.0075 per share,
(iii) 16,000,000 shares issuable upon exercise of warrants at an exercise price
of $0.004 per share, (iv) 16,000,000 shares issuable upon exercise of
options at an exercise price of $0.004 per share, and (v) 110,000,000
shares issuable upon exercise of options held at an exercise price of $0.004 per
share.
(3)
Consists of (i) 10,000 shares of record, (ii) 54,000,000 shares issuable upon
exercise of options held at an exercise price of $0.004 per share, and (iii)
8,987,059 shares issuable upon exercise of options held at an exercise price of
$0.00844 per share.
(4)
Consists of (i) 52,666,666 shares issuable upon exercise of options held at an
exercise price of $0.004 per share, and (ii) 8,987,059 shares issuable upon
exercise of options held at an exercise price of $0.00844 per
share.
(5)
Consists of (i) 269,250 shares held of record and (ii) 4,950,000 shares issuable
upon exercise of options at an exercise price of $0.004 per share.
(6)
Consists of 4,950,000 shares issuable upon exercise of options at an exercise
price of $0.004 per share.
(7)
Consists of 4,950,000 shares issuable upon exercise of options at an exercise
price of $0.004 per share.
(8)
Consists of (i) 5,950,000 shares held of record (ii) 800,000 shares issuable
upon exercise of warrants at an exercise price of $0.0075 per share, and
4,000,000 shares issuable upon exercise of options at an exercise price of
$0.004 per share.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
During
2008 the following directors of the Company were “independent” in accordance
with standards applied by the NASDAQ: Jay Bendis, Elan Gandsman, Ronald A.
LaMorte and Kenneth Londoner. All members of the Compensation Committee and the
Nominating Committee are independent in accordance with Rule 10A-3(b)(1) of the
Securities Exchange Act of 1934. Such rule further requires that members of the
Audit Committee satisfy the standards for independence set forth in the
Sarbanes-Oxley Act of 2002 (“SOX”). All members of the Audit Committee were
independent pursuant to the standards for independence set forth in SOX during
2008.
For each
director identified as independent above, there were no transactions,
relationships or arrangements not disclosed pursuant to Item 404(a) that were
considered by the board of directors under the applicable independence
definitions in determining that the director is independent.
27
Mr.
Joseph Esposito was elected as Chairman of the Board of Directors of the Company
and the Company’s former subsidiary, Aduromed Corporation, effective August 4,
2008. Effective November 9, 2009 Mr. Esposito resigned as Chairman of the
Company but remains as a director of the Company. In August 2007 Mr. Esposito,
through his wholly owned company, E4 LLC, entered into a twelve month business
consulting agreement with the Company. As compensation pursuant to such
agreement Mr. Esposito received 7,500 shares of the Company’s common stock per
month for twelve months, and $8,500 per month for twelve months. Effective
August 4, 2008 Mr. Esposito, through E4 LLC, entered into a new three year
business consulting agreement with the Company. As compensation pursuant to the
new agreement, Mr. Esposito receives $72,000 per quarter, payable quarterly in
advance. In addition, Mr. Esposito received (i) a common stock purchase warrant
to purchase 12,000,000 shares of Company common stock at an exercise price of
$0.025 per share, exercisable for five years, and (ii) an option to purchase
12,000,000 shares of Company common stock at an exercise price of $0.025 per
share, which option vested immediately with respect to 4,000,000 shares, vests
with respect to an additional 4,000,000 shares on August 4, 2009 and the
remaining 4,000,000 shares on August 4, 2010. Effective May 1, 2009, in
return for making certain consultancy fee concessions for the period May 1, 2009
through December 31, 2009, Mr. Esposito, through E4 LLC, received an option to
purchase 100,000,000 shares of common stock at an exercise price of $0.004 per
share and had the options and warrants described in the foregoing sentence
re-priced by the board of directors of the Company to $0.004 per
share.
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.
DESCRIPTION
OF SECURITIES
General
The
following summary includes a description of material provisions of the Company’s
capital stock.
Authorized
and Outstanding Securities
The
Company is authorized to issue 3,500,000,000 shares of Common Stock par value
$0.0001 per share (the ‘‘Common Stock’’), and 60,000,000 shares of preferred
stock par value $0.0001 per share. As of December 14, 2009, there were
issued and outstanding:
|
·
|
676,903,935 shares of
Common Stock.
|
|
·
|
Warrants issued originally by
Aduromed which were converted to warrants of the Company and warrants of
the Company issued to various parties including employees of the Company
for the purchase of 41,737,886 shares of Common Stock at prices varying
from $0.004 to $0.55710 per share through various dates the latest of
which is August 4, 2013.
|
|
·
|
Warrants for the purchase of
28,100,000 shares issued in connection with new capital raised or existing
capital converted under the Master Restructuring Agreement at a price of
$0.025 per share through August 4,
2013.
|
|
·
|
Warrants for the purchase
of 108,592,400 shares issued in connection with new capital raised or
existing capital converted under the Master Restructuring Agreement at a
price of $0.0075 per share through August 4,
2013.
|
|
·
|
Options issued originally by
Aduromed which were converted to options of the Company and options of the
Company issued to various parties including employees and directors of the
Company for the purchase of 526,292,916 shares of Common Stock at prices
varying from $0.004 to $0.55 per share through various dates the latest of
which is November 16, 2016.
|
Common
Stock
Holders
of the Company’s Common Stock are entitled to receive ratably, from funds
legally available for the payment thereof, dividends when and as declared by
resolution of the board of directors, subject to any preferential dividend
rights which may be granted to holders of any preferred stock authorized and
issued by the board of directors. No dividends have ever been declared by the
Board of Directors on the Common Stock. Holders of the Company’s Common Stock do
not have cumulative voting rights and are entitled to one vote per share on all
matters to be voted upon by stockholders with the result that if the holders of
more than 50% of the shares of Common Stock, voted they could elect all of the
directors. The Common Stock is not entitled to preemptive rights and is not
subject to redemption, including sinking fund provisions, or conversion. Upon
the liquidation, dissolution or winding up of the Company, the assets, if any,
legally available for distribution to stockholders, are distributable ratably
among the holders of the Common Stock after payment of all classes or series of
the Company’s preferred stock. All outstanding shares of the Common Stock are
validly issued, fully-paid and nonassessable. The rights, preferences and
privileges of holders of the Common Stock are subject to the preferential rights
of all classes or series of preferred stock currently outstanding or issued in
the future.
28
Preferred
Stock
The board
of directors of the Company has the authority, without further action by the
stockholders, to issue from time to time, the preferred stock in one or more
series and to fix the number of shares, designations, preferences, powers, and
relative, participating, optional or other special rights and the qualifications
or restrictions thereof. The preferences, powers, rights and restrictions of
different series of preferred stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The issuance of preferred
stock could decrease the amount of earnings and assets available for
distribution to holders of the Common Stock or affect adversely the rights and
powers, including voting rights, of the holders of Common Stock. Additionally,
the issuance of preferred stock with voting and/or conversion rights may
adversely affect the voting power of the holders of the Common Stock, including
the loss of voting control to others.
SELLING
SECURITY HOLDERS
The
following table details the name of each selling stockholder, the number of
shares owned by that selling stockholder, and the number of shares that may be
offered by each selling stockholder for resale under this prospectus. The
selling stockholders may sell up to 282,108,295 shares of our Common Stock
from time to time in one or more offerings under this prospectus. Because each
selling stockholder may offer all, some or none of the shares it holds, and
because, based upon information provided to us, there are currently no
agreements, arrangements, or understandings with respect to the sale of any of
the shares, no definitive estimate as to the number of shares that will be held
by each selling stockholder after the offering can be provided. The following
table has been prepared on the assumption that all shares offered under this
prospectus will be sold to parties unaffiliated with the selling
stockholders.
Name of Selling
Shareholder
|
Beneficial
Ownership Before
the Offering (1)
|
Percentage of
Ownership
Before the
Offering
|
Shares of Common
Stock Included in
Prospectus
|
Beneficial
Ownership After
the Offering
|
Percentage of
Ownership After
Completion of
Offering (2)
|
|||||||||||||||
Socius
CG II, Ltd.
c/o
Socius Life Sciences Capital Group, LLC
11150
Santa Monica Boulevard, Suite 1500
Los
Angeles, CA 90025
|
0 | 0 | % | 153,378,718 | (3) | 0 | * | |||||||||||||
Socius
Life Sciences Capital Group, LLC
11150
Santa Monica Boulevard, Suite 1500
Los
Angeles, CA 90025
|
19,121,282 | 2.93 | % | 19,121,282 | (4) | 0 | * |
* Less
than 1%
(1) Beneficial
ownership includes all shares a holder owns directly or may acquire through
options and warrants exercisable within sixty days. Unless otherwise indicated
in the footnotes to this table, the term of all warrants and options is five
years from the date of issuance.
(2)
Assumes the sale of all shares offered hereby.
(3)
Represents 153,378,718 shares issuable upon exercise of the Socius
Warrants issuable to Socius under the Purchase Agreement. The sole stockholder
of Socius CG II, Ltd. is Socius Capital Group, LLC, dba Socius Life Sciences
Capital Group, LLC. Voting and dispositive power with respect to the
shares held by Socius CG II, Ltd. is exercised by Terry Peizer, the Managing
Director of Socius Life Sciences Capital Group, LLC, who acts as investment
advisor to Socius CG II, Ltd. Socius CG II, Ltd. is not a registered
broker-dealer or an affiliate of a registered broker-dealer.
(4) Represents
19,121,282 shares of our common stock to be offered for resale by selling
stockholders.. Voting and dispositive power with respect to the shares held is
exercised by Terry Peizer, the Managing Director of Socius Life Sciences Capital
Group, LLC, who acts as investment advisor and is not a registered broker-dealer
or an affiliate of a registered broker-dealer.
29
PLAN
OF DISTRIBUTION
The
Selling Security Holders may, from time to time, offer and sell the shares of
Common Stock included in this Prospectus on any stock exchange, market or
trading facility on which the securities are traded or in private transactions.
Alternatively, the Selling Security Holders may exercise these Warrants pursuant
to an exemption from registration if one is available at the time, and offer and
sell the underlying shares and any unexercised Warrants under this Prospectus.
Once exercised, the shares of Common Stock underlying the Common Stock warrants
may be sold pursuant to the terms of this Prospectus. The term ‘‘Selling
Security Holders’’ includes pledgees, donees, transferees or other successors in
interest selling shares that they acquired after the date of this Prospectus
from the Selling Security Holders as a pledge, gift or other non-sale related
transfer. To the extent required, we may amend and supplement this Prospectus
from time to time to describe a specific plan of distribution.
Each
Selling Security Holder may make these sales at prevailing market prices or at
other negotiated prices. The Selling Security Holders may use any one or more of
the following methods when selling securities covered by this
Prospectus:
|
•
|
purchases by a broker-dealer as
principal and resale by such broker-dealer for its own account pursuant to
this Prospectus;
|
|
•
|
ordinary brokerage transactions
and transactions in which the broker solicits
purchasers;
|
|
•
|
block trades in which the
broker-dealer will attempt to sell the shares as agent but may position
and resell a portion of the block as principal to facilitate the
transaction;
|
|
•
|
an exchange distribution in
accordance with the rules of the applicable
exchange;
|
|
•
|
in privately negotiated
transactions; and
|
|
•
|
to cover short
sales;
|
|
•
|
broker-dealers may agree with the
Selling Holders to sell a specified number of such shares at a stipulated
price per share;
|
|
•
|
a combination of any such methods
of sale; and
|
|
•
|
any other method permitted
pursuant to applicable law.
|
In
connection with distributions of the shares or otherwise, the Selling Holders
may:
|
•
|
enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn
engage in short sales of the shares in the course of hedging the positions
they assume;
|
|
•
|
sell the shares short and
redeliver the shares to close out such short
positions;
|
|
•
|
enter into option or other
transactions with broker-dealers or other financial institutions or the
creation of one or more derivative securities which require the delivery
to them of shares that this Prospectus offers, which the broker-dealer or
financial institution may in turn resell pursuant to this Prospectus;
and
|
|
•
|
pledge shares to a broker-dealer
or other financial institution, which, upon a default, the broker-dealer
or financial institution may in turn resell pursuant to this
Prospectus.
|
In
addition, the Selling Security Holders may sell any shares that qualify for sale
pursuant to Rule 144, rather than pursuant to this
Prospectus.
In
effecting sales, broker-dealers or agents that the Selling Security Holders
engage may arrange for other broker-dealers to participate. Broker-dealers or
agents may receive commissions, discounts or concessions from the Selling
Security Holders, in amounts that the parties may negotiate immediately prior to
the sale. However, under the NASD rules and regulations, such broker-dealers may
not receive a commission or discount in excess of 8% for the sale of any
securities registered hereunder.
In
offering securities that this Prospectus covers, the Selling Security Holders,
and any broker-dealers and any other participating broker-dealers who execute
sales for the Selling Security Holders, may qualify as ‘‘underwriters’’ within
the meaning of the Securities Act in connection with these sales. Any profits
that the Selling Security Holders realize, and the compensation that they pay to
any broker-dealer, may qualify as underwriting discounts and
commissions.
30
In order
to comply with the securities laws of some states, the Selling Security Holders
must sell the shares in those states only through registered or licensed brokers
or dealers. In addition, in some states the Selling Security Holders must sell
the shares only if we have registered or qualified those shares for sale in the
applicable state or an exemption from the registration or qualification
requirement is available and the Selling Security Holder complies with the
exemption.
We have
advised the Selling Security Holders that the anti-manipulation rules of
Regulation M under the Exchange Act may apply to sales of shares in the
market and to the activities of the Selling Security Holders and their
affiliates. In addition, we will make copies of this Prospectus available to the
Selling Security Holders for the purpose of satisfying the Prospectus delivery
requirements of the Securities Act of 1933, as amended (the ‘‘Securities Act’’).
The Selling Security Holders may indemnify any broker-dealer that participates
in transactions involving the sale of the shares against liabilities, including
liabilities arising under the Securities Act.
Upon the
Company being notified in writing by a Selling Security Holder that any material
arrangement has been entered into with a broker-dealer for the sale of Common
Stock through a block trade, special offering, exchange distribution or
secondary distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed pursuant to Rule 424(b) under the Securities Act,
disclosing:
|
•
|
the number of shares that the
Selling Security Holder is
offering;
|
|
•
|
the terms of the offering,
including the name of the Selling Security Holder and any underwriter,
dealer or agent;
|
|
•
|
the purchase price paid by any
participating broker-dealer or
underwriter;
|
|
•
|
any discount, commission and
other broker-dealer or underwriter
compensation;
|
|
•
|
any discount, commission or
concession allowed or reallowed or paid to any
dealer;
|
|
•
|
the proposed selling price to the
public;
|
|
•
|
that such broker-dealer(s) did
not conduct any investigation to verify the information set out or
incorporated by reference in this Prospectus;
and
|
|
•
|
other facts material to the
transaction.
|
The
Selling Security Holders may from time to time pledge or grant a security
interest in some or all of the shares of Common Stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell shares of Common Stock from time to time under this
Prospectus, or under an amendment to this Prospectus under Rule 424(b)(3) or
other applicable provision of the Securities Act amending the list of selling
stockholders to include the pledgee, transferee or other successors in interest
as selling stockholders under this Prospectus. In addition, upon the Company
being notified in writing by a Selling Security Holder that a donee or pledge
intends to sell more than 500 shares of Common Stock, a supplement to this
Prospectus will be filed if then required in accordance with applicable
securities law.
We are
required to pay certain fees and expenses incurred by us incident to the
registration of the shares. We have agreed to indemnify the Selling Security
Holders against claims and losses due to material misstatements or omissions
made by us (and not by the Selling Holders) in this Prospectus.
LEGAL
MATTERS
Anslow
& Jaclin, LLP, 195 Route 9 South, 2nd Floor,
Manalapan, NJ, 07726, will pass upon the validity of the Common Stock being
offered hereby.
EXPERTS
The
financial statements for the Company for the fiscal years ended 2008 and 2007
have been audited by Child, Van Wagoner & Bradshaw, PLLC, an independent
registered public accounting firm, to the extent and for the periods set forth
in their respective reports appearing elsewhere herein, and are included in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
31
AVAILABLE
INFORMATION
We have
filed with the SEC a registration statement on Form S-1 under the Securities Act
with respect to the common stock offered hereby. This prospectus, which
constitutes part of the registration statement, does not contain all of the
information set forth in the registration statement and the exhibits and
schedule thereto, certain parts of which are omitted in accordance with the
rules and regulations of the SEC. For further information regarding our common
stock and our company, please review the registration statement, including
exhibits, schedules and reports filed as a part thereof. Statements in this
prospectus as to the contents of any contract or other document filed as an
exhibit to the registration statement, set forth the material terms of such
contract or other document but are not necessarily complete, and in each
instance reference is made to the copy of such document filed as an exhibit to
the registration statement, each such statement being qualified in all respects
by such reference.
We are
also subject to the informational requirements of the Exchange Act which
requires us to file reports, proxy statements and other information with the
SEC. Such reports, proxy statements and other information along with the
registration statement, including the exhibits and schedules thereto, may be
inspected at public reference facilities of the SEC at 100 F Street N.E,
Washington D.C. 20549. Copies of such material can be obtained from the Public
Reference Section of the SEC at prescribed rates. You may call the SEC at
1-800-SEC-0330 for further information on the operation of the public reference
room. Because we file documents electronically with the SEC, you may also obtain
this information by visiting the SEC’s Internet website at
http://www.sec.gov.
32
MEDCLEAN
TECHNOLOGIES, INC.
(FORMERLY
ADUROMED INDUSTRIES, INC.)
CONSOLIDATED
FINANCIAL STATEMENTS
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
PAGE
|
|
CONDENSED
CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND DECEMBER 31,
2008
|
F1
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
|
F2
|
UNAUDITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 2009 AND 2008
|
F3
|
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
F4
|
DECEMBER
31, 2008
INDEX
|
Page
|
Report
of Independent Registered Public Accounting Firm
|
F15
|
Consolidated
Balance Sheets as of December 31, 2008 and 2007
|
F16
|
Consolidated
Statements of Operations for the years ended December 31, 2008 and
2007
|
F17
|
Consolidated
Statements of Stockholders’ Equity (Deficit) for the two year period ended
December 31, 2008
|
F18
|
Consolidated
Statements of Cash Flows for the years ended December 31, 2008 and
2007
|
F19
|
Notes
to the Consolidated Financial Statements
|
F20
|
33
MEDCLEAN
TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED BALANCE SHEETS
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
(Unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$
|
249,225
|
$
|
1,922,401
|
||||
Accounts
receivable, net of $15,589 and $23,081 allowance as of September 30, 2009
and December 31, 2008, respectively
|
265,809
|
176,284
|
||||||
Revenues
in excess of billings
|
7,679
|
7,679
|
||||||
Inventory
|
838,538
|
886,351
|
||||||
Prepaid
expenses
|
42,717
|
24,925
|
||||||
Total
current assets:
|
1,403,968
|
3,017,640
|
||||||
Property,
plant and equipment, net
|
243,455
|
285,304
|
||||||
Other
assets
|
||||||||
Deposits
|
38,260
|
38,260
|
||||||
Total
assets
|
$
|
1,685,683
|
3,341,204
|
|||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$
|
241,882
|
$
|
653,785
|
||||
Payroll
liabilities
|
244,381
|
390,857
|
||||||
Deferred
revenue
|
230,648
|
136,691
|
||||||
Customer
deposits
|
87,520
|
386,428
|
||||||
Billings
in excess of revenue
|
618,673
|
620,639
|
||||||
Notes
payable
|
211,722
|
202,947
|
||||||
Total
current liabilities:
|
1,634,826
|
2,391,347
|
||||||
Stockholders'
equity
|
||||||||
Common
stock, $0.0001 par value; 3,500,000,000 shares authorized; 561,542,968
shares issued and outstanding as of September 30, 2009 and December 31,
2008
|
56,154
|
56,154
|
||||||
Additional
paid in capital
|
24,302,081
|
20,988,502
|
||||||
Accumulated
deficit
|
(24,307,378
|
)
|
(20,094,799
|
)
|
||||
Total
stockholders' equity:
|
50,857
|
949,857
|
||||||
Total
liabilities and stockholders' equity
|
$
|
1,685,683
|
$
|
3,341,204
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-1
MEDCLEAN
TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three
months ended September 30,
|
Nine
months ended September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Revenues
|
||||||||||||||||
Contract
revenues earned
|
$
|
1,229,361
|
$
|
571,243
|
$
|
1,229,361
|
$
|
1,425,466
|
||||||||
Sales
and service revenues
|
326,931
|
177,515
|
1,099,113
|
529,273
|
||||||||||||
Total
revenues
|
1,556,292
|
748,758
|
2,328,474
|
1,954,739
|
||||||||||||
Cost
of sales
|
642,043
|
482,239
|
1,141,080
|
1,291,321
|
||||||||||||
Gross
profit
|
914,249
|
266,519
|
1,187,394
|
663,418
|
||||||||||||
Operating
expenses
|
||||||||||||||||
Salaries
and wages
|
250,768
|
339,227
|
3,314,347
|
1,029,217
|
||||||||||||
General
and administrative expenses
|
299,811
|
1,015,049
|
1,121,347
|
2,098,740
|
||||||||||||
Depreciation
|
20,998
|
19,585
|
65,157
|
63,900
|
||||||||||||
Total
operating expenses
|
571,577
|
1,373,861
|
4,500,851
|
3,191,857
|
||||||||||||
Income
(loss) from operations
|
342,672
|
(1,107,342
|
)
|
(3,313,457
|
)
|
(2,528,439
|
)
|
|||||||||
Other
income and expenses
|
||||||||||||||||
Interest
and other income
|
-
|
40,290
|
944
|
40,904
|
||||||||||||
Interest
expense
|
(3,366
|
)
|
(253,324
|
)
|
(900,066
|
)
|
(1,867,256
|
)
|
||||||||
Net
Income (loss) before income taxes
|
339,306
|
(1,320,376
|
)
|
(4,212,579
|
)
|
(4,354,791
|
)
|
|||||||||
Provision
for income taxes (benefit)
|
-
|
-
|
-
|
-
|
||||||||||||
Net
income (loss)
|
$
|
339,306
|
$
|
(1,320,376
|
)
|
$
|
(4,212,579
|
)
|
$
|
(4,354,791
|
)
|
|||||
Income
(loss) per common share, basic
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
|||||
Income
(loss) per common share, fully diluted
|
$
|
0.00
|
$
|
(0.00
|
)
|
$
|
(0.01
|
)
|
$
|
(0.03
|
)
|
|||||
Weighted
average common shares outstanding, basic
|
561,542,968
|
336,645,470
|
561,542,968
|
127,553,445
|
||||||||||||
Weighted
average common shares outstanding, fully diluted
|
561,542,968
|
336,645,470
|
561,542,968
|
127,553,445
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-2
MEDCLEAN
TECHNOLOGIES, INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine
months ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$
|
(4,212,579
|
)
|
$
|
(4,354,791
|
)
|
||
Adjustments
to reconcile net income (loss) to net cash used in operating
activities
|
||||||||
Depreciation
|
65,157
|
63,900
|
||||||
Fair
value of common stock, options and warrants issued for services
rendered
|
3,313,579
|
1,693,261
|
||||||
Common
stock issued in settlement of preferred dividends and liquidated
damages
|
598,577
|
|||||||
Common
stock issued in settlement of debt
|
1,159,733
|
|||||||
Loss
on disposal of fixed assets
|
22,249
|
|||||||
(Increase)
decrease in:
|
||||||||
Accounts
receivable
|
(89,525
|
)
|
411,812
|
|||||
Revenues
in excess of billings
|
(7,679
|
)
|
||||||
Inventory
|
47,813
|
305,932
|
||||||
Prepaid
expenses
|
(17,792
|
)
|
55,350
|
|||||
Increase
(decrease) in:
|
||||||||
Accounts
payable and accrued liabilities
|
(549,604
|
)
|
(270,850
|
)
|
||||
Deferred
revenue
|
93,957
|
(79,796
|
)
|
|||||
Customer
deposits
|
(298,908
|
)
|
-
|
|||||
Billings
in excess of revenue
|
(1,966
|
)
|
(636,371
|
)
|
||||
Dividend
payable
|
-
|
(864,013
|
)
|
|||||
Net
cash used in operating activities
|
(1,649,868
|
)
|
(1,902,686
|
)
|
||||
Cash
flows from investing activities:
|
||||||||
Purchase
of equipment
|
(23,308
|
)
|
(7,307
|
)
|
||||
Net
cash used in investing activities
|
(23,308
|
)
|
(7,307
|
)
|
||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from issuance of notes payable
|
-
|
350,000
|
||||||
Repayments
of notes payable
|
-
|
(418,985
|
)
|
|||||
Proceeds
from sale of common stock
|
-
|
4,946,000
|
||||||
Cost
of insurance of preferred stock and warrants
|
-
|
(85,500
|
)
|
|||||
Net
cash provided by financing activities
|
-
|
4,791,515
|
||||||
(Decrease)
increase in cash and cash equivalents
|
(1,673,176
|
)
|
2,881,522
|
|||||
Cash
and cash equivalents, beginning of period
|
1,922,401
|
212,215
|
||||||
Cash
and cash equivalents, end of period
|
$
|
249,225
|
$
|
3,093,737
|
||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$
|
1,324
|
$
|
94,903
|
||||
Taxes
|
$
|
-
|
$
|
-
|
||||
Supplemental
disclosures of non-cash investing and financing
activities:
|
||||||||
Common
stock issued in exchange for notes payable
|
$
|
-
|
$
|
1,225,000
|
||||
Accrual
of preferred stock dividends
|
-
|
210,000
|
||||||
Common
stock issued in settlement of preferred stock dividends
|
-
|
383,577
|
||||||
Common
stock issued in settlement of liquidated damages
|
-
|
215,000
|
See the
accompanying notes to the unaudited condensed consolidated financial
statements
F-3
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary
of the significant accounting policies applied in the presentation of the
accompanying financial statements are as follows:
General
The
accompanying unaudited condensed consolidated financial statements of MedClean
Technologies, Inc. and subsidiaries, (“MedClean” or the “Company” or “MTI”),
have been prepared in accordance with accounting principles generally accepted
in the United States of America for interim financial information and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements.
In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been
included. Accordingly, the results from operations for the three and
nine-month period ended September 30, 2009, are not necessarily indicative of
the results that may be expected for the year ending December 31,
2009. The unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated December 31, 2008 financial
statements and footnotes thereto included in the Company's Form 10-K filed with
the SEC on March 24, 2009 and amended on April 17, 2009.
The
consolidated financial statements as December 31, 2008 have been derived from
the audited consolidated financial statements at that date but do not include
all disclosures required by the accounting principles generally accepted in the
United States of America.
Business and Basis of
Presentation
On
January 2, 2009, the Company merged its wholly owned subsidiary, Aduromed
Corporation into Aduromed Industries Inc. and changed its corporate name from
Aduromed Industries, Inc. to MedClean Technologies, Inc.
MedClean
is in the business of providing solutions for managing medical waste on site
including designing, selling, installing and servicing on site (i.e. “ in-situ “) turnkey systems to
treat regulated medical waste. The Company provides these systems to hospitals
and other medical facilities as efficient, safe, cost effective and legally
compliant solutions to incineration, off site hauling of untreated waste and
other alternative treatment technologies and methodologies. The MedClean Series
System is offered in three configurations: Containerized System, Mobile System
and the Fixed System (our traditional fixed installation).
Accounts
Receivable
The
Company assesses the realization of its receivables by performing ongoing credit
evaluations of its customers' financial condition. Through these evaluations,
the Company may become aware of a situation where a customer may not be able to
meet its financial obligations due to deterioration of its financial viability,
credit ratings or bankruptcy. The Company’s reserve requirements are based on
the best facts available to the Company and are reevaluated and adjusted as
additional information is received. The Company’s reserves are also based on
amounts determined by using percentages applied to certain aged receivable
categories. These percentages are determined by a variety of factors including,
but not limited to, current economic trends, historical payment and bad debt
write-off experience. Allowance for doubtful accounts for accounts and notes
receivable was $15,589 and $23,081 as of September 30, 2009 and December 31,
2008, respectively.
F-4
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue
recognition
Prior to
2009 the Company recognized revenues from fixed-price and modified fixed-price
construction type contracts on the percentage-of-completion method, measured by
the percentage of cost incurred to date to estimated total cost for each
contract. That method was used because management considers total cost to be the
best available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it was at least reasonably possible that the
estimates used will change within the near term. Prior to 2009, the Company has
billed 25% of the contract at signing, 50% upon delivery of components, and the
final 25% upon completion of installation and start-up. Beginning in 2009 the
Company will recognize revenues upon completion of the system installation for
system installed inside a health care facility. Clients will be
invoiced 60% of the contracts at signing, 20% upon delivery of components, and
the final 20% upon completion of installation and start-up.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
Revenues
from direct sales of our On-Demand container unit are recognized as the Company
ships units. The Company provides a one year warranty on the systems it
installs. The Company also obtains a one year warranty on the system components
from the component manufacturer, thereby mitigating potential warranty costs.
Accordingly, the Company has accrued no reserve for warranty. On the installed
base after the warranty term has expired, the Company offers a maintenance
agreement of one or more years to the customer. The Customer is billed for, and
pays for the maintenance agreement in advance. Revenues from such maintenance
agreements are recognized ratably over the lives of the maintenance agreements,
with the excess of the amount collected over the amount recognized as deferred
revenue. At September 30, 2009 and December 31, 2008 the Company had $230,648
and $136,691 in deferred revenue from maintenance agreements. There are no sales
of container units for the nine months ended September 30, 2009 and
2008.
Revenues
from the sale of accessories and repairs and replacement parts are recognized
when shipped to the customer in accordance with a valid contract or order
agreement. The contract or order agreement specifies delivery terms and pricing,
and is considered to reasonably assure collection from the
customer.
Revenues
and cost from multi-year rental contracts on our mobile unit will be recognized
ratably over the life of the rental contract.
F-5
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Segment
information
Accounting
Standards Codification (“ASC”) establishes standards for reporting information
regarding operating segments in annual financial statements and requires
selected information for those segments to be presented in interim financial
reports issued to stockholders. ASC also establishes standards for related
disclosures about products and services and geographic areas. Operating segments
are identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision maker, or decision-making group, in making decisions how to allocate
resources and assess performance. The Company applies the management approach to
the identification of our reportable operating segment as provided in accordance
with ASC. The information disclosed herein materially represents all of the
financial information related to the Company’s principal operating
segment.
Reclassification
Certain
reclassifications have been made to prior periods’ data to conform to the
current year’s presentation. These reclassifications had no effect on reported
income or losses.
Fair Value of Financial
Instruments
ASC
requires disclosure of the fair value of certain financial instruments. The
carrying value of cash and cash equivalents, accounts payable and accrued
liabilities, and short-term borrowings, as reflected in the consolidated balance
sheets, approximate fair value because of the short-term maturity of these
instruments. All other significant financial assets, financial
liabilities and equity instruments of the Company are either recognized or
disclosed in the consolidated financial statements together with other
information relevant for making a reasonable assessment of future cash flows,
interest rate risk and credit risk. Where practicable the fair values of
financial assets and financial liabilities have been determined and disclosed;
otherwise only available information pertinent to fair value has been
disclosed.
Use of
estimates
The
preparation of the accompanying financial statements, in conformity with
generally accepted accounting principles, 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 revenue and expenses during the
reporting periods. Actual results could differ from those
estimates.
Cash and cash
equivalents
The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
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, 2009, the Company has no cash balances on
deposit in any one account with a financial institution in excess of the
federally insured limits.
F-6
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Control by principal
stockholders
The
directors, executive officers, participants in the Master Restructuring
Agreement and their affiliates or related parties, own beneficially and in the
aggregate, the majority of the voting power of the outstanding shares of the
common stock of the Company. Accordingly, the directors, executive officers and
participants in the Master Restructuring Agreement and their affiliates or
related parties, if they voted their shares uniformly, would have the ability to
control the approval of most corporate actions, including increasing the
authorized capital stock of the Company and the dissolution, merger or sale of
the Company's assets.
Dependence on principal
customer
For 2009
and going forward, we do not anticipate that the loss of any one customer will
have a significant adverse impact on our business.
Property, plant and
equipment
The
Company has property, plant and equipment that consist of automobiles, computers
and related accessories, and office furniture. The depreciation is
calculated using the straight line method over the life of the
property. All property has a useful life of 3 to 10
years. The following table summarizes these assets as of September
30, 2009 and December 31, 2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Office
Furniture
|
$
|
164,525
|
$
|
164,525
|
||||
Computers
and Accessories
|
212,017
|
206,091
|
||||||
Leasehold
Improvements
|
135,380
|
117,997
|
||||||
511,922
|
488,613
|
|||||||
Accumulated
Depreciation
|
268,467
|
203,309
|
||||||
$
|
243,455
|
$
|
285,304
|
Inventory
The
Company maintains an inventory, which consists primarily of component parts,
spare parts and disposable goods. The average cost method is utilized
in valuing the inventory, and is stated at the lower of cost or
market. The following table summarizes these assets as of September
30, 2009 and December 31, 2008:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Component
& spare parts
|
$
|
786,052
|
$
|
754,476
|
||||
Consumables
|
52,486
|
21,234
|
||||||
Advance
payments
|
0
|
110,641
|
||||||
Total
inventory
|
$
|
838,538
|
$
|
886,351
|
F-7
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Earnings (loss) per common
share
The net
earnings (loss) per common share are computed by dividing the net loss for the
period by the weighted average number of shares outstanding for the period.
Outstanding warrants and options for the three-month and nine-month periods
ending September 30, 2009 and 2008 amounting to 619,096,836 and 43,943,271
respectively were not included in the calculation for net loss per common share
because it would be antidilutive or exceeded the average market price of the
Company’s common stock for period.
Outstanding
Preferred A and B class of stock nor the common stock equivalents associated
with the conversion feature for the periods ending September 30, 2008 amounting
to 22,043,862 of both classes of Preferred stock were neither included in the
calculation for net loss per common share as it would be
antidilutive.
The
numerator and denominator used in the basic and diluted earnings (loss) per
share of common stock computations are presented in the following
table:
|
Nine months ended September 30,
|
Three months ended September 30,
|
||||||||||||||
|
2009
|
2008
|
2009
|
2008
|
||||||||||||
NUMERATOR
FOR BASIC AND DILUTED EPS (LPS)
|
||||||||||||||||
Net
income (loss) per statement of operations
|
$ | (4,212,579 | ) | $ | (4,354,791 | ) | $ | 339,306 | $ | (1,320,376 | ) | |||||
Dividend
payable to preferred stockholders
|
- | (210,000 | ) | - | ||||||||||||
Net
income (loss) to common stockholders
|
$ | (4,212,579 | ) | $ | (4,564,791 | ) | $ | 339,306 | $ | (1,320,376 | ) | |||||
DENOMINATOR
FOR BASIC AND DILUTED EPS (LPS)
|
||||||||||||||||
Weighted
average shares of common stock outstanding
|
561,542,968 | 127,553,445 | 561,542,968 | 336,645,470 | ||||||||||||
Basic
and diluted EPS (LPS)
|
$ | (0.01 | ) | $ | (0.03 | ) | $ | 0.00 | $ | (0.00 | ) |
For the
three month period ended September 30, 2009, the Company did not consider
247,156,997 warrants and 503,388,594 vested options in the dilutive earnings per
share due to the related strike price exceeded the applicable market price of
the Company’s common stock.
Recent Accounting
Pronouncements
With the exception of those stated below, there have been no recent accounting
pronouncements or changes in accounting pronouncements during the nine months
ended September 30, 2009, as compared to the recent accounting
pronouncements described in the Annual Report that are of material significance,
or have potential material significance, to the Company.
F-8
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
Effective
July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurements and
Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments
to ASC 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. ASU 2009-05 provides clarification that in circumstances in which a
quoted price in an active market for the identical liability is not available, a
reporting entity is required to measure fair value using certain techniques. ASU
2009-05 also clarifies that when estimating the fair value of a liability, a
reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in
an active market for the identical liability at the measurement date and the
quoted price for the identical liability when traded as an asset in an active
market when no adjustments to the quoted price of the asset are required are
Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material
impact on the Company’s consolidated results of operations or financial
condition.
In
October 2009, the FASB issued ASU 2009-13, Multiple-Deliverable Revenue
Arrangements, (amendments to FASB ASC Topic 605, Revenue Recognition ) (“ASU
2009-13”) and ASU 2009-14, Certain Arrangements That Include
Software Elements , (amendments to FASB ASC Topic 985, Software ) (“ASU
2009-14”). ASU 2009-13 requires entities to allocate revenue in an
arrangement using estimated selling prices of the delivered goods and services
based on a selling price hierarchy. The amendments eliminate the residual method
of revenue allocation and require revenue to be allocated using the relative
selling price method. ASU 2009-14 removes tangible products from the scope
of software revenue guidance and provides guidance on determining whether
software deliverables in an arrangement that includes a tangible product are
covered by the scope of the software revenue guidance. ASU 2009-13 and ASU
2009-14 should be applied on a prospective basis for revenue arrangements
entered into or materially modified in fiscal years beginning on or after
June 15, 2010, with early adoption permitted. The Company does not expect
adoption of ASU 2009-13 or ASU 2009-14 to have a material impact on the
Company’s consolidated results of operations or financial
condition.
F-9
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
2 - GOING CONCERN MATTERS
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities and commitments in the normal course
of business. The Company has incurred substantial recurring losses, which raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The
Company has available cash and cash equivalents of approximately
$249,225 at September 30, 2009 which it intends to utilize for working
capital purposes and to continue developing its business. To supplement its cash
resources, the Company has been pursuing a number of alternative financing
arrangements with various investment entities. We are currently looking to
secure additional working capital to provide the necessary funds for us to
execute our business plan through various sources, including bank facilities,
bridge loans and equity offerings. However, we continue to incur significant
operating losses and the resultant reduction of our cash position. We
cannot assure that we will be able to obtain additional funding, and the lack
thereof would have a material adverse impact on our business. Moreover, any
equity funding could be substantially dilutive to existing stockholders. The
aforementioned factors raise substantial doubt about our ability to continue as
a going concern. In the event the Company is unable to continue as a going
concern it may pursue a number of different options, including, but not limited
to, filing for protection under the federal bankruptcy code.
NOTE
2 – CONTRACTS IN PROCESS
The
Company enters into construction type contracts to furnish and install its
systems in hospitals. There were five outstanding contracts at September 30,
2009 and December 31, 2008. The following table summarizes these
outstanding contracts:
Contract
|
Revenue
|
Amounts
|
Revenues in
|
Billings in excess
|
||||||||||||
Amount
|
Recognized
|
Billed
|
excess of Billings
|
of Revenues
|
||||||||||||
Outstanding contracts at September 30, 2009
|
||||||||||||||||
1,327,930
|
949,221 | 1,327,930 | - | 378,709 | ||||||||||||
231,257
|
29,347 | 21,668 | 7,679 | - | ||||||||||||
287,029
|
163,939 | 215,271 | - | 51,332 | ||||||||||||
282,948
|
- | 188,632 | - | 188,632 | ||||||||||||
2,129,164
|
1,142,507 | 1,753,501 | 7,679 | 706,193 | ||||||||||||
Outstanding
contracts at December 31, 2008
|
||||||||||||||||
1,327,930
|
949,221 | 1,327,930 | - | 378,709 | ||||||||||||
231,257
|
29,347 | 21,668 | 7,679 | - | ||||||||||||
287,029
|
163,939 | 215,271 | - | 51,332 | ||||||||||||
282,948
|
- | 188,632 | - | 188,632 | ||||||||||||
559,594
|
528,426 | 530,392 | - | 1,966 | ||||||||||||
2,688,758
|
1,670,933 | 2,283,893 | 7,679 | 620,639 |
F-10
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
3 – NOTE PAYABLE
The
Company’s outstanding unsecured note bears a 12% interest rate and matured on
December 15, 2003. Both parties have entered a verbal agreement to extend the
maturity date on this note indefinitely. No accrued interest has been paid on
this note to date. As of September 30, 2009 and December 31, 2008 the balance
due was $211,722 and $202,947 respectively.
NOTE
4 – CAPITAL STOCK
The
Company is authorized to issue 3,500,000,000 shares of common stock, with a
$0.0001 par value per share as of April 22, 2009 as approved by the majority of
the Company stockholders. Prior to the April 22, 2009 share increase, the
Company was authorized to issue 1,400,000,000 shares of common stock with a
$0.0001 par value per share. In addition, the Company is authorized to issue
60,000,000 shares of preferred stock with a $0.0001 par value per
share.
As of
September 30, 2009 and December 31, 2008, the Company has 561,542,968 shares of
common stock and no preferred stock issued and outstanding.
NOTE
5 – WARRANTS AND OPTIONS
Warrants
The
following table summarizes the changes in warrants outstanding and related
prices for the shares of the Company’s common stock at September 30,
2009:
Exercise Price
|
Number
Outstanding
|
Warrants
Outstanding
Weighted
Average
Remaining
Contractual Life
(years)
|
Weighted
Average
Exercise price
|
Number
Exercisable
|
Warrants
Exercisable
Weighted
Average
Exercise Price
|
||||||||||||||||
$ |
0.0040
|
47,397,500 | 3.83 | $ | 0.0040 | 47,397,500 | $ | 0.0040 | |||||||||||||
0.0075
|
167,419,111 | 3.85 | 0.0075 | 167,419,111 | 0.0075 | ||||||||||||||||
0.0250
|
28,000,000 | 3.85 | 0.0250 | 28,000,000 | 0.0250 | ||||||||||||||||
0.0900
|
600,000 | 3.46 | 0.0900 | 600,000 | 0.0900 | ||||||||||||||||
0.2400
|
100,000 | 2.74 | 0.2400 | 100,000 | 0.2400 | ||||||||||||||||
0.3788
|
2,204,386 | 1.32 | 0.3788 | 2,204,386 | 0.3788 | ||||||||||||||||
0.5571
|
1,436,000 | 0.84 | 0.5571 | 1,436,000 | 0.5571 | ||||||||||||||||
Total
|
247,156,997 | 3.81 | $ | 0.0156 | 247,156,997 | $ | 0.0128 |
F-11
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
5 – WARRANTS AND OPTIONS (continued)
Transactions
involving the Company’s warrant issuance are summarized as follows:
|
Number of
Shares
|
Weighted
Average
Price Per
Share
|
||||||
Outstanding
at December 31, 2007
|
32,476,672 | $ | 0.3585 | |||||
Granted
|
503,570,577 | |||||||
Exercised
|
(93,861,853 | ) | ||||||
Canceled
or expired
|
(27,609,286 | ) | ||||||
Outstanding
at December 31, 2008
|
414,576,110 | 0.0265 | ||||||
Granted
|
167,419,113 | |||||||
Exercised
|
||||||||
Canceled
or expired
|
(334,838,226 | ) | ||||||
Outstanding
at September 30, 2009
|
247,156,997 | $ | 0.0156 |
On June
30, 2009, pursuant to its private offer to exchange all of the Company's
existing Common Stock Purchase Warrants with Initial Exercise Dates between July
11, 2008 and August 29, 2008 (“Existing Warrants”) for newly issued Common Stock
Purchase Warrants with a new lower exercise price of $0.0075 per share,
exercisable for one-half the original number of shares of our common stock, par
value $0.0001 per share (“Common Stock”), and without a “cashless exercise”
right, the Company exchanged 334,838,226 Existing Warrants for 167,419,113
common stock purchase warrants with an exercise price of $0.0075 per share and
28,000,000 common stock purchase warrants with an exercise price of $0.025
remain outstanding. The fair value of the newly issued common stock
warrants, determined using the Black-Scholes Option Pricing Model did not exceed
the fair value of the existing warrants at the time of the
exchange.
Stock
options
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company's common stock issued to employees and
directors of the Company at September 30, 2009:
Options Outstanding
|
Options Exercisable
|
||||||||||||||||||||
Exercise Prices
|
Number
Outstanding
|
Weighted Average
Remaining
Contractual Life
(Years)
|
Weighted
Average
Exercise Price
|
Number
Exercisable
|
Weighted
Average
Exercise Price
|
||||||||||||||||
$ |
0.004
|
539,358,950 | 4.63 | $ | 0.004 | 503,388,594 | $ | 0.004 | |||||||||||||
Total
|
539,358,950 | 4.63 | $ | 0.004 | 503,388,594 | $ | 0.004 |
F-12
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
5 – WARRANTS AND OPTIONS (continued)
Transactions
involving stock options issued to employees are summarized as
follows:
|
Weighted
Average
|
|||||||
Number
of
|
Price
|
|||||||
Shares
|
Per
Share
|
|||||||
Outstanding
at December 31, 2007:
|
11,531,315 | $ | 0.098 | |||||
Granted
|
71,634,000 | $ | ||||||
Exercised
|
— | |||||||
Canceled
or expired
|
(4,806,365 | ) | ||||||
Outstanding
at December 31, 2008:
|
78,358,950 | $ | 0.072 | |||||
Granted
|
461,000,000 | |||||||
Exercised
|
- | - | ||||||
Canceled
or expired
|
||||||||
Outstanding
at September 30, 2009:
|
539,358,950 | $ | 0.004 |
On May 1,
2009, the Company issued options to purchase 461,000,000 shares of the Company’s
common stock in consideration of employees accepting no and or
reduced compensation for a specified period of time. The option grants as
approved by the Compensation Committee were fully vested when issued and the
exercise price is $0.004 per share.
The fair
value for these awards was estimated using the Black-Scholes option pricing
model with the following weighted average assumptions, assuming no expected
dividends:
Expected
life (years)
|
5 | |||
Expected
volatility
|
255.30 | % | ||
Risk-free
interest rate
|
1.98 | % | ||
Dividend
yield
|
— | % |
During
the nine-month period ended September 30, 2009, the Company re-priced certain
employee options initially with exercise prices from $0.05 to $0.557 to $0.004
per share with other terms remaining the same. The fair value of the
fully vested re-priced options was charged to current period
operations.
The fair
values of the fully vested re-priced employee options were determined using the
Black Scholes option pricing model with the following assumptions:
Dividend
yield:
|
-0- | % | ||
Volatility
|
255.30 | % | ||
Risk
free rate:
|
1.98 | % |
The
expected volatilities are based on the historical volatility of the Company’s
common stock. The observation is made on a daily
basis. The observation period covered is consistent with the expected
life of the options. The expected life of stock options is based on
the minimum vesting period required. The risk-free rate is consistent
with the expected terms of the stock options and is based on the United States
Federal Reserve data system yield curve in effect at the time of
grant.
F-13
MEDCLEAN
TECHNOLOGIES, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER
30, 2009
NOTE
5 – WARRANTS AND OPTIONS (continued)
During
the nine months ended September 30, 2009 and 2008, the stock compensation
expenses were $3,313,579 and $1,693,261, respectively.
NOTE
6 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company adopted certain provisions of FASB ASC Topic 820 to evaluate the fair
value of certain of its financial assets required to be measured on a recurring
basis. Under FASB ASC Topic 820, based on the observability of the inputs used
in the valuation techniques, the Company is required to provide the following
information according to the fair value hierarchy. The fair value hierarchy
ranks the quality and reliability of the information used to determine fair
values. Financial assets and liabilities carried at fair value will be
classified and disclosed in one of the following three categories:
|
•
|
Level 1 — Quoted prices in active
markets for identical assets or
liabilities.
|
|
•
|
Level 2 — Inputs other than Level
1 that are observable, either directly or indirectly, such as quoted
prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be corroborated
by observable market data for substantially the full term of the assets or
liabilities.
|
|
•
|
Level 3 — Unobservable inputs
that are supported by little or no market activity and that are
significant to the fair value of the assets or
liabilities.
|
As of
September 30, 2009, the Company’s cash and cash equivalents of $249,225
were valued using quoted prices generated by market transactions involving
identical assets, or Level 1 assets as defined under FASB ASC Topic
820.
The
Company adopted the provisions of FASB ASC Topic 825, “ Financial Instruments ,”
which require disclosures about the fair value of financial instruments in
interim as well as annual financial statements. The following table summarizes
the carrying amount and fair value of the Company’s financial instruments as of
September 30, 2009:
September
30, 2009
|
||||||||
|
Carrying
|
|||||||
Financial
instruments
|
Amount
|
Fair
Value
|
||||||
Cash
and cash equivalents
|
$ | 249,225 | $ | 249,225 | ||||
Accounts
receivable, net
|
265,809 | 265,809 | ||||||
Accounts
payable and accrued liabilities
|
241,882 | 241,882 | ||||||
$ | 756,916 | $ | 756,916 |
For cash
and cash equivalents, accounts receivable, and accounts payable, the carrying
amount approximates fair value because of the relative short maturity of those
instruments.
F-14
Douglas
W. Child, CPA
Marty
D. Van Wagoner, CPA
J.
Russ Bradshaw, CPA
William
R. Denney, CPA
Roger
B. Kennard, CPA
Russell
E. Anderson, CPA
Scott
L. Farnes
1284
W. Flint Meadow Dr. #D
Kaysville,
Utah 84037
Telephone
801.927.1337
Facsimile
801.927.1344
5296
S. Commerce Dr. #300
Salt
Lake City, Utah 84107
Telephone
801.281.4700
Facsimile
801.281.4701
Max
Share Centre
373
King’s Road
North
Point, Hong Kong
www.cpaone.net
|
Report
of Independent Registered Public Accounting Firm
To
the Board of Directors and Audit Committee
Medclean
Technologies, Inc. (f.k.a. Aduromed Industries, Inc.)
Bethel,
Connecticut
We
have audited the consolidated balance sheets of Medclean Technologies,
Inc. (f.k.a. Aduromed Industries, Inc.) (the Company) as of December 31,
2008 and 2007, and the related consolidated statements of operations,
stockholders’ equity (deficit) and cash flows for the years ended December
31, 2008 and 2007. These consolidated financial statements are
the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. The company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the company’s
internal control over financial reporting. Accordingly, we
express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
consolidated financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall consolidated 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 Medclean Technologies, Inc. (f.k.a. Aduromed Industries, Inc.)
as of December 31, 2008 and 2007, and the results of its consolidated
operations and its consolidated cash flows for the years ended December
31, 2008 and 2007, in conformity with accounting principles generally
accepted in the United States of America.
The
accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 1 to the consolidated financial statements, the Company has
incurred substantial recurring losses. This raises substantial
doubt about the Company’s ability to meet its obligations and to continue
as a going concern. Management’s plans in regard to this matter
are described in Note 1. The consolidated financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.
/s/
Child, Van Wagoner & Bradshaw, PLLC
Child,
Van Wagoner & Bradshaw, PLLC
Salt
Lake City, Utah
March
20,
2009
|
F-15
ADUROMED
INDUSTRIES, INC.
CONSOLIDATED
BALANCE SHEETS
December
31,
|
||||||||
2008
|
2007
|
|||||||
ASSETS
|
||||||||
Current
assets
|
||||||||
Cash
|
$ | 1,922,401 | $ | 212,215 | ||||
Accounts
receivable (net of $23,081 and $11,418 allowance in 2008 and
2007)
|
176,284 | 739,840 | ||||||
Revenues
in excess of billings
|
7,679 | - | ||||||
Inventory
|
886,351 | 900,938 | ||||||
Prepaid
expenses
|
24,925 | 55,350 | ||||||
Total
current assets
|
3,017,640 | 1,908,343 | ||||||
Property,
plant and equipment, net
|
285,304 | 351,179 | ||||||
Long
term deposits
|
38,260 | 17,988 | ||||||
Total
assets
|
$ | 3,341,204 | $ | 2,277,510 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities
|
||||||||
Accounts
payable and accrued liabilities
|
$ | 653,785 | $ | 487,493 | ||||
Payroll
liabilities
|
390,857 | 29,909 | ||||||
Deferred
revenue
|
136,691 | 245,391 | ||||||
Dividends
payable
|
- | 864,013 | ||||||
Accrued
liquidated damages
|
- | 602,000 | ||||||
Customer
deposit
|
386,428 | - | ||||||
Billings
in excess of revenue
|
620,639 | 1,221,338 | ||||||
Short
term secured notes payable
|
- | 1,225,000 | ||||||
Convertible
debt, face value $1,225,0000, due June 27, 2008
|
- | 28,892 | ||||||
Current
portion of notes payable
|
202,947 | 197,756 | ||||||
Total
current liabilities
|
2,391,347 | 4,901,792 | ||||||
Notes
payable, less current portion
|
- | 62,476 | ||||||
Total
liabilities
|
2,391,347 | 4,964,268 | ||||||
Stockholders'
equity (deficit)
|
||||||||
Preferred
stock: $.0001 par value; 60,000,000 shares authorized; 0 shares and
22,043,862 shares issued and outstanding respectively
|
- | 2,204 | ||||||
Common
stock: $.0001 par value;1,400,000,000 shares authorized; 561,542,968 and
21,665,306 shares issued and outstanding respectively
|
56,154 | 2,167 | ||||||
Additional
paid-in capital
|
20,988,502 | 9,363,671 | ||||||
Accumulated
deficit
|
(20,094,799 | ) | (12,054,800 | ) | ||||
Total
stockholders' equity (deficit)
|
949,857 | (2,686,758 | ) | |||||
Total
liabilities and stockholders' equity (deficit)
|
$ | 3,341,204 | $ | 2,277,510 |
See Notes
to Consolidated Financial Statements
F-16
ADUROMED
INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
Year
ended
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
Revenues
|
||||||||
Contract
revenues earned
|
$ | 737,476 | $ | 1,744,238 | ||||
Sales
and service revenues
|
1,360,591 | 1,120,959 | ||||||
Total
revenues
|
2,098,067 | 2,865,197 | ||||||
Cost
of sales
|
1,693,411 | 1,775,896 | ||||||
Gross
profit
|
404,656 | 1,089,301 | ||||||
Operating
expenses
|
||||||||
Salaries
and wages
|
1,609,857 | 1,604,725 | ||||||
General
and administrative expenses
|
3,395,652 | 1,991,409 | ||||||
Depreciation
expense
|
86,272 | 90,621 | ||||||
Total
operating expenses
|
5,091,781 | 3,686,755 | ||||||
Loss
from operations
|
(4,687,125 | ) | (2,597,454 | ) | ||||
Other
income and expenses
|
||||||||
Interest
and other income
|
49,585 | 24,794 | ||||||
Interest
(expense)
|
(3,192,459 | ) | (1,956,166 | ) | ||||
Total
other income and expenses
|
(3,142,874 | ) | (1,931,372 | ) | ||||
Net
loss before income taxes
|
(7,829,999 | ) | (4,528,826 | ) | ||||
Provision
for income tax benefit
|
- | - | ||||||
Net
loss
|
$ | (7,829,999 | ) | $ | (4,528,826 | ) | ||
Basic
and diluted net loss per common share
|
$ | (0.03 | ) | $ | (0.24 | ) | ||
Weighted
average common shares outstanding
|
237,941,766 | 20,977,732 |
See Notes
to Consolidated Financial Statements
F-17
ADUROMED
INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
FOR THE
TWO YEAR PERIOD ENDED DECEMBER 31, 2008
Preferred
Stock
|
Common
Stock
|
Additional
|
Accumulated
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Paid-in
Capital
|
Deficit
|
Total
|
||||||||||||||||||||||
Balance
December 31, 2006
|
22,043,862 | 2,204 | 20,683,257 | 2,068 | 7,539,326 | (7,105,974 | ) | 437,624 | ||||||||||||||||||||
Stock
issued on note conversion
|
397,163 | 40 | 91,308 | 91,348 | ||||||||||||||||||||||||
Stock
issued on note conversion
|
165,011 | 17 | 37,936 | 37,953 | ||||||||||||||||||||||||
Stock
issued for consulting services
|
375,000 | 38 | 86,212 | 86,250 | ||||||||||||||||||||||||
Stock
issued on employee stock option conversion
|
44,875 | 5 | 6,288 | 6,293 | ||||||||||||||||||||||||
Warrants
and options issued for services
|
1,602,601 | 1,602,601 | ||||||||||||||||||||||||||
Preferred
stock dividend
|
(420,000 | ) | (420,000 | ) | ||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | (4,528,826 | ) | (4,528,826 | ) | |||||||||||||||||||
Balance
December 31, 2007
|
22,043,862 | $ | 2,204 | 21,665,306 | $ | 2,167 | $ | 9,363,671 | $ | (12,054,800 | ) | $ | (2,686,758 | ) | ||||||||||||||
Issuance
of common stock for cash
|
303,297,456 | 30,330 | 4,915,670 | 4,946,000 | ||||||||||||||||||||||||
Cost
of issuance
|
- | - | (85,500 | ) | (85,500 | ) | ||||||||||||||||||||||
Preferred
Stock and accrued dividends exchanged for common
|
(22,043,862 | ) | (2,204 | ) | 35,343,118 | 3,534 | 1,072,683 | 1,074,013 | ||||||||||||||||||||
Stock
issued on note exchange
|
93,750,000 | 9,375 | 2,375,358 | 2,384,733 | ||||||||||||||||||||||||
Stock
issued for consulting services
|
525,000 | 52 | 120,698 | 120,750 | ||||||||||||||||||||||||
Stock
issued for consulting services
|
4,500,000 | 450 | 674,550 | 675,000 | ||||||||||||||||||||||||
Stock
issued for consulting services
|
111,446 | 11 | 18,489 | 18,500 | ||||||||||||||||||||||||
Stock
issued for consulting services
|
24,590 | 2 | 2,998 | 3,000 | ||||||||||||||||||||||||
Warrants
exchanged for common stock in restructure
|
78,246,052 | 7,825 | (7,825 | ) | - | |||||||||||||||||||||||
Warrants
and options issued for services
|
- | - | 1,938,118 | 1,938,118 | ||||||||||||||||||||||||
Stock
issued in exchange for Liquidated Damages
|
24,080,000 | 2,408 | 599,592 | 602,000 | ||||||||||||||||||||||||
Preferred
stock dividend accrued
|
(210,000 | ) | (210,000 | ) | ||||||||||||||||||||||||
Net
loss for the year
|
- | - | - | - | - | (7,829,999 | ) | (7,829,999 | ) | |||||||||||||||||||
Balance
December 31, 2008
|
- | $ | - | 561,542,968 | $ | 56,154 | $ | 20,988,502 | $ | (20,094,799 | ) | $ | 949,857 |
See Notes
to Consolidated Financial Statements
F-18
ADUROMED
INDUSTRIES, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
Year
ended
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (7,829,999 | ) | $ | (4,528,826 | ) | ||
Adjustments
to reconcile net loss to net cash used in operations:
|
||||||||
Stock
issued for services and interest
|
817,250 | 86,250 | ||||||
Stock
issued for debt financing costs
|
1,130,841 | - | ||||||
Warrants
and options issued for services
|
1,938,118 | 1,631,493 | ||||||
Depreciation
expense
|
86,272 | 90,621 | ||||||
Bad
debt write off
|
23,081 | - | ||||||
Write
off fixed assets
|
25,139 | 7,170 | ||||||
Convert
Capital lease to Operating lease
|
- | (7,123 | ) | |||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
540,475 | (564,603 | ) | |||||
Revenues
in excess of billings
|
(7,679 | ) | 158,215 | |||||
Inventory
|
14,587 | (261,132 | ) | |||||
Prepaid
expenses
|
30,425 | (3,822 | ) | |||||
Long
term deposits
|
(20,272 | ) | 500 | |||||
Accounts
payable and accrued liabilities
|
166,292 | (960,482 | ) | |||||
Payroll
liabilities
|
360,948 | (3,318 | ) | |||||
Deferred
revenue
|
(108,700 | ) | 177,288 | |||||
Billings
in excess of revenue
|
(600,699 | ) | 855,274 | |||||
Deposits
payable
|
386,428 | 420,000 | ||||||
Net
cash used in operating activities
|
(3,047,493 | ) | (2,902,495 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchase
of fixed assets
|
(45,536 | ) | (13,749 | ) | ||||
Net
cash used in investing activities
|
(45,536 | ) | (13,749 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Acquisition
of shell company
|
- | - | ||||||
Proceeds
from convertible notes payable
|
650,000 | 1,275,000 | ||||||
Repayment
of convertible note payable
|
(718,985 | ) | (50,000 | ) | ||||
Interest
on notes payable
|
11,700 | 11,700 | ||||||
Repayments
of notes payable
|
- | (6,870 | ) | |||||
Proceeds
from stock options
|
- | 6,293 | ||||||
Proceeds
from issuance of stock
|
4,946,000 | - | ||||||
Costs
of issuance of stock
|
(85,500 | ) | - | |||||
Net
cash provided by financing activities
|
4,803,215 | 1,236,123 | ||||||
Increase
in cash and cash equivalents
|
1,710,186 | (1,680,121 | ) | |||||
Cash
and cash equivalents, beginning of period
|
212,215 | 1,892,336 | ||||||
Cash
and cash equivalents, end of period
|
$ | 1,922,401 | $ | 212,215 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid for interest
|
$ | 94,547 | $ | 85,441 | ||||
Cash
paid for income taxes
|
$ | - | $ | - | ||||
Supplemental
disclosures of noncash investing and financing activities:
|
||||||||
Exchange
of note to stock
|
$ | 2,384,733 | $ | 129,301 | ||||
Exchange
of Preferred and accrued dividend to stock
|
$ | 1,076,217 | $ | - | ||||
Accrual
of preferred stock dividends
|
$ | 210,000 | $ | - | ||||
Exchange
of accrued liquidated damages to stock
|
$ | 602,000 | $ | - | ||||
Retirement
of Preferred Stock
|
$ | 2,204 | $ | - | ||||
Stock
issued in restructure
|
$ | 7,825 | $ | - |
See Notes
to Consolidated Financial Statements
F-19
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF
PRESENTATION
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern, which contemplates the realization
of assets and satisfaction of liabilities and commitments in the normal course
of business. The Company has incurred substantial recurring losses, which raises
substantial doubt about its ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
On August
4, 2008, the Company’s wholly-owned subsidiary, Aduromed Corporation
(“Aduromed”), Pequot Capital Management, Inc. (“Pequot”), on behalf of various
funds managed by Pequot (the “Pequot Funds”), Sherleigh Associates Inc. Defined
Benefit Pension Plan (“Sherleigh”), holders of $1,225,000 in principal amount of
the Company’s 12% Secured Promissory Notes due July 31, 2008 (the “Bridge Loan
Holders”), and Mr. Joseph Esposito, corporate and business development advisor
to the Company (“Esposito”) entered into a Master Restructuring Agreement
(“MRA”) regarding their respective investments in the Company. The then existing
investments in the Company were restructured pursuant to the terms of the MRA
and certain other changes were implemented. The major terms of the MRA are as
follows:
Sherleigh
exchanged its shares of Series A and Series B Preferred Stock into 20,000,081
shares of common stock of the Company, par value $0.0001 per share (“Common
Stock”), (ii) exchanged accumulated dividends payable on its Preferred Stock as
of June 30, 2008 in the amount of $383,576 into 15,343,040 shares of Common
Stock and received additional common stock purchase warrants for 15,343,040
shares of Common Stock at an exercise price of $0.025 per share, and (iii)
exchanged liquidated damages in the amount of $602,000 payable to Sherleigh by
the Company into 24,080,000 shares of Common Stock and received additional
common stock purchase warrants for 24,080,000 shares of Common Stock at an
exercise price of $0.025 per share.
The
Pequot Funds surrendered their shares of Series A and Series B Preferred Stock
to the Company which shares were cancelled, and the Pequot Funds forfeited their
right to receive accumulated dividends payable on their Preferred Stock as of
June 30, 2008 in the amount of $690,436 and liquidated damages in the amount of
$387,000 payable to the Pequot Funds by the Company.
The
Series A and B Preferred Warrants were amended such that they collectively
represent the right to purchase 55,999,998 shares of Common Stock at an exercise
price of $0.025 per share, of which Pequot Funds holds warrants for the purchase
of 36,000,001 shares of Common Stock and Sherleigh holds warrants for the
purchase of 19,999,997 shares of Common Stock and weighted average anti-dilution
rights have been terminated.
The
Amended and Restated Stockholders Agreement, dated as of January 23, 2006 among
the Company, Aduromed, the Pequot Funds and Sherleigh was
terminated.
F-20
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Bridge Loan Holders collectively exchanged a deemed principal amount of
$1,275,000 of their notes into 93,750,000 shares of Common Stock and all such
Bridge Loan Holders’ outstanding common stock warrants were collectively
exchanged into warrants for the purchase of 93,750,000 shares of Common Stock at
an exercise price of $0.025 per share and anti-dilution rights were terminated.
All documents entered into in connection with the bridge loan were
terminated.
Esposito,
management and others invested $2,946,000 into the Company in return for
232,428,058 shares of Common Stock and warrants to purchase 115,680,000 at an
exercise price of $0.025 per share.
The
Pequot Funds invested an additional $1,300,000 into the Company, with post
restructuring holdings of 131,097,456 shares of Common Stock and warrants to
purchase 131,097,456 shares of Common Stock at $0.025 per share.
Sherleigh
invested an additional $700,000 into the Company, with post restructuring
holdings of 71,943,023 shares of Common Stock and warrants to purchase
71,943,023 shares of Common Stock at $0.025 per share.
The
Company has available cash and cash equivalents of approximately $1,922,401 at
December 31, 2008 which it intends to utilize for working capital purposes and
to continue developing its business. To supplement its cash resources, the
Company has been pursuing a number of alternative financing arrangements with
various investment entities. We are currently looking to secure additional
working capital to provide the necessary funds for us to execute our business
plan through various sources, including bank facilities, bridge loans and equity
offerings. However, we continue to incur significant operating losses and the
resultant reduction of our cash position. We cannot assure that we
will be able to obtain additional funding, and the lack thereof would have a
material adverse impact on our business. Moreover, any equity funding could be
substantially dilutive to existing stockholders. The aforementioned factors
raise substantial doubt about our ability to continue as a going
concern.
2. BUSINESS DESCRIPTION -
ORGANIZATION
Effective
January 30, 2007, the issuer (“AII” or “Company”) changed its corporate name
from General Devices, Inc. to Aduromed Industries, Inc.
F-21
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
3. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
EARNINGS
(LOSS) PER COMMON SHARE
The net
earnings (loss) per common share is computed by dividing the net loss for the
period by the weighted average number of shares outstanding for the period.
Outstanding warrants and options for the year ending December 31, 2008 and 2007
amounting to 492,201,769 and 43,774,696 respectively were not included in the
calculation for net loss per common share because it would be
antidilutive.
On August
4, 2008, all outstanding Preferred A and B class of stock was exchanged on a 1:
1 basis into shares of common stock. Outstanding Preferred A and B class of
stock nor the common stock equivalents associated with the conversion feature
for the year ending December 31, 2007 amounting to 22,043,862 for the period of
both classes of Preferred stock were not included in the calculation for net
loss per common share as it would be antidilutive.
The
numerator and denominator used in the basic and diluted earnings (loss) per
share of common stock computations are presented in the following
table:
2008
|
2007
|
|||||||
NUMERATOR
FOR BASIC AND DILUTED EPS (LPS)
|
||||||||
Net
loss per statement of operations
|
$ | (7,829,999 | ) | $ | (4,528,826 | ) | ||
Dividend
payable to preferred stockholders
|
(210,000 | ) | (420,000 | ) | ||||
Net
loss to common stockholders
|
$ | (8,039,999 | ) | $ | (4,948,826 | ) | ||
DENOMINATOR
FOR BASIC AND DILUTED EPS (LPS)
|
||||||||
Weighted
average shares of common stock outstanding
|
237,941,766 | 20,977,732 | ||||||
Basic
and diluted EPS (LPS)
|
$ | (0.03 | ) | $ | (0.24 | ) |
USE OF
ESTIMATES
The
preparation of the accompanying financial statements, in conformity with
generally accepted accounting principles, 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 revenue and expenses during the
reporting periods. Actual results could differ from those
estimates.
CASH AND
CASH EQUIVALENTS
The
Company considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
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 December 31, 2008, the Company has a cash balance
of $405,000 in one non-interesting bearing account which is 100%
insured by the FDIC and $1,517,161 in an overnight money-market fund which is in
excess of the Federally insured limits by a total of approximately
$1,267,000.
F-22
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
CONTROL
BY PRINCIPAL STOCKHOLDERS
Pequot,
Sherleigh, Heller Capital, the directors, executive officers and their
affiliates or related parties, own beneficially and in the aggregate, the
majority of the voting power of the outstanding shares of the common stock of
the Company. Accordingly, the directors, executive officers and their
affiliates, if they voted their shares uniformly, would have the ability to
control the approval of most corporate actions, including increasing the
authorized capital stock of the Company and the dissolution, merger or sale of
the Company's assets.
DEPENDENCE
ON PRINCIPAL CUSTOMER
In 2008
no one principal customer represented a significant portion of our revenues. For
the year ended December 31, 2008 we recognized approximately $913,000 or 32% of
total revenue in revenue from Aramark. For 2009 and going forward, we feel the
loss of any one customer would not have a significant adverse impact on our
business.
ACCOUNTS
RECEIVABLE
The
Company maintains an accounts receivable ledger to track amounts due from
individual customers. The Company continuously monitors the creditworthiness of
its customers and has established an allowance for amounts that may be
uncollectible in the future based on current economic conditions, historical
payments and specific customer related collection issues. The allowance for bad
debts was $23,081 and $11,418 as of December 31, 2008 and 2007,
respectively.
PROPERTY,
PLANT AND EQUIPMENT
The
Company has property, plant and equipment that consist of automobiles, computers
and related accessories, and office furniture. The depreciation is
calculated using the straight line method over the life of the
property. All property has a useful life of 3 to 10
years. The following table summarizes these assets as of December 31,
2008 and 2007:
December
31,
|
||||||||
2008
|
2007
|
|||||||
Vehicles
|
- | 41,338 | ||||||
Office
Furniture
|
164,525 | 164,525 | ||||||
Computers
and Accessories
|
206,091 | 175,485 | ||||||
Leasehold
Improvements
|
117,997 | 117,997 | ||||||
488,613 | 499,345 | |||||||
Accumulated
Depreciation
|
203,309 | 148,166 | ||||||
285,304 | 351,179 |
F-23
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
INVENTORY
The
Company maintains an inventory, which consists primarily of component parts,
spare parts and disposable goods. The inventory, using the average
cost method, was $886,351 and $900,938 as of December 31, 2008 and 2007
respectively and is stated at the lower of cost or market. The
following table summarizes these assets as of December 31, 2008 and
2007:
2008
|
2007
|
|||||||
Component
& spare parts
|
$ | 754,476 | $ | 742,310 | ||||
Consumables
|
21,234 | 29,384 | ||||||
Advance
payments
|
110,641 | 129,244 | ||||||
Total
Inventory
|
$ | 886,351 | $ | 900,938 |
BUSINESS
COMBINATION
On
January 30, 2007, the Company changed its corporate name from General Devices,
Inc. to Aduromed Industries, Inc.
REVENUE
RECOGNITION
The
Company recognizes revenues from fixed-price and modified fixed-price
construction type contracts on the percentage-of-completion method, measured by
the percentage of cost incurred to date to estimated total cost for each
contract. That method is used because management considers total cost to be the
best available measure of progress on the contracts. Because of inherent
uncertainties in estimating costs, it is at least reasonably possible that the
estimates used will change within the near term. Historically, the Company has
billed 25% of the contract at signing, 50% upon delivery of components, and the
final 25% upon completion of installation and start-up. Beginning in 2009 we
will bill 60% of the contracts at signing, 20% upon delivery of components, and
the final 20% upon completion of installation and start-up.
Contract
costs include all direct material and labor costs and those indirect costs
related to contract performance. Selling, general and administrative costs are
charged to expense as incurred. Provisions for estimated losses on uncompleted
contracts are made in the period in which such losses are determined. Changes in
job performance, job conditions, and estimated profitability may result in
revisions to costs and income, which are recognized in the period in which the
revisions are determined. Changes in estimated job profitability resulting from
job performance, job conditions, contract penalty provisions, claims, change
orders, and settlements, are accounted for as changes in estimates in the
current period.
F-24
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Revenues
from direct sales of our containerized or the mobile unit will be recognized as
we ship units. The Company provides a one year warranty on the systems it
installs. The Company also obtains a one year warranty on the system components
from the component manufacturer, thereby mitigating potential warranty costs.
Accordingly, the Company has accrued no reserve for warranty. On the installed
base after the warranty term has expired the Company offers a maintenance
agreement of one or more years to the customer. The Customer is billed for, and
pays for the maintenance agreement in advance. Revenues from such maintenance
agreements are recognized ratably over the lives of the maintenance agreements,
with the excess of the amount collected over the amount recognized as deferred
revenue. At December 31, 2008 and 2007 the Company had $ $136,691 and $245,391in
deferred revenue from maintenance agreements.
Revenues
from the sale of our containerized unit, our mobile unit, accessories, repairs
and replacement parts are recognized when shipped to the customer in accordance
with a valid contract or order agreement. The contract or order agreement
specifies delivery terms and pricing, and is considered to reasonably assure
collection from the customer.
Revenues
and cost from multi-year rental contracts on our containerized or mobile unit
will be recognized ratably over the life of the rental contract.
4. CONTRACTS IN
PROGRESS
The
Company entered into construction type contracts to furnish and install its
systems in hospitals. There were five outstanding contracts at December 31, 2008
and seven outstanding at December 31, 2007. The following table
summarizes these outstanding contracts:
Contract
|
Revenue
|
Amounts
|
Revenues in
|
Billings in excess
|
||||||||||||
Amount
|
Recognized
|
Billed
|
excess of Billings
|
of Revenues
|
||||||||||||
Outstanding
contracts at December 31, 2008
|
||||||||||||||||
1,327,930
|
949,221 | 1,327,930 | - | 378,709 | ||||||||||||
231,257
|
29,347 | 21,668 | 7,679 | - | ||||||||||||
287,029
|
163,939 | 215,271 | - | 51,332 | ||||||||||||
282,948
|
- | 188,632 | - | 188,632 | ||||||||||||
559,594
|
528,426 | 530,392 | - | 1,966 | ||||||||||||
2,688,758
|
1,670,933 | 2,283,893 | 7,679 | 620,639 | ||||||||||||
Outstanding
contracts at December 31, 2007
|
||||||||||||||||
1,327,930
|
683,593 | 1,327,930 | - | 644,337 | ||||||||||||
483,117
|
458,995 | 483,117 | - | 24,122 | ||||||||||||
231,257
|
12,447 | 12,447 | - | - | ||||||||||||
483,596
|
106,076 | 120,899 | - | 14,823 | ||||||||||||
257,820
|
- | 257,820 | - | 257,820 | ||||||||||||
282,948
|
- | 94,316 | - | 94,316 | ||||||||||||
559,594
|
5,611 | 191,531 | - | 185,920 | ||||||||||||
3,626,262
|
1,266,722 | 2,488,060 | - | 1,221,338 |
F-25
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
5. SHORT TERM SECURED NOTES
PAYABLE
On June
27, 2007 the Company entered into a secured loan arrangement with various lend e
rs for $1,275,000. The notes have an original issue discount of 10%, bear
interest at 12% per annum and have a maturity of six months. These loans are
secured by the assets of the Company and are guaranteed by the Company’s
wholly-owned subsidiary, Aduromed Corporation. The lend e rs received five year
warrants to purchase a total of 2,550,000 shares of the Company’s common stock
at a price of $0.38 per share. O n December 27, 2007, in consideration for the
issuance of additional warrants for the purchase of a total of 2,450,000 shares
of the Company’s common stock, holders of $1,225,000 in principal amount of such
secured loan arrangement agreed to extend the maturity of such loan to June 30,
2008. On December 27, 2007, the Company paid off $50,000 of t he original note
and pursuant to the MRA on August 4, 2008 the Bridge Loan Holders collectively
exchanged a deemed principal amount of $1,275,000 of their notes into 93,750,000
shares of Common Stock and all outstanding common stock warrants were
collectively exchanged into warrants for the purchase of 93,750,000 shares of
Common Stock at an exercise price of $0.025 per share.
6. NOTES PAYABLE
The
following table summarizes the Notes Payable outstanding as of December 31, 2008
and 2007:
Note
Balance
|
Short
Term
|
Long
Term
|
||||||||
Outstanding
at December 31, 2008
|
||||||||||
$ | 202,974 | $ | 202,947 | $ | - | |||||
202,947 | 0 | |||||||||
Outstanding
at December 31, 2007
|
||||||||||
$ | 18,985 | $ | 6,509 | $ | 12,476 | |||||
50,000 | - | 50,000 | ||||||||
191,247 | 191,247 | - | ||||||||
197,756 | 62,476 |
On March
17, 2008, the Company entered into a factoring agreement with a stockholder of
the Company whereby the Company received $300,000 secured by specific milestone
billings. The company agreed to pay interest at 15% per annum. As
further incentive the Company issued 600,000 warrants with an exercise price of
$0.09. The estimated value of the warrants is added to paid-in-capital and
amortized to interest expense over the life of the loan. The warrant agreement
expires on March 16, 2013. On May 23 2008, the Company repaid $50,000 of
principal on this note and on August 7, 2008, repaid the remaining balance of
$250,000 with accrued interest of $16,200.
F-26
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
The
Company had a note payable on a vehicle purchase due to a third party which was
paid in full on July 1, 2008. The balance on the note at December 31, 2007 was
$18,985.
The
Company had a note payable to a bank. The note was personally
guaranteed by an officer of the Company, and bears interest at the bank’s prime
interest rate adjusted quarterly. On September 12, 2008, the Company repaid the
outstanding balance of $100,000.
There is
an outstanding note payable. The note bears a 12% interest rate and matured on
December 15, 2003. Both parties have entered a verbal agreement to
extend the maturity date on this note indefinitely. No accrued
interest has been paid on this note to date. The following summarizes
the balances due on December 31, 2008 and 2007:
December 31,
|
||||||||
2008
|
2007
|
|||||||
Principal
|
$ | 97,500 | $ | 97,500 | ||||
Accrued
Interest
|
105,447 | 93,747 | ||||||
Total
|
$ | 202,947 | $ | 191,247 |
6. INCOME TAXES
Income
tax expense (benefit) consists of the following:
Year
ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Current
|
||||||||
Federal
|
$ | - | $ | - | ||||
State
|
- | - | ||||||
- | - | |||||||
Deferred
|
||||||||
Federal
|
(2,403,098 | ) | (1,453,412 | ) | ||||
State
|
(557,721 | ) | (337,479 | ) | ||||
(2,960,819 | ) | (1,790,891 | ) | |||||
Current
and deferred
|
(2,960,819 | ) | (1,790,891 | ) | ||||
Valuation
allowance
|
2,960,819 | 1,790,891 | ||||||
Total
|
$ | - | $ | - |
F-27
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
A
reconciliation of income tax benefit to the amount computed using statutory
federal rates is as follows:
Year ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Tax
at statutory rate
|
$ | (2,611,161 | ) | $ | (1,585,019 | ) | ||
Non-deductible
expenses
|
8,462 | 10,115 | ||||||
State
income tax (benefit)
|
(358,120 | ) | (215,987 | ) | ||||
Valuation
allowance
|
2,960,819 | 1,790,891 | ||||||
$ | - | $ | - |
The
Company has implemented SFAS No. 109 “Accounting for Income Taxes”, which
provides for a liability approach to accounting for income taxes. Total deferred
tax assets and liabilities at December 31 are as follows:
2008
|
2007
|
|||||||
Deferred
tax assets - Tax NOL
|
$ | 6,855,521 | $ | 3,335,927 | ||||
Valuation
allowance
|
(6,855,521 | ) | (3,335,927 | ) | ||||
$ | - | $ | - |
Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
reverse. The effect on deferred tax assets and liabilities from a change in tax
rates is recognized in the statement of operations in the period that includes
the enactment date.
The
Company has available at December 31, 2008 unused federal and state net
operating loss carryforwards totaling $16,991,776 that may be applied against
future taxable income that expire in the years 2009 through 2023. The tax
benefit of these net operating loss carryforwards, based on an effective tax
rate of 40% is approximately $6,855,521. Management believes it is more likely
than not that all of the deferred tax asset will not be realized. A
valuation allowance has been provided for the entire deferred tax
benefit.
7. LEASE COMMITMENTS
The
Company leases office equipment and vehicles under operating leases with terms
ranging from 13 months to 60 months. The annual non-cancelable operating lease
payments on these leases are as follows:
F-28
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
2009
|
$ | 44,185 | ||
2010
|
37,263 | |||
2011
|
19,733 | |||
2012
|
2,721 | |||
2013
|
- | |||
Thereafter
|
- | |||
$ | 103,902 |
On
November 1, 2008 the Company commenced leasing a four office suite in Scotch
Plains, NY for $3,710 per month for 12 twelve months. . The one year lease
commences November 1, 2008 and terminates October 31, 2009
On
November 1, 2008, the Company began leasing the remaining 11,834 sq ft of space
at its existing facility in Bethel, CT. The lease is a triple net lease (NNN)
commencing November 1, 2008 and terminating October 31, 2011. The base rent for
the first year is $5.50 per sq. ft. with 3% increases for each of the following
two years. The additional space will be used to assemble our mobile and
containerized systems.
The
Company entered into a lease agreement for 11,856 square feet of office and
operations space in Bethel, Connecticut. Rent commenced on May 1, 2006 and
currently costs of $8,398 per month plus taxes and certain other fees. The lease
is for a ten year term with two subsequently renewable five year
terms.
The
straight line monthly expense in accordance with SFAS 13 is $12,977 and the
annual non-cancelable lease payments on the three leases are:
2009
|
205,386 | |||
2010
|
173,216 | |||
2011
|
166,329 | |||
2012
|
111,644 | |||
2013
|
114,608 | |||
Thereafter
|
238,503 | |||
$ | 1,009,686 |
8. PREFERRED STOCK
On August
4, 2008, Sherleigh Associates Inc. Defined Benefit Pension Plan (“Sherleigh”),
(i) exchanged its shares of Series A and Series B Preferred Stock into
20,000,081 shares of common stock of the Company, par value $0.0001 per share
(“Common Stock”), (ii) exchanged accumulated dividends payable on its Preferred
Stock as of June 30, 2008 in the amount of $383,576 into 15,343,040 shares of
Common Stock and received additional common stock purchase warrants for
15,343,040 shares of Common Stock at an exercise price of $0.025 per share, and
(iii) exchanged liquidated damages in the amount of $602,000 payable to
Sherleigh by the Company into 24,080,000 shares of Common Stock and received
additional common stock purchase warrants for 24,080,000 shares of Common Stock
at an exercise price of $0.025 per share.
F-29
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
On August
4, 2008, the Pequot Funds surrendered their shares of Series A and Series B
Preferred Stock to the Company which shares were cancelled, and the Pequot Funds
forfeited their right to receive accumulated dividends payable on their
Preferred Stock as of June 30, 2008 in the amount of $690,436 and liquidated
damages in the amount of $387,000 payable to the Pequot Funds by the
Company.
The
Series A and B Preferred Warrants were amended such that they collectively
represent the right to purchase 55,999,998 shares of Common Stock at an exercise
price of $0.025 per share, of which Pequot Funds holds warrants for the purchase
of 36,000,001 shares of Common Stock and Sherleigh holds warrants for the
purchase of 19,999,997 shares of Common Stock and weighted average anti-dilution
rights have been terminated.
The
Amended and Restated Stockholders Agreement, dated as of January 23, 2006 among
the Company, Aduromed, the Pequot Funds and Sherleigh was
terminated.
9. COMMON STOCK
During
2008, 525,000 shares of common stock were issued to a business advisor and
consultant to the Company as part of his compensation package. The shares were
valued at $0.23 per share for a total value of $120,750.
On August
4, 2008 concurrent with the closing of the Master Restructuring Agreement the
Company increased its authorized common shares to 1.4 billion shares
and:
issued
303,297,456 shares of common stock as a result of $4,946,000 being invested in
the Company
the
Bridge Loan Holders collectively exchanged a deemed principal amount of
$1,275,000 of their notes into 93,750,000 shares of Common Stock and all such
Bridge Loan Holders’ outstanding common stock warrants were collectively
exchanged into warrants for the purchase of 93,750,000 shares of Common Stock at
an exercise price of $0.025 per share.
issued
35,343,118 shares of common stock for the exchange of accrued dividends through
August 4, 2008 on the preferred stock and accrued dividends
issued
24,080,000 shares of common stock for the exchange of liquidated
damages
issued
78,246,052 shares of common stock as a result of the restructuring of the
company
On
September 2, 2008, the Company issued 4.5 million shares of common stock to an
investor relations firm as part of their service contract. The shares were
valued at $0.15 per share for a total value of $675,000.
On
November 10 2008 and again on December 12, 2008, the Company issued 111,446 and
24,590, shares of common stock to a consultant to the Company as part of the
compensation package. The shares were valued at $0.166 and $0.122 per share
respectively for a total value of $21,500 .
F-30
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
During
2008, 36,885,757 shares of common stock were issued as a result of warrant
conversions.
10. STOCK OPTIONS AND
WARRANTS
The
Company has issued detachable warrants along with convertible notes throughout
2005 to obtain bridge financing. The estimated value of the warrants has been
added to paid-in-capital and amortized to interest expense over the lives of the
loans.
The
Company has adopted SFAS 123(R) for the accounting of employee stock options
issued during 2005. Therefore, the estimated value of the options issued is
amortized to compensation expense over their requisite service
periods.
Stock
option and warrant transactions are summarized as of December 31, 2008 and 2007
as follows:
Stock
Options
|
Warrants
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2008
|
2007
|
2008
|
2007
|
|||||||||||||
Outstanding
- beginning of year
|
11,298,024 | 10,927,774 | 32,476,672 | 29,845,866 | ||||||||||||
Granted
|
71,634,000 | 460,000 | 503,570,577 | 5,329,500 | ||||||||||||
Exercised
|
- | 44,875 | 93,861,853 | - | ||||||||||||
Forfeited
|
4,806,365 | 44,875 | 27,609,286 | 2,698,694 | ||||||||||||
Outstanding
- end of period
|
78,125,659 | 11,298,024 | 414,576,110 | 32,476,672 |
The
following table provides certain information with respect to the
above-referenced stock options and warrants outstanding at December 31,
2008:
Weighted
|
Weighted
|
|||||||||||||||
Number
|
Exercise
|
Average
|
Average
|
|||||||||||||
Outstanding
|
Price Range
|
Exercise
Price
|
Life in
Years
|
|||||||||||||
Options
|
78,125,659 | $ | 0.03 - $0.56 | $ | 0.07 | 6.5 | ||||||||||
Warrants
|
414,576,110 | $ | 0.03 - $0.56 | $ | 0.03 | 4.6 |
The
following table provides certain information with respect to the
above-referenced stock options and warrants exercisable at December 31,
2008:
F-31
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
Number
|
Exercise
|
Average
|
Average
|
|||||||||||||
Exercisable
|
Price
Range
|
Exercise
Price
|
Life
in Years
|
|||||||||||||
Options
|
31,839,624 | $ | 0.03 - $0.56 | $ | 0.11 | 5.8 | ||||||||||
Warrants
|
414,576,110 | $ | 0.03 - $0.56 | $ | 0.03 | 4.6 |
The
estimated fair values at date of grant were $.15 to $.42 for the options granted
above, using the Black-Scholes option valuation model with the following
assumptions:
Expected
life in years
|
3 –
8
|
|||
Interest
rate
|
2..23% - 6%
|
|||
Volatility
|
0.01%
- 5%
|
|||
Dividend
yield
|
0%
|
11. RECENT ACCOUNTING
PRONOUNCEMENTS
In
September 2006, the FASB issued Statement of Financial Accounting Standard 157,
“Fair Value
Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value,
establishes a framework for measuring fair value and expands disclosure of fair
value measurements. SFAS No. 157 applies under other accounting
pronouncements that require or permit fair value measurements and accordingly,
does not require any new fair value measurements. SFAS No. 157 is
effective for financial statements issued for fiscal years beginning after
November 15, 2007. We do not believe this new accounting standard
will have a material impact on our financial condition or results of
operations.
In
December 2007, the FASB issued SFAS 160, “Noncontrolling Interests in
Consolidated Financial Statements (an amendment of ARB No. 51)”. SFAS 160
established accounting and reporting standards designed to improve the
relevance, comparability and transparency of the financial statements. SFAS 160
requires that ownership interests in subsidiaries held by parties, other than
the parent, to be clearly identified, labeled and presented in the consolidated
balance sheet within the equity, but separate from the parent’s equity; net
income attributable to the parent and the noncontrolling interests to be clearly
identified and presented on the face of the consolidated statement of
operations; changes in the parent’s ownership interest to be accounted for as
equity transactions, if a subsidiary is deconsolidated and any noncontrolling
equity investment to be measured at fair value; and that provide sufficient
disclosures that clearly identify and distinguish between the interest of the
parent and noncontrolling owners. SFAS 160 is effective for fiscal
years and interim periods beginning on or after December 15, 2008. We do not
believe this new accounting standard will have a material impact on our
financial condition or results of operations.
F-32
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
In March
2008, the FASB issued FAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities,” which requires enhanced disclosures about an entity’s
derivative and hedging activities. This Statement is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008. Since FAS 161 only provides for additional disclosure requirements,
there will be no impact on our results of operations and financial
position.
In May
2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting
Principles (“FAS 162”). This Standard identifies the sources of
accounting principles and the framework for selecting the principles to be used
in the preparation of financial statements of nongovernmental entities that are
presented in conformity with generally accepted
accounting principles. FAS 162 directs the hierarchy to the entity, rather than
the independent auditors, as the entity is responsible
for selecting accounting principles for financial statements that are presented
in conformity with generally accepted accounting
principles. The Standard is effective 60 days following SEC approval of the
Public Company Accounting Oversight Board
amendments to remove the hierarchy of generally accepted accounting principles
from the auditing standards. FAS 162 is not expected to
have an impact on the consolidated financial statements.
In May
2008, the FASB issued SFAS No. 163, Accounting for Financial Guarantee Insurance
Contracts, an interpretation of FASB Statement No. 60 (SFAS 163). This
statement clarifies accounting for financial guarantee insurance contracts by
insurance enterprises under FASB Statement No. 60, Accounting and Reporting by
Insurance Enterprises. SFAS 163 is effective for fiscal years and interim
periods within those years, beginning after December 15, 2008. Because we
do not issue financial guarantee insurance contracts, we do not expect the
adoption of this standard to have an effect on our financial position or results
of operations.
In April
2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of
Intangible Assets , which amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. This Staff Position is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. Application of this FSP is not
currently applicable to the Company as the Company has no intangible
assets.
In June
2008, the FASB issued FSP EITF 03-6-1, Determining Whether Instruments
Granted Share-Based Payment Transactions are Participating Securities .
This FSP provides that unvested share-based payment awards that contain
nonforfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of
earnings per share pursuant to the two-class method.
This FSP
is effective for financial statements issued for fiscal years beginning after
December 15, 2008, and interim periods within those years. All
prior-period ESP data presented shall be adjusted retrospectively (including
interim financial statements, summaries of earnings, and selected financial
data) to conform with the provisions of this FSP. Early application is not
permitted. We are currently evaluating the impact of adopting EITF 03-6-1 on our
consolidated financial statements.
F-33
ADUROMED
INDUSTRIES, INC.
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
12. SUBSEQUENT EVENT
On
January 2, 2009, the Company merged its wholly owned subsidiary, Aduromed
Corporation into Aduromed Industries Inc. and changed its corporate name from
Aduromed Industries Inc. to MedClean Technologies Inc.
F-34
No dealer, salesperson or other
person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made by this Prospectus, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Company
or the selling stockholders. This Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than
those specifically offered hereby or an offer to sell or a solicitation of an
offer to buy any of these securities in any jurisdiction to any person to whom
it is unlawful to make such offer or solicitation. Except where
otherwise indicated, this Prospectus speaks as of the effective date of the
Registration Statement. Neither the delivery of this Prospectus nor
any sale hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Company since the date
hereof.
TABLE
OF CONTENTS
|
Page
|
|
PROSPECTUS
SUMMARY
|
2
|
|
RISK
FACTORS
|
6
|
|
FORWARD
LOOKING STATEMENTS
|
9
|
|
USE
OF PROCEEDS
|
10
|
|
DIVIDEND
POLICY
|
10
|
|
MARKET
FOR OUR COMMON STOCK
|
10
|
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
|
11
|
|
BUSINESS
|
16
|
|
MANAGEMENT
|
22
|
|
SECURITY
OWNERSHIP
|
26
|
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
|
27
|
|
DESCRIPTION
OF SECURITIES
|
28
|
|
SELLING
SECURITY HOLDERS
|
29
|
|
PLAN
OF DISTRIBUTION
|
30
|
|
LEGAL
MATTERS
|
31
|
|
EXPERTS
|
31
|
|
AVAILABLE
INFORMATION
|
32
|
|
INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
|
33
|
172,500,000
Shares
of
Common
Stock
MEDCLEAN
TECHNOLOGIES, INC.
PROSPECTUS
, 2010
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Indemnification
of Directors and Officers
The only
statute, charter provision, by-law, contract, or other arrangement under which
any controlling person, director or officers of the Registrant is insured or
indemnified in any manner against any liability which he may incur in his
capacity as such, is as follows:
Under the
Delaware General Corporation Law, the Company may indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation), by
reason of the fact that he or she is or was our director, officer, employee or
agent, or is or was serving at our request as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys’ fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred in connection with
such action, suit or proceeding if he or she acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to our best interests,
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his or her conduct was unlawful.
Our
Certificate of Incorporation limits the liability of our directors and officers
to the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability for: (i)
breach of the directors' duty of loyalty, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of the law,
(iii) the unlawful payment of a dividend or unlawful stock purchase or
redemption, and (iv) any transaction from which the director derives an improper
personal benefit. Delaware law does not permit a corporation to eliminate a
director's duty of care, and this provision of our Certificate of Incorporation
has no effect on the availability of equitable remedies, such as injunction or
rescission, based upon a director's breach of the duty of care.
The
effect of the foregoing is to require us to indemnify our officers and directors
for any claim arising against such persons in their official capacities if such
person acted in good faith and in a manner that he or she reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his or
her conduct was unlawful.
Other
Expenses of Issuance and Distribution
The
estimated expenses of this offering in connection with the issuance and
distribution of the securities being registered, all of which are to be paid by
the Registrant, are as follows:
Securities
and Exchange Commission Filing Fee
|
$ | 535.21 | ||
Legal
Fees and Expenses
|
$ | 30,000 | * | |
Accounting
Fees and Expenses
|
$ | 10,000 | * | |
Miscellaneous
Expenses
|
$ | 5,000 | * | |
Total
|
$ | 45,535.21 | * |
*
Estimate
Recent
Sales of Unregistered Securities
Effective
June 27, 2007, the Company entered into a secured loan arrangement with various
investors for gross proceeds of $1,275,000. The notes evidencing the loan have
an original issue discount of 10%, bear interest at 12% per annum and have a
maturity of sixth months. These loans are secured by the assets of the Company
and are guaranteed by the Company’s wholly-owned subsidiary, Aduromed
Corporation. In connection with the loan the investors will also receive five
year warrants to purchase a total of 2,550,000 shares of the Company’s common
stock at a price of $0.38 per share (“Loan Warrants”). In the event that the
Company consummates a financing involving the issuance of the Company’s common
stock or securities convertible into such common stock and accompanying warrants
(“Financing Warrants”) with gross proceeds of at least $1,500,000, the exercise
price and anti-dilution provisions of the Loan Warrants will be reset to match
the terms of the Financing Warrants.
The
net proceeds of the loan, estimated at $1,047,175 after discounts, placement
fees and expenses, were utilized for working capital and general corporate
purposes.
We had
retained Carter Securities, LLC (“Carter”) to serve as our placement agents for
the loan. For its services, Carter received a placement fee of $80,325, warrants
to purchase 229,500 shares of Company common stock at an exercise price of $0.38
per share exercisable for five years (“Placement Agent Warrants”), and subject
to the same reset terms as the Loan Warrants. The Company is obligated to file a
registration statement with the Securities and Exchange Commission with respect
to the common stock shares issuable pursuant to the Loan Warrants and the
Placement Agent Warrants.
II-1
Effective
August 23, 2007, outstanding promissory notes of the Company’s wholly-owned
subsidiary, Aduromed Corporation, payable to Mr. George Bucci in the principal
amount of $91,347.55 and Mr. John Augustyn in the principal amount of $37,952.62
where converted into shares of common stock of the Company. Both notes were
converted based upon the closing price of the Company’s common stock on August
23, 2007 of $0.23 per share, and resulted in the issuance of 397,163 shares to
Mr. Bucci and 165,011 shares to Mr. Augustyn. The Company did not receive any
cash proceeds from these issuances.
Pursuant
to an agreement dated August 23, 2007, the Company engaged Mr. Joseph Esposito
as a corporate and business development advisor. During August, September and
October, 2007 the Company issued a total of 225,000 shares of the Company’s
common stock to Mr. Esposito as part of Mr. Esposito’s compensation package as
an advisor to the Company. The Company did not receive any cash proceeds from
these issuances.
Effective
December 27, 2007, in consideration for the issuance of additional warrants for
the purchase of a total of 2,450,000 shares of the Company’s common stock,
holders of $1,225,000 in principal amount of such secured loan arrangement
agreed to extend the maturity of such loan to June 30, 2008. Such warrants will
have a five year term and an exercise price equal to the exercise price of
warrants issued in the Company’s next financing involving the issuance of the
Company’s common stock or securities convertible into such common stock with
proceeds of $2,000,000 or more (a “Qualified Financing”). As additional
consideration for agreeing to such extension these holders were given the right
to convert the principal amount of their secured notes into common stock of the
Company prior to the Company’s next Qualified Financing at a conversion price
equal to one-half of the closing market price of such common stock on the day of
conversion. The Company did not receive any cash proceeds from these
issuances.
Pursuant
to an agreement dated August 23, 2007, the Company engaged Mr. Joseph Esposito
as a corporate and business development advisor. During November and December,
2007 the Company issued a total of 150,000 shares of the Company’s common stock
to Mr. Esposito as part of Mr. Esposito’s compensation package as an advisor to
the Company. The Company did not receive any cash proceeds from these
issuances.
Pursuant
to an agreement dated August 23, 2007, the Company engaged Mr. Joseph Esposito
as a corporate and business development advisor. During January, February and
March 2008 the Company issued a total of 225,000 shares of the Company’s common
stock to Mr. Esposito as part of Mr. Esposito’s compensation package as an
advisor to the Company. The Company did not receive any cash proceeds from these
issuances.
Effective
March 17, 2008, in partial consideration for their participation in an accounts
receivable purchase from the Company, the Company issued to existing individual
shareholders warrants for the purchase of 600,000 shares of the Company’s common
stock. These are five year warrants and have an exercise price of $0.09 per
share, the closing marker process for the common stock as of March 17, 2008. The
proceeds of this transaction were utilized for working capital and general
corporate purposes.
Pursuant
to an agreement dated August 23, 2007, the Company engaged Mr. Joseph Esposito
as a corporate and business development advisor. During April, May and June 2008
the Company issued a total of 225,000 shares of the Company’s common stock to
Mr. Esposito as part of Mr. Esposito’s compensation package as an advisor to the
Company. The Company did not receive any cash proceeds from these
issuances.
Effective
as of July 10, 2008, the Company, the Company’s wholly-owned subsidiary,
Aduromed Corporation, Pequot Capital Management, Inc., on behalf of various
funds managed by Pequot (the “Pequot Funds”), Sherleigh Associates Inc. Defined
Benefit Pension Plan, holders of $1,225,000 in principal amount of the Company’s
12% Secured Promissory Notes due July 31, 2008, and Mr. Joseph Esposito,
corporate and business development advisor to the Company entered into a Master
Restructuring Agreement (“MRA”) regarding their respective investments in the
Company.
Pursuant
to the terms of the MRA, $350,000 of the new money investment was invested into
the Company on July 11, 2008 and the balance of the new money will be invested
into the Company as of August 4, 2008 or such other time as the parties shall
mutually agree. The proceeds of this transaction were utilized for working
capital and general corporate purposes. The investors participating in this
tranche 1 funding and the securities they received are set forth in the
following table:
New
Investor
|
Amount
of Tranche 1
Investment
|
Number
of Shares of
Common
Stock to be
Issued
in Tranche 1
|
Number
of Shares of
Common
Stock Subject to
Common
Stock Purchase
Warrants
to be Issued in
Tranche
1
|
|||||||||
Pequot
Funds
|
$ | 182,000 | 18,353,644 | 13,313,644 | ||||||||
Sherleigh
Defined Benefit Plan
|
$ | 98,000 | 3,920,000 | 3,920,000 | ||||||||
Ronald
I. Heller IRA
|
$ | 35,000 | 1,400,000 | 1,400,000 | ||||||||
E4
LLC/Joseph Esposito
|
$ | 35,000 | 2,800,000 | 2,800,000 | ||||||||
Total
|
$ | 350,000 | 26,473,644 | 21,433,644 |
II-2
Reference
is made to the Master Restructuring Agreement, dated as of July 10, 2008 (the
“MRA”), entered into among the Company, the Company’s wholly-owned subsidiary,
Aduromed Corporation, Pequot Capital Management, Inc., on behalf of various
funds managed by Pequot, Sherleigh Associates Inc. Defined Benefit Pension Plan,
holders of $1,225,000 in principal amount of the Company’s 12% Secured
Promissory Notes due July 31, 2008, and Mr. Joseph Esposito, corporate and
business development advisor to the Company.
On
July 25, 2008 an investor funded an additional $250,000 into tranche 1 of the
transactions contemplated by the MRA and received 10,000,000 shares of the
Company’s Common Stock and Common Stock Purchase Warrants to purchase 10,000,000
shares of the Company’s Common Stock at an exercise price of $0.025 per share.
These warrants are exercisable for five years from the date of
issue.
The
net proceeds of the investment were $230,000 after placement fees and will be
utilized for working capital and general corporate purposes. Carter Securities,
LLC served as our placement agent for this investment and received a placement
fee.
Reference
is made to the Master Restructuring Agreement, dated as of July 10, 2008 (the
“MRA”), entered into among the Company, the Company’s wholly-owned subsidiary,
Aduromed Corporation, Pequot Capital Management, Inc., on behalf of various
funds managed by Pequot, Sherleigh Associates Inc. Defined Benefit Pension Plan,
holders of $1,225,000 in principal amount of the Company’s 12% Secured
Promissory Notes due July 31, 2008, and Mr. Joseph Esposito, corporate and
business development advisor to the Company.
Pursuant
to the terms of the MRA, $350,000 of new money was invested into the Company as
of July 11, 2008, $250,000 of new money was invested into the Company as of July
25, 2008, $3,205,000 of new money was invested into the Company as of August 4,
2008, $600,000 of new money was invested into the Company as of August 7, 2008,
$250,000 of new money was invested into the Company as of August 12, 2008,
$210,000 of new money was invested into the Company as of August 12, 2008,
$25,000 of new money was invested into the Company as of August 28, 2008, and
$56,000 of new money was invested into the Company as of August 29, 2008. The
total net proceeds to date after placement fees are $4,868,000. These investors
received a total of 347,147,890 shares of Common Stock and Common Stock
Purchase Warrants to purchase a total of 264,777,455 shares of Common Stock at a
purchase price of $0.025 per share, exercisable for five years. Existing
securities holders of the Company including the Pequot Funds, Sherleigh and the
Bridge Loan Holders converted their securities into 179,053,415 shares of Common
Stock and Common Stock Purchase Warrants to purchase a total of 124,060,769
shares of Common Stock at a purchase price of $0.025 per share, exercisable for
five years. The proceeds of this transaction were utilized for working capital
and general corporate purposes.
Pursuant
to an agreement dated August 23, 2007, the Company engaged Mr. Joseph Esposito
as a corporate and business development advisor. During July, August and
September 2008 the Company issued a total of 150,000 shares of the Company’s
common stock to Mr. Esposito as part of Mr. Esposito’s compensation package as
an advisor to the Company. The Company did not receive any cash proceeds from
these issuances.
Pursuant
to an Investor Relations Consulting Agreement dated August 7, 2008, the Company
engaged Hayden Communications, Inc. as an investor relations consultant and
issued a total of 4,500,000 shares of the Company’s common stock to Hayden
Communications, Inc. as part of its compensation package under such agreement.
The Company did not receive any cash proceeds from this
issuance.
On
December 4, 2009 (the “Effective Date”), the Company entered into a preferred
stock purchase agreement (the “Purchase Agreement”) with Socius Capital Group, LLC, a
Delaware limited liability company, doing business as Socius Life Sciences Capital
Group, LLC (the “Investor”). Pursuant to the Purchase
Agreement:
The
Company agreed to sell, and the Investor agreed to purchase, in one or more
purchases from time to time (“Tranches”) in the Company’s sole discretion
(subject to the conditions set forth therein), (i) up to 750 shares of Series C
Preferred Stock (the “Preferred Shares”) at a purchase price of $10,000 per
share, for an aggregate purchase price of up to $7,500,000, and (ii) five-year
warrants (“Warrants”) to purchase shares of the Company’s common
stock with an aggregate exercise price equal to 135% of the purchase
price paid by the Investor, at an exercise price per share equal to the closing
bid price of the Company’s common stock on the date the Company provides notice
of such Tranche. The Warrants will be issued in replacement of a five-year
warrant to purchase 262,987,013 shares of common stock with an exercise price
per share of $0.038 the Company issued on the Effective Date.
The
Company agreed to pay to the Investor a commitment fee of $375,000 at the
earlier of the closing of the first Tranche or the six month anniversary of the
Effective Date, payable at the Company’s election in cash or common stock valued
at 87% of the volume weighted average price of the Company’s common stock on the
five trading days preceding the payment date.
II-3
The
Company agreed to use its best efforts to file within 30 days of the Effective
Date, and cause to become effective as soon as possible thereafter, a
registration statement with the Securities and Exchange Commission for the
resale of all shares of common stock issuable pursuant to the Purchase
Agreement, including the shares of common stock underlying the Warrants, and
shares issuable in payment of the Commitment Fee.
On
December 3, 2009 the Company filed a certificate of designations for the
Series C Preferred Stock (the “Certificate of Designations”). Pursuant to the
Certificate of Designations, the Preferred Shares shall, with respect to
dividend, rights upon liquidation, winding-up or dissolution, rank: (i)
senior to the Company’s common stock, and any other class or series of preferred
stock of the Company; and (ii) junior to all existing and future indebtedness of
the Company. In addition, the Preferred Shares (a) shall accrue dividends
at a rate of 10% per annum, payable in Preferred Shares, (ii)
shall not have voting rights, and (iii) may be redeemed at the
Company’s option, commencing 4 years from the issuance date at a price per share
of (a) $10,000 per share plus accrued but unpaid dividends (the
“Series C Liquidation Value”), or, at a price per share of : (x) 127% of the
Series C Liquidation Value if redeemed on or after the first anniversary but
prior to the second anniversary of the initial issuance date, (y) 118% of the
Series C Liquidation Value if redeemed on or after the second anniversary but
prior to the third anniversary of the initial issuance date, and (z) 109% of the
Series C Liquidation Value if redeemed on or after the third anniversary but
prior to the fourth anniversary of the initial Issuance
Date.
II-4
EXHIBITS
All
reference to Registrant’s Forms 8-K, 10-KSB, 10-K, 10-QSB and 10-Q include
reference to File No. 000-03125.
Number
|
Description
of Exhibit
|
|
2.1
|
Agreement
and Plan of Merger, dated as of December 7, 2005 by and among the
Registrant, GD MergerSub, Inc. and Aduromed (incorporated by reference to
Exhibit 2.1 to Registrant’s Form 8-K, filed December 12,
2005).
|
|
2.2
|
Amended
and Restated Agreement and Plan of Merger, dated as of January 23, 2006,
by and among the Registrant, GD MergerSub, Inc., GD MergerSub II, Inc. and
Aduromed (incorporated by reference to Exhibit 2 to Registrant’s Form
8-K/A, filed January 31, 2006).
|
|
2.3
|
Certificate
of Merger of GD MergerSub II, Inc. with and into Aduromed, filed January
23, 2006 with Delaware Secretary of State (incorporated by reference to
Exhibit 2 to Registrant's Form 8K/A, filed January 31,
2006).
|
|
3.1
|
Registrant’s
Certificate of Incorporation (incorporated by reference to Exhibit A to
Appendix I to Registrant’s Proxy Statement on Schedule 14A, filed July 24,
2000).
|
|
3.2
|
Registrant’s
Amendment to Certificate of Incorporation, dated December 12, 2005
(incorporated by reference to Exhibit 3.2 to Registrant’s Form 10-KSB,
filed April 21, 2006).
|
|
3.3
|
Registrant’s
Amendment to Certificate of Incorporation, dated January 29, 2007
(incorporated by reference to Exhibit 3 to Registrant’s Form 8-K, filed
January 30, 2007).
|
|
3.4
|
Registrant’s
Amendment to Certificate of Incorporation, dated April 16, 2007
(incorporated by reference to Exhibit 3 to Registrant’s Form 8-K, filed
April 16, 2007).
|
|
3.5
|
Registrant’s
Amendment to Certificate of Incorporation, dated September 26, 2007
(incorporated by reference to Exhibit 3 to Registrant’s Form 8-K, filed
September 26, 2007).
|
|
3.6
|
Registrant’s
Amendment to Certificate of Incorporation, dated August 4, 2008
(incorporated by reference to Exhibit 3.01 to Registrant’s Form 8-K, filed
August 6, 2008).
|
|
3.7
|
Registrant’s
Certificate of Ownership and Merger, dated January 2, 2009 (incorporated
by reference to Exhibit 3 to Registrant’s Form 8-K, filed January 6,
2009).
|
|
3.8
|
Registrant’s
Amendment to Certificate of Incorporation, dated April 21, 2009
(incorporated by reference to Exhibit 3 to Registrant’s Form 8-K, filed
April 22, 2009).
|
|
3.9
|
Certificate
of Designation of Series C Preferred Stock (previously filed as
Exhibit 3.1 to the Registrant's Current Report on Form 8-K filed
on December 4, 2009 and incorporated by reference
herein).
|
|
3.10
|
Registrant’s
Bylaws (incorporated by reference to Registrant's Proxy Statement on
Schedule 14A filed July 14, 2000).
|
|
4.1
|
Form
of Common Stock Purchase Warrant (incorporated by reference to Exhibit
4.04 to Registrant’s Form 8-K, filed August 6, 2008).
|
|
4.2
|
Warrant
to Purchase Common Stock (previously filed as Exhibit 4.1 to the
Registrant's Current Report on Form 8-K filed on December 4, 2009 and
incorporated by reference herein).
|
|
5
|
Opinion
of Anslow & Jaclin LLP as to
legality*
|
|
10.1
|
Agreement,
dated as of September 1, 2004, between Registrant’s wholly owned
subsidiary, Aduromed Corporation, and Aramark Management Services Limited
Partnership (incorporated by reference to Exhibit 10.1 to Registrant’s
Form 10-KSB/A, filed November 11, 2006). (portions of this exhibit subject
to confidential treatment application are omitted and filed separately
with the Securities and Exchange Commission).
|
|
10.2
|
Agreement,
dated as of April 8, 2004, between Registrant’s wholly-owned subsidiary,
Aduromed Corporation, and Weima America, Inc. (incorporated by reference
to Exhibit 10.2 to Registrant’s Form 10-KSB/A, filed November 11, 2006).
(portions of this exhibit subject to confidential treatment application
are omitted and filed separately with the Securities and Exchange
Commission).
|
|
10.3
|
Consulting
Agreement, dated August 4, 2008, by and among Registrant, Aduromed
Corporation and Mr. Joseph Esposito (incorporated by reference to Exhibit
10.01 to Registrant’s Form 8-K, filed August 6, 2008).
|
|
10.4
|
Amended
Employment Agreement, dated August 4, 2008, by and among Registrant,
Aduromed Corporation and Mr. Kevin T. Dunphy (incorporated by reference to
Exhibit 10.03 to Registrant’s Form 8-K, filed September 4,
2008).
|
|
10.5
|
Employment
Agreement, dated September 2, 2008, by and among Registrant, Aduromed
Corporation and Mr. Scott Grisanti (incorporated by reference to Exhibit
10.01 to Registrant’s Form 8-K, filed September 4,
2008).
|
II-5
10.6
|
Employment
Agreement, dated September 2, 2008, by and among Registrant, Aduromed
Corporation and Mr. Damien Tanaka (incorporated by reference to Exhibit
10.01 to Registrant’s Form 8-K, filed September 4,
2008).
|
|
10.7
|
Stock
Option Agreement, dated August 4, 2008, between Registrant and Mr. Joseph
Esposito (incorporated by reference to Exhibit 4.01 to Registrant’s Form
8-K, filed August 6, 2008).
|
|
10.8
|
Stock
Option Agreement, dated August 4, 2008, between Registrant and Mr. Damien
R. Tanaka (incorporated by reference to Exhibit 4.02 to Registrant’s Form
8-K, filed August 6, 2008)
|
|
10.9
|
Stock
Option Agreement, dated August 4, 2008, between Registrant and Mr. Kevin
T. Dunphy (incorporated by reference to Exhibit 4.03 to Registrant’s Form
8-K, filed August 6, 2008)
|
|
10.10
|
Amended
and Restated Stock Option Agreement, dated as of January 23, 2006, among
Registrant, Aduromed Corporation and Damien R. Tanaka. (incorporated by
reference to Exhibit 10.6 to Registrant’s Form SB-2/A, filed August 14,
2006)
|
|
10.11
|
Amended
and Restated Stock Option Agreement, dated as of January 23, 2006, among
Registrant, Aduromed Corporation and Kevin T. Dunphy. (incorporated by
reference to Exhibit 10.8 to Registrant’s Form SB-2/A, filed August 14,
2006)
|
|
10.12
|
Stock
Option Agreement, dated August 4, 2008, between Registrant and Mr. Scott
Grisanti (incorporated by reference to Exhibit 4.01 to Registrant’s Form
8-K, filed September 4, 2008)
|
|
10.13
|
Lease
Agreement, dated February 3, 2006, by and between Aduromed Corporation and
Cheyenne Company, LLC, relating to premises at 3 Trowbridge Drive, Bethel,
CT 06801. (incorporated by reference to Exhibit 10.15 to Registrant’s Form
SB-2/A, filed November 9, 2006).
|
|
10.14
|
[Intentionally
Omitted]
|
|
10.15
|
Amendment,
dated March 28, 2007, to Agreement, dated as of September 1, 2004, between
Registrant's wholly owned subsidiary, Aduromed Corporation, and Aramark
Management Services Limited Partnership. (portions of this exhibit subject
to confidential treatment application are omitted and filed separately
with the Securities and Exchange Commission). (incorporated by reference
to Exhibit 10.19 to Registrant’s Annual Report on Form 10-K, filed March
31, 2008)
|
|
10.16
|
Employment
Agreement Amendment, dated as of May 1, 2009, by and between MedClean
Technologies, Inc. and Mr. Scott Grisanti. (incorporated by reference to
Exhibit 10.01 to Registrant’s Form 8-K, filed May 5,
2009).
|
|
10.17
|
Consultant
Agreement Amendment, dated as of May 1, 2009, by and between MedClean
Technologies, Inc. and Mr. Joseph Esposito (incorporated by reference to
Exhibit 10.02 to Registrant’s Form 8-K, filed May 5,
2009).
|
|
10.18
|
Employment
Agreement Amendment, dated as of May 1, 2009, by and between MedClean
Technologies, Inc. and Mr. Kevin Dunphy (incorporated by reference to
Exhibit 10.03 to Registrant’s Form 8-K, filed May 5,
2009).
|
|
10.19
|
Preferred
Stock Purchase Agreement, dated as of December 4, 2009, by and among
MedClean Technologies, Inc. and Socius Capital Group, LLC, dba Socius Life
Science Capital Group, LLC (previously filed as Exhibit 10.1 to the
Registrant's Current Report on Form 8-K filed on December 4, 2009 and
incorporated by reference herein).
|
|
21.1
|
Subsidiaries
of Registrant:
|
|
GD
MergerSub, Inc. (Del.) — inactive
|
||
23.1
|
Consent
of Child, Van Wagoner & Bradshaw, PLLC*
|
|
23.2
|
Consent
of Anslow & Jaclin LLP (included in exhibit 5 filed
herewith)*
|
*Filed
herewith
Undertakings
The
Registrant hereby undertakes the following:
(a)(1) To
file, during any period in which it offers or sells securities, a post-effective
amendment to this registration statement to:
(i) include
any Prospectus required by Section 10(a)(3) of the Securities
Act;
reflect
(ii) in the Prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement,
but notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the “Calculation of Registration Fee”
table in the effective registration statement; and
II-6
(iii) include
any additional or changed material information of the plan of
distribution.
For (2)
determining liability under the Securities Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide
offering.
File a
(3) post-effective amendment to remove from registration any of the securities
that remain unsold at the end of the offering.
(b)
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described under Item 24 above, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification relative to alleged securities act violations (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person, the Registrant will
submit to a court of appropriate jurisdiction the question of whether such
indemnification is against public policy and will be governed by the final
adjudication of such issue.
(c) That,
for the purpose of determining liability under the Securities Act to any
purchaser , each prospectus filed pursuant to Rule 424(b) as part of a
registration statement relating to an offering, other than registration
statements relying on Rule 430B or other than prospectuses filed in reliance on
Rule 430A, shall be deemed to be part of and included in the registration
statement as of the date it is first used after effectiveness. Provided, however, that no
statement made in a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or deemed incorporated
by reference into the registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of contract of sale
prior to such first use, supersede or modify any statement that was made in the
registration statement or prospectus that was part of the registration statement
or made in any such document immediately prior to such date of first
use.
II-7
SIGNATURES
In accordance with the requirements
of the Securities Act of 1933, as amended, the Registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements of filing on
Form S-1 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, in the City of Bethel, State of Connecticut on
January 29, 2010.
MedClean
Technologies, Inc.
|
||
By
|
/s/ David
Laky
|
|
David
Laky,
President
and Chief Executive
Officer
|
PURSUANT
TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BY OR ON BEHALF OF THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
Signature
|
Title
|
Date
|
||
/s/
Scott Grisanti
|
Chairman
|
January
29, 2010
|
||
Scott
Grisanti
|
||||
/s/
Joseph Esposito
|
Director
|
January
29, 2010
|
||
Joseph
Esposito
|
||||
/s/ David
Laky
|
President
and Chief Executive Officer
|
January
29, 2010
|
||
David
Laky
|
(Principal
Executive Officer)
|
|||
/s/
Cheryl Kaine Sadowski
|
Treasurer
and Chief Financial Officer
|
January
29, 2010
|
||
Cheryl
Kaine Sadowski
|
(Principal
Financial and Accounting
|
|||
Officer)
|
||||
/s/
Jay S. Bendis
|
Director
|
January
29, 2010
|
||
Jay
S. Bendis
|
||||
/s/
Elan Gandsman
|
Director
|
January
29, 2010
|
||
Elan
Gandsman
|
||||
/s/
Ronald A. LaMorte
|
Director
|
January
29, 2010
|
||
Ronald
A. LaMorte
|
||||
/s/
Kenneth Londoner
|
Director
|
January
29, 2010
|
||
Kenneth
Londoner
|
II-8